Why Taking a Year Off Might Be Your Smartest Money Move, with David Bach

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26:51in the context of the pending insolvency that does make sense because when you know there's oasi and there's disability insurance and if the two trust funds are combined social security will remain solvent until 2033 if they're not combined then it becomes insolvent in 2032 oasi does and It's around the freaking corner. Right, yeah. You know, like when they started talking about this, I was a kid, right? This conversation is 30 years old. And when they started talking about this 30 years ago, I remember thinking to myself, well, they'll do something, right? And by the way, they did. You know what they do?

27:29They push the dates back. So I've actually always said Social Security is never going bankrupt. They'll just push the dates back that people can take retirement. They'll have to. Right. Here's what's coming. I have a crystal ball. people are going to go a crazy over this they're going to move the date on retirement so you pretty soon you won't be able to take it at 62 right pretty soon you'll have you'll be able to take it at 65 right then it'll be 67 and then they're gonna one day my guess is look at well how much money do you have you know what since you have so much money you don't actually need social security now that's it'll be means tested i think it'll be means now that's that will be the hardest one Actually, they're all hard.

28:10They're all hard. Moving the date on retirement is brutal. Right. And they've tried this in other countries and people go crazy. The last time they moved the date was in 1983. So in 1983, that was when they moved the date of retirement. And they phased that in in two-month increments over the span of the next 30 years. At least for people who are currently in their 50s and 60s, I mean, they will probably be unaffected. I agree. Fingers crossed. Yeah. I agree. I think I'm safe. You know, are the 40, 30 something safe? I mean, Social Security is not a retirement plan. And I think everybody who's listening knows this.

28:50So that should not be a retirement plan. That's basically just a, like a last resort security plan. I should say for the audience, for people who are listening to this and worrying, when it becomes insolvent, that doesn't mean they'll pay nothing. It means they're able to pay 70 cents on the dollar. Exactly. And it depends, again, on whose research you look at. Some will say 75 cents on the dollar. So what does that actually mean is it means the benefits will get cut. If you were getting$2 ,000, they may not give you$2 ,000. For a lot of people, that's a huge problem. And it's a huge problem because, I mean, today in the cover of the Wall Street Journal, they're talking about the average health care cost for the average American being$27 ,000 a year.

29:30So when you look at the things that have not gotten fixed in our country in the 30 years that I've been doing this, they didn't fix social security they didn't fix the cost of college college costs just skyrocketed and they didn't fix the cost of health care and when people go why are people struggling it's because these critical things that we need for life health care education they're just skyrocketing in terms of costs housing as well housing yeah insane and that's making it hard. All these things are making it hard for the younger generation who I'm, why I updated this book is making it harder for them to buy homes.

30:10I know you're a big proponent of real estate. I'm a big proponent of real estate. I think homeownership is the single biggest, most important thing that people do that builds financial security. And for many young people that is in major cities like New York, where we are right now, that is becoming insanely difficult. I lived across literally, we can see you guys, my apartment from here, where I used to live. I looked up because I was downstairs. I went to my building and went into a little cafe just to kind of like have a memory flashback. Before I came here, I'm like, okay, well, I wonder what, because my son's going to move to New York in a year.

30:44He's a senior right now at Northwestern. He's going to graduate. He's got a job. He's going to move back to Manhattan. And I'm like, what would it cost for us to buy him like a little tiny apartment right over here where we used to live. What would it cost? I went on street easy, start looking. There's a little apartment over there for 800, I think it's 863 square feet. And it's basically$1.2 million. $1.2 million for 863 square feet. So that doesn't work for a 22 year old. But that's also what's creating opportunities in so many places across America because a lot of young people are not moving now to New York, San Francisco, Chicago.

31:25They're actually moving to these other areas that then are growing because housing prices are$250,$350,$400, not$1.1 million for an 800-square-foot place. Right, exactly. So the combination of, in the age of remote work, living in those secondary cities is actually a very viable option. And for many, phenomenal, right? Because if you move to some of these growth cities where young people are moving and you get a job and you buy a home, you got a really good chance that in 10 years at home has doubled. That's what's been happening, right? Home prices have gone up. In the last five years, home prices have gone up.

32:01I think it's 130%. Right. And since I wrote this book, the automatic number 20 years ago, the stock market's gone up sixfold and home prices have gone up fourfold. And that's why people who paid themselves first automatically, one hour a day of their income and bought a home, today they're millionaires. Right. It didn't happen overnight. It took two decades. Exactly. To dig into the one hour a day of your income. So one hour a day, if you assume an eight hour workday, that's 12.5 % of your income. So your recommendation is people save a minimum of 12.5 % of gross income. And I say an hour a day of your income versus just 12.5 % because first of all, when you say 12.5%, people's eyes glaze over.

32:47When you say, look, you're going to go to work at nine, normally you work from nine until 12 for taxes. The only way to not do that is to pay yourself first automatically into a deductible retirement account. So your goal should be whatever you earn, at least one hour day of your income should be going away for retirement. Now, the other thing is you really need to be putting 30 minutes a day also on top of that into an emergency account because too many Americans right now do not have enough money in cash and emergency account. With AI and the job layoffs are going to be coming, you need to have more emergency money than you used to need to have.

33:25So it's no longer three months. How many months? I think people should have a year. And I know that's a lot more than people used to recommend. There was a time when I recommended three to six months. And now I would even tell you a year to two years. I think COVID was the ultimate light bulb for that. Because look, we were locked up in our houses for three months. If the government had started sending people money, there was going to be a real problem on their hands. And if this ever happens again, the government won't be able to throw all that money out again. So there is a lot of money in cash right now.

33:58I think there's $7 trillion in money market accounts at the moment. It's the most amount of money we've ever seen in money market accounts. But the average American does not have a year of expenses set aside. This is the time to start getting your raincoat ready because I'm going to talk out of two sides in my mouth right now. Okay. One is, I think the next 10 years are going to be the greatest opportunity to build wealth in our lifetime, period. In our lifetime, everything that's happening right now with technology, AI, where we are today, I think the next 10 years are going to be extraordinary.

34:30And I look at the last five years, the last five years have been insanely good, right? Like if you're an investor. Right. If you're not an investor, they've not been good. So if you own stocks and real estate and even crypto, you've just done amazing, right? I mean, I was looking at returns before I came over here. I always recommend simple things like VTI, Vanguard's Total Stock Market Fund. That fund's had a 15 % annual return now the last five years. The QQQs, NASDAQ, the top 100, that's had a 17 % annual return the last five years. People used to go, oh my God, you can't make 10%. You know, people who've been in the stock market have made way more than 10 % annually.

35:10Now, the question is, does it continue? the market's due for a pullback. I don't know when this will air. Maybe by the time this airs, the market's had a pullback, but markets always have pullbacks. That's a part of being in the market. That's normal. But I think we are in a position right now for the next 10 years, like we're going to be blown away by the amount of wealth that's created. The thing that I worry about, which is again, why I updated out to Mac Millionaire, I'm worried about people being left behind. I think right now we are in a place that if you are not a part of this automatic economy that's building wealth, then you are part of the automatic economy that's taking your wealth.

35:49And what's happening is people are like, the boat is leaving and there are people on the dock that don't realize this thing's taking off without you. You've got to be an investor in this market. And I think you're right. The last five years really exemplified it because Because if in 2019 you owned assets, you owned stocks, you owned real estate, the gains that you've seen from 2019, we'll even go January 1st, 2020, right? The gains that you've seen from January 1st, 2020 through today are just phenomenal for people who owned assets. I don't even think the average American realizes how phenomenal they are.

36:26Right. You know, when COVID happened, I created a program on homeownership. Money Magazine put me on the cover when we created this whole home ownership challenge. And I said, you know what? This is going to be the greatest time to buy homes in the last 20 years. And it was, right? Anybody who went out and bought a home right after COVID, oh my God, their homes have gone up 100%, 200%, 300%. Right. And people are like, well, it's too late for me. No, it'll happen again. There'll be another pullback. The thing is when things go down, that's when you have to be ready for the opportunity, right? Right.

37:00Instead of just going, well, oh, my God, everything's wrong now. I can't get involved. Like, no, you actually have to be ready. Like the market's going to go down and you have to be ready. Ready and excited. Right. OK, so that leads to you coined the latte factor. And in a moment, I'll ask you to just quickly define that for anybody who hasn't heard it yet. But the Gen Z iteration of the latte factor is the avocado toast. And that often and we all understand it's a metaphor. It's not literally about the coffee or about the avocado toast. But that often gets mocked a little on social media by people who say, you know what?

37:38The average home in my area costs$500 ,000, which means a down payment is going to be $100 ,000. My income is$60 ,000 a year. And so I don't see myself ever saving$100 ,000 20 % down payment. And because that feels so out of reach for me, especially while I'm also paying off student loans. And I'm also saving up for IVF and, you know, all of these other expenses that especially young people have because it all feels so out of reach. Why not have a slice of avocado toast and a latte? Well, first of all, Paula, you're being sweet. It's fascinating to me because you say everybody knows it's a metaphor.

