How To Be Wealthy By Age

20:38Brian Preston:And what's great is if you can do that, your 30s is still an unbelievably powerful decade because there are tons of opportunities available to you, not the least of which most people, if you're in a career and you're pursuing a vocation, it is not uncommon that you are likely going to have a higher income in this decade than you had in your 20s. Well, obviously, as your income increases, that gives you the opportunity to create more margin, to save more, to have more money going to work for you. So where in your 20s, things might've been so tight and they might've been on the razor's edge and it might've been just trying to make ends meet, hopefully in your 30s, you're starting to see a little bit of reprieve there that then allows you to pursue some of your other financial goals.

21:20And this is, and I've repeated this, but I think it's a point worth repeating. You still have so much time in your 30s. This is one of those where, guys, remember the typical American doesn't even discover that they can save and invest for the future until their early 30s. So you still have the opportunity to make it work. And that's why, by the way, when we have our, if you go to our moneyguy.com slash resources and look at our deliverable, how much should you save? We've done the math on this. this is still the easy button. When people say, hey, why is y 'all savings rates so high at 25 %? Look, if you look at our own savings strategy here, for somebody who starts saving and investing when they're 20 years of age, if you want to retire a normal retirement at 65, you only need to save and invest 6%.

22:03But nobody, most people are not saving and investing at 20 years of age. Fast forward to when you're 25 years of age. 10 % does a lot. A lot of you are just through your employer match is going to get close to half of that covered. Fast forward up to a 30-year-old. Now you're starting to see some numbers here. You got to be saving and investing 17%. Fast forward to maybe you deferred this until you're 35 years of age. You see that somewhere between 34 and 35, 24 % for the 34-year-old. I said 24 % and 27 % for the 35-year-old. You can see why we landed on 25%. If you were curious, like I said, go to moneyguy.com slash resources.

22:45We have a great resource here for you to line up when you think you want to retire. All my fire people get in there. You can actually retire early with this chart too. Compared to your age, you'll know exactly what you need to be doing.

22:56Brian Preston:You know, Brian, it's really interesting. One of the things I feel like we hear in our comments all the time is, man, I love these guys, but they're just so hopeful for 20-year-olds. And everything is like geared towards 20, 20, 20, starting out. Yeah, it is true. If you start out early, it's an easier path. But if you're someone in your 30s, then that counts from age 30 all the way through 39. The reality is the three ingredients of wealth creation still apply to you just in the same way they did to your 20-year-old self. If you can exercise discipline, and discipline will be living a lesson you make, making the decisions to live smaller, not larger, making the decisions to defer gratification, you will create margin.

23:35Brian Preston:And creating margin, even at this age, applied across enough time can be wildly impactful. So it's not like the rules change or the game changes. In your 30s, if you're just now figuring this out, it still doesn't have to be super difficult, but you are going to have to take an active role in building for your financial future. Well, and that's why I think it's a good time for us to kind of go ahead and pivot the conversation and say, hey, what does it actually look like to be wealthy in your 30s? And the first thing is once again, if you looked at that, if you went to moneyguy.com slash resources, how much should you save?

24:08When people say, hey, did y 'all just stick your finger in the air and figure out a savings rate of 25 %? Because that sounds heavy. And we take a little flack for that. And I'm like, no, remember, now you get to count your employer match, assuming your household income is less than$200 ,000. But for many of you, if you procrastinate too long, 25 % is not even going to get it done. So this is the decade I want you to firm up getting to a savings and investment rate of somewhere between 20 to 25 % depending upon how good your employer matches.

24:38Brian Preston:And look, a great spot check you can do. Brian, you hold the thing up for me. A great spot check you can do is, hey, am I somewhere between steps five and step seven? Have I maxed out my Roth IRA? Am I doing my employer's sponsor? If you're doing that in your 30s, that's a really good indication that you're where you need to be. And then when it comes to making these giant life decisions, it's no longer the lattes. Now it's the place that you're going to live. If you decide to buy a house, if you decide to get on the ownership train, you're doing it the right way. You're not buying more house than you can afford.

