Financial Advisors React: WILD Money Clips!

0:00Zootopia 2 has come home to Disney+.

0:02Brian Preston:Let's go! Get ready for a new case. We're the greatest partners of all time! New friends. Gary Death Snake. And your last name? Death Snake. Dream Team. And new habitats. Zootopia has a secret reptile population. You can watch the record-breaking phenomenon at home. Zootopia 2, now available on Disney Plus Rated PG. And right now you can get Disney Plus and Hulu for just$4.99 a month for three months with a special limited time offer ends March 24th. After three months, plan auto-renews and$12.99 a month terms apply. so good so good so good spring styles are at nordstrom rack stores now and they're up to 60 off stock up and save on rag and bone made well vince all saints and more of your favorites how did i not know rack has adidas why do we rack for the hottest deal just so many good brands join the nordic club to unlock exclusive discounts shop new arrivals first and more plus buy online and pick up at your favorite rack store for free great brands great prices that's why you rack All right, the content team has done their part.

1:02They turned the studio heaters up, and now let's see if they're bringing the heat with these videos.

1:07Brian Preston:Brent, I am so excited about that, because when it comes to the internet, we never know what we're going to get. Let's dive right in. You decided to get a Porsche. Yeah. And you can't pay for groceries? What do you think this car is worth? I bought it for$89 ,000. Wow. And maybe I could get$90 ,000 for it. I don't think it depreciates as much as other cars. What kind of Porsche, by the way? A 21 Macan. Okay. Turbo. It depreciates. You could probably sell it for$64 ,000. Get rid of the Porsche today, dude. And then what do I drive? The car that I got is pre-owned. It's not a brand new one. So I'll spend$1 ,500 a month on a used car.

1:42Brian Preston:And I bet maintenance is cheap too. Well, customer service is excellent. And it was only$20 ,000 more than what I paid for the Ford Edge. I've never paid$20 ,000 a month for customer service. A Ford Edge was$60 ,000? Yeah, I'm having a hard time. She said$89 ,000 is what she paid for that. And so the Ford Edge was$69 ,000. It's a nice Ford Edge, isn't it? I didn't know Ford Edges were that expensive. I think she might be doing some creative math there. Obviously, if you have financial woes to where you can't afford groceries, you can't pay your bills, you're not saving for the future, and you're having to go finance a luxury automobile like that, you may be in too much car.

2:20Brian Preston:The car that you're driving may be too far along in the financial journey. You are not there yet. And it certainly seems if she has a$1 ,500 a month payment, she's likely doing it. Here's an idea. Look, we all need a vehicle. And I think sometimes the human condition is we say, well, since we have a need to get to our J-O-B so we can build some wealth, I can go crazy. Why not have some boundaries to know what you can and cannot afford? Look no further than 23.8. That's right, 20 % down. Don't finance longer than three years and make sure it doesn't exceed 8 % of your gross income. And here's a few more rules just to make sure you don't let your eyes exceed your wallet, is make sure that you don't finance luxury cars and also that your Roth and your investment contributions are greater than that car payment.

3:05You do those things, you don't end up in Caleb's chair. Can astrology predict the stock market?

3:10Brian Preston:Financial astrology, also called astrofinance, is the belief that planetary movements, lunar cycles, and cosmic events influence human behavior and, by extension, the markets. If you've ever rage sold your portfolio during a full moon, maybe it wasn't just you. Maybe Mars was feeling spicy. Use your brain, check your charts, and hey, no harm in checking the stars too. It's a bull. A minotaur is a horse, right? With a man? I just think, I don't know if there's any man part here. Oh gosh, now we're going to just show how shallow the nerd goes. Well, so here's what I think is why. It's so often people will tell you they have some trick or some technique or some system or something that they figured out.

3:57Brian Preston:If someone figured that thing out, they'd be the wealthiest person on the planet. And you know what they would not do? Would not tell you their secrets. They would not need to sell you their course or sell you their system. They would go make money implementing that system. So if someone tells you they figured out the trick, the key, the hidden trap door into the stock market, I would run the other way because nobody knows what the stock market's going to do over the short term. But over the long term, if we have a well-diversified basket of goods, it seems to be a high probability that we're going to be successful as investors.

