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Kaitlyn and Aaron are just like many of us – juggling kids, careers, and life’s curveballs. But with the help of the Financial Order of Operations, they’re shifting from stress to strategy. In this episode, hear how they’re planning to eliminate debt in under two years, build a $48K emergency fund, and potentially grow their wealth to $6 million by retirement. If you’ve ever felt behind financially, this is the episode you can’t miss.
Learn more about how you can incorporate millionaire habits into your own life and master your money mindset. Cultivating a healthy relationship with money doesn’t need to be difficult, but just like any other habit, it must be practiced and perfected over time.
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Kaitlyn: I had my daughter two weeks after graduating high school and it took me eight years to then get my bachelor’s degree and in that time I then had my second kid in there. This is what you had shared with the team. I feel like I have dragged my husband backwards financially with bringing two kids into the relationship and no savings or a 401(k) before the last 3 years while he’s been contributing to a 401(k) for the last 12 years. We just live a hectic life—something coming up. Beginning to take your finances seriously is a new thing for you guys. So, here’s the question. Can you do it?
Kaitlyn: I’m 32, which is weird to say. Still feel like I’m in my 20s.
Brian: You always will.
Bo: So, how many children do you guys have?
Kaitlyn: We have four together. I came into the relationship with two kids. Okay. And then we just had two and they’re a year apart. So, our house is a little crazy right now.
Bo: Oh, wow. So, what—okay. So, what are the ages? What is our—what’s our span here from oldest child in the house to youngest child in the house?
Kaitlyn: 13, 9, 17 months and four months.
Bo: Oh wow. So it sounds like in just the most wonderful way your middle’s kind of messy right now. Is that right?
Aaron: It sounds like that. Right.
Brian: Oh man. Knee deep in it. Right.
Aaron: I haven’t slept a full night in years.
Brian: I love it. All right. So 32 years old and how old are you?
Aaron: I’m 35.
Brian: 35. Awesome. And then what do you guys do professionally?
Aaron: I’m a design engineer. I make stuff pretty, surfacing and all that stuff. I was very artsy growing up. So, kind of in line with that.
Brian: I love it. Because it’s in engineering, is it also kind of a marriage between being creative and artsy, but also being somewhat analytical in the fact that has to be functional as well? Yeah, that’s great. That’s cool. That’s a cool skill set.
Aaron: That’s part of the challenge and that’s why I enjoy it so much.
Bo: I make nothing pretty. I’ll be very clear. That just seems so foreign to me. Kaitlyn, what about you?
Kaitlyn: I’m an ESOP analyst.
Bo: An ESOP analyst. Holy cow.
Kaitlyn: Yeah, I always get really excited when you guys talk about ESOP show. I’m like, I understand everything.
Bo: I love it. ESOP is awesome. Cool.
Bo: So, you know, one of the things we do here is we talk about, okay, where folks are and I think it’d be helpful. You guys were kind enough to share with us sort of where you are right now financially. So, we put together a little pseudo net worth statement for you guys that we kind of want to walk through, right? So, you sent us all your statements. You sent us all your information. As we sit here today, right now, when we look at the cash that you have on hand between your savings account and your cash plus account, you have about $12,500 there. Now, our rule of thumb generally, we like to talk about three to six months of living expenses in liquid cash. Does that cover 3 to six months of living expenses for you guys?
Kaitlyn: No.
Aaron: No.
Bo: Okay. All right. So, I’m going to make a little note here. We got to talk about emergency fund at some point. All right. We have investment assets. Now, you guys are again in your mid-early 30s. You’ve already got $122,000 of investment assets saved up. Aaron, looks like you have two 401(k)s. You have a new 401(k) and old 401(k). What’s going on there?
Aaron: The old one is my first job. I worked there for 10 years. Then I switched to a different venture for a year and a half and then that started that new one. Okay. And now I’m back at my original job. So that first one is building continually here.
Bo: So the new 401(k) used to be the old 401(k), but now it’s the new 401(k) and the old 401(k) is the old—new 401(k) is now the old. I just want to make sure I have it all. I just want to make sure that I got it all down. So any thoughts on consolidating those two? Is there a reason why needs to be done?
Aaron: I know before—before we got smart with money, I would say my thought was let me take that old 401(k), the lower one. Is there some way we can invest that differently was my thought. But now I’m kind of like, well, probably the best investment might be just to roll into the new 401(k), get it all consolidated, working on the same sheet of music, moving in the same direction.
Brian: Well, it’s also nice when things are housed in the same place. You can still do something different within the same custodian, but it just makes the logistics of managing it so much easier.
Aaron: And it’s not—yeah, I’m not—I’m not good at the logistics part of things, so it’d be good to just let it—get it all in one.
Bo: So, and then what about Kaitlyn? You have a 401(k) right now has about $22,500 in it. I’m assuming that’s for your current ESOP analyst position that you’re in.
Kaitlyn: I had rolled over all my old ones after the first episode of Making a Millionaire when they had all the different—
Bo: She just said, “Look, I did—I did what I was supposed to—needs improvement is what I just heard.
Kaitlyn: His 401(k) is why that number looks decent right now.
Bo: So, and then we have a joint after tax account. Looks like it has a couple hundred bucks in there presently. Now we look at the other assets, right? So, the non-liquid assets on your balance sheet. We have your primary residence which is currently valued about $250,000. And then it looks like there are one, two, three, four automobiles on—walk us through that. What’s going on with the four cars?
Aaron: We have a lot more than that.
Kaitlyn: Yeah, we have like a dozen.
Brian: A dozen. You were just too scared to share this in the interview.
