The Detour is the Journey | Ep 583

22:06Were we failures or were we just a little bit ahead of ourselves? And now we're catching up. And this idea that's still with us, it still keeps us up at night, that this show needs to exist, that it needs to be here. We're fortunate enough to still have the opportunity to deliver on that nine years later. And you're here for it. You're listening to it. You're a part of it. you know, and, and, and upcoming episodes, you're truly going to be contributing to it. Crowdsourcing personal finance. So Brad, I'm thinking about our timeline here. I think if I have this right next week, we will be releasing our goals for 2026 episode, which is going to be really our first stab at this new interactive approach.

22:44We've been collecting feedback up to this point. We've been pouring through them. We started working on putting it together next week. We get to share it with everybody.

22:51Jonathan Mendonsa:Yeah. I'm super excited about that. So yeah, We launched this on January 5th when we came out with our first episode with you back on the podcast. And if you want to be part of the show, you just always log into your account. Obviously, a free account, chooseofy.com slash login. And right at the top, there's going to be be part of the show, calls to action, get involved. And we're going to have our recurring common segments like Frugal Wins of the Week and Travel Rewards and all sorts of things like that, life hacks, et cetera. but then they're going to be very timely ones like this big goals for 2026.

23:25Jonathan Mendonsa:This is a really fun one. We've had dozens of these come back to us. Jonathan, you and I are going to talk about our goals, which I'm very excited about, and it's going to be a great episode. And that's, what's cool about crowdsourcing. This is we can just keep having these different calls to action. You can always, always, always be part of the show. Just log into your account and send us feedback, send us feedback on the episode. Jonathan has in the feed there when you log in each episode, and we have, you can give feedback on the episode. We want to touch on these things. If there are things you agree with, don't agree with, you have questions, you want further clarification, we can do that.

23:58Jonathan Mendonsa:We can get our friends and colleagues to give us voicemails and additional info. This is all doable. You are part of this community. You're the lifeblood of the community and we need you to make it happen. I think this is a really important point because we're going so hard on the crowdsourcing this year. This is going to be a weekly recurring thing where we'll be in this loop of asking for feedback or sharing your feedback. And we'll literally be doing some of them in the same time where we're sharing the feedback we have on a prior mention. And then at the same point, letting know about the next thing, but here's the big one, the, where are they now?

24:31Or how can I follow up with this person? Or I have so many more questions. We want to make that very easy, but there's different types of feedback. Some, the person leaving the feedback wants other people to reach out. They want other people to connect. And some for various reasons, privacy, et cetera, sensitive information. They don't want that connection. We're using this platform for both, but we're giving you the choice how you want to give us the feedback. Do you want people to follow up with you if they have more questions or they have answers? Do you want that directly? Or would you like for that connection not to be made?

25:04Do you want to preserve the anonymity? We are okay with you interacting with this platform, this show, either way. We want to respect your privacy, but still give the community the benefit from that ability to share with you. So when you leave your feedback, you'll have the option there. If you don't want it to be linked to your account, or you'd rather preserve your anonymity when you're sharing it, maybe because you're sharing raw numbers and you're, you know, whatever, or maybe because there's something sensitive in there, et cetera, you will have the option just to request anonymity. But conversely, if you want accountability and you want people to connect with you and reach out and give you more information and just cheer you on the way on this detour that maybe that you're on, don't request anonymity.

25:39Let us connect them with you so that we can cheer each other on and we can help you see the goals that you've set for yourself. I think it's going to be a really good mirroring and it's a balancing act. We're trying to be very respectful of the privacy that maybe they might want while at the same time, really encouraging this thing where the community encourages the community. And we just get a chance to facilitate this conversation, which is so much fun.

26:02Jonathan Mendonsa:It really is. All right, Jonathan, incremental gains. We're going to get back to our list. So just part two, really part two, you're welcome. You're welcome. I wrote this down. I'm just kidding. I'm just kidding. Last time we covered 14 incremental gains, little things that you didn't know that you didn't know. And we're going to see if we can do slightly better. We're already 30 minutes in a little bit better than 14. This time around, we have over a hundred on our list, so we'll see how far we get. And we'll just have fun with this today. Brad, you kick things off. Okay. Real quick at the top, what's your FI number?

