The 401(k) Numbers Are Lying to You

22:08Brian Preston:I agree with everything you just said. But there's a but coming, isn't there? There's no but. But I read the question a few more times. Look, I have a conflict of interest. I like Tesla. I mean, nobody's shocked. So I don't mind disclosing my conflict of interest. No. I also own Tesla stock. Not that that's really pushing my decision, but it is something I feel like. Well, because you feel like you have a conflict, right? If he goes and buys this Tesla, your stock price shoots you through the roof. That's not really. You're trying to run and load it. We're very integrous around you. Here was the question, though.

22:42Brian Preston:So should I give in and do 23-8 or save cash and pay for it in a year? 23-8 is really supposed to be this mechanism that allows you to get into transportation. If you have the means to be able to save cash for a year or even to be able to buy a car and pay it off in a year, I really like doing that. Me personally, I've set out to do 23-8 a bunch of times, and I can never do it. I just don't like car payments. I am averse to car payments. So if you have the ability to pay cash, that's where I am going to fall. Because in my opinion, those cars always drive so much better when they're completely paid off.

23:19Brian Preston:Oh, well, what about the arbitrage? What about the interest rate? I don't want to major in the minors. If I can have that car payment gone and off and one less thing to think about, I think that's a win. So if you're in that situation where you can pay cash, I like the idea of paying cash for it. Great. That was a good answer. I think you talked around a lot. well i was just gonna say evs in general depreciate a lot too so you just if you buy this you need to go in with your eyes open knowing this is going to be something you plan on staying with for a number of years so that's why if you're going to look and especially if you're going to look at used ones make sure it's got hardware for that's the thing i always tell people don't don't get caught up looking at the how cheap you can get into a another one if you really want to maximize it's full self-driving you need hardware for i have a uh one of my buddies you know this guy he he has a tesla also i i guess the computer tells you how much time like how much of the time you've been in the car that it's been driving versus you've been driving yeah i think in the last it was either six months or a year his car's been driving him 70 of the time well i bet it i bet it's sooner than because it's really in the last two months it's gotten really good so 70 of the time.

24:31I bet in the last two months, it's 70%. I bet for me in the last, I'll just say month and a half, it's probably 60 plus percent. That's wild. I don't really drive anymore. It's wild. Wild.

24:43Brian Preston:Well, Bo Hanson spotter, great conversation starter. Thank you for the question. Bo, you had a story. Oh yeah. I was going to tell you all this. So my, my daughters, we were sitting at dinner the other night and I'm like, Hey, so, you know, my daughter started this, my oldest, this trash can business, right? Where she's making money and we've just been saving it, put money in savings account. And I've taught her about how interest works. And so every month, and this is, it's, I have the statement mailed to us on purpose because I want her to be able to open the statement and look at it and see.

25:09Brian Preston:And like her mind's like, oh, this is incredible. So I was like, hey, when your, when your account hits this value, it's a thousand bucks. When it hits a thousand bucks, here's what you start doing. I want you to start investing, baby. You know what investing is? And she's like, no, what's investing, dad? And I walk her through it. And I explained to her that like, hey, you can actually be an owner in a company. You can like, like what's something that you like? And she threw out some stuff and she was like, we mentioned Starbucks. I was like, yeah, you can own Starbucks. Or she was like, well, what about this, dad?

25:42Brian Preston:I was like, yeah, yeah, you could own Lululemon. And I kind of, I'm walking her through this. And so my nine-year-old is sitting right there. She's like, Barrett, you have to do this. You have to do this. And I was like, baby, that's awesome. This gets you excited. She's like, yeah, are you kidding me? If she owns Lululemon, we can just walk in there and get whatever we want. Oh, my gosh. Oh, no. We can just walk in there. Oh, I remember. No, no, no. Okay. Oh, I wish that was the case. Pause the brakes. So by the end of this conversation, my daughter was ready to own Amazon, Lululemon, Starbucks, and there was one other one.

26:11She had discovered a hat.

26:12Brian Preston:Oh, man. She was like, this is going to be the greatest thing in the world. So I had to, like, walk that back. But she's so excited because now, and I told her, hey, every single month when you make a decision, you want to invest some money, I will match it dollar for dollar. So you put 20 bucks, I'll put 20 bucks. I will get her eventually to index funds and I'll get her eventually to S &P 500, but we're going to start with, I'm going to let her pick some individual stocks just to understand what it feels like to own them. And I'm super excited about that. There is a dorky hack you can do. Cause I remember we probably could do content on this that if you want to drink Starbucks forever for free, essentially, taking what your daughter's thought.

