How to Master Your Money in 9 Steps

0:00Brian Preston:This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks.

0:45Brian Preston:Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. building wealth can be so simple when you know what to do and when brian i am so excited about this because while yes personal finance is personal we know that there are some reliable ways to build wealth no matter who you are and we want to share those with all of you today so we're going to go over what to do with your next dollar in nine simple steps how to make progress and how to build your great big beautiful tomorrow

1:29Brian Preston:All right, Brian, let's talk about this system that we have come up with that we affectionately call the Financial Order of Operations. It's a nine-step process to help you figure out what you should do with your very next dollar, because we think that wealth building does not have to be complicated, and we want to make it as simple for you as possible. Yeah, please go out there. Moneyguy.com slash resources. You too can download. It won't be laminated, but still you can download our nine steps to the financial order of operations. Now, I think it's important, Brian, before we jump into these nine steps and kind of go through each one of them, there are some base layers that we ought to uncover.

2:10Brian Preston:We just affectionately call these the ground rules. These are not necessarily distinct steps in the financial order of operations, but they are foundational to the financial order of operations being able to work for you. Yeah, let's kind of jump into some of these. The first one is kind of know thyself. Know your why is because if you realize very early on as you start on this journey of building wealth, money is only a tool. So you have to kind of have some reflection to figure out how you're actually going to harness the power of this tool to know what makes you happy, what it can and cannot do for you.

2:43So that's why we say spend some time understanding, know your why.

2:46Brian Preston:The other thing that we believe is we believe that generosity is rewarding. We don't think that you have to reach some specific level of financial success to be able to begin being generous. So whether you have$1 or$1 million, we want you to be generous all throughout the process. It's not a specific step in the order because really money only adds an exclamation mark to who you currently are. So if you can be generous with a little, there's a good chance that you're going to be able to be generous with a lot. Yeah. And then the last thing is, is bedazzle your basic life. What in the world does that even mean?

3:21Well, here's what it means is that I don't want you to be such a financial miser through your twenties, thirties, and forties that what you wake up and you think, Oh, now I'm going to live my best life in my fifties because I've done all this sacrifice. No, you need to actually live a life that lets you maximize each decade of your life. Now that doesn't mean that you go run up the credit card or get yourself in a lot of financial trouble. It just means every decade of your life bedazzle your basic life, meaning there's ways that you can still go on vacation without breaking the bank. There's ways that you can make sure that you're still getting all the memories, the experiences, and everything else without really shortchanging your future self.

4:00Brian Preston:Now, it's important for us to recognize that while the financial order of operations is these nine steps and they kind of move sequentially in order, the FOO is not a straight line. Often people think that I'm going to go from step one to step two to step three, but as life unhappens, as it actually unfolds, our financial order of operations for us personally is a little bit different. We might be in step three for a while and go back to step four and then jump up to step six and have to go back down to step three again. And that's okay. It's okay if the financial order of operations is not linear.

4:35Brian Preston:We want it to be a tool that will equip you to know what to do with your next dollar, no matter where you find yourself at today. So with that, let's jump right in. Step number one, this is to protect you from making those desperate decisions, is we got to have your highest insurance deductible covered. What I think is so interesting, Brian, is this is before investing, this is before saving, this is before putting your money to work, because we believe when it comes to your finances, is the things you want to make sure you do right out of the gate is keep your life from falling in the ditch. Well, it's not a matter of if.

5:11It's just a matter of when life is going to take a left turn on you. And sadly, we know the stat out there is every year you can set a clock to it is approximately 59 % to 60 % of Americans can't even come up with$1 ,000. So you can already see it doesn't take much for the typical American to get in a situation where they are making desperate decisions because they don't have enough cash in the bank to even get them out of those emergencies.

5:35Brian Preston:So what a lot of people don't realize, Brian, is that, okay, they're going to say, all right, I don't want my money sitting idly by. I don't want to have my highest deductible, my auto insurance deductible, my health deductible, my homeowner's deductible. I want my money to be working for me. So don't miss here. So we're not saying, you know, bury this highest deductible inside your mattress. What we are saying is, hey, put that money aside. Even if you hold it inside like a high yield savings account, earning three and a half, 4 % interest, You can have it there. But once you do that, once you set it aside, then you can start thinking about the exciting part of wealth building.