Aaron: It’s—they’re mostly classics. And it’s hard to put a value on that. Okay. And a lot of them—they’re not—a couple of them are nice, but they’re not restored and it’s, you know, it’s whatever someone’s going to pay for.
Brian: And was it one of those pictures that y’all—y’all sent us some pictures. Was that a duster or what? What was—was it green?
Aaron: Yeah.
Bo: Was that like a 1971 duster?
Aaron: ’74 duster.
Bo: Look at that. How’d you pull that out?
Brian: Remember, I grew up in a household. Remember my brother, my dad restored a bunch of cars. I’m the only one that wasn’t turning the wrenches.
Bo: So, okay. So, you got a dozen cars, some not restored, old cars. For my just from my understanding, how did you delineate which automobile showed up on the balance sheet versus which one did not show up on the balance sheet? Like what is—is there something unique about these four automobiles?
Aaron: I think those you can go to NADA, KBB, and you can find the actual value of it versus all the rest of them. I mean, you can go to Hagerty, you can look at what they could be worth, but still—in the middle of Kansas. It’s whatever someone pays for it. So, it’s not—I couldn’t tell you how much something was worth because its condition isn’t—all the condition of these old cars are different, right? If they’re not restored, if it was restored, you could.
Bo: Sure. Are you restoring them? Is this a thing that you do? Walk us through this—is this a hobby pastime thing that you—
Aaron: It’s the thing she dislikes the most about my hobbies that I spend—it cost a lot of money to do this. So I’ve always been—
Kaitlyn: I’m okay with your kids.
Aaron: Yeah, she’s okay with the cars, but we need to focus on—
Brian: Well, I want to just because I come from a little—I have side knowledge of this—meaning growing up beside this my whole life and like my brother and my dad would be in junkyards on the weekend, you know, parting out cars if I could. Look at her. She just—
Kaitlyn: I’ve gone with him to the pick and pull lots a couple of times when we first started dating.
Brian: Fun dates, right? When you show up in your own toolbox and you go out there and you take it off. I mean, it’s pretty interesting. And then also going to car shows and is—so all this is kind of—and then so you get all the catalogs coming in from all the different parts places.
Aaron: I don’t consider—so I don’t consider myself a catalog shopper. I’m more of the junkyard guy. So I have this expensive hobby, but I try to do it as cheap as possible.
Brian: Do you have—are you Mopar since you have the—so you’re a Mopar person?
Aaron: Mopar. If I was to pick an American company, yeah, it’d be Mopar.
Bo: So I’m just going to sit this one out because I’m speaking a foreign language right now.
Kaitlyn: I do know some of those cars don’t show up on there, too, because they’re not going anywhere ever. The duster never going anywhere.
Aaron: There’s some that are extensively modified. I’ll put it that way. So you can’t—there’s no way to know the value of them.
Brian: Got it. So, you’re just going to ask one more question. 340 or 318 in that truck?
Aaron: I swapped in—I don’t know what they’re talking about—fuel injected 318 from a mid-90s Dodge truck.
Brian: Look at that. That’s awesome.
Aaron: I paid $300 for that truck. I got the whole swap in there with it. And for super cheap. Like I said, I try to be as cheap as—
Bo: So, for this hobby, you’re trying to be financially responsible. You’re not just throwing—and look, you’re nodding at that. That sounds good. This is something y’all seem like y’all are on the same page about.
Kaitlyn: Oh, for sure. Yeah.
Bo: Okay. Awesome. All right. So, we have these automobiles that are grotesquely understated in terms of volume right now. Yeah. And then now we also have some 529—some funds for the kids that are set up. You said you have two older kids and two younger kids. So, I imagine that’s why some are larger than others, but in total almost $30,000 in 529 assets that you guys have built up.
Bo: And then we have the debt side of the ledger. Your mortgage currently is about $159,000 at a 3.25% rate. That’s a fantastic rate. There’s a lot of folks who really wish that was their rate right now. For the car, looks like the only one that has a loan on it is the Subaru. You owe about $29,000 on that at about 8.4%. And then both of you have some student loans. It looks like the weighted average rate is somewhere close to 4.5% to 5.5%. We’ll dive into that a little deeper. I want to know that Subaru, was that purchased with 20/3/8?
Kaitlyn: No.
Brian: Walk us through the terms on it—on that car loan. What happened there?
Kaitlyn: We traded in two cars. One was underwater and then—yeah, we went by the monthly payment after that. I think it’s safe to say it’s before—before she kind of got into being financially responsible.
Bo: Got it.
Kaitlyn: It was—we bought it in April. I went on maternity leave in November in which I started watching a lot of YouTube and found the Money Guy.
Bo: So, this is relatively new—beginning to take your finances seriously is a new thing for you guys. You’ve recognized, hey, maybe some of the decisions we’ve made thus far aren’t perfect, but now we want to figure out how we right the ship.
Brian: And I also—I want you to feel—you fell into the exact same trap because your numbers are actually so similar to the averages now because I mean y’all financed it for 72 months.
Kaitlyn: Yes.
Brian: And then you know so you can see that and your payments are right—a little over—what is it—$700 a month is what the minimums are. So that’s how they get you and that’s what you’re—you’re right in those averages because I think that’s where the typical American is now. Their car payment’s a little over $700 bucks. They’re getting out beyond 70 months on the financing. So, you fell into the trap. It’s our job and you guys sharing your life story is going to be hopefully what lets people see there’s a better way to do money so you don’t have to fall into that trap.
