How To Build Wealth If You’re Already Behind

20:53We've built this business the same way we've built the Money Guy Show, with hearts of educators to help you build wealth and live your best life. This is all about saving more by going out there and just choosing it. If you can't do it by either making more money, you've got to find more margin in your lifestyle. Maybe you have to, and that probably lead to the next big thing we can talk about.

21:14Brian Preston:Two levers you get to pull. Because look, you can either make more money or you can get more discipline and actually cut your expenses. And that's probably the next best thing we can talk about is how do we reduce those fixed expenses so you can make it automatic for the people and actually show up on your net worth. Yeah, I think this is the thing that we most often have the most control over. How do we cut our expenses down? How do we cut our spending down? And in our opinion, you ought to focus on the big stuff first. If you're behind and you're in your forties and you've not started saving, clipping coupons is not going to save the same amount of money that getting rid of a thousand dollar car payment will do.

21:50Brian Preston:So you ought to look at things like, okay, what am I spending on automobiles? What am I spending on insurance? How much do I have in subscriptions? What are all of my biggest spending categories? What is my housing spend? And are there ways I can reduce that? Are there ways I can get those fixed costs down as low as possible? Yeah. I mean, look, the biggest expense for most people is their housing. So you've heard us talk about this, but I want to bring up this concept again. We talk about the hedonic treadmill is that the way this works for good things in life, like if you came into more money, spread out the purchases, like the nicer cars, spread out the upgrade of the house, because you want to extend the good stuff so you get as much good feeling from it as possible and enjoyment.

22:34But flip the script. When you have bad things going on in your life. You need to act without mercy and cut things quickly and make changes as fast as possible because time is not your friend in these situations. It's actually working against you and you will stabilize and return back to your happiness factor that much sooner if instead of prolonging the hard decisions, do it all at once. So look, a lot of you are going to watch this content and you're going to look at your life and go, you know what? It probably is my expenses. Is it the car I'm driving? Is it the house? Yeah, maybe you have to do an apple cart turnover, move into a more appropriate cost of living.

23:12You have to do the uncomfortable things or maybe drive a car that's more used, more miles. It's these type of actions that your future self will thank you for because it's that discipline, it's that sacrifice in the moment that will get you through this.

23:26Brian Preston:And so obviously making changes to the big decisions is gonna have a very big impact. But there are also other ways you can triage your financial life. If you look on your annual net worth statement and you still have things like high interest debt, whether it be consumer debt or credit card debt sitting on your balance sheet and you're behind, you need to get rid of that stuff as quickly as possible. Right now, the average credit card balance for millennials, so this is not even people close to retirement. This is people kind of in the midway point of their career. On average, they are carrying about$7 ,000 of credit card debt month over month.

24:04Brian Preston:And these credit cards usually have an interest rate of somewhere between 21 to 22 % annually. So if you think about the monthly payment that would be required on that, it's like$200 a month. If you could instead flip the script and have that$200 working for you, going into your Roth IRA, going into your 401k, going into your taxable account, you would actually be building for your future self, not robbing from your future self. You'll never get ahead if you're paying banks 20 plus percent when you're hoping to make eight to 12 percent on your investments. So you've got to extinguish that stuff as fast as possible.

24:37And one of the best ways you can do this is, look, I'm not telling you to kill all your joy and not have enjoyment in your life. I'm just saying, instead of you doing it the expensive way, how about doing it by bedazzling your basic life? There's nothing wrong with doing cookouts with friends. Because if you look at all the research on happiness, it's not the stuff. It's the people. It's the relationships. It's the spiritual stuff. It's all those type of things. So if you can do those same experiences, but just in a cheaper way by doing grill outs, or maybe you're doing road trips instead of flying to places, you can do things in a more cost-effective way without running up a bunch of debt.

25:13Brian Preston:Yeah, but most people don't do this. According to LendingTree, 45%, so almost half of parents with young children who've gone to Disney went into debt in order to fund the trip. If you're having to go into debt to take your family on vacation, I'm going to argue you're likely doing the wrong types of vacations. Your future self would not be excited that you are taking from them to pay for your present day. So don't do that. Find how you can bedazzle your basic life, still create memories, still create the fun, awesome, amazing times, but don't sacrifice your financial future to do that. Yeah, sometimes, you know, just like we talk about, it's time in the market is what creates the success.

