Is a $100k Income STILL Enough to Buy the American Dream?

Introduction: The Messy Middle (0:00)

Daniel: We feel like we’re making as many right decisions as we possibly can. We’re thin with this. We’re frugal with that. We try to be good stewards. We try to set our future selves up for success. And then we still at the end of the month, we’re like, I’m doing something wrong.

Brian: In the messy middle, you now got to figure out what’s the sacrifice. I’m seeing a lot of goals, but I’ve seen a lot of hard decisions.

Meet Daniel and Hannah (0:24)

Daniel: I’m Daniel. I’m 31 years old.

Hannah: And I’m Hannah. I’m 28 years old. And we’re from Dothan, Alabama. And welcome to Making a Millionaire.

Bo: I am so excited because this is the show where we get to talk to millionaires and millionaires in the making. And today is no different. We are joined by Daniel and Hannah. Guys, thanks so much for being here with us today.

Daniel: Thank you for having us.

Hannah: We’re excited.

Bo: That’s my line. That’s my line. I didn’t even mean to say that. So, why don’t you do this—walk through—who are you guys? Like, give—what are your names? What are your ages? What do you do for a living? What’s the family situation? Walk us through that real quick.

Daniel: I’m Daniel. I’m 31 years old and I work at a small business. We’re a print shop and marketing and design firm. Been there for a couple years.

Hannah: I’m Hannah. I’m 28. I am a music teacher at a local elementary school. I also teach computer science kind of on the side. We have two beautiful girls. We have Charlie who is four and we have Ally who is one and a half.

Bo: I love it. So, when I hear a four-year-old and I hear a one and a half-year-old, my mind immediately thinks messy middle. Are y’all—would you say that you guys are in fact in the messy middle?

Hannah: Yes.

Bo: Where you find you have nothing but tons of discretionary income and nothing but tons of discretionary time and so life is super super easy right now, right? That’s the way it is, right? Obviously, obviously that’s the way all of us in our 30s and 40s and 20s feel. That’s awesome. Well, thank you guys so much for being willing to sit down and talk with us because I think a lot of people are in the messy middle and they’re trying to figure out how do we make all of this work? How do we line all of this up? And so you guys were kind enough to share with us a net worth statement showing, hey, this is kind of where we are today.

Net Worth Statement Review (1:56)

Bo: So if you’re okay, we’d like to kind of just run through that—sort of level set. So when we look at your net worth statement, the first thing that I immediately noticed before I see anything else, Brian, there’s no debt on this net worth statement. That’s incredible. That is amazing. And that is—that’s worth celebrating right here. You guys—did—have you ever had debt and you paid it off or just you’ve stayed out of debt the whole time?

Daniel: We did. When we got out of college, we came into—came into the marriage—I had a little bit of college debt and we paid that off pretty quickly. This is before we knew about the steps or anything like that, but we just knew we kind of want to get that out of there as fast as possible was kind of the mindset.

Bo: Love it.

Daniel: And I kind of felt bad bringing that into the marriage. Hannah didn’t have any debt and I kind of was bringing on this car payment and bringing on the student debt and whatnot. So, but that was our priority. We knew that financially going into our marriage. We knew that debt was the first thing that we wanted to tackle financially along with saving.

Bo: But how’d you know that? Like what—what was the thing that—how—

Hannah: The word debt just—I feel like had been thrown around so we’d heard debt, you know, that’s a scary word. So we’re just like—four-letter word—in order to grow. In order to grow financially with our family, we had hoped to pay off that debt first thing.

Brian: I love it. I do want to celebrate. If you watch any of our net worth by age series, y’all are at a key crux point—there is—you cross into as a 30-year-old and you’re slightly over, you’re slightly under. But so I give you all the benefit of doubt that y’all are essentially 30 year olds. Is if you can have one times—if your investment assets can be one time your earnings, you’re crushing it. You’re way ahead of the curve. You’re doing everything right. And when I look at your net worth and then look at your annual income, I recognize you guys are doing a lot and making it happen at such a young age, that’s something to be definitely celebrated, and I’m super excited for you guys to be on the show today, too.

Bo: Yeah. As you guys sit here right now, you have a household income of $100,000 and a net worth of about $104,000. Give us some feedback. How do you feel about that? Like, do you feel like, “Oh, man. We’re crushing it. Life is great,” or “we’re behind the curve, ahead of the curve.” What’s sort of your feeling for where you are right now today?

Daniel: I think it feels pretty good. I know that was kind of the goal was to get to that one times your—you know—kind of following the rules and whatnot. We had a whole 5-year plan ready and we pretty much failed at that the first year and a half. We said we were going to start grinding, start working, go through, you know, rising through the ranks and typical 5-year plan after you get married. Let’s not have any children. Let’s enjoy ourselves and all that. And then, you know, a year and a half later, we’re blessed with our firstborn. So kind of had to punt, you know, audible a little bit.

Hannah: We pivot.

Daniel: Yeah, we pivoted pretty good. But yes, this feels—this was definitely a goal of ours. So it’s a—this is a, you know, little clapping for ourselves a little bit.

Brian: I love it.

Retirement Account Consolidation (4:34)

Bo: Well, so you’ve done a great job saving. You obviously have some investment assets. You’ve got Daniel, you have two 401(k)s. Looks like an old 401(k) with about $18,000 in a new 401(k) or current 401(k) with about $13,000. Any reason why those are different, not consolidated into one?

Daniel: That is definitely one of the topics we wanted to talk about today. It was just an old 401(k) and it was—I worked at a Fortune 500 company, so I left it there. It seemed like a good enough plan. So, it’s a really big custodian Voya, I think. But yeah, it just seemed like it was a good enough plan and truthfully, I didn’t know enough about the taxes, so I was afraid of touching it. I just thought this was working for me. I’ll just leave it here. It seems like it’s in a good enough—you know—I didn’t get to exactly pick where the assets are exactly but it just kind of—their aggressive fund if you will. So I don’t know all the breakdowns.

