Is it Impossible to Build Wealth in Your State? (Ranked)

17:04Bo Hanson:And that was all funded by the employer side, meaning you, the owner. Then along came, and that kind of really changed things a lot because what blew up SEP IRAs was then once people had employees, you do a simple, and then you go into a traditional 401k. Well, if you don't have employees, there's still an option that's probably better, it is better than SEP IRAs, and that's the solo 401k has really changed the game. Because in addition to doing that profit-sharing contribution that I just laid out for SEP IRAs, it also allows you to do the salary deferrals just like a 401k would. And there's even options you can get into Roth side of things.

17:44Bo Hanson:There's some really cool planning opportunities that you can do with a solo 401k. And by the way, employees can be you and your spouse only. But even if you start putting the kids on the payroll or other crazy things like that, it will blow up these things, and then you have to go more traditional, and that's a whole other conversation. But if you're self-employed, you don't have employees, solo 401ks have a lot of benefits.

18:08Brian Preston:Yeah, so just thinking through, your wife having$120 ,000 a comp, and let's assume that that's what she's actually showing as her net operating income. With a SEP IRA, she could do a$30 ,000 contribution. You figure out, okay, if you guys are in a higher tax bracket, 30 % tax bracket, you just take$30 ,000 contribution times your marginal tax bracket. That would be your tax savings. If she does the solo 401k contribution, in addition to doing the$30 ,000 employer profit sharing, she can now add on$24 ,500 a salary deferral. So the total deferral of her income could be$54 ,500. Take that number, multiply it by your marginal tax rate.

18:48Brian Preston:and you can see that there are some serious and substantial tax savings available to you by opening a solo, and they're so easy to open. You can go to any of the major custodians, Fidelity, Vanguard, Schwab, fill in the blank, open it. There's no tax refiling, no reporting, no issues until it crosses over$250 ,000 of assets. Once it does that, you do have to make sure that you file an annual 5 ,500. There are no taxes due. It's an informational filing. But if you miss that filing, the IRS will send you a nasty and gnarly letter that will scare you to death.

19:22Bo Hanson:Penalties are severe. So make sure you file the tax returns.

19:25Brian Preston:Every year, make sure you track to see how big is my solo. Or if you're someone who's rolling IRA assets into a solo to open up back doors, make sure that you file your$5 ,500 every year because you do not want to get that letter.

19:38Bo Hanson:That's great. Well, KevinB8679, you get a MoneyGuy Tumblr if you'd like one since we answered your question. Just email winner at moneyguy.com. All right. Before I go into the second question, I do have another small announcement. We will be doing another it-does-not-depend rapid-fire segment between the 30 and 40-minute mark of today's episode. So if you are watching live right now, please submit your questions. Just put RF for rapid-fire at the front of your question, and our team is going to queue up a bunch of really fun rapid fire questions for Brian and Bo. Feel free to have fun with it.

20:17Bo Hanson:Feel free to stump them. Feel free to just ask a genuine personal finance question as we do on this show all the time and as we love to do. So go ahead and get those questions in the chat and we will come back to that after a couple more long form questions. I heard last week that I said it depends and you didn't pop me around for doing that. So you have my permission to go over the top because I'm the one that's going to screw it up. We were having so much fun trying to get you to answer it in 20 seconds. I may have forgot. I just missed it. I would ask it. Really, I don't think my brain can go less than 30.

20:50Brian Preston:I bet you. Bo can work at a speed. It's just like when you listen to me,

20:54Bo Hanson:there's limits on how fast. You can probably listen to me at three times, four times speed because of how slow I talk. But there are definitely limits on how fast I can process a question. Yeah. Well, we're going to try to find a happy medium and have some more fun today. So get the rapid fire. We've got to give him 10 seconds. Just label them RF so we know it's for that segment. In the meantime, I've got a couple more long-form questions. I guess that's what I'm calling them, queued up. This one is from Powerbait. It says, hello, why do you suggest 25 % of your gross income for a house payment instead of 25 % of net?

21:30Bo Hanson:25 % of my gross ends up being about 32 % of my net, which feels like too much. So this is regarding our house buying rule. So maybe you can kind of recap that and speak to his question.

21:42Brian Preston:I want to be clear because the way that this question is worded is a little bit different than what we say. You said, why do you suggest that our housing should represent 25 % of our gross? We do not. We do not say, hey, your housing should be 25 % of your gross income. What we say is that is the upper limit guardrail that you should use to determine if the housing that you're getting into is more expensive than it should be. Now, if you're someone who is a little more risk averse, a little more conservative, you want to have a little bit more margin in your life, there's nothing wrong with you using a net number.

22:22Brian Preston:I'm going to do 25 % of my net or I'm going to do 20 % of my gross or 15 % of my gross. There's nothing that suggests you have to go all the way up to that threshold in order to get into housing. It just so happens housing is really, really expensive right now. And it's a very, very difficult thing for a lot of folks to get onto the home ownership side of the equation. And so that's why the 25 % exists there. We never tell people. When someone says, hey, I'm thinking about buying a house, we never start with, okay, what's your gross income? Let me tell you what your mortgage payment should be.

22:57Brian Preston:We start with, okay, why do you want to buy a home? How long do you see yourself being there? What's the home going to do for you? What problems does it solve? And then we begin getting into the mathematics around, okay, in the area that you live, that you're looking at, the type of home you're looking for, what are those prices? Okay, now, can we make sure that fits comfortably inside your realm of affordability? 25 % is not prescriptive. It is a restriction. Hey, really be careful. Don't go over that.

