Watch This If You Want To Build Wealth

Personal Finance 101 Starts Here (0:00)

Brian: If you want to build wealth, you’ve come to the right place.

Bo: And Brian, I am so excited because today is going to be like a personal finance crash course. And we’re covering everything you need to know about how to get your finances on the right track so that you can start building wealth.

Brian: I’m Brian. He’s Bo. And we’re financial advisors here to guide you on your journey to financial independence. And with that, let’s dive right in.

Bo: Yeah, Brian. Today we’re going to go over the road map, the rules, and the resources that you need to be able to conquer this quest that you’re on that we like to call your financial journey.

Brian: Well, Bo, if anybody who watches movies or reads books, you know that there’s the hero of the quest. And the quest, if you’re going to be successful as the hero, you need some key elements. Whether it’s a road map, like the yellow brick road. Oh, this is going to be great.

Bo: Or the rules, like the DeLorean must reach 88 miles per hour.

Brian: Okay. Or the resources.

Bo: I’m assuming those are swords from Lord of the Rings or lightsabers. Oh, maybe it’s lightsabers for sure. Yeah, you have to have the right road map, the right rules, the right resources in order to be able to build wealth, in order to do things in the most efficient and most effective manner possible.

Brian: Yeah. So, if you’re on the hero’s journey, we want you to take an active role and know how to manage your money well so you really don’t waste time, you don’t waste your resources. You end up in the right place. No NPCs in the Moneyverse for sure. So, the first thing we ought to kick off with is the three ingredients to wealth building.

The 3 Ingredients to Building Wealth (1:48)

Bo: Yeah. Even if you’re awful with money, and maybe this is your first interaction, we want you to know that when it comes to building wealth, there are really distinct ingredients that you need. And depending on where you are in your journey, you may have more or less of these ingredients based on your unique circumstances.

Brian: So, let’s talk about these three ingredients. The first one is discipline. Look, if you can never live on less than you make, you’re not going to be on the hero’s journey to building wealth. So, practice discipline.

Bo: When you practice that discipline, it creates a little bit of margin or money that you get to put to work. That’s what you’re exercising the discipline for, to generate a little bit of money.

Brian: And the most valuable of the three ingredients is actually time. If you are young enough and you can harness the power of compounding growth, you don’t have to work so hard. The heavy lift actually comes from your money working for you. Your army of dollar bills can be more powerful than your back, your brain, and even your hands.

Bo: Now, here’s a challenge for you. If this is brand new to you and this is the first time that you’re interacting with this idea, I want you to do this. If you’re working and you get a paycheck, whether you’re paid hourly, paid salary, whatever that is, I want you to look at what your net take-home pay was. Whatever hit your checking account this past pay period, and in this next pay period, I just want you to take 5% of that amount. That’s it. Just take that amount that hit your checking, multiply it times 0.05, and I want you to put that in a high yield savings account. So, if you’re a median income earner right now earning about $64,000 a year, that means that you would be saving about $225 per month. I just want you this month to put $225 into a high yield savings account. You can go to bankrate.com, you can just Google high yield savings account, pick one of those and drop that 5% in there. If you can do that this month and then next month or next pay period or next payroll cycle you can do it again and then you can do it a third time, I’m going to argue if you can do that three times in a row, you have what it takes to be able to build wealth.

Brian: I love that, Bo. If you can just give us 5%, it will change your life. And what I really like is that respects those three ingredients to wealth because you’re really stretching out that discipline muscle. You’re building the margin with that 5%. And now we’re going to give you the road map with the Financial Order of Operations.

The Financial Order of Operations Explained (4:14)

Bo: That’s right. If you are new to this, if this is not familiar to you, go to moneyguy.com/resources and you can download your very own free copy of what we have determined are the nine steps to help you know exactly what to do with your next dollar.