26:53I can't remember if it was $10 ,000 or$15 ,000. You basically take the dividend yield. You figure out how much a cost of whatever your drink is, multiply it by however many times a month you think you'd want to go buy the coffee. You can back into how much of the Starbucks stock you would need to buy to essentially make it virtual, perpetual as an investor. So it's kind of a fun little dorky thing that you could do down the road.

27:16Brian Preston:I'll tell you what I'm going to struggle with is she's thrown out some companies. I'm like, oh, that's not a good stock. But reality is also, when does the S &P 500 just come in? That's what I love the idea of the education, but at some point you just buy in the market instead of trying to beat the market. But look, these are building blocks, right? She's 11. So I got to get her to understand like, okay, what is this? And here's, here's what will really happen. I'll have her pick two or three. Some of them will do poorly. And I'll be like, hey, do you recognize that like, hey, instead of buying this stock that did poorly, we could We just bought the S &P 500, which is like this basket of stuff.

27:48Brian Preston:It's all the good ones. I'm laying the groundwork to be able to teach her that. I love that. I feel like this is a monumental occasion because I've always heard Brian talk about how he proudly did the dollar-for-dollar match with his daughter. I'm not doing it in a Roth IRA. You're about to. We're going to do this in-and-up my account. It's going to be right there. We're not overcomplicating it. Why are you not doing a custodial Roth once it's earned income? Because it's not. I mean, it's because I don't want to say why. I mean, I'll say why, but I don't want to say. In order to be able to do a custodian Roth, you have to have a filed tax return where you're showing income.

28:24Oh, gosh. Don't incriminate yourself. Oh, yeah. You see what I'm saying?

28:28Brian Preston:Goodness gracious. It's trash can business. You know, it might be a hobby right now. Oh, my goodness. Oh, boy. Y 'all heard it. We probably have some listeners out there. Walked right into that one. I do have one of my – she's a dear client of mine who works for the IRS, and I'm going to get an email after this. I'm scared of the branch of governments with the guns. So just be careful. Well, hey, I'm going to go to the next question. But first, make sure you get your rapid fire question submissions in. Put them in the YouTube live stream chat if you're watching live and we will be collecting some questions for Bo and Brian to answer rapid fire style.

29:04Brian Preston:Just put RF at the beginning and we will know that that's for that segment. But first, we're going to go to FedEx Pope's question. Hi, Money Guy team. I live in a state that taxes income but not retirement income, including Roth conversions. Is there any reason I should use a Roth IRA instead of loading the pre-tax 401k and converting it? well okay um so this is not uncommon uh states like georgia uh but we know this because we live there will have a large um exclusion on state income tax for retirement income where if on the certain threshold of up to retirement income you'd have to pay any stadium tax you're still going to be taxed at the federal level though so it's not like it's completely tax-free income so there's still merits.

29:57Brian Preston:I think what Pope is asking here is, oh, well, why should I save, if I'm not going to be taxed on that income, why shouldn't I just save in pre-tax and I can pull it out tax-free? It's only going to be state tax-free, not federal tax-free. But it brings up a good point of, you have to pay attention to what your marginal rate is. Total marginal rate. Yeah, and that's why we always, because look, you had your federal plus state marginal. If y 'all don't know, because there's effective rate and then there's marginal rate. Effective rate is kind of like You add up all of your income. You figure out what you paid in taxes.

30:30You just do a quick math calculation. That's your effective rate of what you paid in income taxes. Marginal rate is what the next dollar you will be taxed at. Because we're in a progressive tax system. So as you're going up through the different tax rates, you want to know what the one you're in is and what every dollar is. Because then you can figure out, hey, is this a high number? Is this a low number? Historically, where does this fall? and that's why we actually give the details. If you fall, and take into account also your age, if you're really young, obviously we love Roth IRA and compounding growth for young people, but as you get older, you might realize in your peak earning years, you're going to be paying 30 plus percent marginal rates if you add your federal and state.

31:12And you're like, wait a minute, just because of exactly what FedEx brought to the attention, when I retire, not only is my federal rate going to go down, but now it's from the state that I live in and retire in will be zero. Man, instead of me paying, think about if you lived in a state, I mean, federal government, you're in the highest tax bracket of 37%, and then you live in a state that has a really high income tax, like California, where it could be up as high as 13%. You literally could be at a point where 50 cents on every dollar you make is getting taxed, but you could potentially retire, move to a state like Georgia or no income tax state like Tennessee, Florida, Nevada, and so forth, or Texas.

