Financial Advisors React to Money YouTubers (Part 3)

Introduction – Reacting to Financial Advice (0:00)

Video: I think some people have it ingrained that buying a home is the American dream.

Bo: I thought he was going to say you just need systems just like the Money Guy’s Financial Order of Operations.

Brian: Guy that have been in search of perfect plug. Debt crusaders don’t understand or sometimes they’re just blinded to it.

Video: Oh, don’t buy a Mercedes and don’t buy another one.

Brian: Don’t buy two. Yeah, good point. The content team has been grinding in the cellar trying to find nuggets of knowledge so we can react to.

Bo: Brian, I am so excited to see what they have in store for us today. So, let’s dive right in.

Three Things to Never Do With Your Money (0:33)

Video Clip: Here are three things I would never do with my money. So, number one is to lend it out to friends and family. I would never do this because it can get really messy. You might feel obligated to give it to them because of your relationship. However, what happens is if one person doesn’t pay the other person back, it just creates a lot of awkwardness and drama and it just strains the relationship. If you really feel like helping your friend or family member out, what you should do is give them a small percentage of what they’re asking for just as a gift. So, if someone’s asking for $1,000, just be like, “Hey, here’s $100. Just never ask me for money again.” And then you take the L. That way, you’re still helping them out, but there’s no future awkwardness. Number two, I would never save my money at a big bank that pays little to zero interest in your savings account. Because these days, there are so many high yield accounts that pay 3.6, 3.8, or even up to 4% on your money. So, you should really make sure that your money is working for you and you’re taking advantage of that. And the third thing I would never do with my money is to spend it on something that depreciates rapidly. So, I’m talking about new cars that lose 20% of its value once you drive it off the lot. I would just buy used instead or perhaps buying a designer item that you buy just to show off. What are some things you wouldn’t do with your money? Let me know in the comments.

Bo: I also don’t love buying depreciating assets. However, for being an automobile user, when I buy a car, Brian, I drive it for a long period of time, like 8, 9, 10 years. So, one of the benefits I find is I can buy a new car that has the newest technology, still covered under most manufacturers warranties and even sometimes I have dealer warranties included on top of that. If I’m going to buy a car and it’s not just an absolute depreciation nightmare, I buy something that holds its value. I’m not always completely opposed to buying new, although I do think there’s value in buying used. Agree, disagree, want to fight.

Brian: The umbrella advice is drive these cars for 7 plus years. It smooths out that 50% depreciation in the first 5 years a lot. The other thing is I think money and family is always hard. Humphrey’s first thing, I kind of like what Mr. Wonderful from Shark Tank talks about, Kevin O’Leary. If you have the means, you can help the family member out but just go ahead and let them know this is going to be a gift but this was it. It’s not as harsh as because Humphrey I think said 10%. So he had a variation of what Kevin O’Leary says but I do like kind of setting boundaries so you don’t get yourself in that disappointment chain that a lot of people with money. And then high yield savings account without a doubt. A lot of people who are financial mutants think cash is trash and I always have to tell them no. You need to have true cash. But Humphrey’s exactly right. If your local bank is only paying you a quarter percent or 0.3, but you can go buy a money market mutual fund in your brokerage account that’s just as safe or very close, but you can get 10 to 15 times the yield. Get out there and let your money do the work for you. That’s maximizing that financial mutant behavior 101.

Three Things to Do As Soon as You Get Paid (3:21)

Video Clip: Do these three things as soon as you get paid. Coming from a qualified accountant and a former investment banker. Number one, save 3 to 6 months worth of your living expenses. This is money set aside for unexpected expenses like medical bills, car repairs, or even a job loss. So, if your living expenses are $2,000 a month, you need to aim to save between $6,000 and $12,000 and put that money in a high interest, easy access savings account where you can quickly withdraw that money if needed. Here are some of my current favorite accounts where you can keep your money so that it keeps up with inflation. Number two, high interest rate debt. This is any debt with an interest rate above 7%, credit card debt, payday loans, or high interest personal loans. Rank those debts from highest to lowest in terms of interest rate and pay them off in that order. This approach saves you the most money in the long run. Number three, start investing. If your workplace pension offers a match, contribute just enough to get that full match. It’s free money that you’re otherwise leaving on the table. Once you’ve maxed that out, open up a tax free investment account. Here are some of my favorite platforms. And put your money into passive funds that track global exposure. These are some of the most popular that spread your investments across thousands of companies and reduce your risk. And final step, follow for more money tips.

Bo: I love all of her ideas. I just didn’t love the order, Brian. That’s why we came up with a nine step process called the Financial Order of Operations that tells you exactly what to do with your next dollar. So, I would actually flip it around a little bit. I love the employer match. I think that would come first. Then I would knock out the high interest debt. Then I would move on to the emergency fund. So, I loved all of her ideas. I just think there’d be a more optimized way to do them in a different order.

