The Truth About Making $65,000 Per Year at 27

20:19They just bought some treasuries. Are they I-bonds? They were. A few years ago, there was this crazy scheme where you could make you. They were I-bonds and something else too. Okay, okay. It's not a choice you make. That's much better. That's much better. I'm thankful for the. So it was, I had about, I think it was like 2 ,000 or so. and some of them when I moved. So the last like year when I was in the UK or nine months when I was in the UK, I was done paying for my master's. So then I was just saving up for moving because I knew it was going to be pretty costly moving back to the States, also buying a car and finding a place to rent, deposit, moving, all those.

20:57So some of it I then just put in a brokerage.

21:00Brian Preston:With the HSA, are you using those dollars in there like for medical stuff or are they invested in growing? No, so for that and like in my sinking funds, I have some like car maintenance. If like for my oil change, if I'm able to like cash flow it, I do. And same for health costs. Luckily, I don't have too many. So I just, yeah. Are they invested though or is it just sitting in cash? It's a minimum of a thousand in cash and then the rest is invested. So when I count this up, you got 7 % that you're saving your 401k, you get a 3 % employer match. You're doing about$450 a month in your Roth IRA. So this is the question, I guess.

21:35But that's like, I think I do hit close to 25 on my base income, but it's not, I make more than that with the overtime and incentive pay. So I'm kind of like fudging the numbers on the percentage. But that's okay.

21:47Brian Preston:Okay, if we have your income here at 65, what's a realistic income for you annually? The first six months of the year, I made 35. Okay, 35 times two, that's 70. Yeah, with overtime and stuff. Okay. Yeah. So if you're at 70 and our goal is for you to save 25%, that'd be about 17, five would be the goal that we would say like ideally for you to shoot for. We already know that 10 % is covered through your 401k. You got 450 a month going into your Roth. And I want to get this right. You said you're doing 125 per paycheck into your HSA. Yes. That's what it comes out to. And then they, it comes out to about 350 a month, including the match.

22:24Brian Preston:Brian, this is literally it. What we're doing right now is literally one of my favorite things that we get to do sitting across from other real people talking about their finances. Yeah, you guys get to see this on Making a Millionaire, but we also do this for our clients every day at Abound Well. We get to dig in where they're at, figure out where the gaps are, and find where we can optimize and build a plan that works specifically for them and for their financial goals. If you've been watching this and thinking to yourself, hey, I want that. I want a professional with decades of experience in my corner looking at my specific situation, we're here to help.

22:58Brian Preston:Yeah, here at Abound Wealth, we are fee-only fiduciary advisors. That means that we are legally required to work in your best interest. And we love helping our clients optimize our army of dollar bills so that they can live their best lives. If you've reached a point where you're ready for some help, go check us out at aboundwealth.com or click on the link right below. We'd love to connect and see if we're a good fit for you. That's right. Head to aboundwealth.com and let's see if we can do this for you two. Now, you mentioned you bought a car because when we look at your net worth statement, you've got a really healthy side on the assets.

23:32Brian Preston:Talk to us about the car because it's not like the most attractive interest rate ever. What was the decision there? Honestly, buying a car when I moved back was so hard. I was like... What was hard about it? Well, I had no transportation. So getting places to look at cars was difficult to begin with. And then I was having to rent a car to be able to get to work because I hadn't bought a car yet. And then it's like, well, then I'm having to like Uber these car dealerships. And then I like went to one and they're like, you don't have an in-state driver's license yet. We can't sell to you. I was like, what?

24:03Brian Preston:Is Philly not like a public transportation city? It is, but all the car dealerships are in the suburbs, you know? And so I think the loan was like a little over$9 ,000. How much was the car? The purchase, the total purchase price? $19 ,000 or so. $19 ,000. I don't know. I think that's including taxes. It was a Nissan Kix. A Kix? I don't even know what that is. I don't think they ran for very long. I've never. Yeah, like a crossover. So$19 ,000. How much do you finance out of that$19 ,000? $19 ,000. I put$10 ,000 down. Wow, so you had$10 ,000 to put down on the car? This was like all last year.

