Are You Doing Better Than the Average American?

Financial Mutants vs Average Americans (0:00)

Brian: Are you doing better than the average American? And how about this? Is that even the metric you should be using?

Bo: Brian, I am so excited about this because we hear all the time that comparison can be the thief of joy. But also, comparison can be helpful if you use it in the right way. If it helps you understand, okay, where am I? Am I ahead of the curve? Am I behind the curve? Who defines the curve and what curve should I even be measuring myself against and that’s what we want to dive into today.

Brian: Well, it’s also important to have data. We are data folks. I mean, I think that’s kind of the Money Guy way is that not only do we try to give you the intersection of the behavioral stuff, but we actually show you the facts and the data points. And that’s why we wanted to pull up if you looked at just median financial assets. And I think it’s important, Bo, that we actually share what does that mean? This actually is what’s really in your bank accounts, your investment accounts, and because it’s excluding your cars, it’s excluding your houses, it’s excluding collectibles. And I’ll be honest, that’s why I even started the show the way I did. I don’t know if this is what I want to ping myself to as well, because I’m a little disappointed for people my age to be only in their $50,000 range. It’s a little scary for what the future holds.

Bo: When you think about total liquid net worth, you can see, okay, early on in the spectrum, someone who’s 20 or 25 years old, yeah, maybe they’re on the median, right, only has maybe $4,000 to $13,000. And you’re like, okay, well, they’re young and they’re starting out and they just haven’t gotten their sea legs about them. But the story does not get that much better again when you compare it to the median American because by the time you get to 35, the median liquid assets are only about $27,000, by 45 only about $45,000. And then by the time you get to 55, again, if you look at the median financial assets, excluding the homes and the vehicles and those sorts of things, it’s only about $63,000. And what that tells us is that on the median, the average American is probably not very close to financial independence.

Second Annual Financial Mutant Survey (2:12)

Brian: Well, and that leads to the point that you guys are financial mutants. Here you are sitting here watching a financial content show. I mean, so you’re not average. You’re not median. You guys want to know, hey, where am I? Am I ahead of the curve, behind the curve? Exactly the things said, but we need to actually get you the data points. And I got to tell you, I’m so excited to share that this is the second annual financial mutant survey because you guys, we need your help. We really do. Perk up. I need your help on trying to make sure we know the data points so we can create great content to motivate as well as to help you know exactly where you are in the process.

Bo: And here’s what’s awesome, too. We know that a lot of you helped fill out the financial mutant survey last year, but things have changed. Obviously, we’re a year further along. And so we wanted to see how have our financial mutants changed and how do our financial mutants stack up relative to the average American and even relative to our wealth management clients so that you can have a good barometer if you want to consider like you hear all the time, you know, you are the sum of the five people that you spend the most time with. Well, a lot of you spend every Tuesday at 10 a.m. here with these folks. And so we want to answer the question, okay, where are our financial mutants? What do they look like? How do they behave? How do they view money? How do they make financial decisions? And we want to create content that can be valuable for you to hopefully help you impact and change your future financial life.

Brian: I’m going to go ahead and open up the curtain. You know, last year was the first year we did it. And if every one of you did it, do it again, please, because it’s kind of like if you get a brand new model year of a car. They always say, “Don’t go buy that one because it was the first year. So, there’s going to be some quirks.” And we found that when we were trying to do content last year, some of the data points when we tried to compare it to our millionaire survey to the financial mutants since it was the first year, we didn’t have it all figured out. But we’ve already started figuring out what were the things that we wish we could have improved from last year and what are some multiple content ideas that we can go ahead once we have the data that we can hit the ground running with it. And that’s why we really do need you to fill out the information so we can get the up-to-date data and then we’re going to pay you back three, fourfold by actually creating multiple episodes and content from the data. But we need your participation to make it work.

Bo: So what do you need to do? You need to first complete the survey. You can go to moneyguy.com/survey. It will not take a ton of time and it’s going to be incredibly valuable. And what we’re going to do is we’re going to bring all of that information in. It’s all going to be completely anonymous and we’re going to compile it by a number of different bands so that we can create super interesting and compelling content. And based on your responses, we’re going to then shape the show. We’re going to then turn this into just like Brian said, multiple pieces of content so that it will be as valuable as possible for you because we believe that there is a better way to do money. And we also believe that a number of you are doing money better. And we want to be able to broadcast that out to the entire financial world so that we no longer measure ourselves against the average American, against the median American. We want to begin saying, okay, what do financial mutants do? What do the people who look at money a little bit differently? What do they actually look like? How do they behave? How do they treat their financial decisions?

Brian: Well, it’s even more important in the fact that we reshaped even how we’re doing our millionaire survey so that these things integrate better because we wanted to know what your specific kind of pain points were. What are the things you struggle with? How can we put that in context with our millionaires so you can kind of focus on those pain points? See where your progress is and then also have the experience shares of how you improve and give content that actually accelerates your journey. So that’s why this is a two-fold factor that we’ve modified our millionaire survey. We’ve now modified this. We just need to get the content so that we can fill in the blanks. And here’s what we’re going to commit to you. If you go fill out the survey, if you do this, we’re going to notify you as those pieces of content go live. So you’re not going to have any question. Okay, when is it happening? What’s happening? What’s it going to look like? You are going to know if you are a survey participant. You will get a special notification from us letting you know. So, if you’ve not done it, go to moneyguy.com/survey or go bookmark moneyguy.com/survey to fill it out after this live stream so that we can collect your data so that we can share the good news of sound financial management with the rest of the financial world.

Bo: This is going to help us change and shape the financial world. That’s what I’ve always loved as we’ve created this movement is that you guys have always been so willing to step up, participate, and help us out because I think you can see the heart of educators that we have is we really do want to pay it forward with good content. So, moneyguy.com/survey. And if you think that we are not impacted and changed by you, I just saw a great question come through the chat that I totally forgot to mention. It says, “When does this survey close?” I forgot to mention that this survey is not going to be open indefinitely. We’re going to leave it open for two weeks.

Rebie: Two weeks, Rebie.