Bo: So, when we look at this, I’m curious to know because you said you found our stuff and it’s relatively new, but you’re familiar with the Financial Order of Operations, right? It’s this nine-step tried-and-true process of what to do with your next dollar. We think people kind of use that as guard rails to figure out where they ought to be. If I were to ask you guys, where are you in the Financial Order of Operations? What would your answer be?
Kaitlyn: We discussed this.
Aaron: Yeah. I know at one point we were kind of bouncing around a little bit.
Kaitlyn: Yeah, we are kind of—we are technically paying off high interest debt because I’m trying to pay off the car. Okay. But we also are—we are also funding 529 accounts.
Bo: There we go. When we look at this, we see some step eight stuff, but then we also see some step three stuff and then we don’t have a whole lot of step four stuff. And so I think one of the things we’ll be able to do is kind of hone in on that and figure out where that is. Now, before we dive into that, because that kind of shows you where you guys are today, but you mentioned you’ve really just kind of taken this seriously in the last, you know, couple months, couple years.
Aaron: Couple years. Yeah.
Bo: Walk us through the story getting here, right? Like what was your prior history with finances growing up. What was your background? You said that you guys came and it was sort of a blended family coming together. Walk us through how that was from a financial perspective.
Aaron: I was never good at budgeting or anything like that. I got really lucky when I started my job that someone told me, “Hey, make sure you get that company match.” And I’ve been doing that the whole time.
Brian: That’s great.
Aaron: But that’s it. I just did the bare minimum match and then I ignored it until after I met her and one day she’s like, “Hey, how much—you know how much you got in that 401(k)?” And I looked and it’s been like, you know, 12-something years before I’ve even thought about. Yeah. And there was like $85,000 in there.
Bo: Was your mind kind of blown away? Like, okay, I just got to set it and forget it. Let these do and holy cow, I’ve got almost six figures of something I didn’t even have to think about. That in and of itself is a testament to what money can do when you leave it alone and let it do the thing that it’s supposed to do.
Brian: Automatic for the people—if you just let it happen and do its thing. It really is an amazing thing.
Aaron: But that’s, you know, that’s my story. That’s where I got where I am now. I would take my expenses and list them out and say, “Okay, here’s how much money I have to buy car parts or there’s a car I’ve been looking at. I can save up for a couple months and get it.” That sort of thing. It was like balancing a checkbook, you know, but no, there wasn’t a budget per se.
Brian: That small decision though, I love that because that’s a part of our big saying is small decisions create massive results for the future. And I love just hearing that one little decision. Somebody nudging you—hey, go sign up for the 401(k). Get the match. I mean, it’s going to—we’re going to blow your mind at the end of this to show you a plan to get you through some of this debt. You’re about to share your story. You probably feel a little behind in some areas. We’re going to show you a path out. And that little decision, it’s going to be a bunch of little decisions, but it’s still so exciting and I can’t wait for us to share it with you.
Aaron: And I can’t stress how unimportant that felt, too, when I did it back there. You know, it’s like, okay, fine. I’ll just, you know, someone told me to do it. I’m going to do it.
Brian: You choose your hard. You chose—it’s easy the younger you start. Your hard doesn’t have to be until—we’re going to get to the hard in a little bit, though.
Bo: That’s right.
Kaitlyn: I had my daughter two weeks after graduating high school, so she’s been a big part of it. And it took me 8 years to then get my bachelor’s degree. And in that time I then had my second kid in there. I’m very, very grateful. My parents let me live with them. So that I didn’t have to worry about living necessarily. I got my first job after college. Oh my gosh, I am going to be all emotional.
Brian: It’s okay. It’s okay.
Kaitlyn: And then COVID hit. Yeah. So I lost that job. I met him in the middle of that. Took a long time to find another job. And I actually found another job in Kansas because I was living in California at the time. I moved out here and then I went back to school for my MBA. I got my current job with my MBA. So it was great. I doubled my income. I got all these great benefits. It’s remote.
Aaron: It’s remote. Yes.
Kaitlyn: That is the best part—with kids being remote is great.
Bo: Yeah. So what I’m hearing you say is I imagine if you were going to write your story early on in life, you might not have written it the exact way that it turned out. Certainly from a financial perspective. Some things happened that went differently than you thought and it was pretty difficult I would say right—what you’re describing to me sounds like a very hard road to go down but you did do some things—you took eight years to go get your bachelor’s degree but you got your bachelor’s degree and the stick-with-it is amazing—your master’s degree and here you are at 32 years old and even though it’s not been the easiest path to get here you’ve still been doing the things—hey I made the company match—well then I woke up during maternity leave and I started paying attention to my finances and I recognized even though the path was not as easy as maybe I wish it would have been or it didn’t go exactly what I thought, I recognize that right now I can impact what the future path looks like. And I think that’s amazing because I think so many people out there have that exact same story. Hey, life went differently than I thought it was going to go, but where I am today, I know I can’t go back and change the past decisions. What I can change is what I do moving forward. And that’s exactly where you are. And I think that’s awesome.
Brian: Our goal, like we told you before we turned the cameras and the lights on, was we want you to come out of this better and feeling like you have a path forward. But this one stuck with me when I was reading through the notes. It said, “This is what you had shared with the team. I feel like I’ve dragged my husband backwards financially with bringing two kids into the relationship and no savings or 401(k) before the last three years while he’s been contributing to a 401(k) for the last 12 years.” Now, y’all seem like just in the short time I—I don’t feel like you’re holding any grudges or—I mean—
Aaron: I don’t do that.
Bo: Yeah. I mean, he doesn’t. It’s just something you’re trying to process.
Kaitlyn: Yeah. This is all me.
Brian: And then the second thing and I can tell you’re hard on yourself just by these quotes. Guilt around having a 13-year-old growing up too fast and not getting the same opportunities as her younger siblings. Now, we saw her. We’ve met her. She seems lovely.
