Why $250k is Halfway to $1 Million

$250K is Halfway to $1 Million (0:00)

Rebie: No, it’s not bad math. $250K is indeed halfway to $1 million.

Bo: Rebie, I am so excited to talk about this because math, and we love math here at the Money Guy Show, and I am super stoked about this because whenever you kind of get into the numbers, start playing with them, there are some fascinating things that happen. Now, you know this, right now, for the past year, my wife and I have been homeschooling the kids. And you know what every Friday morning is? Math class. Every Friday morning is muffins and math with dad. And it’s awesome. And you have young kids, too, right? And so, as you start kind of having these conversations with your boys, you’re going to be like, “Hey, bud. What’s two plus two?” And he’s going to say, “Four, right?” And you’re going to get to teach him how the math works. And then you’re going to say, “Okay, bud. You’re doing awesome. What’s half of 10?” Five. She’s so nervous because I’m making public math here. And we’re going to keep working on this. And so with my daughters, we’re working on multiplication and we’re getting into money and doing that kind of stuff. Now, what are you going to say, Rebie, one day when your son gets there or when my daughters and I get there? And I’m like, “All right, sweetheart. What’s half of 1 million?” What I hope they say is $500,000. To which I would say yes, baby, that’s true. But when it comes to money, when it comes to money, halfway to 1 million happens a little bit before then. $250,000 is actually halfway to 1 million. They’re going to say, “Dad, what do you mean? That math doesn’t math, right?” And then what do I get to explain to them?

Rebie: Then you get to explain to them one of my favorite things that I have learned from you and Brian which is the power of compound interest. So when I was in mid-20s and met you guys, which is too long ago, first of all can I just say this is the concept that took someone who had the basics down and truly changed my mind and really blew my mind if you will. So, the power of compounding interest is if you take just $833.33 per month, which is $10K annually, with a rate of return of 8% annually, that only takes you 13.8 years to get to $250,000, which we’re saying is halfway to 1 million. And here is why. After you get past that $250K, that first $250K, it takes the same amount of time, 13.8 more years to get to $1 million. If that money is invested, the power of compounding interest is working in your favor and it’s making your money work harder than you do. And so thankfully I felt like I was a little late but by mid to late 20s I was on board and I was getting to benefit from the power of compounding interest and get on this path. And so that is something I love about the Money Guy show. It’s one of our core principles. And so indeed $250K is halfway to 1 million.

Bo: What I love about this is that the bigger the numbers get, the bigger the numbers get. And what’s great when you think about this, your behavior didn’t change. You did the exact same thing day one that you did all the way nearly 27 years out into the future. But what’s great is when you do that same behavior, it takes you a long time. And it feels like in the early stages, you’re moving slow. You’re moving at a snail’s pace. But as that snowball begins to roll down the mountain, it gets bigger and bigger and bigger and more effective and more effective and more effective. And so when you actually get to start seeing this, when you begin tracking your annual net worth statement, you say, “Okay, last year I saved $10,000. I got $10,000.” But then you get to the next year, you’re like, “Okay, I saved another $10,000. I have $20,000, but I actually have a little bit of growth on there. I’ve got like $21,000, $22,000.” And you see that start to happen and that start to compound. It really does kind of become addicting. And what I think is awesome is this illustration we laid out shows what if you don’t change the behavior. But what’s beautiful about finances and what’s beautiful about your financial journey is that your behavior can impact the speed in which you move. So we laid out for you, okay, what’s it look like if I just save $10,000 a year. Well, how fast you get to a million changes based on how you want to save. So if you’re someone maybe you can’t save the full $833 every single month, but maybe you can save $500 a month. If you can do that, it’s going to take you about 33 years to get to a million dollars if we assume an 8% annual rate of return. Well, if you’re doing that, when you’re on that path, by the time that your portfolio hits $209,000, you have covered half the time it takes to make it to a million. That means that you will make $800,000 on your portfolio in the same amount of time it took you to get to $200K. If you can save $1,000 a month, it takes you about 25 and a half years to get there. Your halfway point is $266,000. $2,000 a month takes 18 years. Your halfway point is $325,000. If you can save $4,000 a month, this is what’s crazy. It only takes a little over a decade to get to $1 million. So your halfway point happens at $384,000. What I think is great about saving and this is what we see time and time and time again from our financial mutants is that okay I may start and I may only get to start doing $500 a month but I do that for a season and then I can increase that to $100 and then $100 becomes $200 and $200 becomes $500 and $500 becomes a thousand. Brian and I talk about we remember both of us individually when we finally entered like the one comma a month savings club. When you save a thousand bucks a month it’s a milestone. It was mind-blowing, right? And then you get to where okay maybe I can save $2,000, maybe I can save $3,000. And you begin to see how much of an impact that increase in savings has on your financial life. It becomes mind-blowing. And so we talk about compound interest. We talk about how your dollars can grow. It really is crazy. And my kids have not gotten on, they haven’t gotten on to this just yet. But I’m so excited because when it does take hold, when I finally get my oldest daughter to recognize, wait, wait, I can take some money and rather than spend it, I can just put a little bit of it aside. And if I put it aside, that money can make money and it can actually grow while I’m sleeping. Right now, in homeschool science class, they’re both growing these little plants. And so every day they go out and it’s wild because they’re kind of competing. They’re like, “Oh, look, there’s a speck. There’s a leaf. I have a leaf.” And what’s so, if they’re getting this excited about watching plants grow, that makes me very very excited about getting excited about what happens when compound interest begins to take hold. Mind-blowing.

Rebie: Oh, for sure. Because yeah, compound interest is there for really anybody. Like anybody can do this, which is the beautiful thing about it. And I loved how you laid out. You kind of get to decide based on your personal circumstances how fast or slow you want to go. And no matter what you can and are able to contribute, there’s a benefit and there’s growth there for you. And then like Bo said, I think it’s easy to extrapolate out these numbers like, okay, $500 a month for 33 years, but that might change and that’s kind of the beauty of it. You get to kind of be the driver there and keep it growing and keep going.