6:11Yeah, I mean, I think the biggest thing is it keeps you from making those desperate decisions. They're going to be way more expensive than even the opportunity cost on what this could be earning. And that leads to, let's talk about what do you need to do to complete step number one.

6:23Brian Preston:Yeah, if you want to be able to move on in the financial order of operations, number one, you need to determine where to save. Okay, where am I going to put this high deductible? We love high-yield savings accounts, high-yield money market mutual funds, somewhere that's purely liquid, purely cash that can be there for you. And you've got to figure how much. You go look at all your deductibles and figure out, okay, which one's the highest one? How much am I going to save? And then you've got to figure out what's the behavior that I'm going to implement in order to create that margin so that I can actually put that money aside and check the box on step one.

6:56All right, that's step one. Let's get into something a lot more exciting. go get that free money from your employer match. That's step number two.

7:05Brian Preston:That's right. A lot of us, we work for companies and it says, okay, if you have a 401k or a 403b or some type of account like that, if you're willing to put some of your hard earned money into that account, your employer is willing to match that, put money in for it. It's literally free money. All you got to do is show up. And a lot of people realize your employer is offering you like 50%, 100 % guaranteed rate of return. How do you pass this up? This is why this is step number two of our system is because it is that valuable to you. But here's the thing that blows my mind. And by the way, we saw this stat is that it says one in four Americans are not getting their full employer match.

7:45I've done 401k presentations where different sources have shown this data. Sometimes this point gets as high as 30 % of Americans are missing out on employer money. Guys, what are we doing? If I left out free money for you, every one of you would walk by, pick that money up. But somehow we leave thousands of dollars alone that our employer is offering us. And that's just a disaster for the long term.

8:10Brian Preston:So you may be asking the question, wait, guys, what if I have debt? What if I have credit cards? What if I have this sort of stuff going on? There's a reason that step two employer matches before we even talk about any of your debt payments, because a 50 % or 100 % imputed rate of return is even better than the predatory rates that credit card companies are charging. That's why we have it so far up in the financial order of operations. So if you want to be able to complete step two, there are a few things you need to do. Number one, you need to understand the details of your plan. How does my company calculate my contribution?

8:45Brian Preston:Is it dollar for dollar? Is it 50 cents on the dollar? Is it some sort of tiered structure? and how does it actually work? If I put money in today, is that money that my employer puts in my money today? Or is there some sort of vesting schedule? There's some sort of time period I have to wait before it becomes my money. Once you understand the details, then you can decide, how much should I contribute? Our answer is as much as it takes to get all of that employer match. Then set it and forget it. That's the thing. This is one of those things where I want your long-term behavior to be rewarded by being consistent because it doesn't do you any good to do this one year and then cut it off.

9:24No, I want you to set it, forget it, let your money be working silently in the background, building up that stealth wealth.

9:31Brian Preston:All right, Brian, we talked about how employer match can be like a 50%, 100 % imputed rate of return. And that's the reason why we prioritize it over other things. But then as we get to step three, we kind of move down the rung. And this is one that we really want people to focus on. We really want them to knock out after the employer match. And that's any sort of high interest debt you have there working against. Yeah, I mean, think about this because a lot of people will be like, wait a minute, high interest debt. What about filling up that emergency fund? I'm like, wait a minute. When you are paying banks 20 % plus, we don't make – when we talk about doing financial planning or investment planning for clients, we're not putting 20 % in any of our assumptions.

10:11but somehow it is completely expected that banks are going to charge us this much, you'll never, ever, ever get ahead if you are paying banks high interest debt thinking that you're going to build wealth. No way it works. It just doesn't work.

