Pod Insights Money Guy Show Master Your Finances In 35 Minutes About this episode Debt isn’t always the enemy, but it is chainsaw-dangerous. We walk you from beginner to mastery with the exact guardrails for cars, college, and housing, how to move from budgeting to cash-flow freedom, and the investing system that compounds for decades. You’ll learn why 25% saving works, how target-date index funds keep it simple, and how to calculate your “number” for financial independence.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:01 Speaker 00 This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18 plus.
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0:56 Brian Preston? No matter where you are in your financial journey, we want to help you master money. And it might not be as hard as you're thinking.
1:03 Speaker 03 Brian, I am so excited about this because we love helping people do money better. But depending on where you're at, what you need may be different.
1:13 Brian Preston? So we're going to look at four main personal finance categories. We'll meet you where you're at and start with the beginner's level, then move all the way up to mastery. So with that, let's jump right in.
1:30 Speaker 03 All right, Brian, so let's start at the very beginning with a category that I think a lot of people get wrong or maybe misunderstand, and that's debt.
1:40 Brian Preston? Oh, man, don't get us started on debt. This is one where it really does create a bridge to nowhere. I feel like the typical American is that they have this lifestyle that they think that they should have, but they can't actually afford it. So what do they do? They fall into the trap of using debt.
1:57 Speaker 03 Yeah, but what you do is as you begin to advance in your financial life, you recognize that debt is not just something that can help you float your lifestyle. It actually can be a tool. So we want to talk about, depending on where you are in your journey, journey. How to understand what a beginner understands about debt, what someone who's at the advanced level understands about debt, and then someone who's at the mastery level understands. And this is what someone at the very beginning level of understanding around debt would believe, they would believe that debt is dangerous. And in fact, that is true, Brian. Some would even say it's chainsaw dangerous.
2:33 Brian Preston? Yeah, I think that I consider debt in the beginning to be a wealth trap. And let me elaborate what I mean by that is that we, and we'll cover it in greater detail. We talk about the three ingredients to wealth creation. If you're thinking about consumer debt, credit card debt, and other traps that most people fall into, it works against two of those key ingredients. If you think about the fact that, because you feel like sometimes when you have this easy access to credit cards, you don't have to be disciplined. There's one ingredient that we're totally working against. The second thing is because you're not disciplined, you might accelerate purchases that you're just not ready and you can't afford. And the problem I have is that it works against that all powerful time ingredient
3:14 Brian Preston? because this is, guys, you realize all the time that you're trying to get back out of that hole paying down or paying off the credit cards, you're missing out on all the wealth multiplier opportunities of that wealth to grow.
3:26 Speaker 03 So what do you need to do? Well, at the beginning stage, you just need to put up barriers. You need to recognize that there are things you can do in your life that will prevent you from using debt the wrong way. A great one is an emergency fund. If you're following the financial order of operations and you get to step four, you know that we want you to have three to six months of living expenses in a fully funded emergency fund so that you don't have to use debt as a crutch. And we also want to make sure that you have appropriate risk management metrics in place, that you are insured against the risks that you can insure against. So that if one of those unknown unknowns comes your way, you do not have to rely on debt to be the thing that gets you out of the tough spot.
4:08 Brian Preston? Yeah, well done. I think this is the thing. We're giving the American public a lot of credit with this, but I do think it's an important barrier. Emergency reserves, as well as having good insurance protection is going to keep you from making those desperate decisions where the first people, first place people Typically go is the credit card debt. And we know that that is the trap that will keep you from becoming wealthy.
4:28 Speaker 03 Okay, so the beginner level folks believe that debt is dangerous. But as you again, but progress in your financial journey and you reach the sort of advanced level of understanding, you begin to recognize that debt in and of itself, it may actually be a necessary evil.
4:43 Brian Preston? Well, yeah, I think, look, I think about myself, I didn't get a credit card when I was in college because I was scared to death of getting a credit card and what that meant. But I did find out as soon as I graduated college, I quickly realized I needed a car. And I was, I didn't have cash to buy a car, so I had to finance a car. So there is a point where you realize, okay, now we have to graduate from beginner to where debt is a trap. It's dangerous. Now I've got to realize, how do I work with car loans? How do I deal with student loans? How do I deal with a mortgage in the future? Debt is going to be something that's probably going to be in my life.