Brian: Well, look, if you’re wondering where the origin story is, how does this all work? We all know that when you were in elementary school, when you were trying to learn the concepts of how do you get the right answer when you’re solving math equations or math problems, if you didn’t know PEMDAS, please excuse my dear aunt Sally, you’re never going to get to the right answer. Because to do math well, you have to do it in the right order of operations. Well, I remember thinking about it all culminating together and thinking, you know what, money is the exact same way. If you don’t understand that you have to do money in the right order, you’ll never get ahead. So if you combine those three ingredients to wealth building plus the Financial Order of Operations, which gives you that orderly flow to maximize and build, you’re going to be way ahead of your peers.

Bo: So let’s start with step one. When it comes to the Financial Order of Operations, the very first thing we want you to do is we want you to have your highest deductible covered. Whether it’s your auto insurance, health insurance, homeowners insurance, whatever that is, we want you to have that amount in liquid cash. This comes before any sort of investing or any sort of debt repayment because without a cash buffer, you run the risk of having to make desperate decisions when, not if, things go sideways.

Brian: Bo alluded to it: we want to keep you from making desperate decisions. And by the way, this step right here will put you ahead of many of your peers already because if you looked at the research, 59% of Americans can’t even come up with $1,000. Guys, make sure you respect the FOO and get step number one covered: cover your highest insurance deductible.

Employer Match and Paying Off High-Interest Debt (6:07)

Bo: Now, once you do that, things start to get very exciting because then you get into step two, employer match. And this is literally, and I mean quite literally, free money that is available to you. All you have to do is reach out and grab it.

Brian: This is one, guys, it breaks our heart when I find out that 25% of Americans, and on other research reports I’ve seen this number beyond 30%, because I think Vanguard had a study a few years ago that was over 30%, are not getting that free money. Guys, get that free money. If your employer is setting this money aside, they’ve already built it into your compensation. This is dollar for dollar or 50 cents on the dollar of money that is going to accelerate your wealth building journey.

Bo: Now, make sure you understand how it works, what the formula is. Do I have to put in $1 to get $1? Do I have to put in $5 to get $4? If you can understand how it works, you can make sure that you are actually taking advantage of all of that. Because if your employer’s matching money, you’re getting either a 50% or 100% rate of return on those dollars right out of the gate. So you cannot turn away from that. You cannot avoid that step. And then once you’ve done that, once you’ve capitalized on getting that free money, now you get to start taking care of some of the scary stuff. Now you get to go to step three and pay off your high-interest debt.

Brian: Well, I think a lot of people, because you hear high interest, immediately think of credit cards. And we know credit cards right now have interest rates over 20%. So a lot of you are like, “How is this not step one?” Guys, that’s how important having that highest insurance deductible is. That’s how important getting 50 cents to 100 cents, dollar for dollar match on your free money with your employer is. But yes, step three, we’ve got to get the high-interest debt taken care of because you’ll never build wealth if you’re paying 20 plus percent when you’re just hoping in good investment years that you make over 10%.

Bo: We know that compound interest can be our absolute best ally, or when used against us could be our fiercest adversary. Let’s assume for a moment that you have $100 of margin every single month. If you were to just take that $100 a month and you were to invest it earning 8% interest on average over the course of five years, that $100 savings would turn into over $7,300 in 60 months. Now, let’s flip it and say that you still had $100, but instead of being able to save and invest that, you were satisfying credit card debt. The average credit card balance right now in this country is a little over $6,700. So, if you had a $6,700 credit card balance and you were paying $100 a month on that credit card balance, do you realize at a 23% interest rate, after paying on it for five years, you would actually owe more money than you started with? You started with $6,700 and now you owe $10,000 on those credit cards even though you did not swipe one time. The difference in the utilization of those $100 a month is over $17,000, allowing compound interest to work against you instead of letting it work for you.

