Has the Stock Market Hit the Top?

Has the Stock Market Hit the Top? (0:00)

Brian: Boy, oh boy, here we go. Has the stock market hit the top? And should you be scared?

Bo: Brian, I am so excited about this because it is inevitable. We come through a year of positive market performance, maybe a couple years of positive market performance, and we see something that says, “Uh-oh, markets hit an all-time high.” And then boom, all of a sudden, the naysayers start naysaying and the headlines start turning negative. And I feel like that’s exactly where we are right now.

Brian: Well, look, I’m old enough that we’ve hit so many all-time highs that I’ve kind of gotten numb to it. But with that all-time high spree that we’ve been on through my entire lifetime. By the way, there’s a clue with just that statement right there. There’s also the ongoing trend that every time we hit all-time highs, the trolls crawl out from under the bridges and start throwing mud against, hey, this is not sustainable. Disaster’s headed our way to the point that I was actually well done content team when I saw these slide headlines that are actually out there because I was like, why are we doing this topic? And then y’all showed me the headlines. I was like, okay, yeah, let’s do this topic.

Bo: Yeah. So, here are some headlines we’ve seen recently. The 2026 bear market nobody sees coming, parenthesis, except for this Wall Street veteran because, you know, he’s got it figured out. Or what about this one? We may witness stock market history in 2026 with a potential bursting of not one, not two, but three bubbles at the same time. And check this one out. The stock market is more overvalued than at almost any time in US history by virtually every measure. Brian, this sounds bad. This sounds real bad.

Brian: Well, even the sub headlines, this bull market has no support. This time isn’t different. I don’t understand how. But look, this is fear gets people to do things. And now a lot of you are like, so y’all saying that it’s going to keep rocking and rolling from here on out. And I’m like, yeah, over the long term, I can comfortably say yes, without a doubt, I believe in accelerating returns. I believe in innovation. Over the long term, we’re going to continue reaching more all-time highs. But for the next year, two years, three years, I have no clue. And neither do the people that wrote those headlines.

Is It Fear or Just Clickbait? (2:30)

Bo: And it’s really interesting. There are certain things going on right now that are causing people, it’s unclear. Is it general fear? Is it general panic? Or is it just the media pushing headlines to try to get clicks? Because there are some things that people have questions about. We recently did a show. If you’ve not checked this out, go check out the scary truth about the AI bubble because a lot of people are making comparisons. Is what’s happening right now in artificial intelligence the same thing that was happening in the early 2000s when it came to the dotcom bubble. And we kind of walk you through that. Now, again, don’t mishear. We’re not suggesting that the market’s not going to go down. We’re not suggesting that there might not be some sort of volatility or some sort of downturn. What we are suggesting is that nobody knows that for sure. And even if the market does go down, I don’t know that that means that you should change necessarily what you’re doing.

Brian: No. Matter of fact, for a lot of you financial mutants, there’s actually a lot of positives that come from staying the course. Always be buying even into the volatility. But if you’re really nervous about this, let us give you some perspective because that’s what we can give you knowledge on because we don’t know what’s going to happen in the next year, two years. Nobody else does for that matter, no matter how many of their newsletters or whatever they’re trying to sell to you. But we always say when in doubt, I want you to zoom out.

Zooming Out: Market History in Perspective (3:50)

Brian: And here’s what I mean by this. Back in 1987, Black Monday, I’m sure a lot of people when it dropped by over 20% were like, “Oh my gosh, the headlines are horrendous. Let’s get the heck out.” Nobody even, I mean, you’d have to get a magnifying glass to even see that on this zoomed out map. Even the dotcom bubble which dragged us into, if you think about between that and the great recession, the lost decade that everybody really talks about is just an amazing time because the 10-year investing without losing money was broken in this one thing. It’s not if you stayed diversified. It’s not if you stayed consistent, but it is something when you look at the graph and you say, “Yeah, that was very scary, that occupied the headlines for years, literally years. But when I look at it on a zoomed out map, it just doesn’t seem as bad as what I remember the press and even what I felt like at that moment in time.

Bo: Well, even if you were someone in 1999 and 2000, you heard the market’s hitting all-time highs, oh, I’m afraid I’m going to pull out. Yeah, you might have missed some pain over the next couple years, but likely what would have happened is you would have missed out on a lot of the upside. Same thing is true coming out of the great recession. One of the things that we know happens in the markets is that markets do go down. There is volatility. There are pullbacks. That is a reality of being the investor. But the other thing that we’ve seen is that when we do zoom out, when we do take a bigger picture, a longer-term view, it seems like the deck is stacked in our favor.

S&P 500 Win Rate: Time is On Your Side (5:29)

Bo: If you don’t believe us, look at this chart that we put together for the S&P 500 win rate. We just said based on timeline, how often is the S&P 500 positive or negative? We found that on a daily basis, S&P market movement is positive about 54% of the time. So, a little bit better than a coin flip if you’re just looking at it day-by-day. But if you go out to one year, about 80% of the time the S&P 500 is positive on a year-by-year basis. But watch what happens when you extend even out to five years, seven years, 10 years, 15 years. The longer your time horizon becomes, the less impactful whatever volatility we see has on your financial well-being in your portfolio.

Brian: When I saw this chart, and I thought it was brilliant, is that you hear us often talk about on a one-year basis, markets go up eight out of 10 years. Well, this shows it. 79% of the time markets make money on a one-year basis. Look what happens if you, this is the way I would think about this if I’m the average investor, this is hopefully going to be the guidance that if you’ll don’t get scared when we have any type of volatility because remember it wasn’t just last April the market lost 20%. From mid-March to mid April. Now, I want y’all to have perspective on the fact that we were down at bear market status, right at the cusp of crossing bear market status, but yet we closed out 2025 with the market being up over 16%. So, there was a lot of territory just traveled during the year 2025. But if you’ll stay consistent for one year, you have an 80% chance of being positive with your investment. If you stay consistent for two years, we’re up to 88. Almost nine out of ten times you’re going to be a-ok. If you just stay two years, by the time we get to five years, we’re at 93%. Six years we have the pop-up to 98. Seven years 100. Now, there is a weird chart thing that I noticed here is that eight drops down to 98, nine to 98, 10 to 97, and then 11 is 99. You know what that is? That’s the last decade. And that’s the dotcom. That’s the Great Recession because of the timing of those rolloffs. This shows you the power of staying consistent even through the volatility.

Control the Controllables (7:55)

Bo: And the reality is, no one knows what the market’s going to do in 2026. And these headlines that are suggesting to you that they do, or watch out, the next market crash is coming. Nobody knows that for certain. And truthfully, there’s nothing that you can do individually to impact that. We would argue that what the market does in any given year is outside of your control. So what should you do? How should you respond? How should you behave in that unknown? We want you to control the controllables. Focus on the things that you can influence. Focus on the things that you can impact. Things like your behavior. How much am I saving? Am I putting my money to work? Your mindset towards money. What’s my risk tolerance? What type of risk should I have in my portfolio? What’s my risk capacity? How much risk can my portfolio withstand? Those are all things that you can influence inside your financial circumstance whether the market is going up or going down.