Bo: We’re going to leave it open for two weeks so that we can collect the data. Once the survey closes, we will then begin compiling it all to prepare that content because we love getting to do this. We love getting to sit in this spot and provide information that’s valuable for you guys. But we also love hearing from you, not just on the survey, but also every Tuesday at 10 a.m. when we do this live chat. We want to know what are the things you’re curious about? What are the things we can weigh in? And what are the questions that we can speak to that might help you on your financial journey. That’s why we show up here to do this. So, if you have a question, there’s something you want us to weigh in on, make sure you get it in the chat right now. We have the team out in the wings collecting these questions and we want to load you up. So, with that, creative director Rebie, I’m going to throw it over to you.

Stopping Roth for Emergency Fund (8:01)

Rebie: Yeah, super excited. We’ve got some questions lined up from the chat. The first one is from Amber H. It says, “According to the FOO, I should stop my Roth IRA contribution in order to build up my emergency fund. I struggle with the idea of missing out on time in the market. How should I handle that financial anxiety?”

Bo: Well, I think one, I love it. And it’s weird for someone to say, “Hey, I love that there’s financial anxiety there.” But it is a sign that you are a financial mutant. You recognized, hey, I thought that my financial order of operations was going to be the straight line. I thought I was going to go from 1 to 2, 2 to 3, 3 to 4, 4 to 5, so on and so forth. And yet, some things have happened. And now, based on where I am in the FOO, I’ve got to go back. My line is not a straight line from bottom left to top right. It’s a little more up and down. It’s a little more zigzaggy, but I have some tension. I don’t want to go back to step four. I don’t want to stop doing Roth IRA. I hear you guys preach all the time how valuable time in the market can be and it makes me feel anxious. What I’m telling you is that anxiety is a good thing because what it should hopefully motivate you to do is as you go back to step four, you’re going to do everything in your power to fill up that emergency fund bucket to make sure that you get that fully funded 3 to six months of living expenses so that you can get back to step five and maxing out that Roth IRA as quickly as possible.

Brian: Yeah, I mean my answer very much falls right into what you were just sharing is that I think you turn, anxiety is really in a lot of ways it’s your brain trying to protect itself that’s engaging that fight or flight. You harness the same power and the fact that yes, this is also going to make you laser focused. You mentioned that you were worried about missing out on that key component of time. You’re exactly right. That key component time is number three on the three ingredients to wealth and it is the most valuable one. But I would tell you the way you’re going to overcome this is with laser focus on those first two ingredients of the wealth creation. And those ingredients are discipline. So use that power of anxiety or that fear that you’re not getting enough money into the Roth and you’re missing out to hyperfocus on how do we lean into the discipline that leads to the second ingredient which is create the margin by living on less than you make by doing those drastic things in your life to create the money that will help you build up to get through step four and build up the emergency reserves and then you’ll get back to step five and now you’ll know you’re sure-footed because the whole thing with the emergency reserves, you don’t want to be caught making desperate decisions all because you were just trying to load up the Roth. We love the Roth. I mean, we’ve told you it’s our favorite child of investment structure accounts, meaning between taxable, tax deferred, tax-free Roth. We love the Roth accounts, but we got to make sure you’re not out there swimming naked and taking on too much risk by not having emergency reserves.

Bo: But let me give you just a little bit of hope because Roths are unique in that they are one of the very few what we call time machine investment vehicles. Meaning they allow you to go back in time. So let’s suppose that right now you have to shut down your Roth contributions and between now and the end of the year you have to build up that emergency fund. You’re trying to get to that three months or trying to get to that six months. And so yeah, you’re missing out on those Roth contributions. One of the things that you can do is even if you don’t max out your Roth for this year for 2025, you actually have until the tax filing deadline next year to make contributions for this year up until April 15th to contribute for 2025. So, if you can race and maybe you get a year-end bonus or you get overtime or you get, you know, something in your circumstance changes or maybe you just really flex that discipline muscle and you get caught up by the end of the year, you still have an extra four months, three and a half months to be able to fund that Roth for last year. So, you might not actually miss out at all.

Rebie: Great. Well, Amber H, it is your lucky day because today is a Tumbler day. Oh, I thought so.

Bo: Quack quack quack quack. Lest you thought that was a duck. That was actually a noise. You know trying to do it more the transformer. Yes, I do speak Brian and can translate. Slow motion version.

Rebie: The tumbler in question that we would love to send you Amber is both a tumbler for your hot beverages and a koozie for your canned cold beverages. So both represent, transform. That’s what that’s about. But just email [email protected] if you would like to get a Tumbler.

Bo: Amber, you know what Amber should do after she does that? Take the survey.

Rebie: She should go to moneyguy.com/survey and make sure that she fills out the financial mutant survey. Wonderful.

After-Tax Accounts for Early Retirement (12:50)

Rebie: All right. Next question is from Chester. “When considering the potential for early retirement, how do you determine if and when you should focus on after tax accounts over Roth or pre-tax accounts?”

Bo: Well, how do you determine if and when? Let me start with the if and then we can talk a little bit about the when, right? So, all of our accounts are treated a little bit differently in terms of how they’re taxed and how they operate and what types of investments it makes sense to hold in there. Well, one of the unique differences in retirement accounts and after tax accounts is when you get to access them. So for most retirement accounts, you think about IRAs or 401(k)s or 403(b)s. For most of them, you can’t really get access to that money until you’re 59 and a half, meaning you have to be past that age in order to be able to pull your money out and not pay an early withdrawal 10% penalty. Now, there is a caveat. If you are working for your employer in the year that you turn 55, you can actually access your 401(k) dollars at 55. But even that, if you’re planning on early retirement at like, you know, 50, 52, 53, you’re not going to get access to those dollars until you get to 59 and a half. And so, if you’re someone who’s planning on retiring before then, and you don’t have pensions that kick in early or you don’t have some other income source, you’re going to have to start answering the question, okay, well, how am I going to bridge that gap? How am I going to provide for my living expenses from the time that I stop working, leave the workforce, until I can actually access these assets penalty-free. So, if you begin discovering that and figuring out that that’s you, then after tax may indeed be something that’s the if you need to start building. If that describes you, then you may need to start building those after tax assets.