26:39Jonathan Mendonsa:Your FI number is your annual expenses multiplied by 25. This works for any amount of annual expenses. We're not prescriptive on you have to spend X number of dollars per year. Just whatever your life costs, multiply by 25. So if your life costs$60 ,000 a year, your FI number is 1.5 million. Now, another really important aspect of this is knowing your net worth. When you get started with FI and every step along the way, I do this every single quarter, is I calculate my net worth. So I add up all of my assets. I just log into every account, jot them down. I take the market value of my home. That's on my asset side.

27:18Jonathan Mendonsa:My liabilities, you have to include your liabilities if you're going to include your assets, right? So my mortgage, any kind of loans or debts that I have, and you just take all your assets, you subtract your liabilities, that comes out to your net worth, okay? And then And finally, in this little triad here, being rich and being wealthy is not about your income. It's about your net worth. Okay. So we know plenty of people who make$300 ,000,$500 ,000 a year, something like that, but they spend every dollar. That person is not wealthy. Whereas contrast that with, we think this is the replicable path for middle-class people to get wealthy, fi.

27:55Jonathan Mendonsa:and if you're making 50, 60,$70 ,000 a year, but you're saving 30%, 40%, 50 % over a five, 10, 15 year period, you are gonna be exceptionally wealthy and you're going to reach financial independence. Which person would you rather be? I think it's a no brainer. Yeah, and as you listen to this, there's gonna be reasons that one setup or scenario that we present is invalidated for you. Well, that'd be great if I started when I was four years old or something along those lines. There's a path for you. No matter where you find yourself, there is a path. You have your own path to financial independence.

28:31And there are people that you just got to remind yourself of this because sometimes it doesn't feel that way. Someone has had it worse than you have it with more obstacles objectively than you have and has achieved financial independence. You're like, okay, great. If I could find that. Well, you're in the right place. This is why you're a part of this community. So we can start through the benefit of crowdsourcing this show. we can start to highlight. And I think Chooseify has done a pretty admirable job over the years, really trying to facilitate that to the degree that we can. We're going to try to do even more.

29:02So if you're thinking that every case study that you run has to do with a dual income family, married, filing jointly, and XYZ, and yep, I hear you. I hear you. But you know, at some level, you know it, but I'll just remind you of it that absolutely there are individuals that are not married, not filing joint, that are single income, that are making less than you make, that have achieved financial independence. And so where you are now is a snapshot, but this is a moving picture, right? This is a snapshot of where you are in time. You have options. The equation is very simple. It's income and it's expenses.

29:39You have a difference and you have choices around what you can do with the difference, but you have a lot of control over the various sides of that equation. We can spend time talking about, okay, you're making 40K, you're making 60K. We have had an incredible number of people report back to us that they used a single tactic mentioned on this show and got a 25K raise, a 10 % raise, a 20K raise. Let me just point out to you that if you could get to the point where you had a couple years of expenses just saved up, we're not talking about 25 times annual expenses, we're saying you could cover your cost of living for the next couple of years.

30:13You could plausibly completely reset your life and pick a different path.

30:19Jonathan Mendonsa:Very plausible. Absolutely. And I think part of the journey to FI clearly is not, it's not about deprivation mindset. It's not about being a miser, but on some level being frugal, there is a power to it because like we've talked about repeatedly, small things add up to big things. So we are now prescriptive over what you can spend on. We are valuous in fact, So spend on what you value. And I think you should cut ruthlessly where you don't. But I think part of this is most of us don't even know what we're spending money on. I think you need a periodic expense audit. I think you need to go through what you're spending on a three-month basis and really look at it.

30:58Jonathan Mendonsa:I think a lot of us just see our credit card bill at the end of the month and don't pour into every line. And I'm not saying you need to do this every day of your life, but one time a year, do Do an expense audit and just have a sense of, hey, are there things that I'm not utilizing anymore? Are there recurring subscriptions? Are there other things that maybe in this seasonal life I just don't need or maybe I don't ever need? I think it's really, really critical to get a handle on what does my life cost? And it starts very granularly with taking that action and doing it. It's easy to say you're going to do it.

