The Truth About Making $65,000 Per Year at 27

Melissa’s Impressive Financial Starting Point (0:00)

Bo: Total net worth right now at about $61,000. So you already have a net worth roughly equal to your income. That automatically puts you different than a number of your peers.

Brian: I will tell you the inflection of your voice doesn’t have the confidence it should have for all the good decisions. You’re kind of a baller.

Melissa: Maybe don’t get too excited. This is like where I’ve made a bit some mistakes in my past. I didn’t know what investing was, but I knew what a CD was, so I just put it in a CD.

Brian: Where are you living, Melissa? Because you’ve been all over the place based upon your financial statements.

Melissa: Yeah. So I grew up in Louisiana, outside of Shreveport, then moved to Mississippi for college.

Brian: Okay.

Melissa: After college, I got a job in Philadelphia with a company who I’m still with, hitting five years on Sunday. And after about a year there, they offered to move me to London. And at the time I was 23 and I was like, no one gets this opportunity, I have to say yes.

Bo: What’s the job? What is the thing?

Her Unique Career in Global Travel Security (1:03)

Melissa: I work in travel security.

Brian: So if you like packing heat?

Melissa: No. But sometimes I hire people.

Brian: Jason Bourne is what they’re asking. That’s what he wants to know.

Melissa: No, if you work for, sometimes usually bigger corporations, study abroad, and then NGOs are our main clientele, and we do their health and security abroad. So on my side, I work in security assistance. So if you’re going somewhere maybe more high-risk, what areas of town you should avoid, where you should stay.

Bo: Is it education or evacuation too?

Melissa: All the way. So it’s all the way up to if something happens while you’re there. On the health side, if you break a leg, they’ll do all the coordination for getting you help. On the security side, it can be sometimes more logistical. If your passport was stolen and you don’t have credit cards and cash anymore, we can do a cash advance. And then all the way up to emergency evacuations. So in times of war, started like Israel or Ukraine, and natural disasters too.

Brian: Natural disasters.

Melissa: Yes. Sometimes that’s a bit more like supply drops. And then sometimes the answer is just to stand fast and wait it out, not an evacuation.

Brian: How do you get into that?

Melissa: I studied international studies in university and also studied abroad in Chile, South America. Learned Spanish, I don’t really speak Spanish anymore. And then I minored in intelligence and security studies. I just thought it sounded interesting.

Bo: You’re a spy?

Melissa: No, that’s a spy, I don’t want to say it out loud. People usually say they’re like, are you TSA?

Brian: That question might have been asked.

Melissa: I know it’s a very niche industry that I somehow found and I really love it. I get to help people have good travel experiences, especially study abroad students. Imagine this is your first time leaving the country, young adults, and if I’m able to have a 20 to 30 minute conversation with them to help them have a good study abroad experience, that might lead them to travel more in the future and get more out of it.

Bo: So 23 years old and you go to London. How long in London and then what happens after that?

Melissa: So I was in London for three years, did a lot of gallivanting and less financial focus I would say. And I also got my master’s degree while I was there, so I was kind of paid for most of that in cash, again a bit less long-term financial, I guess I would say. Was there for three years and then I just kind of felt like it was time to go back to the US.

Bo: All right, you’re in London for three years, you get your master’s degree, you come back to the States. Same company?

Melissa: Same company this whole time. Yes.

Bo: You just tell them, hey, I want to transition back to the States? Do you go back to Philly?

Melissa: Yes, I’m back in Philadelphia. Back to the team I was on first go around. Kind of did a boomerang.

Brian: I love it. I also, I can’t help, now look, I don’t think we sound southern but everybody says we sound southern, but I don’t pick up a huge southern accent on you, but you said your whole family, so what happened to your accent?

Melissa: For the first I guess 12 years my dad was in the military, so we didn’t live in Louisiana till then. And then moving to Philadelphia, I feel like every time I said something in the office people would just mimic it, mimic me. And then I think also living in London I’ve now developed a very standard, like non-accent accent.

Brian: Standard American skill set. Well, you said you could speak Spanish earlier. So do you just pick up on stuff pretty easily?

Melissa: I don’t know. I’m in French classes now and it’s not going well.

Bo: French class. Are you planning on moving to France?

Melissa: No, it’s more just to be able to ask for a table at a restaurant.

Bo: Ashanté. See, I don’t even know that. That’s what he told me. He told me he went to France, that’s the one thing he got and he just took that and held on to it hard. Okay, we can keep going, I’m sorry.

Brian: I will start getting on board with doing this right here anytime now.

Net Worth Breakdown at Age 27 (5:04)

Brian: So okay, you’ve had a very different first couple years out of school than most young folks have. You were kind enough to share a net worth statement with us. And as we look at this right now, how old did you say you were?

Melissa: 27.

Bo: 27 years old. Total net worth right now at about $61,000.

Melissa: Income presently is $65,000.

Bo: So you already have a net worth roughly equal to your income. That’s worth pausing for a moment for someone in their mid-20s. That automatically puts you different than a number of your peers. Do you recognize that, or do you realize how different that is from other folks in their mid-20s right now at this point in time?

Melissa: I think so. I also, my income fluctuates a lot with doing overtime and I get incentive pay, and I feel like still a lot of the people around me make a lot more than 65. So I mean, still working on growing my income.

Brian: But tell me this, are the people around you that make more, are they older?

Melissa: No, they’re like around my age, like my friends.

Brian: Okay. So you feel like among your peer group you don’t make what they make?

Melissa: I think maybe not that I don’t make what they make. So when I started at my company, I started by making $52,000.

Brian: Okay.