10:25Brian Preston:Now, as a quick aside, I want you to recognize we're not saying here, okay, you can't use credit cards because credit cards are a type of high interest debt. We're talking about you cannot carry a credit card balance. If you use credit cards, that's fine. But if you do not treat debt with the respect it deserves, because it can be a very useful tool, but if used inappropriately, it can be very, very dangerous. And if you don't believe us, just think about this mathematic here. If you had$5 ,000 in credit card debt and you had a 20 % interest rate over the course of a year, that's going to cost you$1 ,000.

10:59Brian Preston:Now on the flip side of that, if you had$5 ,000 in investments and it made a very healthy 8 % rate of return, which is great. You made$400. You can see that it takes a lot of$400 to replace that$1 ,000 you would have lost with that egregious predatory interest rate. It's why you have to get high interest debt knocked out. Well, this is what I hate about debt. And this is why we call it chainsaw dangerous is because it just seems so simple. It seems like it is a bridge to all of your answers, all of your problems you have. Because right now you don't make a lot of money, but you have all these life needs, you're like, well, you know what?

11:37I'll use this debt bridge of credit card debt to protect me and get me there because I'll make more money down the road. I'll just pay myself back. I'll pay it back. And even the money that I miss out on investing, I'll make that up too. But guys, I'm telling you, this is a bridge to nowhere because yes, that thousand dollars was already expensive. But guys, anybody who's listened to our content knows we don't only talk about just how much was lost. We talk about what that would be worth because you are a billionaire of time. All of my young people watching this, your most valuable resource is that time.

12:10This for a 20 year old, a thousand dollars lost in that year just to consumption could have potentially become $88 ,000 at retirement. That is what the opportunity cost was on this. So it's not only stealing from you through cost of interest that you're paying to these banks. It's costing what that money could be for you in the future in your financial independence journey.

12:35Brian Preston:And here's what's devastating. We know that right now, according to a LendingTree survey, one half of all Americans, 50 % carry a credit card balance month to month. 50 % of Americans are paying these high interest rates for absolutely no reason. So if you're in this situation, if you're one of these 50%, what we want you to do is figure out how do I get out of this? How do I get out of this high interest debt? And there are two very common methods when it comes to paying off debt. The first is a debt snowball. You may have heard of this where you pay off all of your balance, the smallest to largest, and this helps build behavior.

13:13Brian Preston:You get small wins early on and then it compounds and compounds and compounds. If that is the way that you want to pay off your debt, that's great. The other alternative is what we like. It's called the debt avalanche, where you list all of your debts starting with the highest interest rate and you begin knocking out that high interest rate. This is the most effective and optimal way to pay the least amount of interest. But whether you do the avalanche or the snowball does not matter so long as you're doing something to begin getting out of this high interest debt. So let's actually start figuring out how do we get traction?

13:45How do we get out of this debt? To complete step number three, here's the first thing. Let's write down, actually create a list of all of your debts. List your debts, list what the interest rates are on these debts, figure out how much you have to wrangle to get control of your financial life. Because look, we're not anti-debt people. Now, I will tell you, I use credit cards. Credit card use is A-OK, but credit card debt, no way, because there's no way I am going to pay the bank 20 plus percent. So determine which of your debts, after you list them all out, are what we consider high interest debt, and then create a plan on how you're going to pay it off as fast as possible.

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15:00Brian Preston:You get to move on to step four in the financial order of operations, building a fully funded emergency fund. Yeah, I think it's so interesting. In our financial order of operations, nine steps. But yet out of nine steps, two of those steps are specifically to having cash on hand for emergencies or bad things. This is back to the point, guys. It's not a matter of if an emergency or bad thing is coming your way. It's a matter of when will this bad situation come. So you can imagine our shock and awe perspective when we find out 72 % of Americans do not have a fully funded emergency fund. What are these people going to do when life comes and creates an emergency that they need to have resources for?

15:44Brian Preston:So if you are one of those 72 % of Americans that does not have a fully funded emergency fund, here's what I want you to do. Step number one, we want you to determine what is your actual cash reserve need. Do I need three months of living expenses? Do I need six months of living expenses? Am I nearing or in retirement? And I might need 12 to 18 months of living expenses in liquid cash. Once I've defined that number, once I know what that is, once I've looked at my variables to determine which one is right for me, then I want to begin building on step one. I already had my highest deductible. I already have that put aside.