38:19I think there's a whole lot of people who don't know it's a metaphor. I think there's actually people out there like this guy's trying to take my coffee away and my life sucks. And the only thing I have going for me is my going to Starbucks and having my latte. And he wants to take that away. You know, this guy. I mean, I can't believe this guy wants to take my lattes away. And literally, you know, there are people who go out and create latte mugs saying like, you know, drink a latte. They literally get viscerally upset about this metaphor. Now, I've been joking about this now for 25 years. Like, it's not necessarily about the latte.

38:53By the way, the latte was$3.50 when I started talking about this. Now in New York City, where we are, you can go to Starbucks and have an iced coffee, a large one and pay a tip and it's $10. Right? So I don't know, is$10 a day a lot of money? There are for sure 60 % of Americans are not saving$3 ,650 a year. And my message with the latte factor was the math. It was like, look, and I always have to go and do this by looking at it. But in the book, page 45, I show you. Saving$10 a day,$300 a month, earning 10%. How do you do that? You buy an index fund based on the stock market. What is that worth in 30 years?

39:32$678 ,000. What's it worth in 40 years? $10 ,000. $300 a month. That's$1 ,897 ,000. Now, what happens if you save$20 a day? $20 a day in 30 years is worth$1 ,356 ,000. In 40 years, it's worth$3 ,794 ,000. thousand dollars. I think that there are millions of Americans who are not saving 10 or$20 a day. And you can make every excuse in the world for why it's not possible. Well, look, I can't get up to$100 ,000. If you don't give something up to eventually get up, you just will turn around in your 40s and 50s and not have any money. One of the things I put in this book that's in the update, and I'll show you, I brought a prop.

40:19Let me go get the prop. You brought a coffee. I did. Yeah. Is it a latte or is it a regular coffee? It's a regular coffee. What do you think that coffee costs across the street? Ooh, okay. Financial District, New York City. $4 for a plain coffee? Six bucks. Six bucks. See, and here I am. I bought a coffee. Pretty rare, actually. I'll go out and buy a coffee, but I needed some caffeine before I saw you. I'm going to bring up the stack here of cash. Ah. This is like on Oprah when you had the stack of$250 ,000. Yeah. Yeah. Except it's a little less than that. How did you know that? Did I tell you that?

40:52Yeah, yeah, yeah. You told that story at FinCon. Yeah. About how you suggested fake cash. Yeah. And they were like, this is the Oprah show. We're using real cash. And so on the Oprah show, we did the latte factor. And we had a young woman track her expense. We actually had a whole row of people track their expenses. And we took this young woman. And then Oprah did a reveal showing that this amount of money could be what it could be worth. And showing with the reveal over$250 ,000 in cash. and the whole audience just went, wow. Because it's actually real money. Right. So what I did here - You had like a bunch of armed security guards everywhere.

41:25We did. They had a Brink's truck in the back. How much money would you guess I'm holding right here? $10 ,000? See, that's just because you read my book. I am. I'm holding$10 ,000. What is the cost to blow$10 ,000 a day in a year? How much money do you have to waste a day to have$10 ,000 at the end of the year? Well, as you just laid out,$10 a day is$36.50 per year, 365 days a year. So it'd be triple that. So it'd be about$30 a day. She's good at math. It's$27.40. So$27.40 is$10 ,000 in a year. Are people wasting$27.40 a day on kind of nothing? And the answer is some are. I'm staying at a hotel uptown.

42:14Beautiful hotel, actually. I had drinks last night with friends and the bill came and the drinks were$31 a drink. $31 a drink. I mean, I said to my wife, you know, I had a gin and tonic. It was 31 bucks without a tip. And that bar was packed. And I said, so basically two drinks with a tip, you're like out the door, almost$80. Yeah. Call it 70, right? Like that's a cheap tip. And that's maybe fancy hotel prices, but I'd say at the average bar, you know, you could get a drink, at least here in New York, for 15 bucks. The question I had in my mind is, do these people at this bar, are they saving$27.40 a day?

42:55Are they saving two cocktails a day? Are they saving 50, 60 bucks a day? I would be willing to bet that if I walked around that bar and could see people's net worth, they're not. So I just think we have a disconnect. Now, You know, it's weird to hold this much cash because I actually never walk around with$10 ,000 in cash. But we spend money on our phones without really thinking about it at all. Right. Right. We're just like click, click, click, click. And that's how money is being automatically removed from us. And what's happening in our automatic economy is that we're going through social media and we're clicking on this.

43:32But we're not just paying for something once. We're paying for something indefinitely until we turn it off. Everything today is about subscription fees and the lifetime value of a customer. And so everybody wants to try their stuff for free and then charge you forever until you turn it off. And people are spending$200,$300,$400,$500 a month off and on stuff they don't even use anymore. I just want people to be conscious about their spending. If you want to have a coffee every day, go for it. But make sure you're investing in the companies that make the coffee. If you're going to go out and eat every day, then make sure you invest in the companies where you're eating.

44:08You should be investing in the companies in America that you use every day. You're on Facebook and Instagram and WhatsApp. You should own Meta. You're using Google. You should own Google. You're going on Amazon every day. You should own Amazon. Now, I actually don't think people should buy the individual stocks. I think they should buy an index fund. Then they've got access to all these companies. But every American is out there spending every day. So when people say, well, I don't think the market's going to continue. Really? Because Do you think people are going to stop going to Starbucks? Do you think people are going to stop using Amazon?

44:39Howard Schultz just got a brand new boat. Go look it up, you guys. It's a$300 million yacht, apparently. So I've had zero impact on the amount of people who go to Starbucks. But I do think the latte factors actually inspired a lot of people to finally start paying themselves first. And that was the purpose of it. The purpose of it was to get people to go, he's right. You know what? I do have enough money to start saving something. and I think today, whatever that something is, whether it's$10 a day or$20 a day or$50 a day, you have wealthy people listening. It's making sure that you're taking care of your future self.

45:16If you're listening to us in your 30s and your 40s, I'm here to tell you, you're going to go like this and be in your 50s and your 60s. And when you're in your 30s and your 40s, you have an unlimited amount of energy. By the way, it seems like yesterday I started my career and I've been doing this over 30 years. So when people are like, why are you going to stop? Are you going to stop writing books and stop doing it? I'm like, I've been doing this for 30 years, but the 30 years went by like this. So I'm lucky because I've loved everything I've done. This has been my passion and my purpose for my entire life has been to free people financially.

45:50I believe this is what I was put here to do. I left Morgan Stanley where my life was set, where I was working with wealthy clients. Now, most of my clients were ordinary people who had become wealthy because they're like the McIntyres in this book, but they had saved money automatically and they had built financial freedom. And I decided I would leave Morgan Stanley, move to New York to dedicate my life to teaching people about money who maybe didn't have a lot of money yet. But what I was saying about energy, your energy in your 30s and your 40s is different than your energy in your 50s and your 60s.

46:23And you don't believe that that's going to happen. and I still have a lot of energy, but my tolerance for bull is completely changed. So when you're young, you can go through, you can do anything. You can put up with anything. You're driven, you're motivated, you're unstoppable. And then you get to a point and you're like, yeah, you know what? I'm good. I don't need to do this anymore. And I think you want to make sure that you set aside enough money so that the day comes that you don't want to do whatever you're doing anymore. Yeah. You can stop. The whole point of money is not stuff. It is freedom.

46:56It is optionality. It is the ability to say, you know what? I want to go live here. I want to go do that. I want to go, you know, it's the freedom of choices. The ironic part about having money, I know you know this because you probably interviewed a lot of people who have money. Once you have money, it's actually not about stuff. Right. I actually don't have anything anymore that I want. I want health. I want time with my family. I want my kids to respond to my taxes. Every once in a while, reach out to me directly. I want to spend time with my wife. I want to travel. I want to ski. I want to spend as much time with my mom as possible, you know, while she's still alive.

47:32The things that actually really matter in life, you don't necessarily, you don't have to have money for those things. But one of the things that having money does is it frees you to have the time with those things that matter most. Right. It frees you to have the time. And the other thing I've noticed is it frees you so that when something comes up, like a health emergency. Yes. If someone you love has a health emergency, money is not a factor in care. 100%. I don't know how you can underestimate that. I've had health issues in my family that I've been able to drop everything, not need to work, and spend whatever money I need to spend to help family members take care of these health issues.

48:18I've had my own health issues. I had to have an ankle replacement surgery. I was hit by a car when I was a kid at 15 and my ankle was crushed and I had 27 pieces of metal put in my ankle to put it back together again. I had six surgeries. So I was never supposed to be able to walk again without. Do you set off the airport security alarm? Well, I took six surgeries. Ultimately they took that out of my ankle, but I had a rod in my left femur, rod in my right tibula. It's been a year in physical therapy, three months in the hospital and a year in physical therapy, he'll walk again. but it made me who I am because it gave me the strength like gave me the strength for all that I could do anything like learning how to walk again like what that took at 15 was life-changing it also gave me enormous empathy because once you go through something like that you realize like oh my god they're by the grace of god goes high you know I got to see people much worse off than me that weren't going to get better but ultimately my ankle wore out and when I was in Florence living my dream life all of a sudden the cartilage of my ankle was just gone and I couldn't well I I literally couldn't walk 100 yards because my ankle was bone on bone.