Bo: If your mind was blown and you thought, man, this is crazy, we have a great show that just came out for you called “10 Top 10 Mind-Blowing Money Stats” that’s similar type of stuff. Hey, how can $250,000 be halfway to a million? It’s a great show. If you’ve not checked that out, make sure you do it because we love that we get to put this information together. We get to curate these shows. We get to come up with these ideas, share these concepts, but in addition to that, we love that you guys have questions that there are things that you want us to weigh in on. And so if you have a question right now that’s burning in your mind, let it come from your mind into your fingertips down into your keyboard and get it in the chat because right now we have the team out in the wings collecting your questions because we really do believe that there is a better way to do money and we want to be the mechanism that shows you that better way. So with that, Rebie, creative director Rebie sitting in the big seat today, co-host Rebie. I’m going to throw it not very far over to you.

Rebie: I’ve got some questions queued up and as a little extra motivation to get your question in the chat, it is a Money Guy Tumbler day. So, if we answer your question right here on the show, you get a Tumbler and I’m realizing we are being terrible Tumbler models today, guys. Production team, nobody put some tumblers on the table for us. I went, I didn’t think of that until just this moment. I went koozie.

Cash Holdings in the Messy Middle (9:28)

Rebie: All right, we’re going to kick it off with Matt U’s question. He says, “My wife, 28, and I, 32, will be welcoming our first child in early January, which is exciting.” We love that. We have a savings rate of 27% and are holding a six-month emergency fund plus $100K in sinking funds. How much is too much cash in the messy middle?

Rebie: Can I just say first of all, as someone who has had some children, done the emergency fund thing, this is like a dream scenario. I mean, holy cow. Because we like to say there’s not a perfect time in your financial life. Having children is not a step in the FOO. That is a life decision. That is an exciting thing. But then, you know, then we always talk about like, oh, how can you prepare financially? You’re prepared. So, I just want to congratulate you on that one, first of all. But I do want to hear your perspective, Rebie. This is a lot of cash. There’s a lot of cash. There’s a lot of good things going on, but how should they think about this?

Bo: Yeah. One question I’d have for you, Matt, is man, a $100,000 sinking fund. What exactly is it that we are sinking for? Like, is this a sinking fund for another house? I mean, oftentimes we think about sinking funds. And for those of you that aren’t familiar, a sinking fund is just this idea that I have this future expense coming up and so I want to begin prefunding it right now. So, oh man, I’m going to need to replace the tires on my car and that’s going to be $2,000. I’m going to start a sinking fund and save towards that. Or I might have an HVAC repair coming and that’s going to be $8,000. I’m going to create a sinking fund. To hear that you have a $100,000 sinking fund, that’s a big old boat that you’re planning on not letting sink. So, I would ask the question, why is that there? Because one of the things that you already have in place is you already have six months of living expenses in place. Now, I don’t know what your monthly burn rate is, but I would imagine if you have a $100,000 sinking fund, I bet your six-month emergency fund is probably pretty big, too, and pretty substantial. Now, I love having cash and I love having liquidity, especially having liquidity going into unknown circumstances and having kids is truly an unknown circumstance. There’s a lot of stuff, a lot of life that changes. So, I’m not going to fight you for having a little bit of excessive liquidity there. However, here’s what I want you to do. I want you to go to moneyguy.com/resources and I want you to play with our wealth multiplier and I want you to see for a 28-year-old and for a 32-year-old what each one of your dollars could multiply into by the time that you get to age 65. And what you’re going to see is, I had this number memorized for a 30-year-old which is right in the middle of you guys. It’s 23 times. Every $1 that you save at age 30 can turn into $23 by the time that you get to age 65. And so while you’re keeping this liquidity, while you’re keeping this powder money there, oh, look at this wealth multiplier. That’s beautiful. For a 30-year-old, it’s a 23 wealth multiplier. Well, while you are keeping this money liquid, while you’re keeping it dry powder, while you’re planning for this sinking, there is some real opportunity cost that’s taking place. So, here are some questions that I would ask you if you were sitting across from me and we were kind of analyzing this. I’d say, “Okay, what’s your current savings rate look like?” Like, are you saving 25% of your gross? 27%. Okay, great. What’s the rest of your portfolio look like? Like, are you someone who’s been saving and you have an $800,000, $900,000 portfolio and so $100,000 sinking fund isn’t that big, or do you have $150,000 saved up in investments, but you have a $100,000 sinking fund? I would begin to think, man, there’s some major opportunity cost from that money sitting there. So, I’d answer the question, what’s the sinking fund for? Is that prudent? And let me say another thing that I see people doing all the time. They will have multiple sinking funds, right? They’ll be like, “I got a sinking fund for the new car. I got a sinking fund for the HVAC. My roof might go. I got a sinking fund for that. My kid might need braces that I’m about to have in 14 years. So, I’m going to have a sinking fund for that.” And you realize I’ve got like nine different sinking funds. We’ve done this a few times on Making a Millionaire. The probability of all of those things happening all at once is a relatively low probability thing. So you can think of your sinking fund as multi-purpose. Like I have a sinking fund and it might be for the tires or it might be for the HVAC or it might be, but I don’t have to have each one of them separately chiseled out inside there because if you do it that way, you’re going to end up with a ton of cash. So the answer to your question, I think the ultimate question, how much cash is too much cash in the messy middle? The answer is it depends. You’ll have to decide for yourself. But some of the things I would think through was everything I laid out. What’s the sinking fund for? Why am I holding it there? What’s the rest of my portfolio? And is that money going to be best utilized sitting there for the unknown unknowns? Or am I in a position where maybe my sinking fund should only be $40,000, $50,000? And if I am there, but you are someone who’s super risk-averse, I literally just had this conversation with an adviser in my office before we went live. She has a client and she’s like, “Hey, this client has some apprehension. She has a bunch of excess cash and she wants to put it to work.” And I’m trying to counsel her. I’m like, “Hey, you know what? Do this. Tell her. Don’t put the excess cash to work all at once today. Rather than even giving you a lump sum, let’s just increase how much you’re investing on a monthly basis.” And so maybe Matt for you, maybe I don’t know what your monthly savings is, but let’s just say that right now you start doing $10,000 every month into your taxable brokerage account, assuming that you’re in step seven of the financial order of operations. And you just let that start happening. And you’ll be amazed at how through time you will buy down that sinking fund. And once you get to the point that you’re comfortable, $40,000, $50,000, whatever that number is, you can stop there, turn off or bring back down the monthly contribution and you will have gotten all that money working for you.