23:25Bo Hanson:Well, look, for a lot of people that live in these high cost of living areas, they're going to need every ounce of the housing that we can give them. So that's why giving them boundaries or how much can you do without being fallen in the category of potentially being house rich, life poor. But the reason I use gross is this simple. You can't manipulate it. If anybody, because everybody's net's going to be slightly different because where do taxes fall in that? Where does your savings rate with your employer plan at work? What are your health insurance electives that you've chosen? How about other things?

24:01Bo Hanson:If you're doing life insurance or dependent care and all kind of other deductions that you've chosen out of your cafeteria plan, if we use net, now when I give you a specific recommendation, that's going to be completely different than everybody else. But if I go it off of gross, you can't manipulate that number. It is what it is. We all know our top line number. So it gives you a little extra grace and takes it all the way up to 32%. If you live in a high-costal living area, I'm okay with that, especially in this unique time in history where we are, where housing already is so much harder. As long as you are doing all the other it-depends stuff and you're saving for the future, you're making sure that you're keeping your other debt limits within thresholds and the boundaries we share, it all works together.

24:46Bo Hanson:And that's why I always say when we do personal finance stuff, it's exactly what Bo was talking about. He basically just gave you the triage list that we have to go through to assess where somebody is in their financial life. We give rules to give boundaries and guidance, but it still has to come back to the personal side of personal finance, which is going to be so unique that that's why I can load you up with so much free advice is because everybody, when you get to the critical mass point of that, hey, these are big decisions I'm making. My simple life has gotten super complicated. we kind of help bring it all together as financial planners.

25:20Bo Hanson:And that's why I don't worry about my job with even all the crazy technology that's going on is because that's going to continue to be very personalized and unique. And the implementation is a whole other level that I haven't even talked about. One thing to know strategy is another thing to actually make it happen. Power bait. Thank you for the question. If you would like a money guy Tumblr, just email winner at money guy.com. next question is from Bennett B it says if I'm 24 years old with very low fixed expenses can I commit the foo sin of contributing $625 a month to my Roth IRA while simultaneously building up my emergency fund already getting the full employer match what I think is interesting I mean because I don't know Bennett 24 it's definitely young and I'm super excited, especially if you can, I mean, you're at the point where we can already be thinking about Roth IRA.

26:18Bo Hanson:I absolutely love that. But you just answered your own question in a way because you have very low fixed expenses. So if you know that to get out of step four, you just have to basically know you have three to six months of living expenses covered and you, back to, quote, very low fixed expenses. and you know let's just say if you were because look there's no shame in the game that when i graduated college i lived at home for three months three or four months because my apartment that my buddies and i were moving into it didn't open up until september october i graduated in june i bought the sweetest purple leather recliner with some of those savings and i you know saved up some additional money that went into emergency reserves and so things it was on sale oh just I mean, you know, back then it's a burgundy purple type color.

27:08Bo Hanson:You know, it's a bunch of guys like Rob, my other buddy, he bought the leather couch. It was brown, you know. And so we, and then another guy bought the like subwoofer and speakers. I mean, this is, these are priorities that roommates, you know, we all assign, we did a zone coverage on what we were going to fill this place up with. But it's back to the point of, I think you're going to be able to cross out of step four and right into the 625 within a month. I mean, so we're really talking about are you getting cute for a month to get – because I want you in the Roth as fast as possible, but I just want to make sure that you're being smart on the risk side of your exposure as well.

27:45Brian Preston:Yeah, I wish I knew more numbers, Ben. I'd love to ask, okay, when you say like very, very low fixed expenses, is that like$2 ,000 a month? I'm just kind of making up a number. So three months of those fixed expenses will be a$6 ,000 emergency fund. But when it comes to emergency fund, We don't just want necessarily fixed expenses. We want you to actually have the true cost of living that you're experiencing. So whatever that may be, if it's$3 ,000 a month, it's$3 ,600,$9 ,000 for three months. I want you to have an emergency fund so that you can keep your life out of the ditch. But you're trying to play a little bit of a game here by doing step four and step five.

28:18Brian Preston:So this is the first question I would ask you. All right, how much emergency fund do you have? Are you like a month and a half, two months in? Is it only going to take you one more month to fill that bucket up? If so, go ahead and do that and then get back to the Roth. But I will say as an honorable thing to just like a little asterisk honorable mention, one of the unique things about Roths, let's say that you're getting close to the end of the year or you're getting close to the end of the tax filing deadline. You've almost maxed out your Roth for last year, but you're not quite there. And you have, man, you just need to squeak in a few more contributions to fully hit the max.

28:55Brian Preston:One of the unique things that's true of Roth IRAs is that if you absolutely had to, you could get to your basis penalty-free, tax-free. Now, you should never, ever, ever, ever, ever do that. But if you had to, you could. So if it comes down to, man, all right, I just want to make sure I get that last little bit in. Am I going to be okay if you take the 625 and you put in your Roth and you just let it hang out in cash? I know that sounds crazy, but you let it hang out in cash until you get your emergency fund fully funded, and then you invest that, I'm not going to fight you on that because I know that once we pass that tax filing deadline, you don't have the ability to go back and max out the Roth for that year.

29:34Brian Preston:So those dollars are precious. They are special. They are coveted. But I don't want you to run afoul of the foo. So, yes, there are circumstances where you can do both, but you've got to be unique in how you do it, and you've got to make sure you're doing it the right way. Agree? Disagree? No, I like that.