Brian: It’s all about the incremental decisions. Same $100 a month, just two distinct differences. You have to ask yourself, am I a builder or am I a consumer? We want you to be on the side of building. Now, for a lot of you, as you’re tackling your high-interest debt, you’ve heard about this and you’re like, which one’s for me? Do I go avalanche method or do I go snowball? Snowball is what Ramsey Solutions has made popular. That’s where you take the smallest debt and you go for the feel-good of paying off that small debt, and then as you get bigger and bigger, you pay it off. You don’t even care what the interest rate is. You’re basing it off the size of the debt. Avalanche is more for the nerdier people who are actually looking at the interest rates that they’re paying and saying, “Hey, let’s go attack the highest interest rate first and then as we pay off the higher interest rates, we’ll keep building this up and create the avalanche.” Here’s the answer on which one is better: I don’t care. The reality is, know thyself. If you’re a nerd and you’re really disciplined, the avalanche is going to be better for you because you’re going to be paying off the highest interest rate first, so you’re going to be minimizing interest as much as possible. But some people from a behavioral standpoint, and this is really what Ramsey Solutions is leaning into, you need some small wins to build momentum so you stay on course. So know thyself. If you need the small wins to keep you motivated and focused, do the snowball. That’s a-okay. But if you’re nerdy enough that you understand it would be really helpful to pay off the higher interest rate first, go attack it through the avalanche. I don’t care which method. Just know thyself and make something happen.

Bo: Now, don’t mishear us. We are not anti-debt, but we are anti-high-interest debt. That’s why we want to get it off of your balance sheet as soon as possible. Because then once you get that gone, you get to move on to step four, emergency reserves.

Building Your Emergency Fund (11:02)

Bo: And this is where you get to build that buffer so that when inevitably life’s unknown unknowns come your way, if you have your emergency fund there, it will keep your life out of the ditch. But the tragedy is we know that right now 72% of Americans, almost three out of four, do not have a fully funded emergency fund. So they are not ready for that medical bill, that layoff, that home repair, that car repair, whatever. Those things can derail their financial lives. You do not want to fall into that statistic.

Brian: Look, every one of us out there, more than likely, is going to have something we didn’t count on happen to us financially. Whether it’s losing a job, some big repair or expense that comes across your life, you will have more peace of mind and clarity of mind if you have cash reserves. And don’t fall into thinking access to credit or home equity lines or other things, or even thinking you’re going to pull off of your portfolio, will save you. We legitimately need you to have cash available to pull you out of emergency situations. Use the high yield savings accounts. Use the money market mutual funds. Don’t skimp on this because you will get more peace of mind, you’ll get more clarity, and you’ll be better for it.

Roth IRA, HSA, and Tax-Free Investing (12:14)

Bo: So realistically, steps one through four are about building a foundation. Then once you’ve done that, now you get to get into step five. This is where you begin contributing to and funding your tax-free investment accounts like your Roth IRAs and your HSAs. And this is where the wealth building journey begins to get really, really exciting.

Brian: Now, we like the tax-free savings. The first one we’ll talk about is health savings accounts. We love health savings accounts because they’re triple tax advantaged. You get a deduction on the contribution. You get tax-deferred growth on anything you actually invest. And then if you pull it out for qualified medical expenses, it’s completely tax-free. That’s unheard of. You’re getting all these tax benefits. But hear me when I tell you this: only 13% of you even using health savings accounts are actually taking advantage of the second and the third of the tax advantages, because most people are just using them as cash clearing accounts where you take the deduction and then you pull the money out to reimburse yourself for medical expenses. The better choice, if you have the liquidity that it requires to pay the expenses but also to save and invest for the future, is to put that army of dollars to work and then pay yourself back in the future with your health savings account.

Bo: And now the only way you can actually put money into a health savings account is if you are participating in a high deductible insurance plan. So you want to make sure that you’re eligible to participate in an HSA. If you’re not, another great solution for you is a Roth IRA. And you don’t have to have any special requirements to contribute to a Roth other than your income has to be below a certain level to be able to fund that. In 2026, the annual contribution limit that you can put into a Roth is $7,500. So, you put the $7,500 in. You do not get a tax deduction this year, but those dollars grow tax-deferred for the entire rest of your life until you go to pull them out. And so long as you pull them out after age 59 and a half, they are completely tax-free forever. So, if you build up a million dollars in a Roth IRA, it is literally worth a million dollars to you because there is no more tax drag.