5:15 Speaker 03 Yeah, those three things that you just mentioned are exactly that. They're for most folks, the three largest, most expensive things you'll ever buy. Your education, if you're having to fund it yourself, your automobile is the thing that gets you to and from your job, as well as your home. It's the thing that literally provides shelter over your head. So if you want to master the advanced level of understanding about debt, you need to know the limits. And knowing the limits is understanding where your boundaries are around these necessary purchases that you have to make.
5:45 Brian Preston? Well, that's why I don't, I feel like the typical American is like, they're like, well, if you could give me a little, give me a lot. And that's what we know. You need to know the limits. And that's why we've tried to give you guidelines for all these big life decisions. Let's jump right in on the first ones. I told you, car purchase. I had to go buy a car so I could get to my J O B and start this wealth building process. Because in the beginning, I didn't have money, but I had time and I had my skill set. But I needed to get to the job so that I could start creating that margin that created the wealth in the background. And 238 is going to keep you safe because here's what 238 does for you. We're going to require that you put down 20% on this new car purchase. We're going to make sure that you don't finance it longer than three years.
6:28 Brian Preston? You know what that's going to do? That's going to protect you from buying too much car because you can't. Truly afford it. And then we want to make sure that your monthly payments do not exceed 8% of your gross income. Now, Bo, there's some overlying things that we put with this too is that this is never luxury cars. And this is also one of those things where I don't want your car payment exceeding your monthly investments.
6:52 Speaker 03 If you can do this when it comes to buying a car, you're going to keep yourself inside the realm of where you need to be. Well, student loans are no different. That's why for most folks graduating, we have what we call the first year financing rule. And basically, this is what it says. You should not incur more student loan debt than you anticipate your first year starting salary to be. Now, there are obviously some caveats. If you're someone who's in a vocation that has an extended education period, or maybe you're in a higher earning career like the medical field or something like that. But for the majority of college enrollees, you want to make sure that the amount of debt you incur over your two years, three years, four years of college, does not exceed what you anticipate making in your very first year out in the workforce.
7:35 Brian Preston? Well, that helps us on making sure we have the good debt of education. It doesn't run away from us. Let's talk about mortgages, because this is another big life decision. Now, we unlike others, we haven't had to change our rules. We've been very consistent about this. I want you to, if you don't go out to moneyguy.com/resources and look at our home buying checklist, I think you're missing out because one of the first things it's going to tell you to do is that you've got to be in this house for at least five to seven years. And sometimes with these interest rates and some of the other things going on in the market, it might even be beyond that, Bo.
8:08 Speaker 03 Yeah, absolutely. In addition to having the right time horizon, we say that when it comes to buying your first house, if you can't put down 20%, that's okay. It's not a must on your first time home purchase. But if you decide to put down less than 20%, one of the things you have to make sure of is that the total amount of your monthly payment, the total amount that you're paying on housing cannot exceed 25% of your gross income. If you find that your housing costs are above that, you're going too far out on the risk spectrum, you likely are buying more house than you can afford. So if you can go out and check out the home checklist, you can use the home buying calculator on the website. Make sure you're making this decision well, because once you figure this out in the advanced stage,
8:52 Speaker 03 then you get to move on to mastery and mastery is kind of exciting because remember in the beginning, you recognize that debt was dangerous and then as you advanced, you begin to believe, okay, well, debt's just a necessary evil that has to be there, but at the mastery level, you begin to understand that debt is actually a tool.
9:10 Brian Preston? Now, don't mishear us. We still say that debt is chainsaw dangerous. I mean, it is one of those things where even myself, I'm every time I sign the dotted line for new loan, I'm scared about it. I lose a little sleep about it. I think that's a healthy thing because it's just like the chainsaw. If you're using this tool and you're not scared to death, you're probably using it wrong. And what do we mean by that is that debt, just like a chainsaw, it's going to make, you know, if you're like, think about, we do commercial real estate on things, be a lot harder to do commercial real estate if you couldn't use leverage.
9:45 Speaker 03 Yep.