31:53And then all of a sudden, when you're pulling that money out, because you have no earned income, you could be, I don't know, 10%, 12%. It could be really low, even 20%. I was doing a Roth conversion analysis where we were doing 22%. And you're like, wow, that is significantly, that's an arbitrage there for me paying 50 % while I'm working to where I'm paying 12 % in retirement. Yeah, let's do Roth conversions at that point. And that's why we say 30 plus percent is your marginal rate. Maybe you ought to do pre-tax and play the arbitrage when you retire, when you drop down to a much lower. If you're somewhere between 25 to 30, take into account your age and other factors that might be personal in your situation.

32:37And if you're under 25 percent, hey, let's go ahead and load up those Roth dollars and really maximize the tax-free growth opportunity in this moment right here. Love it.

32:48Brian Preston:Well, thank you, FedEx Pope, for the question. We're going to go to Donald M's question next. In step three of the Foo, is it better to prioritize a credit card with lower interest, 4%, or a 401k loan with a higher interest of 9 % first? Given the balances are similar, 401k loans do not show up on credit. Okay, so he's giving, I think he's giving you a counterpoint there. So he's worried about his credit and he has two different types of bad debt. What does he do? I know my answer. I want to think about why it's my answer.

33:45Brian Preston:I'm 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. 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 plus.

34:20Well, it is interesting is that there's credit card with a... So whenever I see somebody says they have a credit card with a low interest of 4%, that means this has to be like a transfer balance or some opportunity that somebody gave. So this is a moment in time. It is back to our point that this isn't... There's not a credit card out there with a 4 % for the next five, six years. Because then you get into the argument, is this step number three of the financial order of operations or step number nine? But I'm here to tell you credit card companies will offer you teaser rates, but they're kind of like mirages from the old Looney Tunes commercials where it feels like you're getting something good, but you're still trapped in the desert.

35:04You're artificially feeling like this is a great opportunity. because I worry about credit cards trapping people because they sprung a trap where you go from 4%, all of a sudden you're paying 26%. You'd be like, how did I get here?

35:17Brian Preston:Yeah, I think where I'm landing on this, my opinion, so write this in pencil, I would prioritize the credit card. I would pay the credit card off first, even though it's a lower interest rate, because we believe that credit card use is okay, but carrying a credit card balance? No way. There we go, no way. I didn't see. I was over here drinking coffee and I didn't see your points. So I apologize for the cue. No way. So credit card balances, carrying that month over month is like no-go land, no matter what the interest rate is. I want you to pay that off. Now, if you're looking for a mathematical justification with that, when you're paying interest to a credit card company, you are paying interest to an outside third party.

35:53Brian Preston:It's disappearing. On the 401k loan, technically you're paying interest to yourself when you pay that back. Now, the bigger issue is the opportunity cost of those 401k dollars being gone. But I'm going to argue if they're roughly the same balance, I want you to relentlessly and ruthlessly cut everything out of your budget you can to get out of step three, because as soon as you get the credit card paid off, the very next thing, the very next step three item would be that 401k loan. But I want to see that credit card balance gone, zilch, zero off your balance sheet, and then work on the 401k loan.

36:26Brian Preston:That would be, that would be my recommendation. Yeah, because there's going to be a time certain. There's no interest in the credit cards are not, it's not like they're out there so generous, like, Ooh, we like your credit score. Here's your 4 % for forever. Those don't exist. There's sometimes certain limitations. It's a teaser rate. It's a trap waiting to be sprung. All right. Thank you for the question. Donald M., we appreciate you being here. I am just getting ready for our It Does Not Depend Rapid Fire segment where Bo and Brian work together to answer your question in under 30 seconds combined.

37:03Brian Preston:Using that loosely together. We try to one-up each other. They compete against each other to answer your questions in 30 seconds or less. And then remember, if there is something, oh, wait, I forgot the most important part. They can't say it depends during those 30 seconds. So they have to get creative. And then, as I was saying, if there's something we really need to get back to, clarify, make sure we truly educate and teach around. We will follow up on that in our segment afterwards, the maybe it does depend segment. So stick around for that. Without further ado, are you guys ready for a rapid fire segment?

37:40Oh, so ready. Let me get to a new screen.

37:43Brian Preston:We'll get 30 seconds on the clock. And here is the first question. Take a 4 % mortgage on a potentially crummy new build or a 6.5 % on an older, better quality build. Which would you choose? Why? I would be careful letting something like an interest rate dictate a lifestyle decision that I'm going to make. For most people, home is the most valuable, most expensive thing you'll ever spend money on. You want to make sure that you buy something that's worth the money. Don't let the interest rate wag the investment dog. It's too valuable of an investment for you to choose this off just the interest rate.

38:19Look, I chose my first house because of the square footage. Didn't think about distancing and commute and it hurt me.

