The 5 Steps to Wealth: How to Build a Financial Foundation in 2026 (w/ Andrew Giancola)

21:15But when you are really far out, I don't start to factor in social security too deep until you get kind of closer. Once you get closer to 10 years in, then I'm really going to start to dial that in a lot more because you're more certain if it's going to exist or not. I like to focus on the things that I can control and everything else. If you start to over save for retirement, I don't think you're going to really worry about that at all. So So making sure that you kind of are knowing what that number is and you get closer, then you can start to think through this. Now, when you are close and you have that social security number in place, what you can do is as you are starting to invest, you can reduce the amount that you need.

21:49So let's say, for example, that you are going to live off of, you want to live off that$80 ,000 a year again. If you have$80 ,000 and you have a$2 million portfolio, that means you could draw down 4 % and have$80 ,000. But if you want to live off$40 ,000, or but if you want to live off$80 ,000 per year, and you're going to get 40 ,000 in social security, maybe it's for just you, maybe it's you and your spouse, then you're a lot closer to needing only a million dollars invested in retirement to be able to retire. So this is the powerful thing for most people is they're a lot closer than they actually think they are.

22:23And this is where there can be a huge shift in mindset. You wonder why all these retirees out there are able to retire when they really don't have much in savings or in investments and most of their equities in their house. This is because they have Social Security and it covers a huge portion of their income. So I have seen a ton of retirees, even in Master Money Academy, who have been open about their Social Security numbers. And if they've been working for 30 or 40 years, a lot of them, depending on how much income they made, are making anywhere from$2 ,000 to$5 ,000 to$6 ,000 every single month from Social Security.

22:54it's somewhere in that range currently right now that you could think of if you are young, you know, in the future, if Social Security still exists, we never know if it will be, but they've been saying it's been going away since the 60s. So that's one of those things you just got to think through and kind of come to your own conclusion. But if you think it's going to be there, this could be a big impact overall to your retirement, where it can make a big difference in exactly how much you're planning. So you could have actual extra dollars by the time you get to retirement age, and Social Security is going to help you kind of give that bonus towards vacations and those types of things.

23:26So that's kind of how I think about it for me, because I'm still so far out from retirement. And honestly, I don't know if I'll ever retire, but if I do, or when I do, that's kind of the range where I think about it as an extra. It's the icing on top. It's the gravy because I have that longer time horizon. But if you're closer, then you can get a much, much more accurate number.

23:44Andrew Giancola:That's encouraging. If you're farther away, it's the icing on top of the cake. And if you have less time to save and compound. Well, you do have that that you can lean on and maybe the situation's not as dire as some of the news places like to make it sound. So I like that framework. All right, we have a retirement number. What is the next step after that when it comes to making a financial plan? So the big thing that we think about next is we think through, okay, well, now we want to make sure that we put together our blueprint. So the first part was our foundation. The next part is our blueprint?

24:19Where are we going? What are we going to be doing next? And how are we actually going to take action on some of this plan? And so first we set up a spending plan. And typically there's a couple of ways to do this. A spending plan is just a fancy name for a budget. And what you can do is one of two things. You can do one thing called the reverse budget, meaning you save off the top. You're saving the money that you're going to be investing or putting towards your emergency fund first. And then you spend what is left over. That's the simple way to do this. And it's the simple way for people who absolutely hate budgeting.

24:47You can go that route. But there's a second option where you can do a line by line item budget is what we call it, but it's basically doing something like a zero based budget where when money comes in, you allocate where those dollars are going to go within your budget. And then from there, you can figure out a spending plan based on what your personal goals are. So we walk people through kind of this step by step, and we use the tool called Monarch Money. There's a bunch of great tools out there. I've used YNAB in the past. There's a bunch of other awesome ones. You can use a spreadsheet if you want to, if you want to spend zero dollars on a budgeting software.

25:16So there's a bunch of ways that you can do that. So for people who hate budgeting, I would recommend the reverse budget. If you know, like, I'm just never going to stick to this thing, then reverse budget is a great option. But if you are someone who wants to get in the weeds, you want to optimize, then doing something like a zero-based budget is my favorite way to do it. Then what we do is once we have all this stuff set up, we start to calculate our net worth. And when we look at our net worth, one of the big things that we want to look for is where are we starting and which direction do we want to go?

25:43So a lot of people, If you're just getting started, you're in debt, or you are just new to personal finance in general, and you took out some credit card debt, or you have a car loan, or maybe you have just a lot of debt on hand, you may have a negative net worth. And that's okay, because guess what? We're going to dig ourselves out of this hole. And the first step, like Warren Buffett says, the first thing to do when you're in a hole is to stop digging. And so when you want to think about this, we want to make sure that we want to grow this net worth over time. This is our scoreboard. This is our scorecard.