Kaitlyn: She’s a fantastic kid.
Brian: Have you ever heard of desired difficulties? It’s not that you want bad things to happen to you in life, but sometimes you find out that bad moments in life can actually create positive things. We’re all going to have struggles in our life, but I often think about what’s funny is my own mother, we were having a conversation. Anybody who’s read Millionaire Mission, you know that my father was laid off. We had a bunch of financial difficulties when I was a kid in middle school. And my mom just in the last week had said, “I just sometimes feel like I was too hard on you guys for the wrong reasons.” And I said, “I’ll stop you right there.” I was like, “What you don’t realize is that sometimes in hard moments, some of the best things come out of it.” I would ask you as we make it through the process, we’re going to give you the financial answers. You’re going to see how you get yourself out of this, but you need to be better to yourself to know it’s okay. And you got a husband that loves you and y’all got to go create a plan. This is going to be awesome. It really is. And I want you to forgive yourself or at least let yourself go to enjoy the moment as much as possible.
Bo: Well, what I love is as you sit here right now, you are in this position to change. You are in this position to change the direction you’re heading. And what’s awesome is you have actually already laid out for us a plan that you guys have sort of based on some of the decisions that you’ve made and how you’re kind of trying to right this ship. And one of those things you already mentioned was around debt payoff. You said, “Hey, we have this goal of how we’re going to pay off the Subaru and then we’re going to pay this stuff off.” And we thought it was great. So, if you look at your current debt payoff plan based on the way that you’re paying now, we know that you’re about to have some daycare costs that are going to come your way. And that again, that’s expensive. We know that. But for the next two months, we don’t have those daycare costs. We know that we have some free cash flow, $700 for the next two months that eventually will be consumed by daycare, but right now we can throw at the debt. And then you also have a bonus coming your way. The after tax amount is going to be about $3,300. So again, you have some capital coming your way, which is wonderful. So, if you take those and you throw those at the debt and you keep paying the minimum payments, you have this really great plan in place where you can see that you’ll have all of this debt paid off in four years and 8 months, right? So, let’s just pause for a moment there. There is a plan for you guys to get out of debt, right? But I think it’s something we can improve upon. I think it’s something—long time. I think it’s something that we can make a little bit better. And one of the things we have to do is really think through the debts that we have.
Bo: Now, we already showed you on the net worth statement that both of you have some student loan debts. And in our opinion, not all student loan debt is created equal. If you’re working through the Financial Order of Operations, you know, there’s step one and there’s step two and then step three is high interest debt. Well, not all debt is high interest debt. And when it comes to student loans, in our opinion, not all student loans are high interest debt. So, we actually broke out your student loans, each of you, to show you kind of what we would consider to be the high interest ones versus the low interest ones. We have this sort of this rule of thumb that we say if you’re in your 30s and the interest rate on your loan is above 5%—that probably qualifies as high interest debt. So those should be step three things. Anything that’s not above 5%—that’s probably not step three. That’s probably step nine—low interest debt or something you focus on later on—maybe once you get into your 40s. So, you can see that when we look at your high interest debt here, you have about $28,000 of student loan debt, plus you have the $29,000 of auto debt. So, we have some things we know we want to begin knocking out. Your plan in place will have you move through this over the next four plus years, right? So, we said, okay, what if we can improve upon that? Right? Because we asked you, hey, where do you think you are in the FOO? And you said, “Well, I know that I’m in step three, but I’m in step three and I’m also—she’s down—I’m also doing this one over here and I’m also doing—” One of the reasons that we designed the Financial Order of Operations was to tell you what you should do with your next dollar and it’s about the very best use of your next dollar. So, we think realistically there is a strategy available to you guys where you could redeploy some of your dollars where if you were to adjust how you right the ship on the FOO, you’re going to have an opportunity to knock that debt out a whole lot quicker. Does that sound—
Kaitlyn: Sounds wonderful.
Bo: Does that sound intriguing?
Aaron: Oh, yeah.
Bo: All right. So, let me walk you through our plan of what we think would look practical from a debt payoff. This is when I get excited. This is fun. So, right now, Aaron, inside your 401(k), I think you’re putting 10% in your 401(k).
Aaron: Yeah.
Bo: But you don’t have to be putting in 10%, right? You get an employer match and your employer match has a required contribution of what—what was it?
Aaron: 6%.
Bo: 6%. So, you’ve made the decision, hey, I want to save more than that. I’m going to save 10%, but you only have to save 6% to get your maximum employer match, right? So, one of the things we think that could likely make sense is, hey, maybe we should decrease your 401(k) contribution to just get the max. Again, we’re working through the FOO. Step two is maximize employer match, then start paying off high interest debt. You kind of jumped all the way to step six by putting 10% in.
Brian: We love saving for retirement, don’t get us wrong, but you guys need to triage your personal situation now. And I think you’ll find if we can do just some short-term—attack this high-interest debt, you’re going to be able to come out the other side of it stronger and better to throw more at retirement in the future because I don’t want to minimize how important it is to save for retirement. It’s kind of like your small decision just to get the match got you to this point. But we do need to take a slight step back so we can focus. Triage is—I say the most important thing in your life right now. So I just want to put that because I didn’t want anybody out there in the audience to watch this and go—man they’re cutting back their retirement. Yes. And sometimes in life you have to take a step back in the FOO. It’s not walking up a stair step. It’s actually you might have to pull back to adjust for life’s events and that’s what we’re doing today.
Aaron: That’s surprising. See I got tricked into raising that to 10%. Because when you log into the Vanguard website, you’re going to have a shortfall.