Brian: Well, look, we’ve got an all-terrain, multi-purpose financial order of operations. Go to moneyguy.com/resources, download this, and let me explain why this is a step number seven question, but you don’t have to kind of get off the track of steps one through six until actually after you’ve loaded up max out retirement. And why can I say that is because somebody who’s going to retire at 50, you’re going to have to be saving enough to max out the retirement because it’s not like you can put $5,000 a year into retirement accounts and then you expect to retire at 45 or 50. You’re going to have to be a hyperfocused, very vigilant person who’s obviously got a big aggressive goal. So you’re doing big things. So that’s why steps one through six, if you think about steps one through four is helping you get the free money, having emergency reserves to keep you from making desperate decisions, avoiding the high interest debt. It’s when you get to steps five and six. These are the tax favored type of accounts that you just don’t want to sleep on, those benefits that the government’s offering you. But then you get to step seven, and it does tie in exactly a lot of the things Bo was talking about. This is the first step where you say, “Wait a minute, everything I’ve done is to keep me out of trouble or to maximize the moment or the tax code. Now, step seven is how am I going to use this money? How am I actually going to get access to it and use it? And that’s why we tell people that’s where you’ll start essentially 3D glasses doesn’t have to be starting a new business. It can be 3D. Put on your 3D glasses for a big change in your life that’s coming up financially. And that’s where I always tell people, start doing models. I mean, that’s what we do for clients is that we start working through the fact of, hey, tell me your scenarios. What’s the dream of what you want to live in retirement? That’s the first D. And then we say, okay, now tell me what you think will actually happen, the down-to-earth plan. And then last, we always say don’t skip out on the doo-doo plan. You know, things might not work out like you’re anticipating. So, I always say step seven is that phase where we start doing models. We start looking at how you’ll use this money and it will start to reveal itself to you because if you know you’re retiring at 50 years of age and Bo’s already shared with you the 401(k) is not going to help you because that’s 55 if you depart work at 55. So if you leave at 50, you’ve already blown that up, right? 59 and a half. Yes, you can do 72(t) where you can annualize or annuitize your retirement accounts. That’s an option, but that’s a step seven function. You’re going to figure that out when you’re trying to figure out how I’m going to get access. And you’re going to start realizing, man, I might need a bridge account. I’m going to need something to help me build that. And that’s when you’ll say, “Okay, I love all the tax favored stuff, but it’s probably instead of doing deferred comp with my employer, maybe I’ll start just loading up that after tax account.” But you’re quickly probably going to start realizing this gets complicated because when we get to this level of assets also, we’re probably definitely thinking about seven figure thresholds. And that’s why I tell people we do this hundreds of times for clients every year. Why would you do something only one time and expect to be an expert on it? So, you know, this might be an opportunity to take the relationship to the next level.

Bo: I love it. One other thing I’m gonna throw out for you, Chester, just because I think it may be valuable and we’re going to see how good our team out in the wings is at getting this link together. We did a show, I don’t know, maybe it’s a couple weeks, couple months, couple years. The time kind of moves around here. Titled ways to retire early that you may not have heard about. Ways to retire early, three ways to retire early that you may not have heard about, that you may know about. We’ll put a link in the chat. That’s something to go check out if you are someone who’s thinking about retiring early, thinking about leaving before those traditional timelines. There are some options and opportunities available to you to hopefully answer the question when or if I should begin saving in that after tax bucket.

Rebie: Awesome. Well, Chester, we got the link in there. That’s how fast they are. Impressed? Boom. Be impressed. Chester, thank you for your question. If you would like a Money Guy Tumbler, just email [email protected].

Brian: You know what Chester should do after he emails [email protected]?

Bo: He should go to moneyguy.com/survey.

Brian: Yeah, you should. I completely agree with this. By the way, I’m worried you’re going to do that every time.

Bo: For sure. There’s going to be some echoes in here today. Well, a lot of people don’t show up at the beginning of the show. I don’t want them to miss it. You know, if you come in halfway in, I want you to know that we want to know about you. We want you to take the survey so that we can get your information in there.

Brian: Yeah. I mean, last year, because I do want everybody to see why are we so motivated on this is because I saw last year the potential of this for the content because you guys were overwhelmingly good at helping us do this. Now, I feel like we’ve lined it up even better and I just want to see this continue to make progress and that’s why it really helps us out when you help us have good data so we can do good content.

Rebie: Love it. Love it.

Checking Emergency Fund Balance (19:38)

Rebie: Next question is from Grayson. It says, “Once I have a fully funded emergency savings, how often should I check back on that number? And how much is smart to keep in a checking account?” So, it’s a little bit twofold. So, once you have your emergency funds there, like what’s next? Because obviously things change, things happen. What do you think?

Brian: Well, and I think I’ll let you answer, Bo, but when he says checking, it’s probably because most checking accounts don’t really pay anything, but that’s going to be your clearing account. So he’s trying to figure out how you structure that versus emergency reserves we think like financial mutants. So we’re trying to load those up and actually make something like a high yield savings account. How would you balance those decisions?

Bo: Yeah. So I run what’s called a two account system. Got checking account, savings account. It’s not really savings account. It’s high yield money market mutual fund. But what I do is I take my emergency fund and I put it in the high yield account. That’s my 3-6, whatever my number is. That’s what I put in my emergency fund savings. But then I do have inside of my checking, I just call it a slush fund. And that’s not like a great name for it. But what I want to make sure happens is that I never want my checking account to get too lean because I don’t ever want to run the risk of an overdraft, or a check that maybe didn’t get cashed quickly or an erroneous Venmo payment or whatever the thing may be. I want to make sure that I keep enough in there to really float between one paycheck to the next paycheck. And so that way if I keep that margin in my checking account, I don’t really think of that as cash savings. I just think of that as more like this fluid liquid amount that hangs out in there so that I’m not having to constantly pull money in, put money out of my emergency fund. Now, I thought the question a little bit different. I thought it was asking how often should I check it? Like was that the part? Did I hear that right? Was the first part of the question?

Rebie: How often should I check that number?

Bo: Okay. So, make sure I got that. So, how often? I’ll tell you. I’m going to answer this question. I’m going to answer with no less often than annually in my opinion because one of the things you ought to do every single year, again, this is my opinion, is you ought to be doing an annual net worth statement. It’s one of our most favorite things in the entire world to do. We do it every year right around January 1st. And it’s so fun. Well, if you’re doing it and you’re consistent on that, one of the things that you’re going to notice, especially if you use our tool at learn.moneyguy.com, is you’re going to be able to track your cash. You’re going to see it right there. This is how much I have in cash and cash equivalents. And every year that you type that number in, you put that in there. You ought to think to yourself, you ought to do some mental accounting. Okay, what’s my monthly burn rate? Has it increased since I did this last year? Man, I used to spend $3,000 a month, but holy cow, now I’m spending $5,000 a month. I probably need to increase my emergency fund and that serves as a natural time to go ahead and begin thinking about that. Would you do it more frequently, less frequently? How would you think about that?