Bo: What about their current 401(k)? Is it a good 401(k)? Good investment options—fairly robust.

Daniel: I think it’s fewer options on this one. Again it’s more of their—just spread out into an aggressive portfolio. But this one is in a Roth 401(k).

Bo: Well, one of the great things is even if you have an old 401(k) that’s pre-tax and a new 401(k) that’s Roth, most 401(k)s are set to hold both types of those assets. So even if you were to consolidate this into your new 401(k), it’s not like you would lose that money being pre-tax. It’s not like it’d have to be converted to Roth, you could still bring it over—pre-tax 401(k) to pre-tax 401(k). In our experience, a lot of times if your new 401(k) is good, it makes sense to have them in the same place just because it’s easier to manage. Just having one account instead of two accounts allows you to have a better view and a better idea on ultimately what your dollars are doing and what direction that they’re moving in. Make sense?

Daniel: Absolutely.

Bo: And then Hannah, you have sort of two different retirement things going on. You have a 403(b) that you’re contributing to. And then you also have a TRS pension plan that you’re paying into in the state in which you work.

Hannah: Yes.

Bo: What—always contributed to the—because a lot of—a lot of educators, they don’t do both. They might do one or the other. What made you decide to do the 403(b)?

Hannah: I worked at a private school my first two years. I kind of did it backwards. So I was in private school for those first two years and when we talked about investing they advised me—do a 403(b)—and so I put that in and then when I transferred—we moved—they told me you know eventually you’re going to roll this over and life got hectic and crazy and I’m not as financially responsible as I like to be. So I didn’t roll it over. So it’s currently still sitting there.

Bo: Just an old 401(k) that’s sitting there.

Daniel: What’s fun about that account is we kind of forgot that existed actually. So that was an old—that was her old employer. She hasn’t been there in four years. And then when we were kind of doing this, we remembered, hey, you have that 403(b).

Brian: Amazing.

Daniel: We need to figure out what to do with that because I think actually it was paying—you know—it might be managed possibly. So we might want to look at that. But then we were shocked to see that it had $7,500 bucks in it. I was worried it was all gone.

Bo: Yeah, one of the things that I love you just said is, hey, this exercise to come on—come on to Making a Millionaire. We had to pull together all of our stuff and had to see what all we have and where it’s all at. You know, that’s not something you only get to do when you come on Making a Millionaire. One of the things you can do, and we love doing this every year, is an annual net worth statement. And if you do an annual net worth statement at the end of every year, it allows you to see, oh my gosh, I forgot about that account. I didn’t even know there’s $7,500 I didn’t even know that I had. Yeah. So, that’s a great exercise that you guys should consider because I’m guessing you don’t do that right now since you didn’t know about that. That’s a great exercise for couples to begin doing together just to make sure, hey, are we moving in the direction we want to be moving and do we understand where all the parts and pieces of our financial life are, right? And it can be a great communication tool as well.

Brian: It’s a great communication. It’s a great dashboard just because these conversations we’re having—on the old 401(k)s versus the new, what are the internal cost structures, what are the investments? Every year you’re going to get a reminder—hey maybe we can make this easier on ourselves by consolidating.

The Publix Connection (8:35)

Brian: Also I mean I thought when you’re for such a young age I did still see a lot of life in your net worth because—it was so cool to me to also—because y’all got Roth IRAs—you both have Roths—but then I liked Daniel you have—you worked at Publix—was that in high school and in college I’m assuming?

Daniel: I wish I would advise anybody who is you know 15-16 whatever—start working at a Chick-fil-A, Publix, somewhere like that. But no, this was just in college. It was—I was broke. I ran out of my scholarship. I need to start paying for classes. It was time to grow up. And I said, “You know what? I’m going to apply everywhere.” Publix was the first person that called. So—

Brian: I love it.

Daniel: And it turned out to be great for me.

Brian: Part of our content team is Daniel. He was a Publix guy. He was a Publix guy. He always was very positive on the college experience—on between scholarships and all the way they treat. This—it warmed my heart to kind of see that sitting on the net worth statement. It looks like even for a college student, this was something that bared fruit that started creating assets that are going to compound over the long term for you.

Financial Order of Operations Assessment (9:33)

Bo: So, here you guys are with $100,000 of investment assets. And so, one of the questions we like to ask our guests here is if you are familiar with our content, you were telling us before how both of you are huge fans of the Monday show. Where would you say you are in the Financial Order of Operations? And if you’re not familiar, this is a nine-step process of what to do with your next dollar. He literally wrote the book on this. Where would you guys say you are in the Financial Order of Operations?

Hannah: I think step four. That’s what we’re currently working on.

Daniel: Yeah, definitely step four.

Brian: Step four. Building up—there’s a lot of confidence. I love that you have this confidence about it.

Hannah: We’re working on it.

Brian: Yet, in a minute, we’re going to pull up what you’re actually doing.

Daniel: We might have ping ponged a little bit in the steps.

Brian: The accountability of this is all going to come together. We’re going to see, man, are we really—because you are, by the way, we would agree you are indeed in step four. We should be in step four. But Bo, I would like for you, can you walk us—walk our audience, you know, Hannah, Daniel through what are they actually doing with their money?

The Savings Strategy Reality Check (10:43)

Bo: Yeah. So, when we look at your cash holding, remember again, you said that you have about $5,000 in cash right now across your current cash holding accounts. Well, you know that our goal for a fully funded emergency fund is somewhere between three to six months of living expenses. So, I’m going to pause here for a moment. Would $5,000 cover 3 to six months of living expenses for you guys?

Daniel: Absolutely not.

Hannah: No.

Bo: Okay. So, it is wonderful that you recognize—

Daniel: One month.