Brian: By the way, Roths, young money millionaires, I’m telling you guys, this is your pathway. In my book Millionaire Mission, I describe how I missed out on $10,000 of opportunity to invest in a Roth. I still have regrets. Don’t sleep on that. Roth IRAs are going to be your first building block to understanding how you harness the power of compounding growth.

Bo: So in step two of the Financial Order of Operations, we began participating in our employer sponsored retirement accounts and we kind of moved away from that. We get into step five, we fill up our tax-free accounts. Now we get to double back to our employer sponsored plans. We get to double back to those 401(k)s, 403(b)s, 457s. And these are fantastic wealth building tools. Most millionaires actually reach millionaire status inside of their employer sponsored retirement account.

Why 401(k)s Build Millionaires (15:06)

Brian: Yeah. And these accounts have big thresholds that you can contribute every year. If you think about for a person under 50 years of age, you can fund up to $24,500. And most of these plans let you choose between traditional, currently deductible, or Roth, where you don’t get a deduction now but it grows completely tax-free. So if you’re young, that’s a huge benefit. Take advantage of your Roth. These things are so powerful because not only is your employer usually giving you some type of matching contribution, you can shelter large sums of money. This is going to be how you fill up that savings and investment rate of around 25%.

Bo: It’s unbelievable. And if you can begin maxing out your retirement plan, if you can begin putting in the annual limits, whether you’re under 50 or over 50 or even in the super catch-up phase, it’s going to allow you to put a lot of army of dollar bills to work. So steps one through four were about building the financial foundation. Steps five and six were really about what to do. And now we get into step seven. And that really answers the question, okay, why? Why am I building dollars in the way that I’m building them? And am I building them in the right way for the way that I’m ultimately going to use them?

Hyper-Accumulation and Saving 25% (16:14)

Bo: And we call this step hyper-accumulation.

Brian: Yeah. This is the first step where you take a breather and you say, “Hey, wait a minute. Let me hit pause on what I’m doing with my money because all the others were to keep me protected,” exactly what Bo said, protected or to maximize the tax savings. This is the first step where we say, “Wait a minute. I think I might retire sooner than my peers. I’m coming out of the workforce in my 50s, not late 60s. So, I’m going to need to have probably a bridge account.” And you’re like, “Wait a minute. I’ve been doing index funds, just throwing the money at the index funds, but maybe I need to start focusing on how I invest in my retirement accounts differently than my Roth accounts versus my after-tax accounts.” There are more tax-efficient ways with the three buckets on how you do that. This is the step where we’re really going to start thinking about how will we use this money, how do we maximize the structure, and then go beyond even what we’re doing with the 25% savings and investment rate.

Bo: Yeah. How do I know that I’m ready for hyper-accumulation? Well, you’ve hit that threshold where you’re saving 25% of your gross income for your future self. And you may ask the question, okay, well, why do I save 25%? What should I do? Why is that the number? We know a lot of folks don’t actually begin saving and investing until much later in life. And you can see if you go look at our resource at moneyguy.com/resources, for most folks who don’t start saving until they get into their early 30s or late 20s, it’s really that 25% savings rate that allows them to build a pot of assets that can replace their pre-retirement income by the time they get to traditional retirement age around 60 or 65. If you’re someone who caught the bug earlier in life and you started saving in your early 20s, you may very well be ahead of the curve. But if you’re someone who didn’t start saving until later in life, until your mid-30s or even into your 40s, you may need to save 25%. But for most folks, most Americans, 25% savings is going to put you on the path to be able to do what you want, the way you want, on your terms.

Brian: Well, and the math ties out to this. If you go look at somebody who waited until they were 30 years of age, the typical American, you go find out it nails it, sticks the landing right there at 25%. That’s why guys, if you’re listening to this and you’re under 30, hallelujah, that’s an awesome thing for you. Go check out moneyguy.com/resources. See what our data and research says about you. If you’re somebody who’s catching this and you’re 40 years of age, don’t panic. You’re a-okay too. You just have to put a little bit more weight on your shoulders and get ready to still harness the power of compounding growth.