4:33Brian Preston:But I don't know that I'm looking at the stars in the sky. I don't know. I think they deserve a lot with that good use of AI to create the bull man. I don't know. I mean, I'm assuming the bull man may or may not be a minotaur. That could be their where's the beef moment that creates their crazy thing. Look, they got on the Money Guy show. It worked for them. The 401k is a trap. I'll prove it to you. We are right now sitting on the lowest tax rates we've ever had in the history of the United States. I'm not sure if you know that. That being said, because the tax rates are the lowest that they've ever been, I have a question for you.

5:04Brian Preston:Do you think that taxes are going to go up in the future? I'm sure your answer is yes. So if you put money into a tax-deferred 401k plan, you're essentially saying, I want to save money on taxes right now, but then I'm just going to let that money go get taxed at a higher tax rate later when I pull it out in retirement. False. When you pull that money out when you're 59 and a half, do you think your tax rates are going to be higher than where they are today in 2024? If your answer is yes, why are you stuffing so much money into your 401k without a plan? Because I understand how the tax system works.

5:32Brian Preston:I recognize that right now, in my highest income earning years, I'm going to defer those taxes. At some point in the future, when I go to pull my money out, I'm going to be able to legally manipulate the tax code. I'm going to pull out ordinary income assets at lower tax brackets. I'm going to pull out taxable assets and then Roth assets and not pay any tax on those. I recognize that yes, tax rates could likely go up in the future in terms of tax brackets, but that doesn't mean that I have to participate in those higher tax brackets. Yeah, I got an album. I'm in it, but I'm not a rapper. He is right about one thing.

6:05You do need to have a plan. That's why if you listen to any of our content. You'll notice we talk about people who are young and have income taxes, effective tax rates less than 25%. Take advantage of the Roth. That way your money grows completely tax-free. If you're, you know, effective tax rate, if you take the federal and state, it's somewhere between 25 and 30%. You're kind of in that gray zone. You need to probably pay attention to what your age is, what your goals, when you want to leave the workforce. If you're over 30%, you probably do want to consider the traditional. And here's why is because what we have found is that, especially if you leave the workforce before you have to do required minimum distributions, as soon as your earned income, your wages, or your business income falls off of your tax return, your tax rates fall to the basement in a lot of cases.

6:52And that creates exactly what you're talking about, an arbitrage situation where maybe you're at the tippity-top tax rate, but then when you're in retirement, you can legally do conversions and other tax planning strategies that put you at the lowest tax rates and turn that money into Roth. It's a beautiful scenario. So he is right. You do need a plan, but the 401k is not a trap. It's actually a very beautiful tool that can maximize and help you build wealth. Always extra meat. It's just going on the credit card. My name is Dan Carney, and I haven't checked my credit card statement in three months.

7:26You've got to be able to enjoy the life you want to live.

7:28Brian Preston:Of course, I would love some guac. The dream of owning a home is dead. I do digital marketing for a dentist office in Brooklyn. If I'm never going to have a family, why deprive myself of daily impulses? I finally have a katana now. That is one of those words where if you say it enough times, it just stops bothering you. I will never make myself coffee. This was a nice little gift from Bank of America. If I want something, I just get it delivered. Vladimir, hey, it's so good to see you again. Thank you so much. How's the family? Why leave the house? I'm busy. Phone charger, laptop charger. Here's the thing.

8:00Brian Preston:There is no future. There's nothing. I pay$200 a month to chat GPT to give me financial advice. That big purchase that you want, you can just get that. Drinks on me. What do you want? I used to be stressed out all the time. Grey Goose martini. Now I'm never stressed. Five beers, please. We're all going to die. It's time. I'm just going to die with a little bit more credit card debt. I can live with that. I have another one. Who cares? Sorry, who is this? Collecting what? Look, the banks don't start calling you a month one or two. They call you maybe a month four. It is the same way for people who don't pay your income taxes.

8:36Also, just because the government doesn't start sending you letters immediately doesn't mean you're making good financial decisions. I know that was a complete joke, but there is a lot of reality for what I see with the general public and the typical American is that they would rather just ignore and pretend everything's okay than taking an active role and being the star of their action adventure financial field.

8:58Brian Preston:There is a behavioral thing that when we get so used to just swiping for all kinds of consumption purchases, it does start to feel really, really easy. And it has become one of those things that he mentioned, oh, I'm paying$200 a month on chat GPT. It's not just that subscription. I can afford anything in the world, a hundred dollars at a time, a hundred dollars at a time. I can even swipe my credit card. And so long as I make my minimum payment, the bank's not going to begin calling me. But that is a hole that the more you do it, the deeper it gets and the harder it is to get out of anything that you regret buying just the stewardship that i had with my money i got to a point soon where i enabled the people around me just been like 400 000 a month like yeah like it was a month a month bro like on on clothes on trying to trying to do stuff on ebay like bro it was a lot i think we see this a lot a lot of folks especially those that are first generation.