24:37I was like just saving, saving, saving for moving. So I think the total amount that I had saved up to move was$25 ,000. Okay. When I left, I sold my car to this family member. And I just, again, put that money in a savings account. You're a little squirrel. That's awesome.

24:54Brian Preston:Like, this is. So it was kind of like the money I had from selling my car was still there. So$10 ,000 down. How long did you finance it for? It was five years. So the minimum is$207 ,000. I've been paying$300 ,000. Look at you. To, like, pay it off in three years. But then you don't get. You know all the things. You know all the things. Maybe don't get too excited. What? But then on top of that, I've like paid an extra$1 ,000 this year of just like what I've had. How did you need to pay it off in three years? You guys. Yeah, look at that. Some dividends. I'm so proud. You're doing so many things right.

25:30Brian Preston:Like I keep thinking. Your voice, I will tell you, the inflection of your voice doesn't have the confidence it should have for all the good decisions you're making. You're kind of a baller. Like you are crushing this. Yeah, you're making great decisions. This is really good. Yeah, 8.99 stinks. But as you've probably heard us, when we talk about what's high interest, cars, because you just, you made the case for why 23.8 exists, is because sometimes the most important thing you can have in your wealth building journey is reliable transportation. And you're out in the burbs for when you first got moved back, have no car, have no friends, no support.

26:05You need transportation. So, yeah, in your 20s, somebody stuck you with a bad interest rate. but if we knock this thing out quick, the actual incremental cost to your long-term future is going to be very small because I guarantee you the next time we go through a car transaction with your squirrel type behaviors, it's going to be a completely different structure. So it's going to be a-okay. So sometimes if I'm hitting the like 450 on Roth, I do make extra to my car. You know, if I get, like I ended up getting a tax return from the UK. So I've put some of that towards the car because I am like, I think if I try hard enough, I could pay it off this year.

26:45Hit pause on that before you do that because the thing I want to make sure, you did it in January for last year in your Roth. There is, you've heard us talk about this. Yes. The financial order of operations. I just want to make sure that we're not leaving anything on the table of step five before you not, because it is questionable whether or not we think that car loan is high versus low interest rate because of your age and the opportunity that you might have investing in a Roth IRA at your age of income potential? So I think the car payment just does take up a lot of my disposable income, I guess.

27:22So my needs now with the car payment are closer to 60%. But if I pay off the car, it drops to like 52%. So that's where I'm like, if I pay off the car, then I think I could more automate the Roth contributions and it would maybe free up more.

27:38Brian Preston:I did the math on it. I've got you at a 24 % savings rate. So like we are, like you are right there. Like you're doing the stuff. And the good thing is, is like when I do make overtime, like it does automatically like then increase. Versus in the UK, all my overtime was, did not go into my pension. Like they would just do the base salary. Off base, not off of the total comp. Not off like increase. And I do get bonus in October. So then I feel like that would maybe push it towards 25. what questions do you have? Because we've asked a ton of questions of you like hey and man every time I just keep thinking you're going to say something bad you say something good which is awesome what can we answer for you?

28:19Brian Preston:Why did you say I want to come in here I want to talk to these guys what is it you're looking for? Are you like you shouldn't be paying off this car early? No once you get over 25 % savings rate I'm going to be a-okay with you because you're down to$6 ,000 it's not going to break my heart to have 8.99's not in our terms for a 20-something, a super high interest rate, but it's also not something that gets me like, wow, that's a low interest. No, it's a pretty high interest rate. So I'd be okay with you knocking that off. Okay, I'll take the other side. I have no issue with you paying it off more aggressive.

28:50Brian Preston:Would I do that if I was already inside the confines of paying that 300 a month, getting it inside a 23-8? I might think about taking that extra capital and either getting my Roth IRA maxed out sooner or bulking up my after-tax account or maybe increasing my 401k contribution because I believe if you go to moneyguide.com slash resources, you look at what the wealth multiplier is for a 27-year-old, it's big. And so even though 8.99 % is a higher interest rate, you're going to have that knocked out so quickly. I will put it in a – what do you consider a reasonable interest rate? Because 8.99 is pretty high.