25:58It's not the expense of the things. It's actually the time with your loved ones. It's actually going to create those blossoming memories. Don't let the consumption society we live in and the advanced marketing budgets that go into that lead you astray and fall into that trap.

26:12Brian Preston:All right. So let's go back to our case study. Let's consider again, late start Larry, and let's assume that he had enough margin to get his savings rate to 25 % of his gross income, but he really needs closer to 35%. So he starts doing all the things that we talked about, reducing expenses, cutting those down. And let's say that he reduced his fixed expenses first by bundling his insurance. And the average savings for bundling home and auto insurance is about$500 a year. So that's an extra$40 a month that he could save. He then has enough cash on hand to get rid of all of his credit card debts.

26:45Brian Preston:That frees up that$200 per month payment that the average American is paying. and then let's say that he made another consumption decision. He cut back on dining out, which freed up another$95 a month. And then he said, I'm gonna scale back on my vacations and travel, saving another 160. If he were able to take all of those savings and lump them into a savings rate, that's an extra$495 per month, which would now take his savings rate from 25 % to 30%. So now he's well on his way to 35. He's not there yet, But just by reducing his expenses, he's now set himself up that if he can save at that 30 % rate from now until the time he gets to retirement, he would have over a$1.75 million portfolio built up in just 20 years.

27:33You know, I alluded to this. This was the first, the first lever was we said, hey, look at your current life, see if you can cut your expenses. And I do think it's amazing to hear you had somebody at a late start saving 25%, but because of expenses, they were actually able to put those savings in that discipline and it turned it into 30. I'd already kind of given a prelude to this, but it's now time to explore what this means. What if besides just cutting your lifestyle, you also figured out if you could put the second lever you have control over is if you could go make a little bit extra and increase your income.

28:06Because we live in the world where maybe it's making it's your current job, but maybe it's side hustling. There's all kinds of different ways that you can try to squeeze just to get a little bit more. Because we're talking about, this is a battle that's gonna be won by small, incremental, marginal decisions.

28:21Brian Preston:Yeah, and odds are, even if you're behind on building wealth, you're likely further along into your career. So there's a really good chance that you're in your peak earning years and you have an opportunity that if you can make more money, you have the ability to put a lot more of that towards your savings. So are there things that you can do? Are there ways that inside the vocation you're currently doing that you can work towards a promotion or a raise? Are there ways that you can come up with creative pay solutions or even negotiate your pay, start a side hustle? or if the opportunities in your present job are not there, are there other jobs, other companies, other opportunities, other geographies that you could look to move into that might have a trajectory that gives you the ability to increase your income, thereby increasing your margin and thereby allowing you to put more of your hard-earned dollars to work.

29:11But Bo, let's bring it back because there's a lot of research out there. According to Bankrate, the average side hustle brings in around$885 a month. Huge. What would that, if we took that back to the case study of Late Start Larry, what would that look like if we actually used that data point and brought it into this case study?

29:30Brian Preston:Yeah, let's be conservative and say that even after you factor in taxes and that sort of thing, Late Start Larry's side hustle allows him to invest an extra$500. So he's earning$885, but he's got to pay taxes. So he's got$500 a month going in. So he was able to cut his expenses to save an additional$500. and now he has a side hustle paying him another additional 500 that actually brings his savings rate right to 35%. So if he does that from age 45 all the way to 65, earning an 8 % annual rate of return, he's now at that$2 million portfolio value. He has made the hard decisions. He has pulled the two levers that he's able to pull to adjust his margin.

30:13Brian Preston:And then he put that margin to work and he went from zero to 2 million in 20 years. I think that that's, look, we took somebody who was on track to just end up at 880 ,000, right? Which, look, is four times what the national amount is. But we just showed, even with 20 years, incremental decisions can really kind of create a result that now I think the average person looks at$2 million. That is a healthy retirement. You strap on social security and other things. We turned a negative story into a positive. So that's what, now that we've given you the numbers, let's talk about some of the things you can, how we can maximize everything you have in your tool belt.