9:52Brian Preston:Maybe they didn't come from a household where there was a lot of wealth and they hadn't been taught how to make financial decisions a lot of time. The people with whom they surround themselves tend to take advantage of. Oh, well, you have this huge, you make$100 ,000 a year, you make five, you make a million dollars a year. Surely you can afford to help me with this or buy these clothes or do this thing. And Brian, you taught me about this concept of go-kart math. I think a lot of those people do go-kart math thinking it'll never run out. And for the person who's had the success, it is very, very difficult to say no.

10:23When I was doing lifeguard training back in high school and college, because I lifeguarded, that was one of my crazy jobs. They teach you, don't swim near the person that's struggling because they'll drown you too. You have to sneak up behind them to kind of put the whole grip under their chest to pull them into safety. You have to do that same thing for your personal finances. Look, we love our family members, but if you are sinking because of the pressure of them, are they better for that too? That's just not sustainable.

10:53Brian Preston:That's right. Brian, do you remember when we decided to go all in on our YouTube channel, but we just didn't know if all the hard work was actually going to pay off? Oh yeah. It was a little scary at first because you have all the what ifs. What if nobody watches our videos? What if this doesn't work? What if we're just talking to ourselves? But thankfully we took the leap and honestly it's been one of the best decisions we've ever made. And if you're thinking about starting a business or launching a side hustle, let me tell you, having the right tools makes all the difference. And that's where Shopify comes in.

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13:11Just being real. I'm going to buy a car. I'm going to get my mom a house. I'm going to do everything costs money. So if you're spending$4 million a year, that's really$40 million over five years, eight a year. And now you start breaking down the numbers.

13:25Brian Preston:It's like that's a five-year span of where you're getting eight million. Can you make that last forever? And you always hear the people who ain't us and ain't been in the position. Oh, well, that would last a lifetime. Yeah, this job that I've sacrificed my whole life for, they are giving me that. I didn't ask for the certain dollar amount or whatever, but we weren't taught about no financial literacy and all the weight. There's the preach right there. After taxes, after all that,$12 million a year, that's not going to be enough to provide. Generally speaking, I disagree with that premise. I think that most folks ought to be able to, even if they only make$12 million for a five-year period, that ought to be enough wealth to be able to last you for a lifetime.

14:07Brian Preston:them agree, disagree, want to fight. When I was in my 20s and early 30s and working with professional football players, basketball players, and golfers, it was the football players that gave me the most trouble because I had the hardest time trying to explain to them that their contracts were the worst out of all the sports that we represented. Their longevity was the least amount. So essentially what he was describing, that's all the money you're going to earn in the end your entire career. That's what you need to act like. Now, maybe you'll be fortunate and you turn out to be Tom Brady and play into your forties, but that's not the reality for most.

14:42Brian Preston:But he said something so wonderful there right at the end. He said, man, I was never taught about this, never learned about this, never had the education. So no matter where you are, whether you're making$12 million a year or$12 ,000 a year, it's never too late to begin increasing your financial education. It's why we even do this show. It's why we have the Money Guy show. That's why you can go out to moneyguide.com slash resources, check out all of our free resources, check out all of our free content out there. And when you find yourself in that place where you just don't know what you don't know, it's a great time to maybe consider taking the relationship to the next level and getting some professional help.

15:17Brian Preston:I didn't realize that if the average year the money printer goes, call it 8 to 10 percent, even in the Western countries, even in the OECD nations, and the average return on the S &P 500 is, call it 9 -ish percent, including dividends, maybe 9.7, maybe a little less, that it means that all of the work of the S &P 500, all of the value created there is actually the money printer. That to me was startling. That's oversimplified. That the fundamental notion that in a closed system or even an open system, when you're printing money at the rate of 8 % to 10 % a year, everything is losing value. And the things that appear to be gaining value are not gaining value.