9:46 Brian Preston? So it is a tool, but it's also one of those things you have to understand how dangerous it is so that you can know, hey, this is either going to be a tool that is going to accelerate my wealth building, or it's going to lead to my demise and that we're trying to help you avoid the boom bust cycle that you see so many people get into this trap of debt. So Bo, we've tried to help them by putting together, you need to understand the difference and we even have some rules so you can make sure that you're understanding how to use debt appropriately.
10:13 Speaker 03 Yeah, that's right. If debt is a tool, it's no different than any other tool. Some tools are appropriate for some jobs and some tools are inappropriate for other jobs. So you have to know the difference and recognize when should debt be utilized and when can it be advantageous? And when should it be avoided and when is it not advantageous? And so we kind of walk through student loans and we walk through car loans and we kind of told you about mortgages and homes. But when we think about, okay, how do I discern? Okay, is this debt good, low interest productive debt, or is this debt bad, harmful, high interest debt? There's a litmus test you want to work through. And so If you're someone who's in your twenties and you have student loans that are greater than 6%,
10:59 Speaker 03 that may classify as high interest debt that may not be working for you in the way that you want it working for you. By the time you get to your thirties, it drops down to 5% and in the forties, it drops down to 4%. When it comes to auto loans, again, this is assuming that you're following 238. But if you're in your twenties and your car loan is below 10%, you may not need to prioritize paying it off quicker than that 36 months. In your thirties, that interest rate drops to 9% and in your forties, it drops to 8%. And then when it comes to credit cards, credit cards, when it comes to carrying a balance, are always a destructive tool. They are not something you should use if you carry a balance. So you should never carry it month to month to month.
11:41 Speaker 03 Credit cards should be paid off in full every month without question.
11:45 Brian Preston? Well, and think about it, those 0% credit cards, they're a trap is because I don't want you to not feel the pressure of that short-term debt because you know what happens if you don't pay off those credit cards. You're going to be paying 20-plus percent debt, interest on that debt. And that's just, that's too far. That's too much. So you need to be scared. You need to kind of respect this tool. So that's why I don't like using those 0% credit cards.
12:12 Speaker 03 All right. Again, we're talking about Brian, how to master your finances. So we've covered debt, which can be a tool. Now let's talk about another thing that you have to master. If you really want to master your finances and that's spending. And even depending on where you are in your financial journey, you may look at spending differently. For those that are in the beginning phases, you just have to recognize that the key to financial longevity, the key to being able to build wealth is a very simple concept that you've likely heard over and over and over again. When it comes to spending, you have to figure out, how do I live on less than I make? How do I live below my means?
12:53 Brian Preston? This is probably the greatest indicator of if you're actually ever going to be able to build wealth. If you're one of these people, as soon as it comes in your, your bank account, it's just as easy out the door.
13:04 Speaker 03 Burning a hole.
13:05 Brian Preston? It's burning a hole in your pocket. You will never build wealth. And I hate to be so dire with it, but it is. If you can't understand, and this is why it's a great lead in to what are the three ingredients to wealth creation? And we've kind of already alluded to this, but I think it's always worth kind of covering this. The first one is that discipline of living on less than you make. If you can't do discipline of living on less than you make, you'll never get out of the starting blocks of building wealth. But also when you live on less than you make, that margin of the difference actually creates the money, which is the second ingredient, because you have to have something that actually starts allowing you to invest that money or that margin, putting that army of dollar bills to work.
13:46 Brian Preston? And if you give it enough of the most important, the third ingredient, which is time. Guys, if you want to know, whenever I hear 20 somethings tell me that the, the life is just too hard, they can't invest right now. I'm like, guys, a little goes a long way because you are a billionaire of time is that it takes just little, little incremental decisions to create huge results. Remember I was the guy in high school, had the economics teacher say a hundred dollars a month will make you a millionaire. And I'm here to tell you it works. So don't think in big terms, even $25 a month will change your life.
14:22 Speaker 03 And if you can figure this out early on, like if you can recognize this soon, it becomes so powerful. It's why we've come up with the idea called the wealth multiplier, that for a 20 year old, if you can figure out how to live on less than you make, and you can master that behavior, every dollar that you save for the future has the ability to turn into $88. But the longer you wait, the less impactful your saving can be. So the quicker you get your grasp around living below your means and creating that margin, the more powerful your dollars are going to be as they begin working for you. So then, once you figure that out, you then begin to move to the advanced stage. This is where you recognize, okay, well, not only do I need to create.