49:22And so I was in such horrific pain that my whole life was becoming about pain, which there are millions of people who are also their whole life is about pain. You have no idea. If you haven't lived your life with pain, you have no idea what it's like to live your life with pain. I've lived my whole life with pain, but it wasn't unbearable pain. Like it was bad pain, but not unbearable pain. my day would basically i would wake up and put my feet on the ground and then it would be like so this is how my day is going to go right like i would walk a lot across the pontovecchio and gasp because i was in so much pain i tried everything and i had the money to try it all i had the money to try stem cell treatments and every imaginable thing none of that worked and then ultimately i had an ankle replacement surgery and they went in and removed my ankle and put a new ankle in It's like a new hinge.

50:13That surgery, I was able to walk in and put it on my Amex. You know, I was able to put that, and that was an expensive surgery. That's not covered by insurance. The U.S. insurance doesn't cover an ankle replacement surgery because it's a new type of surgery. That surgery would be paid for in advance. I'd had that surgery in Milan. And I remember thinking, like, how lucky am I that I can just go, here's my credit card. Yeah. It was not a decision process for me. Whereas somebody who doesn't have money, they were like, I can't do anything about this. So you're right. Yeah. Let's go back to the person who feels as though assets are out of reach.

50:51They feel as though a home is out of reach. They're paying off their student loans. Because healthcare and housing and all of these essentials are so expensive and it all feels so out of reach, there's this sense of despair. Yeah. And then they reach for the latte or the avocado toast because they have that sense of despair. And in the midst of that despair, the latte and the avocado toast are their only sources of comfort. What would you say? What would you say? I want to hear what your answer is, and I'll tell you my answer because I'm literally curious. What would you say? Well. What do you say?

51:29Because you meet these people that are listening to your podcast. What do you say? The first thing I would say would be to try to find comfort, and this is going to sound funny, but find comfort in the spreadsheet. Because that spreadsheet or that online calculator that shows you what your life will be like, forget 40 years, what your life will be like in 15 years if you just make these little small moves. There's a lot of comfort in that. And even if you have to look at that multiple times a day and say, wow, I'm 22 now, but by the time I'm 35, this is how much I'll have. Or by the time I'm 40, this is how much I'll have.

52:10There is a certain comfort in that. There's a certain joy once you've internalized that notion. I think that's a beautiful answer, by the way. Oh, thank you. I really do. Everything you said is totally true. And the other thing I would say is the moment you make a decision to fix your finances and you click the button to start paying yourself first automatically, whether that's in an IRA account or just in an investment account. I'll give an example, like Acorns. You go to Acorns and you click on a button and you start rolling up your change every time you buy something and you put it in a diversified portfolio and you start putting a little bit of money into these accounts.

52:45The moment you do that, you start to feel better. Why do you start to feel better instantly? Because you know when you're not doing what you need to do financially, you know it. You know, the person who's like, I don't care, I'm having my coffee. I don't care, I'm having my avocados. I don't care, I'm having my cocktails. And they're not saving anything. The anxiety of not doing anything never goes away. And as you get older, it gets worse. Because in your 20s, you're like, okay, whatever, right? Then your 30s, you're like, hmm, I know I'm supposed to do something. Then your 40s, you're just like, I'm so far behind already.

53:23And in 50, you're just like, it's not even worth trying now. That's all wrong, by the way. You can start at any age. Right. At any age. But you will feel better the moment you start to make the changes. And I say that because people write to me and tell me. You know, this book is filled with all these success stories of ordinary people that did all these things. And some of the stories are just not, they're almost not believable. And some of these people are famous now, like Tiffany Alecci, the budgetista. Have you had her on your show? Yeah, she's been on the show. She's remarkable. And she's in New Jersey.

53:56Yeah. I sent this book to her to ask her for a testimonial. And she's like, David, a testimonial. Let me give you my whole life story. She sends me an audio recording. And she's like, I went from being a broke school teacher earning$39 ,000 a year to a multimillionaire teaching others how to live richer. Thanks to David Bocco. That's me. His coaching and this book, The Automatic Millionaire, truly stop what you're doing. Read this book. Take the action and make it automatic. Your future self will thank you. Okay, that was chunked down from a seven-minute recording she sent me. What she said to me in the recording was, 20 years ago, David, I had lost my job.

54:31I think she had$75 ,000 in debt. I forget. It was astronomical amount of credit card debt. She had moved home with her parents. She was sitting on a couch with her mom. She watched me on Oprah, the show you're talking about. She's like, I'm going to go get this book. She went down to the bookstore, bought The Automatic Millionaire, read it cover to cover. And she said, the way you talked in this book, I was like, okay, he's a teacher. He's not talking down to me. I can follow these instructions. I'm going to use these instructions. I'm going to fix my life financially. And then in the process of fixing my life financially, I realized I could teach people too.

55:07I could teach people that are like me. And then that's what she went off and did with her life. And now she's a multimillionaire. Right. And that's just one unbelievable story. Yeah. You know, there's a story of a guy named Jorge who came up to me at a meditation retreat. And he's like, wait, are you David Bach, the automatic millionaire? I'm like, can I take a selfie with you? I'm like, sure. And he started kind of crying. And I'm like, what's your story? And he's like, my story is this. I'm not an automatic millionaire. I'm an automatic multimillionaire. And he goes, but I was a guy with a truck and a trumpet.

55:38And I go, what do you mean? And he's like, I was living in my truck and all I had was a truck and I had a trumpet because I had moved to Florida to be a musician and it was not working out. Kim, I saw you on Oprah and I read The Automatic Millionaire. I changed my whole life and now I'm in real estate and now I'm a multimillionaire. I have a whole team of people and I make everybody come to work for me. Read your book. We have a whole chapter of success stories like that. Jeff Rose, I noticed Jeff Rose is there and he was talking about how he was deployed to Iraq. on his deployment, he read the book and he contacted his wife who was back at home and said, all right, let's, I'm getting my, my military paychecks.

56:14Let's start being really smart about how we spend this. And they were in credit card debt at the time. I know Jeff Rose very well. You know, now they're thriving. They have four kids. They're amazing. I met them at FinCon. Yeah. And again, I didn't know his story either. And we're sitting down in a conference for him like this and doing a podcast. He's interviewing me and he's like, your whole book changed my life. And I got everybody in my, in my troop to read your book. And now he's like a famous financial blogger and huge influencer. And these little things work. They work when you work them.

56:46I know that you have a different listener than most. Most of your listeners are financially sophisticated. They're doing investing. They're not the wannabe people, right? Like a lot of people, some people who listen to watch TikTok or pay attention to financial content. It's almost it's like pornography. Like they're just financial, it's like financial pornography now, I think. Like they're watching stuff and they're watching stuff and they're watching stuff, but they're not doing anything. Your listeners are doing something. And I think that's what it always comes down to. Are you using this stuff?

57:16At a certain point you need to stop learning and you just need to start doing. Right. Well, and so your answer to that question about the small comforts in times of despair, your answer is essentially not doing anything is going to create anxiety. And the only way to break through that anxiety is by doing something and taking some action. That's almost, you're paraphrasing me well, except that what I'm saying is they already have the anxiety. Someone who's not saving and investing has the anxiety. There's a reason why so many people are so stressed out. If you're living paycheck to paycheck and you have no savings and you're not doing anything, you're not an idiot.

57:53You know you're not doing it. there's no question that there's all these issues. There's no question that things are more expensive. There's no question it's harder to buy a home. You can stack up all these things and just decide to do nothing, or you can look at all these things and go, well, what am I going to do? I got to do something. The only reason I am here today able to do what I do is that my grandmother at 30 was broke, living paycheck to paycheck, working full-time in Milwaukee, wisconsin selling wigs at gimble's department store my grandmother did not have a college education my grandfather did not have a college education he worked in a in a manufacturing plant they were middle class blue collar midwest milwaukee wisconsin people and at 30 my grandmother was like i don't want to be poor anymore and my grandfather's like what do you want to do about it and she's like i want us to start saving a dollar a week so we can start investing the money in the stock market and he's like you don't know anything about the stock market she's like i know no, I don't, but I'll learn.

58:53And she literally went out and learned how to invest. And they saved a dollar a week and she brown bagged her lunch. And she went down to a brokerage firm at the end of the year with this cash and said, I want to open up a brokerage account. And they told her to come back with her husband. And she's like, my husband, if you don't want my money, I'll go next door. There's two other brokerage firms on the street. And they're like, okay, sit down. We'll open up the account. And she saved all that money. And then that stockbroker that she hired gave her bad advice. By the end of the year, by the time she turned 31, she lost all the money.