26:08And we want to see this overall. So if you don't know what your net worth is. It is the difference between your assets and your liabilities. So you take your assets, you subtract them by your liabilities, and that is your net worth. So your assets could be things like all of your stock investments. They could be things like your house. Some people factor in their car. There's a bunch of other things that you could put in there that are the value there minus your liability. So things like your mortgage, things like your car notes, all of those different things would factor in to liabilities and you figure out what your net worth is.

26:36There's a bunch of free tools out there that help you track this automatically. The Monarch money, which I mentioned earlier, they also track it. There's a bunch of other options out there that can also track this automatically. And so we think about this and we have this set up in a way where we are tracking what we need to be doing. And the next, what we do is we automate our money. So money automation is going to make sure, even if you like budgeting or if you don't like budgeting, money automation is going to make sure you don't have to do much work whatsoever. And so when we automate our money, we think about this in a way where we are going to, A, A, automate our investments.

27:06B, automate our savings. C, automate how we spend our dollars. So all of our bills and our spending plans. And so those three things, if you automate those three things upfront, it's gonna make everything else easier. I've had students come to me and say, I started to automate my money and I'm an optimizer and I don't know what to do with my hands. I feel like I need to be doing something, but everything's already happening automatically. And that I love to hear, but also it's a little bit stressful for them. So they have to kind of get used to the process of all of this happening automatically.

27:35And then over time, they've gotten used to it. They said, this is the best thing ever because I'm not spending so much time on my money. Instead, I'm spending, you know, 10, 15 minutes every single month. Instead, before I was spending one to two hours every single month. And so that saved them time. It saved them energy and everything else there. And it's been one of those areas that has been important. And then the last step we do in the blueprint is we get our insurances set up. So all the insurances, proper insurances from car insurance to life insurance, like we do term life insurance typically is what we usually recommend, which is just looking at things.

28:05uh, in a different way. It's a much cheaper form of insurance. We have, um, talking through home insurance, all those different things, how to shop those insurances and that kind of stuff. So the blueprint stage is where we're going to start taking action. We've getting our plan in place and we're starting to get some motion going. And that is where we see a big difference for people where they're checking off some of these boxes and they're making sure they're actually getting progress. So you got the foundation set up and then you've got momentum happening. that's awesome um we've talked about the foundation talked about the blueprint

28:36Andrew Giancola:based on the people who have been in your academy are there is there an area or like a speed bump in that process where you've seen students have to work through and how have they worked through it in that process so early on the biggest the biggest portion for people is they want to figure out which budget direction do they need to go in. They're trying to figure out, hey, what do I need to do next? And what they'll realize is it doesn't really matter which one you choose, as long as you choose the one that fits your personality best, because automation is going to take care of it. So once you get to the automation stage, this is going to help you dramatically take care of everything where you don't have to think so much about your money.

29:13Instead, what you're going to do is you're going to automate all these different portions, and then you're just making sure that it's going in the right place. And so it helps with the budget. It helps with making sure you're tracking your spending, and it helps them kind of get over that hurdle. In fact, honestly, for most people, if they really hate budgeting and they set up automations, it's going to help them. They honestly have to spend almost no time. We do something called the five-minute drill for the optimizers, where they will look at this and they'll say, they'll spend five minutes every single day categorizing their expenses when it comes to the budget, and that's it.

29:44And usually, it takes them one to two minutes, and so they schedule a time every day. Usually, it's like, what I tell a lot of them is like, hey, the first five minutes of your lunch break, go ahead and start to categorize all your expenses. If you just spend five minutes every single day, you will have literally the perfect budget. If you are someone who is really optimized and has to go in there and get in the weeds, you'll have the perfect budget and you'll still be spending way less time than you ever did before.

30:07Andrew Giancola:I wonder how many hours you are saving people of just obsessing over every little thing and just the freedom that is in that of give me enough time to optimize like I want to and then the rest of the time I have to live my life. This is one of my favorite things because I watch it unlock for people and I watch them start to automate all this stuff. And at first it seems as though it's too easy and they don't know, like I said, they don't know what to do and they feel like they should be doing something. But then once they get comfortable with this and after a month or two, all of a sudden they see that everything is working perfectly and they just don't have to think about it.

30:46And the amazing thing is, is anybody out there who is like invested in their company's 401k, If you've ever done that before and you've gone like a year without really looking at your 401k and then a year later you look at it and you're like, wow, I can't believe there's that much money in there. That's automation. That's what happens when you automate your dollars is that it just automatically goes into those investments. And as you know, investments grow over time. They compound over time. And it is just such a powerful thing. And if you do this across all of your finances, all of a sudden everything's going to grow.