Bo: Yeah, sure.
Brian: Well, you are if you don’t change it. Now, if you’re—this is a temporary triage moment. We’re fixing where you got some leaks in the system, and then we’re going to come at it with even harder force because we recognize that’s why it’s got—but I need you to feel some pressure on this, too, is that it is not a good thing to cut back the 401(k), right? That is a temporary measure to stop taking on the water of your debt and all these other things that are stealing the money from you.
Bo: And Kaitlyn, sounds like you’re doing the same thing right now. You’re putting in 10% into your 401(k) also, which normally would be wonderful, but it’s more than what’s required to get your match. In order to maximize your match, you only have to put in 8%. So, you are again, you’re in step six when you should be in step three. So, one of the recommendations we’re going to make is to decrease your 401(k) contributions. And then it also looks like you have $50 a month going into an after tax account. Now we’re at step seven over here kind of, right? So we think that if we can restructure some of these, right? Decrease the 401(k) contributions, do away with the brokerage account, and then this one is a hard one. We know that right now you guys are saving about $400 a month to your 529s. Very noble, which is awesome. We love our kids. We want to be able to provide for our kids. We want to be able to provide them opportunities. But when we look at your financial situation and where the dollars could be best utilized, I don’t think 529’s is the answer right now. And it’s not a—it’s not a no never. It’s just a no, not right now. Those dollars might be able to be used elsewhere. So, how does that make y’all feel though?
Kaitlyn: Makes me very nervous.
Bo: It hurts too, doesn’t it?
Kaitlyn: It does feel for the 13-year-old who doesn’t—she’s about to be in high school.
Brian: And she’s so awesome. But that’s—use that power that you’re feeling right now to also motivate you to do this that much faster. It is good to fund the 529, but you have to take care of your finances first. Otherwise, what is the future hold if you’re setting her up that y’all are going to have shortfalls in the future? That’s going to make you do this that much faster.
Kaitlyn: Yeah. Especially since starting funding the 529s was a big step for me.
Brian: Sure. You do realize the 529s are bigger than your savings account right now.
Kaitlyn: Yes.
Bo: That’s a problem.
Kaitlyn: Somebody said, “What are we going to do?” I didn’t pay attention to that. That’s interesting. Okay, keep going.
Bo: If we do this, if we decrease Aaron’s 401(k) contribution, still going to get the match, and we decrease Kaitlyn’s 401(k) contribution, still going to get the match. And we decrease the brokerage contribution. And we re-shift the 529 savings. So instead of putting in the 529, we now have it going towards debt. What’s actually happened is pretty amazing. You’re still saving—you still—because you’re putting enough to get the match. And with those matches, you guys still have almost a 13% savings rate. Yeah. So it’s not like you’re cutting your savings all the way down to the quick. You’re just cutting down to the minimum threshold. You’re still going to be having 13% go towards building for the future. But with doing that, you now have an extra $884 every single month that you can throw at debt. And by the way, this did not change your cash flow. These monies were already going in one direction. You’re just shifting in to what direction they go now. So $884 additional dollars going towards debt. Pause there for a moment. How—
Kaitlyn: I didn’t realize it was that much, right? Like you think about some of those debts you have. Imagine if you had almost $1,000 knocking them out every single month. You then can physically see those numbers start to decrease.
Bo: All right, so we had your plan about how you were planning on paying off the debt. Let me show you what happens when you implement our plan. If you were to do this and we’re going to talk about the budget in a second because if you can do this and then we can look at your budget and you could come up with an extra $500 a month. We haven’t changed any cash flow yet. We just shifted, but we do want to change our cash flow and have an extra $500 a month that could go towards debt. If we do that, we have the $700 for the next two months before daycare going towards debt. We have your bonus. We throw that towards debt. We redirect to realign with the Financial Order of Operations and we can find $500 a month extra from the budget. Look at what happens to your payoff date. Do you see how fast that is? Instead of taking four years and eight months to be debt-free except for your mortgage and low interest debt, you now have it all paid off in one year and 11 months.
Kaitlyn: It doesn’t seem quite real.
Brian: Two years is doable, isn’t it? You can do anything for two years if you had all the things you’ve had to struggle with, you know, that took you eight years, but I know you have tremendous stick-with-it. So, you can do two years in your sleep. That’s nothing for you guys. We’re going to dive into where is this $500 going to come from. But the big thing is I want you to take the energy of—man, I want to get back to funding the 529. I want to get back to the retirement—to be the power because we’re going to pick on you a little bit too. And Bo, I’ll let you kind of lead us into the next transition. But I’m worried you guys have just been tracking your expenses, thinking you’re budgeting, but you’re tracking. You’re not really budgeting. And we can explain.
Aaron: We’re trying really hard. I mean, she has a budget. It’s a great budget. It’s 100 pages long. And we—that we’re doing. Well, yeah, we’re doing pretty good, but you’re right. We’re not sticking to it. Great. We just live a hectic life—something coming up in the middle of it. It’s almost every week.