Rebie: I think that was some good guidance. Matt, thank you for the question. Congratulations on the new baby and we hope that helps you think through what you might be doing with that cash.

Bo: And one other thing, Matt, make sure that cash is not sitting idle. One of the things that breaks my heart so much is when a potential client, a prospective client reaches out and they’ll kind of walk me through their situation. And I’ll be like, they’ll say, “Hey, I’ve got $100,000 in cash.” I’m like, “Oh, okay, great. Where’s that sitting?” “Oh, well, it’s just sitting in my checking account.” I’m like, “Oh, do you recognize even though interest rates have come down, we recently saw an interest rate reduction, you can still get 3 to 4% on your cash in high yield savings accounts or money market mutual funds. So, if you are going to keep cash for an emergency fund, for a sinking fund, for whatever that may be, make sure it’s at least earning something because right now rates are too good to not be taken advantage of. So, make sure you’re doing that.

Rebie: That’s good stuff. Matt, if you would like a Money Guy Tumbler, just email [email protected]. We’d love to say thank you for asking your question today.

Military Pension and Savings Rate (17:16)

Rebie: All right. Josh D says, “I’m 36, married with four young kids. I’ve been a miser. This is a confession. We consistently saved 15%. In seven years I will retire from the military. Is including the pension value in my current savings rate FOO-ish?” And you know we get on people sometimes we’ve got the nine step framework of the FOO and sometimes people get a little cute with it right and we call it FOO-ish. So what would you say to Josh D?

Bo: Yeah so one of the things that’s really really interesting about military pensions that’s different from some other ways that pensions are set up is that you might actually be able to access, you’re likely going to be able to access that when you retire, meaning you don’t have to wait to receive your military pension at some specific future age like 65 or so on. You get to draw that when you actually retire from service. And so your ultimate question is, hey, we’ve been saving 15%, seven years I’m going to retire. Is including the pension value in my current savings FOO-ish? I don’t think so. I think that including that in there is okay because if you’re seven years, you’re past the point, you’re over halfway there to where it’s going to be a high probability that you’re going to receive this pension and it’s a federally funded pension. It’s not like it’s a company that’s going to go out of business or go into underfunded status. So you can rest assured that it’s a high likelihood that those pension dollars are going to be there. So whereas the normal person who doesn’t have access to a pension, who doesn’t have a guaranteed income stream coming in, they may need to be saving 25%, hearing that you’re at 15% sounds great. Now, here’s what I don’t love hearing, Josh, that you’ve been a miser and 36, four young kids, being a miser can cost you a lot of stuff, right? Because there are, and I’m recognizing this all too soon right now at my age with my kids, these kids are only young for a little bit, right? And I’m looking back at these like, I have my 2-and-a-half-year-old and, look, if my wife is listening, she’ll start crying. I don’t remember my 10-year-old as a 2-and-a-half-year-old. It just blinks and it went by and I’m looking at this little one and I’m trying to remember what it was like but I just remember being so like oh life was crazy and busy and all this stuff a decade ago. I don’t want you to be making financial decisions that cause you to miss out on the sweetness that is this messy middle stage of life. Now that doesn’t, it’s only going to be that excited to just go get an ice cream for so long.

Rebie: I think about that with my three-year-old. I’m like that’s exactly right. It’s going to all go away.

Bo: So, my kid calls it “eining.” Daddy “ein.” And I’m never going to tell him the right way to say it. And so I hear that you’ve been miserly. I don’t love that. So, one of the things I’d want you to do, and especially since you’re a military member who’s going to enter likely two different retirements, at least a lot of my folks, a lot of my friends that served, they’ll retire from the military and then they’ll go to career 2.0 or next thing 2.0. So, you’re kind of planning for these two pseudo retirements. One that’s going to happen seven years from now and then probably one that’s going to be the full retirement where you fully decide to leave the workforce. I’d begin now to do some projections and I would use the 3D glasses. Hey, what’s the dream plan? What’s the down-to-earth plan? What’s the doo-doo plan? And I would say, okay, based on saving 15% right now every year out until I get to military retirement and then when I retire from the military and I will start receiving my pension, what will I do for my next vocation? What do I estimate my savings to be? And then when do I want to fully retire? Am I going to do that at age 50? So am I going to have just a very short 2.0 career? Am I going to go to 55, 60? And you can begin once you’ve done that determining, okay, what is my actual number and what savings rate is required to allow me to be able to get there? Because having a pension, and this is a great thing for anyone to do. Now, look, this math isn’t perfect, so I’m just going to, don’t lambast me in the comments for saying this, right? But here’s, if you’re a person who’s going to get a pension, and again, I cannot express how not perfect this math is. So, it’s just an example. I said that enough. Take your pension benefit, let’s say it’s $1,000 a month. I’m making up a number. That’s $12,000 a year and just divide that by 0.04. So just kind of dividing by a 4 percent withdrawal rate. While it’s not a perfect representation, you can kind of think of that pension as a lump sum of dollars representing that value. So whatever your pension is divided by a 4% sustainable long-term withdrawal rate. You got to think about your portfolio having that chunk there that will let you know, man, okay, if I’ve got that size portfolio, creating that size income, how big does the other piece of my portfolio need to be able to supplement that so I can live the life that I want to live on my terms, the way that I want to live? And I think if you start doing that work right now, being seven years away from first retirement, you’re going to set yourself up to be able to make decisions that allow you to not only have a great big beautiful tomorrow, but also have a great big beautiful today. That’s something we don’t talk about enough. We want you to enjoy every phase and every season of life. And even though the messy middle is messy and crazy and hairy and hard, it can still be wonderful.

Rebie: Yep. It’s a balance. If Brian was here, he would tell you to at least bedazzle your basic.

Bo: That’s right. That’s exactly right. Just make the memories now because like I said, you will not always have this moment.