31:30Jonathan Mendonsa:It's a lot harder to actually do it. I'm always very impressed by people that can say granularly. And instead, I'm not plugging it. So well done, sir. it well done there was a little fumble there there's a little fumble than me i was like will you get all the syllables will you get in the right order do you want to know what did i ever tell you what my the one word that i uh avoid it's particularly i can't i cannot i had to say it so i cannot i'm incapable of saying that word no human is who are they particularly yeah i can it's it's very hard so you'll never hear me actually say no you went with granular though So yeah, the expense audit is brilliant.

32:08And I think one of the things I'd like to do, we're not there yet. So, but we're going to get into the habit of this is I think as a community, I'd like to see us start to do some version of our expense audits together. That way we could kind of benefit from understanding various costs of living in various parts of the country and not every line item, but there's particular things that I think are really useful. Like what's the average amount to spend for, you know, a family of four in California versus Virginia on food. These are the types of questions that if you could kind of get to the heart of that, you could really start to know, do I have a expense problem or should I be putting my energy into income?

32:42And I heard this line recently. I was talking with Justin Edwards, who's the host of the SaaS That App podcast. He interviewed me and we recorded an episode that came out just at the end of 2025 called, I think they ended up naming it Cockroach Mode. But and it's a great title. I had a lot of fun with that. But basically, the idea for it was we were talking to a development community, but I was definitely pulling in the life lessons that have stuck with me from, you know, being around this financial independence community for as long as I have now. and as we were going through my story he you know reminded me of i believe it's the jim collins quote that says you can't shrink your way to greatness now we were talking about it through the lens of cutting expenses and and that was a you know it is a great phrase but it's kind of halfway true right and all of us know this yes you can't shrink your way to greatness but you also can't grow if you're bleeding.

33:35You should probably look. Yeah, I totally agree.

33:39Jonathan Mendonsa:I think really drilling down on expense audit, three other things I had here on the list were about very specific expenses. So for instance, the library, Jonathan, we've always said, choose a pie friends of the library, right? Like this is a way I love reading. It's one of my absolute passions. My kids love reading. We would spend many, many, many hundreds of dollars a year at Barnes and Noble or Amazon, but instead we go to the public library. This is a nice frugal analog for instead of buying and then accumulating things, go to the library and you'd be shocked at what your public library might even have.

34:16Jonathan Mendonsa:You might get state park passes or you might get other things that you just had no clue. Just ask. The librarians want to help. They love it when you go in there and ask. Another interesting thing, and this harkens back way back to Liz from Frugal Woods, both of these actually, when she was on the podcast way back in episode 12, right? She talked about free entertainment options being everywhere. This is especially true in cities. People always asked her, oh, Liz, you and Nate live in Boston. That must be so hard to pursue the path to fly. And she's like, well, actually we don't need cars. Yeah.

34:52Jonathan Mendonsa:We spend more on rent than we would, but we don't need cars. We can get free activities and entertainment, especially with all the dozens of universities in Boston, but this translates everywhere for free every single night of the week. It's only limited by our imagination and our actual ability to get out and do this. So I think that's just, I love when things are rethinks and yeah, many of us who are listening to this don't live in cities, but the same holds true. There are free things happening in your local area every single night. Why not just explore and do something different? And finally, Liz had on that same episode, the 72 hour rule, she called it, which is basically, it's just, it's like the Viktor Frankl quote, putting space between stimulus and response where, okay, I'm going to go and buy something.

35:37Jonathan Mendonsa:And it's so easy. Jonathan, you know this on Amazon, it's one click in most cases, maybe two or three at the absolute most. You could do that in seconds and not even think about it. And it's on the way. It'll be there tomorrow. What if you put a little bit of space between that stimulus and the response? She talked about this holding period, this waiting period. Put it in your cart, put a timer on your phone or put a little reminder in your calendar, come back in 72 hours and see if you still want it. That's a nice, nice way to decide. And then you will know for darn sure if you actually want it 72 hours later.

36:08Jonathan Mendonsa:If you do, buy it gleefully. This is not the deprivation show by any means. All right. So I talked to Brad just before we got on this call and I said, you know, anytime we reference an older episode now, potentially up to six or seven years later, we need to just pause and just point out that that has factored into essential listing, right? There's context there that will serve you now. And actually with this particular episode, Brad went out of his way to suggest to me that we actually need to extract multiple clips from that episode because in his words, I'm quoting, it's literally the best thing that's ever been created on this topic.