Melissa: But that year with overtime and bonus made $60,000. And then salaries in the UK are lower than the US. Some of that kind of balances out where you’re not paying for health insurance. But there, I was making, started making $32,000, which I think is around $45,000 or something. Ended making probably around like $50,000 to $60,000 USD. So I think I’ve not had a lot of income or salary increase in five years.

Bo: Yeah.

Melissa: I think part of that is just being at the same company, not having made a big jump to get a pay raise.

Brian: But what are you missing out on in life? What do you feel like, because you’re not making what some of your peers make, what do you feel like you’re missing out on?

Living Frugally Without Feeling Deprived (7:02)

Melissa: I think I’m able to have saved what I’ve saved because I’ve done, I don’t know, I didn’t turn the heat on for two years. Me and my roommate, to save money, we just didn’t turn the heat on for two years. Sleeping in hoodies and sweatpants. It didn’t get that cold, the place was pretty insulated, but stuff like that. Yeah, like I am a bit frugal, maybe not great.

Brian: Not, I don’t know you that well, but I’d say so. No heat for me. But that sounds like that’s a choice, that’s not something that was fun for you.

Melissa: Also, I challenge, yeah, I try to keep my base cost of living low. So I don’t have a lot of subscriptions, I don’t have a gym membership. I try to keep things pretty low on the monthly where, if I made more, I would definitely lifestyle increase.

Brian: But what do you feel like you’re missing out on? Well, she just said gym membership, subscriptions. Do you want a gym membership?

Melissa: Just some of that, the nicer things. There’s sometimes if I don’t have anything planned that day where maybe I would go out by myself and sit somewhere and read or get a coffee, I’m like, well, that’d be spending money, so I might as well just hang out at the house and read here. Yeah. I mean, I know this guy wants one, but.

Bo: Got it.

Emergency Fund and Monthly Budget (8:03)

Bo: So as we look through this, it looks like you’re in a really great spot. You’ve got about $12,000 in liquid cash, $10,000 in the emergency fund. What’s your monthly burn around per month?

Melissa: So I count my needs rounded up at like $2,500.

Bo: Okay.

Melissa: I think I make things a bit complicated, but it works for me. So every paycheck it’s like $900 to my bills account, $500 to spending.

Bo: Okay.

Melissa: And that’s for anything variable like groceries, gas. Discretionary spending. So like $3,000 is around accurate.

Bo: So when I think about an emergency fund, right, you hear us say this all the time on the show, we want you to have somewhere between three to six months of living expenses for a single individual, no one else depending on your income besides you. Three months I think works, so like $9,000, your emergency fund, you got that. What’s the, you have a sinking fund in there of like $800, what’s that for?

Melissa: It’s a mix of travel. I’m in a wedding this year, bridesmaid.

Bo: Isn’t it the worst?

Melissa: I had like three weddings that…

Bo: No, no, no, no, we’re going to have this conversation. Do you watch Erin Talks Money? We had the same conversation around how it’s so ridiculous that you get invited to all these weddings and they’re wonderful, we do all this stuff, but it’s like you have to buy a dress after dress.

Melissa: Yeah, so I’m definitely in the wedding season of friends, this year it was two friends and a cousin are getting married. And since I’m a bridesmaid and, it just gets expensive, right?

Brian: But you know, this is the thing we do for the people we love, this is the thing we do for our friends. Where was this guy? I was in your wedding, I was in Bo’s wedding. Mine, I had to buy these gaudy shoes that were so narrow, not for my wide feet. And this guy who’s all concerned about you having to buy dresses and stuff didn’t seem to have that concern for his wedding.

Bo: They were $40 Vans.

Brian: We had to buy suits. Most weddings you have to rent a suit, you know. So what does that cost, a few hundred bucks to rent? Bo had us buy suits for less.

Bo: It was less to buy that. It was the most frugally thought out.

Brian: You didn’t ask for this, Melissa, but I just want to call out hypocrisy whenever Bo is being a little opaque with what I’m saying. He didn’t practice what he’s saying.

Bo: 100% I did. He’s wrong on this. But I get what you’re saying, you get invited to stuff and it’s expenses that we have to incur. But I love that. How did you learn how to, not learn, but have you always been good with money where like, hey, I’ve got this thing coming up, I’m going to budget for it?

Melissa: No. So when I started my career, my company lets you split the paycheck, which is really helpful, some can go into checking, some can go into savings. So I had some amount automatically going into savings, but then I just, you don’t do that, like…

Brian: I think you’re being modest here. I think you are naturally…

Melissa: My parents did, like growing up with allowance, and they had short-term, medium-term, long-term, but I still was just living my life. I didn’t even think I had, like, how much my bills were each month, I wasn’t tracking any of that. I was just like, this is in my checking account. And same when I got to London, again, I didn’t really think through the financial whatever, they sent me the offer, I converted it to USD, I was like, okay, I feel like I could make it work. And then when I was in London, I think like a year and a half in or so, I was paying for, my parents helped pay for some of my master’s, but I was covering the majority of it. And so I had to pay a class bill, I was having to renew my visa, which I have to pay upfront and then my company reimbursed me, so it was like £6,000 that I just had to have sitting around. And I was traveling back to the US for a wedding all at the same time. And I was like, wait, I need to figure out if I could actually do this. And that’s when I started budgeting.

Brian: I love it. Awesome. So during that season that you were going ham on spending, what were you doing there that you’re not doing now?

Melissa: It was a lot of traveling.

Brian: So it’s travel. Okay. Is that something now you get to do, do you get to do that with work naturally?