29:50Bo Hanson:I like that because, I mean, there are moments in time somewhere especially where, because you're right, we're in this unique time between January and April where you can still fund for last year's Roth contributions. As you get older and more successful, you're going to be sad if you didn't fund some of that. So I get it. And look, you do have a break glass opportunity to get to the basis of the Roth. I always just get nervous because I don't want people to look at their Roth account as a PFA.

30:18Brian Preston:And that's why I told them, and this is the part that's going to be so painful for a 24-year-old. You make that$625 Roth. I want you to have it sit in cash. And what I hope happens is you see that$600 in your Roth, and it just drives you absolutely nuts, and you start losing your mind so that you get your emergency fund fully funded, and then you can go invest those dollars. Let the it sitting in cash be the thing that motivates you to fully fund the emergency fund. Because cash and Roth sucks. That's not a good thing.

30:47Bo Hanson:No, I agree with that. That's great. I'm just getting ready for a rapid fire segment. But Bennett B, thank you so much for the question. If you would like a Money Guy Tumblr. Hang on. Let me give Bennett his Tumblr. Winner at MoneyGuy.com. Bennett. Email there. If you don't have a Tumblr, we'll get you one. All right. We are almost to the 30-minute mark. So let's go ahead and gear up for this rapid fire section. Again, this is called the It Does Not Depend rapid fire segment. Brian and Bo have to answer your questions in 30 seconds today. And they cannot use the phrase It depends I will give you 30 seconds each to start And you cannot say it depends In the future we've got to flip a coin to see who goes first

31:32Brian Preston:We'll just alternate back and forth

31:33Bo Hanson:Let's alternate back and forth I like that idea Someone suggested I give each of you 10 seconds for each 10 years of life But we're not doing that I like that That made me laugh Alright, are you guys ready For the rapid fire segment?

31:49Brian Preston:Ready.

31:50Bo Hanson:All right. So I will ask the question, and then the timer will start. First question says, best way to teach kids about money. Want them to be responsible, but not misers.

32:01Brian Preston:Depends on how old they are.

32:03Bo Hanson:Nope, nope, nope, nope, nope, nope. It depends. Right out the gate. Disqualified. Brian, you're up. Go to moneyguy.com. There's actually some shows, because our search feature is so good now. If you type in, I'm trying to think of 15-year-old savings because I did a show specifically with my daughter when she was 15. That show's gold. You're going to see how much weight I lost. But it's good. We laid out some basics, and we sprinkled in some other things, and we want to do even more content. We do want to do even more content to serve you as parents. Somehow you smashed me.

32:39Brian Preston:You went over time, and you still smashed me on that one.

32:41Bo Hanson:Next question says, Should I continue contributing to 401k if employer suspends employer match? Or should I work on the next step? Where are you at in the financial order of operations? Because you've got to go add. Now look at your high interest debt. You've got to look at your emergency reserves. You've got to jump right into the Roth IRA. And then if there's room, yes, definitely go back to the employer savings plan, assuming that it has decent investment options that makes it worthwhile. Otherwise, you might want to drop down right to doing an after-tax account if it's so horrible because your employer works with his golf buddy.

33:25Bo Hanson:I need a sound effect. Wow. Okay, Bo, you're up. We do need some sound effects.

33:28Brian Preston:Yes, go to Next Step. Go to Next Step with the food. Do three, do four, get to tax-free. If you're doing Roth 401k tax-free, do that, and then get to step six. Love it. I'm so ashamed of myself for blowing the first one so bad. I love it. I'm ashamed.

33:45Bo Hanson:It worked out beautifully. Talking about all nerves just went away because Bo just sacrificed himself.

33:53Brian Preston:Those are the first words I said. It was the very first words.

33:57Bo Hanson:Here's a fun one, but 30 seconds remains. Biggest miser moments. Close your eyes. Exhale. Feel your body relax. And let go of whatever you're carrying today. Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this class. I got them delivered free from 1-800-CONTACTS. Oh my gosh, they're so fast. And breathe. Oh, sorry. I almost couldn't breathe when I saw the discount they gave me on my first order. Oh, sorry. Namaste. Visit 1-800-CONTACTS.com today to save on your first order. 1-800-CONTACTS.

34:32Brian Preston:It's tax season, and at LifeLock, we know you're tired of numbers. But here's a big one you need to hear. Billions. That's the amount of money and refunds the IRS has flagged for possible identity fraud. Now here's another big number, 100 million.

34:47Bo Hanson:That's how many data points LifeLock monitors every second. If your identity is stolen, we'll fix it guaranteed. One last big number. Save up to 40 % your first year.

34:57Brian Preston:Visit LifeLock.com slash podcast for the threats you can't control. Terms apply. Biggest miser moments.

35:06Bo Hanson:I ate cereal.

35:08Brian Preston:I ate cereal for every single meal when I was freshly graduated out of college, breakfast, lunch, dinner, two-for-one public steal.

35:17Bo Hanson:I still have my friends bring up that I hopped when we were in our early 20s. I was so frustrated that I said I'll split the bill for everybody, so I had them give me the receipt. I screwed up the math. I don't know if it's because we had had adult beverages or what, but anyway, I got in an argument with the waitress. I was wrong, and I felt like the biggest miser. Now if we just split the tickets like I normally do, it'd be fine, but I was so worried about how I was a miser back then. I was so bothered with what everybody ordered. I don't think I've ever heard that story.

35:49Brian Preston:With my first daughter, she had outgrown her diapers, but I didn't want to waste the diapers, so I kept using two small diapers, and she blew out for weeks on end every single day. That is a legendary miser moment.