36:44And I'll just say in this particular context, it's not because Brad and I had any of the words that were all Liz, but she was a phenomenal spokesperson for frugality and through the lens of what we're all talking about in this conversation. So that is episode 12 of our podcast. I went ahead and looked it up. Brad normally does this, so I took it away from him, but I'll give you a little life hack here. We have a few patterns that have served us well since we started. There's a lot of things that have just kind of been, you know, not discarded, but we just haven't maintained them. And this one is a very good pattern.

37:15Anytime we reference an episode, there's a short code to go to that episode. Now, obviously you're in a, many of you are listening in a player of choice and, and that's completely fine. Just go look at it in your podcast player, but choosefi.com slash zero one, two, it will always be three digits at minimum. So if we get to episode a thousand at some point in the future, you know, and then you're at four, obviously, but for episode 12, I was like, I think we're going to make it to a hundred episodes, Brad, let's just go ahead and proactively put the zero in there. And we still had a lot more words, right?

37:44So it's like a Y2K scenario. That's right. I don't want to break the computers, can't break the computers. So episode 12, and it was on frugality and she just did an amazing job on that episode. So Brad, we kind of got smarter about this as we realized we were going to lean in and actually do as many of these as possible. And so we've grouped a bunch of the other ones, and we just want to talk about the 401k for a second. Now I know we're speaking to potentially an audience that's with us around the world. And increasingly as the audience is growing, we try to be mindful of that. And we try not just to have 40 episodes in a row talking about Roth and you're in Canada and you're like, come on guys, just can we move on please?

38:23But bear with us here for a second. Let us do this. The 401k, the 401k is the retirement vehicle that most of us are familiar with. It's not by any means your only payroll deferral option. We'll talk about some others, but the 401k is the one that if you are an employee, W-2 wages, you're likely familiar with this. And what we want to say, first of all, is if you are offered a match, maybe in contrast to fixed contributions, et cetera, but a match. So you have the option to contribute or not, whether you max out your 401k or not is a different conversation, but you always, always, always, I'm trying to think of an asterisk with some case, but you always contribute enough to get the match.

39:06And Brad, I'll give this one back to you.

39:08Jonathan Mendonsa:Yeah, I think this is important. And right. The obligatory caveat is we don't give financial advice, but you and I, we're talking to anybody in our own lives. I cannot imagine a scenario where I don't say you have to get the match. It is in no uncertain terms. It's part of your salary. So basically your employer has said, If you put X percent, and now you have to find out for your company what that means, but it might look something like we'll match 50 cents on the dollar, really 50 % of your first 6 % of your contributions, which basically means, okay, let's say you make$100 ,000. So you put in 6 % of your salary to your 401k,$6 ,000.

39:47Jonathan Mendonsa:They're going to match that at 50%. So they're going to give you$3 ,000 to go into your 401k. No, I'm good, bro. I'm good. Right. Yeah. No, no. Could you imagine? Could you imagine telling your employer, Hey, part of my, you're going to give me this$3 ,000 as part of my salary, but I'm going to say no. So, but Brad, wouldn't that lower what I'm, what I'm bringing home by$3 ,000 though? No, this is totally free money. This has nothing to do with anything. So obviously your contributions that you put in the 6 ,000. Now that does come out of what's going to end up in your checking account, But that is also a pre-tax contribution.

40:21Jonathan Mendonsa:So it's going to lower your income that goes on your 1040, your tax return every year. So this is a very important thing. We believe very strongly here in maximizing as much as you possibly can your pre-tax retirement vehicles, like a traditional IRA, a 401k, a 457b, these type of accounts, because you get a tax deduction in the current year. We think, and we've had many, many conversations, done a lot of research on this. We think there's a very high probability that you're going to be able to pull through the powers and the wonders of five, that you're going to be able to pull most of this money out either tax-free or pretty darn close when the time comes, because there are massive standard deductions on our tax returns.

41:04Jonathan Mendonsa:There are lots of really interesting ways to do this. So for me, I am not a big fan of the Roth accounts. I think, I know that's kind of the general personal finance wisdom, but I think for people pursuing FI, we're a little bit different. We're a little bit smarter. And I think for most of us, the traditional retirement accounts are going to be a massive benefit. So anyway, long story short is, yeah, your 401k match is absolutely free money. So anybody listening to this is probably like thinking within the last couple hours, but didn't you talk very favorably about the Roth earlier? And I think you need to think about it through the context of what we're saying here.