Bo: All right. Steps one through seven were all about building towards financial independence, paying for your future self where your dollars can work harder than you. Now we get into step eight. And step eight is about covering those goals or doing those things that may exist before you get to financial independence.

Abundance Goals and Paying Off Low-Interest Debt (19:03)

Bo: We call these things prepaid future expenses, or what you call these things.

Brian: Yeah. Good time rock and roll name is abundance goals, because guess what? We don’t have to do the boring stuff anymore. Now we can do all the things that you think you’re going to do with your money and you’re going to be able to spend more because look, if you’re already funding things, you’re automatic for the people. You’ve got all your expenses, you’ve got all your savings in an automated fashion. Now’s when we can think about the kids, because you know, just like when you get on the airplane, they say, “Hey, put on your oxygen mask before you put it on the kids.” You’ve taken care of yourself. It’s a-okay to fund the kids’ college goals. It’s a-okay to drive the nicer car. It’s a-okay to get into rental real estate. It’s okay to renovate. This is the time to really focus on what do you want to do with your money and how do you live your best life.

Bo: All right. So, we’ve paid for our future financial self. Now, we’ve begun funding our goals that are pre-financial independence. Now, we get into step nine. We get into the very end of the Financial Order of Operations. And this is more about de-risking and figuring out what do you want your life to ultimately look like. And remember, in step three, we had satisfied all of the high-interest debt that exists on our balance sheet. But now, we truly want to be financially independent of all obligations. And this is where if you so choose, you can start knocking out that low-interest debt.

Brian: Yeah. And look, I don’t mind sharing that for most of you, even if you’re part of the FIRE movement, I don’t want you doing this until you’re saving and investing at least 25% of your income, especially if you’re between the ages of 30 to 45. Now, for those of you who are 45 and beyond, it’s exactly what Bo said. There is a de-risking element that can come. And I think there’s a time and a place, and that’s what I found in my own life. I’ve shared it with you guys. I’ve been very transparent. I had a mortgage at 2.5%. But when this thing got down where it was like $60,000 to $70,000, I started looking at it and thinking, yes, I love that interest rate. But man, would it be nice at my age, beyond 50, to just have this paid for so that I don’t have to worry about the monthly cash flow. I actually know I own this house and I’ve de-risked one more thing in my life. It’s a-okay. There’s a time and a place. There’s the make wealth phase. There’s the maintain wealth and then there’s the multiply wealth. That’s why when you’re in the make wealth phase under 45 years of age, focus on the army of dollars. Now, if you’re way ahead of the curve, I may be okay with you of course paying off debt. We don’t love having debt, but I just want to make sure you do it in the right time and place. If you’re in the maintain wealth phase, that’s probably from 45 all the way up to financial independence age. That’s when you’re kind of in that gray zone and you have to look at your goals and see if you should pay it off. And then multiply, for sure, when you’ve won the game. You don’t need to run up the scoreboard. Let’s pay off even the low interest debt because we want you to own your life. Obligations, which is what debt is, works against financial independence.

Bo: All right, we’ve laid out for you the road map, nine steps of exactly what you should do with your next dollar. Now, let’s shift and talk about the rules.

Money Rules: Cars, Homes, and Student Loans (22:05)

Bo: And fortunately for you, we’ve been doing this long enough, both in our own wealth building journeys and what we’ve seen across the thousands of clients that we get to serve at Abound Wealth, that we have some pretty solid, hard and fast rules about the way you should think about navigating your financial life and making your financial decisions.

Brian: The first one, let’s talk about financing the DeLorean. Look, some of us when we go and get into the workforce, we don’t have the money to pay cash for vehicles. Cash is obviously the preferred way to pay for a depreciating asset like vehicles, but every now and then, you’re like I was when I was in my early 20s, I needed the job to start my wealth building journey. So I had to go buy reliable transportation. That’s why we came up with the 20/3/8 rule. This is for somebody who needs to have reliable transportation. That’s why it’s not luxury vehicles. So, we want you to put down 20%. We don’t want you to finance longer than 3 years. That’s what’s going to keep your wallet honest with your ego, because you’re not going to let somebody say, “Hey, well, if you finance this for 8 years, we can get your monthly payment down.” No, we’re not doing anything longer than 3 years, and we’re making sure that our payments don’t exceed 8% of our gross income. This way, you can ensure also that your savings and investment rate is exceeding what your car payment is.