16:18Brian Preston:I want to start adding to that until I get that fully funded emergency fund. Once I've done that, I can check off the box for step four and I can move to step five. All right. Let's talk about step five. What I like, this is where we actually end the wealth building journey, maximizing that beautiful element of tax-free growth. And when we think about tax-free growth, there are generally two types of accounts that allow us to have that. The first is a Roth IRA or also potentially a Roth 401k. And the other is a health savings account, which is a special type of account available to folks who have access to it because they're covered under a high deductible insurance plan.

17:01Brian Preston:These are two of our favorite accounts because of exactly what Brian said. They allow your dollars to grow completely tax free. Yeah, I mean, think about it. The government is going to restrict how much and who can put money in these. Why? Because the getting is so good that that's why they're kind of limiting this once in a year opportunity for you. So don't sleep on this. Now, I want to take some credit for something that I think is pretty powerful. For years, I was talking about how health savings accounts are great, stealth wealth builders, meaning this is something you can start building on your net worth statement every year.

17:35And for a year, the stat was 4 % of Americans are using health savings accounts for investments, not just as clearing accounts for their health care costs for the year. I'm happy to report that number has been increased to 13 % of Americans are now actually investing the money that they put into these health savings accounts, into these long-term investments. I like to think this is what we call a money guy echo.

17:59Brian Preston:I love it. And if you are someone who is able to do this and you are able to take advantage of this, health savings accounts give you tons of flexibility over how you're able to access and use those dollars in the future. Just so that you know, right now, this year, the health savings accounts limit is$4 ,300 for single individuals or$8 ,550 for families. On the Roth IRA side, assuming you're eligible to contribute directly to a Roth IRA, you can do up to$7 ,000 per year per individual or$8 ,000 if you're over the age of 50. Now, as much as we love both of these accounts, there are some caveats you need to be aware of.

18:38Brian Preston:Not everyone can contribute to an HSA account. You have to be covered under a high deductible plan. And not everyone can contribute to a Roth IRA. You have to be under the income level to be able to do that. So if you want to complete step five, if you want to be able to move along in the financial order of operations, you need to be able to contribute enough to the Roth IRA, so$7 ,000 directly. Or if you're over the income threshold, you make too much to contribute directly, you need to determine if you can do backdoor Roth contributions where you fund a non-deductible IRA and have the ability to convert that to a Roth IRA.

19:13Yeah, like I said, they restrict these things. It's also earned income is required as well. So that's why, guys, don't sleep on this. One of the first things is that Roth IRA, as you start funding that, and you start seeing the power of that compounding growth. I have shared when I wrote Millionaire Mission, I have my own regrets that I did not maximize the Roth every year that it was available to me. Don't have those regrets for yourself. Maximize these unique tax-free growth opportunities.

19:39Brian Preston:And so not only the Roth, but then if you are eligible, max out your HSA. Once you've satisfied both of those tax-free savings opportunities, then you get to go to step six of the financial order of operations, which is max out your employer-sponsored retirement account. So think about this. When we talk about this, when we're talking about most of your employers, we've already talked about that free matching money. That was step number two. But a lot of these will allow you to do way more than that. If you're talking about tax-favored savings vehicles,$23 ,500 per year, your 401ks, your 403bs, your 457s, your TSPs.

20:14These are all opportunities for you in a tax-favored way to save for the future. Don't sleep on this.

20:20Brian Preston:What's amazing is that for most millionaires, there have been studies that show most millionaires reach seven-figure status because of their employer-sponsored retirement account. When you have one of these accounts, not only can you do salary deferrals where you can go up to$23 ,500, but you also allow your employer to put money in, whether that be through some sort of safe harbor contribution, a matching contribution, or a profit sharing contribution. And even some plans will allow you to go even above that where you can do after tax contributions. So these accounts, these 401ks, 403bs, 457s, they could potentially be funded all the way up to $70 ,000 per year.