Brian: Well, I would use, there’s several things that immediately popped in my mind is that first of all, in Millionaire Mission, if you haven’t checked out my New York Times bestselling book, in the chapter over step four on emergency reserves, I actually cover because you got to know thyself. Are you a one account type person? Are you a three account cash person? Because people do things differently. Like young, when I walked around and I talked to other financial advisors, some of my younger advisors who are more with the times, they had their savings account with a high yield savings account but also was their checking account so they could create a system since they were using one company to where they had overdraft protections and also even some of these high yield savings accounts, online banks also offer some type of, it’s a lower yield but it’s still some yield on checking. So that’s the first thing that I would try to figure out on the account structure. Meanwhile, I wanted, because we have multiple businesses, we have real estate. I wanted a bank down the street that I could walk to because I have a lot of transactions that I need to do in-person stuff with. But then I have the high yield. So I have to have those things communicate and that does require where I have to actually, and that’s the crux of the way we both answered it. I do have to take an analysis and I look at what I do is every, look it is once a year type thing but if you notice on a month-to-month basis because you should be at least looking at your accounts every month. If you notice that the cash is starting to stack or it’s getting way too lean, that probably is an indicator that your cash flow has got some signs of struggle or you’re keeping too much in your checking account. So, I use that as a kind of a pull system. You could call it a just in time inventory system for my cash is that I’m always trying to pay attention to what does it look like on a month-to-month basis. Am I cutting it too lean because maybe there’s a one-off cash flow? Property taxes were due now that I’ve got a paid off house. How many things can I stack in this answer? It is one of those things where I let that type of stuff because there’s always going to be one-offs that are going on for every one of you guys out there. So I look at it on a monthly basis, but I do think Bo is right that you can set the parameters in a big way, probably annually as you do your net worth, but you still need to be a very active field general on your army of dollars to know what’s going on on a month in month out basis.

Rebie: That’s great, Grayson. Thank you for your question. I hope that helps you think through it.

Bo: Or change of circumstance. This is just an obvious one, but you ought to reassess it. If you get married, you get unmarried, you move, you change any big life event, you ought to go revisit and think through your emergency fund.

Brian: Absolutely. I’m glad you added that. Like paying off a house or if you happen to be in your early 50s and you just do not like that 2.5% mortgage and you just need to pay it off. You don’t get to do that for him paying it off.

Rebie: You guys are funny. Well, Grayson, if you would like a Money Guy Tumbler, email [email protected] and we will get one sent out to you since we answered your question. And you should go fill out the survey at moneyguy.com/survey. But you really should. I just feel ridiculous saying that over and over, but I can’t not.

Brian: Okay, Brandon F is up. That’s a good campaign when you say the same thing over and over. That’s right. It makes it stick.

Bo: Yeah. Is there like a, content team might know this? Isn’t there something like you have to hear something so many times before you’re able to commit it to memory?

Brian: Like six times.

Bo: Seven and a half. Seven and a half. Is it really a half? You have to hear something seven and a half times. I don’t think we’ve answered seven and a half questions, so we ought to keep doing it.

Car Loan at 8.5% Interest (26:35)

Rebie: Okay. Well, we’ve got a question queued up from Brandon F. He says, “Me and my wife got married last month. We are 27 and 25 years old. Congratulations. And only consumer debt is a car loan at $13K at 8.5%. Should we sell positions in a taxable account to pay this off sooner?”

Bo: Ooh. Spicy question. So, you may be thinking to yourself, Brandon, man, 8.5% is pretty high. And generally speaking, I would agree with you, right? However, we have come through this unique market where auto loans were in a very unique place. And so, one of the things that I would encourage you and your bride to think about is, okay, as we did, as we went through this exercise, did we follow 20/3/8? Meaning when we bought this automobile, when we took this loan on, did we put 20% down? Did we finance it for less than 3 years or 36 months? And if we look at the monthly payment, is it less than 8% of our monthly gross income? If that answer, if the answer to that question is yes, now this may be a hot take for financial mutants, but it’s a take that we have. When it comes to auto loans, we would not consider for someone in their 20s auto loan interest below 10% to be high-interest debt. Believe it or not, because we do believe, we know if you go to moneyguy.com/wealth multiplier, you put your dollar into the wealth multiplier and see what it can turn into for a 25-27 year old, you’re going to see how powerful that money can be. And if you’re following 20/3/8, you’re already on a path to rapidly and quickly extinguish that 8.5% car debt. I would hate to think about you taking some soldiers out of your army of dollar bills to go satisfy that when you already have a plan and a path to do that in your 20s.

Brian: I agree with that. I would, I didn’t know where he’s going with an asterisk though because this is the personal in personal finance. We don’t know how big Brandon’s accounts are. Sure. And since they just got married, we also don’t know the disparity between the accounts. I mean, one of the spouses could have been a squirrel and sitting on $200,000 because they’re just stacking it in the background. Meanwhile, the other one had to go do this car loan because they just didn’t have any money or didn’t have it, you know, didn’t build up in the same way. So that’s the part where I would say there’s a little flavor there since you’ve consolidated your assets now and it is 8.5% which I get it. Yes, if you’re doing 20/3/8 with these crazy interest rates we have out there in the marketplace. But remember 20/3/8 is supposed to help you be the bridge to get good transportation, reliable transportation so you can get to your job which is probably going to be one of your first building blocks to creating wealth. But if now that you all got this consolidated family and financial situation, if you are sitting on a big chunk of assets and maybe you look at your brokerage account and you say, “Hey, yeah, I bought this silly stock because I was just chasing financial trends. There’s actually a little bit of a loss there or it hasn’t made any money and it doesn’t really tie into the financial order of operations the way Brian and Bo talk about things.” I’m not going to get mad if that’s the case either. But you’re spot on. If somebody is just now at the beginning of their starting blocks, then I can see why that. But we just don’t have enough data to conclusively say that’s what’s going on.