Bo: Well, let me ask you this quick. I think this will be valuable for other people who hear this. When you put together your budget and you say—I’m going to make up a number—hey, we’re going to have $100 eating out this month. That’s our budget. Yep. What happens when it’s the 15th or 16th of the month and you hit that $100 and the next time you go to—wherever it is, do you not spend money or do you just—ah we’re going to go over the budget this—
Kaitlyn: It becomes a—oh we can take this from—
Bo: Right. So that’s where it becomes tracking because what happens is—and we all fall prey to this—we’ll put all of our expense and we’ll categorize them. All right, this is going to be $500 a month and when I get to the end of the month, look back and it was $762. Oh, I missed it. That’s one of the things we have to do is we have to figure out, okay, how do we actually build a budget that we can stay within? So, you guys were great. You provided us a list of your expenses. We thought it’d be helpful to kind of look through those. And we did some of the work for you. We went ahead and color-coded—categorized them into what we call needs versus wants. And here’s what’s great. You guys have a great shovel. We look at your take-home pay. You have over $9,000 a month of take-home pay coming from the two of you. So, you have opportunity here. So, we put together this list of needs and wants. And what we’re trying to figure out is, okay, how do we find $500? Now, we went ahead and gave you the benefit of the doubt. Daycare. We went with a new daycare amount. So, you’ll see that very bottom of needs, $1,350. We went ahead and factored that in, right? So, I just want you guys to look through this. Where are some areas that we can trim or where are some things that you see like—man? Okay. All right. School lunches. I’m assuming that’s paying for lunch at school. Is there an opportunity? Oh, maybe we make lunch once a week, twice a week. Is that a thing that could happen?
Brian: Let Ellie have—she chooses the days that are the days that she’d really like to because maybe it’s pizza day. Remember, taco Tuesday or you know, whatever, you know. There. But there’s just, you know, get creative with ways that you can trim that down a little bit.
Kaitlyn: The nine-year-old very much enjoys packing her lunch every single morning. So, she does do that one.
Bo: Awesome. Okay.
Aaron: Thing with that is we’re already pushing our groceries budget. You know, it’s like, can we make that work?
Bo: And then obviously there are some things that we want to be mindful of—one of your biggest wants is kids activities, right? Well, here’s what we don’t want to say. Hey, don’t let your kids do any activities. But you do have to be realistic around, okay, are the kids activities, the ones that make sense for them to be doing. Are they doing too many? I know sometimes my wife and I had—I got my kid doing three different things all in one season. I’m like, hey, maybe we could rein this in a little bit and focus on one thing in this moment. We’re not saying that we want you to cut those things out. But we are saying that again, we’re going to show you how long this is going to take. This is short-term pain. Short-term pain. But if the kids activities are something, hey, we’re not willing to waver on that, that’s not something that we’re willing to waver on, that’s okay. The beautiful thing about a budget is you get to decide what’s important to you. You get to decide the things that matter and the things you can do away with. But if you’re not going to cut kids activities, maybe fun money isn’t so fun anymore. Or maybe other needs to be no other, right? You have to figure out where that $500 can come from. So, as I’m kind of talking through this, are you coming—do you have some ideas?
Kaitlyn: Okay, kids activities, $300 of that is for competitive dance.
Bo: Oh, yep. Yep. That’ll do it.
Kaitlyn: That’ll—discuss it.
Brian: Look, I’m not going to tell you to cut out the dance and stuff, other things, but if there’s just anything extra, I know because going back once again, when I was younger, my parents had to sit me down because I had something going on every day of the week. Piano lessons one day, baseball the next, and then you know we—and finally they’re like my mom was—not only was it costing them financially with money they didn’t have but my mom was turning into—this was before Uber but she was essentially transportation director for everything that was going on. So, we’re just saying trim it down.
Brian: And here’s the thing. I’ll go ahead and introduce. We want you to be doing what’s called zero-based budgeting. Meaning that—yeah. I mean, because that’s where you guys—it’s back to the point. Y’all are tracking. You’re doing the hard work of tracking. But you’re not holding yourself accountable to where I feel like there’s this pressure that creates the success. It’s back to Bo’s example—just like the coffee. I mean, I know that you like to go get the coffee. I actually did. But I’m not saying you have to cut it out completely, but there’s this thing about scarcity. It’s kind of like whenever I’ve done any type of fasting or anything else is that when you get to actually—when you create a scarce element, do you know how much more you enjoy it when you do get to do it versus take it for granted when you just do things all the time at a lot of frequency? So, I mean, that’s why everything we’re going to talk about on here is gamifying the system because remember—two years we’re talking—if you guys hit this hard and you gamify this where every month y’all are sitting down as a couple and you’re saying, “Let’s look at what we actually budgeted, not just tracked, but budgeted to spend. Did we go over? What were we under?” Because then you get to move the pieces around where you celebrate. Maybe you celebrate. You say, “Hey, we were so good on saving this much. Let’s go. It’s okay if we do go out to eat this month so we keep our energy up. We keep our motivation.” But you got to gamify the system. And y’all talk about it as a couple and celebrate the successes, but then also keep kind of a—I don’t care if you have a calendar. It’s like a prison sentencing. You’re literally putting tick marks on the calendar—if we can reach this and put the dollar amounts on each month of how much you exceeded the savings, you’re going to turn this into a fun activity. The hard stuff, what I love is when I’ve talked to entrepreneurs, I’ve talked to people sometimes when you say, “What were your favorite memories?” And I even talk about this in the book as well. It can be some of the hardest times of your life because you’re in it together. That’s why you hear about couples who moved to brand new cities and they know nobody, but their marriage got stronger is because the adversity of the situation actually brought them together to feel like they were in this and tackling it. Can you imagine? I just want you to daydream and visualize what it’s going to feel like two years from now. We’re going to show you the numbers and you just ought to print these things out. We’ll send you the PDF and just hang them up right next to that calendar where you’re doing the prison mark-offs and you’re going to be like, “We did it.” I mean, and that’s why we can’t wait to probably even do an update show and just say, “Look how good Aaron and Kaitlyn have changed their lives with just two years of sacrifice.”