Rebie: Well, Josh, that was a great question. Thank you for asking it. And we hope that helps you think through your question and how you’re spending your money and your time with your family. If you would like a Money Guy Tumbler, just email [email protected] and we will hook you up.

Humphrey Yang Announcement (23:22)

Rebie: All right, you guys are very fun. These guesses of who is coming to collab with us next week were great. Some of my favorites were Warren Buffett and Chapel Roan. Those two seem different. I like the contrast. Someone said Dolly Parton. Brian would love that one. We would love that one.

Bo: Hey, since he’s not here, let’s just put that out there. Since he’s not here, I’m gonna go and speak this into the ether. If you, Dolly, if you’re a fan, we love you. We love you, Dolly. But if you’re someone who’s connected, we would love to have her come on and do some collaboration. So, if you happen to be the inroad to Dolly, we’d love to be your resource.

Rebie: All I have to say, it is not one of those three that I mentioned. So, drum roll, please. But just as amazing as all three of those, for sure. Those were just the ones that kind of made me chuckle. But we are super excited to have Humphrey Yang on the show next week. We are recording some fun content behind the scenes, but since he’s going to be here on a Tuesday, we were like, Humphrey, you got to come on live with us. It’s going to be so fun. We’re going to do it live. And you guys know the way the live show works, you get to ask us questions and we get to answer. So that means that next week, Humphrey’s also going to be answering questions live with us.

Bo: Absolutely. So, go ahead and start thinking about questions and be specific and then be like, “Hey, this question is for Humphrey.” I’m kidding. But it’s going to be super fun. No, we have really enjoyed Humphrey’s content. We got to meet him in person at a conference and have interacted with him. So, we’re really excited to officially be joining forces and making some hopefully really awesome content for you guys. Super hype. So, be here next Tuesday, 10 a.m. Central. Humphrey Yang will be here. It’ll be awesome.

Emergency Fund Placement (25:11)

Rebie: All right, we’re gonna go to a question from Got a Tumbler and shout out to you because after we answer this question, you will have a tumbler. It says, “Hey, Money Guy. Should emergency funds always be in high yield savings accounts? With interest rates reducing, is there a balance of where to keep between high yield and a money market?” Okay. Yes. So I think we’re talking less versus more risk and also less versus more rate of return. What would you say?

Bo: So we’ve done a show on this in the past when rates first started trickling up before they hit the peak kind of walking through the different ways that you can hold cash. So I’m going to answer your question this way. Should your emergency fund always be in a readily available liquid cash or cash equivalent? The answer to that would be yes. What a lot of people don’t realize is there are a number of different things that satisfy that, right? You can have a savings account at a brick and mortar. You can have a high yield savings account that can be at a brick-and-mortar or even an online institution. You can have a money market account at one of those institutions or you can have a money market mutual fund that you hold inside a brokerage account. And what’s really interesting is which one of those that pays the highest rate will not always be the same. There were times in the not-too-distant past where the absolute best rate you could go out there and get was in a high yield savings account. You go open up an account at, I’m not going to give them free endorsements, but they’re the names you’ve heard of. They would have really attractive high yield accounts. You could go to bankrate.com and you could kind of sort by yield and all this kind of stuff. And so a high yield account made tons of sense. But then we got into this rate environment where rates went higher and higher and higher and all of a sudden money market mutual funds became a lot more attractive. So if you wanted to go have the highest yield, you’d go buy a money market mutual fund. As rates begin to drop, money market mutual funds will probably drop more quickly than high yield savings accounts. So we fully anticipate it will happen again. And so high yield savings accounts will probably be the one you want to hold in or a money market account will probably be the one you want to hold your cash in. What I would encourage you to do and this is why doing a net worth statement every single year is such a great, it’s like annual physicals, you know what I mean? Like you go to your annual physical, you think things are good, but you go to the annual physical and they’re like, “Hey, you should check on this and this and this.” You’re like, “Man, I wouldn’t have been thinking about that. I’m glad that it’s top of mind, front and center.” That’s what your annual net worth statement can do. And if you want a free resource that you can use this year in 2025, you can go to moneyguy.com/resources and download our free template. Or if you want to use the exact same template that I use, that Brian uses, that Rebie uses, that the vast majority of our team here uses, you can go to learn.moneyguy.com and download our net worth tool, which has a whole dashboard there. I’m off on a tangent here. Sorry, Rebie. Yeah, that’s Brian’s thing. Where I’m going with this is that one of the things you do is when you put that on there every year, I always mentally ask myself, okay, this is how much I have in cash. I’ve got it in this high yield money market fund or in my high yield savings account. Is that still the best payer or is that something I should revisit? Okay, you know what? Okay, what’s Ally paying? What’s Capital One paying? And I don’t want to move them all the time, but at least annually, I want to check to make sure that I’m at least getting a nearly competitive rate with whatever the going rate is out there. So to answer your question, Got a Tumbler, it does not have to always be in one specific type of account. You can change where it’s at, but I’d be cautious of a few things. I would not change a ton because it’s super annoying to have to open a bunch of accounts all over. There’s also tax reporting required on these accounts. So, it’s going to be super annoying if you open this account six months ago but then you moved it somewhere else, but then you forgot about that account, you get this tax reporting form and you forget to put it on your tax return and you get a letter from the IRS, you’re like, “Ah, I forgot about that.” That’s a super annoying thing. And be careful when you’re shopping rates for bait and switch type tactics. This happened to me because I’m super competitive and I wanted to beat Brian. So, this is like 15 years ago. Let that be a lesson to you. Pride cometh before the fall. He went and got a high yield account back when high yield was paying the best with a well-known name everyone’s heard of. I went to bankrate.com and there was this other one that was just right above it with a not-well-known name that a lot of people had heard of and I was like I’m going to do that one so that I can beat him and I did it and literally three months later they dropped the rate. It was an intro teaser rate. Absolutely ridiculous. So be aware that rates can move quickly. You don’t want to do it a ton but you do want to make sure that you’re an advocate for every dollar in your army of dollar bills.