15:03 Speaker 03 Create margin, but the amount of margin that I create actually matters. So perhaps at this stage, I need to really begin focusing on either budgeting or tracking where my dollars are going on a month over month basis.
15:18 Brian Preston? There's, there's kind of a theme with a lot of our money guy content is that we want you to own your time that much faster and you're going to quickly realize, yes, it is true that small decisions have huge impacts. But the bigger the margin, or as you were just laying up, is if you start budgeting and doing some of these other healthy behaviors in the advanced stage, you're actually going to increase how much you can put into your monthly investments. And that's going to accelerate your wealth building journey substantially and exponentially.
15:46 Speaker 03 And then, once you know where your dollars are going, it will allow you to then begin to command them in the right way. Cause a lot of us want to save for financial independence and we have these long dated goals. But there are other shorter term goals that if we're budgeting and if we're tracking, we can begin building in. So if you're someone who's in this advanced stage, one of the things you may be doing is you may begin to use sinking funds. These ideas that, okay, I know there's a thing coming and I might not be able to pay for it out of pure cash flow. But if I save for that car replacement, if I save for that HVAC repair, if I want to save for that vacation, because I'm budgeting, because I'm tracking, because I know where every one of my dollars is going,
16:28 Speaker 03 I can begin even creating margin around those intermediate term goals that I have. And sinking funds are a great tool and a great behavior to help you begin to do that.
16:39 Brian Preston? Well, I think a lot of things in personal finance, if you look at them as a whole, you'll get overwhelmed. Cause you start thinking about how many steps, you think about how much it costs. What I like about sinking funds is it makes bigger goals that you know are upcoming. They, they're just that much easier because you're, you're planning ahead, you're giving yourself that component of time. You're building that margin in. So it actually kind of fulfills itself through that discipline and planning ahead.
17:04 Speaker 03 And then as you continue to advance, again, we're talking about how to master your finances. And specifically, we're talking about how do you master the spending side of your finances? You've understood that you need to live on less than you make and you understand you need to command your army of dollar bills. But there is. An amount of muscle memory that begins to set in that hopefully, once you've mastered it, you don't have to stick to the budgeting and tracking as much. You actually get to move to a cash flow management.
17:30 Brian Preston? Well, there's a diminishing return. If you're getting your 40s, think about, because that's typically the decade people cross into seven-figure status. If the habits that got you there, and then sometimes those financial mutants, we just keep, you know, if it worked here, let's just keep rocking and rolling. But there's a diminishing return if you are tracking every receipt and making your spouse come to you for every little thing they spend. At some point, you're gonna be like, you're going to become known as this tightwad. And it's going to, it's going to impact your family. It's going to impact your spouse relationship. It will have negative consequences because you've transitioned from financial mutant to financial miser. And so that's why when we talk about the mastery level, we're saying,
18:11 Brian Preston? hey, it's okay if your cash flow management for your spending actually graduates to what we call a cash flow management plan for scarcity, where maybe now you have autopilot for most of the things that you're saving and investing. As you get pay raises or more income streams come your way, you just automatically allocate a portion, but you let the rest in a healthy way goes towards healthy lifestyle.
18:34 Speaker 03 Yeah. So what is cash flow management? It's the idea that I know my dollars are going where they're supposed to go. So it doesn't matter where my other dollars, I don't need to have the grocery budget, or the eating out budget, or the miscellaneous budget, or the, any of the other budgetary categories. Cause I know that I'm saving the amount that I'm supposed to be saving, and that's happening first. So anything above and beyond that, I get to spend and I can spend it freely without having to be concerned with it. Now, one of the things you have to do if you are in a cash flow management plan is you do want to make sure that you check in and adjust it regularly. Just because you were able to start moving from budgeting and cash flow management at age 30, does not mean that your life circumstances have not changed drastically by the time that you get to age
19:18 Speaker 03 40. And you want to make sure that the amount that you're saving, the thing that allowed you the freedom to be in a cash flow management plan, has been appropriately adjusted as you're Lifestyle and as your income changes as you continue to progress to the mastery level of spending.