Bo: And you guys have done the hard work of you even put together categorically how much you want to spend. So even if you said, “Guys, look, these numbers are—these are bare bone. This is as low as we can get them.” Because Brian mentioned you’re not zero-based budgeting, there’s still an unaccounted for $370 every single month that does not fit in one of the categories. We’re going over and just going, “Ah, it’ll be all right.” So, if all you did was stick to the numbers here, that’s $370, the $500 you’ve already found. Well, now all you got to do is find an extra $130 bucks somewhere throughout the course of the month. So, that’s going to be one piece of your homework is, hey, we got to find $500. How can we find that extra $500? Because then it gets pretty exciting.
Bo: We already told you that we’re going to trim down the debt. And I want to show you a visual, right? If you think about debt being a mountain and how long it’s going to take you to walk down the mountain, this is your plan. November of 2029 is how long it’s going to take for you to walk down that mountain of debt. But if you can make these hard decisions and you can make these adjustments, watch how much quicker you get to the bottom. February of 2027, right? That takes a ton of time off. And remember, our goal is to get you back to building, back to where you want to be because we’ve already established that you’re in step three. So everything should be focused in step three. Quick pop quiz. What comes after step three of the Financial Order of Operations?
Kaitlyn: The fully funded emergency—
Bo: Fully funded emergency reserve. So then once we get to February of 2027, before we can start building, before we can increase the savings again, then we got to focus on that emergency fund. Now, we’ve used your budget and we figured out that for six months of living expenses for you guys, it’s probably cash on hand of $48,000, right? That’s about $8,000 a month burn rate for six months. So, if you just take all the money that you freed up from debt because now you’re debt free and the $500 and you have about $2,400 a month that can go to that emergency fund starting in February of 2027. By the way, we just didn’t make up that number. That is actually how much you will have available because you won’t have the debt, the interest that’s being paid on the student loans. That is not a random number. That’s the number that will just be now free and available for you guys to start saving for the future. So it will only take you one year and three months to build up to $48,000 in cash in a fully funded. So we were at one year and 11 months to get debt free plus one year and three months now to have a fully funded emergency fund. So that is three years—roughly 36 months before you are righted on your ship and in the position where you get to move forward toward your great big beautiful tomorrow. How’s that feel first of all? How’s three years sound?
Aaron: It’s—we’re still less than the first—
Brian: I know you still want to be debt-free, right? You’re close to debt-free at that point.
Bo: But here’s what I think is awesome. Because the FOO is structured the way that it is and because you still are getting your employer match and you’re still putting your money to work, we thought it’d be super fun. Okay, we saw what your net worth statement looks like today. What’s it look like in April of 2028? What does your net worth statement look like if we stack up where you are today versus where you are if you implement this? So, we said, “Hey, we’re just going to follow the debt payoff plan. We’re going to assume that our 401(k)s can make 8% on average over the next three years. We’re going to say, “Hey, the house appreciates in value by 3%. Cars depreciate, get less valuable, and for all the low interest debt, we’re just going to keep doing the minimum payments just like we’re doing.” If you guys can do that three years from today, when you look at your net worth statement, instead of your cash only being at $12,000, now your cash is at $48,000. Instead of your investments only being at $121,000, even though you decreased your saving, your investments will have grown to almost $230,000. Your cars and home are worth $298,000 because they’ve increased a little bit. They’re worth $309,000. 529s, even though you’re not putting any more money in them, you’re not adding anything to them, they’re still going to keep growing because that’s the way compound interest works. They’ll be worth almost $37,000. Your mortgage balance will have gone down to $146,000. You will have no car loans, completely zero, and your student loans, low interest student loans are down to just under $19,000. So today, your net worth is $192,000. If you can implement this plan, three years in the future when you do your net worth statement, it could be worth almost $420,000. How does that feel?
Aaron: She’s smiling good.
Bo: In three years. In three years, if you guys get serious about this, in three years, your net worth can double and your debt load can cut down into a fraction and your assets can still build and you can take control of your financial life because right now you’re having to make hard decisions to figure out how to fix this. Once you get to this point, then, and this is the exciting part, you get to pick and choose what you do with your dollars.
Brian: I also want to give you another piece of good news. You know what else happens probably in three years? That $1,400 a month that’s going towards daycare. Oh yeah, it’s gone. So, you know that our goal once you get through this, once you get past step four and you get into step five, six, seven, our goal is for you to get to saving 25% of your gross income. And we already know that with your employer matches and with all the debt that you’re going to be freeing up, hitting 25% is not going to be a difficult thing for you guys. You’re already doing 16% before we adjusted this, so you’re not even that far off. So post—and then post daycare it’s going to be even easier.
Bo: And I want you to think—you have said Kaitlyn—man I just—the life that was the last 10 to 15 years was different than I would have maybe designed it. Where I am today is what happened for those 10 or 15 years is going to define what my future looks like. And we think if you guys take this seriously, it doesn’t have to because watch what happens when you start saving 25%. Three years from now, you will have $226,000 in your investment portfolio. You won’t have any debt. You’ll have a fully funded emergency fund. You’ll have free cash flow. And if you can save 25%, we think that by the time you hit 45, your portfolio is going to be almost $800,000. By the time you hit 55, $2.5 million. And by the time you hit 65, normal retirement age, you guys could have a portfolio worth almost $6 million dollars. This assumes no pay raises. This assumes no pay increases. This assumes no windfalls. This just assumes that just like you said, hey, when I first started, I did the employer match and I set it and forget it. This is the same thing. Three years from now, when you have righted the ship, you start saving 25%. You set it and forget it. You run your way from $230,000 to $6 million by the time that you retire.