Rebie: Yeah. No, good stuff. Got a Tumbler. Thank you for the question and we would love to make your username a reality. Just email [email protected] and we will send you a Money Guy Tumbler.

Coast FIRE Strategy (30:32)

Rebie: All right, Kyle S is up next. He says, “Hey, Money Guys. I’d like your thoughts on Coast FI. My wife and I, aged 27 and 29, have about $180K in retirement accounts total and a target of $5 million at retirement.” So, doing some really great things. Can you please define Coast FIRE as well for those of us who are new to it and then answer Kyle’s question?

Bo: So Coast FI. Most people they start out in their working career and they begin saving and their idea is for the average person you graduate from college around 22, 23 or maybe you don’t go to college, you get out of high school like 18. You start saving and you save for your entire working career until you get out to age 65 and then you retire. And hopefully what you’ve done is you’ve built up a pot of assets that’s large enough that your money can provide for your needs for the rest of your life, right? It can work harder than you can with your brain, your back, and your hands. That’s the traditional financial independence journey story. Well, there are some people that say, “Hey, you know what I want to do early on in my career? I want to really jack up my savings because I’ve got this high income. I’m in this unique vocation and I’m going to save really really aggressively early on so that I can build my assets to a certain level that if all I do is let those assets sit,” and I’m going to make up a number, from age 35 and I just let those assets I saved up until 35 grow from 35 to 60, 65, I can let them just coast all the way to retirement and so long as I can provide for my living expenses, I can make less money in my working years. I don’t have to save as much. I can be a little bit more conservative. Right? It’s the idea I’m going to save up how much I need. I’m going to let it coast into retirement and I can just cover my living expenses. And that’s fine. A lot of people do that. A lot of people think through that. So your question, Kyle, is hey, I’m 27, 29. I’ve got $180,000 saved up. What are our thoughts on Coast FIRE? Here is my thought. And this will seem shameless, but it’s not. What I want you to do, Kyle, is I want you to subscribe right now to the channel. I want you to just click on the button to subscribe right now because we recorded last week, two weeks ago. It all blends together. We just recorded an episode of Making a Millionaire and this was the exact problem. Now, I say problem, it wasn’t a problem. This was the exact planning opportunity that we navigated through. We had this couple and their desire was Coast FIRE and hey, we have this plan and we’ve been working really, really, really hard and we are five years away and we just want to kind of test it. And it was great and they had done, I’m not going to give away what they did. They had done one thing really really well, right? There was an obstacle that they had to overcome and it was the obstacle getting to the first little clip. They had solved that problem. What they had forgotten though was that there’s another obstacle at the end of the plan and that obstacle goes from 60 all the way to the rest of your life or whenever you’re going to actually truly retire all the way to the rest of your life. And they were so focused on the short-term goal that they had lost sight of the long-term goal. So when it comes to Coast FIRE, I think it’s great. I love it. I think it’s a fine idea if that’s something you want to pursue. But the further out your timeline is, the more impact even small variables can have. So a little change that you’re not aware of. And this is what I know at my age. For 27 and 29, to have $180,000 saved is insane. You’re crushing it. We say that by 30 you ought to have one times your annual salary saved up. And I don’t know what you guys make, but $180 grand is pretty stinking good. So you’re in a great spot. But there’s a lot of life that’s going to happen in your 30s.

Rebie: Amen. Amen to that. Amen. There’s some life to confirm.

Bo: So whenever you plan for Coast FI, you have these long-dated things. You better make sure that your assumptions are sound. And in my opinion, you better make sure that your assumptions are pretty conservative. Like when we think about Coast FIRE or FIRE or FINE, we talk about these 3Ds, we really do not spend a ton of time on the dream. The dream is great if it happens. Where we spend the majority of our time and this is what we do for our clients, we spend a lot of time somewhere between doo-doo and down to earth, right? Because if that’s the risk that exists, we want to make sure that we cover the risks. And then if things turn out better than we anticipate, then that’s great. It gives us more options, more flexibility, more choices down the road. But far too often, people go into these scenarios only thinking about the dream, only thinking about, okay, I’m going to do this. It’s going to be awesome if one thing changes. Oh, thought we were going to have two kids, ended up with three kids, or thought we were going to live in this part of the country, but had to move to this part of the country, or thought this job was going to get us to the first benchmark, but oh, that job, whatever that thing may be. You just have to make sure that your assumptions are really, really tight in order to be able to execute. So, we love Coast FIRE. It does require a little bit more forethought, a little bit more planning, a little more strategy than a normal retirement. If I can just save 25% of my gross, I don’t have to think about a whole lot else. I can just put that to work and if I do it early enough, odds are I’m going to get to write my ticket.

Rebie: Yeah. No, that was good stuff. Kyle, thank you for your question. If you would like a Money Guy Tumbler, we’d love to send you one. Just email [email protected] to cash in on that. All right, we’ve got, you got something?

Bo: Well, somebody just said, I mean, this is a question. Hey, when is the survey result being released?

Rebie: Really soon. Really soon. Honestly, I’m not gonna say the date just because I forget off the top of my head, but it’s coming. So, be sure you’re subscribed. And I mean that because you will see it when it comes out. And also, if you took the survey, we’re going to be emailing you a special announcement email like, “Hey, this thing that you helped us make is out in the world.” So, that’s coming this month.

Bo: I don’t want to oversell it. You know, that’s not normally what I do. Mind-blowing. When we actually got to see the results and look at the results, I’m like I don’t even know. There’s a part of me that’s like was it surprising? But it kind of was. You know when your kid does something awesome and you just well up with pride and you’re like oh look at that. Look at that. That’s the way I felt with the Financial Mutant survey. I was like oh they’re doing it. It was awesome. And so we can’t wait to share that with you.

Common Mistakes Between $500K and $2 Million (37:54)

Rebie: We do have some more questions. This next one is from Sperinator. It says, “We are at the halfway to financial independence stage, a net worth just under $900K and contributing around $80K a year. Nice. Y’all often say the first $100K and $250K are the hardest. What are the most common mistakes people make between $500K and $2 million that slow compounding momentum?” So, it’s true they’ve got a lot of the hard part or what we often talk about as the hard part down. Could they screw it up now? What do they need to be thinking of now at this stage?

