How to Avoid Spending Anxiety

"Wife and I are both 27. We are at about $100k liquid net worth. We started 6 years ago but are both becoming misers! We get terrible spending anxiety. How do we overcome this and give ourselves some slack?" We'll walk you through that question and more in today's Q&A episode! Jump start your journey with our FREE financial resources Reach your goals faster with our products Take the relationship to the next level: become a client Subscribe on YouTube for early access and go beyond the podcast Connect with us on social media for more content Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:06Speaker 00

  All right, let's do this next question. This is from Hayden. Hayden says, "Hey, money guys." "Hey Hayden, can you talk about how to prepare to do a backdoor IRA conversion? My girlfriend is nearing the limit and has a small rollover IRA. I'm trying to get her to close." Ooh, there's a lot in here, Brian. I just think giving an education on what the backdoor IRA is and when it makes sense and how you execute it would be incredibly valuable.

• 0:38Brian Preston?

  Yeah, Hayden, first of all, tread carefully because we get you all excited. I've even, I had a really close friend. I remember last year, he sent me a text. He goes, "Hot dog, I'm so glad I listened to your show and I did that backdoor." And I was like, "Whoa." I'm trying not to say his name. I was like, "Whoa, you, did you get rid of that huge rollover IRA that you previously..." He goes, "No, I still have that." And I was like, "Well, you've really..." I was like, "You've gotten yourself in a pickle here." Because I was like, "You, you can't, you're going to have to prorate the basis, I mean, you're going to prorate this and you're going to have to pay taxes on that conversion now." And he's like, "What are you talking about?" And I was like, "No, there's a checklist when you're going to do a backdoor Roth conversion." Realize the backdoor name, I've just gone ahead and just given up and said, "Okay,

• 1:23Brian Preston?

  we'll go with it since that's what everybody in the industry calls it." But it really, it's a conversion strategy. It's back in 2010, they ripped off the income limit on doing Roth conversions where there used to be a cap of around $100,000 to do Roth conversions. They took it away in 2010. So now it doesn't matter what you make in income, you can convert Roth at all times. But the problem with this is, is that if you have an IRA rollover or... A SEP IRA that you set up because you have some side hustle income or your employer doesn't have a 401k, they have a simple IRA. Those IRA accounts all count as IRA assets that if you did a conversion where you took,

• 2:07Brian Preston?

  you know, pre-tax money and then turned it into a Roth, you have to look at your entire basis of pre-tax assets to determine the taxability of it. So that's why we always say if you go do a Roth conversion strategy, AKA the backdoor Roth, you gotta get rid of all the other IRA assets or otherwise this is not a clean strategy.

• 2:26Speaker 00

  So what do I just cash out that IRA?

• 2:28Brian Preston?

  No, do not cash out.

• 2:29Speaker 00

  I pay ordinary income tax and a penalty on it, right?

• 2:31Brian Preston?

  You can go ahead and figure out, hey, okay, so maybe I have a few thousand dollars. Maybe I do just can pay the taxes on that Roth conversion for a few thousand dollars. Or if you have a great 401k or a great 403B that takes contributions from previous plans or even IRAs, you can roll that money, do a trustee to trustee transfer into your employer plan and now those, you don't, you no longer have IRA assets that keep, that muddy up the basis or the taxability of those Roth conversions. But don't skip the step. You've got to actually get rid of those assets first, then you can consider making an IRA,

• 3:13Brian Preston?

  traditional IRA contribution, since you're not typically taking a tax deduction, it's an after-tax contribution into the traditional IRA. And then you can convert that into a Roth and since you didn't get a tax deduction on the contribution to the traditional IRA, it's a nice little way to fund a traditional IRA, not pay any income taxes except for on any earnings that traditional IRA might have made and then convert it into a Roth. It's, it's, it's clean as long as you go through and do your homework and make sure you don't run afoul of having other IRA assets.

• 3:45Speaker 00

  Now, let me ask you, because you're a bit of a tax expert, Brian. When Hayden is like talking to his girlfriend about this and saying, hey, here's something you should consider doing, what are some things when she files her taxes next year that she ought to think about or ought to like make? A little note of to be aware of when she goes through and does that.

• 4:03Brian Preston?