25:08Brian Preston:You're not becoming house rich and life poor. And if you wanna know how to do that, we have a rule around that. We want you to follow 3-5-25, where for your first home, now this is not for subsequent homes, this is not for home improvements, but for your first home, we're okay if you put 3 % down, you plan on living in the house for at least five to seven years, and you keep your total housing costs below 25%. If you can check yes in the affirmative to all three of those, there's a really good chance you're not buying more house than you can afford and robbing from your future self. Well, I want to take it also.

25:41I think another thing you need to pay attention to is, are you taking full advantage of every time you get pay increases? You know, in your twenties, maybe you have a job, you don't have a career, but I think a lot of you in your thirties, you're actually in full career mode now. And, but you look at your savings rate and you're like, I'm saving. I remember I said, I did a set it and forget it when I was 28 years of age and put 10 % in. And you're probably feeling pretty good about that. But meanwhile, you've gotten multiple pay raises since then, now you're 33 years of age. And you're like, why am I still just saving 10 %?

26:13But you're seeing our numbers, you're feeling motivated. Here's what I'd encourage you to do. If you don't feel like you have any margin to save more, the next time you get a pay raise, why don't you go with the 60-40 method? Meaning 60 % of this new pay raise is going to show up in your future through savings and investment, the only 40 % is going to be left for consumption and lifestyle. If you can do these type of incremental decisions with the goal of trying to get you to 25 % as fast as possible, I think your future self will show and your numbers will show. Your net worth, your success, and the ability to have flexibility and live your best life will all show up from that small decision right now.

26:53Brian Preston:So where should you be by the end of this decade? Well, if you're a financial mutant and you're trying to stay on target, we would say that by the time you get to the end of your 30s, by the time you get 40 years old, you should have three times your annual income saved up in liquid investment. So if you're making the median household income right now of$90 ,000 a year, we would expect by the end of your 30s, your investment portfolio to be somewhere around$270 ,000. If you can say yes to that, we would argue that you are on track with where you should be by the end of this decade. All right, Bo.

27:27Before we move on, let's do a shameless plug for Abound Wealth.

27:31Brian Preston:I have no shame because I'm mighty proud of the work that we get to do for our clients every single day. Here at Abound Wealth, we're fee only. We're fiduciary advisors. That means we're legally required to work in your best interest. And we love helping our clients optimize their army of dollar bills so they can live their best life. And before you leave a mean comment about us self-promoting, keep in mind Abound Wealth helps us keep this entire thing going, creating free content, growing the team, and changing the financial landscape. We're honored you're watching and listening. And we hope you use this content to help you learn, apply, and grow your army of dollar bills.

28:09And when your financial life gets complicated, it'll happen. We'd love for you to come back to where it all started. That's the Money Guy Show and Abound Wealth.

28:17Brian Preston:If you're ready to take the relationship to the next level, check us out at aboundwealth.com or click the link below. All right, let's talk about a new decade here. Let's talk about those 40-somethings. 40s we often call, Brian, it's a little bit like the fork in the road. So let's take a snapshot at where the median American is. Median American incomes have increased here. The median household income is about$106 ,000. Total non-mortgage debt is about 28 ,000. Retirement savings is now up to 105 ,000, not anywhere close to where it should be. And the total net worth is at$265 ,000 on the median.

28:53Now you gave the prelude and you said fork in the road. I think this is because this is the decade that if you did anything in your 20s and 30s, you're starting to see the fruit from that. That's right. You're feeling really good because you've got now, we're probably going on 15, 20 years of compounding growth. Your army of dollar bills is getting pretty sexy and pretty exciting. If you're somebody though, you didn't, you've procrastinated, and there can be lots of excuses, but there's other things, but this is still an okay time to wake up and realize, hey, I've still got opportunities. But I do want to be honest is that there's a lot of things still pulling at you at this stage.

29:28Now, the good news, this is the decade that millionaires start showing up on the scene. A lot of research shows that people somewhere between 27 to 29 years of saving and investing cross into the two comma club. Two comma club, that's seven digits, meaning you become officially a liquid millionaire. But there's also challenges. And the first one, we call this the sandwich generation, Bo. and that's because you're getting sandwiched between children that are getting older and they're getting more expensive because you got college as well as just all the activity fees that come, but also your parents are getting older and you're getting squeezed because of aging parents and some of the decisions that go with that.