Bo: I love it. I’ve got three things. You ready for this?

Rebie: I’m ready.

Bo: I’m writing myself notes so I don’t forget the three things.

Rebie: That’s great.

Bo: That’d be sad if you got to number three and said, I don’t know. Blanked.

Bo: Yeah. So, to be at the point to where you have a $900,000 net worth and you’re saving $80,000 a year. That’s fantastic. For all intents and purposes, I don’t think you said your age, killing it. Halfway to financial independence. That’s awesome. And so, you’ve done a lot of things really, really right. But what goes wrong? Where do we see people often fall off here? The first one I would say is they forget that they’ve done a lot of things right. People all of a sudden once you cross over that two comma mark, you start thinking, “Oh, yeah, yeah, yeah, I need to do something more complicated. I need to do something more sophisticated. I need to do something more sexy, something more risky, something more.” Not recognizing that the very thing that got you from 0 to $900,000 with the right savings rate and enough time could be the same thing to get you from $900,000 to $9 million, right? You don’t have to necessarily change behaviors. And far too often we see people once they get into millionaire status, they want to start doing things like, “Okay, well now I’m going to go buy all the real estate or now I’m going to get into the private equity deal or now I’m going to start investing in the startups,” and they start doing things that are different than the behavior that got them to where they are. Now, don’t mishear me. I’m not suggesting that there are things wrong with investing in real estate or participating in private equity, but there is a season and a reason for doing it. And if you’re not in the season or don’t have the reason, it’s not something that you should necessarily do. And so far too many people fall into that. So that’s number one. Number two is life starts getting a little bit easier. Life starts getting a little bit cushier. I’m saving $80,000 a year. I could probably afford that nicer car. True. I could probably afford to upgrade the house. Maybe. True. You know what? We could probably go on the nicer vacations. And you know what would be great is if we had the same house we could go to every year for vacation. Maybe I should get that second home. Maybe I should get that vacation home. And then all of a sudden you begin making these decisions because you have had a level of success that your lifestyle starts to get bigger and bigger and bigger and bigger and bigger. And what you recognize is, man, I used to be able to live in such a way that I was able to go from 0 to $900,000 and crush it. But then I had some success. My income went up, my assets went up, but then all of a sudden I let my lifestyle expand. And man, okay, I saved $80,000 last year, but man, remember we did that one big trip, so maybe it’s $70,000 this year. And oh, we got to do the private school because we moved into the neighborhood and maybe I’m only going to save $50K. And then it’s this thing where lifestyle creep is a real thing. And what begins to happen is your lifestyle creeps up and the type of behavior, the type of person you were that got you to the level of success begins to shrink because it gets crowded out by other stuff. So be mindful. Again, don’t mishear me. Lifestyle creep is not bad. It’s not inherently a bad thing. As our life expands, as our income increases, as our net worth increases, it’s okay to enjoy that. It’s okay to be living better today than you were last year or better this year than you were five years ago, so long as your savings behavior follows, so long as your lifestyle does not outpace your savings behavior. So, lifestyle creep is the second place we see people falter. And then here’s the third one. You’ve heard us say this a number of times. In our opinion, with all the books, podcasts, blogs, articles, resources, YouTube channels, all the things out there, it’s not incredibly difficult to self-manage your financial life when you’re first starting out from zero to $500,000 of investable assets. There’s so much information out there. There’s so many different resources that you can do it yourself and it’s not all that complicated, right? If you want to know where to start or what to do with your next dollar, go to moneyguy.com/resources and download your free copy of the FOO. It’s a nine-step process to help you figure out what to do with your next dollar. And you can do that for a long time. But a lot of times, we don’t mean for this to happen, but complexity finds us. We just wake up, we’re like, “Holy cow, when did my life get so complicated? And when did I start getting faced with these decisions?” Like, man, I used to just have my W-2, but now I’m getting RSUs and I have this thing called an employee stock purchase plan, and okay, I had life insurance when my kids were little, but do I still need it now? And how much? And holy cow. All right. When it was little, I said, “I want this person to take care of my kids,” but now my kid is three or four years away from 18, and if I kick it, they’re gonna get all this money at 18. Is that really what I want? And you just, complexity begins to find you later on in life. And so one of the things I think a lot of people do, whether it’s they get too busy or they’re afraid of the cost or they’re afraid of being sold something, they don’t recognize that taking the relationship to the next level, having a professional step in and give you a second set of eyes on whatever that thing may be, whether it be on your taxes, your investment strategy, your savings strategy, whatever that thing may be. Just because you, let me, I’m not even going to say most, I’m going to talk about our firm for a moment. Everyone who comes to our firm has had some level of financial success right? People who reach out, it’s not like people come to us like hey I don’t know what’s going on with money. No, in order to even be reaching out you’ve had to have some financial level of success. So it’s not that you’re bad with money, it’s not that you don’t know what to do, it’s not that you don’t know how to handle it. You have had success and you’ve gotten to a point but the question you begin asking is okay am I optimized? Am I doing all the things that I should be doing? Am I doing them as effectively and efficiently as I could be doing? And so a lot of people from $900K to $2 million or $4 million, whatever your number was, there are some things you could be looking at. Oh man, I used to do Roth 401(k), but man, maybe I should be doing pre-tax 401(k). Oh, I make too much for Roth IRA. Hey, maybe I should be doing a backdoor Roth IRA. Hey, my 401(k) has after tax contributions, maybe I should be taking advantage of those. A lot of those are optimization metrics that happen as you get into that stage. So just recognizing am I at that place where one of three things is happening. One, the gravity of the financial decisions is so great I feel nervous handling them on my own. Two, I don’t know what I don’t know. Life has gotten complex and I don’t know how to answer all the questions I need answers to. Or three, I’m just too busy. Life has gotten so busy that the things I know I should be paying attention to end up getting pushed on the back burner. If one of those three things is happening for you, maybe all three of those, that might be the warning signal. Hey, I should maybe consider taking the relationship to the next level. I should consider reaching out to a professional advisor to help me figure out how do I get from where I’m at today to where I want to be 5, 10, 15, 20 years in the future. And if you’re at that place, I’ll tell you two things. One, whether you’re going to talk to us or not, we have a great tool. Go to moneyguy.com/resources. We have a great tool that’s like eight questions, 10 questions to ask your financial adviser and it’ll kind of walk you through, hey, ask this to make sure the person you’re working for is a great fit for you. That’s the first thing. Second thing, if that does describe you, we would love for you to give us a chance. So, we would love for you to consider taking the relationship to the next level so that we could be part of that team to help you get from where you are today to where you want to be in the future.