59:23And I said, what did grandpa say? And she's like, I didn't tell him. But I said, so what'd you do at 31? She's like, I realized I had to actually learn more about earning. I had to take classes because I was just taking advice and I didn't know if it's good advice or bad advice. And so she started going to adult school on money. They had classes on money back then too. Like old school classes, like in a room looking at the desk and like a chalkboard. And she learned how to invest over her lifetime. And over three decades, by the time she reached 60, she was able to retire, leave Milwaukee, Wisconsin, move to Florida, ultimately moved to Leisure World, California.

59:58All of her friends teased her because she brown bagged her lunch. None of them got to leave Milwaukee, Wisconsin. But because she saved and invested, she was financially free. And she taught my father how to invest. And he became a financial advisor. And she taught me how to invest. And I became one. And my sister became one. I bought my first stock at age seven. So that one woman's decision, because she was tired of being in pain and made a decision to make a change, changed the entire destiny of our family. Our whole family's life changed because of that one woman's decision. And so the other thing I would say to somebody who's just like not dealing is like, you might be thinking you're doing this just for yourself.

1:00:34You actually might be doing this for your family. You might be doing this for the next generation in your family. There's a ripple effect that financial freedom creates. Generational wealth is created because one person decides in a family to fix their finances. Most people have to fix their finances. Most people aren't born doing everything correctly. It's just not how it works, including myself. I made all kinds of mistakes in my 20s. That's why the Automatic Millionaire book exists, because I was this idiot making a bunch of money, spending all my money. And I met this ordinary couple who that year had made$53 ,000 in income and was able to retire in their fifties because they were multimillionaires because they had spent less than they made.

1:01:14I had to go through pain actually to make changes. And it's funny. I used to live in San Francisco and I used to get my haircut at a place called Nice Cuts. So Nice Cuts had the cheapest haircuts in San Francisco and the marina. There were$6. And the owner of Nice Cuts was a guy named Sam. And Sam had two locations. Sam was from Vietnam. And so he would cut my hair. And before I went on the Oprah show, this is actually a funny story, Paul. I said to him, you got to give me a really good haircut. I'm going on Oprah. It's going to be your best haircut ever, Sam. And he's cutting my hair. And he's like, you're going on Oprah.

1:01:50I'm like, yeah, with the book I've been working on, The Automatic Millionaire. And he's like, so what are you going to say on Oprah? What are you talking about? I go, my mission, Sam, is I want to inspire 10 million people to pay themselves first one hour day of their income automatically. So I'm telling him this, he's cutting my hair. And he goes, one hour day of your income. How much is that? I go, well, it's like a little bit above 10%. Sam stops cutting my hair, bends over laughing his ass off. He cannot stop laughing. I'm like, what's so funny? He's like, you're going on Oprah to teach people to save 10 % of their income.

1:02:24I go, yeah. Why is that so funny? He goes, David, I came here from Vietnam, literally on a boat. Like you hear people, we came on a boat. I came on a boat from Vietnam. I did not speak the language. I spoke no English. I had$75 in my pocket. I didn't even have a job when I landed in San Francisco. my mom said to me i think he was 17 he goes my mom said to me when you get to america and you get your first job you need to live off of 10 of your income and you need to save 90 of your income so he's like i slept on a cot in the back of a restaurant for a year i lived off of rice and bananas for a year.

1:03:14He goes, but I didn't listen to my mom. I was in America. I went crazy. I spent 25 cents on every dollar I made and I saved 75 cents. And then you fast forward his stories. After a year, I could move off the cot. I got my own place. I learned how to cut hair, two hair salons, and he had been buying real estate. So he had already bought three pieces of real estate in the marina. And I'm sure Sam today is a multimillionaire. Right. But that's an immigrant mentality, right? Yeah. And yet people are like, oh, I can't give up my Starbucks coffee. Like, oh, my freaking God. Then don't. Like, then just I just don't know what your plan is when you're in your 50s and your 60s.

1:03:57Yeah. The immigrant mentality. My parents, the last time I was visiting home, I was wearing this pair of sweatpants that I love. My mom, she saw it and she liked it. She was trying to find some sweatpants that would fit. So she was like, I like those. Where are they from? And I said, oh, they're from Target. And my mom said, oh, Target, that's too expensive. Why are you buying clothes from Target? That's way too expensive. Oh, that's so funny. Target. Yeah, exactly. All these years later, that mindset still sticks where you're like, I'm not going to do something fancy. Right. Like go shop at Target.

1:04:34That's for rich people. You know what? When I was growing up, Sears was where my parents shopped and where they took us to shop. And part of that was because my dad worked at Dean Witter and Dean Witter was, Sears were actually owned by the same company. Sears bought Dean Witter. And so as a Dean Witter employee, they had a, you got a Sears discount. And so that's where we would, kids have to go shopping for our clothes. I remember being a young kid, like third grade, and I wanted a pair of Adidas. And Adidas were like$12. and the same pair of shoes at Sears that were blue with four stripes, they looked like a Samba, but they had four stripes.

1:05:09They were like four bucks. My parents were like, I'm not buying you a pair of Adidas. And I was like, but I want a pair of Adidas. Like that's the cool shoe. And my mom's like, we'll buy you these shoes at Sears and you can cut one of the stripes off. And I was like, I don't want those shoes. I don't want the one with four stripes and cut the stripe off. And so I said, well, what kind of, you know, let's negotiate. How about I do a bunch of stuff for you in the house and I save my own money and then you, you split the shoes with me. And that's ultimately what happened. I, you know, they're like, okay.

1:05:39And they gave me all these projects and then they split the Adidas shoes with me, which were$12 and I put in six and they put in six. Wow. I really appreciated those shoes though. That is good financial education. Yeah. That's a very good financial education. So funny, those memories. Yeah. It's amazing.

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1:10:10so just to spell it out for everyone who's listening the notion of an automatic millionaire is that you automate everything because life is busy and you're going to forget so you automatically pay yourself first you automatically save into an emergency fund into your retirement funds into your dream fund. Exactly. And you automate all of it and it comes right off of the top. And you also automate your bills. So like with the credit cards, one of the biggest things that affects people with credit cards is they get late fees and then their interest rates go up. And so the banks and the credit card companies make billions of dollars on late fees.

1:10:43So at a minimum, you got to automate your credit cards also to make the minimum payments and then manually go in and make extra payments. There's really three accounts. There's retirement, there's now the emergency money, and then there's the dream account. And the dream account is that, you know, what do you want to do that's a dream of yours between now and retirement? It could be a short-term dream. It could be a mid-term dream. It could be the dream could be to buy a house. Or it could be like, no, I want to go on vacation. Whatever the dream is, the way you make those dreams real is you put some money away in an investment account to pay for those dreams.

1:11:15A lot of times people are like, well, I don't know what my dreams are. I'm like, great. Find a dream account anyway because what will happen is all of a sudden you'll have something will come up and then you'll have the money in the account for that. A lot of people, especially when the topic of dream accounts or emergency funds come up, a lot of people get really, in a bull market, get reluctant to keep that much in cash. When we've had a consistent bull market for so long, people often start viewing the stock market as a high-yield savings account. That's crazy, by the way. Can you speak to that?

1:11:49Because I hear that all the time. I don't want to leave this money in cash. I keep thinking about how much more I could be making if I had this. Yeah. You know, it wasn't that long ago that COVID happened. People had cash for really happy. It's like getting in a car without a seatbelt or an airbag. You know, hopefully you'll never get in a car accident. But man, when the day comes and you have a car accident, it's nice to have the seatbelt on and have an airbag. I think that people should have at least 10 % of their money in cash. I have closer to 20%. Of your total net worth? Yeah. Wow. Maybe 15 right now.

1:12:21I have a lot of fixed income. I'm overly conservative, more conservative than my financial advisory team would like me to be. But you know what? You have to know yourself. You have to know how much volatility you want, and you have to know what kind of return you need because that's another thing. You're not just investing just to have money, right? Like how much of what kind of return do you need? When I was a financial advisor, we would work with our clients. We're like, look, the goal for your money is to earn somewhere between 7 % to 10 % annually, depending on how much risk we take. That's the goal, right?

1:12:50Because then we can outpace inflation and we can outpace your spending. You know, the 4 % rule of spending is a great rule. And if your money's earning 7 % annually, you'll be able to take your 4 % and your money will keep growing. One of the things that people do in markets like this is their accounts go up 15 % annually and they start looking at that like that's real money and they start spending 15%. And then the markets turn around and go the opposite direction and their lifestyle has got to a point where they need that money, that's a huge mistake too. By the way, cash has been an amazing place to have money because the rates have been four or 5%.