Melissa: Yeah, so work has sent me to four countries, which is again a great opportunity.

Brian: But are they disconnected from where you would travel for fun?

Melissa: Yes, those were, it was to Israel, Palestine, Moldova, and Romania.

Brian: I think I looked at the list of the top 10 travel destinations and I think on there none of them sound like they were in the Caribbean.

Melissa: Like Moldova is the least visited country in Europe. It was not on my travel list.

Brian: So where would you, if you’re choosing where you get to travel, where do you want to travel to?

Melissa: So that’s the thing, I’ve kind of done gallivanting for now, I’ve really gotten a lot of it out of my system. And I think a lot of this was, staying in hostels, like cheaper travel for sure. And I feel like I’ve gotten to the point where a lot of the places I want to go are better to go when you have money and can do a bit more. I want to travel to the Middle East more, I went to Turkey and then Israel, Palestine, but I want to go to like Jordan.

Bo: Yeah. So you said you got your gallivanting out early on. As you think about planning forward, what is it you’re planning for? Like when you think about, hey, this is what I would love for the next five years, 10 years, 15 years. Obviously you’re a little bit of a planner, whether you mean to be or not. What’s that look like? What are the financial goals that you’re working towards?

Melissa: I don’t know, I think at this time I’m doing a lot, but maybe with a lack of direction in some aspect. I don’t like some of the conventional things, like I don’t really want to buy a house anytime soon. I think more just focusing on long-term savings and investments to have more flexibility.

Investing Strategy, Roth IRA, and the CD Mistake (13:42)

Bo: You want to have long-term savings. What have you been doing from a saving and building standpoint now? You talked a little bit about how you budget and how you think about that. What about how you invest? Because as you sit here, you’ve got $43,000 in investment assets. How have you been able to build that up over the last five years?

Melissa: So the UK pension and 401(k) both done through work. And then the rollover IRA, this is where I’ve made a bit some mistakes in my past. I didn’t know what investing was, but I knew what a CD was, so I just put it in a CD.

Brian: Rollover IRA and a CD. Is it still in a CD?

Melissa: Yes, I’m still in a CD. They charged me to get out of it.

Brian: What are you making on that CD? Is it less than 3%?

Melissa: Uh, maybe around there, but then it has some service charge. I’ve kind of just counted it as a wash until I can get out of it next year.

Bo: When you say they’re going to charge you to get out of that CD, is what you mean they’re going to make you forfeit some of the interest?

Melissa: Yeah.

Brian: Do you know when the window out is?

Melissa: Yeah, next year, I think in March.

Bo: But so in theory, I’m making up numbers here. Let’s say that it’s a CD paying you 3% and you’re halfway through it, and so if you were to exit it early it would cost you one and a half percent, right, I’m just making up a number.

Melissa: No, I think it’s been in there for four years now.

Bo: But would you follow me on this thought exercise. Let’s say it cost you half of whatever the interest you’ve made in it was, and let’s say it made 3%, it’s going to cost you one and a half percent. Do you think that over the next year, if you were to deploy those dollars differently, you would make more than the one and a half to 3% the CD’s making, or make less?

Melissa: I don’t know.

Brian : Well, and can you answer this, were they, when you bought the original CD, was it like a 12-month CD?

Melissa: No, it was, I said the longest possible, I didn’t know what I was…

Brian: She was like, not only do I want a CD, but please lock this thing up as much as possible.

Melissa: I knew what a CD was and I didn’t know, I literally did not know what investing was at all, so I just clicked on…

Bo: But you know what, I’m, it’s, we’re laughing at this, but good on you for not spending it, not cashing it out.

Melissa: So I knew it was just sitting there and it needed to be doing something, but I just didn’t know.

Brian: You didn’t know what thing to have it do. Would you put some homework over there on do a little research on that CD? More than likely you’re going to want to cash it, but because you went with as long as possible, we do need to know what you’re forgoing since we are within 12 months.

Melissa: Also, they wouldn’t let me take it out online and I had to call, and this is when I was living in the UK where I couldn’t really make phone calls to the US that easy, so I was just kind of not dealing with it.

Brian: Okay, keep going. What else you got?

Melissa: So then the Roth IRA I started, I guess, end of 2024. And so most of the stuff I’m doing now as far as the 401(k) and the HSA is pre-tax, but I do have the option when available to make overtime. And so I kind of at this point am funding my Roth IRA contributions from my overtime.

401(k), HSA, and Savings Rate Review (16:36)

Bo: How much are you putting in your 401(k) right now? Do you know, like, percentage-wise?

Melissa: 5%.

Brian: 5%. Is there a match or anything like that, employer contributions?

Melissa: No, then I’m putting in 6%, they’re doing 3%. No, sorry, scratch all that. I’m doing 7%, they’re doing 3%.

Bo: I knew it added up to 10. That’s 10%.

Brian: And you said you’re doing pre-tax, though?

Melissa: Yes. So the tax is high in Philadelphia, so I was just kind of like…

Brian: When you say the tax is high, what is your state, what is the state income tax in Philadelphia?

Melissa: I also have a city tax of 3%.

Brian: So was it total if you add those two together?

Melissa: Not sure.

Bo: Okay, we can do some work on that, we can do a little bit of research.

Melissa: Roth, I’ve contributed at least like $450 every month this year, sometimes more.

Bo: But is it automated or are you just doing that manually?

Melissa: I’m doing it manually because the overtime is not promised, it’s just as available. Also I get incentive pay when I work weekends, so any of that extra money I then have paced out for the Roth contributions.

Brian: Awesome. Do you know, last year did you max out your Roth?