31:14It's going to compound. And really, you don't have to think about it anymore because the big problem is you. It's your willpower. and when your willpower gets in the way, nothing is ever going to happen. Nothing's ever going to get done. So when you remove your willpower from that equation, then all of a sudden it all unlocks and everything just starts working.

31:29Andrew Giancola:Just make it easy. Just get the easy button. Exactly. So, all right, foundation blueprint, what's next? So then we do what we call the wealth protector. And what we do here is this is when we're going to get started investing, meaning we're going to get started, A, with getting our employer match. So that's going to be one of the areas that we want you to do early because it's usually a 100 % rate of return. In some instances, it could be a 50 % rate of return, but it is free money. It is literally free money that you get when you get your employer match. So everybody listening right now, we always, always, always want you to get your employer match as early as you possibly can.

32:03And honestly, even if you are just getting started and you're like, I don't know what to do first, just get your employer match first. It is always one of those things that you want to make sure that you're doing as long as it's vested and those types of things. And then what we do is there, we create our full-on plan to find money. So if you're in debt, for example, or you are someone who's like, I don't know how to really get my emergency fund funded fast enough because it takes a really long time. When you're in those situations, we do things called finding money. So we do things like we negotiate our bills and we teach people how to negotiate their bills and all the bills you can negotiate, which newsflash, you can negotiate most of your bills if you really, really try.

32:43things like your mortgage or your power bill, you're not gonna be able to negotiate, but things that are out there like your cable bill or your cell phone bill, or there's a bunch of other bills out there. Like your insurance is a huge one that we teach all the time where we see people saving themselves thousands of dollars every year from negotiating their insurance. All of those are really, really powerful things that help you find money. And so let's say, for example, you do some exercises where you negotiate your bills, you sell some things from your garage on eBay, you do all these different things.

33:11All of a sudden you have a bunch of extra cash on hand you can put it towards those early financial goals, your emergency fund, or maybe your investment accounts, or whatever your early financial goals are, you can start to take those extra dollars and hit those steps that you need to hit. And so when we find money, that's a big thing that we talk through then. And then after we get to these stages, I can go into nuances, but after we get to these stages, then we hit our three-month emergency fund. So you've heard me talk about the 136 method. It's one month of expenses is saved first, pay off high interest debt.

33:40Then we get to three months of expenses. And once we have that three months of expenses saved up. That's when we really start to aggressively go towards our investments. And really the three months is just there to protect you against life. If anything were to happen in life, that is what that is there for. And then after we hit that, then we really are going to go aggressive on investing. And I'm a huge proponent of investing early and often. And so the faster we can get to this point in time, this is going to help us not get derailed or have to stop compounding at any point in time. Instead, we have that three months in place and now we can start to invest.

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35:34Ooh, and room service to feel like. Because at Hilton, hospitality feels like.

35:41Andrew Giancola:Your cabana's ready. Would you like fresh towels? It matters where you stay. Book now at Hilton.com. Hilton for this day. Makes sense. Let's just wade into the weeds a little bit. Sure. Let's talk investments. I know you talk about ETFs on your YouTube channel and things like that. Could you share some of your favorites and why? Sure. So typically, whenever I'm building a portfolio, I'm typically looking at a couple of different things. First, when I build a portfolio, I want that big anchor fund. So I usually will look at BOO, which is the S &P 500 ETF, or VTI, which is Vanguard's total index ETF, or something like QQQM, which is the NASDAQ.

36:28And so I'll look at a big anchoring portion of the portfolio. We call that the anchor. And so when I look at that, I am usually trying to find something that has just been proven over time. So usually, let's just take the middle ground of the S &P 500. So VOO would be the first portion I look at. Then I say to myself, well, what else would I want to add in? And so you can build portfolios in a bunch of different ways based on your risk tolerance or how you think about the market. And so you can add things in, like if you are bullish on technology, you can add things in like a tech ETF, like Vanguard's got a great one that's outperformed all those funds I just said.

37:01Or you can look at something like VIG, which is a dividend ETF. If you want some income coming in, or if you're looking for international exposure, you can do some international ETF. But really it comes down to how you want to craft that portfolio and what matters most to you. For example, I used to do like the traditional Boglehead three fund portfolio where I would have something like VTI or VOO, then I would pair it with an international fund. And then I would pair it with a bond fund. And I realized pretty quickly, well, the international fund is dramatically underperforming the rest. And what I did was I looked at the top 10 holdings.