41:40So in that example, maybe that we said earlier, we were talking about like emergency funds, and we're pointing out that there's this misconception that if you put money in a retirement account, you can't access it till 59 and a half. In the case of a Roth, you can get contributions out, contributions, not gain, but contributions out tax and penalty free. That's yours. You can take it back if you want to. There's an undo button if you want to. But now what we're talking about is talking about it through the lens of tax optimization. And so I want to point out, if you think about the phases of financial independence that Brad and I brought up just a couple episodes ago, and it's one that you're going to keep hearing us, we talked about this idea of discovery, right?

42:16So I discovered financial independence. I know how to calculate a financial independence number. And then you maybe have awareness. I know my number. And then you have control. You're putting a plan in place and you're starting to follow the plan. You're moving very quickly into this concept of tax optimization. and that leads us quickly and urgently into understanding the difference and this spans most countries, maybe they call it a slightly different name, but most countries use some form of progressive income tax and that brings us to the point that you have two different tax rates and it's very important to know the difference between the two because it informs what Brad just talked about about why he prefers a 401k over Roth and that is the difference between a marginal tax rate versus an effective tax rate.

42:59Brad, I'll let you explain that. And then we can come back and later on some context with the 401k versus the Roth.

43:04Jonathan Mendonsa:Yeah, this is a really important thing. So in our graduated income tax system here in the US, we have tax brackets. Now there are so many misconceptions when it comes to this though. I think most people think that, oh, I'm in the such and such tax bracket. Let's say the 22 % tax bracket. They think all of their dollars are taxed at that 22%. And that is very simply not how it works. If you just Google 2026 income tax brackets, you will see, and it depends on your filing status, what the amounts are. So single or head of household or married filing joint, but you will see, okay, these certain dollars are taxed at X percent.

43:45Jonathan Mendonsa:So the first such and such dollars are taxed at 10%, then it's 12%, then 22%. It keeps on going up. So those dollars, as they go through are taxed at literally at different rates. So it's not what your last dollar is. And every dollar is taxed at that higher rate. It's no, let's say you made a hundred thousand dollars. The first certain percent will be taxed. And this is, you actually get this big standard deduction, which is another thing. So that comes right off the top. But then, like I said, the first X dollars will be taxed at 10%, then Y dollars at 12%. And then finally, just the remaining dollars are taxed at 22%.

44:21Jonathan Mendonsa:Okay. So this is really, really important. Whereas Jonathan, And like you said, effective tax rate, how that actually works is you do that calculation. And now if you have TurboTax or whatever, it obviously does all this for you. You're not sitting there with a pencil and paper trying to figure this out. But let's say it comes up with that you owe your total, not even owe on your tax return, but your federal tax liability is, let's say,$8 ,000. Okay. And let's say you earned$100 ,000. Okay. So to get effective tax rate, you take your tax liability and divide by your total gross income. So in this case, your effective tax rate would be 8%, okay?

45:02Jonathan Mendonsa:Because it's just 8 ,000 divided by 100 ,000. Now that gives you really what is my tax burden on my gross income? And that is a much more accurate representation than, oh, I'm in the 22 % marginal bracket. That tells you very little because marginal in terms of accounting speak, it's just the very next, it's the next dollar or that last dollar really is how we would think about it here. But you might be in the 22 % bracket, but literally it could just be$1. Jonathan, like you could be$1 over and you could tell yourself, oh man, I'm in grumble, grumble, grumble. I'm in a 22 % tax bracket, but no, it was just$1.

45:38Congratulations, you made 22 cents in taxes on that. Literally 22 cents.

45:42Jonathan Mendonsa:And whereas the prior dollar was taxed at 12%, right? So that is a very, very important piece of fundamental knowledge. And this is the perfect opportunity to mention another episode, absolutely essential listening. And this was a conversation that we had about free money with millionaire educator. Now he is talking about another tool. He's talking about the 457 for that. It's a little bit outside the scope, but he does an amazing job talking through those early marginal tax brackets and thinking about them as buckets that you can effectively, if you understand how you can reduce your adjusted gross income, you can effectively pick your tax rate.