Brian: Look, I wanted to make sure I think this is either number two or number three and I wanted to make sure it was repeated several times. Nobody, I mean absolutely nobody knows what the market’s going to do over the next year, over the next two years. So the key takeaway on the slide, it’s doing a lot with a little amount of words there is control the uncontrollables. And a lot of you, Bo just gave you the overview and he said it was mindset, it was behaviors, but a lot of you are saying, give me some details. What does that mean? And that’s where I’m telling you the financial order of operations, if you want to know what to do with your next dollar, we’ve written the better mousetrap. I mean, this thing, go download your free copy, moneyguy.com/resources. This thing’s an all-terrain vehicle. It’s also all weather. It doesn’t matter if it’s cold outside. It doesn’t matter if it’s sunny. Whatever is going on in your financial life, we’ve got you covered if you’ll just follow the financial order of operations.

Bo: And we love that we can keep you guys covered. It’s one of the reasons why every Tuesday at 10:00 a.m. we like to show up right here to answer your questions to load you up so that when the markets are freaking out, you don’t freak out. So that when things are super exciting, you don’t get out ahead of your skis. So if you have a question that you want us to weigh in on, you want to get our take, make sure that you get it in the chat right now. We have the team out in the wings collecting your questions because we believe that there is a better way to do money. So with that, creative director, I’m going to throw it over to you.

Q&A: Market Valuation and Roth Conversions (10:26)

Rebie: Great. Yes, I’ve got some questions queued up. The first one is from JDR610. It says, “Money guy team, aligned with the show theme today, I’m curious how much current market valuation weighs in on timing of doing Roth conversions if I’ve already factored in the tax bracket. I’m married and 50 on FOO step 9 plus.” I like that nine plus. What do you think?

Bo: So, JDR, it depends on the question that you’re asking. If you’re saying, “Hey, I am someone who is above the income threshold to do direct Roth contributions, so I’m doing backdoor Roths, right?” I don’t think you have to get overly cute with this. Whenever you have the capital, I know a lot of folks, a lot of our clients, this is what I do. Every year, as soon as the new year rolls over, I go ahead and fund my non-deductibles, do the Roth conversions, and I knock it out. One less thing. I don’t really care about the valuation because I know that’s going to be long-term money. It’s going to sit in there. It’s going to grow tax-free for a long time. But the other thing you may be saying is, “Hey, I’m someone, maybe you’re in your 50s and you are financially independent or you’re in pseudo retirement and you’re talking about converting some of your pre-tax portfolio, your 401(k)s, IRAs, that sort of thing into Roth and you’re asking the question, should I think about the way market valuations or should I think about the present state of market valuations in terms of how I make those?” The answer is again maybe, but I wouldn’t get too cute with it. And I would be less concerned about the market being high and performing Roth conversions. And I would actually flip it the other way and say if there were volatility, if there were pullbacks, perhaps that’s a time to accelerate your Roth conversions earlier in the year. Because generally speaking, when we do Roth conversions for clients, we like to wait till the end of the year, October, November, December. Because by that point in time, you kind of know what your income situation has looked like for the year. If you do a big Roth conversion in January or February, then all of a sudden something happens throughout the course of the year that triggers income, it could have blown up that entire planning strategy. So, I don’t think that high valuations would affect it. I do think you could be somewhat opportunistic in periods of volatility.

Brian: Well, that’s what I wrote number one. I said tax rate matters first. So, you know, look at that. That’s going to be, you hear don’t let the tail wag the dog. The dog in this situation is the tax rate. Because that’s when you’re doing a Roth conversion strategy. A lot of times you’re trying to create this unique arbitrage situation where all of a sudden your tax rates are much lower than they’ve been while you were in the workforce or you were in higher earning years from previously. So, you’re trying to take advantage of the tax rate. So, let that be the driving factor of saying yes, this is the year. And that’s why typically Bo’s right, it’s fourth quarter because we just need to make sure we understand all the variables that are going into that before we pull the trigger on creating additional taxation so we can do this conversion strategy. The second thing, but maybe your unique case is you have so much room within the tax bracket you’re in and you know that you want to do Roth conversions. It goes back to our Goldilocks rules and some other things. You can dollar cost average out on how you do this if you want to get into the hassle factor. And I would only do that if this is a material sum of money, meaning that you were trying to convert large sums of money, then yeah, timing does matter. If you’re just doing 15 or $20,000 here or there, then I’m probably going to wait until fourth quarter. Make sure my income’s all lined up. Do it with one. That’s what we do for clients typically is that we don’t get cute with trying to come up with a dollar cost averaging on this. I just was for the financial mutants out there. I was giving you strategy, but in practicality, it’s fourth quarter that I’m pulling the trigger on this.

Brian: Now, I do think you bring up a great point, JDR. This is what I call mutant financial mutant bonus areas, and that’s without a doubt, as soon as the market goes down 20%, bear market status, it triggers for me some things that I start paying attention to. Roth conversions is definitely one of them because we all know the rubber band pluck effect. You know, you pull a rubber band down, the faster and further you pull it down, the faster it usually recovers. That’s why we see markets typically have V-shaped recoveries. So that leads to changing your behavior on Roth conversions, you ought to perk up whenever we’re down 20% in the market. And then also any DCA strategies that you’re doing, like if you have a large sum of money that you’re putting into the market slowly, as soon as you cross over 20% or bear market territory, for every 5% that we go down from there, you ought to accelerate a month of your investments. That’s bonus category time.

Rebie: Love it. Bonus category town. JDR610, thank you for the question. If you would like a MoneyGuy Tumbler, it’s your lucky day because it’s Tumbler day.

Brian: Oh, it’s Tumbler day. Let’s go. That’s an exciting one.

Rebie: So, just email [email protected] if you would like to cash in on that.

Brian: If I didn’t have phlegm, I’d give y’all some Transformer sounds, but I’m trying to clear my throat. Sorry. Okay, that’s better. I didn’t mean to, I just say I should have cleared my throat.

Bo: Next time, go right into the microphone. Just go right in there.

Brian: Okay, I’m better now. So we are getting the transformer sound.

Rebie: There you go. In case you were wondering.

Brian: That’s right. It just turned from a tumbler to a foozie. Look at that.

Rebie: Amazing. All right. On that note…

Brian: You know what the gross word? Phlegm is a gross word.

Bo: It’s pretty gross.

Rebie: It was not the one I was expecting.

Brian: It’s not ready for public consumption, honestly.

Bo: Oh, gross. All words related to that are gross. Like even the I was going to say mucus. Like none of those words are not really pleasant. None of them are pleasant words in my opinion.

Brian: Loogie. Just trying to think of all the gross different ways we can say this.

Rebie: I like how we’re like maybe we shouldn’t say these words and Brian’s just like how many can we say? Oh my goodness. Hilarious.

Q&A: First-Time Home Buying in the FOO (16:36)

Rebie: All right, you want another question? I’ve got one suited up. Kenzie K says, “Hi, Money Guys and Rebie. Where in the FOO should first time home buying fall? We’re newly married in step four and we’re looking to buy within the next one to two years.”

Bo: Nice, Kinsey. You’re in a good place, Brian. When it comes to the financial order of operations, you literally wrote the book on the thing. You have the book on it. What would you say to Kinsey? How does a young, I didn’t say age, but newly married, so I’m going to assume like early on in life stuff. How do they think about first-time home buying and where does that fall into the financial order?