  Yeah, this is a great question. You should be prepared when you get these done because I see more mistakes with CPA prepare tax returns and other things because and also it's just be prepared on what's going to show up because it's not uncommon that your custodian is going to issue you a 1099R. And that's the first thing and it's going to show that it's all taxable. You're like, wait a minute, these knuckleheads told me that I was going to be able to do this since I didn't take a deduction on the contribution and then converted it. Why am I getting a 1099R from my custodian? Well, you'll notice usually on those custodians, they're going to have, they're going to have both boxes checked. They're going to say taxable and then it's going to say taxable amount not determined. And so they're basically saying, we went the safe way because we don't know what you've done here.

• 4:48Brian Preston?

  So we're just, we reported it to the IRS, but we don't know really if it's taxable or not. So that means it falls on your shoulder to make sure when you file your personal taxes, that you do a really good job of letting the IRS know, hey, what's going on here? And that's why make sure whoever prepares your taxes does complete the 8606. A lot of tax preparers just skip that form completely and it drives me crazy. And that's why we see so many notices for clients and others when they, when they do these Roth conversion strategies. They get notices because the tax preparer did not do the 8606. It didn't flow through properly. Didn't let the IRS know what was going on. So, and then also pay attention to is it the 5498? Yeah.

• 5:32Brian Preston?

  That will come through. Well, because it's going to show, it's going to give you the proof of what you did transaction wise. And always when I get the notices, I'm sadly, I don't prepare taxes anymore, but sadly I'm still writing tax notice letters because every now and then I'll run into situations where the CPAs can't figure out how to respond to the notices and the client will just get so frustrated. Instead of seeing everybody get all worked up, I've said, I've written a gazillion of these letters. I'll write the letter. Just send me the 1099R, send me the 5498 and I'm going to get you cleaned up on this. And so just save yourself the headache. Make sure your CPA reports it correctly with that 8606. And then keep your documents just in case the IRS gets confused.

• 6:14Speaker 00

  That's great.

• 6:15Brian Preston?

  This is another one of those complexities.

• 6:17Speaker 00

  Yeah.

• 6:17Brian Preston?

  I don't want people to find these complexities, but they just happen.

• 6:20Speaker 00

  They happen.

• 6:21Brian Preston?

  We're here, we're your tour guide, and we're like, "Don't worry, we got you."

• 6:25Speaker 00

  I love it. Hayden, that's a great question. If you would like Tumblr, Cousy Cousy Tumblr, you can write [email protected]. And go look, send this clip to your girlfriend and hope she enjoys it.

• 6:39Brian Preston?

  She'll be like, "Why are you listening to that?"

• 6:40Speaker 00

  Like, seriously, that really? This is what you're saying? It's so funny. So sometimes people will come by for tours, which we love, right? And it's always amazing. You always tell when someone comes by the tour and like, one person listens to the show, watches the show, but then the other person with him is like, "Who are these guys?"

• 6:56Brian Preston?

  Well, we always say, "Do you want to be on the phone?" Nah.

• 6:57Speaker 00

  Nah, nah, nah. I'll stand back here. I don't need to be on the phone. Yeah, it's hilarious.

• 7:01Brian Preston?

  Thank you for putting up with us.

• 7:02Speaker 00

  All right, this next question is from Sky. Sky says, "Wife and I are both 27. We are at about $100,000 liquid net worth." That's huge.

• 7:13Brian Preston?

  In fact, I can't do it. Okay. What I was trying to do is, "Woo!"

• 7:20Speaker 00

  Nate, do you have the sound effect machine over there? Real quick, will you hit the whistle when he does the motion?

• 7:24Brian Preston?

  I can't do it. I can't do it.

• 7:27Speaker 00

  Let's just keep going. Honestly, I could go for about two or three minutes of this.

• 7:30Brian Preston?

  Keep going, I'm sorry.

• 7:31Speaker 00

  Okay, here we go.

• 7:33Brian Preston?

  I can't do it.

• 7:33Speaker 00

  Please still try it again. "Wife and I are both 27. We are about $100,000 liquid net worth. We started six years ago, but we're both becoming misers. We get terrible spending anxiety. How do we overcome this and give ourselves some slack?" Brian, I have seen firsthand, you counsel people on this. They get so addicted to saving, so excited about growing their future nest eggs, so exciting about putting their money to work, that all of a sudden it causes them to clam up and go from mutant to miser. So what would you say to Sky? And are there some parameters that maybe we've established and put in place that could free... This couple to be able to spend the way they'd like to spend.

• 8:18Brian Preston?