30:08This is something to pay attention to.

30:10Brian Preston:Yeah, 54 % of Americans would describe this situation. Now, I've got aging parents and some of their care falls on me and I have growing children and their care obviously falls on me. And so I feel like I'm stuck in this middle place and you're feeling pressure on both sides. And when you feel that pressure on both sides, it becomes very, very easy to begin taking your eye off of your own financial circumstance, which is noble. You want to be able to help your loved ones. You want to be able to serve them. But if you allow that to drag you in a bad position, you could end up repeating that same negative cycle that you're beginning to experience.

30:47Also, I think the 40s of the decade, maybe you've gotten soft with a higher standard of living. Look, I get it. 20s and 30s, you can handle anything by 40s. If you've been making bad decisions by accelerating your luxury and other things, you might be straight up just bougie. But you look at what, hey, what is this going to be in the future? Use this as motivation. If you've made yourself bougie because you're soft in the fact that you need to stay in nice hotels when you travel, you need your house to be a certain way, your car a certain way, I want you to ask yourself, what is my future self going to look Like if you have to go back down the rungs of success, this is not going to be good.

31:22So pay attention to what you've done with lifestyle creep and higher standard of living.

31:27Brian Preston:And look, if you're doing it right, we have a natural release valve built in. Brian, hold the thing up. We have a natural release valve. At step number eight, you can live in luxury. You can do those things because you know you've done the stuff that you're supposed to do. But far too often, again, this is part of that sandwich. We begin prioritizing the wrong things at the wrong time. And one of the big challenges, especially for folks in their 40s, your kids are now getting a little bit older. By the end of this decade, your kids might be going off to college. And so you're now beginning to have this pressure.

31:55Brian Preston:Oh my goodness, I got to stay for college. I got to prepare, got to prepare, got to prepare. And now caring for the next generation from a financial standpoint takes precedent and priority over you making sure that your own solid financial footing, if you do that, and if you miss out this decade by getting your priorities wrong, it can put you in a bad spot for the next two, three, four decades. Okay, let's talk about what we got going for us in the 40s. Here's some big opportunities you have going for you. Peak earning years. This is the decade where, hey, if you're going to be behind, why not have the biggest shovel of your life?

32:28Meaning statistically, this is the best time. Don't take our word for it. Look at the median household income. There it is. Look at that. The peak earning years are somewhere between 35 to 54 with the 45 to 54 running away with it. get in there, catch up. You can do lots of stuff. If you've procrastinated or put things behind, this is a great opportunity.

32:52Brian Preston:With a bigger shovel, you can move more dirt. That's just a fact of the matter. In your 40s is when that often happens. And it's likely that in your 40s, now you begin to own your time a little bit more. In your 30s, you feel like you have to say yes to everything. I'm going to say yes to social commitments, yes to work commitments, yes, yes, yes, yes, yes. In your 40s, perhaps now you've attained a level, you've reached a place where now you can actually start saying no to some things and you can make sure that you're spending your time and your efforts and your energy doing the things that you want to be doing, not just doing the things that you feel like you ought to be doing.

33:28Well, with these big earnings that you have in your 40s, you're also now, this is when, because we're probably running through the financial order of operations, we've blown through five with tax-free growth. We're starting to max out our 401ks, we're getting to the point where maybe under step seven, we're even doing after tax brokerage accounts. This is when you can really be opportunistic with your tax optimization. We always talk about the three bucket strategy. What we're talking about that was tax-free assets. This is your Roth accounts. You take advantage of all the tax-free money, your tax deferred, that's your brokerage.

34:01I mean, your tax deferred accounts, your employer match that you're doing with the 401k. And then after tax, that's that brokerage account that you're opening up to hopefully build the bridge to your future retirement, take advantage that you can legally manipulate the tax code when you're in your 40s because you have the income and the assets to make it work.