Melissa: I maxed it out in January this year. I think January, February.

Bo: Okay, awesome. With the IRA, you didn’t know what to do so you put it in a CD. How did you know about Roth, how are you aware of and knew what a Roth IRA was and opened that?

Melissa: My friend told me, she’s very on it with this kind of stuff, and I think I first heard about it from her, and then it had been percolating in the back of my mind for a while, and then I eventually was like, I’ve got to do it.

Bo: What are you investing in, in that Roth?

Melissa: Index, no, it’s a target date index fund.

Brian: Okay, love that. Look, see, you buried the lead, you know what you’re doing.

Bo: Awesome. And you even said an index target retirement fund.

Melissa: I think so.

Brian: Wait, we have, the content team is very, they’re, you know, as you can tell, they’re quick. They said that the flat income tax is 3% and then there’s a city tax of 3.7, so it’s about 6.7.

Melissa: Sure, yeah, I think that sounds right.

Bo: Well, we can do some work on that. Where we’re going is we want to determine at your age starting out, is pre-tax really the most advantageous or might it be more advantageous for you to do Roth 401(k) contributions. That’s one of the things we can help figure out for you.

Brian: It’s going to be a Roth contribution.

Bo: Let’s not be presumptuous.

Brian: It’s going to be a Roth contribution.

Bo: Okay. What about, you also have an HSA and a brokerage account, tell us about those.

Melissa: So the HSA, like, started, which I know about from watching shows, hey, triple tax advantage. So it started when I moved back to the US and my company offered, and my company does do some match for it.

Bo: You know how much money the company’s putting in your HSA?

Melissa: Maybe $50 a month.

Bo: Okay, okay.

Melissa: If I’m doing $125 a paycheck…

Bo: Yeah, comes out to like $350 a month.

Brian: Awesome. And then the brokerage?

Melissa: I had some money from my parents in bonds.

Bo: You know what I think about when I’m a 20-something? Let’s get some bonds.

Brian: You know what, though, and at some point I did know about interest rates.

Brian: And we need to talk to your parents too, because look, I grew up in a household where CDs is what my parents invested in, and it wasn’t until I got out and figured out how the wonderful world of personal finance worked that I was like, what in the world are we doing? So are your parents super conservative with how they invest their money? Because you just said CDs and then you say bonds. This is not normal behavior for a 20-something.

Melissa: But also my dad buys individual stocks and stuff for his gambling.

Brian: But why? That’s not gambling if it’s…

Melissa: He’s pretty set as far as long-term for retirement.

Bo: Got it. But why did you choose bonds?

Melissa: No, this was like, they bought this for when I was born.

Brian: Oh, were these like savings bonds, like government savings bonds for your education that you just didn’t use?

Melissa: No, it’s like ustreasurydirect.gov or whatever.

Melissa: Are they I-bonds? You know, a few years ago there was a scheme where you could make I-bonds and something else too. I’m not sure, that’s much better, that’s much better. I’m thankful for them. So it was, I had about, I think it was like $2,000 or so, and some of them when I moved, so the last year when I was in the UK, or nine months when I was in the UK, I was done paying for my master’s, so then I was just saving up for moving because I knew it was going to be pretty costly moving back to the states, also buying a car and finding a place to rent, deposit, moving, all those. So some of it I then just put in a brokerage.

Brian: With the HSA, are you using those dollars in there for medical stuff or are they invested and growing?

Melissa: No, so for that, and like in my sinking funds I have some car maintenance, I’m, if for my oil change if I’m able to cash flow it I do, and same for health costs, luckily I don’t have too many.

Brian: Are they invested though, or is it just sitting in cash?

Melissa: It’s a minimum of a thousand in cash and then the rest.

Bo: Makes sense. So when I count this up, you got 7% that you’re saving in your 401(k), you get a 3% employer match, you’re doing about $450 a month into your Roth IRA.

Melissa: But so this is the question I guess, but that’s like, I think I do hit close to 25 on my base income, but I make more than that with the overtime and incentive pay, so I’m kind of fudging the numbers on percentage.

Bo: But that’s okay. If we have your income at 65, what’s a realistic income for you annually?

Melissa: The first six months of the year I made 35.

Bo: Okay, 35 times two, that’s 70.

Melissa: Yeah, with overtime and stuff, I believe.

Bo: So if you’re at 70 and our goal is for you to save 25%, that’d be about $17,500 would be the goal that we would say ideally for you to shoot for. We already know that 10% is covered through your 401(k), you’ve got $450 a month going into your Roth. And I want to get this right, you said you’re doing $125 per paycheck into your HSA.

Melissa: Yes, that’s what it comes out to. And then it comes out to about $350 a month, including the match.

Abound Wealth (22:24)

Bo: Brian, this is literally it, what we’re doing right now is literally one of my favorite things that we get to do, sitting across from other real people talking about their finances.

Brian: Yeah, you guys get to see this on Making a Millionaire, but we also do this for our clients every day at Abound Wealth. We get to dig in where they’re at, figure out where the gaps are, and find where we can optimize and build a plan that works specifically for them and for their financial goals. If you’ve been watching this and thinking to yourself, hey, I want that, I want a professional with decades of experience in my corner looking at my specific situation, we’re here to help.

Bo: Yeah, here at Abound Wealth, we are fee-only fiduciary advisers. That means we are legally required to work in your best interest, and we love helping our clients optimize their army of dollar bills so that they can live their best lives. If you’ve reached a point where you’re ready for some help, go check us out at aboundwealth.com or click on the link right below. We’d love to connect and see if we’re a good fit for you.