19:35 Brian Preston? I love how us going from the beginner to mastery really does mimic how just this is going to be dynamic. Guys, that's why be careful of systems that say one size fits all because we just know behavior changes as you graduate through the process.
19:50 Speaker 03 All right, Brown.
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20:47 Speaker 03 Talked about debt. We've talked about spending behavior. Now let's talk about the third category. This is actually getting our money to start doing something for us and this is investing behavior. And I think it's really interesting. A lot of people learn about this early on, but it never actually takes hold. It never actually gains traction. So when you're in the beginning stages trying to figure out, how do I move to mastery of investing behavior? Early on, you just have to do something.
21:18 Brian Preston? Well, this is the part, and I've already alluded to this, is that 20 somethings are already billionaires of time. And if you understood how valuable that component of time was, you wouldn't sleep on it. But so many Americans, I think they, they come out and they get their first job and they say, you know what, but rent's expensive, groceries are expensive. I'll wait. Until I'm in my 30s before I pick up this mantle of building financial independence and investing. It'll be okay. And I'm here to tell you, 25 bucks, a hundred dollars a month, which doesn't seem like a lot. Just that automated behavior of doing something is going to have huge results.
21:58 Brian Preston? And probably it's going to be the thing that your 50, 60 year old self is going to have those sloppy tears of excitement for. Just because you made a minor, very minor decision back in your twenties. So choose your heart. You can either, you know, take a little bit of today for that great big beautiful tomorrow, or you can defer, procrastinate, and it's just going to require more and more from you.
22:21 Speaker 03 You just said something so beautiful right there. The key is to start doing something. And then how do you make sure that you continue doing that thing? You automate it. You put systems and processes in place so that you can't screw it up. Okay, if I'm going to save 25 bucks a month, you know what I'm going to do? I'm going to have that come out of my paycheck every single month on payday before it ever even gets to my checking account. And if I can do that, I'm likely going to set myself up to begin replicating and recreating that behavior over and over and over. What that allows you to do is move from the beginning, beginner status up to the advanced status. And once you get into the advanced status, this is where it gets kind of exciting because this is where you recognize
23:04 Speaker 03 how powerful saving and investing 25% of your gross income.
23:08 Brian Preston? Well, remember in the beginning stage, I was just trying to get you to do 25 bucks, a hundred bucks, because I knew it was to tell you to save and invest 25% of your income would just be like, oh my gosh. That's aspirational, but that just seems disconnected from reality. We get it. But if you want to know the science or the math behind, why do we come up with and tell everybody when you get to advanced, you want to be at 25%? If you go to moneyguy.com/resources, we'll actually show you the intersection points is that of course, if you start saving and investing in your early twenties, 10% can do tremendous good for you. But unfortunately, the typical American does not discover the wonderful world of finance and the power of compounding interest until their 30s.
23:52 Brian Preston? And you very quickly will realize if you go look at our deliverable here, the 30s is going to probably require you to save and invest 25% of your income.
24:01 Speaker 03 And then as we're thinking about being at the advanced level of investing behavior. One of the things we want you to recognize is that time in the market is so much more valuable than timing the market. You've already made the hard decision, I'm gonna do something. I'm gonna start investing, I'm gonna start putting my money to work. But the other half of that equation is you have to recognize that part of being able to be a successful investor is giving myself a long enough timeline to actually stick with it. It's great that you start investing today, but what's even better is when you continue investing for the next 20, 30, 40 years. And it's far too often, we see someone start so
24:43 Speaker 03 strong, they get excited, they hear this like, oh, $1 turns into $80, I'm gonna do it, I'm gonna start. And then all of a sudden, life happens and it comes in and I'm gonna, I'm gonna decrease my savings rate, or I have this other goal, or I'm gonna shift, and you never get back on it. All of a sudden, a year goes by, and then five years goes by, and then a whole decade goes by. And what you do not recognize is, holy cow, the time I missed out on was so, so valuable. So if I wanna master, if I wanna get to the advanced level and be able to think about moving towards mastery, I have to actually be in the market. I have to actually have my dollars working for me if it's going to be successful.