30:56The first thing is max out the retirement accounts. Look, when we design the financial order of operations, we designed this to make it the most efficient version of maxing out the tax code system, but also allowing you the opportunity to build your life into it through steps five, six, and seven. So don't sleep on the fact that maxing out retirement accounts is gonna be a powerful tool in this equation.

31:19Brian Preston:And if you're someone who's later on in your financial journey and you're above age 50, there are even additional opportunities for you to save more, whether that be through catch-up contributions, through IRA on the Roth side or just IRA, or maybe even catch-up contributions through your employer-sponsored 401k, 403b, where not only can you do the salary deferral, but you could also save another$8 ,000 in salary deferrals as a catch-up. Yeah, and a lot of you, like I said, you're figuring this out in your 40s, 50s, and maybe you're reaching those higher income thresholds where you think you can't even do a Roth IRA anymore.

31:57You might be surprised to find out that you still can go out there and get the tax-free growth of Roth accounts. It's just you don't get to go direct to the contribution. You can do backdoor contributions to a Roth through traditional IRAs. And if you really want to, if your retirement plan at your employer 401k is structured in a special way, you actually qualify for mega backdoor Roth contributions, which can definitely turbocharge your retirement and your tax-free growth opportunities.

32:23Brian Preston:All right, so we're talking about, Brian, things you can do if you're behind in your retirement savings. We've talked about reducing your expenses and increasing your savings rate and increasing your income and maxing out retirement. This next one, it's not super popular, but oftentimes it's necessary and that is extending the years that you work. A lot of people just say, I'm gonna retire at 60, I'm gonna retire at 65. But if you've not done the work to make that possible, then it might not actually be possible. And that's okay because if you can extend your timeline and extend the amount of time you have to build, it can have a huge impact on your financial sustainability.

33:00Yeah, I mean, this is one of those things I have to pull out of my retirement tool belt when I see somebody who's, they're basically saving as much as they can. They're earning as much as they can. And they just, they realize there's no more that they can squeeze from their life, you know, without really disrupting things. I always say, look, I know the ideal is to retire at this age, but this is definitely something, if you go look at this, this is a pretty effective if you just work an extra one year, two years, three years, you might be shocked at how much this will change the mathematics of your entire equation.

33:34Also, it allows you, you extend it out long enough. Your safe withdrawal rate goes up as well. So you get more out of the assets that you do have. This is definitely not something you should sleep on.

33:44Brian Preston:Okay, so let's think about late start Larry again. And let's assume that, okay, he did all the hard stuff to get his savings rate to 35%, but there was no way for him to make more money. There was no way for him to spend less money. So he says, what I'm gonna do is I'm gonna extend out my timeline. and rather than retiring at 65, I'm going to extend it five years. I'm going to plan for an age 70 retirement. Well, just by holding the same savings rate static, but doing it for five more years, now at age 70, he would have a portfolio of$3.3 million. Just bumping his timeline back by five years, increase the size of his retirement portfolio by 61%.

34:26Now, look, we're using this as a teaching exercise. I would be the financial advisor in the background whispering to Larry, hey, remember we can adjust your safe withdrawal rate. We're probably gonna retire before we reach 70 because we're gonna find out. But I think for an education purpose, it is powerful to show just letting compounding growth have an extra five years can be a really powerful element. But when it comes to the real world, we do have that delicate balance of trying to get you out of the workforce to live your best life as soon as possible. but we want to make sure we don't cross that threshold unless we've definitely measured twice, cut once to do the right decision for the clients.

35:05Brian Preston:But delaying your retirement date is not the only thing that you can delay to potentially have a positive impact on your financial life. Another thing you can do if you're behind, you need to figure out how to have more income in retirement is you can look at delaying your social security benefits. The size of the benefit you receive depends on when you choose to start receiving payments. Most of us, our normal retirement age is going to be around age 67. That's where you'd receive 100 % of your full Social Security benefit. What you may not realize is you can actually draw it as early as age 62, but if you do that, you're not going to receive the full benefit.