Bo: And why does this rule exist? Well, right now we know that the median single income in this country is $45,140 according to the Federal Reserve. The average price of a new car is $49,220. So, if the average price of a new car is more than the average single income, that creates an environment where people can make unwise financial decisions. We don’t want you to fall into that camp. Because frankly, when it comes to making purchases for most people, an automobile is one of the most expensive things that you’re going to spend money on. But it’s not the most expensive. The most expensive thing that most people are going to spend money on in their lifetime is buying a home. And I think a lot of people get themselves into trouble when it comes to home ownership. And that’s why we even have a rule for how to buy a home. We want you to follow the 3/5/25 rule. And what this says is that when it comes to a down payment, you don’t have to put 20% down. We’re okay if you do a down payment as low as 3%, so long as you see yourself being in that home for at least 5 to 7 years and when you add up the total cost of your housing, the total cost does not exceed 25% of your gross income. If you can stay inside the 25% bounds and you know that you’re going to be there long term, it’s okay to have a smaller down payment. This is going to prevent you from being in that circumstance where all of a sudden you are house rich and life poor. And you may be asking, okay, well, how do I do the math? How can I know? We actually have a great resource for you. Go to moneyguy.com/resources and check out our home buying calculator. You can put in your specific numbers, your specific variables, and figure out how much home you can actually afford to not get yourself over your skis.

Brian: I love how that rule allows us on your first purchase to be so much more flexible. That was one of my biggest things because housing is not easy right now. So, it’s definitely a measure twice, cut once situation. I love that we give people a little bit more flexibility. We didn’t have to change for this crazy new world. We always had it because we have a no hypocrisy policy. We didn’t put down 20% on our first houses. I did put down 20% on all of the other homes I have purchased when I’ve upgraded, but on that first one, I only put down around 5%. We want to pay it forward and let you know that’s a-okay. When you’re trying to work through this the same way, we also want you to think about education. Look, we live in a modern world now where education has all of this goodwill, but in some ways it can be a trap. If you don’t go into college or any type of higher education with your eyes fully open, you might get sold a bad set of opportunities. You’ll get sold a mirage that is just not tied to reality. So we’ve tried to come up with how do we take this thing that’s very noble, like education, but ensure that you get the good side of it and not get left holding the bag. We came up with the first year financing rule. All this rule is: before you load up on student loan debt, I want you to ask yourself, what is the likelihood of what I will make in my first year salary? And then whatever that salary is for your chosen profession, I want you to not run up student loan debt beyond that. Now look, if you’re a doctor or attorney, there are some obvious asterisks. But for the majority of us that are going to school for that four to five years, I want you to use the first year financing rule to keep yourself out of long-term debt with education.

Bo: And I think what’s so disheartening about student loans specifically is did you know that right now one in four, 24% of adults that are responsible for student loan debt, whether it be their own or their child’s, do not anticipate ever fully paying off their loans. We know that 14% of all borrowers right now have a balance of greater than $50,000 in student loans. So you have this debt that you don’t think you’re ever going to pay off. What that ultimately means is that you have a belief you will never be able to be financially independent. We just do not subscribe to that. We think there is a better way to do money. It’s why we came up with the first year financing rule so you don’t become one of these horrible statistics.