38:27Brian Preston:Love it. Next question. My wife and I are in the final step at 55 and will retire in the next few years. What should we be focused on to retire into our best life? I mean, what do you like to do outside of work? So many people focus on the dollars and cents and don't think about what they're actually going to spend their time doing. So don't go beyond just travel and golf and the fun stuff. Think about what are actual hobbies and things you'll be doing to occupy your time. Yeah. Most people have a very clear idea of what it is a retiring from, what it is they're leaving. We want our retirees to have a very clear idea of what they're retiring to.

39:04Brian Preston:How am I going to spend my days the rest of my life and how can I use my resources to allow me to do that? Well said and right on time. Next, you talk about HSA a lot, but not FSA. HSAs aren't possible for everyone. Are FSAs worth exploring? Sure. FSAs are great. For those who don't know, FSA is a flexible spending account. You defer some money from your paycheck to pay for medical expenses. But in most circumstances, you have to use it all by the end of the year. It's use it or lose it. The reason we like HSAs is they can be invested for the long term. FSAs are short term temporal solutions entry year.

39:40Yeah. Flexible spending accounts. Like if you know you're going to do LASIK in a coming year, you have a procedure or other things. I love the fact that you can be proactive with using it, but it is use it or lose it. So keep that in mind as you plan.

39:53Brian Preston:Well said. A financial advisor question for you. It says, our financial advisor has majority of our funds in money market. We max both Roths, we're married, minimum to get the 401k match. So I think they're doing the minimum to get the 401k match. We're in their mid-20s with extra money past current investments. Should we move more into brokerage for ETFs? It's difficult to give you specific investment advice. One thing I would say is you have a big portion of your portfolio in money markets inside of retirement accounts, that's likely not going to be the best solution for you. You may want to consider looking for a different solution.

40:32Brian Preston:Great place to go look for that solution might be aboundwealth.com slash become a client. Look, in your 20s and if you're decades from touching those assets, I want those army of dollar bills working, not trapped in cash. Cash is primarily for emergency reserves and keeping your life out of the ditch when you're young. All right. Next question. Should I file? You think it's emergency fund? I hope not. What? I don't know. The way that question was asked, there's a lot of, we'll have to come back to it. There's a lot of unknown. We'll come back to it. Next question, should I file jointly with my wife?

41:05Brian Preston:I can contribute to my Roth IRA without doing a backdoor, but we wouldn't if we filed together. You're an accountant. When did you decide to file married, filing, and selling versus married, filing jointly? Now, I need more details. I'm about to be out of time on the whole jointly versus single because it doesn't necessarily work that way. Go ahead. I would not let the Roth decision drive whether you file jointly or whether you file individually. What I do is I'd have your accountant run it both ways. Here's your tax burden if you're married filing jointly. Here's your tax burden if you're married filing separately.

41:39Brian Preston:And determine which one's most advantageous for the household from a tax cost standpoint. That's what I thought you were doing because you used to do that. I know. Remember you used to do that in society? He really wanted to say it depends. I know he did. We'll come back to that. It does. Okay, we'll come back to it. All right. What step of the foo is buying the paperback millionaire mission a part of? Ground rule, baby. Look, we all need an instruction manual. You don't try to assemble the IKEA furniture without an instruction manual. It kind of money is the same way. It's the whole why it's called the financial order of operations.

42:11Just like you have to do. Please excuse my dear aunt Sally to solve a math problem. You need to do the same thing with your finances.

42:16Brian Preston:Where can they go get millionaire mission right now if they want to get a copy? Well, I would go to, I mean, you can buy it anywhere, but go to moneyguy.com slash millionaire mission. You got it. Perfect. I'll list all the retailers available. And if you do it right now, there's all kinds of perks that you get. You pre-order it, you get perks. Also available at moneyguy.com slash millionaire mission. Okay, over 30 seconds. Next question. Is there ever any reason to use mayo or sour cream when making mashed potatoes when butter and milk are so perfect? It's all the above. I mean, I actually use every one of those things.

42:50I love making mashed potatoes.

42:52Brian Preston:Mayo and sour cream. I don't use mayo. I use sour cream, though. I've used sour cream in my mashed potatoes. Like, make them? And I like buttermilk. Yeah, so I put it all in there. I don't put mayo in mine. Like, as an accoutrement on top or as, like, while you're making it? While you're making it. That's why when you go to restaurants, you notice, like, the garlic mashed potatoes or sour cream, it adds a little extra. you're like, man, this isn't, why does my stuff at home not taste like this? Because they put stuff in it. Never made mashed potatoes. Couldn't tell you how. I'd assume you mashed potatoes, but outside of that, no idea how to do it.