37:33And I said to myself, well, if I had these top 10 holdings in the US market, would I be happy holding those stocks? Yes. If I had the top 10 holdings in the international market, would I be happy holding those stocks? Not all of them. I wouldn't want to hold those individually. And so I started to compare them a little bit and decide if I wanted to hold international stocks. Now, I think that there's a lot of people out there that can hold international stocks, and they should be interested in that. For me personally, though, I made the decision that I'm not going to hold as much as I was or in that allocation as much as I was.

38:01And so I hold a lot less international ETFs than I used to. And then I had those bond funds. And in those bond funds, those are something that I think for people who want to weather out any downturns or any storms, that's something you definitely can hold if you were looking at holding bonds. but I hold a lot less bond funds than I did early on because I've developed an investor style where I am willing to have a much more aggressive portfolio because my time horizon is longer. And so because my time horizon is longer, that's the way I think about it. So I hold the majority of my index funds and ETFs now in some of those big U.S.

38:34equity funds because I want to have that growth because that long-term growth is something that historically has been outperforming all of these other funds. Then once I get to the point in time where I am getting close to retirement or in retirement, I may add in some more bond exposure at that point in time, because I see it as two different phases. There is the growth phase, and there's the preservation phase. And the preservation phase is more so for when you're in retirement or living off that portfolio, then I may add in some more bond exposure. But recently, for example, we just had JL Collins on the podcast last week and had a conversation with him.

39:08And he's still, the majority of his portfolio is still VTI, and he's 75 now. It's just very interesting to kind of see the risk tolerance for different people. And if your portfolio is large enough, or if you have more money than you think you need, you can stay exposed into some of these. It just depends on exactly where you want to land.

39:25Andrew Giancola:Do you have conversations, whether it's people in the academy or just in general of the whole retire early conversation and what that looks like? And if that's on people's radars, I mean, you and I, we kind of like do things that we love, right? But for some people, retiring early sounds like the best thing ever. So how are people achieving that these days? Exactly. It is a huge, huge thing on people's mind. And it is a big thing inside Master Money Academy that people want to achieve. Whether it is, there's some folks who want to retire early and aggressively in their 40s. And then we have some who are like, I just want to retire at 55.

40:02I want those extra five years in order to make sure I can get to that point in time where I'm not working until I'm in my 60s. And so for the folks who don't love their job. There's a lot of them in Master Money Academy that are working towards that. And so the way that we work towards that and we think through it is, okay, A, one of the things that needs to go up is your savings rate. Your savings rate is actually a huge massive factor in how soon you can retire. And so there's this chart way back in the day that Mr. Money Mustache did, and he called it the simple math behind early retirement or something like that.

40:33And you can kind of look at this chart and see, well, your savings rate, if you saved, let's say, 10 % of your income. If you follow traditional advice and save 10 % of your income, well, you're going to be working for like 45 years of your life. But if you save 50 % of your income, all of a sudden it cuts it down to 17 years. And so this difference is a huge, huge factor. Well, how do you do this? There's two ways. You can either cut back, but the thing is you can only cut back so much when it comes to reducing your expenses. So instead, what we focus on a master money academy is, hey, sure, you can cut back early enough.

41:02Like we just talked about negotiating your bills and or cutting back some of your expenses. But then we want to focus on the income side, because we want you to live your dream life, the life that you actually want to live, and we want to increase our income over time. And so we can take that extra increased income and we can put it towards our financial freedom, the thing that we truly value, because we're a huge proponent of like, hey, if you want to spend more money on cars, you want to spend more money on things that you love, that's absolutely fantastic, but just know the trade-off that you're making is your freedom.

41:29And if you want financial freedom, that's your number one priority, then putting more of those dollars towards freedom is going to be the big thing. So we're not focusing on increasing our income so we could buy more stuff. We're focusing on increasing our income so we could spend on what we value, whether that is freedom or stuff. It depends on what that is. That's how we think about it and how we kind of get towards that goal. So your savings rate is the biggest proponent when it comes to financial independence. And then you think about, okay, well, what accounts do I need to be saving in, in order to achieve financial independence?

41:57Well, there's a couple of different options. The easiest one though is the taxable brokerage, just because when you look at the taxable brokerage, that's the most flexible funds. When you have them in there, you can invest them over time. You can pull them out at any given time. And they are pretty tax efficient. In fact, you could probably get up to, depending on if you're married or if you're single, if you're married, you can get up to about 120 ,000 roughly out of your tax or brokerage in any given year in retirement without having to pay taxes on it because of the standard deduction and then some of the other stuff that's available there.