Brian: Well, I mean, I felt like it was the greatest hits because emergency reserves does have two steps. Steps one and four in the Financial Order of Operations. The free money is step two. High interest debt is three. Guys, if you want to know more about our system, go to moneyguy.com/resources and you can download it completely free. Now, realize she’s over the pond, so a lot of this stuff needs to be brought. It’s very rare that we get to say this, to bring it back to US based. I think that we say a lot of the same stuff, but we just give you the index funds that tie to like the S&P and so forth.

The Reality of Becoming a Millionaire (5:22)

Video Clip: The truth is, becoming a millionaire isn’t about a secret formula or complex strategies. It’s about living below your means, investing consistently, and staying disciplined over time. That’s it. It’s not flashy. It’s not exciting, but it works. And if you stick to it, you will get there. And here’s the thing. When you do, you probably still won’t feel wealthy because that’s the reality for more millionaires. So rather than focusing on this feeling of wealth, why don’t you focus on what really matters? Building financial security, creating options for yourself, and designing a life that aligns with your values. At the end of the day, questions like, “Am I wealthy?” are always going to be a moving target. Instead, maybe ask yourself, “Am I building the life I want?” Because that’s what real wealth is about. What are your thoughts? Are you on track to building the life you want? Are you on track to one day reach millionaire status?

Brian: Aaron hits on a key point that we’ve often noted on our show is that the wealthier people get, the poorer sometimes they feel because I think you realize a lot of the status symbols that people have out there are really what people who don’t have wealth think that wealthy people do. Aaron is hitting on the part that we talk about is that what you ought to do is if you can build up to let your army of dollar bills work so you own your time that much sooner, you get to focus on what really matters to you in life. It’s so much better to be rich than to look rich.

Bo: Yeah, money is nothing more than a tool that allows us to accomplish and do the things that we want to do. So, if all you’re doing is chasing a dollar, chasing the idea of being rich or being wealthy, you’re really losing sight of the bigger picture. You should really focus on what matters to you and figure out how can I use my dollars. Do exactly what she said. Stay disciplined, invest, stay consistent over the long term to ultimately move towards those goals.

Building Systems for Financial Success (7:06)

Video Clip: If you want to spend money on something you love and you can afford it, amazing. If you can’t afford it, then don’t spend it. Save until you can afford it. I don’t care whether it’s a cashmere coat or some expensive kids toy. It doesn’t matter to me. Your rich life is yours. But the thing is, it’s not about you just trying harder. Can I be really honest with you? If that was going to work, it would have already worked. What we need are simple, repeatable systems so that when you’re tired or grumpy or sleeping or traveling, your money is still doing the right things. Now, once your system is in place, beautiful thing is you don’t need to micromanage every transaction. You just need a monthly check in to keep things running smoothly.

Bo: I thought he was going to say you just need systems just like the Money Guy’s Financial Order of Operations. God, in search of perfect plug because I agree with it. It’s about simple repeatable steps that you can do over time for a long period of time and you will wake up one day and say, “Holy cow, how did I get here? How did I build this?”

Brian: I love what Ramit says because he’s exactly right. You need a system. That’s why I love the Financial Order of Operations. In my experience, and I’ve seen Ramit speak live about this, he talks about what you love doing, do it as often as you possibly can and just be aggressive with it. And I think a lot of people will find out that financial mutants are people who are good with money. A lot of times have a hard time actually giving themselves permission to do it. So that’s what I love about a good system is because not only is it going to help you stay on course, but it’s also once you reach a level of success, it’s going to give you permission to go live the abundant life that you’ve sacrificed and built because that’s where a lot of people struggle. They just build, build without the why and without the achievement kind of being executed in its best form.

Emergency Fund vs. Paying Off Debt (8:47)

Video Clip: If you’re worried about layoffs, should you pay off all your debt or focus on your emergency fund? Paying off all your debt will reduce your fixed expenses, and the amount you need in your emergency fund will reduce. But you also have to consider how long you could make your debt payments if you had that cash saved instead. Because once that money goes to your debt, it’s gone and you lose the flexibility. A really easy way to do this is to take your debt amount and divide by your monthly payments. If you have a $10,000 loan and your monthly payments are $150, having that $10,000 saved in cash would give you 5 and a half years of runway on that debt. If you had a $5,000 loan and your payments are $500 a month, that would give you 10 months of runway. The knee jerk reaction to uncertainty is getting rid of all of your debt. But if paying off all your debt means sacrificing your emergency fund, it could put you in an even worse position if an emergency did happen. If you feel you’re in a vulnerable position and you might get laid off, I definitely recommend focusing on increasing your emergency fund. And once you have that safety net, you can start knocking out your debt. Of course, paying off your debt is important, especially if it’s a high interest rate. But the goal with this is to not take on any new debt because if you don’t have any cash and an emergency happens, you’re going to have to rely on a credit card, a personal loan. And we do not want to add on to the debt. So having cash set aside in your emergency fund to hold you through any periods of uncertainty gives you protection against increasing your debt even more.