Rebie: Good stuff. Sperinator, first of all, you get a Money Guy Tumbler since you asked your question and we answered it. Just email [email protected]. And then for Sparinator or anyone who relates to what Bo was just saying, remember you can always go to moneyguy.com and click on become a client and you’ll just find a little more information about Abound Wealth and the form to fill out to get connected and just start exploring that. So that’s always available for you if you want it at moneyguy.com.

Emergency Fund Intensity (47:21)

Rebie: All right, Leeandra jo is up next. She asked a question last week. I know I’ve seen her before. I recognize you. Leandra, thanks for continuing to check in. She says, “I’m in the messy middle and will be done with FOO step three this month.” Let’s go. That’s awesome. “With what level of intensity should one be funding an emergency fund?” She’s about to get to step four, which is the emergency fund. And remember, you can go to moneyguy.com/resources to get your free copy of the nine steps. So, Bo, talk about step four. Emergency reserves are very important. How much intensity should she be going for in this next phase?

Bo: See, this is what’s so funny because y’all recognize all of us in the financial ecosystem, right? All of us folks that do this and we all know each other. We all hang out. I mean, we’re all friends. So, when I hear a question like at what level of intensity should I be doing this, I’m thinking, man, is there some safari animal out there that’s super fast? What animal would you say? I think that’s what she’s looking for. So you know, if you know what animal that is, good for you. How quickly should I be doing that? Well, here’s what is so great. Rebie, you hold the thing up for me again. This is our financial order of operations. Leandra Joe said, “Hey, I’m about to close out step three.” Step three is high interest debt. This is stuff like high interest car loans, credit cards, which is what most people fall into, consumer loans, store credit, those sort of things. And what you recognize is that when you’re in that step, money is working against you. We talk about all the time, we started the show out talking about compound interest and how it can be the eighth wonder of the world. And it’s so powerful, it can even warp time. So much so that $250,000 is halfway to a million. That’s how powerful compound can be. But when you’re in step three, it’s working against you. It’s an active force against you. And when you begin to see the light at the end of that tunnel, when you get out of that forest or you get out of that fire that is high interest debt, you think to yourself, “Holy cow, I did it. I got out of it.” And most people I know that have had that problem, they’ve gotten out of it. They say, “Never again. Never. I got myself in that situation. I’m not going to let that happen to myself again.” That right there is the exact reason why step four comes right after step three. Because what happens is that for most people, they don’t have enough money that if an emergency happened, they could go pull from resources to cover it. So, they have to swipe. They put in a credit card and then it just happens and it happens and it happens. And the reason that it happens is because they didn’t have that thing to keep their life out of the ditch. Well, step four, fully funded emergency fund now creates an environment where I know that no matter what happens, if I lose my job, if the car gets a flat tire, if the HVAC goes out, if I have that medical thing I wasn’t expecting, I know that I’ve got anywhere from three months to six months of my living expenses to keep me covered so that when that thing happens, I don’t have to swipe. I can write a check. I don’t have to go back into step three. Step four is there to keep me protected. So Leandra, your question, how intensely or what level of intensity should I attack step four with? As much as you have, as much as you can give it because you are literally running away from step three as fast as you can. You want that to be a distant thing in your past. If you were running through the woods and a bear was chasing you and you came out of the woods, but the bear was still right there in the woods, how fast would you keep running through the parking lot? Just as fast. Just because you made it out of the woods doesn’t mean that you’re out of danger yet. You’re slightly closer to being out of danger, but you got to keep going. So, I would attack it with a level of intensity saying, “I’m going to do everything I can and you know what? Maybe I can’t get all six months right now, but I can get half a month. I can get half a month with my next paycheck and then I can stack on the next, I can get one month and then I can do that,” and then once you get to that three months you can go okay and then once you define for yourself okay is it three months, six months, where’s my number. Once I get there now I can say okay I no longer have to worry about my old self catching up with me because I can take care of my current self because I have the emergency fund. Now I get to start taking care of my future self. And that’s when I’m moving to step five. That’s when I get to start building for my financial future, building wealth for tomorrow. But you got to make sure that you cover today and you don’t let yesterday come back to get you. So your question, what level of intensity? Don’t stop. That’s it. Keep going. Every aggressive animal. That’s a great perspective that I don’t feel like we always cover in the detail that you just so nicely did that the emergency fund is truly to keep you from having to go back to step three. That’s really important. That’s a really big milestone. If you don’t have an emergency fund, your only option is step three, is to take a loan.

Rebie: Yeah, that’s, I love that. So, Leandra Joe, really good question. I hope that we gave you some encouragement to keep going and feel motivated to not only keep yourself from step three, but also to get to the exciting part of step five as quickly as you reasonably can.

Bo: And can we just pause for a moment? Chat, because I just think we so often, I don’t know if you’ve gone to our Reddit, if you go look at the Money Guy subreddit, there’s so many celebrations of people hitting milestones. I hit $250K. I hit a million. And it’s an amazing forum. And by the way, if y’all wonder if we look at it, yes, we look at it. I love going to check out what’s going on. And it’s so fun seeing people hit those milestones, but I don’t want us to sleep on the fact that getting out of step three is a huge milestone. Most Americans out there can’t even get to zero. And getting to zero is just kind of getting to the start. Most people live in that negative. So, Leandra, I want to celebrate you. That is something worth celebrating. That’s something worth being so proud of because you’ve done something that a lot of folks are not able to do behaviorally. It deserves applause and recognition. Good for you.

Rebie: Oh my gosh. For sure. And this is a very small but sincere token of our celebration and thanks. Since we answered your question, you get a Money Guy Tumbler. If you did not get one last time, just email [email protected].