Brian: Now, we went aggressive on behavioral things you guys need to do, but very conservative on the financial assumptions. So, this could actually—because you’re going to get pay raises, things will get better, but all those pay raises and your aggressive behavior in this short-term period—because I know Kaitlyn, you also have this goal of maybe at 45 transitioning a little bit on how you know between you raising the family and then workloads. We want you—the harder you hit this, the more deliberate you are with your behavior in this period. You need to be aggressive. It’s going to give you more flexibility. And the other thing, and I want to get y’all’s feedback, but I did want to draw attention to—we put on there because sometimes, you know, you put in—you just run compounding growth, you see these big numbers, you need to inflation pull it back to present value so you can see what this actually means for you. You take into account inflation. You can see these numbers still bring it into where if you stayed on this path, six figures of free cash flow coming to you guys in retirement. That’s massive. That’s not taking into account social security—that’s not taking in account. I know you’ve got potentially a pension once you vest and all this stuff. So there’s other cash flow. So that’s why I think you’ll have even more flexibility post-45 like you’re hoping for, but you got to do the hard work now. So you get those chances.
Aaron: I had an expectation before I even married her what I wanted to retire with. Quick funny story, just a guy I work with when I first started there, just a union shop guy. He said, “I’m going to retire with a million bucks.” And my first thought was, “No way.” So much—this makes no sense. And I blew it off. And then after we kind of got into talking about all this stuff, it’s like I think I’d like to have—personally in my 401(k)—with inflation and everything—$2.5 million or something. Okay. You know, just to be comfortable. That was what I expected.
Bo: We think you could do that with this plan by the time you get to age 55, right? That’s what’s amazing. And these are conservative assumptions.
Kaitlyn: I’ve always wanted it to hit $3 million to $4 million and so for that to hit close to $6 million is a little mind-blowing.
Bo: So here’s the question. Can you do it? We’ve laid out what’s possible, but we’ve done our part of the equation showing you what can be done. We’ve given you the steps to do. Now the question is, can you guys do it? Can you make the hard decisions over the next three years to find the $500 and decrease the savings and to redeploy the dollars to start moving you along on this path?
Aaron: Yeah. I mean, we’re both committed to getting that debt paid off as soon as possible.
Brian: It’s going to be small little moments just like Aaron, you shared, that coworker who just said, “Hey, just make sure you do the 401(k).” That’s going to change your life. And now I think it’s going to be one of those fun things hopefully three years in the future. It’s going to be when Kaitlyn says, “Hey, I applied for this show. Should we do it?” And y’all are going to look back and go—that small decision has been now another—it’s not even a branch of the tree. It’s potentially the root of the tree that grounds this thing to create a level of success that you guys never thought was possible. Right. It’s amazing.
Bo: All right. Before I give you your homework, any questions for us? Anything we left outstanding you want us to speak to?
Kaitlyn: My 401(k) contributions go into the Roth 401(k) and I know you guys love the Roth IRA, but is there really a difference between the two?
Bo: So, there are some differences. The biggest of which that exists for you right now today is that remember we’re going to go backwards in the FOO. We’re going to go to step two, get the employer match. So, yours has to go in your 401(k) so that you get that employer match. 3 years in the future when you’re now saving that 25%, you’ve moved through step four, now you’re in step five. We can talk about, okay, when I increase my 401(k), should I increase it in the 401(k) or should I do a Roth IRA? And there are merits to both, but I’m thinking if you guys can put this in place, it’s not going to be an either-or for you. It’s going to be a both. But that is a conversation for three years in the future. But we do like that you’re choosing the Roth with where y’all are from an income standpoint and your ages. I think you choosing the Roth side of it is a good thing.
Kaitlyn: Yeah, I got that one from my dad. They’ve retired and my dad’s like, I play with where I’m pulling money from in retirement to figure out taxes and stuff. So, I’m like, okay, but I want the different ones so that I can do that, too.
Bo: I love it.
Bo: All right, here’s your homework. Step number one, we got to fix your FOO. That’s what I’m calling step number one. That means we got to decrease our 401(k) contributions for both of you. We’re going to shut down the $50 a month brokerage contribution. We’re going to shut down the 529 contributions and then we’re going to take all of those and we’re going to apply them towards our debts and we’re going to go with the avalanche debt method. That means we’re going to list out all of our debts. We’re going to start with the highest interest debt first. We’re going to pay it off until it’s gone. Then we’re going to the next highest, next highest, next highest. In addition to that, you guys are going to sit down with your budget and you’re going to find another $500. You’re going to take that $500, same thing, apply it to the debt. We’re going to go avalanche method. We’re going to knock it out, knock it out, knock it out. We’re then going to get through all the debt. Next step of homework, we’re going to build our emergency fund based on what we think your spending is. Your goal is going to be $48,000 that’s going to sit in a high yield account earning interest that you’re not going to touch. And that’s going to cover six months of living expenses. Once you’ve done that, then you get to go off to the races. You’re going to start saving 25% for your future. And the last homework item I wrote down was this is going to change your life. It’s going to change what your future looks like if you guys can do this.
Brian: Kaitlyn, Aaron, thank you. Thank you. Thank you for coming on the show. This has been an absolute blast. Bo, if others out there see this and they’re motivated to want to come on Making a Millionaire, how do they do that?
Bo: Yeah. If you are a millionaire or a millionaire in the making and you’d like to be on the show, you can go to moneyguy.com/apply. Or if you just want to access some of our free resources, you can go check out moneyguy.com/resources
Brian: Guys, there is a better way to do money. Thank you for joining us. I’m your host, Brian Preston. Mr. Bo Hansen, Money Guy Team out.
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