46:20So episode 13, Brad, did I get that right? It's one of the statements. Oh, absolutely. Okay. We have that one because it's added a lot of benefit. And then if you have by any chance have or know someone, maybe state employee, firefighter, a lot of public employees have access to 457s in contrast to the 401k. It is a hugely powerful tool. And what really makes it stand out and unique that most people don't realize about it is when you separate from service, you can access the money before 59 and a half without a penalty. That's a huge contrast to the 401k. So in addition, some people have access to a 401k and a 457.

46:57So they have extra buckets to reduce their taxable income. So that is absolutely essential listening. Episode 13. And Brad, I can see you won it. I was going to keep going, but I don't want to, I don't want you to lose your thought.

47:09Jonathan Mendonsa:No, I was going to say that episode 13 was great. So So yeah, he talked about that concept of free money, but he also, it was really the larger umbrella of it was, this is the unfair advantage, if you will, that public employees have. And that's what was so neat. It was such a great reframe, right? Like everyone thinks like everyone thinks blah, blah, blah, that teachers, it's so hard for them or firefighters, police officers, et cetera, state employees, like, because maybe their salaries aren't as high, but he talked about being able to have access to multiple retirement vehicles for him and his wife.

47:43Jonathan Mendonsa:They talked about getting paychecks that were under a dollar because they were able to contribute so much to these retirement vehicles. And I mean, their tax liability literally was$0. So someone's saying, tell me, why would that be a good thing? Yeah, it's counterintuitive, right? If you think about it, that's the magic of these detours. You learn to see the board game a little bit differently, and they did to their great benefit. And he truly is. I don't know if he was at the time. He truly is the millionaire educator now. Indeed. And that is really the beauty of FI is we look at everything differently.

48:19Jonathan Mendonsa:We see the rules of the game according to what benefits us in the FI community, not general concepts. There are plenty of ways to get your money out before that 59 and a half. And we keep referencing that. That's usually the age where you're allowed to access money that goes into these retirement vehicles, right? 59 and a half. But as we talked about Jonathan, another episode for the essential listening is episode 475 that I did with Sean Mulaney. And this was how to access your money literally before 59 and a half. There are so many different ways. We're going to get into these in depth in other episodes, but the Roth IRA conversion ladder is one.

48:55Jonathan Mendonsa:72T is something that wasn't viable way back when you and I started this podcast, but is now much more viable as an option for those of us in the FI community, the rule of 55, again, accessing these contributions to 457B. You're just checking up all the things in our list. We're catching back up to our goals here. This is incredible. I know we're doing great. And I wanted to mention also another one was when you mentioned a minute ago, like, oh, but wait, didn't we talk about Roth IRAs and how great they are? And like you said, and I think it's important. We are not going after Roth IRAs saying they're bad.

49:29Jonathan Mendonsa:I think what we were saying just simply there was you can access your contributions to a Roth. You can pull those out at any time to a Roth IRA tax and penalty free. That's really important. But I think what is so interesting is so many people just look at the simplistic answer to something. Okay. Because it passes that like psychological, like, ah, I can breathe deeply. Right. Like, and a Roth IRA is, oh, you've paid the tax on it. You're never going to pay tax on it again. That is psychologically satisfying. But I would posit that for the people in the FI community, it is not in many cases, we can never make blanket statements, but in many cases, it's not going to be as advantageous as a traditional IRA or traditional 401k that you get the tax deduction today.

50:19Jonathan Mendonsa:So yeah, as I showed in my newsletter a couple of years ago, and we'll, Jonathan, you and I will go through a case study, so I'm not going to try to prove the math now, but it's really fascinating because what I showed is that it actually, assuming the tax rate is the same, okay, on the front end and the back end, let's say that marginal bracket is the same 22%. It actually is the same amount. The answer is the exact same, whether you pick Roth or traditional. And there is a difference in what you actually are going to contribute because the difference between pre-tax and post-tax that's outside the scope of our zipping through this thing now, but we are definitely going to do a case study.

50:59And I don't know, you know, at this point, I'll be honest. I think all of us, you shouldn't necessarily try to agree or understand based on what you've heard so far. Right. But, but Brad's really good at these numbers and he notices these patterns. And so it sounds like we have our work cut off for us to make sure that we can turn this into a story. And we'll be doing that in the next few weeks and we'll make sure that we have our numbers lined up, but I can see it. He's got the bid on this one and there's something here. So the main thing I think for you to just take this away is really the difference between effective and marginal, because ultimately level one confidence is not realizing that there's a difference.