Bo: We are—we are in step four, right? But when we look at your savings strategy, when we look at how you’ve been accumulating and how you’ve been building dollars, this is what we see right now. Right now, Daniel, you’re putting about $5,200 a year into your Roth. I know you guys do a lot of weekly saving, but we actually total it up—about $5,200 a year in your Roth. Hannah, you’re doing about $5,200 in your Roth. Daniel, your 401(k) has about 5% going into it. You get a 5% match. I’m assuming you’re maxing it out to get the match.

Daniel: Correct.

Bo: You do have money going into your high yield savings account. So, that is the step four part, building that—of about $3,600. And then, Hannah, you’re required to put money into your pension, right? So, you have to put 6% or almost a little over $2,800 into your pension. And by the way, that puts you at a 22% savings rate, which sounds awesome, right, for—and that’s probably understated because it doesn’t even include the TRS.

Brian: That’s right. Has some funding going in. It’s just—it’s much harder to determine what that number is because of the way they calculate it. But, see, y’all are doing great. So, we love seeing this and that sounds awesome—

Bo: Except for—except for when we asked you where are you in the Financial Order of Operations. All everyone at this table agreed that you are solidly in step four and yet right now I see that you have almost or a little over $10,000 a year going into Roth IRAs. Do you know where Roth IRAs fall in the financial world of operations?

Daniel: After step four.

Bo: It’s actually the immediate next step. It’s step five. And what’s happened so far is I imagine because you don’t have debt. I didn’t see credit card debt. I didn’t see that kind of stuff. You’ve not had an emergency happen that caused you to have to pay for it. That caused things to run out. But that doesn’t mean that it’s not going to happen. And so right now, you guys are living in sort of this uncertain precarious thing that so long as everything keeps working, it’s okay. But as soon as something goes awry, as soon as that unknown, unknown expense happens, you guys are going to be in a rough spot.

The $100 Automation Habit (13:04)

Brian: I would like to point to—I looked at your bank statement and I was trying to figure out all the money lines because it was $100 galore. I mean, so is this you Daniel? Are you—is this automated that all these hundreds of dollars are going into all these different accounts or is this you—every time you get a little extra cash you’re in there and you’re sending them another hundred bucks? What is it? Is it automated or is it automated?

Daniel: It is automated. It’s automated for both of us on Mondays.

Brian: Because it was a lot of money line by the way. I have a sickness myself. I mean I dollar cost average every week with my investments. It really scratches the itch. But I also—I was when I looked at your statements—a curiosity—a question mark formed where I was like based upon how active I see these money line investments going into all these different accounts. Do you dislike cash? Is there—is there a mindset thing? No, I’m not saying that to be funny. I’m just trying to because you—you’re in step four, but I see this behavior where you’re creating this automation that’s leaning it out as much as possible to get the money into the other accounts. What do you feel about cash? Is it—do you feel that’s wasteful because it’s not working? Give us some insight.

Daniel: I don’t think it’s wasteful per se. I think kind of like you said, maybe we haven’t had the unknown unknown happen. We did kind of recently since having these conversations and whatnot, we had our washing machine broke on us. So that was an unknown unknown. That was fun.

Bo: It’s not cheap either, right? That’s an expense you don’t count on. It happens.

Daniel: I think we just kind of been blessed that we haven’t had something like that happen. We both known through this whole process. This is kind of thing we need to start doing is really protecting ourselves. Really for our girls, too. I mean, just not being so thin on the cash and whatnot.

Brian: Because it does create that, you know, and desperate decisions is what we’re trying to protect you from is because, and by the way, I think anybody who’s decent with money and once you understand compounding growth and how your money can work harder than you can, we all immediately fall into this trap of—well, let’s get it in there as fast as possible because you get rewarded for that. But the cautionary tale is is that you can’t get caught without cash when life happens because that’s back to those desperate decisions where you end up going into credit card debt or you end up just sacrificing or medical issues. There’s all kind of things that can come up that can really derail your financial life. And we just prefer—and for you guys what I think is exciting is that you could correct this pretty quickly. It would not—now, what you’re—the way you’re going, this is going to be an aching pain that’s just going to nag you for years because your cash reserves is just—it’s anemic at how it’s growing. But that could be quickly corrected if we actually turn that discipline towards actually correcting this problem.

Emergency Fund Reality (15:57)

Bo: So, when we ask you guys, what is your monthly burn rate? Like, how much does it cost you guys to cover the expenses every month? Do you have a bead on what that number is?

Daniel: Say what? Off the top of my head, $4,100, maybe more than that, but somewhere—$4,000-$5,000.

Bo: You guys, you actually gave us a budget that we were able to look at. So, we kind of have some insight into what it looks like and you guys did a great job of sort of breaking it out in terms of, you know, what are the needs that you have, your wants, what are the wants that you to spend money on, and then you do have these savings buckets where money is flowing in. And so, what we figured is that your total monthly expenses realistically are somewhere around $5,100 a month. So, right there at that $5,000. So, because you guys are both working and you have a household income of $100,000 and you make close to the same incomes, we think that that would substantiate you could probably have about three months of living expenses as an emergency fund as opposed to some people need six. We think because you guys have some other stuff you’re trying to do that three months makes sense. So where we ultimately want you to get is to $15,000 and where you are right now is not at $15,000. Right? So Brian already mentioned this. We’re moving towards this goal and so how are we moving towards this goal? Well, $100 a month is going to the emergency fund. Well, it’s going to take a lot of months at $100 a month to go from where you are to where you need to be. And then what we do have—rolling the dice—maybe maybe life won’t happen this month. $100 more. But then we had this vacation fund and this house fund and we’re going to talk more about those in a second. But looks like those have just kind of been falling into the emergency fund. So maybe even $300 a month on good months that’s kind of flowing there. Well, if you continue at that pace working towards the three months of living expenses, it’s going to take you a little while to get a fully funded emergency. It’s going to—you’re going to be in step four for the next three years and 10 months—assuming nothing bad happens. That’s assuming no kid thing, no medical thing, no car thing, no water heater thing, no washing machine thing. I’m going to go through all the things. It’s still going to take you a long time. Generally speaking, when we think about the Financial Order of Operations, we don’t ping pong. We like laser diligent focus.

