The Truth About Building Wealth in Your 20s

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1:07Allergic reactions can include rash, welts, asthma symptoms, and dizziness. Don't receive Botox if there's a skin infection. Tell your doctor your medical history, muscle or nerve conditions, including ALS Lou Gehrig's disease, myasthenia gravis or Lambert-Eaton syndrome, and medications, including botulinum toxins, as these may increase the risk of serious side effects. Why wait? Ask your doctor, visit BotoxChronicMigraine.com, or call 1-800-44-BOTOX to learn more. If you think you know everything about building wealth when you're young, I want you to think again. Brent, I am so excited about this because we love helping people see that there's a better way to do money, and we are going to share exactly that today.

1:44We're going to walk you through what everyone in their 20s needs to understand about money and how it can supercharge your financial life. With that, let's jump right in.

1:59Brian, since we're starting in the 20s, let's go ahead and level set and let's have just a big sigh of relief because I think a lot of people in their 20s right now have a specific feeling when it relates to their financial life. And it's generally this idea that I'm behind. And right now, we want you to know, we want you to hear from us, it is normal to feel behind right now at this stage. Well, you're at the beginning of this entire journey. I think that's what we haven't had enough time for you to reach all the milestones, to have the success points. But you also, that fear or just the fact that you have so much ahead of you is also the perfect canvas for you creating something that's really magical over the long term.

2:41Now, if we actually look at this, 41 % of Gen Zs actually have a negative net worth right now. And we don't want you to stay there. We're not saying, hey, this is an encouraging thing. We want you to have a negative net worth. But we want you to breathe easy and recognize that if that accurately describes your financial situation today, you are not alone. A lot of your peers, a lot of other folks at this age and at this stage of life are starting from a very similar spot that you're starting from. Well, think about it. You come out of college, you probably use some debt to try to hopefully better yourself so you can make more money in the long term.

3:17Let's talk to you about how we get you out of this. We've got to have a plan. This is the first thing. Now, good news for you guys. We've created the all-terrain vehicle, the plan. It doesn't matter if it's hot outside, cold outside. We're going to be able to get you through it with the financial order of operations. This is going to be what gets you out of debt and also help you build your army of dollar bills. Yeah, and what the financial order of operations is, You can think about it kind of like an instruction manual. It's supposed to walk you through what you do with your next dollar. So when your paycheck starts coming in, when that money hits your checking account, you feel empowered that you know exactly what to do with it.

3:53So the financial order of operations will be the tool that allows you to know what to do with your dollars. But at this stage and at this age, you also have to be thinking about what not to do with your dollars. What pitfalls should I avoid? One of the best things you can do if you are in your 20s is make sure that you do not fall into the consumption trap that was Freudian, but it also lines up the consumption trap that a majority of young folks fall into. Well, I think, remember, you're at the beginning of your journey. You don't have a lot of resources. You're not in your peak earning years.

4:27So it's easy to fall prey in this consumption society to just let's use this magical bridge of debt to solve all of our problems. If we don't have the money today, that's all right. We'll use debt as the tool to get us out of this. But I'm telling you, that's actually going to work against you in the long term. We actually have, look at this fact. It's not only the amount of money that you lose in the interest, because unfortunately, when you use consumer debt, it has a very high punitive interest rate, typically even greater than 20 plus percent. But then that money could have been working for you.

4:58In this example, we're only showing like if you made an 8 % rate of return. But what I worry about is all the time that has also been lost out on. Debt is something you should definitely be fearful of. And if you're not respecting it, you're using it wrong. Yeah, compound interest can be the eighth one of the world, but it can aggressively work against you. Again, if you have a 20 % interest rate on$5 ,000 of credit card debt, it's going to cost you$1 ,000. If you are spending$1 ,000 on interest, but even if you had a great 8 % rate of return, and you only made$400 on a$5 ,000 investment, it's going to be very, very difficult to right that ship.