43:27Brian Preston:How much butter do you use? Lots of butter and milk. Is it four sticks of butter? I don't know. Is it one stick of butter? I don't know. How many potatoes do you need? I have no idea. We should do a vlog where Bo makes mashed potatoes and swims. Why are you throwing darts? I can swim. It's just so easy. Basically. Okay, let's move on to the next rapid-fire question. There's the photo of Bo swimming. Legend. Legendary photo. Oxygen to my lungs. Next rapid-fire question. Here we go. Should someone who's in a high tax bracket but young still use a Roth 401k instead of traditional in the expectation that tax rates might be a lot higher in the future?

44:10Brian Preston:Without knowing more about your circumstance, we don't think it's either or. We think it's both and. We love you doing pre-tax if you're in a high tax bracket, but then structure your accounts in such a way that you can do things like backdoor Roth because odds are in the future you'll have an ability to convert Roth dollars at a lower tax rate. Yeah, that was like, hopefully he's going to leave the backdoor Roth for me because it's a big ditto. I want you doing both. Take advantage of the tax arbitrage on the 401k, but then make sure you're backdoor rothing. You've got to have the right structure.

44:40Brian Preston:You've heard backdoor rothing. Backdoor rothing. All right, last but not least. Create a verb out of it. Hey, Money Guy team, I've inherited an IRA and I need to withdraw down to zero in the next six years. How should it be rebalanced if I'm trying to draw down an equal portion, one of six each year or one sixth each year? Well, is that a personal choice? That's the first question is why are you choosing? Because you might want to defer it for the six years, you know, maybe they had to make minimum distributions. but I need to know more details and I hate to say, I'm not going to say the D word.

45:17Brian Preston:I would think if it fits into the overall allocation, I wouldn't get too cute trying to adjust the allocation because in most circumstances when you take those distributions, if you're just going to reinvest, your allocation can stay true inside the IRA to outside the IRA. I don't think you have to overthink it. There's so much more you could add. Well, good thing is, it's time to go to our, Or maybe it does depend segment where now that we've answered rapid fire, we will go back and make sure you've said all that needs to be said. Look, like on an inherited IRA, if it's a small balance, there's no tax consequences when you have to sell to make your annual distribution.

45:54So if it's a small balance, I would just have it in the holding. And then when I take my annual distribution, but if it's a large balance, then you could build that into the asset allocation and distribution plan. or, but it's back to what do you, what's the minimum you have to take and what's the opportunity of what you could let it grow to. And I would, don't skip out on that planning method either.

46:14Brian Preston:Yeah, I don't think I would try to have it be a standalone allocation inside the inherited IRA because unless you're using these dollars for paying for your expenses, meaning you're like an older person at financial independence, I would have the allocation there match your total allocation, not individually standalone. And then you just take the distribution and then redeploy, take the distribution, redeploy. I don't think it has to be more complicated than that. There you go. So we had a couple more to talk through. One was the young couple who had the majority of their funds in the money market.

46:47Brian Preston:They have a current financial advisor. Read that question to us one more time. Our financial advisor has majority of our funds in money market. Majority. Right there. Red flags. Ding, ding, ding, ding. If that's not your emergency fund, that tells me that your financial advisor is likely trying to time the market. Or you're hiring a financial advisor too early. if all of your capital is in emergency funds because that's where you are. Because remember, financial order of operations, it's steps one and four is pretty much emergency reserves. So maybe they're just at the beginning of their journey and they hired somebody.

47:16That's a red flag in itself.

47:18Brian Preston:They are in their mid-20s, they said. Or worse, this financial advisor, assuming you have an emergency fund, is trying to time the market. Hey, we're going to build up cash. And when there's an opportunity, right now markets are all the time highs, we're going to build cash and we're going to redeploy it. My opinion, that's a losing proposition. I would rather try to, instead of beating the market, I would try to be the market and just load it up into dollar cost average into the index funds. Love that. That was good. Good clarification. And then another one was about should I file jointly with my wife?

47:46Brian Preston:And there was the backdoor Roth consideration. Look, most of the time it's going to make sense to file jointly because the tax code is written in a way where it just basically splits it. And the reason you don't typically file jointly is there are unique situations where maybe your spouse has horrible credit. They made horrible decisions and they got people chasing them, calling at all hours. And you're like, well, I don't – they're so bad with money. I don't want to be attached to that. Or you know they're doing criminal activity and you don't want to be attached to that. I'm just giving you – It's a Walter White thing, yeah.