Brian: First of all, Kenzie, you need to spend some time at moneyguy.com/resources. We load you up with home buying resources. But here’s the first thing to kind of break the ice with you. Everybody’s out there telling you you got to put down 20%. You don’t have to do that. Especially on your first home. We do on the second and third home when you upgrade for the bigger home. I want you to have 20% but we got to get you on the train first. So we don’t even say 10%. We say 3 to 5%. And the reason we say that is because we have a no hypocrisy policy. And my first house I put down 5%. I think Bo, your first house you put down 3 to 5%.

Bo: Half percent of my first.

Brian: So, we asked all of our financial advisors here in the building what they put down. And the dirty little secret is nobody’s putting down 20% on their first home. And so, we were like, well, if nobody’s doing this, why are all the talking heads in personal finance telling people? Now, look, post pandemic, everybody’s kind of modified because they realize our rules need to be modified. You’re like, we didn’t have to change our rules because we kind of caught on really quick. And so, that’s the first thing. 3 to 5% your down payment. That’s going to make it much more digestible. And because it’s more digestible, it does kind of become an extension of step four, which is exactly where we are right now. I want you to look at your 3 to six months of emergency reserves and then figure out what’s the leanest amount you can get that to to really protect yourself. But then now you can start really focusing on boosting up essentially create a sinking fund for that house down payment. And then now, but I want you to feel pressure because step five is your tax-free growth, that’s your Roth contributions and so forth. I don’t want you missing out on that for too long. So, you need to kind of keep that pressure in the background. That’s one more reason why the 3 to 5% your friend is because you’re going to be able to do it much much sooner.

Bo: Yeah. I think the only thing that I would add to that is money is nothing more than a tool that allows us to achieve our financial goals. Well, the financial order of operations is kind of built and geared towards the idea that most folks have the goal of financial independence. And this is a really efficient and a really effective way to work towards financial independence. But a lot of people have the goal before I get to financial independence, I would like to be a homeowner. I would like to set roots. I’d like to establish a family. And so in our opinion, buying a home is not necessarily a step in the FOO. It’s likely going to happen along your journey in the FOO, but it’s not like it’s a specific step. But I do like the guidance that if you don’t have your deductibles covered, home ownership might not be the thing that you need to be thinking about. If you have tons of high-interest debt and credit card debt and stuff working against you, you might not be ready for home ownership. But once you get into step four, once you begin building up that emergency fund, I do think that’s an indicator that maybe now you’re at the place where you can start entertaining it. Now, does that mean that you have to do all step four for the home? Well, you’ll have to decide that based on your goals, but I do think that’s an indicator of at least where you can start entertaining. And Brian already said this. If you go to moneyguy.com/resources, we have tons of tools out there. We have home buying checklist. We have home buying calculator. We have a hub where you can learn about everything home. Make sure that you check that out if you’ve not done that. And kudos to you guys for making a pretty exciting life decision to buy your first home.

Brian: Well, and Kinsey shared that there because we followed up and they said they’re 31 and 33. And I think it’s interesting when you go Kinsey out to moneyguy.com/resources. We have a home buying checklist. One of the key things I always remind people, a housing decision because of how expensive the transaction, all the attorneys and the fees and all the recording and so forth, you need to be in this house for 5 to seven years and really lean probably closer to seven with where the price points are on housing right now. But don’t skip out on that step because I know it’s a very emotional thing to want to buy your first home. I just want to make sure that the emotions line up with the analytics of what you truly can afford. That’s why we’ve tried to give you great resources so you can go through the hubs, the checklist, and everything that we’ve created on moneyguy.com so you can live your best life.

Rebie: Yeah, definitely check out moneyguy.com/resources. So many home buying tools and articles, and information for you to check out there as you continue thinking through this exciting decision. And Kenzie, if you would like a MoneyGuy Tumbler, since we answered your question on the show today, just email [email protected] and we’d love to send you one.

Q&A: Old 401(k) – New Job vs. Solo 401(k) (21:40)

Rebie: Next question is from meg04an. I think it’s Megan with an 04 in it. It says, “I’m leaving to a new job, but also have a new side gig. Is there ever a reason to put my old 401(k) into the new employer plan over a solo 401(k) that I control?”

Bo: Yeah, I’m leaving a new job, but also have a new side gig. Is there a reason to put my old 401(k) into the new plan over a solo 401(k) that I, man there’s a lot in there. Let me start at the beginning, Megan.

Brian: Might not even be able to open. I guess because they have a side gig you could do a solo.

Bo: That’s what she’s saying. Hey, I’ve got these two options. I got a side gig. I got a solo, but I’ve also got a new job and I’ve got a new 401(k). How do I define the best place to put them? So, let’s start at the beginning. I want you to go to moneyguy.com/resources and we have a resource for you that says, “What do I do with an old 401(k)?”

Brian: Decision matrix too.

Bo: Yeah, there’s really four things that you can do, but there’s not exactly four. There’s really three because this fourth one, which is cash it out and spend the money, is never a good option. So, you really have three things. You can leave it where it is. You can roll it into a new employer sponsored plan, or you could roll it into an IRA rollover. Well, you’ve already said, “Hey, I’m going to roll my old 401(k) into a new 401(k). Either my new job 401(k) or a solo 401(k) that I have.” Well, what are the benefits of each? Well, one of the benefits of a solo 401(k) is you get to pick the custodian that you hold it in. You get to choose the investment options that you invest in, and you get to control costs that are born by the plan. And so those are all three net positives assuming you’re someone who knows how to pick a good custodian and knows how to pick decent investments or use target retirement and plan and assuming and this third one is unique. One of the reasons why you may choose to not roll the old 401(k) into your solo is that solo 401(k)s are beautiful because all you got to do is fill out an account application at a major custodian, open them up, no reporting, none of that stuff until the assets inside the solo 401(k) cross over $250,000. Once you have more than $250,000 in the solo 401(k), now you’re on the hook to file a 5500 every single year. There’s no tax due, no tax associated, but it is a filing that you have to make. And if you don’t make it, the penalties and the ramifications are intense. Like you do not want to get that nasty IRS letter. So, if you’re not someone who’s super organized and knows how to put a reminder to fill out the tax form and send it in, it could be justifiable to roll the old 401(k) into your new employer 401(k), assuming it has good low-cost options. It’s not super expensive, and it’s one less thing for you to have to think about.

Brian: You know, as we’re sitting here talking about this, Bo, I just had a realization. I love solo 401(k)s, but in a lot of ways because of the way the government has designed these things, they feel a little bit like 0% financing at furniture stores. And here’s what I mean by that is because the government has done a really powerful thing by they let us set up this super powerful tool of 401(k)s with no reporting because that’s the problem is all the reporting requirements all the compliance and those things and they’re saying hey we’re going to let you get out of all of that stuff so you can use this powerful tool but right as it reaches kind of critical mass and starts growing upon itself we’re going to set an uh-oh with this annual filing requirement that’s not hard, but it’s definitely something that will slip your mind. And we’ve seen a lot of people that set up these plans so they can do backdoor Roth conversions and other things. And then we tell them, hey, you realize the penalty is substantial if you don’t file these 5500s. And you realize it’s almost like a little bit of a mini gotcha that was set up and that ought to be addressed. The government ought to kind of look at this because it’s been many years that these solo 401(k)s were set up and I’m sure in the beginning they’re like well nobody can put in $250,000 but you know what happens with compounding interest and consistent contributions it turns into $250,000 really quick, rollovers and bringing in rollovers. I wish the government would address that in the long term so we’re not creating behavioral gotchas on such positive tools for people to build wealth in the long term.