25:23 Brian Preston? Well, the stick with it has to be strong for you to be successful. And I've talked about on several shows, that first 10 years is probably gonna have two downturns. And a lot of people will just quit. They either sell their investments, or they'll quit investing any additional funds, and they'll just leave with what they, they had. That is a trap, guys. And if you want proof, we, we have this saying, we say, when in doubt, zoom out. Is, cause if you go look at all the crazy historical stuff for the reasons why you shouldn't stay invested, but you see it on the grand scale of what's happened over history, you can see that if you just stay with it, and just always be buying, as we constantly talk about, your
26:06 Brian Preston? future self will be rewarded. The all time return, if you go back, is 17,000%.
26:14 Speaker 03 Wild.
26:16 Brian Preston? Because we've already put the percent on there for you. And that takes into account the Black Mondays, the dot com, the Great Recession, the COVID crash. All these things are built into this analysis. I'm just telling you, you don't have to try to choose the winners, just buy the market. There's so much opportunity out there and then stick with it. Your future self will be so happy you did.
26:34 Speaker 03 Now, you may be thinking, okay, guys, saving 25%. That, that must be mastery. You guys mentioned that in advance, but that has to be mastery because you've already acknowledged that saving 25% will get me to financial independence. I can get there if I implement that behavior. But we actually have a belief that money is nothing more than a tool. So if you really want to master your investing behavior, it's not just about the mathematics. It's about understanding what is it that my dollars can do for me? What is the life that I ultimately want to live? And so, yes, saving and investing 25% is part of the process.
27:15 Speaker 03 But what we really want you to figure, once you get to the mastery levels, okay, what is my number? What's the level of assets, the level of wealth I need to achieve? So that I can live life on my terms, so that I can do what I want, when I want, the way that I want to. And that matters a whole lot more than how many zeros are there. So understanding what your money can do for you and investing in such a way to move towards that goal is how you begin to master the investing behavior side of the equation.
27:47 Brian Preston? So much in money. Look, we can give you the basic ground rules, but there is going to come a point, this is why it fits into the mastery. It's somewhere you're going to need to know, are you ahead of the curve, behind the curve, or right where you're supposed to be? You could be somebody who started saving young, but because you want to leave the workforce in your early 50s, that's going to require you to save even more than this 25% we're talking about. You might be somebody that's caught fire now, but you're in your early 40s. And unfortunately, you just didn't know about money until your 40s. You're going to probably quickly realize, hey, I need to know my number to know, am I doing okay with just where I'm at? And then there's even, let's go with the optimist. What if you were spot on, you had some success? Your twenties, you've been crushing and you've been hyper saving. But then you get in your forties and fifties and you didn't know your number.
28:33 Brian Preston? You might be doing life in a minimal way when maybe you need to be, it'd be okay to expand your lifestyle. That's why know your number is going to protect you from all those scenarios.
28:42 Speaker 03 Yeah. And when you do that, you get to find the balance where not only am I focusing on this like long-term, far dated goal of financial independence, but if I'm doing this well, I can also begin to hone in on some of these other abundance goals. Maybe it is saving for the kids' college, or maybe it is giving charitably, or maybe it was traveling different. Maybe it's these other things that once I understand what my number is and I can match my behavior to achieve that. Not only do I get to focus on the one goal that's all the way down the line. I get to focus on all the goals between where I'm at today and that point. And begin to use my money and use my dollars to allow me to hone in on the things in this life that really, really matter.
29:23 Brian Preston? But I love that the kind of one of the closing sections we're going to be talking about is now portfolio management. And a lot of people are shocked to find out, you know, as financial planners that we, we actually love index investing. And I think this lends itself nicely into beginners. We, the first thing we tell them is keep it simple.
29:43 Speaker 03 Yeah. I think a lot of folks think, okay, okay, I'm going to start investing. I gotta go, I gotta get like the, the six computer screens with all the tickers and all the charts. And it's gotta be all over the place. It doesn't have to be that way, and it certainly doesn't have to be that way when you start out. Brian, back in the dark ages, when you started investing, it was a lot harder to be able to put your money to work. But now the world has gotten so easy that if you literally have a cell phone, you can open up an investment account and you can get your dollars working for you right now today. It does not have to be complicated, even though a lot of folks do complicate it.