36:01Bo Hanson:We also used to put the kids in packing place in hotel rooms. I know, but there's all kind of miser, but you will. Oh, my gosh. Do you have more success? The very first time. We will do the segment at the end where you get to say all of the things you get to say.

36:11Brian Preston:No, but I got one more. The very first time that me and Brian ever went on a - Oh, yeah.

36:17Bo Hanson:That is a miser moment. Oh, my gosh. I know what you're going to say.

36:20Brian Preston:The first time we ever went on a business trip together.

36:23Bo Hanson:With my other business partner. It's before Bo.

36:25Brian Preston:With another business partner. They were so tight. Oh, gosh. They got one hotel room with two full beds or two queens.

36:35Bo Hanson:Right. Two beds. We rolled a cot in between us.

36:37Brian Preston:And they rolled a cot in for 21, 22-year-old Bo so that all three of us slept in this same hotel room and I slept on a cot. That is a solid.

36:47Bo Hanson:That one should be breaking the rules a lot ago.

36:50Brian Preston:That's a big miser moment.

36:52Bo Hanson:Yeah, now when we do book tours, everybody gets their own room except for Brian and Bo. I can explain. Anyway. All right. Next question says, should I keep a down payment on a house for three to four years from now in a taxable brokerage account? Time starts now. You or me? You. A portion of it should go in the taxable brokerage account in cash equivalent. All of it can go in the taxable brokerage, but the majority of it, a good portion of it's going to be cash. Because you're so close to five years, you could have some short-term assets that have a little more risk than cash, but get you a little better yield.

37:28Brian Preston:Yeah, I think majority I would keep in cash so that it's available if the right house shows up. But I do think that's a long enough timeline that you could have a portion of that invested in the taxable brokerage. But maximize the cash. Maximize the cash.

37:43Bo Hanson:Don't let it be in like F cash.

37:45Brian Preston:Because what happens is the economy goes down and all of a sudden there's an opportunity. Real estate slows down. You want to be able to move on a house really, really fast. You want to make sure you have your capital there and the market hasn't gone down. You want to make sure that you're available to capitalize when the opportunity presents itself.

37:57Bo Hanson:You turn into the micro machines guy. I just want to. You really do. It's amazing how you can speed up your voice. My voice, well, here. I can't do that. If I give you an inch, you guys really take a mile. You tag teamed and took all of that time. We're still under. No, we blew past 30 seconds. We're horrible. They need to get.

38:15Brian Preston:No, she said 30 seconds. Come on. Combined. I'm proposing we get shot collars for me and Bo.

38:20Bo Hanson:And then we let Rebe push and pull the thing.

38:24Brian Preston:If we did a shot collar segment, that would be insane. Hold on, you said 30 seconds.

38:28Bo Hanson:I'm usually not for these crazy things, but I like that.

38:31Brian Preston:You said 30 seconds each, a minute total, right?

38:33Bo Hanson:Yes, but you guys were really being very liberal on how you shared that time, let me say.

38:37Brian Preston:Well, you know, it's tag team.

38:40Bo Hanson:Next question for the rapid fire segment says, how does one encourage a spouse to be more mutant-like?

38:46Brian Preston:Begin with the end in mind. Talk about the goals that you have and reverse engineer into mutant tendencies that will lead you towards those goals.

38:54Bo Hanson:Also, use the net worth as a tool to communicate. And you all do that annual planning session like we do with our spouses where you come up with what the goals are. That way it seems like you're doing this in a collaborative method versus you getting up high and saying, hey, you need to do this, you need to do this. Nobody likes to feel yelled at or preached to. They want to feel more like we're doing this together. Next question. Welcome to Money Got Show. Watch the Money Got Show every Saturday as a couple. Wait, what? Every Saturday they're going to watch it. See, this is the problem with 30 seconds.

39:27Bo Hanson:My family and I have certain YouTube channels we watch every Saturday as a family together. And I'll say, make us part of your tradition.

39:34Brian Preston:Because I was like, we don't technically have a new video on a Saturday. We have one on Friday.

39:39Bo Hanson:Great one on Friday. This is why rapid fire is hard for us. Next question says, are annuities bad investment vehicles? If an older family member already has several, where do they go on their net worth statement? Go. So, Brian first. For most people, annuities are not the first investment you should do, but I want to put the word of caution. If they've already made the mistake and gone into annuities, don't just assume that liquidating is the best option. You might have to figure out how you get yourself out from where you are currently versus just turning it all into cash.

40:18Brian Preston:Not all annuities are created equal.

40:20Bo Hanson:That's true.

40:21Brian Preston:Some are better than others, and some are more appropriate in certain situations than they are in others. So you have to assess them on an individualized basis for that specific individual.

40:34Bo Hanson:There are a lot of bad annuities, though.

40:36Brian Preston:Agreed.

40:37Bo Hanson:Great. Next question. When does a 401k loan make sense? Oh, gosh. I'm glad Bo's going first.

40:46Brian Preston:Never.

40:49Bo Hanson:Top that. top that time. I mean, I always have a no-hipper. I've never used a 401k loan, but I could see a moment where it would have to be a last resort.

41:04Brian Preston:Not if you have step four done. Right? Like, if you're following the financial order of operations. I would really,

41:09Bo Hanson:I'd have to be in one heck of a pickle to use a 401k loan.

41:12Brian Preston:The reason that the financial order is built the way it is is to protect you from getting in those desperate circumstances, right? Like, that's why we have an emergency fund, We don't have to resort to cannibalizing our retirement assets. Good stuff.