Brian: Foo-ish is foolish. Look at that. So, you got to—because it really does. We’re trying to—your next dollar is the entire focus of what we’re trying to do with the Financial Order of Operations. And by you guys bouncing around here, it is the—fruition. It’s just—I worry you’re opening yourself up to more risk than you probably recognize. And look, you’ve been rewarded because you said nothing bad’s happened so far. But being lucky can only last so long because life does have that strange sense of humor that things just will happen and then sadly when they happen it rains, it pours. Is that—you might have a situation where one of you loses your job. Hopefully not, but it’s the same time that the stock market’s getting beaten up and at the same time maybe a car breaks down. Maybe piece of equipment in the house like a refrigerator that you have to have breaks down and all of a sudden you’re like, “How did all these things all happen at the exact same time? What are we going to do?” And it just creates a lot of turmoil and emotional anguish and desperation that just doesn’t have to exist.

The One-Year Solution (19:14)

Bo: So, one of the things we think that you could do to potentially right the ship is if we instead of doing the $800 a month through the Roth IRA, which is technically step five, we really did laser focus on step four and try to get that emergency fund built up. If you were to shift those dollars into that, do you realize that you can have a fully funded emergency fund in one year? Like one year from now—that’s awesome—you could have that knocked out because you know and Brian talks about this in his book all the time that steps one through four are really about—what do you say—keeping your life out of the ditch—right—they’re about keeping your—so that then you can focus on five and beyond which is really about building your great big beautiful tomorrow and that’s where we want you to get and we think that realistically if you were to shift that $800 from the Roth over to the high yield account you could hit your emergency fund target in one year. How does that sound?

Hannah: That’s awesome.

Brian: Well give us—give us a feel on that too because there is a sacrifice there. I mean you’re not funding your Roth for a year. That does feel—

Hannah: Hurt you more than it hurt me.

Daniel: That does feel kind of hard for me to do I think. But I ultimately I think that is the best thing for us for sure and seeing the numbers on that’s pretty awesome. It’s doable. It’s doable without changing any other habit even.

Bo: That’s right. It’s not even about cutting or shift. It’s just about shifting where the dollar.

Brian: And I want you to marinate on that—that regret of not being able to do a Roth for the year because that will keep you honest and disciplined so you don’t drag this behavior on too long because you know you always worry when you transition an asset or a stream because you got the—you’ve automated your wealth building to a degree with all these $100 a month—you know every few days $100 goes to this account—this account. I mean that—that’s commendable in the way that it’s—it is creating that automatic for the people wealth building strategy. But the problem is we’re about to shut that down and if you’re not scared—you know because—and focus every effort to build up this cash reserves but then flip all that the switches back on as fast as possible, we’re losing out on the most valuable resource in your wealth building journey, which is time. So that loss of one year is expensive and you should bear that. But I want you to just feel like you have a timer working against you so that you’ll keep yourself honest and get back on track as fast as possible.

Daniel: I think we would want to get back on it as as soon as possible.

Brian: I want it to feel like an itch, man. I need to get this thing back fired up.

Daniel: I’ll be eating PB&Js for a while to get us back on it.

Brian: It will probably speed you up and maybe you don’t have to miss a full year because here’s the cool thing with Roth IRAs as well. You get until April of the following year. So if maybe things lined up, you could be like, “Good news. Not—yes, we got the cash reserves funded and we even—maybe we could throw the kitchen sink at the first few months to go catch up last year’s.” I mean, there—there was—there opportunities to even catch up beyond.

Hannah: That sounds great.

Financial Goals Discussion (22:11)

Bo: So you may be thinking, man, we just spent a lot of time talking about cash reserves and some pretty early on stuff. And the reason we do is because it matters. That’s the thing. You have to cover your risks before then you can start focusing on the fun and exciting stuff. But once you do that, then we get to think about the fun and exciting stuff. And so this is where we want to ask you guys some questions. And I’m actually going to direct this at Hannah first. All right. When you think about your financial goals or y’all’s financial goals as a household, what are they? We say that money is a tool all the time. What are the things you want your money to allow you to do?

Hannah: Currently, we would love to buy a house. Okay. That is one of our primary goals. We’ve been renting since we got married. So that’s kind of up on the docket right now. But then long-term in life, we talked about this yesterday. I think when we retire, because we only had about a year and a half before we had a baby come along, we didn’t get to do all the things that we wanted to do in our marriage. We didn’t get to travel. We didn’t get to spend that intentional time with each other. We do spend intentional time, but we didn’t get as much of it. Right. Right. Just in between all the sleepless nights. So when we retire, putting all that money away, we want to be able to not only set our girls up, but also we want to be able to do things as well. You know, when the girls are gone—sad day—but we’ll get back to that—just you and I. So, buying a house along with later in our life, that money helping us be able to live retirement, you know, intentionally with each other. And then also if we want to move close to our grandkids because we’ve seen the benefit of that. We live down the street from Daniel’s parents and it’s amazing. So, doing all those fun things, taking the grandkids to Disney, taking us to Disney, maybe without the grandkids.

Brian: I love it. I love it.

Daniel: I agree. No, that’s—that’s pretty much it. I mean, we—she nailed it.

The $1,000 Rent Situation (23:59)

Bo: So, we have two main goals. We want to figure out how to buy a house and we want to save for financial independence. Those are the two goals that we really really want to lean into. Now, you said something. You said that you live close to grandparents. Does buying a house—will that change? Like, so you’ve been renting and the house you’re renting right now, what’s your current monthly rent that you guys pay?

Daniel: We pay $1,000.

Bo: $1,000. That’s it. Holy—

Hannah: We’re very blessed. Which is hard to walk away from.

Daniel: Very hard to walk away.

Brian: That sounds—is that below market even in Dothan?

Daniel: Absolutely.

Hannah: Absolutely.

Brian: And so, okay, so $1,000 per month in rent in Dothan, Alabama. Give us an idea. Is that a—one-bedroom studio? What is this?