48:18Yeah, I'm trying to give you reasons you typically separate. And I'm sure there's more examples out there, but for the lion's share of people, you're going to probably file a joint return unless there's something you're trying to – it's more about what you're trying to avoid than using it as a planning opportunity. And that's what – because they were saying they qualify. Most people with their contributions –

48:42Brian Preston:On their single income, they qualified to do Roth. Right. But when they went married filing jointly, they weren't qualified. That's letting the tail wag the dog. I would not let that be the driving factor for me. I would figure out if you could do account structure and do backdoor Roth by just doing traditional IRA contributions, non-deductible. And then if you have the right account structure, you can then convert it into Roth. And then the other situation where I've seen it, it was like the deductibility of student loan interest. I've seen that before where spouses might file separately. Because, again, it's not about any one thing.

49:15Brian Preston:It's not about the ability to Roth or the ability to deduct this or the ability to get this credit. you have to look at the entire tax picture together and figure out, okay, collectively, if we're married filing jointly, what is our total tax burden? Or if we're married filing separately, what is our total tax burden? And in most circumstances, you want to go with the lowest tax burden that's going to be the most efficient structure. And look, most tax preparers, it's just a click of a button. Assuming they did the right, when you put the data in, you do have to put who owns all the things. Like you'd put taxpayer, spouse, or joint.

49:46And you have to make sure you're checking all the boxes correctly on ownership when you're putting in the data. And a lot of financial, I mean, sometimes tax preparers are so focused on getting it done so fast, they're skipping that step, not thinking it's important. But assuming they put all the data entry right, it's most tax software, you can just click a button saying, hey, run this separate versus joint and let me know the differences in taxation.

50:10Brian Preston:Well said. All right, that concludes our rapid fire segment. We've got time for a couple more questions. if you guys are ready to dive back into some not rapid fire. I'd be curious. Did anybody put what our counterculture or what we do differently? Did anybody? So there were a few thoughts. One was, hey, not having an aggressive countercultural thought is countercultural right now. I was like, respect. Somebody said, I appreciate that. Saving 25 % of your gross income, that's a countercultural thought. I will say that is, I guess. But then here I am. I mute it down because I say, hey, that counts your employer.

50:48Because even we've had friends who've done content, you know, content friends, I say, who've done content picking on 25%. But I think if you all of a sudden find out most employers are doing three to 6 % matching, all of a sudden now we're below 20%. You're like, oh, maybe it's not as, we're just showing you the math. And we just, you know, like I said, it's the intersection point. If you go to moneyguy.com slash resources, how much should you save when the typical American doesn't start saving and investing until they're 30 plus years of age, you quickly see why we land at the numbers we land at.

51:19That's right.

51:19Brian Preston:Yeah. I do like that. It is kind of true. Like 25%, some people think that's high at face value. Like you could make that. Well, when the typical American's doing 3%, it's a shock and awe campaign. It used to be counter-cultural that we, in a lot of circumstance, we prefer 30-year mortgages over 15. And we say 3 % to 5 % down payment on your first house as opposed to, you know, 10 or 20. That's a little bit counterculture. I think that was one of my, like, I tried to make that our answer to that publicist who posed the question, stuff about housing. Like we say you shouldn't pay off your house early a lot of the time.

51:53Brian Preston:Yeah. Yeah. That's kind of interesting. So yeah, fun conversation. I appreciate the audience putting that out there, but it's just an interesting, it helps us with marketing because we're just trying to help you be better, not be sensational. Yep. All right. We do have a final question from the, well, maybe we have time for two. We're going to see. It depends. This question is from JQ42. It says, shower thought. If you win the lottery, does the FOO still apply or does income that year prevent you from contributing to Roth IRA and other stuff? Does the FOO still apply if you win the lottery. Well, so let's, let's, okay.

52:35Brian Preston:So winning the lottery is a pretty low probability thing, but let's assume for a second, you don't win the lottery. Let's assume that you get a big bonus or let's assume that you sell a big asset or let's assume something happens where there's a windfall in your financial life. What likely happens when those things take place is you're going to move through the financial order of operation just much, much, much, much more quickly. If you have a huge sum of money, you're going to go through and say, okay, where's my emergency? Uh, you know, do I have my doctor covered? Yes. Am I getting my employer match?

53:03Brian Preston:Already done that. Do I have all my high interest debt knocked out? If I have it, go knock it out. Is my emergency fund fully funded? Great. Now Roth HSA, can I max that out? Can I max on HSA? Am I on a high deductible? Can I do the Roth? Okay. No. Can I do a backdoor Roth? Then do the 401k, then to step seven, then to step eight, then to step nine. You likely might just run through the food in a very compressed timeline, but I would argue that it still applies. It's going to be a checklist. You just say what to do with your next dollar. It's just, You should go start, all of a sudden, let's just say it was a million dollars.