5:36So one of the things we want all of our 20-year-olds doing is figure out what in my life counts as high interest debt. It's so important. We actually have it as step three, Brian, we have the thing, step three of the financial order of operation. So if I have high interest debt in my life, I need to put together a plan to get out of. And we have some rules to help you determine and discern what is high interest. And specifically for those in the 20s, if you're someone who's graduating with student loan debt, and I know a number of you are, but your student loan debt is in the threes, fours, even the fives, your dollars can be so powerful.

6:12It might not make a ton of sense to aggressively attack that debt. But once that student loan interest rate goes above 6%, at that stage, at that phase, you may want to consider prioritizing, paying off that debt, or having a plan or a strategy in place to pay it off more quickly. Well, so that's student loans, which hopefully you use to better yourself so you can make more income. I want to talk about car loans too. Now look, this is one, we have a no hypocrite policy. And I think a lot of people, when they find out that our system, they're like, you allow debt on cars? I'm like, yeah, look, this is because I prefer everybody to pay cash for their vehicles Without a doubt, because cars depreciate, they are napalm for your financial life.

6:54But I also realize that if you take young version of myself, where I was graduating from college, had this freshly minted accounting degree, but I had not a penny to my name, really. I had to use debt to buy my first vehicle so I could get to the J-O-B. And that was going to be the biggest wealth creator I had was that job where I was trading my time and my labor so I could start creating an income and hopefully live a disciplined life to create margin. So we do write into 23-8, 20 % down, don't finance for longer than three years, no longer than 8%. And we even allow what high interest that is on cars.

7:30But if you're sitting on lots of cash, of course, we want you to pay cash for the vehicle and get rid of it. But this is to help you start that engine of wealth building. Yeah, so if you are in your 20s, even if you have 6%, 7%, even 8 % car loan, but it is inside the confines of 23-8, we want you to recognize that just doing 23-8 allows you to have a plan to get out of that debt. So you might not need to prioritize paying off that auto loan at this stage because in your 20s, we recognize that you have a secret superpower that your older peers do not have. When you think about being in your 20s, you have the most valuable resource in the three ingredients of wealth creation, which is time.

8:17Yeah, you are a billionaire of time. Look, I get it. I know when I was in my 20s, I wasn't in my peak earning years. I was broke as a joke. And I'd look at people who were in their 30s. I'd look at people, my bosses, who were in their 40s, and I'd be so jealous of them. But I'm here to tell you, you can bring all that back and give yourself some context that will help you cope and actually hopefully build to become a monster of being a financial mutant is that you really do have the most powerful resource of time. You are a billionaire of time. So use that money. Don't rest on it. If you wait and you kind of YOLO up your life for this decade of your 20s, you're going to have big regrets later because you didn't maximize that very powerful tool.

9:01So how do you take advantage of it? How do you actually capitalize on being a billionaire of time? Well, the answer is quite simple. You just have to do something. You just have to start somewhere because when you have this much time on your side, a very, very small amount goes a long way. It's why we talk all the time, Brian, about the wealth multiplier. We have these cool little koozies that say this$1 koozie cost me$88 because we know for a 20-year-old,$1 deployed in your army of dollar bills that can work for you has the ability to turn into$88 by the time that you get to retirement. But if you wait, just like Brian said, if you squander the time for a 30-year-old, the wealth multiplier, while still exciting, is only 23.

9:44And 23 is very, very different than 88. Yeah, this is always the part. I think if you understand that for a 20-year-old, it's 88 times over. For a 30-year-old, it's 23 times over. For a 40-year-old, it's seven times. You're like, whoa, I would spend my money differently if I knew how time was working against me if I didn't start working. Well, flip the script on this. And if you actually look at what you have to save to build your first million dollars, for a 20-year-old, it's$95 a month. For a 30-year-old, it's$340 a month. Do you see how that's almost four times harder? So like I said, when you look up at the 30-somethings ahead of you who are making more money, you're going to be jealous, but use this to bring it back and level set is because they're jealous of you of the opportunity.