15:58Brian Preston:They're just keeping you even. So you can put all your money in the S &P 500 and you're not gaining any relative wealth at all. That's a startling insight. when you really think about the entire value of the s &p 500 on average over a long period of time not even a long period of time is equivalent to the money printer that was a shock to me i just didn't get it i didn't understand it even though i agree with finance for 20 plus years i'm still a professor at nyu stern at stern business school i have almost actually more than 1 000 former students and i still didn't get it until i'm age 58 where i feel like he's disconnected there is that, yes, there is a problem with the printers.

16:39That's why you have to get on the right side of what you're doing with your money. But to say that there is zero value and there's not economic expansion because it's all just the printer just feels very shallow in his understanding.

16:52Brian Preston:Yeah, monetary policy is a very complicated thing to try to unravel. But I think what most people, the average American can understand is that, man, I went and bought a gallon of milk last year and And that gallon of milk costs more this year than it did last year. I wouldn't have bought a loaf of bread. That loaf of bread costs more today than it did this time last year. That's what inflation is. Inflation is the rising cost of the goods that we consume. And so we know that in a long enough timeline, the average rate of inflation we see in this country is around 3 % to 4%, even though there are periods where, yes, we could see 8 % inflation, 9 % inflation.

17:26Brian Preston:That has been true. But on average, reversion to the mean is a real thing, and inflation is somewhere around 3 % to 4%. Now, when you look at the actual return of the S &P 500, I take$100 of my dollars and I put it in the S &P 500 or I put part of my paycheck into my 401k and invest in that. Over the long term, that's made somewhere between 9 % to 11 % depending on the time period that you're looking at. So if my dollars can grow at 9 % to 11%, but the things that I consume are growing at 3 % to 4%, I am going to create wealth. I'm going to be able to outpace that inflation and keep up with the rising cost of goods.

18:03Brian Preston:I think that's what the average American ought to focus on. And that's why we do things like save for the future, invest, let our army of dollar bills work for us so that it can pay for our future selves. I think what he did, based upon what I'm just putting together in my head, is if you look at crazy years like 2008, during the pandemic of 2020 and even the beginning parts of 2021, The government does crank up the printing press to crazy degrees and they flood the economy with these things. And that's where you do see these periods of inflation and other things. But it is exactly what you said.

18:37Reversion to the mean is that why do you think real estate almost doubled is because the market quickly adapts and adjusts. So, yes, in the meantime, you could do it, cherry pick the data and say the market was up only 9 % and the money supply increased 9 % in that one year. but when you actually spread it out, when in doubt, zoom out. And I think you see exactly what you just laid out. And that's why you have to be careful where you get your data from.

19:01Brian Preston:Yeah, and I'm Greg. I'm a 26-year-old software engineer, and I've got about$10 ,000 in a high-yield savings. Greg, I'm going to stop you right there. You have your money in a where? A high-yield savings. Greg, can you give me one good reason why you were saving all that money instead of using it to buy a professional sports team in 1995? Sorry? Professional sports team. St. Louis Rams. Seattle Supersonics. You know how easy it is to make$5 billion buying one of those babies in 1995? I wasn't alive. I was. Was your excuse? You'd have to ask my parents. Can't rely on mommy and daddy, Greg. You walk in there with a checkbook and a good attitude, sit on that for 30 years, and I guarantee that investment grows 4 ,000 % every time.

19:37Brian Preston:My friends and I do it all the time. You do it all the time? In 1995? It's the perfect time to buy, Greg. It was then and always will be. The dawn of a new millennium. Do you own a sports team? I do. Houston Oilers. They're not a team anymore. Paul? Next caller. If anybody's in debt, especially with consumer debt, credit cards, nobody is better at getting you out of debt than Dave Ramsey. So I feel like before we start picking on and creating farce videos that you go by a sports team because Dave yells at his people, I will give him his roses. Nobody gets you out of debt as well as Dave does. I do agree with you, Brian, that when it comes to getting out of debt and making wise and sound financial decisions for those starting out, I think Dave is a fantastic resource there, but there are other fantastic resources out there as well, like the Money Guy Show.

20:26Would you say, Beau, there's a better way to do money?

20:28Brian Preston:I would say there's a better way to do money. If you want to know about that better way, we'd encourage you to go to moneyguy.com. Check out all of our archive, all of our articles, all of our videos, all of our resources, all of our tools that you can use to do money better. Well, well done, content team. Thank you for putting these together. Thank you, thank you, thank you for tuning in. I'm your host, Brian. Guys, thanks so much for tuning in. MoneyGuy team, out.

21:21Brian Preston:first year, visit lifelock.com slash podcast. Terms apply.