  First of all, Sky, we have a show that we're actually recording right after this. I can't wait for you to see because it's going to really help you out to see what a huge head start it is to have $100,000 already in your twenties. Because we even when we were doing our content meeting, we were trying to, you and I were trying to backdate into when we crossed into that six-figure status because it is such a, y'all have seen me do videos on why the first hundred thousand is so important. But, so you're doing everything right, but I do want to give you the wisdom of somebody who's now in their, is this my sixth decade, I guess, because I'm in my 50s, you know?

• 8:57Speaker 00

  Is that the way that works?

• 8:58Brian Preston?

  So it's one of those things where I want you to, one of the big things, and I think this is a superpower of why I think a lot of you guys like hanging out with us is I am without a doubt, I'm a nerd and I want you to maximize, but I am this sentimental sap. I don't know what it was, once I crossed into my 40s, I just got so sentimental about making sure that I was still enjoying life, that the people I'm around, I don't take it for granted. So I do worry if somebody in their 20s tells me that they're just so scared to spend anything.

• 9:31Speaker 00

  Because 27 is young.

• 9:32Brian Preston?

  Yeah, I mean, I just, I want you, I think a lot of people, and this is something, and I'm not trying to sell you a product here, but it's just, I think it would be really helpful for you, and by the way, right now, because it's in Black Friday, there's terrific pricing on it. If you go to learn.money.com, we have a Know Your Number course. And here's why I'm telling you this, is because I think you guys are suffering from, you're obviously very good at saving money, but you're not getting the perspective of why you should feel free to live your best life because you've already done a lot of the heavy lifting by making an automated, automatic walk towards inevitable wealth is happening. You guys have set up some great behaviors, but you kind of need to have somebody whispering your ear, hey, you've done the hard part.

• 10:16Brian Preston?

  Now, everything above this, go enjoy your life. So that way you look back on your 20s and go, man, that was Incredible, you know, and for most 20 year olds, because this is me, I had to bedazzle my basic life, meaning that I was still big into making memories. It's just that I did road trips instead of going to Fiji or Bora Bora. Look, I still don't do those things, but because it's just some of these habits die, you know, you just have a hard time with. But, but it is one of those things that I would love for you to make sure that you're enjoying each decade of your life. So you don't have regrets later. And if you actually did the know your number and you saw, man, that hundred thousand dollars, once it grows and then whatever

• 11:00Brian Preston?

  were monthly automatic investments are growing monthly, do you see how much money we're going to have for the future? And then I think you will be released to say, okay, maybe we are getting closer to miser than mutant and we need to go make sure we go on a trip because or go do something. Cause I mean, Bo, you and I pick on it. We were talking to the content team is that like pre children. I mean, I liked, I remember the first time I went to an all inclusive place in Mexico, my honeymoon in Mexico, and we did it so cheap. I look back and I'm like, man, that was so cheap. We took like the cheapest earliest flights. We were zombies by the time we got there. But I look back and I remember I was like, this is the greatest thing ever. Cause I had never

• 11:42Brian Preston?

  done anything. And then I get to go on that first international trip and do that. And I look back and then we did more. We went on more trips and we did other things and you don't have to spend a gazillion dollars and still feel like you've been treated like royalty. Go out there and make those memories. So that way, when you get in the messy middle later, you can look back and go, man, those are, those are some fun memories we did. And I don't have regret about anything we've done in our life.

• 12:08Speaker 00

  What I love is Sky said that 27, they've been doing this for six years and it took them six years to get to a hundred thousand dollars liquid net worth. What's so awesome, we actually have illustrations on this. I don't think we have it in the quick queue, but you look at how long it took you to get that first hundred thousand. I bet that last six years, it felt like you were trudging along, trudging along, trudging along. What's amazing is the next hundred thousand comes even quicker. And then the next Even quicker. The hard work you've done thus far is setting you up so that your money will even start working harder than you can, so that you can have some of that freedom to do some of those things. And you and your wife ought to sit down and figure out, hey, what are the things that we value? What are the things that we would want to spend money on? For Brian,

• 12:52Speaker 00

  it was traveling and going on trips. Maybe for you, it's picking up a new hobby or learning some new skill that you can do together. It doesn't have to be spending on consumption things, but there is something about enjoying this stage and season because you'll look back 10 years from now and be like, holy cow, where'd the last decade go?

• 13:11Brian Preston?

  Yeah, you're only going to be in your twenties when this is Captain Obvious speaking to you, but you'll appreciate what this means. You're only going to be in your twenties for 10 years, thirties, 10 years, forties. Make sure every decade has its own special sweetness.