Bo: Another thing, and this is just super annoying since we’re on a soap box, I’m going to go here. Filing the 5500 has gotten a little bit more complicated. Now, you know, used to you could fill out the form, mail it in. I’ve had a number of clients that they did that, filled out the form, signed it, mailed in. IRS never received it. So, they got the nasty IRS letter. Fortunately, had the documentation to be able to say, “No, no, no. This was done. Here’s the form.” Whatever. They now want you to go into their efast 2 filing system and set up a username and set up an account so that you can do it that way to file solos. It’s just getting a little more onerous. That’s the right word, right? A little more difficult, a little more arduous from a logistic standpoint. So, just know what you’re getting into if you’re someone who’s going to have over 250,000 in that solo 401(k).

Brian: And the only thing that I felt like we didn’t give enough emphasis to is that she’s saying without a doubt she’s going to roll it out of her old employer plan. I’d want to know more about that because if your current employer has a great 401(k), say you left a big company or a company that was just really smartly set up and it’s index funds, it’s low cost, it’s one of the bigger providers, maybe brokerage link option or a PCRA, why would you move it? So, don’t skip out on the resource we have at moneyguy.com/resources because you might not want to move it if you’re in a really good plan because guess what happens once that account was over $500,000. They can’t just automatically distribute. They can’t kick you out. Then now all of a sudden they’re paying the ongoing cost and they’re doing everything. And yes, if you still set up a solo 401(k) for that side gig money, you’re going to have many many years before you trip the whole 5500 gotcha that’s sitting out there. So don’t just assume you have to go to the new plan. A lot of people I think sometimes they sleep on that. And that’s why that decision matrix we’ve set up for you can be so powerful.

Bo: One other thing for you to keep in mind, if you do have a solo 401(k), but you also have a day job 401(k), remember you only get one bite at the salary deferral apple. You can only go up to $24,500 across all of your 401(k) plans. So if you happen to be maxing out your day job, not your side gig 401(k), you can’t go do 24,500 in the solo. Only thing you can fund to the solo would be profit sharing based on the amount of income that you show in the side gig. So make sure that you don’t run afoul and double dip on those salary deferrals.

Brian: Megan is quickly realizing this is when your awesome financial life starts off so simple, but all of a sudden things like this start happening and your life gets a lot more complex. And I love because this is just like another Tuesday. I mean I love kind of going through these things. But if you’re in this situation, yes, you can go download the resource, but if this is large sums of money, and that’s what I don’t know, did Meg say how old she was?

Bo: She graduated in ’04.

Brian: If she was in her 40s or 50s, these accounts can be large at that point. And you know, we’ve done this hundreds, thousands of times if you take the firm as a whole. If it gets too complex to you, we’ll leave the porch light on for you.

Bo: You see, here’s what I was thinking, Rebie. She could have been born in ’04, but if she was born in ’04, that would make her 22 years old. Likely, she’s already got a side gig. She’s already onto her second job, had multiple 401(k)s. It seems aggressive. So that’s I’m like, 04 is probably not her birth year, but I bet it’s her high school graduation year.

Brian: That would mean, oh, high school or high school.

Bo: I would think high school, right? When we make usernames, we usually use like our high school graduation date, right? Like that’s what.

Rebie: So that makes them 37 years old.

Bo: 37 to 38 years old probably somewhere around there.

Brian: Oh man, I felt like we just did the Tom Cruise in the firm scene where we just guessed the salary without knowing anything.

Rebie: Yeah, we don’t. I looked around and no one gets that reference.

Bo: I’ve seen that movie.

Brian: I bet our audience, a lot of people like me in the audience.

Bo: Our audience, they get it.

Rebie: We have some people here have seen it.

Brian: You represent the Young Bucks. I represent the Xers.

Bo: Hold on. I represent the Young Bucks. I get to be the young representative.

Brian: Rebie does.

Rebie: Okay. Well, there. Wow. Okay. Thanks. I wasn’t expecting me to be that person either. Well, Megan04, however you want to say it. We really did appreciate your question. Just email [email protected] if you would like a Money Guy Tumbler.

Q&A: Income Growing Faster Than Savings (30:33)

Rebie: John W is up next. “I’m 37 with 100K invested and a 230K income. I save about 35% trying to catch up. Every time my pay goes up, it seems like my milestone goals run away faster than I can save. How should I combat this?”

Brian: Well, we’ve got something for you.

Bo: Yeah. Well, I figured you would. Here’s what I want to, so, all right, 37 years old, you have $100,000 invested. It does seem like potentially you’re a little bit behind, right? We say that by the time you hit 30, you want to have one times your annual income. By the time you hit 40.

Brian: What if his income was $85,000 last year?

Bo: Well, it’s interesting that it went from 85,000 to 230,000. I was going there. I was getting there. I was on a journey, right? You know what you did? You just jumped onto the path and I’m like I was trying to do a tour guided thing and you jumped out. You swerved around it and kept going.

Brian: So, here we go.

Bo: By the time you get to 40, we want you to have three times your annual income saved up and invested. What’s unclear at this point is what your income trajectory has been like because we have a lot of folks, a lot of clients, a lot of audience members where their income has big jumps year-over-year. Maybe you’re someone who had $85,000 income last year and now you’re making 230,000. In order to rightly assess what your savings rate has been, it’s okay if you want to smooth the last couple years, maybe the last three years, maybe the last 5 years to come with like an average income to kind of assess where you are. But if your lifestyle is also increasing at the pace that your income is increasing, then you should feel a little bit of pain, a little bit of pressure that your savings also should try to catch up because the bigger your lifestyle gets, the more your money is going to have to replace when you get to financial independence. So I think it’s okay for you to feel that pressure to catch up as you have higher income. But the great thing about higher income is it gives you the ability to be able to get those 35, 40, 45% savings rates.

Brian: Yeah. I mean, what I like if making it prescriptive is use the last three years of income. That’s going to kind of smooth out how your trajectory is going with your income. And I did an example and that was I took 80,000, 85,000 then I did your 230. And if you’d have done that, I think it came up to be right around 131,000. But you are because you’re closer to 40 than you are to 30. So I think you’re still going to find out, John, is that you should feel the pressure, but the solution to your problem of a rapidly rising income is that you can smooth it out with a three-year average, but that’s still going to spot check you into saying, “Yeah, I’m still behind.” And that’s a good thing that you are so upwardly mobile with your income is because I’m hoping that that motivates you a bigger portion of that. I mean, we’re about to record a show. I know the show we’re recording after this live stream, we talk about people get a later start, you have to go beyond 25%. I mean, it’s just the reality of the situation is because John, with a salary of $230,000 and having $100,000 saved up, there’s a gap somewhere between 20 to 37 that you weren’t doing what you were supposed to. So, it makes sense from a behavioral standpoint is that we have to do corrective actions now.