Bo: I love it. What she’s saying is that liquidity gives you flexibility. It gives you options. It gives you choices that when the unknown unknowns of life come your way, if you have an emergency fund sitting there that can help you weather that storm, you’re going to be so much better positioned than if you go pay off all your debt, pay off your auto loans, pay off your mortgage, pay off all that kind of stuff. While those things are wonderful and you have relieved your monthly cash strain, you don’t have a lot of liquidity, you don’t have a lot of time, it does not give you a lot of flexibility.

Brian: Well, I’ve made this point often and I’ve had people come in who’ve gone through the boom bust cycle. Debt crusaders don’t understand or sometimes they’re just blinded to it. Paying off that debt only works if you truly get to take the debt down to zero. Because I’ve had so many people who have gone through the boom bust cycle where they were so aggressive paying down the debt and then all of a sudden the music stopped on the economy. Real estate values went down, stock market went down, they didn’t have cash or liquidity and then they just think about if I would have just kept more of this money into a bridge account, a cash account, I would have had the time to actually keep those assets versus when you see the failure of people who lose assets and go through the bust. That’s typically the story. It doesn’t matter. The bank doesn’t care if you’ve paid down 90% of the debt. They’re not going to give you the home equity line right as you’re about to give the asset back to the bank. So, plan accordingly. That’s why don’t do the extremes. Do right in the middle on how you maximize all the opportunities of what good financial management can do. We’ve designed the Financial Order of Operations to help you balance the decision making matrix to help you maximize both the opportunities as well as the risk.

Man on the Street – Free College and Employer Match (11:35)

Video Clip: I would say if you can go to school for free, go to school for free because that student loan does not look pretty.

Interviewer: That’s a good one. Really invest in your 401k or really in reality find a company that has a great match that way so you can utilize that and really invest for the future. Any other financial wisdom to share with the audience?

Video Clip: Not that I could think. Oh, don’t buy a Mercedes and don’t buy another one.

Interviewer: Don’t buy two.

Video Clip: Don’t buy two. Yeah.

Bo: Good point. I think all of those are great. Get your employer match and find an employer that has a great match. I love that. Don’t waste money on very expensive cars. They’re going to depreciate. And then what was the first one? I forgot the first one. What was the first one? Go to college for free.

Brian: Go to college for free. If it’s free, go.

Bo: Absolutely. I think all of those are fantastic pieces of financial advice.

Brian: I mean, when are we going to start doing the man on the streets?

Bo: He was doing a moment like George was trying to do.

Brian: George was down there by Honky Tonk Central.

Bo: That’s right.

Rent vs. Buy Debate (12:24)

Video Clip: I think some people have it ingrained that buying a home is the American dream, but you could rent the same house for half the price. Like there’s $700,000 homes that you could rent for $2,800 a month. Like that rent is so much cheaper than what your mortgage would be.

Video Clip 2: It’s just so much cheaper to rent.

Video Clip: There is something to be said about owning a house that you have this sense of pride and assurance that like a landlord can’t tell you to move. A landlord’s not going to raise your rent. And that you own it. And there’s just a sense of just accomplishment that you don’t get with renting. I’m more of a numbers person where I don’t really care if the option is like I pay double to own it or half the price to rent. I’d rather rent it.

Bo: Owning a home only makes sense if it makes sense. It only is something you should do if it ties into what your ultimate personal financial goals are. We have tons of clients who are renters or maybe they were homeowners and they decided they want to retire and they want to travel and they decide to rent because rent gives you ultimate flexibility. And in the example he was sharing, if you can rent for literally half the price you can own and you take that savings and you put that money to work for you, there’s a really good chance you’re giving your future self more flexibility, more options down the line.

Brian: It’s back to the personal finance is personal. And the answer is often it depends. I mean, if you’re somebody just starting out in your career and you’re trying to figure out things and you might need the flexibility of moving, you’d be much better doing the math game and renting instead of overpaying for a house that you’d have to get out of. But I also see the balance of if you are setting roots, you’ve got children, school system matters, owning, you might be willing to pay a premium, but there are limits to that premium. You always have to balance out these spectrums of what are you giving up and what are you maximizing because that’s the way personal finance is. Every incremental decision you make is going to be a choice. It’s going to have opportunities, but it’s also going to have costs. And that’s why I love that we’ve tried to create systems to help you maximize and balance the best of all those worlds.

Bo: If you are thinking about owning a home, I want you to go to moneyguy.com/resources and check out both our home buying checklist as well as our home buying calculator to make sure when you make that decision, you’re making it well.

Closing (14:28)

Bo: I love that most of that advice, actually all that advice was pretty good advice that we were highly aligned with. We might not have been exactly on the exact same page, but that’s what’s beautiful about building wealth and making financial decisions. There are a lot of different ways to make wise financial decisions, but at the very base, they’re all made up of the same ingredients.

Brian: Well, we really do believe there is a better way to do money, and we’re going to give it to you completely free. So, go to moneyguy.com/resources. Take advantage of all that stuff. We’re loading it up. And then if you reach a level of complexity that you want to take the relationship to the next level, all you’ve done is fulfill the abundance cycle. I’m your host, Brian Preston. Mr. Bo Hanson, Money Guy Team out.