Investing During Market Highs and Market Crashes (27:46)

Brian: The next rule we want to go over is a lot of people come to us and say, “Hey, Brian, the stock market’s at all-time highs. What should I be doing?” And then, “Oh, Brian, I don’t know if you saw it. The stock market’s down into bear market status. It’s down 20%. What should I be doing?” Guys, here’s the answer. Here’s the rule that will guide you through all this. ABB: always be buying, baby. Guys, if you’re in the wealth building journey and you’re not close to retirement, you’re 5 years and beyond from retirement, I want you, no matter what’s going on in the economy, if you’re automatic for the people, if you’ve automated your investment policy and how you’re doing things, you will be so protected by doing ABB because what it does is it takes out the emotions. It’s a system instead of you trying to see what the wind is blowing right now and whether it’s a good market, a bad market, a scary market, a frothy market. This is what’s going to protect you.

Bo: All right. So, you said frothy. One of the things we’re walking through, as we walk through the road map, you may have noticed that there were two separate areas for debt. There was high-interest debt and low-interest debt. One of them happens very early on in the Financial Order of Operations at step three and one of them happens very late at step nine at the very end. So the question becomes, how do I decide what is high-interest debt? The way that we went about discerning what’s high interest and low interest was to think about, okay, what is our opportunity cost of money? How hard can our dollars be working for us? And if they can work harder for us somewhere else, then maybe we should put them somewhere else. But if they can work the hardest for us by paying off debt, maybe they should pay off debt. And we know that how hard our dollars can work for us changes based on how old we are. So we said, if you’re someone in your 20s and you have student loans and your student loans are below 6%, you probably shouldn’t worry about prioritizing paying them off. Your money could likely work harder than that. But if they’re above 6%, you may want to prioritize them. In your 30s, the student loan number drops to 5%. In your 40s, it drops to 4%. When it comes to car loans, we want you to always subscribe to the 20/3/8 rule. So even if you have very high-interest car loans, it still needs to sit inside the confines of 20/3/8. And if you’ve done 20/3/8 and you’re still in your 20s, even if you do have a car loan that’s below 10%, maybe it’s 8%, 9%, we don’t love that interest rate. Well, we know it’s inside of 36 months of being gone. So we think it’s okay. Follow through 20/3/8 and satisfy that. In your 30s, the number drops to 9% inside the 20/3/8 confines. In your 40s, it drops to 8%. And then when it comes to credit cards, no interest rate is acceptable for carrying a debt balance month over month. Using a credit card is totally fine. We say that credit card use is okay. But you do not ever want to carry credit card debt. So if you have any interest rate at all on a credit card, even zero, pay it off month after month after month after month.

Brian: The only caveat, and he knows what I’m going to say on the car loans, is that is so you can get to your job. If you’re one of these people that has a lot of cash in your checking account or your emergency reserves, paying cash for vehicles is still the preferred method for paying for cars. The only reason we have the high-interest rate guidance is because we want you to be able to get to your job so you can start your wealth building journey.

Emergency Fund Rules and the 25% Savings Rate (31:10)

Bo: All right, so we said that debt had two areas in the Financial Order of Operations, but so too does cash. You may have noticed that highest deductible was a cash part of the Financial Order of Operations and then step four is a fully funded emergency reserve. Well, one of the questions that people ask is, okay, well, how do I know? Do I need three months of living expenses or do I need six months? Well, your unique circumstances will dictate. If you’re someone who has high job security, maybe you’re a dual-income household, you have multiple income streams, you have a highly easy-to-replace job, or maybe you’re single with no dependents and your lifestyle is flexible, you may be able to err on the side of three months. But if it’s going to be very hard for you to find new employment, or there are a lot of people depending on you, or you’re a single-income household, then you might want to err on the side of a six-month emergency fund. It’s your unique variables that will dictate this. And make sure you revisit and review because this very much can change as you move through time.