51:36All right. So then level two is realizing and optimizing the point. And this is, this is helpful. I don't really care so much about marginal tax bracket. what I care about at the end of the year is how do I lower my effective tax rate? Like which one of those, what's going to lower my effective tax rates? You want to make moves that lower the percentage of that hundred dollars that went towards taxes. And you want to look at the tools you have available to do that. But then you go farther, you go Sean Mullaney, Phi tax guy style. And this is where all of us need to end up really, because we're long-term thinkers.

52:12we don't actually even care about the effective tax rate at the end of the year. What the FI tax guy would tell you, and it's an obvious point as soon as you hear it, is that you care about the lifelong tax burden. What move should you make today in light of the fact that, forget this year, let's say you paid a higher tax rate this year on XYZ income, but you had$1 ,000 of tax. Oh, I lost this year. But you're going to be paying taxes over your entire working career. We care about when you look back, how did you optimize that income to help you achieve your goals? And so that is like graduate level stuff.

52:50And that's comprehensive tax planning. And it's kind of like, here are the different, when we say, hey, pay attention to this, right for you, but not for you. There's nuance here because you need to think about what detours are you going to take? And when are you going to say, oh, this now fits into my plan? And Brad, what I'm thinking about in particular is when we say, you know, 401k versus Roth, there is a point where we're like, man, you're actually at a pretty good tax rate right now. You really think you're going to beat this down the road? And so, you know, you might look at the longer strategy of, you know, 10 or 12%, but I'm thinking about your daughter and, hey, we had money and she put it in a Roth IRA.

53:28What do we think about, you know, the marginal tax brackets for 2026, they go up a little bit each year, but 2026, the 10 % marginal tax bracket is the first zero to 12 ,400 for single filers. And it's up to 24 ,800 for married filers. That's a 10 % tax rate. And then the 12%, which is this random tiny little addendum right before we go to 22, it goes up to 50 ,000 for the single filers and it goes up to a hundred thousand for the joint filers. So that's a lot of numbers and I get it, but is there a marginal tax rate that I've just mentioned 10 or 12 % that would sway you back the other way?

54:05Jonathan Mendonsa:Yeah, it's a good question. And it certainly does differ on your circumstances. But yeah, I mean, if you can lock in 10 % or 12%, I think there's a reasonable case to be made that you just pay the tax. But that said, Jonathan, honestly, well, so here's the thing. We never know the future, right? Like that ultimately at the heart of this is we don't know the future. So you're just betting on the future. Anybody who's picking Roth based on, again, the thing that we'll show in the future is they are picking that income tax rates are going to be higher when they pull that money out because they are locking in a current rate.

54:39Jonathan Mendonsa:That is literally what you're doing, whether you realize it or not. And frankly, you probably don't. You're making a bet on the income tax rates, very simply. Now, under the current confines of our graduated income tax system, I think, and especially the massive standard deductions that we get, I think there's going to be a lot of quote unquote free money. I think for people in the FI community who have their expenses under control when they reach FI, they paid off a mortgage, their life doesn't cost that much. I think they're going to be able to pull almost all of their life expenses out tax-free from traditional 401ks.

55:13Jonathan Mendonsa:And also, frankly, and this is another thing, is tax gain harvesting. I'll talk about this in a minute. But I think between those two, between being able to pull out maybe Roth contributions or 457B contributions, I think there's a very high likelihood you're going to pay$0 in federal tax ever. So that's why it's even not a slam dunk for me at 10 or 12%. I think for most people, it would be a slam dunk. No, but this is great. So first of all, nobody's saying you're making a financial mistake by contributing to your Roth when you're at a 10 or 12 % marginal tax bracket. But beyond that, I think probably some of you are really surprised that Brad didn't just jump on yes.

55:50And that should give you pause and slow you down and say, huh? Because it's easy just to say, oh, it's simple and I don't have to worry about taxes on this money again. But do you decrease your option, your optionality down the road? There's a lot here. I mean, we're basically at this point, we're showing you the table of contents for what we're going to get into over the next year. You know, every single one of these topics deserves its own episode. We haven't given it justice. We haven't broken out the spreadsheets yet. We're still in this back of the envelope, this dog-eared back of the envelope and using the same one for seven years.