1:13:24Right. You know, the problem now is rates are coming down. Right. So people will start to not want to have less money in cash because the rates are coming down. Yeah, exactly. But it's simultaneously, I mean, rates coming down is bad for savers, great for borrowers. So as the rates come down, homeownership feels more attainable because those interest rates are a bit lower. Absolutely. And homeownership is already starting to pick back up again because of that. I think one thing, you know, again, we haven't even talked about the issue of renting versus owning. You know, the latest statistics right now is that the average homeowner is worth$400 ,000.

1:13:57Some people say$430 ,000. And the average renters were$10 ,000. So homeowners are worth still, it's basically the stacks stayed so consistent. Homeowners are worth 40 times more than renters. And so when you look at like, what is the primary thing that impacts wealth in America? It's home ownership. And if you don't figure out a way to get into the home ownership game, you're at a huge disadvantage. If someone's like, I'm going to rent forever because I just don't believe I can buy a home, then you have to save twice as much money. You still won't catch up to the person who bought a piece of real estate.

1:14:29And then, you know, the question is, well, how do I buy my first piece of real estate? You know what? You got to work really hard in many cases to buy that first piece of real estate. won't be a dream property. My first piece of real estate that I bought, my first house, I split it with the best friend,$225 ,000 house. So we each put down like a little over 10 grand. We borrowed 90 % of the time. And we didn't even have the money to make the mortgage payments. We had to rent rooms to friends, but we had friends we knew were rent rooms because we knew our friends all needed to rent. So your very first property was a rental property.

1:14:58In essence, it really was. Yeah. Yeah. And that's how we could afford the property. And it was a complete fixer-upper. We didn't know what we were getting into. We just thought it would be fun. Where was this? What was it? It was in Danville. Where's Danville? Danville's in the East Bay in California. That house today would be, if we had kept it, so sadly we didn't, but that house today is probably worth 1.5 million. My mom came over to that house, looked at it and cried. And we're like, well, why are you crying, mom? She's like, oh my God, what have you done? Like, but we worked on that house for like a year.

1:15:25That's what we would do on the weekends is go to Home Depot and get the stuff, come back, tile, paint, sand. Before YouTube, how did you know how to do those projects? We did not know how to do those projects. I honestly don't know what, but that was the beauty of being young, right? There's something to be said for being young and dumb and hungry. And we were young and dumb and hungry. And we were both really hungry. We both really wanted to make a lot of money and we wanted to be investors at a young age. And we were paying money in rent. My friend was a mortgage broker and I'm like, you know, between what we're both paying in rent, we could get a mortgage.

1:15:57You're a mortgage guy, do the numbers for us. And he's like, I think we could qualify for like a$200 ,000 mortgage if we split it. And so we did. Now at the time I had about three months of money set aside to make mortgage payments. And I was in commercial real estate on commission only business. So I remember being close to having no money and being like, how am I going to make my mortgage payments? And I was very driven then because I needed to close deals and I cold called like nobody's ever cold called because I had to get deals going. Right. How long did you have that house? Had that house probably five, six, seven years.

1:16:35The two of us ultimately moved. I moved to San Francisco, he moved to Las Vegas, and we rented the house out for a few years. Now, that was not a huge success story. That house, when we sold that house, we sold that house for like a little bit more than we paid for it because there was a time where the market was flat. Yeah. And then after we sold that house, the market skyrocketed. Oh, man. You know, so that was the only property I ever bought during my lifetime that I haven't made a bunch of money on it. In fact, it's the only property I ever bought that I didn't get at least the$250 ,000 to$500 ,000 in tax-free gains, right?

1:17:04Because, you know, when you buy a house, if you're single, you get$250 ,000 tax-free on a sale. And if you're married, you get$500 ,000 tax-free sale. And I know you know this. If it's your primary residence. It's your primary residence, but a lot of people don't know that. As a rental property, you can just keep flipping them over and over again and doing a 1031 exchange. So all the tax laws were designed to make people who own real estate rich. That's why the real estate goes up in value. And when people go, oh, but it's cheaper to rent than own because of all the expenses, taxes and maintenance and all these things that you have to do.

1:17:35I just say to people like, I don't know who you think is paying for that. Do you think the landlord's paying for that? People don't buy investment property to eat those expenses. Those expenses ultimately get passed to you as a renter. That's why all these companies have gone in and bought up all these rental properties. They know it's a good investment, and that's why they keep raising their rents. Rents next door where I used to live have doubled. If you rent long term, the only thing that will happen for you is that your rental will go higher. But there's a distinction between the math that a mom and pop investor, rental investor does versus what a private equity firm does.

1:18:11And when private equity is buying big multifamily real estate, they are getting favorable loan terms. They're getting favorable, you know, very favorable deals that would make owning in a location like Manhattan make sense for that PE firm in a way that it wouldn't for, let's say, a mom and pop individual investor. What you said is true. You jumped to individual investor. I'm just talking about buying your first home. But where that starts to break down, so I'm thinking about the numbers here in Manhattan. Right now for every, and you talk about this in The Automatic Millionaire, based on current interest rates, every$1 ,000 of rent translates to about$125 ,000 worth of home, right?

1:18:56So in New York, the average one bedroom is about$4 ,000 per month in Manhattan. So$4 ,000 per month, that would translate to$500 ,000 worth of home. Yeah. But you can't buy the equivalent of a$4 ,000 apartment in New York. You would not be able to buy for$500 ,000. So the equivalent of a$4 ,000 apartment in New York would cost about a million. Yep. Which means - Actually,$1.2 million. Yeah. I mean, literally, what could you buy for$500 ,000? You can't buy anything. I mean, I shouldn't say you can't buy anything. Right. But like right across from us right now, you can't buy anything there for half a million dollars.

1:19:37It's$1.2 million to start, 800 square feet. To your point, someone who's paying$4 ,000 a month, they're not buying a place for$1.2 million and less. How are people buying these places in Manhattan? They're younger. Their parents are giving them a down payment. For some of them. Yeah. Otherwise, they're not doing it. For some of them. There are also more creative ways to do it. So there will be groups of friends who buy together. There are certainly couples who should break up but who stay together so that they can buy a place. People move out of the city. Yeah. I mean, all outside in Brooklyn, all the different areas that have grown, have grown because in order to buy your first place, you have to move out of the city.

1:20:17But that's true all over the place. That's true in Chicago. That's true in San Francisco. By the way, it's always been true, right? Austin grew. All these areas grew because people needed to move somewhere that housing was affordable. Then that housing went up. Then they had to move to the next place that housing was affordable. I'm not disagreeing with you at all. It's very hard in a city like New York for someone in their 20s or 30s to buy something. And the reality is how are people in their 20s and 30s buying something? Usually the parents are helping them with a down payment. And that's still tough because the reality is right now if you buy a kid a place for cash with no mortgage, the carrying costs and taxes can be the equivalent to what rent is in New York City.

1:21:01Right, which is why it seems to me like in very high cost of living areas, areas where the price to rent ratio is completely skewed, like Manhattan, renting could make more sense if you take that cost differential and put it into an index fund. Yeah, well, I think people who moved to New York, they come here for a dream and a job. Yeah. So they have to rent to begin with. Now, the reality is what happens is that many people who rent$4 ,000 is not cheap to rent. right so people are stretching to rent in these cities often the parents are helping with rent too so they're not necessarily saving unless they've got a parent like me who's like the moment you get your first job you have to use your 401k plan you have to max out your 401k plan you have to be saving some money but you got a lot of people a lot of kids in these cities living making good money a lot of people making 100 200 000 a year in new york and they're still broke and they've got a decent apartment.

1:21:58It's not a luxury apartment and they're not getting ahead. So that's why people often can't stay here, right? They come here when they're young and then they leave. Most people who come here, they stay for a year or two or three and then they leave. The ones that stay, there's a certain person that stays in Manhattan. When I lived in New York, they said, if you stay more than two years before you know it, you'll be here 10. And the 10 years will go by like that. And that's exactly what happened. Now, the thing is, if you rent for 10 years, you got nothing to show for it. In New York, if you were able to scratch your way into a place and you bought something, you did really, really well.

1:22:33In New York, one of those rare cities where it doesn't seem to ever matter what happens, New York always bounces back. This is just one of the most remarkable cities in the world. People always want to come here. After COVID, when things were bad, people were like, oh, New York's done, it's over. Yeah, the death of cities. This city is more vibrant than I ever remember it being. It's like when I first moved here. And the energy here, it's electric, it's filled with young people. And I think people should still move to these kind of cities, because it's a different energy when you're young. And you just sometimes have to make some sacrifices.

1:23:07So maybe you don't get to buy a home right away. Right. My advice to people is typically to rent in a high cost center, rent your primary residence in a high cost center, and then buy an income producing property in a low cost area. That way you still own real estate. You just own real estate where the price to rent ratio works in your favor quite a bit more. That's a great idea. You talk a lot about the importance of contributing to a portfolio, but how should people construct that portfolio? What should people put into that portfolio once they have it? So to keep it really simple, first of all, I fundamentally believe in asset allocation, right?