Brian: I always like to put a little more meat on the bones so that people no matter where they are, if they’re at the beginning of the journey, they kind of got the answer, but also if they are somebody who’s, you know, now navigating consolidating two households into one and this might be an opportunity to knock it out potentially if they’re ahead of the curve.

Bo: Look, this is a good time to disclose this. And we have a bias. We don’t like car payments. Like, we just, we do not like car payments. I mean, who does, right? So, like a lot of people get mad. The preferred way to buy a car is with cash. Even I’ll even have people who start 20/3/8 and they’re like, “It’s just grinding my gears.” And I’ll be like, “Okay, yeah, pay it off if you have the means to where it will not detrimentally detract from your other financial goals. Pay it off. You don’t have to stick to 36 months. And if you’re adverse, if you don’t like car payments, then it’s okay to get rid of them. What’s adverse? Adverse is like a reaction, an adverse reaction, different. Averse to car, you’re averse to something you’re like no, I have an adverse reaction to car payments I think.

Brian: Yeah. No remember that’s why I was trying, you just caught on with what I was laying down is that the intent matters. 20/3/8 was designed because we have a no hypocrite policy here and I had to go borrow money to get my first car and there’s other people out there they’ll say just pay cash. I mean, I got $1,000, I think, when I was coming out with my first job. And there’s funny songs out there that you guys have sent me of YouTube videos with what type of car you get for $1,000 and that might be more heartache than actual reliable transportation. So we tried to create a rule, but if you got assets, I mean, I do like it being, that’s why I threw that caveat out there is because if you’re sitting on assets and you got 8.5%, yeah. I mean, let’s figure out where we are with this.

Bo: Sitting on substantial assets. If they got 15 grand in the brokerage account, I don’t want them to cash that out. I don’t want them to clean out because it’s back to the no hypocrite. You don’t want them cleaning out their emergency reserves to do this. But if they’re sitting on large brokerage accounts, I would be upset that they’re paying 8.5%.

Rebie: Yep. There you go, Brandon. I hope that helps. And we gave them like every facet. I mean, we gave you, I mean I feel like if we were drawing a map, if this was like an NCIS or a CSI, I mean, we drew strings on every one of the scenarios. He’s got to be able to follow one of those strings to get some helpful information about his question. I do believe that. So, Brandon, if you would like a Money Guy Tumbler as a thank you for asking the question today, just email [email protected]. And don’t forget to go to moneyguy.com/survey while you’re there and take the survey because we’re going to make some awesome content off of it.

Brian: I’d be up to like six times now. So, that’s pretty good.

Catching Up on Net Worth at Age 34 (33:15)

Rebie: Eric B has a question. It says, “What is the best way for a 34 year old who is far behind what your net worth recommendations are to catch up to where they should be?”

Bo: Get to it. Yeah, the end.

Bo: That’s a great answer and you’re not wrong. Let’s explain why. When it comes to building wealth, when it comes to moving towards financial independence, we generally believe that there are three key ingredients. There is discipline, there is margin or money, and then there is time. And what happens is the way that financial wealth building works is that if any one of those are squeezed, the others have to be increased. Right? If I have a scarcity of this ingredient, then I might need more of this ingredient. And so in your situation, Eric, if you’re 34 and you feel like you’re behind, by the way, it’s really hard to be behind at 34 because that’s super super young. You still have tons. But if you have assessed, hey, I’m behind and I don’t have as much time as my 24, 22, 20-year-old self, then you might need to figure out how do I impact and affect the other two ingredients? How do I become more disciplined? How do I spend less so that I can save more? Or how do I create more margin? How do I increase my income? How do I add a side hustle? How do I add a side gig so that I can begin saving more. And I think if you think about it through that context, it’ll help you begin to make strides towards catching up if you’re actually behind.

Brian: Well, and that’s why let’s give you a resource. If you go to moneyguy.com/resources, what 25% can do for you, it’s actually, it’s got a better name than that. It’s find out how much you need to save. I mean, look at this. See, this makes Bo’s point exactly because you see for a 20-year-old, 10% is going to do a lot because you have an abundance. You’re a billionaire of time. We go down the chart and we look for a 30-year old. Okay. Now, 10% is not going to do it. You see, that’s why we have it color-coded as red. So we go out and oh, what do you know? And for this, Eric, you said he was 34, so we just go down to 35. We’ll go and round it up to a year older. You can see 10% is going to take you at 33%. That’s not going to be a great retirement. You can see 20% is only going to get you 67%. What do you know though? There’s that 25% that we’re always talking about. Gets you close to an 84% replacement ratio in retirement. Ding, ding, ding. Now, you can use this as motivation on why this is important. So, if you’re listening to this and you’re like, where is Brian getting these numbers? Like I said, go to moneyguy.com/resources. And then we have this how much should you save deliverable that you can go play around with and see exactly how much you need to be saving and investing to replace your back, your brain, your hands, so you can let your army of dollars do the hard lifting for you.

Bo: Can I also just throw out one other thing? I’m just so curious because I always, I hate young people feeling like this anxiety around like, oh, I’m behind. And I’d be curious to know which metric you’re measuring by because we have a few rules, right? One of the rules is that you should have by age 30, you should have a net worth equal to one times your annual salary and then by the time you get to 40, I think it goes to three times, right? So maybe you’ve done some like linear math to figure out where you are at 34. Perhaps that’s what you use. Maybe you’re using the formula in the millionaire next door which says I want to take my age times my income and I divide that by 10 and that tells me where I should be to be an average accumulator of wealth or if I were to double that that’s what it would take to be a prodigious accumulator of wealth. Well, one of the things that you always said Brian is like man, this formula is great but it doesn’t do justice for young folks for people under 40. It just, they haven’t had enough time for the hard work to begin close to the starting line. And so what we did is we adjusted the formula a touch. So if that is the formula that you’re using to arrive at the conclusion you’re behind, think about this adjustment. Take your age times your income and then divide it by 10 plus the number of years until 40. So in your case, that’d be 10 plus 6. So your denominator would be 16. So age times income divided by 16. That will tell you where you should be to be an average accumulator of wealth. You could double it to be prodigious. See if that gives you a little bit more wiggle room to think, man, okay, one last thing. I’m sorry to be dragging this on, but this is important.