41:27Bo Hanson:All right, this next one is fun. Disneyland versus Disney World. Which one? I mean, I spend a lot more time at Disney World because of proximity, and Preston South is down there. But I loved Disneyland when I actually went to it the first time because everybody was like, you have to tell us, I absolutely loved it because it felt like a greatest hits album because everything is so compact. And if you stay in the Grand Californian, you can actually be over downtown Disney and listen to all the music and see all the shopping. And it's really awesome. I was in 30 seconds. I've never been to Disneyland.

42:04Bo Hanson:I was going to say. So I guess Disney World for you.

42:06Brian Preston:Disney World for me.

42:08Bo Hanson:I could add more, but I mean, because the weather. At the end, we'll do our catch up segment. Until then, we do have a couple more. Next question says, windfall, invest or pay down low interest debt?

42:24Brian Preston:You're asking questions that only have one answer. Come on, y 'all are banging us at this point.

42:28Bo Hanson:There's no way to answer that without, I'm going to blow up dip ends. There's no way to answer that question without knowing more. Disqualified, disqualified. Brian, you had that over Bo and you just threw it away.

42:38Brian Preston:Invest or pay down low interest debt. Assuming that you have done what you're supposed to do and you've built up a healthy asset base and the appropriate level of your financial life and you're in step nine of the FU, then you can certainly pay down that low interest debt. Absent being in step nine and having a firm foundation and well on your way to financial independence and you're the appropriate age, you're not above 45, then you should invest.

43:10Bo Hanson:Is that timer right? Because we blew past 30 seconds.

43:13Brian Preston:No, it was combined. It was still going from here 30 seconds. So whoever starts, you get until 30. That's right.

43:18Bo Hanson:We wait until the last question before I figure out how the timer works. You may have to refine that in the future. But for today, we're... It's literally been going for 10 minutes. He just realized how the timer's been going. I haven't even looked at the timer this whole time. That's why I had to get the sound effects. Ding, ding, ding, ding. All right. Last one. You can answer this in 10 seconds. Can Bo bench Brian? Yeah. That's his brain. Can Bo bench Brian? I weigh less than like 350 pounds.

43:46Brian Preston:Yes, I can bench Brian a lot of times.

43:51Bo Hanson:Have we tried it? No, we're not doing that.

43:58Bo Hanson:What's funny is I threw out shot collars, but all of a sudden that's a bridge too far. That's awesome. All right, that was good stuff. Thank you for submitting your rapid-fire questions. Now let's just make sure. Was there anything else that you would like to say for our It does actually depend, segment, any miser behaviors, any clarification on the 401k loan, anything left to say.

44:21Brian Preston:I do want to mention on the annuities, annuities are not inherently a bad thing. They solve a problem, a very specific problem in very specific circumstances. But what's happened is that industry is kind of morphed to where it got broadly applied to way more people than they actually made sense for. So I don't want to say just throw out all annuities completely, especially if you have an older family member, an older relative that you're doing this analysis for. You want to go through, because some annuities, it may not make sense to get rid of it, but there are things you can do like, hey, this annuity has this really interesting feature where I can activate the income rider.

45:00Brian Preston:And those dollars can sit there, but now it can start generating real income for me on a month-over-month, year-over-year basis. And it makes sense to do that because I've been in the annuity for so long. So you don't want to just throw them completely out of the bathwater. You want to do the analysis to determine, okay, which ones are worth keeping, worth having, and which ones are worth not having.

45:20Bo Hanson:If we were doing a quick summary, like a fixed annuity that acts like a pension, that's probably the one with the least amount of crazy stuff going on, if you were just trying to, because we see people set up their own pensions like that. Variable annuities, equity index annuities, Those are the ones that usually have a sales force attached to them, and they're very profitable for the people who sell those products. You just need to be careful if it sounds too good because they always say, hey, we can give you the returns to the market without the risk. Just off that statement alone, your spidey senses ought to go, that sounds a little too good to be true.

46:00Bo Hanson:Historically, when you go look at the data, you can see, yeah, Yeah, there's a lot going on with that sales line that doesn't hold up when you go back test and look at what they do historically. Because I think a lot of people also don't understand when you look at these products, when they say, hey, we're going to give you all the great returns of the market with no risk or limited risk. And then when you go find out that they cap you at very low returns, meaning that those years that the market makes 20%, you don't get 20%. You're capped at whatever low number that is. And that oversized performance is what really drives a lot of your other years.

46:37Bo Hanson:And then also the fact that if you got an emergency and you needed access to this money, a lot of annuities cap you at, what is it, 5 % or 10 %?

46:45Brian Preston:Yeah, even low. Depending on how they're structured. More than 10, yeah.

46:49Bo Hanson:And you're going to blow yourself up if you need that money and have no way to get access to it because you're stuck within the timeline.

46:58Brian Preston:I think the second part of this question, and thanks for reminding me in the chat, was where do these find themselves on the net worth statement? Well, that does depend a little bit because annuities can be qualified annuities, meaning that they're bought inside of an IRA, inside of a tax-deferred structure. They can be non-qualified, meaning that they were bought with after-tax assets. And while they may have grown tax-deferred, when you begin receiving those payments, you're likely going to have to pay some sort of pro-rata allocation of taxes. So it would depend determining what kind of annuity, where on your investments inside the net worth statement it would go.