Hannah: Three bedrooms.

Daniel: Three-bedroom.

Hannah: Three-bedroom. Two bath.

Bo: Okay. So, obviously this is—sounds like a pretty sweet situation. Very low rent for a very nice home. What’s the desire? Like what’s behind wanting to buy a house?

Hannah: So, our rental home, even though it is plenty of space for us, it’s hard to walk away from the price that we’re renting. It’s an older home. And I know beggars can’t be choosers. I’m picky. I think I—there’s a sense of home that I would love for our family to have. I want a house for our girls to grow up in. And I mean again, beggars can’t be choosers. We can’t just be looking for a house down the street from the in-laws, even though we love them. It’s just a place to call our own. And we want to do this long term. So, when we buy a home, we want it to be, you know, 10, 15 years. It doesn’t have to be large and beautiful, just a newer home. And then also a home that we can call our own.

Private School Considerations (25:33)

Brian: You have a rental house in a school system. At some point these kids are going to go to school. Is the school system good there or are y’all planning to private school for the kids? What’s the—because that housing—that’s typically the first thing when you start looking at real estate—people immediately go down. It’s even on the realtor websites. What are the rankings of the schools in the area? So, I feel like that’s probably a good thing to kind of discuss as well.

Hannah: Yeah. I love where I teach. I love our school system. However, I think when we—

Brian: Is that in the same—are you—do you teach in the same school system?

Hannah: I do. Yes. As they would go to school, but we’ve had conversations and we think we would gear more towards private school. We think that that extra, you know, it is an extra cost for us, but we think it would be worth investing in for their education and their learning environment.

Brian: I’m sorry to ask for more clarifying.

Hannah: That’s okay.

Brian: Sometimes I see people who jump into the private school train—middle school and high school—or they are—or they start K through 12 and they’re lifers. What were y’all thinking—the whole way? Are you thinking partially?

Hannah: We’ve again kind of ping pong back and forth. I would love for our children to go to school with me. I would trust our school to take care of them. I love our teachers. So maybe after sixth grade or maybe after fifth grade because our school right now is a K-5 school.

Brian: You’re an elementary school teacher.

Hannah: Perfect.

Bo: Now, when I asked you about financial goals, you didn’t throw private school out there.

Hannah: I forgot about that one.

Bo: That’s a big one. It’s a—it seems a big one. Like it seems one—because I think all of us, we have financial goals, but one of the things we have to do is recognize—money is a tool, but money is also a finite resource. We have to figure out—if we have multiple goals, oftentimes we might not be able to do all of those goals. And so, we have to prioritize how important are these goals, how much—so, let’s walk through. You said, “Okay, you want to buy a house. What’s the timeline—when you guys think about buying a house? When do you want to be able to buy a house?”

Daniel: I think more in the most conservative range, probably five years.

Bo: Five years. Okay. And just so I know, what’s kind of the prices of housing that you guys would be looking for around your area? Like what’s a reasonable price estimate?

Hannah: Probably about $300,000.

Daniel: That’s the max. $300,000. Yeah.

Bo: Okay. Yeah. Well, that’s great. If we use that as the max, anything below that will kind of be—kind of be gravy, right? And so when you think about the order of priorities, and I want you to prioritize—you’ve given us three goals. Buy a house, I’m going to say financial independence, but travel and get to spend time together again. And then private school. In your order of priority, how would you prioritize those? Which goals are the most important to which goals are the least important?

Hannah: Buying a home is at the top. Okay. Then I want to say—well because we could go back and forth. The private school is not something that we’re totally set on. We would love for them to attend, but we’re also okay with sending them to the school where I teach. We would love that. So I think we could go back and forth on those. And then I don’t want to say at the bottom, but I mean—this is something that we’ll do incrementally saving for, you know, financial independence. So right there in the middle I think—home—buying—sending our children—you know—the school system.

Private School vs. Financial Independence (28:50)

Bo: So it sounds like what I’m hearing from you guys is buying a house is the number one goal and then I’m going to press you on this. Okay. You said private school is kind of the two-ish but then but also financial independence because that’s going to be sort of an incremental thing that we do. What if the decision to send your kids to private school actually impedes your ability to build towards financial independence or actually pushes that timeline back? Is that a conversation that you guys have had with each other?

Daniel: A little bit here and there. I think that is—financially we would love to do both, but ultimately we don’t want to clip our own wings. However, we also see the benefits of sending our kids to, you know, the—there’s a lot of great private schools in the area and I think some of the educational steps they could take would really, you know, help them out in the future, too.

Brian: But you just gave us a wishy-washy answer. What’s the reality of—because I will tell you this is when I was going through the notes I think it’s important—first of all what would private school cost per child—

Hannah: It would probably be the same as we’re paying for daycare right now—I can’t think—I think a little bit more but it’s in the same vein—it’s probably about $800—

Brian: So—so $10,000 per student?

Hannah: Yes—around $10,000-$12,000.

Brian: When I was looking at y’all’s notes I was like literally if they say that school, private school is another number two, it is going to change the way your retirement looks because you have—you only have this much in resources. You’re in the messy middle. We can pull up the budget again. Y’all are kind of already pretty lean. I mean, you’re not wasteful with your money. You’re very deliberate with it. And then that’s something to be commended. But in the messy middle, you’ve now got to figure out what’s the sacrifice, right?

Hannah: I’m immediately thinking I don’t want to be selfish and just immediately say, you know what, cut the investment. Send the girls to school. Yeah. But at the same time, I trust the public school system where I teach. And you know, that private school is just an extra—it’s vigorous. And you know, as a parent, I want that for my child. We see our four-year-old is very bright, and I want her to be pushed. I want her to excel. But at the same time, I do want to be—I don’t want to be selfish, but I do at the same time.