56:21Jonathan Mendonsa:You love my back in the envelope. Indeed. I did do an episode with Cody Garrett, episode 517 on understanding capital gains strategies. You and I are going to do a follow-up to that for sure, because this is a really important one is there is a 0 % federal capital gains tax rate. And this is on your traditional brokerage account. Okay. So let's say you have stocks, ETFs, mutual funds, et cetera, in your regular brokerage account, and you sell them, that incurs a capital gains tax. If they're held for more than a year, it's a long-term capital gains. Normally, there are really preferential rates on these.

57:01Jonathan Mendonsa:We as investors get showered upon, just benefits showered on us generally. We only pay, for most people, 15%. But those in the FI community, most of us are going to pay 0 % tax on our capital gains rate. Because as Cody showed in that episode, if you're married filing joint, your income for 2026 can be up to your taxable income. This is after your standard deduction and other items. So standard deduction, I think for 2026 for married filing joint is 32 ,200 or something like that. So we're talking the taxable income is$98 ,900. Okay, Jonathan, and plus standard deduction. So let's say you had no other income.

57:41Jonathan Mendonsa:You had$130 ,000 of long-term capital gains. That's just the gain. That's not the sale price. That's not the fair amount of value. That's not what's deposited in your bank account. That's just the difference between what you bought it for and what it's currently worth. $130 ,000. You say, hey, government, please tax me. and they say, yeah, okay, we'll tax you. That's$0, please. Okay, so the FI community wins if we let ourselves win. If we don't listen to the bozos who don't know anything about the FI community, who think Roths and taxes are gonna be so expensive and oh, it's horrible. We win at life.

58:17Jonathan Mendonsa:This is what we do. And we have so many ways to win, Jonathan. And I just, for people that are gonna get mixed up in there, but you might've heard tax gain harvesting, this is money that's outside of your retirement accounts, right? So just for clarity and making sure we're all on the same page. But the point is, the table of contents of this book of financial independence is awesome. The detours are incredible. It's compelling. You do not know what you don't know. But what you have discovered, what you have walked into is the stealth wealth community. And what you need to realize is when you're living an entry-level, middle-class lifestyle that slots in with everyone else, but then on top of that, you have paid off cars, you have a paid off mortgage, you're not financed up to the eyeballs on everything, suddenly your life can look like everyone else's at a tiny, tiny fraction of what everyone else is spending.

59:10And that gives you opportunities because the tax code incorporates a pretty massive safety net because it recognizes that everyone's in debt up to their eyeballs. So just think about that. If you can decrease, if you can crush how much it costs for your core expenses, right? Crush it ruthlessly. That gives you optionality with all the other things that you want to add back in. And it gives you the luxury, the privilege of kind of floating around the tax code, making choices based on where you are and what it is that you want to do. You want to preserve options. Brad's just highlighting via this table of contents entry, just a few of those that you need to be aware of.

59:51So today our title was detours. And Brad, I'm telling you, man, this table of contents is looking attractive. I could do more of these, but I can't do a part three. So it's going to have to have a real title, but I want to keep the dialogue going. So next week we'll be breaking from this. We're going to be doing the goals episode that we've been collecting feedback on, but we do want feedback on this episode. We want you to lean in? What were your aha moments? What would you like to see us talk about in addition to this? What would you like to see some highlighter on? Where would you appreciate seeing the nuance?

1:00:25What would you like to bring to this conversation? And the place to do that is to be a part of the community. You're just going to go to chooseify.com slash log in. You're saying, oh, I don't have an account. Okay, create one. Go to chooseify.com slash log in, create an account. We do have an app now. I failed to mention this before, but this was a big push and I had a lot of help from people in the community, there is now a Chooseify app that you can find in Android and iOS. And it is a one-to-one replica of what we're talking about here when we say to go to the website and log in, but you have access to this community inside your app store.

1:00:59Once you're in there, you're going to be able to connect with the community. You're going to be able to interact with this episode and leave us your feedback. And there are so many other ways to take action. It'd be pretty cool if one of your actions this week resembled or reflected something that was in this episode. All right, my friends, the fire is spreading. We'll see you next time as we continue to go down the road less traveled.