Bo: Yeah. I think a really cool thing to do to go check out is go check out our deliverable moneyguy.com/resources. How much should you save? And you can go look at, now we don’t have the age 37 on there, but you can kind of look at 35 and 40 and see based on those savings rates, and this is assuming that you were starting at zero. How much of your income would you be able to replace based on those savings rates? It’s just a great thing to go check out. It’s okay, yeah, maybe I need to, and here’s what’s great about being 37. Do you realize if you do a lot of really hard work, a lot of really hard saving from 37 to 47, it would not be difficult to go from being behind to actually being ahead of the curve because you still have so much power behind your dollars. 37 is not old. Your dollars still have a lot of juice in there. So, if you can get serious about it, you can make up for lost time.

Rebie: That was good stuff. John W, thank you for the question. You did have a lot to offer and I hope that that helps you think through that. If you would like a Money Guy Tumbler, just email [email protected].

Q&A: No 401(k) or HSA at Work (35:01)

Rebie: Next one is another FOO question for you.

Bo: Oh, we’re good at FOO.

Rebie: I know. Oh, I know. Tyler M says, “You advise people to follow the financial order of operations, but what happens when someone like myself doesn’t have access to a 401(k) or an HSA or any other benefits at work, nonprofit life,” he says. What do you think?

Brian: Now, usually nonprofits have 403(b)s. So, I would say I’m going to let Bo give us some details, but Tyler, there might be some lobbying you can do at your employer to consider adding 403(b)s, 457s, or even 401(k)s. It depends on how well-funded the nonprofit is.

Bo: Some are super lean and they don’t have personnel to be able to do the logistics like HR can’t handle the additional responsibility or even just setting one up because they’re really low-cost providers or you can implement a 403(b) plan at an annual cost of somewhere between $1,500 to $2,000 a year. So it’s not incredibly expensive. So if there’s a staff that could benefit, I agree you could go lobby to have that in there. But let’s assume that’s not the case. A lot of people think, okay, well I don’t have an HSA and I don’t have a 401(k). I guess I just can’t build to financial independence. No, that’s not the case at all. What you do is you continue to work through the FOO. Brian, will you hold the thing up for me? You continue to work through the steps. Do I have access to employer sponsor retirement plan? If the answer is no, I don’t need to worry about employer match. I can go right through two. Okay, I’ve got no high interest debt. I can check that off. I go to emergency reserves. Step four, I got a fully funded emergency fund. Great. Check that off. I go to five. All right. I don’t have an HSA. I don’t have a high deductible plan. Okay, I can’t do that. But you know what you can do? I can do Roths. I can do up to $7,500 this year into a Roth if I’m married. My spouse can also do $7,500 into a Roth. Okay, I get through that. Then I go to employer sponsor plan. Okay, I don’t have one of those. Okay, no big deal. The next place that I’m likely going to start saving once I’ve maxed out those Roth IRAs is just a regular after-tax brokerage account. There’s nothing wrong with that. It might not be an HSA or might not be a 401(k), but you can still do some very exciting saving in there. And there are tax benefits or just slightly different tax benefits than what you get with a 401(k).

Brian: Yeah. I mean, the capital gains is still taxed at a lower rate. The dividends are taxed at a lower rate. And look, it has all the benefits that you still get to use this money. Now, there’s just no early withdrawal penalty. There’s no annual contribution limit. There’s a lot going for the after tax brokerage account. It’s just that we usually lean on the Roth. We lean on the employer plan because we like free money. We like tax-free growth. And we like all the other tax favored things. But that doesn’t mean that you’re left high and dry with no option. There’s still a lot of opportunity to let your money work harder than you can with your back, your brain, and your hands. Your army of dollars is still powerful even in a taxable brokerage account.

Rebie: Love that. Tyler M. If you would like a MoneyGuy Tumbler, just email [email protected]. Thanks for asking your question on the show today.

Brian’s Tongue Thing and Other Tangents (38:02)

Bo: Can I tell you something that’s going to make you so proud?

Brian: Yeah.

Bo: Somebody asked a question because they saw you pull out your calculator, thought smoke started rising up as you were knocking it out and I guess you stuck your tongue out and then someone was like, does Brian, is he like Michael Jordan? Whenever he’s in the moment, game time, the tongue, and I was like what a dynamite comparison.

Brian: I don’t realize because even our most recent Making a Millionaire that dropped yesterday. I guess and I’ve been told by my wife, I’ve been told by friends we hang out. I chew on my tongue a lot. And yeah, I mean I just, my tongue, I don’t who knows what’s going on there, but it’s…

Bo: I just assumed it was like MJ going for the dunk.

Brian: Well, he obviously has the same problem. I love the comparison. And it’s good to know other high performing people have issues where they’re doing behaviors that they have no clue that they’re doing, especially in front of the public eye. I mean, less than ideal to know. I mean, I guess there’s worse tics that I could have like I could be, you know.

Bo: I didn’t think it was a tic. I thought it was a point of pride. I’m sitting there thinking, man, could I manufacture sticking out my tongue when like getting a spreadsheet or something?

Brian: So, I don’t know what to say. You know, I’ll tell you the Preston household because here’s a little secret about my household. I guess we just have tongue issues because my younger brother had, everybody remembers Gene Simmons from KISS could make his tongue stick way out. The reason, if you don’t know why Gene Simmons can do that, is that that piece of little piece of skin that holds your tongue down. Some people don’t have that. My younger brother didn’t have that either, really. And he could, it was crazy. So, I guess the whole Preston household just has tongue issues growing up.

Rebie: We’ve covered a lot.

Bo: Did you have that on your bingo card audience?

Brian: My poor brother. He’s probably, unfortunately I don’t think he watches our show.

Bo: So anatomy. Oh, that’s hilarious.

Brian: If his co-workers, hey, let me see you do the tongue trick. Do the thing.

Bo: That’s hilarious.

Rebie: Oh, man.

Kiss Concerts and Growing Up in the 80s (40:05)

Rebie: All right. Want another question?

Brian: I wonder, you know, here’s what I would want to know. Did Gene Simmons not have that thing or did he have it cut?

Bo: Surely he was born that way, right? Like you wouldn’t have it.

Brian: You ever been to a Kiss concert?

Bo: I, you won’t believe this. I have not.

Brian: I have.

Bo: Have you really?

Brian: Yeah, I’ve been to a Kiss concert. I’ve been to, by the way, and before I went to a Kiss concert, I went to, because realize Kiss is a little bit older. I went to back when I was in college at UGA at Georgia Theater. Probably every three months the Kiss cover band Strutter would come around. I didn’t miss a show. I bet I saw six shows in college.

Bo: Hold up. But have you actually gone to a real Kiss concert?

Brian: No, I’ve actually been to a real KISS concert. They came back around and it was really, it’s kind of crazy because you got Gene Simmons with the blood and all the other stuff coming out and then two songs later they got a bunch of soldiers up on stage and they’re like you know thank you for your service and being all super patriotic and it was just it was a great concert but it was just so odd some of the things that were going. It was a spectacle and then all of a sudden it was like okay now let’s fire up and play God Bless America and who sings all the songs that they roll out all the time at all the fireworks shows. Lee Greenwood? Oh yeah, it was almost like we went from a Kiss concert to a Lee Greenwood concert all in the same show.