Bo: That’s right, head to aboundwealth.com and let’s see if we can do this for you too.

Car Purchase and the 20/3/8 Discussion (23:26)

Bo: Now, you mentioned you bought a car, because when we look at your net worth statement, you’ve got a really healthy side on the assets. Talk to us about the car, because it’s not like the most attractive interest rate ever. What was the decision there?

Melissa: Honestly, buying a car when I moved back was so hard.

Bo: What was hard about it?

Melissa: Well, I had no transportation, so getting places to look at cars was difficult to begin with, and then I was having to rent a car to be able to get to work because I hadn’t bought a car yet. And then it’s like, well, then I’m having to Uber to these car dealerships. Then I went to one and they’re like, you don’t have an in-state driver’s license yet, we can’t sell to you.

Brian: Is Philly not a public transportation city?

Melissa: It is, but all the car dealerships are in the suburbs, you know. And so I think the loan was like a little over $9,000.

Bo: How much was the car?

Melissa: The total purchase price, $19,000 or so.

Bo: $19,000.

Melissa: I don’t know, I think that’s including taxes. A Nissan Kicks.

Brian: A Kicks, I don’t even know what that is.

Melissa: Like a crossover.

Bo: So how much did you finance out of that $19,000?

Melissa: Nine, I put 10 down.

Bo: Wow, you had $10,000 to put down on the car.

Melissa: This was like all last year, I was just saving, saving, saving for moving. So I think the total amount that I had saved up to move was $25,000. When I left, I sold my car to a family member and I just again put that buddy in a savings account.

Bo: You’re a little squirrel, that’s awesome.

Melissa: So it was kind of like the money I had from selling my car was still there.

Bo: So $10,000 down, how long did you finance it for?

Melissa: It was 5 years, so the minimum is $207. I’ve been paying $300.

Brian: Look at you, to pay it off in 3 years.

Melissa: But then you don’t get all the things, maybe don’t get too excited. But then on top of that I’ve paid an extra $1,000 this year of just, I’ve got to pay it off in three years.

Brian: You guys, yeah, look at that, some dividends. I’m so proud, you’re doing so many things right, like I keep thinking your voice, I will tell you the inflection of your voice doesn’t have the confidence it should have for all the good decisions. You’re kind of a baller, like you are a crush, you’re making great decisions. This is really good. 8.99 stinks, but as you probably heard us talk about when what’s high interest for cars, because you made the case for why 20/3/8 exists, is that sometimes the most important thing you can have in your wealth building journey is reliable transportation, and you’re out in the berbs for when you first got moved back, have no car, have no friends, no support, you need transportation. So yeah, in your 20s, somebody stuck you with a bad interest rate, but if we knock this thing out quick, the actual incremental cost to your long-term future is going to be very small, because I guarantee the next time we go through a car transaction with your squirrel type behaviors, it’s going to be a completely different structure. So it’s going to be okay.

Melissa: Okay, sometimes when I’m hitting the $450 on Roth, I do make extra to my car, if I get, like, I got ended up getting a tax return from the UK, so I’ve put some of that towards the car, because I think if I try hard enough I could pay it off this year.

Bo: Hit pause on that before you do that, because the thing I want to make sure, you did it in January for last year on your Roth. There, you’ve heard us talk about this, the Financial Order of Operations. I just want to make sure that we’re not leaving anything on the table of step five before, not because it is questionable whether or not we think that car loan is high versus low interest rate because of your age and the opportunity that you might have investing in a Roth IRA at your age, your income potential.

Melissa: So I think the car payment just does take up a lot of my disposable income, I guess. So my needs now with the car payment are at closer to 60%, but if I pay off the car it drops to like 52%. So that’s where I’m like, if I pay off the car, then I think I could more automate the Roth contributions and it would maybe free up more.

Bo: I did the math on it, I’ve got you at a 24% savings rate. So we are, like, you are right there, you’re doing the stuff.

Melissa: And the good thing is, when you do make overtime, it does automatically increase, versus in the UK all your overtime was, did not go into your pension, they would just do the base salary, not off increase. And I do get bonus in October, so then I feel like that would maybe push it towards 25.

Bo: Tell me what questions do you have? Because we’ve asked a ton of questions of you and every time I just keep thinking, you’re going to say something bad, you say something good, which is awesome. What can we answer for you? Why did you say, I want to come in here, I want to talk to these guys, what is it you’re looking for?

Should She Pay Off a 9% Car Loan? (28:22)

Melissa: Are you like, shouldn’t I be paying off this car early?

Brian: I’m not. No. Once you get over 25% savings rate, I’m going to be a-okay with you, because you’re only, you’re down to $6,000. It’s not going to break my heart to have an 8.99, it’s not, in our terms, for a 20-something, a super high interest rate, but it’s also not something that gets me like, wow, that’s a low interest. No, it’s a pretty high interest rate, so I’d be okay with you knocking that off.

Bo: Okay, I’ll take the other side. I have no issue with you paying it off more aggressively, but would I do that if you were already inside the confines of paying that $300 a month, getting it inside of 20/3/8? I might think about taking that extra capital and either getting my Roth IRA maxed out sooner, or bulking up my after-tax account, or maybe increasing my 401(k) contribution, because I believe if you go to moneyguy.com/resources and look at what the wealth multiplier is for a 27-year-old, it’s big. So even though 8.99% is a higher interest rate, you’re going to have that knocked out so quickly.

Brian: I’ll put it in a, what do you consider a reasonable interest rate? Because 8.99 is pretty high, what do you think, if you were doing a car loan that wasn’t high, what would that rate be?

Melissa: I mean, not high would be like one or two percent.