53:31When you pay off the$30 ,000 of credit card debt, now it's 970. When you load up the emergency reserve with the$40 ,000 or$50 ,000, now it's all of a sudden 930. When you do the Roth for you and your spouse, we're going to take this down. We're going to get down to about 910 or 915. And then when you max out the retirement, all of a sudden, you're going to end up with a 9, you're going to run through the steps and you're going to have about$900 ,000. And then you're probably in step eight. go say hey is this when i kind of reward myself with a lifestyle choice now you don't go crazy because you don't want to be a typical lottery person that turns into a statistic yep where you went and bought too big of a house do something for yourself but just don't get hog wild with it to where you you're like how did i blow through this money and now i'm back to being broke you want to tell them our windfall rule of thumb was it 10 10 percent windfall right like you

54:23Brian Preston:and look, again, write this in pencil. This is an opinion. But in our practice, like as we've seen this with clients, you get a big windfall. Maybe it's an inheritance. Maybe you sell a business. Maybe you sell a piece of land. There's some other capital transaction takes place. We always try to encourage our clients, hey, chisel off 10%. Let's call that blow money. I don't care. Right? Like, hey, if I get a million dollars of what$100 ,000 I'm going to spend on that thing that maybe is not the best financial decision. Okay, I'm going to go buy the boat, or I'm going to go do the renovation or we're going to go on the trip or we're going to...

54:56Brian Preston:I think it's okay so long as you make sure you cord off that 10 % and don't let the 90 % begin bleeding into the 10%. Yeah, you get it out of your system. That's right. You essentially blow it out of... You get it out of your system. You're blowing the carbon out of the system. Haven't you ever heard that with a car? You know, you got to go drive it hard to get all the... Blow it all out real quick. Well, not a Tesla. No, it's definitely not a Tesla. But it is... Get it out of your system to where you then respect the money and don't create something. Because sometimes it's the lifestyle you create for yourself that's not sustainable.

55:29And that's what people, we often hear, and I think it's the Morgan Housel quote, is that when people say they want to be a millionaire, they really don't want to be a millionaire. They just want to go spend a million dollars. And that's why lottery dreams typically end up broke is because they don't have the skill set to know how do you actually maintain and build and keep and be a creator of wealth versus just a consumer of the money that you inherit.

55:50Brian Preston:Yeah, spending a million dollars is literally the exact opposite of being a millionaire. And it's so funny how true that is. But that's what people, when they have lottery dreams, they're usually daydreaming about how they're going to spend the money, not how you maintain it and keep it. Sure. Well, good thought, JQ. Thanks for the question. Also, first thing, if you win the lottery, you go to aboundwealth.com slash becomeaclient. Reach out. We'd love to help you make sure that you navigate that well. You know, we've had a few lottery prospects. None of them turn into clients. None of them turn into clients.

56:22I don't think we have any lottery clients.

56:24Brian Preston:We've had a few that have hit some big jackpots, but it never. You think it's because they wanted to spend it? Well, I think, yeah. And you were like, maybe you should save more of it. We try to do really good when we sit across from someone who's thinking about hiring us. We try to do really good about not telling them what they want to hear. I want to tell them what they need to hear, right? We've done this before. Somebody will sit down with us and they'll be like, yeah, I've got a million and a half dollars to save up for retirement. I'm going to retire next year. Like, awesome, great. How much do you spend a year?

56:48Brian Preston:Oh, well, you know, my income is probably around$250 ,000. You know, we kind of spend that a year, and we're like, ooh, that's going to be a problem. You know what I mean? We want to help people make wise decisions, but also be realistic about where they are and what their money can do for them. So I think that's why we haven't landed the lottery winners. Well, I mean, it's the same. I've had a few sit-downs with some professional – because, you know, I had a whole season where I worked with a lot of professional athletes at one of the firms I was at. So I've had a few that have come my way through friends and family that might have mentored or grown up with somebody who came into these big contracts.

57:22And sometimes us being honest and telling people what they can't do with money in the front runs them off. But I'm always, I'm trying to be honest because I think there's a lot of people that blow smoke at people and tell them how great and what they can do, but they're just trying to get the client or get the money. And that's just not who we are. I'm going to tell you the cold, because the reality is if I Financial advisors should be the brake when they need to be the brake, but they also should be the accelerator, the gas pedal, when you can go and enhance your life. And we're going to just always try to be as transparent about that as possible.

57:54Brian Preston:And look, the original question was, does the FOO apply? Brian, hold the thing up for me. A lot of people say that, or a lot of people who win the lottery, they don't have any financial backing. So the FOO is a great place to start, even just to get acclimated with, how should I be making these decisions? Where should my mind be as I think about how to navigate this? It transcends all wealth levels, all experience levels, all knowledge levels. It really is. We think of it like an all-weather Swiss Army knife. That was my first thought. Like, yeah, follow the foo. Let's do one more. I don't want everybody to think we filibustered out of one more question.