Brian: Well, and I don’t like you using the word selfish, okay? Because we’ve done so much content where I worry about parents, you know, I use the analogy. It’s the reason that kids’ education typically is step eight, the Financial Order of Operations is—is just when you get on the airplane and the flight attendant tells you, you’ve got to put your oxygen mask on before you put on the kids. How cruel is it as you go through your life, you prioritize only your children only to tell them upon graduation from college, we’re so happy for you. Make sure—make sure that you’re successful with your career because I have put everything I have into you. So strike it big so I can move down underneath you or you know—because which by the way I love—just you’re talking about parents living down the street is great. It’s awesome when it’s optional, when it’s a choice. When it’s a choice, because then you get to celebrate it, but when it’s required and it’s kind of—anticipated or it’s just—I don’t know that I think that that is selfish to make sure you save, okay, for yourself because I want to release you of that because I can sense—it feels selfish. I don’t get selfishness from it at all. Okay.

Home Buying Reality Check (32:17)

Bo: Well, let’s put some actual numbers to it, right? So, but you said your first goal is buy a house. So, let’s talk about that first. I don’t know if you spent any time at moneyguy.com/resources, but we have an entire home buying calculator, an entire resource there that you can use to figure out home affordability. And one of the things that’s unique about the Money Guy show versus other financial shows out there is that we have some unique home buying rules. And I don’t know if you guys are familiar with this, but since you are first-time home buyers, these apply. One of those things is you want to make sure that whatever house you buy, you can see yourself being in that area, in that house for at least 5 to seven years. So, first question. If you were to buy a house in the next 5 years, do you feel confident you’re going to stay in the area that you’re in for the next 5 to seven?

Daniel: Absolutely.

Brian: I even heard Hannah say it’s 10 to 15.

Hannah: I love it.

Bo: So, big check for that one. Next, and this is the one that I think is a little interesting. We don’t require 20% down for first-time home buyers. A lot of people say 20% down, 20% down, 20% down. Well, in this housing market that we’re in where prices have gone up dramatically and interest rates are high, 20% is really, really hard. As you save for it and it feels the house keeps running away from you. Plus, we’d be hypocrites if we didn’t—borrow that our first house. Well, we didn’t put down 20%. We didn’t buy one together, but neither one of our first houses did we put down 20%. So we think that when it comes to buying a first-time home, you might be able to put down only 3% or 5%. Have you guys worked through that math? Have you worked through that thought process somewhat?

Daniel: Yeah. Not completely fleshed out, but yes.

Bo: Perfect. And then when you do buy housing, our goal is we want to keep your total housing cost below 25% of your gross income, right? So that’s what you got to think about from an affordability metric. So you were great. You told us that to buy a house on the high end, because let’s be conservative, it’s going to cost us about $300,000. Well, that’s what it looks like. All right. For a $300,000 house, if we’re going to do a 3% down payment, we got to come up with $9,000. So immediately, one of the things that I’m thinking is, all right, we said we’re going to pull $800 away from our Roths and we’re going to shift it to the high yield savings account and one year in the future, we’re going to have a fully funded high yield emergency fund. Well, then the natural is I’m going to get back to funding the Roths. But if there’s not extra money, we got to figure out how we get to that $9,000 because you don’t want to just pull all of your emergency fund because then you’re right back to where you started. So our cash savings may have to increase even beyond. And that’s where what you guys can figure out is, okay, is this something we put everything towards until we hit the $9,000 or if a house is really five years away, maybe we do some to the Roths and some to the down payment. Y’all have to figure out which one of those makes sense. We know that we buy a house—going to be some closing costs embedded. So we said, okay, if it’s just closing cost—3%, that’s another $9,000 that’s going to go in. So, with that, if we were to put 3% down and have to get a mortgage for the rest, and we assume a 6.5% interest rate on a 30-year mortgage, your monthly mortgage payment is going to be about $1,839. Let me pause there for a moment. Give me some feedback there because you said rent’s $1,000. Give me some feedback there.

Daniel: That’ll take some movement. And I think that’ll take, you know, we had always talked about, you know, if we’re going to buy a house, we need to find a mortgage or we need to buy—and I don’t even know what the verbiage would be—but so that we didn’t pay much over what we’re renting right now. So, it always seemed like—

Bo: So if $1,000 is—and because by the way, with a mortgage, I don’t—maybe you guys don’t know this, not only do you pay principal and interest on the mortgage, there are also other costs like insurance and taxes. So, if we factor those in and the fact that you’re not putting down 20%, you’re going to have PMI on your mortgage payment as well, your total mortgage payment, not just the principal and interest, is actually going to be almost $2,300. So, again, we’re paying $1,000 right now and to go buy that $300,000 house that you desire, is going to cost about $2,300 a month. Give me some thoughts and feedback on that.

Hannah: Scary.

Daniel: Yeah, scary. It’s scary, right?

Bo: Yeah. When you think about your budget right now and you think about an additional $1,300 a month having to go towards housing. Mhm. How do you reconcile that?

Daniel: Sounds some cutting, some splashing.

The Income Challenge (36:21)

Bo: Well, that’s one option, Brian. There’s generally when it comes to making financial decisions, there’s two levers we get to pull, right? What are those two levers?

Brian: You can either cut your expenses to the bone. I’ve already tell—we’ve looked at your—you guys are not—it’s not y’all out there popping the money around. You’re not doing—y’all are—y’all are pretty lean. You’re making good choices. But that means that we—there’s another lever, right? You have to make more money. And—and that look, you’re a teacher. You sound you love teaching. We all know anybody who goes into education, they do it for the money. Obviously.

Hannah: Absolutely.

Brian: It’s not the highest pay. Now, look, it does have a very good retirement though. I don’t want to minimize that. Is that—that—you do this long enough? I mean, my—I’m the—I’m the son of a teacher. I’m the grandson of a teacher. So, I’ve experienced that in my own life. Daniel, your career, what is—because it sounds y’all both love your jobs.

Hannah: We do.

Brian: I mean, what is—is there a chance there’s going to be something that happens over the next 3 to 5 years? You know, this 5-year window that y’all—you’ve given us—that your income prospects are going to balloon.