• 13:23Speaker 00

  I love it. Awesome. Sky, if you would like a Tumblr, you can write Tumblr, Koozie Koozie Tumblr, you can write [email protected]. All right, Brian, here's one from Mary. Mary says, wow, this is a, this is a great question. So Mary asked this question. Why is investing in 529 accounts, why does that not count towards our 25% saving and investing? For those of you that don't know, we have a nine-step tried and true process about what to do with your next dollar. We call it the Financial Order of Operations. Brian, will you hold it up?

• 14:02Speaker 00

  One of the things that we catch a lot of flack on is people ask is, okay, when should I start saving for retirement, saving for my college, my kid's college? When should I start funding the 529s? And we always tell them, hey, that's a step eight thing. And step eight in the Financial Order of Operations is prepaid future expenses, or as Brian likes to call them,

• 14:22Brian Preston?

  Abundance goals.

• 14:23Speaker 00

  Abundance goals. Oh, you made me so nervous you were gonna say.

• 14:25Brian Preston?

  Oh, no, it can't go. My brain was like, where's he going? Oh, yeah.

• 14:28Speaker 00

  Prepaid future expenses. This is after you're saving your 25%. So what that means is by the time you get here, you're already saving 25% for your future self, for your future financial independence. So Mary wants to know, why can't the 529, why can't college savings be part of that? Or maybe even to speak to, why do we call it a prepaid future expense instead of a financial independence thing?

• 14:52Brian Preston?

  Yeah, I mean, let's, let's, let's take it down to what it is. I mean, kid's college, it's important. But, I mean, there's lots of funding sources from that. Do you know, I mean, maybe you're creating a prodigy that's going to be a great athlete. Maybe they're a great student. And there's going to be a full scholarship that pays for all these things. We don't know. I mean, there's, that's an opportunity. Maybe there's a grant or something out there, or something that comes their way that makes college very affordable. Now, let's flip it over. Your retirement. Is there, I don't care how good of a person you are, how much work, is there a scholarship for retirement?

• 15:31Speaker 00

  If there is, I'd like to apply for it.

• 15:32Brian Preston?

  Um, is there a credit for retirement?

• 15:35Speaker 00

  Haven't seen those.

• 15:36Brian Preston?

  I don't even, yeah, I mean, that stuff doesn't exist. How about a loan? Cause you know, even worst case, I don't like student loans, but you can at least as a student, go get a student loan. Are there retirement loans?

• 15:46Speaker 00

  Nope.

• 15:47Brian Preston?

  So, as you can quickly see, Mary, this list gets a lot shorter. So, we probably ought to make sure, if we found out that the priority is, let's make sure you have a good retirement and a good financial future ahead of you. Because, by the way, that's a gift to your children as well. Do you know how many people, we talk to adults all the time, they are completely stressed out because now they not only have to, in these high cost of living times that we're in right now, save for their retirement, but they have to take care of, they know there's an obligation sitting out there for their parents that never actually saved and invested for themselves. And they're feeling the weight of that right now as we speak. So, the best thing you can do, take care of your financial future first, just like

• 16:28Brian Preston?

  the, the flight attendant tells you, put that oxygen mask on your face before you help out your kid. And then, of course, we love our children. That's why you should prioritize getting through steps one through seven as fast as you possibly can in the financial order of operations. Go download it, moneyguy.com/resources. If you really want to fine tune it, you can download Millionaire, or you can go buy Millionaire Mission, where I really detail all these, these details. Um, I don't know how many times I'm going to say detail, but then you get to step eight.

• 16:58Speaker 00

  Detail those details.

• 16:59Brian Preston?

  That's where really you can go let loose and fund the kids' college with reckless abandonment because you've done everything you needed to make sure you're in a great place. Um, but that, that's why, Mary. I mean, it's not that we're trying to be cruel. It's trying to get you in a good place first, and then we can take care of the kids.

• 17:18Speaker 00

  Mary, that was an excellent question. If you would like a Tumblr, you can write winner at moneyguy.com. And look, I know Nick's telling me I can't do this, but I'm gonna ask this one anyways, because the people want to know, and I know that Brian's gonna be so excited. This is from Chris F. Chris says, hey, not a finance question. So, not a finance question. But is Brian going on any of the new Disney cruise ships? Does Brian know anything about the new Disney cruise ships? Any recommendations there for cruising? Right? Because the big thing, is that something that's on the Preston planning calendar?

• 17:54Brian Preston?

  I did go on the Wish last spring break. That was one of the newer ones.

• 18:00Speaker 00

  How was it?

• 18:01Brian Preston?

  It was good.