10:30Fast forward, look at the 40 year old. They have to save a thousand dollars a month, a thousand 52 specifically to get to the same million dollars at retirement. That is 10 times harder than if you just take a little bit. So yeah, you don't have money, but if you just do a little bit, I mean, it's just changing little behaviors like coffee. This is where the latte effect definitely comes into play for 20-somethings, is because any little discipline decision you make is going to have huge ripple effects for your future self. Now, there are two sides of this coin, though, because someone starting out at 20 years old is different than someone who's 29 years old.

11:06They're at different stages and hopefully different phases of the wealth building. So even though we're telling you a little bit goes a long way and just start somewhere and just do something, there is a reality, though, that we don't want you to become complacent. We don't want you to say, okay, I'm just going to do something. And you start doing that something and you stay doing that something. Cause the idea is we want you to start a behavior and then we want that behavior to, to get better and better and better through time. And let's show you why that matters. If we just look at this case study, we're going to call this the power of progress.

11:36Let's assume that we have two investors. We have static Sam and we have Manny the mutant, and both of them are going to start out at age 25, saving$100 a month. but we're going to assume that Manny every single year is going to increase his savings by 10%. So he's going to save$100 every month this year, and the next year he's going to start saving$110 a month, so on and so forth. Well, what we can see is even if they have the exact same rates of return, 9.5 % rate of return over an entire 40-year working career, Static Sam, just because he did something, just because he started somewhere, still builds an incredible pot of money.

12:15As he gets to retirement, his portfolio will be worth almost$600 ,000. But because Manny was a mutant and he didn't get complacent, he got just a little bit better every single year, he was actually able to build a portfolio of almost 2.3 million times. That's almost five times more than what Static Sam was able to build. Look, here's how I would use this for motivation and bring it back to be somewhat prescriptive to your personal situation. We love and we give the guidance, so we want you to save and invest 25 % of your income. But here's the reality. For a 20-something, that's very aspirational.

12:54It's hard. More than likely, when you start out, when I say just do something, you're going to be able to start saving and investing 10%. And your employer is going to hopefully do 5 % or 6 % through matching contributions. so you're bringing in cumulative 15 % to 16%. I just want you to, every time you get a pay raise, don't just consume it all. I want you to start pushing things a little bit more so that every one of those pay raises leads you slow, but surely to that 20 % to 25 % because that is what's going to happen. I don't want you to get so motivated that you, today you start saving something, but I fast forward 10 years in the future, and you're saving the exact same thing even though you had eight to nine different pay raises over the last decade, you got to let things happen.

13:37If you need motivation, I want you to go to moneyguy.com slash resources. We have a great deliverable and a resource you can download for motivation. It says, what can 1 % more do for you? And I think you'll see this is going to be something that's very enlightening. All right, Brian. So this has been motivation, motivation, motivation. Get excited, get excited, get excited. But I want to pause like record scratch, screaming halt to the show real quick, Because I think a lot of 20-year-olds, this next one is so important. This is so, we want this to sit with you and to resonate with you because unfortunately right now, your generation is the one that is the most susceptible to a false truth when it comes to investing.

14:16And this is the way that false truth goes. High risk means higher reward. That's what the world is telling you. If I take on more risk, I'm going to get a higher rate of return. But that's not actually what happens. What happens in investing is if I'm willing to take on more risk, I should receive a higher rate of return to compensate me for that risk. That's what should happen. High risk, in fact, does not mean higher reward. So just because someone says, oh, I'm going to go do this individual stock, I'm going to go do this crypto, I'm going to go do this NFT, I'm going to go fill in the blank on the aggressive type of investment that you've heard about, that you saw on TikTok, that you've been pitched, just because it's more risky, just because it's more aggressive, just because it's farther out on the risk spectrum, does not mean that it's going to yield more favorable results.