58:31So let's do one more.

58:32Brian Preston:Hey, let's see if we get three or four more in. I just want to one-up Brian. Let's see if we can get a few more in. Let's start with one and see where we land. Donald H. does have a question for you. He says, I'm 24 years old with a wife and a kid on an 80K income, and we are at a 25 % savings rate. Let's go. That's really great. Really incredible, first of all, so good job. He continues to say, I'm working towards getting my pilot's license to make a career. Uh-oh. Oh, a career. Did you see the emotional rollercoaster lines going on on this question? And he saw career, and he was like, that sounds great.

59:07Brian Preston:Right. The question is, should I feel guilty for using most of our extra dollars towards this? If it were a hobby, if you're like, oh, I just want to go fly. Well, first of all, why do we say you should save 25 %? Because we want to free you up from guilt above and beyond 25%. If you're saving 25 % for your future, building towards future financial independence, what you do with your next dollar, you get to choose. That's why we're happy that it lets you spend guilt-free on those things. And so if one of those things is becoming a pilot and getting your license, I'm A-OK with that. And I think even in this, it's kind of interesting.

59:48Brian Preston:You're not so much doing it because it's a hobby, doing it so much because it's a pastime. It's something that you vocationally want to do. I consider that as like an additional investment in your future self. I agree with a little asterisk is that you see right there in the question, wife and a kid. Just make sure this is not you throwing your will around as, hey, I asked this question on the Money Guy show. They agreed with me. And meanwhile, your spouse is upset that they, you know, old towels and not going on vacation. You know, because money is only a tool, and I don't want you to exert the power of, hey, you came on here, asked this question.

1:00:29It needs to be a little bit of a discussion on make sure everybody feels heard in the marriage as well. Love that.

1:00:37Brian Preston:Well said. You want to keep talking about this. Just because we turn off the cameras today does not mean, what are you whispering about over there? I was about to say a really great thing that people should go check out. I don't feel like I wanted to answer another question. I didn't feel like I'd done enough, but you do you. Well, time is up and we do have to move on to the next thing. But you watching or listening don't have to. You can go to moneyguy.com slash resources to take advantage of all of our free stuff. Downloads, calculators, plus courses, tools, an archive of past episodes. So please take advantage of that.

1:01:13Brian Preston:We made that for you. And there's some really great stuff on there if I do say so myself. So don't take my word for it. Go look for it. And remember, if you want to pre-order Millionaire Mission on paperback, go to moneyguy.com slash millionaire mission. Be sure to take advantage of the pre-order perks that are live this month as a big thank you for helping us on our mission of getting great personal finance ideas to as many people who need it and who will listen. So thank you so much from us. You crack me up, Bo, because, I mean, we are so bad together. Bad and great at the same time. It reminds me of the last time we had the SEC just did an inquiry with us.

1:01:54Our compliance consultant was like, hey, when we get on this phone call, I just ask of one thing of you guys. Don't whisper because they can hear you. They can hear you if you guys try to whisper between each other. And then while Rebe is going through the thing, you're over here. And by the way, first of all, I'm old enough. I can't hear anything. If you're not talking directly to me, I can't hear. I hear you over there whispering. and it made me, I got a little chuckled thinking about that phone because we got off that phone call with the SEC and she was like, I told you guys not to whisper.

1:02:24We could hear you whispering. We could hear everything that y 'all were saying. By the way, it was all fine. There was nothing, you know, that was under the, you know, that we should have been embarrassed about. It's just Bo and I can't help but talk to each other when we're in a room together. But it is one of those things where I love the, and I think what he was impressed about that he was whispering is we had a little B-roll thing. Did you see that? It ran by. Ken did that. who's, by the way, Ken, he's not checking us out. He's still on paternity leave, enjoying living his best life with his dog and his daughter hanging out on top of him.

1:02:57That's the pictures that he sent last night. But it is one of those things where we had, it showed all the tools, all the things. Please take advantage of the free stuff. We really do want to invest in love on you to where you come here now, learn, apply these concepts, grow, take advantage of all the free stuff we're doing because we know if you do this right, The payoff comes when all these simple behaviors create the success that leads to the complexity that you go, man, now this seems much more complicated than I could have ever imagined. I don't know what I don't know. And it seems like instead of me doing this in a novel approach, this is my one time through.

1:03:35Let's find somebody who's done this literally thousands upon thousands of times. That's when we'll leave the porch light on. We work with people all across the country. I'm your host, Brian. and joined by Mr. Bo Reby and the rest of the content crew. Money Guy out.

1:03:47Brian 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.

1:04:20Brian Preston:All investments involve a degree of risk, including the risk of loss.