Bo: Did you paint up for the Kiss concerts? Did you do the whole face paint and all that stuff?

Brian: No. No. But another little side nugget about Kiss. My first, this is how if you want to know because I was just, we had somebody come through and do a studio tour and I found out they were from Panama City. And I had to, I had the confession that I actually got to go to Panama City both my junior and senior year of high school, not college. How insane is that? I grew up feral. And another proof that I grew up feral is the fact that my first album ever and I had the 33 was the Kiss Dynasty album. And I remember my buddy Dusty because we turned our 33s into tapes back in the day. That’s how you traded. And he gave me Prince Rain, which by the way, and I gave him Kiss Dynasty. And his parents called my parents because they’re like, “You realize that’s devil music?” That you’ve got your son. And meanwhile, I fast forward as an adult now looking back in the Purple Rain. There’s some dirty dirty tracks on that Prince album. But somehow Prince was okay, but Kiss was bad back in my.

Bo: He’s been thinking about this. This has been ruminating. Oh, that’s amazing.

Brian: No, anybody my age, y’all were like, that’s just so because the rumor was that’s what’s so funny also about Kiss now being super patriotic and there’s a lot of people just nodding at their computer because when I was, and by the way the Dynasty album not their best work. That was their disco album if you didn’t know. So it was kind of interesting.

Rebie: Everything you said was like some, you know, set in the 80s coming of age movie story.

Brian: No, that was I grew up through all these things that you watch on Stranger Things and stuff. That was my childhood and I was feral. I mean, you know, parents, you leave in the morning and then you don’t come home until dark. And literally my buddy Michael, I think his mom had a bell on the back porch because you could hear it around the neighborhood like a cowbell. Like it was time to come home because we’d be somewhere in the neighborhood and they had to get dinner or whatever else. And I mean I grew up in all those, we drank out of the garden hose because at Michael’s house, Michael and Linda’s house, you couldn’t go. I only saw the inside of their house. I grew up with these people from the time I was 5 years old until I graduated high school. And I only saw the inside of the house three times when they invited me over for dinner. They just had like you couldn’t go in the house. We couldn’t go in the house during the day. That was legit back in the day. You were not allowed to go in the house. It must have been so easy to be a parent back in the 70s and 80s. I mean, just get the heck out. Don’t call your friends until 10 a.m. That was the other rule. And then as soon as 10 a.m., you call your friends. You say, “Hey, we’re going to go meet up.” And then you go and you disappear for the entire day.

Bo: Literally at least three four times a week my house gets trashed from all the kids coming over and running through the house. No kids in the house rule sounds wonderful. I don’t think that’s going to fly.

Brian: Yeah, but the problem is the technology now you can see where your kids are at all times. So it’s got to feel different than when my parents like when I went down to Panama City in my junior year. I don’t have a cell phone. I didn’t have a cell phone back then. So you just, you literally are gone until you’re coming back.

Rebie: Wow, that’s wild.

Brian: And you just call and check in. You get like go to pay phone and check in with them. Matter of fact, back then, there was 1-800 numbers you could call and for every 30 second ad you’d listen to, you’d get two minutes of talk time. So, I even had a hack. This is how I knew I was good with money. I had a way that I could do pay phones for free back then because I’d listen to ads for a few minutes, get talk time and then call and do what I needed to do.

Bo: Is that the commercial that was like, “Hey, it’s Bob had a baby, it’s a boy.” You know what I’m talking about where they did that and he tried to get it all. You know the one I’m, oh, so all the other millennials in the room are shaking their head. You remember that commercial?

Brian: No.

Bo: Okay. Well, you just aged out.

Brian: And all of our audience out. We have to be careful because our key audience is somewhere between 26 to 45. That’s probably 80% of our audience. I’m telling stories now that are aging out of that. So, I do need to be careful of that. So, I apologize for any of you like, “Oh, that’s not Boomer, by the way. That’s Gen X. I don’t want you guys getting the wrong idea.”

Rebie: So, don’t say any okay boomer lines, but that’s hilarious. I don’t know. As a millennial myself, I enjoy them. So, it’s all good.

Brian: Feral though. I’ve asked my mom about that. I was like, because I would not let my, and by the way, those Panama City, thank god spring break’s not down there anymore because they’ve kind of outlawed and I was down in Miami last year. Spring break’s not in Panama City anymore. No, they don’t allow the kids to run amok down there and Miami doesn’t either. When I was down in Miami last year, my wife for some reason decided, hey, let’s go to Miami for spring break with the family. And this police presence was everywhere because I guess that they had a problem. And so I guess now all the kids and this would have kept me out. This would have raised the barrier to entry. I guess they’re all in Mexico. I could not have traveled international back then. Basically one step up from finding a buddy who was driving down there like, “Can I ride with you?” And then the rest you’re just kind of winging it.

Rebie: Wow. Good times.

Brian: Yeah. No place to stay. Figured out.

Bo: I did Panama City my freshman year of college.

Brian: Okay. See, that’s still quasi feral. It wasn’t great. Here’s the other question. Did you have a hotel room when you left?

Bo: Dude, I have a, oh, no. Well, someone else did. We just, it was a bunch of us just stayed in a hotel room.

Brian: Someone had one, but I was just, “Hey, you want to ride?”

Rebie: Not I would go without a hotel room. We would just figure it out.

Brian: Oh, okay. You would just, but someone would get a hotel room eventually, right? You’d find one of your buddies. Somebody would have. You would find somebody to hang out with that had a hotel room and then you’d stack as many people.

Bo: That’s what we would do. It was like nine people in a.

Brian: And now you think about myself now because I’m so bougie. I’m like whenever we do guy trips I’m like I need a bedroom and I need my own bathroom. Meanwhile back then it was just like yeah I’ll lean over there. Oh that’s hilarious. That’s what happens to you. That’s why when you’re in your 20s enjoy that you can handle anything because you will get older one day and not be able to handle anything. Like if I stay up till 11:30 it wrecks me now. Used to not be the case.

Rebie: Oh yeah. We have some comments a few like this. One says Brian really is the goat. Legend in all caps.

Bo: Legend. That’s what you just got.

Brian: I’m just glad cell phones didn’t exist back then because I just think it was just, I don’t know. It’s probably, it was a much simpler time. That’s, it was much simpler. There’s, you didn’t have phones. You just went and did it does.

Rebie: Yeah, there is something nice about that.

Monster Trucks and Quality Family Time (48:25)

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

Bo: Oh, that’s what we do here. That’s right. Yeah, we could do that.

Rebie: Answers from the legend himself. Coco4otoro798 has a question. It says, “Hey money guy team, what if I fund too much in my kids 529? I know I can move 30K to Roth IRA later on, but what if it’s 100K and the kid doesn’t want to go to college and I have no extra kids to transfer it to? Thank you.” I feel like this is the per like everything that could possibly go wrong with a 529. What happens in that case

Bo: One quick point of clarification, it’s not 30,000 that you can do to a Roth the way the legislation. It’s actually 35,000. So, another thing that’s just worth clarifying is a lot of people think, “Oh, if I have 30,000 left over, then I can just put it right into a Roth.” Doesn’t work that way either. You can only put up to the annual limit. So, if you have $35,000 left over in a Roth IRA, it’s going to take you almost, not quite, five years, four years to get all of that money put into the Roth. It’s not like it’s something and it’s not a double dip. When you do that, you are now, I’m going to say robbing. I don’t mean that, but you’re taking away your kids’ ability to fund their Roth IRA. But, okay. So, that’s not what you’re asking. That all that was for free.