15:12Well, I mean, look, when you take investing 101, you hear about the efficient frontier, and there is some truth, and that's why you have to always be careful with anything. There's always a little ounce of truth that that's what gives it the power that then allows people to manipulate it and use it against you. Without a doubt, there are things, it's just like your Roth IRA. I want you to have somewhat aggressive stuff in there, but I want it to be something that's not speculative. I want it to actually have an investment component to it, not a speculative component. So many things out there for this younger generation is that we're going to help you cut the corner off so you don't have to save as much.

15:47You don't have to be as patient. We're going to let you do this faster. That is the part. That's the risk we're trying to protect you from. And that's why if we're giving you guidance on how you actually do this in implementation, our advice is keep it simple. Keep it simple. Don't overcomplicate it. The first thing is always be buying. I mean, set it and forget it. Because the other thing that I think is a curse on this younger generation is that these distractions into these cutting the corners off. When you finally fast forward two to three years and you realize, hey, okay, maybe buying this speculative investing or chasing this, you know, what was hot last year, this is a fool's errand.

16:28The problem is now you've lost a few more years on that wealth multiplier that's not working for you. So I would rather you, when I say just do something, make it automatic for the people where you're actually setting up some dollar cost averaging every month out of every paycheck, this percentage is just always buying into the market. So the index funds, you're going to be that much better for the future. And why do we want you to always be buying? Well, the answer is because the cost of not doing so can be huge. If we look at the difference in timing the market versus time in the market, do you recognize that if you would have invested$10 ,000 in the S &P 500 starting in 1988 all the way till 2023, just investing$10 ,000 one time, that$10 ,000 would have turned into$418 ,000 if you just left it in the market.

17:20But if you happen to just miss the five best days, only five trading days in that nearly 40-year period, you would have only built$264 ,000. If you miss the 10 best trading days, it'd be about$191 ,000. If you miss the best 30 days, the best cumulative month over that entire 40-year period, your$10 ,000 have only turned into$71 ,000. This is why we always want you buying. We always want you participating. We always want you putting your money to work so you don't risk missing the most exciting times to have your money working for you. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new.

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18:45Learn more at windows.com slash student offer. While supplies last, ends June 30th. Terms at aka.ms slash college PC. You know, the thing, just to show everybody how nerdy we are, in our content meeting, we were talking about, you know, this is one thing, the tried and true, but I know there's going to be a lot of people out there and i've already alluded to it with chasing the hot dot and bo you horrified me when you shared that for a lot of people we're taking sports betting and now treating this as almost like a component of your investment allocation that scares me to death because that seems to be now the latest hot dot you can't get away from it i mean it seems like every podcast i listen to has got some type of sports betting advertising um everything is being is pushing you in this direction.

19:32And then, you know, that doesn't even take into account all the cryptos, the real estate, all the people that are out there pushing the latest and greatest hot trend. How do you get around this? I mean, what is somebody who's young in their 20s, how do they get away from this noise? Well, what's the allure? What is the siren song when you are chasing this hot dog? It's return. It's, oh, my gosh, if you go do this, you're going to have 100x return. If you go do this, you're going to make 50%. If you go do this, you're going to, and it's really focusing on how much can you make? How much can you make?

20:02How much can you make? But would you believe us if we told you that early on in your journey, your savings rate, just the rate of savings, which you employ against your income is exponentially more valuable than your rate of return. We chase the hot dot so that we can amp up our rate of return. But realistically, early on, the rate of return really is not all that important. And again, if you don't believe us, let's walk you through a case study. Let's take two investors, Sal the savant and Manny the mutant. They both make$50 ,000 a year of annual income. And we're going to assume that they both have a 3 % annual wage increase.

20:40Now, Sal the savant is only going to save 10%. You're going to see why in a second. But Sal is going to save 10%. And Manny says, you know what, I'm going to save 25 % of my gross income. But Sal, because he has the ability to pick stocks and find the hot dots and find the amazing things, Sal is going to annualize a 25 % rate of return. I'm going to say that again, Brian, because it sounds so absolutely egregious. Every single year, Sal is going to make 25 % over and over and over. Manny, on the other hand, is going to go buy a low-cost index fund and is going to make 10 % annualized while he's investing.