1:23:47You need to have a complete mixture of stocks and bonds, US stocks, global stocks. Easiest way to do that when you've got a 401k plan is to have a target data mutual fund. So there's trillions of dollars in target data mutual funds. When I first started writing about them, they were brand new. Now that's like the default option in 401k plans. People who are not familiar with what they are, I think most people are, but if you're not familiar with it, you know, you basically pick a fund that's got a date around when you would retire. So if you want to retire in 30 years, you'd have a fund 30 years from now.

1:24:18So let's say you've got a Fidelity 401k plan, you'd have the Fidelity target dated fund 2050 or 55. Same thing with Vanguard, whoever's got the 401k plan, they will have these funds with a date on them. And they're great because they do the allocation for you. So as you're younger, they're more aggressive. That means there's more money in stocks, less money in bonds. As you get older, it rotates into more bonds than stocks. That is the best solution for most people, bar none. Because people do not spend time actively managing their 401k plans. They shouldn't. Shouldn't be timing with your 401k plan.

1:24:53Really, all you should be focused on is putting money away in it. And if you do a targeted fund, I think you'll be thrilled with the results. It's funny to me because I've spent so much time in this business. I was just on the investment committee of our registered investment advisor for eight years. Every quarter, we have a 90-page deck of all the models to go through with our chief investment officers. Everything from active management to passive management to outside money managers to internal portfolios. I have been for eight years knee deep in 90 pages of review of all these portfolios. And at the end of the day, the bulk of money in retirement accounts is in a balanced model.

1:25:34Balanced model, 60 % equity and 40 % bonds. And when you dig through all the money in retirement accounts, what does it look like? It's somewhere between 50-50, 60-40, or 40-60. That's the variable, right? So people who are under the age of 50, it's more like 75 % stock, 25 % bonds. That's typically what people use to become millionaires. Fidelity has got the most research and the most data on 401k millionaires. They have 565 ,000 people right now in Fidelity 401k plans that are millionaires. The average person who became a millionaire in a Fidelity 401k plan, these are actually really interesting statistics.

1:26:17It took them 26 years and they hit the millionaire number by age 59. Now the average account is 1.4 million. And their allocation to get there was roughly 70, 75 % stock and 25 % bonds, which is pretty growth oriented, right? But that's also probably why they got there by that age. You know, if someone were to ask me like, what do I think the perfect allocation is? I think a balanced allocation for most people who are retired is a pretty good allocation. And I think when you're in your 20s and your 30s and your 40s, you can be a little bit more aggressive than that. But I do believe that some of the worst advice is that when you're young, you should be super aggressive.

1:26:54Really? Yeah. Because, you know, everybody's surprised. Yeah. Yeah. I am surprised. Because everybody says, oh, you're young, you can afford to take risk. Yeah. And what I would say is, you know what? Losing money sucks at any age. And what happens when you start investing and you're young and you take a lot of risk and you lose a bunch of money, a lot of people get out of the market forever. and so there's a myth that because you're young you're in your 20s and your 30s that if the market goes down 30 you're like oh it doesn't matter i'm not going to need it for 20 years or 30 years and then the reality is you look at your brokerage account you're like oh my god i've lost all this money and then people panic and they sell and then they don't get back in the market so i think you're much better off to have a boring bounce portfolio when the market corrects except what happened like whatever it was three years ago and we had the worst correction we've ever seen on balanced portfolios.

1:27:41It's at 2022. Yeah. You know, that was unbelievable, right? A balanced portfolio went down like at one point, like 33%, I think that was like a historical moment. Like the worst we've ever seen, I think in a hundred years, hopefully we won't see that again, but you know, it was worse if you were a hundred percent equity. So I think, um, boring is really good when it comes to your money and the tourist approach to building wealth gets you through the decades and gets you to the end. And I think if you're too aggressive when you're young, you actually don't get to the end where you've got the money.

1:28:14I see people right now, you know, they're trading meme stocks and getting rug pulled and meme coins and getting rug pulled and NFTs. I mean, the amount of people that, you know, because what we do, right, the things that people come up to you and they're like, so I've quit my job and I'm trading NFTs. What do you think of that, David? I'm like, I think that's not going to go very well. What do you mean I'm making a fortune? Well, yeah, now it's all over, right? Like, you know, meme coins, same thing. All these things that people are like, the dream of getting rich quick leads to a lifetime of being broke.

1:28:45Right. Well, and that was actually going to be my next question because sometimes I think it's funny. We will often talk about risk in the context of a portfolio where you're just managing your allocation of broad market index funds among stock funds and bond funds, right? And we talk about risk modeling in that context. And then meanwhile, over in this other corner of reality, you've got meme stocks and all of the hot trends, all of the stuff that you see on TikTok. That's a whole different level of risk that kind of makes the stock bond allocation conversation in a sense sound a little quaint.

1:29:27Oh, 100%. My 15-year-old, we were skiing in Switzerland. This is over the Christmas holidays. and my 15 year old is actively trading meme coins and he's trading like he's got his screens and he's really trading meme coins and he's on investor calls for meme coins this is a 15 year old kid and he's taken in like six weeks four hundred dollars and he's turned into eight thousand and we're skiing and we're on the lift and he's like dad i'm telling you you're just you're like you're like you know he goes you want to make 10 a year dad i want to make 10 in an hour You have no idea. You're just old.

1:30:05You need to get with the times. As I'm watching his money grow over like a three-week period of time, and he's actually trading, he's not just getting lucky on one coin. I'm like, God, really? Like, I don't know. This all seems like bulls**t to me. But I want him to have all these experiences, right? But I have this moment in time where I'm like, am I completely out of touch? And he's like, you know, Dad, you gave me a million dollars. Can you imagine how fast I could turn that into a hundred million? Like, look what I'm doing. well two weeks later that was all over his eight thousand dollars it went to zero all those coins got rug pulled and he went from being so excited about trading and believing he'd found a system and believing he was on the inside to having that experience of losing all his money you know he stopped trading now and and i hope he'll go back to like i i literally talk about investing all the time.

1:30:56But I'm like, I want you owning index funds. He's got a portfolio of primarily index funds that I've created for him. And he's like, but they're boring. I'm like, I know, but boring is good when it comes to your money. Because one of the key things about money is return. People talk about return on investing, ROI. I talk about ROC, return of capital. You want the money that you invest to at least come back to you. Principal preservation. Yeah. What would you recommend for entrepreneurs who are trying to figure out how much money they should pull out to put into retirement accounts, real estate, all these other types of investments versus how much to reinvest back into their own business?

1:31:38Well, the first thing I would say to all entrepreneurs, especially the ones that are really like a self-employed entrepreneur, right? Like they're a one-man shop. Yeah. Or a two-man shop. Or, you know, one-man woman shop. You're a small business. Maybe you've got freelancers, but for the end of the day, it's basically you. Yeah. Which is like a lot of Americans. A lot of Americans are freelance. They're their own business. Right. The number one thing you need to do is set aside money for taxes. Because what destroys people's lives is they don't set aside money for taxes. And they live off the money coming in.

1:32:08And all of a sudden, they become a year to two years behind on their taxes. And they just don't even know what to do. It destroys people's lives. So the first thing you've got to do is it's not a pay. There's pay yourself first, but there's also you have to be putting aside your tax dollars. So it's really important to have real bookkeeping, whether you're using Quicken or using QuickBooks and you're doing it yourself or have an online bookkeeper and know your numbers and set aside money for taxes. Then the second thing is you need to set aside money to pay yourself first. So many entrepreneurs don't.

1:32:37And when you talk about reinvesting, like how much you want to reinvest? Well, at least 10%, 15%, 20 % you can reinvest in the business. It's usually what it takes in order to even keep the business going, much less growing. Mm-hmm. your numbers have to be dialed in as an entrepreneur. It's much harder as an entrepreneur than it is as an employee. Yeah. And a lot of entrepreneurs do a really poor job managing their money. Yeah. A lot of entrepreneurs have the dream is I'm going to build this business and sell it. That's just not reality for most entrepreneurs. So if you don't know, if you're building a business right now and you don't know who would buy it and you don't know what multiples the business trades for, then you don't actually know if you have a saleable business.

1:33:17Certain businesses, you know exactly what they trade for. You know exactly what, based on EBITDA or gross revenues you can solve for, you know, if it's a 3X or a 5X or an 8X or a 10X. And so you know if I build this, I can sell it for this. By the way, those are better businesses. But not everybody goes into business that way. Right. You know, a lot of people go into business for passion and purpose, and they're not thinking about the multiples. I didn't think about the multiples when I went into the financial education business. I just went to go out and teach. I did think about that with financial services.

1:33:47Right. When you co-founded an RIA. I mean, I, you know, that was an intentional decision. I'm like, you know, I know exactly what these businesses trade for. I know how long it takes to build them and I know they can be worth. That's a great example. But with co-founding an RIA, a registered investment advisor, so much of that business is the trust that clients have with their advisors. So does that limit scalability? No, this is exact opposite. Do you know the multiples of these businesses trade for? I don't. They trade for anywhere from, you know, eight to 20 times multiples. So these businesses are bought based on revenue, asset center management, EBITDA.