29:25What do you think if you were doing a car loan that wasn't high, what would that rate be? I mean, not high would be like 1 % or 2%. Do you want to use 3 %? Sure. Okay. So we're paying a 5.99 % premium right now, right? Mm-hmm. Times$6 ,000? Mm-hmm. Because I bet you've already paid it down to$6 ,000. It's costing you$350 a year premium. But it seems a lot less when you hear it like that, isn't it? The 8.99 looks like a high interest rate, but when you see what is the actual cost, because you only owe$6 ,000 on the car, you're not getting penalized as much as you think you are. So there might be some value in actually making sure you're still prioritizing based upon the financial order of operations.

30:10Brian Preston:So question one, should we pay off the car? Well, I think you could go either way on that. Ryan says, yeah, maybe. I say, yeah, maybe not. But I think if you're saving the tools. Neither one are going to hurt you because the same reason that$6 ,000 has made it to where it's just not a material needle mover. Okay. That's, I mean, good to hear. I thought it was like a lot more, I guess. Well, because 8.9, now if you had a$28 ,000 car note on a$35 ,000 car and you're paying 8.99, you're getting crushed by that. But because you kept the debt, and that's the other part about 23.8 is that you kept all of it so minimal that it just doesn't hurt you as much.

30:53Okay.

30:53Brian Preston:Where would you like to see yourself at 30? That's only three years from now, so it's not that crazy to think about. And then what would you like to see different at 40? Like I'm just thinking through like, because it seems like you already have this long-term And it doesn't have to be financial goals. Tell us about life, what you want life. Because there's usually an intersection, but it's also how you're living. And then the finances come into play to support that. My goal, I guess by 30 is to have 100K invested. Okay. Is like my reach goal, I would say. And then - What do you think is significant about 100K?

31:24Just a goal, like something to aim for. Awesome. Like if I, I'm very like goal oriented. I think if it was just like just invest, I wouldn't.

31:32Brian Preston:You want some milestone to hit. Yeah. I love that. Life, I pretty like I love my apartment. I like where I live. Like I'm happy to just like, as I said, like done gallivanting. I'm like want to stay in one place for a while, like put roots there. Again, like I'm not really like looking to like travel much anytime soon. More like domestic trips in the U.S. to like see friends and family is like more of a priority. I think at this point after, you know, taking kind of a three years for a side quest. Um, so I'm like pretty okay with how things are going and want to stick to that. But then, you know, again, like, as I said, like have the investments where if I want to make different decisions later on, I am able to.

32:12Brian Preston:Anything significantly different by age 40 than by age 30? Because$100 ,000 invested by 30 is a great goal. I love that. I don't know. I'm like really not like attracted to like buy a house at this point. I don't think home maintenance is my journey in life. and I think more like as far as my dream life, more surrounding like work, I would rather like not own a car, live in more center city, like, you know, a nice high rise apartment or something. Like where? Still in Philadelphia. Oh, still in Philadelphia. But like I'm a bit like outside of center. So that would be like my dream life would be like not owning a car at all.

32:48But like, you know, having a job that either is in center city and I can like walk to or remote.

32:53Brian Preston:Is your current job like a career job or is it like a right now job? No, I really, like I got my master's then in global security. I really like the field and I really like what I do. Whether I stay with like my current company forever, I was like, probably not. Still trying to figure that out. Because you had mentioned something earlier. You said, hey, I haven't really like changed jobs a bunch. Or changed, yeah. In order to do that, in order to increase my income, that's what would be required. In your industry, is that true? Like if you want to move vertically, you probably need to change companies that you work for as opposed to being able to work up at your current?

33:29My company has a policy where you can't ever get more than a 10 % raise. That's a policy? It's like a standard policy and it basically has to be approved by the CEO if it's more than that. So even if I get promoted... We haven't done that. Guys, new policy. Nobody gets pay raises over 10%. I don't know how I feel about that. My income is still like 10 % is just like, That's like marginal increases. And then even the annual increases usually, like last year, was like 2%. Does the market allow for that? Because the market always controls everything. Everyone's – like retention is kind of low. Yeah.

34:06There's an equalizer in that if you can go get another job. Yes. So because I paid for my moving cost, if I leave the company, I have to pay it back. If I leave before like end of September. Right. So I've kind of like tried to put blinders on if I'm trying to make it until then. Sure. but still like when good opportunities show up on LinkedIn, I do apply.