Daniel: I don’t know about balloon. Probably not balloon. I said, we’re a—I work at a small business now. We’re—I think 20 full-time employees strong. So, as far as upward mobility there, there could be something like that. It would be more—that would probably be more of an investment in itself actually. You know, potentially buying out the boss or something like that maybe one day.

Bo: Not one of the financial goals listed.

Daniel: Not not a goal necessarily. Maybe, you know, there—there are certain things that could happen, but as far as ballooning, no, I don’t know where the upward mobility could be.

Brian: It sounds you love your job. You’re working for a small business. You love your job. But I’m seeing a lot of goals, but I’m seeing a lot of hard decisions. I mean, because—and—and that’s what—and here I’m just going to be—I’m going to be transparent with you. I grew up in a house where we had more love than money. My parents were super happy and I’ve detailed it in the book that I’ve realized the poorest of times for my parents when my dad lost his job was actually some of my favorite childhood memories. So I want to first free you as parents to know you don’t have to have money to make kids happy and create great children who are fruitful and do great things in the world. Money is not going to be the thing that creates the great kids. But if you grew up and I know you come from pretty humble beginnings too is that you start—I always felt I had a little bit of a chip and I don’t know if it’s healthy or not but I always wanted a little bit more because I saw how much my parents struggled from the financial stuff. So I had this push that I had to go figure out how I was going to make things happen. And so I want to challenge you because here’s what I see when I look at y’all’s situation. And I’m not trying to stir the pot because more likely your boss and everybody else is going to see this stuff too.

Daniel: Stir it up.

Brian: But you have a moment in time right now where you’re living in housing that is below market. Mhm. That takes risk down a little bit because it creates margin for you to make some decisions in your life that maybe are a little further out on the risk spectrum to make your life in the end better. What’s more, so I want to—I want to just put that—plant a seed there. I don’t know really if we’re putting fertilizer on it or if it’s even fertile soil, but it is one of those things is because y’all are young. You’re still young enough. And I always encourage people, take risk while you’re young because even if you reach failure, you’re young enough you can recover without much consequence. It’s when people try to take huge risk when they’re my age now that I’m like you—you put—you did it all out of order, but y’all are in a moment in time—and maybe this is even a discussion with your with your current boss is that you know is—how do we reach your goals? But also I’ve got family goals. Because as a as an employer, I mean, we have lots of employees. I’m constantly trying to make sure I’m keeping a pulse on what—how happy are the spouses, how do I feel this person is reaching—has a career path ahead of them so they don’t feel they’re just floundering in a job. I want them—I want everybody here to feel they have a career. So, I hate to be the one when you’re in this happy life that is bearing so much fruit, but I do feel I need to be a little bit of the anvil that says, “Are you challenging yourself enough?” Because I don’t see you cutting a lot of expenses. I just don’t. So you either have to decide, I’m happy with public school. I may be happy in this rental house as long as I possibly can to maximize that moment. And if that—if those two things don’t work together, you have to choose another option—what’s the—and how do I get more?

The Catalyst for Change (41:22)

Brian: As I was driving in this morning and I was looking at y’all’s situation and I was like, man, I just feel these guys need a catalyst for somebody to challenge to say if you want more, you’re going to have to go choose your struggle. And it’s either now or it’s later. Because you’re gonna have to make some hard decisions.

Bo: Or you can reset your expectations. I mean, one of the things that we modeled here is what’s it look buying a $300,000 home? Well, it’s going to cost you about $1,300 more than what you’re paying for rent right now. If you were to buy a $200,000 home, those numbers obviously change. They drop. And so one of the things would be resetting expectations of how do we pull the levers that actually matter and kind of remove the stuff that doesn’t matter a ton because again you guys are in a great spot. You’re doing great things and you’re fairly normal in terms of—you know we all think that the Financial Order of Operations is the straight line. I go from step one to step two to step three to step four to step five. In reality, that’s probably not the case. And in you guys, it’s probably not going to be the case. Your Financial Order of Operations may look a lot different. You may be kind of going to step one and then step two and step three and you’re in step four and before you get to go to step five, you may stay there for a while because you’re trying to buy a house or you’re saving up for another goal and then you begin working. What you want to make sure you don’t do is the decisions you make today, whether it’s how much house you buy or sending your kids to private school put you in the financial circumstance where you cannot continue to improve, where you cannot continue to move towards some of those longer term goals and you just stay stuck in the present place that you’re at. Does that make sense?

The Messy Middle Reality (43:10)

Daniel: We feel we’re making as many right decisions as we possibly can.

Brian: You really are doing that.

Daniel: We’re thin with this. We’re frugal with that. We try to be good stewards. We try to set ourselves up, our future selves up for success and then we still at the end of the month we’re I’m doing something wrong—obviously you know something’s wrong.

Bo: And it seems no one else has that same struggle right now. Everyone else is doing—they’re all killing it. Let me tell you it’s not true. Every—the messy middle—it is a—it is a group—we have different struggles right but everyone—you’re not alone in this. I think a lot of people especially right now in this economic environment in this circumstance a lot of people are feeling that. Take it from us who gets to talk to millions of people a year. You’re not alone. You’re not alone. Social media is the highlight reel. Nobody ever gives you the real.

Hannah: I was going to say I probably—you again, you said you could eat peanut butter and jelly sandwiches every day. I’m the one who—I don’t put pressure I don’t think, but I’m the one I play the keep up with the Joneses game. I’m “Oh, look at this house. It’s so nice. We can do that here. We can cut this and this and this. Add this.” So, I feel that is—we’ve had that conversation of, “Oh, I want to buy a house.” But also, that’s me talking. We definitely as a couple, we want to buy, but Daniel’s also the one who kind of keeps me grounded. He’s “But what if we stayed?” I’m like, “I don’t want to stay.”

Bo: But I love that you have that communication. You know how healthy that is to be able to talk those things out as a couple.