Brian: But do you want to use 3%?

Melissa: Sure.

Brian: Okay. So we’re paying a 5.99% premium right now, right, times $6,000 bucks, because I bet you’ve already paid it down to $6,000.

Melissa: Mhm.

Brian: It’s costing you $350 bucks a year premium. That seems a lot less when you hear it like that, doesn’t it? The 8.99 looks like a high interest rate, but when you see what is the actual cost, because you only owe $6,000 on the car, you’re not getting penalized as much as you think you are. So there might be some value in actually making sure you’re still prioritizing based upon the Financial Order of Operations.

Bo: So question one, should we pay off the car? Well, I think you could go either way on that. Brian says, yeah, maybe. I say, yeah, maybe not. But I think if you’re saving, neither one are going to hurt you, because the same reason that $6,000 has made it to where it’s just not a material needle mover.

Melissa: Okay, but no, that’s, I mean, good to hear, I thought it was like a lot more, I guess.

Brian: Well, because if you had a $28,000 car note on a $35,000 car and you’re paying 8.99, you’re getting crushed by that. But because you kept the debt, and that’s the other part about 20/3/8, is that you kept all of it so minimal that it just doesn’t hurt you as much.

Melissa: Okay.

Her Goals for Age 30 and Beyond (30:54)

Bo: Where would you like to see yourself at 30? That’s only three years from now, so it’s not that crazy to think about. And then what would you like to see different at 40? I’m just thinking through, because it seems like you already have this long term, it doesn’t have to be financial goals. Tell us about life, what you want life, because there’s usually an intersection, but it’s also how you’re living, and then the finances come into play to support that.

Melissa: My goal, I guess, by 30, is to have 100K invested, is like my reach goal, I would say.

Bo: And what’s anything significant about 100K?

Melissa: Just a goal, like something to aim for.

Brian: Awesome.

Melissa: Like, I’m very goal-oriented, I think if it was just, just invest, I wouldn’t, you want some milestone to hit.

Brian: I love that.

Melissa: Life, I pretty, I love my apartment, I like where I live. I’m happy to just, as I said, like, done gallivanting, I want to stay in one place for a while, like put roots there. Again, I’m not really looking to travel much anytime soon, more like domestic trips in the US to see friends and family is more of a priority I think at this point, after taking kind of a three years for a side quest. So I’m pretty okay with how things are going and want to stick to that. But then, again, as I said, have the investments where if I want to make different decisions later on, I am able to.

Bo: Anything significantly different by age 40 than by age 30? Because $100,000 invested by 30 is a great goal, I love that.

Melissa: I don’t know, I’m not really attracted to buy a house at this point, I don’t think home maintenance is my journey in life. And I think more, as far as my dream life, more surrounding work, I would rather not own a car, live in more center city, like a nice high-rise apartment or something, still in Philadelphia, but like I’m a bit outside of center.

Bo: So that would be like my dream life would be to not own a car at all, and then have a job that either is in center city and I can walk to, or remote.

Brian: Is your current job a career job or is it a right now job?

Melissa: No, I really, I got my master’s in global security, I really like the field, and I really like what I do. Whether I stay with my current company forever, probably not.

Brian: Still trying to figure that out, because you had mentioned something earlier, you said, hey, I haven’t really changed jobs a bunch, and in order to increase my income, that’s what would be required in your industry. Is that true? If you want to move vertically, you probably need to change companies you work for, as opposed to being able to work up at your current…

Melissa: My company has a policy where you can’t ever get more than a 10% raise. It’s like a standard policy, and it basically has to be approved by the CEO if it’s more than that. So even if I get promoted…

Brian: We haven’t done that, guys, new policy, nobody gets pay raises over 10%.

Melissa: And then I don’t know how I feel about that. My income is still, 10% is just marginal increases, and then even the annual increases usually, like last year was like 2%.

Brian: Does the market allow for that, because market always controls everything.

Melissa: Everyone’s retention is kind of low.

Brian: Yeah, because that’s an equalizer, in that you can go get another job.

Melissa: Yes, so because I paid for my moving cost, if I leave the company I have to pay it back if I leave before end of September, so I’ve kind of tried to put blinders on if I’m trying to make it till then. But still, when good opportunities show up on LinkedIn, I do apply.

Brian: For the field in which you work, is it going to be easy to change to another company and still stay in Philadelphia, or will you likely have to move?

Melissa: That’s the thing, is I don’t want to move, which I think makes it a bit harder, where not as many options. I think if I was willing to move I could get a new job fairly quickly, my resume is pretty competitive for having lived abroad, master’s degree.

Bo: Yeah, speaks Spanish and French now.

Melissa: No, absolutely not. So I’ve been trying internally to make some things happen, so hopefully.

Brian: How about Creole, you speak Creole?

Melissa: No, I can do like, léve tôt.

Brian: That’s more than I got. You have to ask your friend.

Melissa: Oh, they’ll tell me.

Bo: Okay, so you, from an income standpoint, right, obviously you would like to make more income, I think you’ve kind of expressed that. Do you have an income goal? And inside your industry, is there a way to get to that? Like, are there steps you could be taking to move towards that goal, or is it really, no, I just got to figure out if I want to move, then I can do that, but if I stay here, this is pretty much the lot that I’m going to be in.

Melissa: My short-term goal is to get to closer to like 75 or 80, because even with the car payment that puts my needs closer to 50%, and then I could do more automated Roth and not depending on overtime and bonuses to max it out. So that’s my short-term goal, is to try and get there by the end of the year. I think that also, my rent and cost of living is pretty low, so I think that’s fine for now, but of course if someone offers me more, I’m not going to say no.