47:33Bo Hanson:You want to really get in my crawl is have a qualified annuity in an IRA. Because I'm like, why would you put an annuity in an IRA unless you're just trying to sell a product?

47:46Brian Preston:It's like putting a rain jacket on and jumping in a swimming pool. Don't make no sense. I don't know if I love that analogy,

47:53Bo Hanson:especially with swimming with Bo. but I see what you're trying to do. Really? There you go. Look at all that extra color you got to add to your answers. Well done.

48:04Brian Preston:I'm trying to go back through all the questions, see whether any other ones were out there.

48:07Bo Hanson:The only other thing I was going to say is Disneyland's, the reason that Anaheim is so great is because the climate is incredible. All those rides are outdoors because they just don't have the humidity that we have in Orlando, and it's spectacular from a climate and weather standpoint. That's great. Our friend Humphrey Yang did submit a rapid-fire question right at the end. I'm going to give it to you for fun. I think you can answer it fast. It says, when your salary can be covered by your investment returns, what would you name that? Financially independent. Was that milestone four on our list or something?

48:40Bo Hanson:We have a milestone four. You have a lot of markers for it. You're not necessarily financially independent, but you are getting Richter scale close to really cool things happening.

48:51Brian Preston:This is literally the point where your dollars can work harder than you can with your brains, your back, and your hands. They can literally do the job that you're doing, and oftentimes they can do it even better. They can make more while you're sleeping. That's a pretty exciting spot to be.

49:07Bo Hanson:Thank you, Humphrey, for jumping in and asking that, too. Yeah, it was fun to talk to him in the chat. Let us know when you're coming back to this neck of the woods. Absolutely.

49:14Brian Preston:Dude, it would be cool if he came back if we did something else. That'd be awesome.

49:17Bo Hanson:We're here for it. All right. We're going to dive into some more personal finance questions. This next one is from... Can I ask something in real time? You can. Because y 'all keep computers and distractions away from me. How many subscribers are we up to on the Clips channel? Is it rude for me to ask that in real time?

49:35Brian Preston:Why don't you look that up while we're answering this other question? That's what I will do. We'll have an answer after this question.

49:41Bo Hanson:This question is from Fusio Therapist. Very nice. Very nice username. It says, good morning, money guys. At what stage of your wealth building journey did you take your foot off the gas? I'm 33 with about$1 million in invested assets. So doing very well. Goodness gracious. Trying to balance my wealth multiplier with enjoying my 30s. Thanks.

50:07Brian Preston:Here's a question I would ask, Fuzio, because I think this is really unique. And by the way, you are such a unique, rarefied heir. It's an interesting place to be at, to be that young with that much wealth. The question I would have is, were you able to get to a million dollars? Does that come through on the audio? No, no. Were you able to get to a million dollars because you have an insane savings rate, meaning you're saving 50%, 60%, 70 % of your income, and that's how you've done it? Or are you one of those young people that has a very, very high income? And because your income is so high, at a very reasonable savings rate, you've still been able to accumulate that level of wealth.

50:48Brian Preston:If it's the former, if you're someone who's had that crazy high savings rate and it's caused you to miss out on stuff you want to do in your 20s, miss out on living for the day, miss out on getting to enjoy the present, then I think there's a really good conversation around taking your foot off the gas and getting to enjoy the fruits of some of that labor. But if you're someone who's 33 years old and you're just a 25 % saver and you've been stacking, stacking, stacking, stacking, I don't know that you have to take your foot off the gas unless there is stuff that you're missing out on that you would like to be doing and your savings is causing you not to do that.

51:27Bo Hanson:Here's the reality of the situation was, and I put this in the book, I didn't feel like I was financially comfortable until I was in my early 40s. and that worked out nicely because that's the age I told my wife that we could take our foot off the accelerator if we'd make the sacrifices in our 20s and 30s. But also, I had the mindset in my 20s and 30s to still bedazzle my basic life. I mean, we were still traveling, still doing things. Now, what you might find yourself, now you're in a much better situation, 33, is I would challenge you, as you have to ask yourself, because when I got into my 40s, my income got to the point where I didn't necessarily have to dial it down to zero and do Coast Fire or anything.

52:07Bo Hanson:I was able to still save because I just looked around. I was like, well, what makes me happy? This is only a tool. How is money used for me? I didn't want a bigger house. I didn't want fancier cars or anything like that. So I asked myself, well, am I traveling enough? Am I doing enough, making enough memories with the family? And then I just let the money continue to build up. And what's been great is now I'm in my 50s. And it's kind of, if you could see some of the charitable giving that I get to bless upon people and institutions and organizations and truly start moving the needle, the why eventually shows up for you on how this money, because I didn't feel the need to go spend it if I didn't need to.

52:46Bo Hanson:It felt better to let this money grow in the background and be a bigger resource. And that's shown up in our content and how we can buy stuff or invest in stuff that's irrational that nobody would do because it doesn't have to be tied to the grounding of this is a good decision or not a good decision. And that's what the flexibility of good financial management do. So you have to kind of be honest with yourself and know thyself on are you living your best life. Now, I worry for misers that they're going to ask that question and not be able to see, I should be living life more. Because I will say, we had a dear friend, a client of the firm who passed away this weekend, and way too young, younger than me.

53:33Bo Hanson:And it kind of caught me off guard, and it was just a really tough thing to see. And I'm glad that some of the sacrifices, I wouldn't say he went against us, but he definitely did some things that I thought were financially a little more aggressive. And I'm kind of glad he pushed on those things because not that we make our clients misers, but I do want to make sure everybody's honest with themselves that you look at your life and your happiness. Are you doing those things? Because money is nothing more than a tool. And I don't want you to be in your 20s or 30s or even 50s and 60s and have regrets.