42:25And so because of that, it's actually a pretty tax efficient fund for early retirees. But there's also things like the rule of 55. There's other ways to get your money out of some of these retirement accounts. You can do Roth conversions that really are ways that you can get them out even if you retire early. But the tax brokerage is kind of the easiest path to get there. And so we try to think through, okay, well, if we utilize this and we invest conservatively, how are we going to think about this? And so they start to build out their plan based on that.

42:51Andrew Giancola:Amazing to hear. It's one of those things, if you are in personal finance long enough, you learn that the savings rate is so, so key. And I love all the different techniques, principles, mindsets that you've shared just on this episode to help people get there. Can you tell us what's the... I'm just going to assume, and maybe I'm wrong so you can correct me, but I'm going to assume that being in an academy and being around other people who are all chasing how can we get better savings rates helps towards making progress in that. Can you speak to if that's something that you've seen and just tell us about your academy in general.

43:33That's a huge thing that we've seen. So we've seen other people kind of motivate each other. They create friendships, but the coolest thing that we do. And one of the things that we do is I coach them weekly inside the Academy. That's one of the things I do live is every single week I coach them and do group, we do group coaching. They can ask any questions. Everybody's, everybody's really, really involved, which is cool. But then we also launched small groups and in these small groups, it's people focused or working towards a common goal. So for example, we have a small group right now of folks who are beginner investors.

44:01So they're just learning how to invest and they're all kind of working towards that common goal. So we have our courses in there like Index Fund Pro, which is like teaching you how to invest in index funds and ETFs from a basic level, like a starting point. And so they'll take those courses together, then they'll talk about it and have conversations, then they'll ask questions in the group coaching calls. And so it's this perpetual cycle of them learning, taking action and motivating each other. And that is our entire goal with this. There's another group who is working on paying off specific debt they want to get paid off.

44:28There's another group that is working towards high income activity. So they are looking at some side hustles. They are looking at some side businesses. And we have seen people launch side businesses just from this small group. There's another group that is working on travel hacking. They want to travel more. And so they're working on credit card rewards and points and those types of things. And so we have all these different small groups. We have one on goals that just launched in January, where everybody's working towards their common goals, keeping each other motivated with their specific goals.

44:54And they're going to kind of meet throughout the entire year. And so in these small groups, They're all kind of working together and it's so cool to see them communicate. But then in like, we have these sections like where people can just ask questions and all of a sudden at the beginning, I was answering all the questions, but now you see all the folks who have been in the community for the last couple of months, they're all able to answer all the questions as if it were me. And it was just, it's just so interesting because they've learned so much early on that it's just a very powerful way where people are learning from each other.

45:20And it is just so cool to watch them grow.

45:23Andrew Giancola:That's awesome. Tell us about your podcast. Just people, there are people out there who still want to learn from you, even if there's competition in your community. But yeah, talk about your podcast and how people can find that as well. Absolutely. So our podcast is called The Personal Finance Podcast. And we have two episodes every single week. And it is one where we talk about just personal finance, investing. We have a bunch of different frameworks that we talk about and even income growth and side hustles, those types of things. And it is a show that my goal is to create a million millionaires.

45:57That's the entire goal when we started. And so our thought process is, hey, we want to give you those frameworks, those action steps that you can take in order to achieve those goals overall. So that is the personal finance podcast. It's on any podcast player. Would love to have anybody who wants to listen on that show as well.

46:14Andrew Giancola:Yeah, highly recommend it. Couldn't recommend it more. And if you guys want to hear Dave and I back in the day, you can go look in the archives and hear when we were on that show and probably made the fool of ourselves there. So Andrew, it was so great to have you. Again, thank you for being so forward with all the different ideas and mindsets and everything. I know there's at least something that anybody can take away from the conversation today. So thanks for joining us. Thank you so much for having me. And Andrew, if any of your listeners want to join Master Money Academy, I'll send you a link.

46:47I'll give them a free trial for they can test it out, see if it's even for them. And if they're interested in that, we'll give them a free trial so they can check it out and kind of get on some coaching calls and see if it works for them.

46:57Andrew Giancola:Awesome. We will put that in the show notes. So that is going to wrap us up for today. If you have any other questions, feel free to reach out to us. You know where to find us. Invest with a margin of safety, emphasis on the safety. Have a great week and we will talk to you next time. We hope you enjoyed this content. Seven steps to understanding the stock market shows you precisely how to break down the numbers in an engaging and readable way with real-life examples. Get access today at stockmarketpdf.com. Until next time, have a prosperous day. The information contained is for general information and educational purposes only.

47:44It is not intended for a substitute for legal, commercial, and or financial advice from a licensed professional. Review our full disclaimer at einvestingforbeginners.com.

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