34:26Brian Preston:For the field in which you work, is it going to be easy to like change to another company and still stay in Philadelphia or will you likely have to move to another company? That's the thing is I don't want to move, which I think makes it like a bit harder where like not as many options. I think if I was willing to move, I could get a new job fairly quickly. My resume is like pretty competitive for the, you know, having lived abroad, master's degree. Speaks Spanish and French now. No, absolutely not. So I'm like trying internally to like make some things happen. So hopefully. How about Creole? You speak Creole?

35:01No. I can do like Leslie Labonte-Roulet. That's more than I got. That's more than I got. You have to ask your friend. I will. They'll tell me.

35:09Brian Preston:Okay. So from an income standpoint, right, obviously you would like to make more income. I think you've kind of expressed that. do you have an income goal? And inside your industry, is there a way to get to that? Like are there steps you could be taking to move towards that goal? Is it really? No, I just got to figure out if I want to move, then I can do that. But if I stay here, this is pretty much the lot that I'm going to be in. My short-term goal is to get to closer to like 75 or 80 because even with the car payment, that puts my needs closer to 50%. And then I could do more like automated Roth and not depending on overtime and bonuses to like max it out.

35:46so that's like my short term goal is to try and get there like by the end of the year I think that also is like my rent and like cost of living is pretty low so I think that's like fine for now but of course if someone offers me more I'm not going to say no because it sounds like you love the city you live in you kind of like your job too it sounds like is there any ways you can go advocate for yourself? because I mean I hear that policy they have a policy no I'm trying they have a policy but come on no I've like I've made arguments I've been like going to HR I'm being like, well, this is what I've already made with overtime.

36:17Like I'm not going to take a position that's just, you know, like the increase would be to like$70 ,000 where I'm like, that's not even a pay rise for me. So I'm like talking to people. Because you sound like you're always, I mean, because like it sounds like if they need somebody to work on the weekend or they need overtime, Melissa's like, I'm here. I'm here. So you sound like you're definitely the person that's dependable and somebody that they lean on for that type of stuff. So it makes you probably valuable to the enterprise, I would think. Yes, hopefully.

36:47Brian Preston:Here's what I'm excited about. I think we're going to be able to put together a pretty interesting plan. There's a lot of variables that are going to change in your life. Can I ask one more question? No, no, no, no, no. Yeah, you can ask the question. When do you want to retire? Because you talked about kind of short-term goals up to 30. What's your long-term goals? Depends what happens when I'm there. But I think at the rate I'm going, like retirement before 65 is possible. again, like I get more like flexibility, I guess, nearing that. The only reason I ask is when I was your age, I used to think I wanted to retire somewhere around 50.

37:18Now I will tell you, I don't like giving my age, but I am over 50 now. Um, but I am, and I don't ever plan to retire now. I've kind of gone the backwards. I'm the reverse, but I always loved the decisions I made in my twenties because it's just, I've been able to do things more on my terms. And I think that that's the part of owning your time that much sooner is about, and you just already have the natural skillset. That's why I just didn't know if you had a long-term goal that it can be very flexible and can change over time because even if you overshoot the goal of like early retirement, it can serve you well with flexibility in the future.

37:56I do think I don't make enough to do like full fire of like, I want to retire as soon as possible. And that's the same thing I think about buying a house is for me to save up a down payment now when I have like$400 into savings every month would just, it's like, it would take a while. Your life doesn't really push for you to have a house right now either though. Because I don't even think you've figured out the variables of life that would make those roots necessary. And I think even, you know, the house that I would want is not in anywhere near what I've, you know. Everybody always underestimates what they can do in a decade, but they overestimate in a year.

38:35So you might be surprised that you probably are closer with what you're building right now. You don't need to fill in that vision yet. Well, if I was making closer to like 80 or 90, I would have a lot more money that if I wanted to save up for a down payment, I would just have a lot more income to be able to get there.

38:54Brian Preston:What I'm excited about is I think we're going to put together a plan that is going to hopefully optimize some of the stuff you're doing, like some decisions you made. Maybe we can make them slightly better, tweak them a little bit. But also, show if nothing changed, if all you did is say in your current place, current income, current trajectory, but continue to execute the good behaviors you've been doing, I think that you're going to have, just like Brian said, more freedom, more flexibility much earlier than you realize because you've made so many good decisions so early. For a 27-year-old, you've got a great mind for this, and you're doing really, really good things.