34:18Brian Preston:Yeah, a lot of times these things change. In your 20s and 30s, Roth may have made all the sense in the world, but now that your income is up, now that the tax benefit has increased, it might make sense to shift your dollars to pre-tax. And oftentimes when you do that, just shifting your dollars to pre-tax might save you enough in taxes to fund some of those other financial goals like maxing out of backdoor Roth, like saving more, like getting your savings rate up. So what does it look like for someone to actually be wealthy in their 40s? I think one of the truest signs is that someone who is thriving in their career, it's not just a J-O-B, it's not just a thing that they clock in and clock out of, but it's something they actually do and are excelling it and find some sort of fulfillment and purpose in it.

35:03Brian Preston:It may not be the thing that you feel like you were put on this earth to do, but it's the thing that while you're doing it, you're able to do it well and you're able to find the enjoyment in it. You're also saving and investing at least 25%, maybe even beyond 25 % if you're in catch-up mode. I also like that, hey, we said fork in the road. For those who are behind, you might be saving and investing greater than 25%. But if you make good choices in your 20s and 30s, maybe this is the decade you get to start making some of the lifestyle decisions where you get bigger purchases and you're making them with cash, you don't have to jeopardize your future because they're just not moving the needle from the future.

35:41You've had enough success that you can reward yourself in step eight.

35:45Brian Preston:You're also beginning now to likely start optimizing your investment strategy. Perhaps you've been doing target retirement index funds. You've been focusing on save, save, save, build, build, build. But now you've reached that critical mass where asset allocation, asset location can add some benefits. So you graduate from a generalized financial solution, generalized investment portfolio to something very specialized to your situation. Again, this is the decade when most folks hit the two comma club. And so you want to make sure you adjust accordingly. So where should you be by the end of this decade?

36:19Brian Preston:How do you know if you're on track? Well, if you get to the end of your forties and you have 6.4 times your annual income saved up, we would argue that you're on track. So if you have the median household income of$106 ,000 a year, and you've saved up 6.4 times that amount, that means that by the time you hit 50, your investment portfolio would be around$680 ,000. Man, now we're getting to the point. This is where it all comes together. I'd like to talk about 50s and beyond. So if we look at a snapshot of the median American in their 50s, their income is now about$117 ,000 as a household. Non-mortgage debt has stayed pretty consistent.

37:00Brian Preston:It's right around$23 ,000. Retirement savings are now up to$200 ,000 and total net worth for the median American in their fifties,$363 ,000. I think that this is probably a great time to talk about challenges because a lot of Americans are having to make tough decisions. The first thing in your fifties, you're probably, it's not something that's sitting under the surface. You're very aware of your age. you're also very aware of where your retirement account is. Yeah. And 2024, AARP survey found that one out of five adults over age 50 have no retirement savings. They've not done anything. And they found that three out of five adults over the age of 50 are worried that they won't have enough retirement savings to support themselves.

37:43Brian Preston:They've done something, but they're beginning to have the realization and recognition, I have not prepared the way that I should have. Yeah. And I'm looking at all of my people who are in high paying, especially if you're in the industries, fast growing industries, like the IT industry and so forth. In your 50s and beyond, you're going to have less job stability. This one breaks my heart because I've actually experienced this with a lot of my clients. Unfortunately, 56%, that's not a misprint, 56 % of workers age over 50 are laid off or pushed out of the workforce into retirement, not from their choosing, but because this is just what's brought to them.

38:20So guys, if you're in your 30s and 40s and watching this for the 50s, get to work because this is when you don't always get to choose your exit. So begin with the end in mind and plan accordingly that you might not always get to be in control of what happens with your income.

38:36Brian Preston:In that same vein of not being in control, we often don't get to control what's going on with our health as well, because as we age, naturally our medical costs and what it costs to remain healthy are going to increase. 65-year-old that retires in the year 2026, it's according to the Employee Benefit Research Institute, can expect over the life of their retirement to spend$185 ,000 on healthcare and medical expenses. If you remember, the median American right now has about$200 ,000 in retirement savings in their 50s, by 65, they're going to spend nearly that full amount on healthcare. That's certainly a challenge that you want to make sure you've at least thought through and accounted for when it comes to how you're building your financial plan.