• 18:02Speaker 00

  Have you ever been on a bad Disney cruise?

• 18:04Brian Preston?

  I mean, no, it was really good. And I was even, this is the first time, we went with another couple and our kids. Yeah, I was trying to make sure, because Avery, my oldest, you know, is in college, so sometimes she's in, sometimes she's out. And I was trying to, yeah, she was on that one. But it's sad. This is what happens when you get older.

• 18:21Speaker 00

  Oh, not ready for that.

• 18:22Brian Preston?

  You're like, is she here? I loved it. And they even, like, I will tell you, we even did some things. I've been on a few other Disney cruises, but this was fun going with friends. Because we even did this thing with the Rose. They had like, can you believe Disney offers mixology classes?

• 18:39Speaker 00

  No.

• 18:41Brian Preston?

  So, we did this. It had a great event there. We had great dinners with the kids. I even, they get you all wound up and excited about things that I even put a deposit on a future cruise, but we're probably gonna hit the deadline before, and I'll get the refund. That's why I did it, is because you get the money back.

• 18:57Speaker 00

  Because it's fully refundable, right?

• 18:58Brian Preston?

  Yeah. So, you give them a hundred bucks, 200 bucks, and they'll tell you, we're gonna give you the best discount you've ever seen. It's all overpriced, but it's still good. And so, I did, but I don't have any plans. I've watched a lot of YouTube videos on some of the ships. I mean, the best ship I see coming out right now that I wish I could go on, but there's no way I could get over there, is that ship coming out in Singapore. Holy cow. That thing, it's like, it's even got its own little Central Park. Like, you know, Royal Caribbean has Central Park and stuff. That ship that's come out in Singapore has some of that stuff, and it's, it's really well done, but... There's a lot more money in Singapore, so I think Disney's throwing the kitchen sink at it.

• 19:34Speaker 00

  Are you a big cruise guy, like, given your choice, like, you love going on cruises? Like, it's like a desired vaca- or you just, you sprinkle them in with the other vacations?

• 19:42Brian Preston?

  No, I'm a theme park and a cruise, I mean, because I have to realize, having one child that's developmentally disabled and then a normal, you know, normal's not the right word, but a typical child, they have very different

• 19:57Speaker 00

  Things that they enjoy and things they want to do.

• 19:59Brian Preston?

  But you know what we're united on? Theme parks and cruise ships.

• 20:02Speaker 00

  I love it.

• 20:03Brian Preston?

  I can, I can use that as currency to even get my oldest daughter to come back and do trips with us. And, and back to being, me being a sentimental sap, I love making memories and doing things, going to, to fun places. And, um, so I do love cruising. I mean, I did, after the book tour to celebrate Millionaire Mission, I did a European cruise with the family last summer.

• 20:25Speaker 00

  Yep.

• 20:26Brian Preston?

  That was really cool, um, doing that, um, I'm worried we ruin the family because we did that one. We really celebrated Millionaire Mission because it did so well that I'm worried we ruin the family on how nice we did that trip.

• 20:38Speaker 00

  You know what else I know that you love doing?

• 20:41Brian Preston?

  What?

• 20:41Speaker 00

  You love that we get to create this content for you guys, that we can speak into the things that you care about and we-

• 20:48Brian Preston?

  Does Chris get a Tumblr for that? Do you go give Chris a Tumblr for that? Look at you. You're so charitable.

• 20:54Speaker 00

  I guess. Sorry, Revi. Chris, if you'd like a Tumblr, you can write [email protected]. We love that we get to do this. We love that we get to be a resource for you. It doesn't just stop right here in the live stream. If you've not been out to the website, make sure you go check out all of our resources at moneyguy.com/resources. If you want to take advantage of our Black Friday sale going on right now until December 2nd, go to moneyguy.com/blackfriday. And if you've not subscribed to the newsletter or subscribe to the channel, make sure you do both of those things because you do not want to miss out.

• 21:29Brian Preston?

  Okay, so you see, you got me all, I'm like, ready to go on a cruise right now. You really have thrown me for a loop with that Disney question. Guys, we have an absolute blast, and I think it really does go back to, money is only a tool. It's really not, it's not, it shouldn't be the thing that gives you purpose. It should be just a tool that helps you amplify you living your best abundant life. I'm your host, Brian Preston, Mr. Bo Hanson, Money Guy team, out.

• 21:57Speaker 02

  The Money Guy Show is hosted by Brian Preston. 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 and does not constitute financial, tax, investment, or legal advice.