39:28Brian Preston:I'm excited to put together the plan to see what it actually looks like when we stretch that out. Yeah, I mean, it's pretty amazing. I pick on you for the CDs. I pick on you for the bonds. But your natural instincts are incredible. And it's, you know, the hardest thing I always share with people is the discipline to live on the last thing you make and save. That's the hard part. Choosing how to invest in the better way, that's easy. Most people never make it to this because they don't have this part that you have in spades. So you're going to be great. we can tweak and improve these things, but you've got what is the secret sauce to creating success in the long term.

40:07Brian Preston:Brian, what an awesome conversation with Melissa. Yeah, I loved Melissa, but I gotta tell you, I felt like I went on a little side quest because when I found out her job was travel security, I just, I was fascinated. It reminded me, I don't know if I thought it was like Jason Bourne or what, but it was definitely something that created an interesting conversation. But bringing it back to what we talk about, She has specialized in being in travel security, but I think she wants to pivot now and focus on financial security. Yeah, I thought it was great. She was doing a really fantastic job, but not like a super high income.

40:40Brian Preston:Sometimes we'll sit down with young people and have$100 ,000,$150 ,000. She has a very reasonable income,$65 ,000, and yet she was doing a lot of things really right. I think behaviorally she's figured a lot of stuff out, but there were some areas that I think we can optimize. I think we can improve upon. Let's jump on this. I mean, the first thing, CDs in retirement accounts? Not exactly what I consider the sexy sizzle of where I would start off with my retirement savings. Well, and this is why we always say we want to measure twice, cut once. Because initially when we talked, we were like, hey, okay, get rid of that CD, surrender it.

41:13Brian Preston:We actually did a little bit of follow-up. We found out the CD is not paying 3%. It's actually paying 4%. And we also found - Ooh, 4%. But hear me out here. Hear me out here. We also found that it matures in June of next year. So we're about a year out from this. If she were to just forfeit that CD right now, she's going to give up about$200 of interest on the CD. And with that particular CD, there's a$30 penalty. So if she were to just forfeit it right now, she'd actually net about$3 ,089. So you're thinking, okay, not crazy. If she holds it until maturity, it's going to be worth$3 ,420. So when you think about the imputed rate of return, because of that$30 penalty, if she chooses not to hold it to maturity, it's going to be a 12 % haircut.

42:02Brian Preston:So we would argue, even though it's not ideal right now, I probably would recommend holding it to maturity and not taking that 12 % pay cut. Yeah, this is why personal finance is definitely personal, is that I wouldn't recommend putting CDs into your retirement accounts, especially for 20-somethings. But for her situation specifically, when we actually did the math, that 12 % moves the needle. I mean, because, so, but like I said, don't want everybody saying, thinking this means we're endorsing CDs and retirement accounts. It does mean for Melissa, let's be patient, redeploy that money in next, next June of 2027.

42:37Brian Preston:The other thing that we had a conversation around is she thought that she was getting hammered on taxes. And we actually, again, she's not doing Roth. Yeah, we did some due diligence. is we found out that her effective tax rate, when you look at the marginal federal, marginal state rate, is somewhere around 18%. And I'm gonna argue that at an 18 % tax rate, well, sure, it's not the lowest it could be. It's not super high. I think for someone her age with tons of time to grow, I think she might not consider switching her contributions to Roth contributions, letting that money grow tax-free, even though she's gonna pay more in tax today.

43:13Brian Preston:I think likely that could be the right solution for her long term. Well, historically still 18.8 % is pretty low. Now I think this is probably a good example of you get out there in the real world and you realize taxes is legitimate to the point that she was like, man, I'm paying a lot in taxes and it feels really high. That's why you actually have to do the exercise. Let's see what the actual, your marginal rates are and don't skip out on doing your federal, your state. But when we did the math, 18.8 % and at her age in her 20s, the compounding growth is going to be more powerful to definitely take advantage of doing the Roth and the tax-free growth.