Brian: Now, because it sounds like you love the city you live in, you kind of like your job too, it sounds like, is there any way you can go advocate for yourself? Because I hear that policy, they have a policy, but come on.

Melissa: No, I’ve made arguments, I’ve been going to HR being like, well, this is what I’ve already made with overtime, I’m not going to take a position that’s just, the increase would be to like $70,000, where I’m like, that’s not even a pay rise for me. I’m talking to people.

Bo: Because you sound like you’re always, I mean, look, it sounds like if they need somebody to work on the weekend or they need overtime, Melissa’s like, I love, I’m here, I’m here. So you sound like you’re definitely the person that’s dependable, and somebody that they lean on for that type of stuff, so that makes you probably valuable to the enterprise, I would think.

Melissa: Yes, hopefully.

Brian: Well, here’s what I’m excited about, I think we’re going to be able to put together a pretty interesting plan. There’s a lot of variables you’re going to change in your life.

Melissa: Can I ask one more question?

Brian: No, no, no. Yeah, you can ask a question.

Melissa: When do you want to retire? Because you talked about kind of short-term goals up to 30, what’s your long-term goals?

Bo: Depends what happens when I’m there, but if I think at the rate I’m going, like retirement before 65 is possible again, like more flexibility I guess, nearing that.

Brian: The only reason I ask is when I was your age, I used to think I wanted to retire somewhere around 50. Now, I will tell you, I don’t like giving my age, but I am over 50 now, and I don’t ever plan to retire now, I’ve kind of gone backwards, I’m the reverse. But I always love the decisions I made in my 20s, because it’s just, I’ve been able to do things more on my terms. And I think that’s the part of owning your time that much sooner, and you just already have the natural skill set. That’s why I just didn’t know if you had a long-term goal, that it can be very flexible and can change over time, because even if you overshoot the goal of early retirement, it can serve you well with flexibility in the future.

Melissa: I do think I don’t make enough to do full FIRE, of like, I want to retire as soon as possible. And that’s the same thing I think about buying a house, is for me to save up a down payment now, when I have like $400 into savings every month, would just, it’s like it would take a while.

Brian: Life doesn’t really push for you to have a house right now either, because I don’t even think you’ve figured out the variables of life that would make those roots necessary.

Melissa: Mhm. And I think even the house that I would want is not in anywhere near what I…

Brian: But everybody always underestimates what they can do in a decade, but they overestimate in a year. So you might be surprised that you probably are closer with what you’re building right now, it’s just, you don’t need to fill in that vision yet.

Melissa: Where if I was making closer to like 80 or 90, I would have a lot more money, that if I wanted to save up for a down payment I would just have a lot more income to be able to get there.

Bo: What I’m excited about is I think we’re going to put together a plan that is going to hopefully optimize some of the stuff you’re doing, some decisions you made, maybe we can make them slightly better, tweak them a little bit, but also show, if nothing changed, if all you did is stay in your current place, current income, current trajectory, but continue to execute the good behaviors you’ve been doing, I think that you’re going to have, just like Brian said, more freedom, more flexibility much earlier than you realize, because you’ve made so many good decisions so early. For a 27-year-old, you’ve got a great mind for this and you’re doing really, really good things. I’m excited to put together the plan to see what it actually looks like when we stretch that out.

Why Her Financial Habits Are So Powerful (39:25)

Melissa: Yeah, I mean, it’s pretty amazing.

Brian: I pick on you for the CDs, I pick on you for the bonds, but your natural instincts are incredible. And the hardest thing I always share with people is the discipline to live on less than you make and save, that’s the hard part. Choosing how to invest in the better way, that’s easy, that’s the part that most people don’t, most people never make it to this because they don’t have this part that you have in spades. So you’re going to be great, we can tweak and improve these things, but you’ve got what is the secret sauce to creating success in the long term.

Post-Session Analysis: Optimizing Melissa’s Financial Plan (40:07)

Bo: Brian, what an awesome conversation with Melissa.

Brian: Yeah, I loved Melissa, but I got to tell you, I felt like I went on a little side quest, because when I found out her job was travel security, I just was fascinated. It reminded me, I don’t know if I thought it was like Jason Bourne or what, but it was definitely something that created an interesting conversation. But bringing it back to what we talk about, she has specialized in being a travel security, but I think she wants to pivot now and focus on financial security.

Brian: Yeah, I thought it was great, she was doing a really fantastic job on not like a super high income. Sometimes we’ll sit down with young people and they have $100,000, $150,000. She has a very reasonable income, $65,000, and yet she was doing a lot of things really right.

Bo: I think behaviorally she’s figured a lot of stuff out, but there were some areas that I think we could optimize, something we can improve upon.

Brian: Let’s jump on this. The first thing, CDs in retirement accounts, not exactly what I consider the sexy sizzle of where I would start off with my retirement savings.

Bo: Well, and this is why we always say we want to measure twice, cut once, because initially when we talked to her, we’re like, hey, okay, get rid of that CD, surrender it. We actually did a little bit of follow-up, we found out the CD is not paying 3%, it’s actually paying 4%.

Brian: But, hear me out here, we also found that it matures in June of next year. So we’re about a year out from this. If she were to just forfeit that CD right now, she’s going to give up about $200 of interest on the CD, and with that particular CD there’s a $30 penalty. So if she were to just forfeit it right now, she’d actually net about $3,89. So, not crazy, if she holds it until maturity it’s going to be worth $3,420. So when you think about the imputed rate of return, because of that $30 penalty, if she chooses not to hold it to maturity, it’s going to be a 12% haircut. So we would argue, even though it’s not ideal right now, I probably would recommend holding it to maturity and not taking that 12% haircut.