39:24I think we've thrown enough cold water on this decade and beyond. So let's talk about opportunities. I do like that the government at least has realized, hey, for a lot of people that might be waking up and realizing, hey, they're a little behind on the savings and investments, you can legally now get catch-up contributions on your retirement account. The government will help you by allowing you to save and invest even more for the future.

39:46Brian Preston:That's catch-ups across your 401k, across IRAs, even in your HSA. So if you are above 50, you don't know the additional catch-up amounts, make sure you educate yourself on that because this additional savings, the size of your portfolio, now your investments are likely growing at a faster rate, assuming you've done what you're supposed to do. If your$10 ,000 in your 20s made 10%, it's not life-changing. But if your$10 ,000, your million dollars in your 50s makes 10%, now you've made$100 ,000. The bigger the numbers get, the bigger the numbers get. And you're likely beginning to see that in this decade.

40:24Yeah, and this is also for those who've made good decisions. A lot of you are financial mutants. You're watching financial content on YouTube or listening to this in podcast form. You've actually done well. So you get to start thinking about what's your legacy. How are you going to actually bless the generation after you? What are you doing to make sure that you are stewarding this wealth well? And I think a big part of that is we can transition into what does wealth look like in your 50s? Guys, don't sleep on what does your health look like? Because what my saddest things that I've dealt with is people who save what they need, but they just don't have the health to do the traveling, to do the adventures.

41:04So make sure you're not sleeping on what it looks like to be wealth. Health is wealth, especially in your 50s and beyond.

41:10Brian Preston:Another sign of someone in their 50s that's doing well is they understand risk management. Now they've begun to move into place where now they're completely debt-free and they're actually beginning to experience more freedom. They actually control their financial life, control what their dollars do, and are not encumbered by having to make a monthly payment or make debt payments every single month, year over year. Yeah, I love the, this is kind of bringing it all together. You're actually at the stage where you get to multiply your wealth. You know, all through this case study, we've been running a case study or milestones that you should look for.

41:43If you think about from your 20s to your 30s, by the time you get to 30, you wanna have one times your income. If you're saving and investing for the future, by the time you get to 40, you wanna have three times your income. We decided, hey, what if we actually took somebody who discovered the money, gosh, we've been doing this 20 plus years now. So we're not quite as long as this projection is going to show, but I still think it makes the point. Somebody who's 25 years of age, making$60 ,000 of income, who just started saving and investing just 10 % of their income. And if they did that all the way to age 65, would that 10 % reach these same milestones that we've been detailing by every decade?

42:20What did we find, Bo?

42:21Brian Preston:Well, we found that at 65, they'd have about$2.6 million saved up. And do you recognize if you did that, you would have blown the milestones out of the water. If you can figure this out early, if you can start making the right decisions early on in your journey, not only will you be able to hit these milestones, these markers we're talking about, but you will blow them away. And that's gonna open you up to more options, more flexibility, more opportunity to live the life that you wanna live on your terms. Well, you're also getting to the point where you're ready to land the plane. And a lot of you, you're not going to remember what small decision has led to this big, great, big result that you've created for yourself.

43:02But you are realizing, man, there's a lot of things you just don't know. You don't know where your blind spots are. And you are starting to realize, hey, man, I have just one retirement. I don't know what I don't know. And this, man, is it complicated now? Because I'm thinking about doing Roth conversions. I'm thinking about, I hear this thing about the taxability of Social Security. I hear about Medicare and IRMA payments. What are these guys talking about? you start realizing there's a lot of complexity that success has brought to your doorstep. And you're like, hey, how do I do this better?

43:31How do I make sure that I'm not sleeping on something that or a mistake that could cost me literally millions of dollars? That's where you can take the relationship to the next level. We literally work with clients all across the country on a long-term relationship format. I think you can tell we love planting the seeds of knowledge and then waiting for you to create that success. And then once you reach that, now we say this is the abundance cycle fulfilled. So go check us out, moneyguy.com, become a client. I'm your host, Brian, joined by Mr. Bo, Money Guy team, out. The Money Guy Show is hosted by Brian Preston and Bo Hanson.

44:06Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities, laws, and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through The Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.

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