43:50Brian Preston:And the other thing that we had talked about is, you know, she has this car loan right now. It's a 9 % rate, which is not super exciting. And I think you and I had sort of two different views on how to handle that. What do you think she ought to do? Yeah. I mean, when I hear close to 9%, I'd kind of like to pay that off pretty quick. Now you took more of an aggressive stance because you think that even though it's 8.99, we'll round it up to 9%. Because of her age, the opportunity cost is just too much. Well, she already said she's paying extra to get it inside the 23-8 confines. She had this five-year loan, but she's going to pay it off in three years.

44:23Brian Preston:Once she's done that, I'm okay with that. I recognize that her wealth multiplier at her age is still 34 times. So every dollar she invests can turn into$34 by the time that she retires. So my stance is pay off the car inside 23.8, even though 9 % is higher interest for someone in their 20s, I'm going to argue those dollars could be better deployed elsewhere. But at the end of the day, I don't think that's something that either one of us are willing to dine the hill over. She'll have to decide which decision she thinks makes the most sense for her. Well, the good news is either way, she's not just making the minimum payment.

44:58She's actually trying to honor 23.8. So I think she's going to be okay. And it's also, let's not forget, she's got a pretty healthy savings rate. So this money is going to grow? Because she had a pretty important goal. She says she wanted to have$100 ,000 by the time she was 30. Is she on track?

45:14Brian Preston:Yeah. So we actually looked at her savings rate right now. She's putting 7 % into her 401k and she's getting a 3 % match. On top of that, she's putting$450 a month into her Roth IRA and she's doing$350 a month into her HSA between her contributions and employer contributions. So she has about a 25 % savings rate, almost$16 ,000 a year going in. Well, when we look at where she's at right now with her current portfolio, she had about$43 ,000. So if she just saves at that 24.8 % clip, and we don't assume any pay raises, any bonuses, any additional income coming her way, and we just assume a 9.3 % annualized rate of return based on her age, by the time she gets to 30, we're projecting she's actually gonna have$112 ,000 saved up.

46:01Brian Preston:So she's gonna hit the six-figure goal, but it doesn't stop there. Yeah, what I think is amazing, we have that good indicator that you're doing things right. By the time you're age 30, we want you to be one times your income. And as you've already disclosed, now, yes, with bonuses and stuff, she goes a little over$70 ,000. But still, she's going to have$112 ,000. It's huge. That's pretty powerful. What happens if we give that wonderful, valuable concept of time and compounding growth? What happens by the time she's 40? Yeah, it's great. So she gets to 112 by 30. if she just continues that same behavior, no more pay raises, no more increases, no more big adjustments, just keep doing the same things that she's doing.

46:40Brian Preston:By the time that she gets to 40, she will have over half a million dollars. Almost$550 ,000 of investable assets. Now think about that in terms of, because a good indicator when you're 40 is have three times your income. Now, without a doubt, Melissa's going to get pay raises. There's no telling because she already said she had some other opportunities, but just taking a conservative stance that we did when we did this analysis, she's going to have over$500 ,000 on a$65 ,000 salary. We're getting to a close to a 10-time factor. That's way ahead of schedule. I think a lot of young people are going to see this and be like, holy cow, it's possible for me to build wealth.

47:16Brian Preston:I don't have to have a huge income. I don't have to have some amazing, miraculous thing happen. Just making small, consistent, sound financial decisions really can lead to a great, big, beautiful tomorrow. Yeah, stack up those small decisions early and often for the win. Bo, if others want to come on Making a Millionaire, how can they apply? Yeah, if you'd like to be a guest on Making a Millionaire, you can go to moneyguy.com slash apply. Or if you want to check out any of our free tools, resources, or calculators, go to moneyguy.com slash resources. I'm still not convinced that Melissa is not Jason Bourne, but without a doubt, she's in a great financial situation.

47:52I'm your host, Brian, joined by Mr. Bo, Money Guy team. Out.

47:55Brian 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 making a millionaire. 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.

48:27Brian Preston:All investments involve a degree of risk, including the risk of loss. The guests featured on Making a Millionaire are not clients of Abound Wealth Management at the time of recording. Their participation should not be considered a testimonial or endorsement of Abound Wealth Management.