35:41Brian Preston:You're only going to get about 70 % of the full benefit amount. But if you wait until after 67, you were to delay your benefit all the way until age 70, instead of receiving 100 % of your projected Social Security benefit amount, you would receive 124%. So if you need a little bit extra income, a little bit more money coming in, a little bit more for those cost of living adjustments to be based off of, waiting till age 70 could be a great strategy for those folks who are a little behind. Yeah, I mean, this is one of those things where I tell people don't start taking, especially if you're working up until full retirement age of 67, do not take your social security because realize there's going to be earning limits on what you're supposed to make before they start clawing back the benefits.

36:23So you already might be working against yourself. But it's back to the point. If we look at the average Social Security benefit, it's around$24 ,204 a year. If you just look at what that means at 62, that means you're not getting the full$24 ,000. That would come at 67. You're only getting$16 ,943 at age 62. But maybe you're a person that needs a little bit more or you're working later like we just showed in that previous example. if you deferred your social security all the way out to age 70, you get$30 ,013. So you actually got a pretty good bump from that$24 ,000 by just deferring this out a few more years.

37:01Brian Preston:That's double the amount that you would have received at age 62. So you want to make sure that when you make the social security decision, especially if you're married, you want to make sure that you put some thought into it because it can have a big impact on how your financial plan looks. And that's actually the very last point when it comes to retiring and financial independence. And even if you're behind and you're not exactly where you want to be, one of the very best things you can do to start moving in the right direction is to actually have a plan. Yeah. And a lot of you, you're probably watching this and your head's spinning a little bit and you're like, I don't know if I'm ahead of the curve, behind the curve, right where I'm supposed to be, or I know I'm a little behind, but how far behind am I?

37:46Because these guys are taking it. Look, we want to help you out. Not only are we trying to educate you, but we're trying to give you the tools to kind of where you can do your own triage to know exactly where you are. And that's why I would strongly encourage you to go to moneyguy.com slash resources. We have a resources you can't believe it's free. Matter of fact, it wasn't free in the past. We used to charge$100 for a course called Know Your Number. Now we make it completely free because that's what we believe we should do as part of the abundance cycle to allow this entry that much easier for more Americans to get this right.

38:19So please go check this out. You put in all of your variables and it's gonna show you exactly where you are and your path towards retirement and maybe even give you a little bit of a coaching session of, hey, if you do a little bit more, this is what's gonna happen for you. But please use this for motivation as well as education on exactly where you are on that curve.

38:38Brian Preston:And part of having a plan though is being realistic. If you're not where you are today, it means you haven't done the things that you likely should have been doing. So if you want to be somewhere different in the future, you might need to change your behavior. And even in changing behavior, you might need to change your goals. If you thought you were always going to retire at 60, but the math just doesn't work out, be realistic about that. Don't do something like assume a 15 % annualized rate of return to make the math work. That's not going to set you up for success. Be realistic about where you are, what steps you need to take to where you want to be, and how realistic is it for you to get there on that timeline.

39:18Look, a lot of you are going to watch this content, and you're actually going to see yourself inside of it. I have so many people in our comments when we do live streams that say, guys, I got a late start. I didn't start until my 40s. I'm now in my mid fifties and I've done the hard work. I've caught myself up. And you're probably, you're seeing this, all the things we just shared. You're seeing your journey in here and you're like, man, there was a lot that I had to figure out in real time because it feels like people just don't do a good job of showing you what you're supposed to know about money, how to navigate it well.

39:49And that's because look, I get it guys. This whole thing about building financial independence for a lot of you, it's a novel experience. You're on your first journey. You're the first person in your family that's ever had this type of success. It doesn't have to be novel. It doesn't have to be new to you. You can literally hire somebody who's done this thousands of times so that you can know where the blind spots are, where the traps are, and how to live your best life and even save you more time so you can enjoy the time you have in the best possible way. And that's why we'd love for you to consider taking the relationship to the next level.

40:22We work with clients all across the country. The abundance cycle is real. We've literally been creating this type of content since 2006. We're not going anywhere, and we'd love to help you live your great, big, beautiful tomorrow. I'm your host, Brian. Joined by Mr. Bo, the Money Guy team. Out.

40:38Brian Preston:The Money Guy Show is hosted by Brian Preston and Bo Hanson. Brian 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.

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