54:07Bo Hanson:I want you to balance out what's the analytical needs plus the mindset plus the memories that I need to be building in each stage. And that's why I tried to cover all that mindset stuff in Millionaire Mission. I really did. Some of the favorite chapters everybody always puts in the comments is in those latter chapters where I really load up what I've done in my own life to try to balance that because there is a fine line between mutant and miser. That's great. Love that. Go to moneyguy.com slash millionaire mission if you want to get Brian's book. It's still out there rocking and rolling. And special thank you to Fusio Therapist.

54:45Bo Hanson:I had all my usernames up here and I wanted to make sure I got it right. If you would like a MoneyGuy Tumblr, email winner at moneyguy.com. We'd love to send you one.

54:53Brian Preston:33 with a million. That's huge. Moneyguy.com slash becomeaclient.

54:58Bo Hanson:Well, yeah. Go to moneyguy.com. Click on the becomeaclient button if you're interested. Just check it out. It can't hurt to talk to somebody. We'd love to meet you. All right, Britt M is up next. It says, how do you factor not owning a home into plans for retirement? My mom retired and sold her house to live near me. She plans to stay a renter as it's a high cost of living area. Just curious how to plan for that potential.

55:28Brian Preston:Well, I think that there's a common misnomer that you have to be a homeowner in order to be financially independent. And that's just not true. Now, a lot of people are homeowners and a lot of people choose that who are financially independent, but we have a lot of clients who they might live and work in one area of the country for their entire lives. And they decide, hey, in this next season, this next phase, I don't want to be tethered to any one place. I want to have flexibility that if I want to go somewhere else or if I want to travel for part of the year, if I want to spend time in different parts of the country close to different family, being a renter affords you the opportunity to do that.

56:06Brian Preston:So I think you would factor that into the retirement plan the same way you would factor in any other cost. The one difference, the one caveat being when you have a mortgage, when you have a fixed expense, it's very, very easy to project out, okay, this is what my house is going to cost or my housing is going to cost me over the next 30 years. I know what the mortgage payment is. I have a reasonable idea of what insurance and taxes are going to be. Rent is a little bit different. If it's in a high cost of living area and a lot of people are moving to the area and it's causing rents to increase, there can be some escalation on that expense.

56:38Brian Preston:What I would do is I would put a buffer into my expense category for what I think housing is not necessarily just going to cost me a day, but what I reasonably think is going to cost me five years from now, 10 years from now. So long as you budget and account for that, I think you'll be okay.

56:54Bo Hanson:I think a lot of people, I always try to help them understand the why. Why do things work the way they are? And if you're especially living in a high-cost living area, right now there's kind of an arbitrage situation where you can definitely rent cheaper than you can buy. And the why on that is, as you think about, we had such a fast run-up in housing costs, meaning that in addition to the cost of housing going way up, the cost of interest rates, meaning interest rates went way up. And that's a double whammy because it not only means you're paying more for the houses, but it also means the cost to carry if you leverage and not paying cash for the, which most people don't pay cash for real estate, has gone up significantly too.

57:32Bo Hanson:So those two things together mean that it's hard for you to buy it. But there's a lot of people out there that have the rental property that locked in with sub 4 % mortgage rates, sub 2020 pricing on these houses so that they can offer very reasonable rents because they don't have the carry cost of high mortgage payments and they don't have the carry cost of high interest and all the other things. So you can go and be the beneficiary of that and rent probably in that area cheaper than you can buy. Pay attention to that. That's always all I tell people. You need to know how money works or understand it so you can kind of analyze, is this a buy situation or is this a rent situation?

58:15Bo Hanson:That's why I want you to understand the why so you can quickly look at it and go, wow, with these interest rates, with these housing prices in this area, probably ought to take advantage of this moment in time and just rent. But then keep my eyes out because at some point, maybe the pendulum swings the other way or maybe in that community because different communities that have different personalities on even what the cost of housing is, if you know where you are in the system or know where you are in the location, location, location of the real estate, you can quickly analyze and figure out what's best for you.

58:48Bo Hanson:Britt M., thank you for the question. If you'd like a MoneyGuy Tumblr, email winner at moneyguy.com, and we'd love to send you one just as a thank you for asking. Well, the reason I was thinking about this is because, like, Bo and I do commercial real estate, and there's some properties that are intriguing at first when you find out they're coming on the market.

59:05Brian Preston:Super cool properties.

59:05Bo Hanson:And you get excited, but then when you backtest and you do the math on, you're like, well, you could never buy that because the tenants won't be able to afford to pay the rent for what the premium is and what the cost of the real estate is now. So I think about those things. I'm always thinking about that. If you wonder why things get more expensive too, it's because every time a property sells, it has to be reset. This goes for commercial. This goes for residential. And that's why you're trying to find the arbitrage of finding somebody who bought that real estate with a low interest rate pre-2020 because those people are sitting in a pretty good situation and can pass those savings potentially on to you.

59:48Bo Hanson:Now, because there's a lot of inefficiency in residential real estate. It's because we had a house here in this. I hate it that this firm let it go. Two miles away. Yeah, because there was a single-family house that was two miles from our office, and the owners were artificial. They knew their rent was low, but it was more about the quality of the tenant. Because they were going to keep this house. This was going to be their house. It was like their first house that they started their family. They moved away because of work. They wanted to keep this house because they thought someday they might come back to the community.