1:34:25And today, most of these businesses, a small business where it's really one advisor working with clients one-on-one, that business is not easily saleable. Right. But like we built a platform for individual advisors and we teach our advisors how to become entrepreneurs and build real businesses that can be scaled and sold. the amount of money in the RIA business right now is unbelievable because everybody's gotten it now all the private equity's got involved in in the RIA businesses everybody wants a piece of the action and it's just a huge marketplace right now for good well-run RIAs and a lot of these businesses are two three four five million dollar businesses but the ones that have really scaled they're much bigger than that you know they're 10 15 20 30 million dollar RIAs we built a platform for individual RAs.

1:35:12We help them with everything from their asset management to their compliance to their marketing, and then they run their own business. But it's still, by the way, you want to get a good business, being a financial advisor is a phenomenal business. Phenomenal business. And it's going to continue to be a phenomenal business for at least, I think, another 10, 15, 20 years because so many people have so much money, and they're retiring and they need help. Now, AI is going to change a lot of financial planning. we don't yet know where that's going to go and how does that remove the need for a financial advisor but i think at the end of the day when you when you have money you ultimately want somebody to talk to right you know now what's changed is everybody used to have to come into your office that was a big thing where you were located and what's changed now in the financial advisory space is i've actually never seen my financial advisor face to face my entire relationship is over Zoom.

1:36:04And they're based in Kansas. And it doesn't matter at all where I am or where they are. Right. And that's a game changer.

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1:39:35You're not a CFP, but you were a financial advisor. Where are the opportunities now and in the next five years? Well, if you're young, usually at this point, you go work on a team. Right. And you train on a team and you get to be a part of a team. And then the question is, do you leave the team and go on your own? But everyone's hiring in the financial service business. We call them the warehouse firms, Morgan Stanley. Name every major brokerage firm, they're all hiring, including Schwab and Fidelity and Vanguard. Everyone's hiring. All the RAs are hiring. They can't get enough financial buzzers.

1:40:12So being a financial advisor is not a difficult job. Marketing at clients is the hard part. There are different ways to go into the business. One is you go work for someone who's got all the marketing down and you work on their team or you work as an employee and they bring you the clients and you get a, you work with those clients and you get paid a salary, you get paid a piece of it. And the other is you go out and hunt and you get your own clients. So it depends on where in the, you know, where you are in the business stack, but it's a great business for women too the bulk of wealth is going to transfer to women i bet you the business today is nice still probably 85 men and 15 women as advisors and yet the bulk of assets are going to be inherited by women and those women when they they don't have a relationship with their financial advisor who their husband might have chose when the husband dies they immediately move advisors like if i were a young person today i would seriously consider going the financial service business, which is ironic because even though I was in it, I didn't intend to go in it.

1:41:17My dad talked me into coming into it. I was in commercial real estate. Right. And he's like, oh, you should really try this business. And so he's like, just come over and try for a year. I tried to talk my son into it too, but I think my kids are going to go do their own thing. But I think it's a great opportunity for a lot of people. At the top of the show, you mentioned there's 44 trillion in retirement accounts. And a lot of people are reluctant to take that money out. What solutions do you propose? You mentioned earlier that you think a flat tax would help. How else can we encourage people who they've got lots of money for retirement, but they're not willing to give themselves permission to spend?

1:41:55What are the solutions? Well, so I think the first thing is you have to realize as a country that this is a problem. Actually stop and go, is this what we wanted to have happen with these retirement accounts. We created this enormous tax incentive to get money put away for retirement, which is great. It's worked. I still want people to do it. But now we've got this barrier to our money, which is ordinary income tax. And the thing that occurred to me, really, in the last 12 months, with no tax on tips, like Trump was doing an event and someone said, we shouldn't have tax on tips. And he was like, maybe, you know what, that's a good idea.

1:42:34Maybe we shouldn't have tax on tips. And sure enough, there's no tax on tips. So we shouldn't have tax on Social Security. You know what? We shouldn't have tax on Social Security. Now, there still is tax, but it's almost all gone. It's 83 % gone. 83 % of people are getting Social Security and not paying taxes. And now there's even Democrats talking about removing taxes on Social Security. You have Ron DeSantis this week that announced no tax on real estate. The idea of no tax on real estate in Florida. it. We're experiencing new ideas that have never been discussed before and were not even really imaginable.

1:43:09My question, thought experiment idea could be, what would happen if we had an eight year tax policy? Like the last time we had a tax law, it wasn't permanent. It was eight years long. The government came out and said, you know what we're going to do for eight years? Pick a year it starts. Let's say it's next year. It won't get done that fast, but let's say it did. Right. For eight years, if you're over the age of 60, we're going to reduce your ordinary income tax to 12%. Now, the average American pays 22 % in taxes when they pull money out of their IRA account. So the question would be, if we did that for eight years, what would happen?

1:43:48Would people over the age of 60 go, huh, you know what? That's a pretty good little window right there for me to pull that money out and pay half as much tax. That's a lot more money back in my pocket. I think what it would do is it would free up trillions of dollars in retirement money. And that that money then would be put into all kinds of things. You know, all of a sudden you'd have 73 million baby boomers that might be getting like, you know, talk about caffeine, like the ultimate boost, right? Like you're in your 60s and your 70s and all of a sudden you're like, huh, all this money that I didn't think I could access.

1:44:22Yeah, you know what? That's even better than a Roth conversion. I'll take the money out. Now, a lot of baby boomers would take the money and keep the exact same account. And they just, I think, move it into their taxable portfolio. So if they had a balanced portfolio, they'd just literally take it out, pay the flat tax. So that means the government would get taxes sooner, right? Because all that money would get pushed forward. Now, it does create later possibly a tax deficit. Depends on how many people pull it out. But some of the baby boomers would pull that money out. And then they go enjoy some of that money.

1:44:55Now, where does that money go? Could go all over the place. Could go into buying houses. Could go into buying houses for their kids. Could go into second home markets, RVs, travel, vacation. It goes wherever it goes. And it circulates through the economy. And that, from having done research on this, looks like that could increase the GDP by a quarter to 1 % annually. One of the things I'm going to talk about in the next 90 days is this idea. because I think the idea of creating an IRA flat tax would be a remarkable thing to bring a boost to the economy, a boost to baby boomers. And baby boomers are 73 million strong, but there's 50 million people behind them in their fifties.

1:45:36So if you're between the age of 53 and 60, and you knew there was an eight year window to put more money in your retirement account and then take it out quickly before the eight years are up at a lower tax bracket, I think you'd see a huge spike in savings and retirement accounts in their 50s too, right? Because if you're 54, 55, 56, 57, 58, and you're like, okay, I'm going to step up my savings in these deductible accounts. And then as soon as I hit 60, I can take it out at a lower tax bracket. Boom. You can see a huge influx of more money going to retirement accounts. I can see the benefit when it comes to increasing consumer spending, spurring the economy, increasing the volume of transactions that take place.

1:46:19The problem in retirement that is still left unsolved, which we talked about earlier, is the social security insolvency problem. How do we solve that? Well, interestingly enough, having done research using all the different AI tools, they don't all agree, by the way, what would happen. It's interesting because we've run this through chat, GPT, Perplexity, Gemini. By the time this podcast comes out, we'll have a website on this idea. And the website will be called IRAflattax.com. People can go to davidbock.com. They can actually click on a tab. It'll take them to where these reports are. A flat tax could actually push back the time of insolvency because you'd have people that would, it's interesting what the different research thinks.

1:47:05What some of the research says is, meaning AI research says, based on behavior, we think that people would work longer part-time. so people would actually retire later because they could access some of the retirement money so it's possible that it could actually start to push back the insolvency maybe by a year or two it's not a massive change that could be helpful but i don't what can we do to say social security there's nothing we can do what they're gonna do is they're gonna move the date back and they're gonna reduce the benefits there's nothing that can be done because you don't have enough people coming into the workforce to put the money in.

1:47:41Yeah. So what can be done? The only thing that can be done is push the date back, reduce the benefits, and then on the extreme - Increase payroll taxes. That would be the other. That is never going to happen, I don't think. But that could be one. That's the harder one. Yeah. Increase payroll taxes or raise the cap on the amount of income that Social Security taxes come from. And that will probably happen too. The problem with raising the tax for Social Security is you're basically going to go out and say, we're going to raise taxes for you to put money in something that we don't really know if it's going to be around in 50 years.

1:48:19I don't know how they're going to solve this, which is why they haven't done anything for 30 years. This has been that topic that nobody wants to deal with, and now we're here. So what can you do? Don't be dependent on Social Security. I mean, I never thought I would get a Social Security check. I still haven't, by the way. I always assumed that in my financial plan that social security wouldn't be real for me. And so I don't really look at the number. Now, it turns out before I know it, I'm going to be at that age. And I think it is going to be real. But I think if I were in my 20s or my 30s right now, I wouldn't be counting on social security.