21:15So Manny is saving more but making less. Sal is saving less but making more. Do you recognize at this pace it would take Sal 10 years, a full decade to catch up to Manny? I'm going to say that a little different. Sal would have to annualize 25 % every single year for 10 years straight to make up for Manny just saving more at the onset. And we know that even outperformers consistently can't do that. That's right. Unless it's a Ponzi scheme or something that is cooking the books in the back corners and you're being taken for a rod. You just don't see that type of overperformance over and over again.

21:59So it's back to the key learning point there. Your savings rate, especially when you're young, is more important than even rate of return. It's really setting up those automatic for the people behaviors that's going to ensure that, you know what, But we're taking this component of time that we have in just abundance, and we're figuring out how we actually create traction so that my future self has those sloppy tears of joy and excitement when I'm in my 50s, all because I made good decisions when I was in my 20s. Okay, Brian, hard stop, hard stop. We're talking about investing and building dollars and growing, but these folks are in their 20s, and the 20s is the only time in life where you get to have certain experiences and you have freedom and all this.

22:41why are we talking about all this? We're going to waste the most precious years of our life where we could be doing things and creating experiences all for the sake of building for some future self. This is why I do think that we are that perfect balance of practicality of here's the way the numbers work, but then we also go put the behavioral stuff in there. And I know because we both come from very humble beginnings, but I'm now in my 50s and I don't have regrets on how I did my 20s because I understood this concept of I was very intentional with my experiences. And I want to talk to you guys out there so you can kind of navigate this well.

23:19Because I think there's something that social media has done a very big injustice on, is that they have not drawn attention to that. For most of us in our 20s, especially if you come from humble beginnings, you don't need a lot to keep you happy. I remember when I went on my honeymoon, I just couldn't believe that. I was like, wait a minute, this is an all-inclusive. I get all my meals? Hold on, if I don't choose steak or chicken, I get steak and chicken? I mean, there were so many things that just blew my mind that now I look at as an older version of myself that just seems somewhat basic. But I was just – and it's the same way I used to go on vacations and we'd share a condo and load up multiple couples.

23:58And it didn't matter if the beds were not the king-size beds in all the rooms. is because in your 20s, what is acceptable to you is the broadest it's going to be in your life. So to try to use social media to tell you you've got to do luxury, you've got to do all these things, it's a falsehood. I want you to bedazzle your basic life. And what I mean by that is focus on what matters. And one of the examples I give is that I went to Italy. When I was broke as a joke with my wife, we made incredible memories on the cheap. My trip still has the gondolas. It still has doing things in Rome to see the Colosseum.

24:44The difference is I'm dragging my luggage down the cobblestone. I'm actually taking public transportation. I'm not staying in the five-star resorts. You can do this in a way that fits where you are in life. It doesn't mean you have to defer your entire life and wait until you're wealthy and old to enjoy it. You just have to do it in a bedazzled basic way. Yeah, and I think what's interesting is when you begin to really think about things this way, it does allow your focus to clarify where you actually know the things that you really value, not what other people value for you. Even me, where I am right now, in the messy middle stage, which I'm not in my 20s anymore, but a lot of people in their 20s are in the messy middle or kind of starting in that phase.

25:26one of the things I recognize is right now, yeah, I could grab my wife and we could hop on a plane and we could go to Europe and we could go do the big, luxurious, amazing vacation. But you know what I found that we love just because we're so busy and we've got all these kids and things pulling us in a thousand different directions. If I can go to a coffee shop and I can sit down with my wife and I can get a cup of coffee or a latte in a cup that's not to go and I can sit there and drink it, that right there in this season, in this moment, doing that once a week, once a month, every so often, is way more valuable for us than flying out to Europe and doing the big, gigantic, amazing vacation.