Brian: If it’s good, it’s good.

Bo: Maybe you’ve decided, “Bo, that’s the formula. I did it. I did it. I did it.” But all of a sudden, this year, you got a big promotion, big pay raise. Something changed. Now you have this big income that was not the income that you had over the last two, three, four, five years. It’s okay to smooth that income. Okay, what’s the average income I’ve earned over the last five years? I’m gonna use that number to assess, am I where I’m supposed to be? Am I doing the things that I’m supposed to be doing? Because I just hate for a 34 year old to think, man, I’m behind the eight-ball.

Brian: Well, and be kind to yourself. I mean, that’s the thing. We showed at the beginning of the show with the median by age for the typical American. The fact that you’re watching this as a 34 year old, you’re doing the right things. So, I’m very confident that if you’re leaning in and you’re paying attention to going to moneyguy.com/resources, you’re reading Millionaire Mission, you’re focusing on this, you’re going to be okay. And that’s probably a great segue into also saying make sure you go to moneyguy.com/survey so that we can also know what you have going on so that can help give a little flavor to our financial mutant survey as well.

Bo: David in the chat again, we read the chat in real time, just said, “Hey, where’s the survey link at?” It’s at moneyguy.com/survey if you were curious to know the answer to that question.

Brian: Thank you, David, for asking that. That’s great. And Eric B, thank you for your question, too. And guess what? You’ll be rewarded by creative director Rebie with a Tumbler, with a Tumbler or a koozie transforming into a Tumbler or a koozie. I use it in the koozie format.

Rebie: You do, Eric. Just email [email protected] if you would like a tumbler koozie combo.

Bo: You know, it’s interesting. It can be used as a koozie as evidenced by Brian. I’m a soft koozie guy. Like I don’t like, there’s something about having a hard drink and a hard, I love it as a tumbler. That’s my preferred. I’m a, I’d prefer a soft koozie over hard.

Brian: When people say a hard drink like a can, like no, not hard, the booze.

Brian: No, I meant like a can.

Rebie: Bo blames a lot for Bo. I thought it was Brian. Wow, that’s hilarious.

CDs vs Stock Market Volatility (39:49)

Rebie: Oh, man. All right, ready for the next question? Yes, ma’am. CAS says, “I’m worried about a market crash.” Uh oh. “Would CDs be a good investment if the market is volatile?”

Brian: You know, I grew up in a household where the only investments my parents knew were CDs. The problem with CDs, now look, they’re great. Well, great might even be too strong. They’re cash equivalent. So, if you’re thinking about steps one and four, CDs is something you can consider. I’m not saying that’s what you should do, but it’s an option, but it is an option. The problem I have with CDs is that they’re basically just going to keep you at inflation or a little less than inflation. Whereas in the long term, we need you to let your army of dollar bills actually start doing some work for you. And I’ve shared the story that my father-in-law, I look at his behavior compared to my own parents’ behavior on investing versus just building up CDs and it is a tale of, you’re talking about rich dad, poor dad. I mean because my father-in-law now he was not rich but it is amazing what putting just a few hundred bucks a month into the Fidelity Magellan back when Fidelity Magellan was the thing to do, right, turned into multiple six figure portfolio versus my parents super disciplined, never were bad with money but just never had enough of it that it just never got traction because they were just keeping up. And that’s what everybody talks about this disappearing middle class and what do you do? We’re two guys that come from not much. And one of the first things I realize is you’ve got to, if you’re going to fight this system of inflation and other things that are going to make your money diminished and not worth as much is you got to start owning stuff and start making stuff work for you because at some point you’re not going to work as hard. So, we’ve got to fill in how do we fill in the void so you don’t have to work so hard? How do you own your time that much sooner? And the way you’re going to do that is by getting into investments and things that can grow greater than what you’re doing with cash.

Bo: Now, you said I’m nervous about a market crash. If the market’s volatile, should I begin doing CDs? Is there two illustrations? I don’t know if our team has them ready to pull up, but I’m going to kind of describe both of them. If I get them up, that’ll be awesome. One is an illustration. It was normally, it’s done annually by First Trust that shows bull markets versus bear markets. And it shows, okay, if there is a bull market, how long does it last and how big is it? Like, how much money does it make? And then it compares that to, okay, if there’s a bear market, a downturn, how long does it last? And what’s the gravity of it? How down does it go? And what you see when you look at this illustration is that the bull markets are way bigger and way longer than the bear markets. I mean, anecdotally, we say all the time, Brian, every decade, you can count about two down years. So if you’re an investor and you have a long time period, you know, 10, 20, 30, 40 years and you know that every decade there’s going to be about two down years, there’s a good chance that if you’re trying to avoid it or you’re trying to not participate in the volatility, you’re going to fall into the same trap. And I think it was Peter Lynch who coined this. He says more money is lost trying to avoid the next downturn than just participating. There it is. You can see if you’re looking at the screen, these bull markets are just so much bigger and so much longer and so much more robust than the bear markets are. And so, yeah, there could be a downturn and nobody knows. Like me and Brian can’t tell you. Maybe the market is going to go down in the next 6 months, 8 months, 12 months, 18 months. We don’t know when it’s going to happen, but we do know. We have a very consistent track record. Then when it does happen, it’s often not nearly as bad as we thought. And even when it is bad, there’s a rubber band effect that takes place that when it gets back to good, if you can buy through it, you can always be buying. You can participate in that volatility, you’re likely going to be all right in the long term. And we’ve even shown this. We’ve done some shows where we talk about what if you were the absolute worst investor of all time. What if all you did is before every bear market, you put all your money to work right before the downturn and you just invested, you know, before the dot-com bubble burst and before the great recession and before fourth quarter of 2018 and before COVID and before 2022 and you went through all these different time periods of investing at the world’s worst time, you recognize even if you had a 10, 20, 30 year timeline, you still made a lot of money as an investor if you just let that money continue working. That’s why we say always be buying. We love folks that are always putting their money to work. I would not be afraid of the volatility. And if you’re someone who’s still accumulating, I would actually be excited about it because it presents new buying opportunities for you.