Brian: And then I’ll cover the rule of how much you should save and invest for the future. Guys, we’re all about investing 25% for retirement. Now, look, we take some flak for this. There’s even been people who have created content saying that is too high. Now, I want to give you some caveats on this. If you make less than $200,000 as a couple or $100,000 as an individual, you get to count your employer match on that. For some of you, that can be 5 to 8% right there coming from your employer. But for a lot of you others, when we say the 25%, we are talking about your employer plans, your IRAs, your health savings accounts, your pension contributions, your employer’s money coming in, and so forth. The problem that I think a lot of people don’t realize is that we have a deferral problem on when people start saving, but not deferred gratification. We’re good at enjoying the now. But if you look at the stats of when the typical American starts saving and investing for the future, it’s 30 years of age. So then if you know that data and then you look at our How Much Should You Save? resource at moneyguy.com/resources, you’ll see that it ties in perfectly. You’ll see that a person retiring at age 60, not figuring out the wonderful world of personal finance until they’re 30 years of age, needs to save and invest somewhere between 24 to 26%. So that’s why guys, if you’re listening to this at 20, get excited. If you’re listening to this at 40, you’ve got to put a little bit more on your shoulders, but you’re going to be okay. Just don’t sleep on this information.

Bo: The sooner you can get your savings rate up, the more flexibility you’re going to give yourself later in life. And what we ultimately want our dollars to do for us is give us flexibility later on. That’s why we want you saving and investing 25%. All right, Brian, this next one I’ve already alluded to. This one’s going to take no time at all. Credit card use, totally okay. If you’re someone who wants to get rewards, you want to have buyer protection, you want to have extended warranties, you just like the convenience of it, all of those things are absolutely wonderful. We are perfectly fine with you using credit cards. What we are not okay with is you carrying credit card debt. Credit card use: a-okay. Credit card debt: no way. We do not like you carrying credit card debt. If you’re someone who carries a balance month over month.

Brian: Because as the setup goes: credit card use is a-okay, credit card debt, no way.

Your Next Steps to Build Wealth (35:02)

Brian: Third time’s charm. That was much smoother.

Bo: All right. As we’re talking about rules that you should follow, what I hope you’ve seen is that all of these are built around this idea that there’s a better way to do money. And we think that the best way to do money is to follow the Financial Order of Operations. It lets you understand and recognize, man, what should I do with my next dollar? And how do I know that my next dollar is going in the most effective and most efficient place possible? And if you can let the FOO be your guide, you’re going to find that the journey to building wealth, while it may not be easy, it’s incredibly simple. And it does not have to be more complicated than you make it.

Brian: Yeah. I wish we could have covered so much more. I feel like I almost have Jerry Reed and Eastbound and Down blowing in my ear and we’ve got to get some cords across the country. But that’s where a lot of you are at. We’ve just covered so much that a lot of you are like, “Well, what do I need to do? Because I feel like y’all just threw a book at me. You threw an entire system as well as all these rules. What can I do if I want to start off?” Guys, the first thing I want you to do is go look at our resources. I want to invite you to go to moneyguy.com/resources. We literally have a website full of free tools, free downloads, all kinds of calculators. This thing is going to become your favorite site on your wealth building journey. Don’t sleep on this opportunity. I want you to jump in, take that value from us, because you’ll remember who planted those seeds of your simple financial life that created so much success.

Bo: Yeah, we want you to do money better. So, if you’re not subscribed, make sure you subscribe to the channel. We’re always going to have brand new, fresh content coming your way. And make sure you go to the website, moneyguy.com. Check out all of our resources. We have a compound interest calculator. We have a tax guide. We have a net worth template. We have a home affordability checklist, a home affordability calculator. If you have a financial question, there’s a good chance that we have a financial answer for you at moneyguy.com.

Brian: And when you have all the success, look, nobody ever talks about the negative of becoming wealthy, but there is a little bit of a negative: your simple life will get complex. And don’t worry. Just because this is the first time you’ve ever gone through this, we’ve done this hundreds, now thousands of times. We’d love to help you on the journey and protect you from what you just don’t know. And if you’re interested in how do you get through this complex life once you’ve created so much success, that’s where you can take the relationship to the next level, fulfill the abundance cycle, go to our website, moneyguy.com, and become a client. We’ll leave the porch light on for you. This thing can work. We work with clients all across the country. I love that we get to keep paying it forward, giving you this value, helping you become successful, and then when you reach that level of success, you say, “What do I do now?” We’ll be waiting for you. I’m your host Brian, joined by Mr. Bo. Money Guy Team, out!