1:00:23Bo Hanson:So they were on purpose keeping rents reasonable so they could attract really high-caliber people. And you need to be on the lookout. I know that that's a needle in the haystack, but I'm just trying to tell you how you make the most out of hard moments Because you might get lucky. Luck sometimes is better than being good. So pay attention to these things. Yep. All right. We're going to do another question from Chris H. It says, hey, Money Guy team. My wife and I, 31 and 35, have 388K in retirement, all in equities, low cost index. Do we need to be more diversified or is it okay to be this far out on risk at our age?

1:01:03Bo Hanson:Our income is 185K. Oh, they're doing really well.

1:01:08Brian Preston:You're doing awesome. Here's a question I'd ask, Chris, and this is not incredibly uncommon because I would argue at$388 ,000, you are crushing it. You likely are not quite at the boiling point, critical mass at that point. You're close. So a lot of times we tell people, hey, in this stage, in this phase of your wealth building, you can look for really, really simple solutions like low-cost index funds or oftentimes like target retirement index funds because it does some of that natural allocating for you. My question for you is if now is not the right time, and what you're going to think about this to diversify, to spread out, to take some risk off the table, when is?

1:01:46Brian Preston:Is it 35? Is it 40? Is it 45? Because so often, and this happens all the time, we'll have people reach out to us, and they'll have big portfolios. And they'll be in their late 40s, mid-50s, say, hey, guys, I've got$2 million,$3 million,$4 million invested, and I've been a great saver. And we look at it, and it's all equities. And we're like, well, why did you never take any of the risk off the table? And they say, oh, well, because the strategy I had worked so well, it worked so well, it worked so well. And that's true until it doesn't. That's why whenever you look at your portfolio, you have to measure not only your risk tolerance, but also your risk capacity.

1:02:23Brian Preston:It's not just about how much risk can you handle, it's how much risk should you handle. So I don't necessarily have an issue with your portfolio being all equity at that size, but I would be thinking, what are your trigger points? Is it$35? Is it$40? Is it half a million invested? Is it a million invested? And so long as you can be honest and truthful with yourself about when that's going to happen, I think it's okay, but you probably ought to start having those thoughts.

1:02:49Bo Hanson:Well, and it also comes back to the financial order of operations. One of the things that I always remind people, by the way, I didn't give that a proper shake. There we go. This thing, I want to make sure it's still working, is that don't sleep on the fact that steps one and four is your deductibles covered in emergency reserves. Because as somebody who's making your level of income now, we've already taken off what the assumptions were, but I remember they were making how much per year?

1:03:15Brian Preston:$185 ,000.

1:03:16Bo Hanson:$185 ,000 a year. So if we take half of it, basically you just say if your cash reserves was like$100 ,000 and you said your portfolio was$388 ,000? $388 ,000, yep. Yeah, so you got that part right. I mean, your true risk, if you had a fully funded emergency reserves, even though you're 100 % equity, the risk of your financial situation might be not as risky as you think. Not as aggressive, yeah. Because you followed the financial order of operations and you had enough cash, so if you had emergencies or bad things happen. Now, look, you're getting into the weeds of how do we maximize the investment portfolio to max, but I always say these things are all working together.

1:03:53Bo Hanson:It's not only just what's going on with the investment portfolio, but what is going on from a risk standpoint with your entire financial order of operations so you can make sure that you're not skipping steps. That would be more of my concern is skipping steps and being that aggressive than just making sure, hey, is this the time I need to go buy 15 % or 20 % of bonds? I think there's a bigger question to ask that ties into the financial order of operations. Love it. That's great. Hey, if you want to dig deeper into these financial topics or if you want to work for us, go to moneyguy.com. And yes, I said that right.

1:04:28Bo Hanson:We have a whole resource page full of free resources diving deeper into everything we talked about today. We also have some new job postings up on our Join the Team page. We've got a video editor and a content developer role in particular that we're looking for right now. So if that's you, we would love to talk to you, would love to see your application. So be sure to go to moneyguy.com for all things Money Guy. And keep letting us know what you want. Keep tuning in on Tuesday at 10 a.m. Central. We love talking personal finance with you, answering your questions, and hearing about the things that you're thinking about.

1:05:03Bo Hanson:So hopefully we can speak to it and help you build just a little more confidence each time. And there's a Clips channel. And there's a Clips channel. Where's that at? Look at those pictures. Oh, you're right. I forgot to announce it. You're really waiting with bated breath. It's still time to let me know where we're at. We are at 1 ,458 subscribers on our brand new Money Guy Clips channel.

1:05:24Brian Preston:Almost 1 ,500. That's great.

1:05:25Bo Hanson:We like it. So I like that. I also love the rapid fire segment. I feel like we packed a lot into this show today. Thank you all for supporting us. It means the world to us as we keep doing scary endeavors, like even launching a brand new channel so that we can clean up the feed for you so you can actually know what's long-form content, what's short-form. we listen to you guys. And by the way, if you could see our content meeting this morning, we even poke our head into that Reddit thread every now and then just to keep an eye on what those discussions are. And you guys, you're witty. You're funny.

1:06:00Bo Hanson:You're smart. Make sure you're not sleeping on those job postings that we have because I know that our next team member who's going to join the family is probably lurking around on those Reddit threads, and we'd love to have you apply. So I'm your host, Brian, joined by Mr. Bo Reby and the rest of the content crew. Money Guy out.

1:06:22Brian Preston:The Money Guy Show is hosted by Brian Presson 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.