Bo: Yeah, this is why personal finance is definitely personal, is that I wouldn’t recommend putting CDs into your retirement accounts, especially for 20-somethings. But for her situation specifically, when we actually did the math, that 12% moves the needle. So don’t want everybody thinking this means we’re endorsing CDs in retirement accounts, it does mean for Melissa, let’s be patient, redeploy that money next June of 2027.

Brian: The other thing that we had a conversation around is she thought that she was getting hammered on taxes, and we actually, that’s why she’s not doing Roth.

Bo: Yeah, we did some due diligence, we found out that her effective tax rate, when you look at the marginal federal, marginal state rate, is somewhere around 18%. And I’m going to argue that at an 18% tax rate, while sure it’s not the lowest it could be, it’s not super high. I think for someone her age with tons of time to grow, I think she might consider switching her contributions to Roth contributions, letting that money grow tax-free, even though she’s going to pay more in tax today. I think likely that could be the right solution for her long term.

Brian: Well, historically still 18.8% is pretty low. Now, I think this is probably a good example of you get out there in the real world and you realize, hey, taxes is legitimate, to the point that she was like, man, I’m paying a lot in taxes and it feels really high. That’s why you actually have to do the exercise, let’s see what your actual marginal rates are, and don’t skip out on doing your federal, your state. But when we did the math, 18.8%, and at her age in her 20s, the compounding growth is going to be more powerful to definitely take advantage of doing the Roth and the tax-free growth.

Bo: And then the other thing that we had talked about is she has this car loan right now, it’s a 9% rate, which is not super exciting, and I think you and I had sort of two different views on how to handle that. What do you think she ought to do?

Brian: Yeah, when I hear close to 9%, I’d kind of like to pay that off pretty quick. Now, you took more of an aggressive stance, because you think that even though it’s 8.99, we’ll round it up to 9%, because of her age the opportunity cost is just too much.

Bo: Well, she already said she’s paying extra to get inside the 20/3/8 confine, she had this 5-year loan but she’s going to pay it off in three years. Once she’s done that, I’m okay with that. I recognize that her wealth multiplier at her age is still 34 times, so every dollar she invests can turn into $34 by the time that she retires. So my stance is pay off the car inside 20/3/8. Even though 9% is higher interest for someone in their 20s, I’m going to argue those dollars could be better deployed elsewhere. But at the end of the day, I don’t think that’s something that either one of us are willing to die on the hill over, she’ll have to decide which decision she thinks makes the most sense for her.

Brian: Well, the good news is either way, she’s not just making the minimum payment, she’s actually trying to honor 20/3/8. So I think she’s going to be okay. And let’s not forget, she’s got a pretty healthy savings rate. So this money is going to grow, because she had a pretty important goal, she says she wanted to have $100,000 by the time she was 30. Is she on track?

Will She Reach $100K by Age 30? (45:14)

Bo: Yeah, so we actually looked at her savings rate right now. She’s putting 7% into her 401(k) and she’s getting a 3% match. On top of that, she’s putting $450 a month into her Roth IRA and she’s doing $350 a month into her HSA between her contributions and employer contributions. So she has about a 25% savings rate, almost $16,000 a year going in.

Brian: Well, when we look at where she’s at right now with her current portfolio, she had about $43,000. So if she just saves at that 24.8% clip, and we don’t assume any pay raises, any bonuses, any additional income coming her way, and we just assume a 9.3% annualized rate of return based on her age, by the time she gets to 30 we’re projecting she’s actually going to have $112,000 saved up. So she’s going to hit the six figure goal. But it doesn’t stop there.

Bo: Yeah, what I think is amazing, we have that good indicator that you’re doing things right, by the time you’re age 30 we want you to be one times your income. And as you’ve already disclosed, now yes, with bonuses and stuff she goes a little over $70,000, but still she’s going to have $112,000, it’s huge. That’s pretty powerful.

Brian: What happens if we give that wonderful valuable concept of time and compounding growth? What happens by the time she’s 40?

Bo: Yeah, it’s great, if she, so she gets to 112 by 30, if she just continues that same behavior, no more pay raises, no more increases, no more big adjustments, just keeps doing the same things that she’s doing, by the time she gets to 40 she will have over half a million dollars, almost $550,000 of investable assets.

Brian: Now, think about that in terms of, because a good indicator when you’re 40 is have three times your income. Now, without a doubt, Melissa’s going to get pay raises, there’s no telling because she already said she had some other opportunities, but just taking a conservative stance that we did when we did this analysis, she’s going to have over $500,000 on a $65,000 salary. We’re getting close to a 10-time factor. That’s way ahead of schedule.

Bo: I think a lot of young people are going to see this and be like, holy cow, it’s possible for me to build wealth, I don’t have to have a huge income, I don’t have to have some amazing miraculous thing happen. Just making small, consistent, sound financial decisions can really lead to a great big beautiful tomorrow.

Brian: Yeah, it’s stack up those small decisions early and often for the win.

Closing (47:32)

Brian: Bo, if others want to come on Making a Millionaire, how can they apply?

Bo: Yeah, if you’d like to be a guest on Making a Millionaire, you can go to moneyguy.com/apply. Or if you want to check out any of our free tools, resources, or calculators, go to moneyguy.com/resources.

Brian: I’m still not convinced that Melissa is not Jason Bourne, but without a doubt, she’s in a great financial situation. I’m your host, Brian, joined by Mr. Bo. Money Guy Team, out.