Student Loan Payoff Strategy (55:42)

Rebie: All right, let’s do one more. Eric says, “Why do you say to pay off student loans at 6% in your 30s if the S&P returns 8% after inflation? I’m struggling wanting to pay off the $13K debt at 6% that I have.” Should we put a spicy warning label on this one?

Bo: Yeah, this one’s spicy.

Rebie: But I thought he makes a good point that depending on the interest rate of certain types of debt like student loans, they are working against you and we do consider them a problem. So, how do you think through that?

Bo: Let’s see if we can put our production team to the test. Okay. There’s a slide that we use all the time that talks about different types of debts that you have and at what interest rates you should prioritize them. Yes, we’ll see if they can get that pulled up because one of the things that’s interesting is in our opinion, not all debt is created the same. So, we have different rules. Oh my goodness, that’s close. Production team, I’m going to give you a C plus for effort. You got almost, they took it down immediately. They were like for effort. That was one of them. That’s student loans, but there’s one that has student loans and then has a column for auto loans and has credit card debt. And so all debt is not created equally. And so let’s start kind of at the beginning. Credit cards, that’s a zero tolerance policy. We say here at the Money Guy, credit card use is okay. It’s totally fine to use credit cards. If you listen to our survey show, we’re going to tell you what percentage of financial mutants use credit cards. But we say credit card use, okay? Credit card debt, no way. We’ll also tell you what percentage of financial mutants carry credit card debt. By the way, it’s not zero. So tune in to find out what that number is. So credit cards aren’t great. Well, then we say, okay, auto loans. Well, we know that when it comes to buying autos, we want to subscribe to 2/3/8, 20% down, don’t finance for any more than 3 years or 36 months, and it can’t be more than 8% of your gross income. All right. If you’re inside of 2/3/8, then auto loans are going to have a priority. If your auto loan is over 10%, prioritize it in your 20s. If it’s over 9%, prioritize in your 30s. So on and so forth. Well, then we come to student loans. And student loans is honestly, it’s a hard one, right? It’s the spiciest one. It’s a really really hard one. And this is Eric’s question. Hey, I got student loans that are 6%. Why would I prioritize paying them off if I know that the S&P can likely produce 9% annualized depending on what time frame you look at? Well, the way that we came up with our payoff metrics was based on the wealth multiplier. And for those of you that aren’t familiar, the wealth multiplier is this idea that suggests that for a 20-year-old, $1 can turn into $88 by the time they retire, but it decreases through time. So, by the time you get to 30, that $88 now becomes $23. Well, a magical thing, I say magical, a disheartening thing happens in your 30s. You start your 30s with a 23 time multiplier, but by the time you get to 40, it drops down to 7. Now, don’t mishear me. Seven is still amazing. It’s still awesome. But there is a reality that being able to turn $1 into 7 is different than being able to turn $1 into 23. So, our dollars are becoming less and less and less valuable. Well, as we’re thinking through these rules, what we’re thinking is probably true about financial mutants is that in your 30s, oh my goodness, look at these guys with the illustration. They are not the fastest, but they are the most accurate. So, we say that for student loans if you have them above 6% in your 20s, you should prioritize them. Above 5% in your 30s, you prioritize. Above 4% in your 40s. So, if you have student loans at 6% in your 30s, we would agree with you, Eric, that you should prioritize. Now, this is, because Brian’s not here, I can say this, so lean in close. Student loans are really interesting. And a 31-year-old is different than a 39-year-old. And we recognize that, right? So, you have to define inside of your financial life, inside of your financial plan at what level you attack those goals. Because here’s what, if you listen to our language very carefully. I never say something like this. If you’re in your 30s and your student loans are above 5%, you should stop everything and pay off your student loans. It’s not what we say. We are very specific in this to say it might make sense to prioritize paying off your student loans. What that means is that your student loans are kind of hanging out somewhere near that step three. They might not be actually high interest debt depending on where you are in your 30s, but rather than you just making the minimum payment, you may want to begin thinking through, okay, I don’t need to just make the minimums because now this interest is becoming more punitive than my dollars are going to be able to earn on the other side of the equation, right? So, I want to begin focusing more on it in my 30s at this rate. Same thing in your 20s, same thing in your 40s. So, this is one of those areas where personal finance is extremely personal. Now, if you have student loans and they’re above 6% and you are in your 30s, I don’t think it’s crazy for you to have a strategy to figure out how you knock those things out more quickly than you would have been knocking them out in your 20s. That’s something that accelerates as you move through time, but you have to define for you what is the right strategy based on where you are in your financial life.

Rebie: Yeah. No, that was a good one because personal finance is personal. But yeah, just doing the minimum payments when you’re in your 30s might not be the move. So, you have to think about that and that’s why we have these benchmarks and rules to help you optimize. So, good answer, Bo. I appreciate that.

Closing (1:01:58)

Rebie: All right. Remember, next week 10 a.m. Central, Humphrey Yang is coming. And remember to subscribe, not only to see when we are going live with Humphrey, but also to see when the Financial Mutant Survey show. It’s coming. It is a good one. And really only the first of the Financial Mutant shows, and it is a good one. So, that’s coming soon. Be sure to subscribe and watch your email if you took the survey. We’ll be letting you know when it’s out.

Bo: I’m very excited.

Rebie: That’s my line. That’s what I say.

Bo: I said very. Oh, okay. She added a superlative. That’s okay. You can say so excited. An adjective. Is that an adjective or, I don’t know. Guys, we could not do this show without you guys. So, thank you so much for showing up. Thank you so much for being on our socials. If you’ve not checked out Tangent Time, why didn’t we talk about Tangent Time? If you haven’t checked out Tangent Time or you don’t know what Tangent Time is, stay tuned. It’s on socials. See if you can go find it. We’ll be talking more about that. Super fun, brand new thing that we’ve started doing. We love that we get to do this. Thank you so much for letting us be part of your financial journey. If you keep showing up, we’ll keep showing up. I’m your host today, Bo Hansen, along with Rebie and the rest of the Money Guy Squad, Money Guy team. Out.