1:48:50Right. So that three-legged stool, you know, people talk in retirement planning about the three-legged stool of social security, portfolio and pension. Two out of those three are really going away. Most people don't qualify for pensions unless you're maybe a teacher, firefighter, you know, military, career military. Two out of three are going away. And so who – I just came from doing Mel Robbins' podcast. Like the biggest book of the year is The Let Them Theory. Have you read the book? I haven't read it. Oh, my God. You've got to read the book. It's phenomenal. She sold 7 million copies already of this book.

1:49:21And The Let Them Theory is, you know, the difference between what do you need to let go and what you need to be in charge of. Let them and let me. And I basically said, you know, all those things, like what we just talked about, social security and pensions, that's a let them issue, meaning that you can't do a thing about it. Right. You and I cannot fix, even though I'm talking about an idea to have a flat tax and IRA accounts, you and I can't fix social security. We can't fix the fact that pensions are gone. We can't fix the fact that things cost more in the United States, that health care is going out, the education.

1:49:52None of these things can we fix and do anything about. The only thing we have control over is what we do ourselves. We don't even have control over how the stock market goes. You know, people fixate on the return. Can I make 10 % of my money? You should fixate on your savings rate. Are you saving 10 % of your income? The average American who saves, saves 3 % to 4 % of their income. This reminds me of Stephen Covey's circle of concern versus circle of influence. I love Stephen Covey. Yeah. In Seven Habits of Highly Effective People, he describes your circle of concern, everything you could possibly be concerned about, ranging from the tax rate to nuclear war.

1:50:37And then inside of that, you've got a much smaller circle of influence. And those are the things you have direct control over and you have direct influence over. and he talks about how the more time you spend inside of that circle of influence, the more effective you are. And over time, the larger that circle of influence grows as a result. I also think you have more peace of mind. That was a beautiful book, that book. It's a book that probably is worth rereading every five years. And if you haven't read that book, I highly recommend that book to people. Now that you brought it up, I'm like, I need to go reread it because it's a legendary book.

1:51:10Absolutely. There has always been so much beyond our control. And then there's always so much within our control. I mean, before I came over here today, there's a lot of elite thinkers in the AI space today, came out publicly, hundreds of these people saying that we should stop the development of superintelligence AI and the reasons why. And I'm like, man, I'm super excited about the next 10 years. I think things are going to be phenomenal. I just got done telling you that, you know, I think this is going to be the greatest opportunity of our lifetime for investments and progress. And I'm like, as long as we don't destroy the earth.

1:51:47Right. And I literally was thinking, I mean, I'm in my hotel room reading this article, getting ready to come over here. And I'm like, as long as AI doesn't destroy the earth. But I have no control over that. You have no control over that. So I have to focus on what can I control. And that's ultimately what everybody else has to do too. Yeah. Focus on how to be resilient in the face of rapid change. And there's always been rapid change. I think we always think every 10 years that it's different. And it is different, but it's the same. There was rapid change when my grandmother was 30. My grandmother was from the depression era.

1:52:21She's a depression-era child, right? That's a horrible time. People go, oh, this is the worst it's ever been. Like, what are you talking about? There have been worse times in history than this. And for a lot of people, this is not a bad time. So it's just, where are you right now? And if where you are is not where you want to be, then the question is, where do you want to be? What is it in your life that's not working? I have this big belief called, don't be mad, be done. Everyone's got something in their life that's not working. And it ruminates. Take out a yellow pad of paper, write down everything in your life that you don't want, that makes you mad.

1:52:57And then start to ask yourself, what are these things can I get rid of? And then ask yourself, what do you want? You know, when you look at the most successful people in the world. Oprah was asked this question. It's so profound. Someone asked Oprah on a talk show. I forget who it was. Oprah, you have been with the most successful people in the world. What is the common denominator of these people? She said, to a T, they all knew what they wanted. They had clarity. Then they worked on going and getting it. And I think we are sidetracked with all these other things and we don't ask ourselves, what do I want?

1:53:38And if you ask yourself right now, you're listening to this podcast. I actually don't think it's funny. People turn into investment podcasts for investment advice, right? We've just spent all this time giving investment advice. You know, it's ironic. Nobody goes around needing investments. You know what I really need right now? I need an index fund. No, no, no. I need a targeted mutual fund. I need a portfolio at 60 % stock in 40 % bonds. No, what you want is whatever it is you actually want. And that's what people should think about. What is it that you want? If you had 10 years left to live and you knew that, then how would you live your life?

1:54:16Now, what if I told you you had five years left to live? How'd you live your life? What do you want? If you had three years left to live, what if I told you you only got 12 months? What do you want? We go through life thinking like, I got all this time. and that is a mistake because you just don't know and i think the sooner you ask yourself what is it that i want and what don't i want and then you start focusing and okay this is what i want how do i get there i would even ask yourself why did you even tune into this podcast what made you come on this podcast like why are you listening to us right now because again nobody even needs a book nobody's like i really need the book the automatic millionaire i mean i hope this book will help a bunch of people, but like, what is it that you want?

1:54:59Think about that. Like when the podcast is over, we're about to end here, stop. Don't go to the next activity. Take out your journal. I'm sure a lot of your listeners have journals and have a heart to heart conversation with yourself. Maybe one that no one else will ever get to see, which is, you know what, David, I don't want these things anymore. And this is what I want. Now, who do I know that can help me get there? Who's gotten there before me? There's nothing that we want to do that other people haven't done. Who can mentor me? What can I read about? What can I learn about? And then do that.

1:55:35That can be good. Right. Don't forget the why behind it all. And that circles back to what we talked about at the beginning. Some people get so caught up in the how, which is money, because money is a tool, that you can sometimes lose sight of the why. What's it all for? and when you're clear on the why the how becomes easy not even say today on this podcast but my biggest thing i've said for for decades is when your values are clear your values are clear your money decisions become easy every day we've got money decisions to make and most of them are made unconsciously but when your values are clear and you know it's most important to you you will make decisions faster easier and quicker in the right direction because you're like now these are my values.

1:56:21This is where I want to go. And values are like a magnet. When you're clear on your values, all the obstacles become smaller and smaller, and you are pulled towards where you want to go. Amazing. David, thank you for spending this time with us. Where can people find you if they'd like to learn more? Paula, thank you. This has been fantastic. They can come over to my website, davidbach.com. Come check us out. If you get a chance to read The Automatic Millionaire, let me know how you like it. Thank you, David. What a fantastic conversation. All right, what are three key takeaways that we got from this incredible discussion with David Bach?

1:56:59Number one, we don't just have a life expectancy. we have a health expectancy, like at the age at which we might not be healthy enough to enjoy our money. And that in the United States, that's 63. So you don't just have a financial timeline and a lifetime line. You also have a health timeline. And if there are things that you really want to do, dreams that you hold outside of your career dreams, then make a plan to do it while you're still healthy enough to be able to. Health expectancy, the World Health Organization, knows at what age in each country someone will get sick and they will get sick with something that changes their life for the rest of their life.

1:57:45Some medical, physical thing will happen and their life will not actually be the same. And in the United States, it's 63. That's key takeaway number one. Key takeaway number two. There's a tension right now that a lot of people feel, which is that on paper, you might look wealthy in that your 401k balances are doing well, your IRA balances are doing well, your investments make you wealthy on paper, and yet your paycheck at the day-to-day level means that money is kind of tight, right? There's a distinction between your wealth and your income. Seven out of 10 Americans live paycheck to paycheck.

1:58:28Those may not be who are listening to your podcast, but one out of three Americans who make$150 ,000 a year are living paycheck to paycheck. That is the second key takeaway. Finally, key takeaway number three, automate everything. That is the core of David's philosophy. Automate everything because life is busy and no matter how smart you are, no matter how disciplined you are, you're still going to forget. Things come up. Automation means that it's running in the background and you can focus your time, your energy, your effort on other things. It removes the friction. It removes decision fatigue.

1:59:06It acknowledges the fact that you're juggling a million things. And so you set it, forget it, move on. The moment you make a decision to fix your finances and you click the button to start paying yourself first automatically, whether that's in an IRA account or just an investment account. The moment you do that, you start to feel better. Why do you start to feel better instantly? Because you know when you're not doing what you need to do financially, you know it. The anxiety of not doing anything never goes away. And as you get older, it gets worse. Those are three key takeaways from this conversation with David Bach.

1:59:47Thank you so much for being part of the Afford Anything community, for being an afforder. If you enjoyed today's episode, please subscribe to our newsletter. It's completely free. Affordanything.com slash newsletter. We write things, we send things out that you do not find anywhere else. The stuff that we put out on the newsletter, you're not gonna find it on the podcast. You're not gonna find it on YouTube. You're not gonna find it on social media. It is exclusively for people who subscribe to the newsletter and it is completely free. affordanything.com slash newsletter. Please go there, subscribe to the newsletter, enjoy what we send.

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