Brian: And by the way, this is the beauty of the financial order of operations. You’re still going to have money that’s in emergency reserves. So in case you know the economy goes bad, you lose your job, you’re going to be okay because you’ve done the work on steps one and four. You’re also, this is why we talk about diversification. This is why your plan, how you structure your financial assets shouldn’t be reactive when the market goes ugly. Bo said it, you know, two years out of every decade, you’re probably going to have some negative stuff going on in the financial markets. You don’t need to be reacting to that. You need to have a good plan that’s good before, during, and even after. That’s why we designed the financial order of operations. So, you don’t have to react. You kind of already have it. Your all-terrain vehicle is going to be okay. It’s going to give you peace of mind while everybody else is losing their mind. You’re going to have assets and resources like cash reserves so that when bad things happen, you’re okay. That’s what we focus on here, CAS. So, you don’t have to try to figure out when the timing point is because nobody knows. We don’t know, the people who are telling you to buy their newsletter or buy this asset, they don’t know. So that’s why you got to create a plan that actually will be good before, during and after and reflects your financial life.

Bo: And one of the things Brian you always say is when in doubt zoom out. We have another illustration. I do not think that we have this one on call but what it is, you can do this research on your own. If you go look at how the stock market has performed from the great depression all the way until now. Just look at the S&P 500, global stock market just mapped out. What you’ll notice is these big cataclysmic downturns, the 1987 crash, the dot-com bubble burst, the great recession. When you look at it on a long enough timeline, these things that seem huge and significant and like these massive craters are merely blips on the radar for most investors. And if you can zoom out and have that mindset, it’s going to allow you to realize, yeah, it might be painful for 6 months, 8 months, 12 months, maybe 18 months. But over the long term, I’m going to look back and it’s just going to be just a little hiccup. That’s all it was. That’s all it will be. And if you can have that mindset, it’s going to give you the staying power to stay invested over the long term.

Brian: Always be buying, always, baby.

Rebie: Well, CAS, if you would like a Money Guy Tumbler, thank you for asking the question. Just email [email protected].

Mortgage Payoff vs Investing Debate (47:31)

Rebie: All right, Jay Toma has a question for you. “A few weeks ago, you discussed paying off a house early versus the normal schedule. Can you elaborate on the other side of paying off early, the savings of all the interest paid?”

Bo: Well, I feel like he’s kind of pushing back against you. Do you see all the comments on, do you see all the people who are commenting on that? Oh, it drives me up. You guys didn’t factor in the interest. You guys like, yeah, we did. You look at the terminal value. I’m sorry. You go. I like this. This is exciting. The comments are firing me up. You didn’t count the interest. You didn’t count the, no, guys, did the math. You got to look at the terminal value. Yes, you may have paid more in interest, but what you earned compensated for it. So, if you could pay $1 and get $3 in return, that is a favorable tradeoff.

Brian: This is something that, and I’ve given the examples and I’m not going to repeat it because it upsets all my debt crusaders is that when you get into this situation. Yes. Now look, I’ve paid off my house and because I’m over 45 and we’ve told you, you know, and for those of you who are under 45 and you want to pay off your house, we’re not going to be against it as long as you’re saving and investing greater than 25% because that means you’ve made it into step eight of the financial order of operations. And if you want to be a debt crusader, go for it. But when we do the analysis, this all comes down to a very basic understanding is that over the long term, when we say long term, we’re talking 5 to seven years. Historically, there’s going to be a delta between what the safe rate of return is, and that’s where, you know, versus what the rate of return that you’re getting on your portfolio. And that’s what you’re kind of, and it’s overcoming what the interest rate is. So the interest is taken into account on that. The other thing I always remind people who are my debt crusaders is they think that they’re taking out all the risk by paying off their debt early, but I always remind them you don’t get to get the free cash flow from paying off the debt early until the house is fully paid off. Banks are notorious for you getting into financial trouble. You have been way ahead of schedule on paying down your mortgage and then you lose your job. The stock market gets crushed. The real estate market gets crushed and you go, I need money. Can I go get a home equity line on this house? No, because the banks aren’t lending at this point in time. You don’t have the emergency reserves because you paid it all into your house to pay down the debt earlier. You’re just kind of stuck. Now look, if you were debt-free, yes, now you have the monthly payment, you know, the thousands of dollars on your mortgage, now that’s additional money you can put forward, but you don’t get to go back and get it unless you’re able to take debt or sell the property. And I’m telling you, when it rains, it pours. When bad things happen in the economy, they typically happen together. And that’s why people who always say, “Well, I’m just going to pay down my mortgage.” I’m like, “Yeah, but if you’re down to the last $10,000 on your $300,000 house, market value house, and yet the market’s down, the real estate market’s down, and banks are struggling, they’re not going to give you the loan. They’re just going to take your house back.” And I don’t trust, look, and I work with a lot of bankers. I’m not trying to pick on bankers. I’m just telling you, but the business is that big bank takes little people’s stuff when they don’t make payments. And we’re trying to create a system so that you can navigate. I would rather have the money in the bank or in a diversified portfolio so I control my situation if I get into a really dark moment. Now, I left a lot on the bone for this whole interest. You’re more mathematically equipped than I am, but I’ll let you answer that part of it.

Bo: I’ve had time to calm down now. I’d like to apologize for my outburst immediately. Here’s what I would like for all of you to know and I hope that every person who left a comment on that illustration is in here. Whenever we lay out these two scenarios, this case study of the person that pays off the mortgage early, gets it paid off, and then begins investing versus the person who pays in the normal schedule, invests some, and then pays it off over 30 years. What you have to recognize is that is the exact same cash outflow. They’re both spending the same amount of money. Yes, one person pays off his mortgage earlier, thereby paying less in interest. That is a true statement. But if I told you, hey person, over the next 30 years, you’re going to have an outflow of $100,000. I’m going to give you two options. You’re going to have an outflow of a hundred. In one scenario, you can have a paid-off house and $300,000, or in the other scenario, you can have a paid-off house and $50,000. Which would you choose? You’re going to choose the one that is the paid off house with the higher balance. That is what we laid out. It does not matter that one paid more in interest because it’s the same amount of capital outflow. It is an apples to apples comparison and one of them ends up in a better situation mathematically because there’s an arbitrage between the interest rate that they are paying and between the rate that their investments are growing. That is the simple math of it. So yes, interest was factored in and even the interest savings did not compensate for the person outperforming the debt crusader.