Hannah: It has been an option. I just, you know, I’ve got it in my head. But I—I mean 100% willing to let it go. We want to do what is best for what you know the goals that we’ve set for each other, what we want to do for our family, but also what we want to do for our lives when we’re—you know when the girls are in college and it’s just us again.

Daniel: Yep. And we’ve talked even on the way up here, not only how this conversation, but you know, hey, what if—what if we even picked up music lessons in the summer? You know, what if you start teaching keyboard? What if I start doing—conversation, too? Just little things that.

Homework (45:07)

Bo: All right, before I give you your homework, any questions you have for us? Anything we didn’t answer that you want to get our take on?

Daniel: We did hit on it a little bit. But as far as, you know, putting some of those accounts together, you know, the old 403(b), the old 401(k), what’s the best way to do that?

Bo: So, one of the things that I put on the homework is consolidate retirement accounts. It’s one of the very first things—you have the ability, assuming your current 401(k) is pretty good, you can actually roll your old 401(k) into your current 401(k). It’s not going to be a taxable event. And then it’s going to be housed in the same place. For your 403(b), you can either leave it in the 403(b) structure, which is okay. Nothing inherently wrong with that, or you could go to a custodian like Fidelity or Vanguard or Charles Schwab and open an IRA rollover, and you could roll the 403(b) into an IRA rollover, maybe the same place where your Roth IRAs are. And so that way, it’s all in one place. That way you can see it all. You can keep track of it. And it just makes it that much easier to know what you have going on. It’s as easy as a phone call. You literally call the 403(b) provider. Hey, I want to roll this over. They’ll send you some paperwork. You’ll fill it out. Easy peasy. Same thing on the 401(k). Hey, I want to roll this over to this one—the last information. You can knock it out. I bet you could get it all done in less than half an hour.

Brian: And I’ll throw out Hannah for you a creative option is you might want to reach out to TRS because you’re so young and see what the buy in—if you could buy two—because you taught in private education for two years.

Hannah: Yes, sir.

Brian: You could reach out to TRS and—and some—they do—now you’d have to do the math because it’s not always a good deal but you—it’s at least an exercise to see if you could buy in—buy two years—okay—at your age in so many years out it might not be you might find that these things tie out nicely if you want to accelerate your ability to have that because that’s longevity protection as well—having that good pension if you know you’re going to be there for the long haul but it’s not always good math but it’s at least something to consider.

Daniel: Option.

Hannah: Cool. Yeah. Awesome.

Bo: So, step one of homework, think about consolidating retirement accounts. That’s an easy thing that you guys can do.

Brian: Can I add one thing to that homework? The easy way—because I think you’re longing for us to give the details and it’ll help the audience. Go look at the internal expenses of all the different investments. See if they have index funds. If one does and one doesn’t, that’s going to tell you because that’s—they’re going to go hand in hand. The internal expenses, index funds, and then diversification options is all going to be the things that you’re going to use as the metrics to help you kind of navigate and figure out which one is better than the other.

Daniel: Gotcha.

Bo: Next, you guys should start doing an annual net worth statement. You don’t have to do it on 12/31. That’s when my wife and I do ours, but every year, hey, this is everything that we own. This is everything we owe. And allows us to see, are the places we’re putting our money aligning with the things that we place value on? We actually have a great template that you can use at moneyguy.com/resources if you want a free template or if you want a tool—the whole dashboard—you can go to learn.moneyguy.com and check that out.

Brian: That’s the one we use.

Bo: That is the one that we use. Third piece of homework—we think it would probably make a lot of sense since you are in step four but you’re kind of dabbling in step five. Consider redirecting your Roth IRA contributions from the Roths into your high yield savings account just for a little bit of time so that you can build up your emergency fund.

Hannah: Feel the itch.

Bo: So that you can build up your emergency fund to $15,000, a full 3 months of living expenses. We’re still in the beginning part of this year. So, if you do it quick enough, maybe we even get a little catch-y up next year. The big piece of homework for you guys is I think you should sit down and rethink your goals and priorities. Hey, what are the things that really matter to us the most? We really want to own a home. Do we really want to own a $300,000 home or might we be okay owning a $200,000 home? We really want to send our kids to private school, but does it have to be when they start in kindergarten or could we figure out how to space that out and prioritize what those goals are? Once you have those down, then you can do the math to figure out, okay, well, how much are each of these goals going to cost? And can we accomplish them based on our current income? And if we can’t, how do we have that hard decision around, okay, we can either spend less money, get the expenses down, which are already pretty lean, or how can we create more income? Can we do other things on the side? Can we increase our current vocation? What can we do to begin making more money so that way we have a bigger shovel to be able to fund all of these resources?

Brian: The big part of what makes the Financial Order of Operations work is that everything in life is just an incremental decision. You know, if I make this decision, it’s going to create this result. If I make this one—you guys have a lot. You gave us a lot. But I would just really as a couple, y’all already, you’re fun to be with. You communicate well together. Y’all just make sure you’re now just using those resources, those talents to actually create the plan of the—what’s the incremental decisions we need to be making. I to say it, here’s a cleaner way to say it. What small decision are you going to make today to build that great big beautiful tomorrow? Hannah, thank you for coming on Making a Millionaire. Thank you for being so transparent. I mean, this was—this is not easy because it’s not we gave you all roses of how awesome your decisions are. Y’all got some hard work ahead of you. And but that’s also the sweetness of life. Hard decisions you make now can bear tremendous fruit later. And Bo, that—that’s also a great price segue. If anybody else wants to know what hard decisions or even the decisions that will bear fruit in their life, how can they join and be a part of Making a Millionaire?

Bo: Yeah, if you’d to be a guest on Making a Millionaire, you can go to moneyguy.com/apply. Or if you’d to access any of the resources we shared on today’s show, you can go to moneyguy.com/resources.

Brian: Well guys, I’m your host Brian Preston. Mr. Bo Hansen, Money Guy Team out.