Brian: But here’s another key thing that I think people, kids not going to college. That’s not the end of the world. You can use 529 money for trade schools, for a lot of professional certifications. There’s all kind of ways that you can actually use 529. Now, I would tell you go cut off that recurring contribution ASAP because we don’t, I think you definitely are in the overfunded category at this point. But I think you’re going to find that you’re going to be able to spend money on them for bettering their life. And then even you can take into account the $35,000, but then that doesn’t mean you can’t, I would at this point because you can pull the money out and only thing you’re going to pay tax and penalty on is what it made. Not on your contributions, but only on what it’s made. But before you do that, I want you to go deep into your own thought process and go, hey, if I ever want to go back to school for something or do I have some other relative that I want to support for going back to school and maybe even your child, if they don’t want to go to college, maybe their child or your future grandchild might want to do something there. There’s opportunities sitting out there.

Bo: That’s exactly what I’ll say. You can change the beneficiaries on 529 accounts. Perhaps that might be something that if it’s not for this generation, you could potentially leave dollars in there and change the beneficiary to a future grandchild or another family member might be a way to use that. Well, assume that none of that’s on the table. All of that, yeah, it stinks to have to pay taxes on the earnings. And it definitely stinks to have to pay the penalty on the earnings, but it’s still $100,000 of kind of like found money that you were planning on spending on something, but now you’re not spending it on something. So it’s not the worst thing in the world. So I would think through okay how, I would compartmentalize. Okay, I know I got 35 that go into Roth. I’m going to chisel that there. Maybe I want to leave this much behind for a grandchild or for another family member and then yeah, for the rest I’ll distribute that and I’ll kind of take my licks and go about it that way. What I’m finding is I think a lot of people are finding themselves in this situation. I know at least with clients that I work with, Brian, just because they were so diligent saving. They started early on and started saving aggressively early on, market performed really well. I think for like true blue financial mutants, I’m seeing a lot of folks with overfunded 529s. I think this is going to be more and more of a thing that people are going to have to likely navigate.

Brian: And I’ll have to give you the other side of it because my daughter just, I just paid her final semester tuition for she’s in her senior year of college. And I look back with fondness on the fact that I always did in her 529. And I was trying to, because when I started out, it was $2,000 a year to get the maximum Georgia state tax deduction. And that’s pretty much all I did in that 529. And then I think my mom when my daughter was born, she put in a little bit at Christmas time and she might have put a thousand or $2,000 when she was born. And then what’s interesting is I paid for three years of college with just doing that $2,000 a year. And then my mom’s 529 for my daughter paid for one semester, which I thought was almost to the dollar. I mean, it was within 15 to $20. I couldn’t believe how it just, you think about it from a providence or cool little things. Hey, grandma covered, you know, half of a year of your college with just doing little tiny behaviors. These things are super powerful, guys. Now, they don’t, it’s back to, and this is the point I’m trying to make. You don’t have to forego your own financial success for your kids. A little goes a long way when you start the behavior as soon as they’re born, because you think about 18 to 20 years of compounding growth is pretty magical what a little can turn into. So don’t sleep on that. But you don’t have to go crazy with it. You know that’s why I see people who are dumping 10, $15,000 a year in these accounts for many many years. Now if that’s maybe all you want to put in when as soon as the baby’s born and you’re in a really good situation that’s probably going to really set you up for a long time. But if you’re funding every year these large sums without a why, you might find that you got a lot in these accounts.

Bo: The only other thing I would throw out since you had asked about the, you had said 30,000, but it’s actually 35,000. There are some unique things that have to be true in order for people to do that. And one of those things is the 529 has to have been in existence for 15 years. And I think the contributions have to be at least 5 years old. Am I remembering that right? There’s something like that. But most folks, right, like if you open this 529 later or you did some sort of super funding thing or you’re thinking about, ooh, is this like a strategy that I should do, you know, to have, I don’t think it’s a Roth strategy. I think that the Roth is like a failsafe. Oh, I overfunded, that gives me something I could do. I don’t think there’s a planning opportunity for overfunding 529s.

Rebie: Well, Coco4ooro 798, there you go. Thank you for your question. And if you would like a Money Guy Tumblr, email [email protected].

Bo: Can I give a PSA real quick?

Rebie: You may.

Bo: Here’s the only reason I said because the name was Coco4otoro. And that made me think of El Toro Loco. Do you know what El Toro Loco is? Probably don’t. That stands for the crazy bull. It was the name of one of the monster trucks this weekend that I took my family to and it was awesome.

Brian: Well played.

Bo: Taking, you know, my little boy is about to be three here in like a week or so, taking my boy to monster trucks.

Brian: Did you put ear protection?

Bo: Oh yeah yeah I did the ear protection right when I was a kid was not that. We were fumes and wide open ears now I got ear protection for the whole family. It was awesome and I just want to say it was a wonderful amazing event and I’m so glad I did it. This show is not sponsored by Monster Jam we’re not getting anything for this but it was fantastic.

Brian: And so I just how cool would it be because how many trucks are in there because there’s a ton of them in there.

Bo: There’s a ton of trucks. There were eight at this thing, right? And they have like three different and they can do aerial acrobatics and all kind of other stuff. When I was a kid, monster trucks just they just crushed cars. Like it was, monster trucks do back flips now. Those suckers can do a, you ever seen a monster truck do a backflip?

Brian: Accelerating returns is not missed out on monster trucks. It was wild.

Bo: You know, it’s wild, too. So, I took, I have two daughters, too. They like and what’s I don’t know if this is on purpose but they also like when I was a kid the monster trucks were like the tractor and the gravedigger and Bigfoot and all this stuff. Now they had like a unicorn and glitter sparkle and they had, it was my girls, it was awesome. My girls had a great time. I had a great time. My wife had a great time.

Brian: You took the whole family.

Bo: I took the whole crew. It was awesome. It was awesome.

Brian: What’s the, do you have a picture from that? I’m sure. I’d like to know. I bet. Hey, were cowboy boots worn?

Bo: No, we should have. Cowboy boots. It was so cold. Nashville’s going through a thing right now that we were all bundled up. Winter weather. So, it’s, no, it’s a thing. This is not normal. This isn’t great. We should have done Cowboy Boots. That would have been awesome.

Brian: Okay. By the way, if you’re a monster truck driver and you’ve listened to the Money Guy show, reach out to us. We’d love to know who you are.

Rebie: Awesome to know.

Brian: That would be awesome. You never know. We have literally millions of people. When I see the numbers, but I think they just want to know you. They just want to say hi. Well, no, but it blows because look, we feel like I think y’all can see it when you come do the studio tour. We just feel like normal folks. But then when cool things happen and you’re like, “Okay, maybe somebody has seen this.”