Brian: Very good. That was good. You brought the emotion around back to the analytics. Because we are going to take some heat because the debt crusaders, yeah, the debt crusaders get very emotional and I get it. I understand. We all like to pay debt off. It feels so good. But we’re just trying to help you balance the analytics, being good with math, but also the behavior because we do think they’re all interconnected. But you need a system that helps you balance those things so you don’t just get so caught up in how good it feels to pay off debt that you leave the risk of actually becoming and building wealth in the background. Because that’s the thing I always tell people is that it’s make wealth, maintain wealth, and then multiply your wealth. A lot of people who get all into paying off the debt as fast as possible forgot about the make wealth side of it. Yes, you’re de-risking by paying down potentially, assuming you get to the final point of paying off the house before some bad thing happens. But you didn’t actually leave enough in the building process of the army of dollar bills so you can actually quit working so much, because it’s hard to eat a house.

Bo: Yep. I want to be clear. We have no problem with people disagreeing with us. There are a lot of people who take the stuff that we say, they don’t like it, and they have another perspective. Totally open to that. We’re not open to you just being wrong mathematically. That’s the part that gets me so fired up.

Brian: And you’re, oh, you’re, yeah. And I like debt crusaders because every one of them that I’ve talked to, they’re really more financial mutants who hate debt because everyone when I say, “Hey, you brag about, I’ve seen on your channel because some of these are content creators I’ve talked to and they’re like, I see you bragged about you paid off your house when you were 33 years old. Can you answer a question for me?” And they’re like, “Yeah, what you got?” And I was like, “Were you also saving investing 25% when you did that?” And they’re like, “Yeah.” And I was like, “Okay, well, I’m not mad at you for paying off your house at 33.” You could have done better. Sure. But still, you know, it’s perfectly fine. So, I often find a lot of the debt crusaders who are out there on social media, you’re really financial mutants that are just paying off your debt as part of step eight.

Bo: I have two friends who are also clients. You actually know both of them. And it’s my favorite thing in the world to say every time I talk to them because they’re both, you know, one’s just pre-40, another one’s just post-40. And I tell them like, “Hey, that paid off house is great. It’s awesome that you have a paid off house. I can’t wait for you to start saving now. I can’t wait for you to start actually building.” You could be so much further along and they love that. But they’re both going to be absolutely fine because they were doing exactly what you said. They were financial mutants even though they wanted to satisfy the debt. So if you’re saving and investing 25%, knock it out. But if you are saving 5%, 10%, 15% and then you’re still paying off a mortgage that’s under 4.5% and you’re under 45, make wealth, maintain wealth, multiply wealth, figure out where you are.

Rebie: Love that. So, all that to say, you did factor in the interest.

Brian: We factored in the interest for sure.

Bo: Can you imagine? Make it a highlight. Blast it on. Can you imagine? Oh, you got us. Oh, I didn’t even think about that.

Brian: I like that you said it was an arbitrage. That’s where people just don’t understand. They just assume you left the interest off. No, we didn’t. No, it’s math. It’s math.

Rebie: Jay Toma, spicy question. Thank you for asking it. And thanks for being here in the live stream. We’d love to send you a Money Guy Tumbler as a thank you for being here and for talking personal finance with us. Just email [email protected].

Closing and Survey Reminder (56:33)

Rebie: I have to say again, go to moneyguy.com/survey because I mean that’s what we kind of kicked off this live stream talking about and we’re really excited for the next two weeks. This survey will be open for you. This is your chance to truly let your voice shape the show. We want to know where you are in your financial journey, what’s going on? What are your pain points? What do you want to hear more about? How do financial mutants stack up to the average American? We would love to unpack all of this in future episodes. So, by going to moneyguy.com/survey and filling that out and helping us just see kind of a snapshot of where you are. That’ll help us speak to it and hopefully make some really cool and really interesting and fun episodes with that data because, you know, we love a good data point. And we love unpacking that here. So, be sure to go do that and thank you in advance and thank you to everyone who’s already done it because the submissions are coming in and we’re excited. We’re excited to see this data and do something really fun with it.

Brian: So, we’re kind of at the end of the show so this is where I get to do my zany stuff. Is that our tradition now? Yeah. So, you know, football season has started. Yeah, it has. And I had an interesting solicitation email hit my inbox in the last two days where this gentleman has said, “Hey, my good friend Brock Bowers said that if I needed to talk to somebody about finances, it was the Money Guy show.” Brock Bowers is a fan of the Money Guy. I was like, “This is, by the way, kudos creativity because this means that this solicitation email showed that they knew we were Bulldogs and knew we were content creators and then they elicited, you know, obviously a very good former Bulldog.” That’s right. DGD. So, but I was like, you know what, what they don’t know is that we have the Santa, we have the white light to draw attention to if this is the case. So, if Brock Bowers is indeed out there sharing the good news of the Money Guy show, Brock, come on into a studio tour. Come on, let us know. We’ll let you know, let us know. But I think that this was just a creative marketing thing that this guy did. Kudos to him trying to be creative. It’s not going to work. What if he’s really a fan? If Brock is a fan, that’s going to be so, Brock, if you are a fan, I will go back and write this guy who solicited me if you, once you reach out, but I need to get confirmation, proof of life before I’m willing to respond to his solicitation email. But I thought it was an interesting take. So I didn’t mean, but it is welcome to football season. Go dogs.

Bo: Go dogs. And by the way, I probably should have given all this. We love creating content because we have a lot of the Ohio State people on the team here and that man big weekend. How about Florida State?

Brian: I don’t know. Holy cow. I got some Florida State friends. I hadn’t even written them. I need to write them while the iron’s hot. Yeah, it is. Wow. I mean, I love football season and I love that, you know, I have two daughters and my oldest daughter could care less about football season, but my youngest is so excited. Football season, she’s all into the Bulldogs, too. So, guys, thanks so much for letting us even have this platform to create content. I was out of town last week and a few of you came up to me. I appreciate that. Bo was on a business trip and had a few. We love our financial mutants and we do not take anything for granted. And if you’re still sticking around and you love what we do, even like my zany stories, make sure you’re going out to moneyguy.com/survey because you’re obviously a financial mutant. You stuck around this long. The least you can do is get that data in there so we know who is out there and help let it shape some of the content. I’m your host Brian Preston, Mr. Bo Hansen, Money Guy Team out.