Rebie: Yep. Love it.

Q&A: Overfunded 529 Plan (57:36)

Rebie: All right. Want to do one more?

Bo: Yeah, let’s do one more.

Rebie: Can it be about monster trucks? Because I feel like I’m kind of in that zone now.

Bo: It’s not about monster trucks, but you could try to incorporate monster trucks into your answer. That’s on you.

Rebie: That’s a fun challenge. Coco Koko Ztreggs has a question. It says, “I’m 29 with a savings rate of 32% in step seven.” It does have to do with vehicles, though. So, there you go, Bo. The next part of the question says, “I need to purchase a car this year. Should I use half of my emergency fund to pay cash or is it better to finance?”

Brian: Oh, Bo, this is going to be one of those classic it depends answers. So, I’m going to let you kind of fill in the meat on, put the meat on the bone.

Bo: So, what I want you to do, Zrex, is you have to figure out what all options exist for you. So, there is an option. I mean, to hear that you’re saving 32% and you’re in step seven is awesome. That means that I’m going to assume you’re ahead of the curve. Unless this is the first year you’ve done that, I’d want to know, okay, what’s your financial base look like? What kind of assets do you have working for you? Obviously in step seven that suggests you have a fully funded emergency fund. I’d want to know, okay, if we were to go take half of the emergency fund and pay cash, how long will it take for you to build that back up? Right? So, I want to just kind of do some triaging around what kind of impact would paying cash be? But I also would want to know, okay, is financing an option and what kind of vehicle am I buying?

Bo: It’s not uncommon if you go buy a new vehicle from a dealership. They might have incentives say, “Hey, we’ve been listening to the money guys and we know that they really like helping people make wise automobile decisions.” So, we have special financing right now that if you do 238, we will give you 0.9% over the next three years. And you may decide, okay, I’m a little bit behind on my savings. I really want my money to be working for me. I don’t want to take a pause and rebuild that emergency fund. I’m going to take advantage of the 0.9% financing. I’m going to do that over 36 months so that I can get my dollars working. You may very well arrive at that conclusion and I would be okay with that. Now, having said all the mathematical stuff, at the end of the day, I don’t like car payments and I love paying cash for cars, but there is an opportunity cost when you do it and it’s worth acknowledging that that exists.

Brian: Well, and that’s why I want to bring it back to what car are you buying? Because here’s the thing and I’d be curious to get your take on this, Bo, because I had co-workers. Remember, I come from a public accounting background, so these are naturally people who are decent with money because they’re already CPAs. And I’ll never forget that I want to encourage Zreg to undershoot what you can afford, meaning that you probably can afford at this level of income to have this type of savings rate the BMW or something even nicer. Shoot for the Honda, Toyota. I know you’re right now you’re thinking, “Hey, but ego wise it’d feel so much better.” And that’s what I because I had a friend and he’s turned out okay, but he considered himself a car person. He was always buying the BMWs and then I was always buying the Mazdas and those type of things. And I’m so glad I undershot the car I could afford back in my 20s because it sets it up to where you can build that financial base and the army of dollars that much easier and then save the nice cars post 45. Um because then it just the wealth multiplier is just the impact is just so small compared to when you’re in your early 20s. I mean, you go because cars depreciate like rocks. They only make you feel good for a little bit.

Brian: I even read a post. Where did I read that post? It was a co-worker talking to another co-worker that they had their eye on this really nice car. They were making $14 an hour and finally the line manager said, “Hey, I was you, but let me tell you what’s not going to impress those girls that you think are going to be impressed by you driving that car is you buy that nice car and then you’re driving home to your parents house. It’s not going to be as cool as you think. So, you’re probably putting your resources in the wrong thing. You might want to focus on getting all the other financial stuff because the vehicle is probably one of the last places that should be an indicator of your success. I used to think about the fact and I think it’s okay to show up in a Honda Accord or a Toyota Camry for many years to come and then surprise everybody in your late 40s when you go buy the fancy car because you’re in step eight and why not at that point because you can’t take it with you.

Bo: I’m going to share a little bit of this is a little personal story of mine. But I recognize there’s biases riddled all throughout. So don’t read this as prescription. I’m just sharing something of mine. Couple cars ago, my wife and I, we got a luxury car, right? You know the one, it was that white one. It was real pretty. It was subsidized and every time we bought it and we paid cash for it, but every time that we drove, I was like, God, it just smarted. It bothered me and I was like, oh, this I just because I knew the opportunity cost and what those dollars could have done. I never found a ton of utility in that automobile. My wife, tons of utility. So, you got to like measure that. But then fast forward a couple years ago, I was going to buy a truck and I was looking at really really nice trucks, the one I was looking at specifically, but it was super super expensive and I was like, man, I could do this. And we were in a position where we could buy it. I was like, man, I don’t want to have that same regret. Like I’m driving this thing like why? And I end up buying a much more reasonable, much more affordable automobile and I love it every time I drive it. So, I think you have to be true to yourself, Zrex, to understand, okay, if I go buy the nicer car, and I do that at a young age, like 29. Am I going to constantly kick myself over the opportunity cost and what those dollars could have been, or might I be in a better spot if I go with a more conservative, more reliable, more I don’t want to say base level, but like the not luxury automobile and set your future self up to where you get to make those decisions and it doesn’t matter.

Brian: Yeah, I think vehicles are just a mess. I mean, y’all know I have a dislike, I have a dislike with my wife’s taste in vehicles and I we had to buy, no, we leased which gosh those words coming out of my mouth just makes me sick to my stomach. Still not used to it. But I think it’s interesting that I was looking at this dealership we were at, and I saw this couple who’s probably your age, Bo, and they had two kids that were in the five to seven range, and they’re climbing all over this vehicle, and they’re looking at the same vehicle my wife’s looking at, and I’m like, Lord, I hope they funded their 401(k) because at their age in that mid-30s range, buying this luxury SUV so the wife can look so good is a disaster unless they are way overfunded and way ahead of the curve, which I don’t think they are. I don’t think most people, so just money, the marketing arm of vehicles has done such a good job of people thinking that you will be loved and adored and desired more by the vehicle you drive. And that might make you feel that way at the dealership, but give it a month or two and you’ll quickly just realize, nope, you’re just left with the monthly payment and then the fast depreciation that these things create.

Bo: Chicken nuggets under the seat of a luxury car are just as gross as they are under the seat of an Accord. You got to clean them up the same.

Brian: Well, timing matters with wasteful purchases. Have a time and place in your life. There will be. But it is time and a place. Don’t force those decisions.

Rebie: Love that. Yeah, lots of good things to think about there. Zrex, thank you for the question. Email [email protected] if you would like a MoneyGuy Tumbler.

Closing (1:05:31)

Rebie: Thank you to everyone who asked a question today, joined us, had fun with us, laughed with us in the chat. Remember that even though we won’t be back live until next Tuesday at 10 a.m. Central, be sure to subscribe so you see all the other content that we release and be sure to go to moneyguy.com/resources to take advantage of all the free stuff we offer that will give you a deeper dive into all the things we talk about on the show.

Brian: Guys, it’s been an absolute blast. I’m your host, Brian, joined by Bo, Rebie and the rest of the Money Guy crew. Money Guy out.