30:15 Brian Preston? Back in, back when I started out, you had all these gatekeepers that even if you were doing something as simple as a mutual fund, more than likely it was a commission fund. It was with an active manager, it was not an index fund. So we saw the progression of index funds came on the scene, ETFs came on the scene. But still at the end of the day, a lot of people, because we love the low cost, we love how efficient, but a lot of people are. Saying, yeah, but what I have it when I'm 22 is going to be different than what I need at 46. How do I answer that? Cause I don't want to be a financial professional right out of the gates, but I love this, this concept of index funds. That's why we embrace what's called indexed target retirement funds because they really boil it down to really simple questions is how much can I save each month? And then when will I actually need this money?
30:59 Brian Preston? If you can give me the date that you need the money and then how much you can save, there's likely a, a, a low cost indexed target retirement fund with like, you think about the big providers are like Charles Schwab, Fidelity Investments, Vanguard. And these things, they will allow you to, to set it and forget it. And as you're young, they're going to be aggressive, but as you get older, they're going to get more conservative. And if you look at them, but go do your due diligence on each one of them to make sure it matches how aggressive or how conservative your personal situation requires.
31:29 Speaker 03 So then as I'm thinking about portfolio management, okay, I'm at the, I've got the beginner figured out. I know that target retirement index funds are a great solution and I can keep it simple. But as I advance, I do know that complexity naturally shows up. And so I just want to make sure that when it comes to portfolio management, I'm doing the right things at the right times in the right places. That's the exact reason why we came up with the financial order of operations. So if you want to think about how to advance into the advanced level of portfolio management, that's exactly what the financial order of operations is. We wanted to remove some of the guesswork of, okay, well, I'm doing the target retirement index funds, but should I do it in my Roth or in a traditional IRA?
32:13 Speaker 03 Or how does my 401k or even at the point where I need to start investing, the financial order of operations was structured in such a way that those questions are already answered for you.
32:24 Brian Preston? Well, it's going to tell you what to do with your next dollar. And what I like is that the system is so just structured in a way that it even answers the more complex stuff. If you think about when you get to step seven, hyper accumulation, this is when the three bucket strategy comes on because not only do we need to think about asset allocation, but we need to think about tax location and different investments do different. Things better. Think about pre-tax. If your employer is giving you free money, you probably, these things will be taxes, ordinary income. You're going to load these things up with those, you know, in your 401ks, your tax-free or all your Roth accounts. These are the things that are going to make you a tax-free millionaire in the future. Your Roth IRAs, your Roth 401ks, your health savings accounts for growing tax-free.
33:06 Brian Preston? And then, of course, after-tax accounts. These are your brokerage accounts. They can serve as a bridge account. They can serve as opportunity accounts. For if you come into investments, we love all three of these and they come into that advanced strategy when you're really in step seven of hyperaccumulation.
33:22 Speaker 03 Now, here's the thing. For the vast majority of folks, the advanced level of portfolio management is going to suffice. It's going to be everything that you likely need to know in order to build towards your future financial independence. But this is the Money Guy Show and we do want to talk about how you become a master of your finances. And at different levels of wealth and at different parts of your financial journey, there are some other types of things that you can do. So even if you're following the financial order of operations and even if you are building your buckets and you know your money's going where it should be, there are advanced strategies that you should consider and be thinking about. Some of those might be backdoor Roth conversions.
34:05 Speaker 03 If you're someone who's above the income limit to contribute to Roth, or maybe you have a 401k that has after-tax availability, you can do mega backdoor. Maybe you're someone who has a large brokerage account and you recognize, okay, I'm investing the way I'm supposed to be investing and I'm saving 25%, but are there things I could be doing like tax loss harvesting to try to decrease my tax bill even through my investment account? Am I thinking through not just how my portfolio is allocated, spread out against different assets, but how's it located across those three buckets and is it structured in the way that it should be structured? Now, these strategies aren't necessarily
34:42 Speaker 03 Required in order to reach financial dependence, but these small or seemingly small changes, small adjustments, small tweaks can have huge impacts when implemented in a large portfolio throughout a long course of time.
34:55 Brian Preston? Well, and I think what also makes the point, think about how many of people come through the doors, Bo, who work for employers where they had stock options, they had restricted stock units. So there's concentration risk and you're trying to figure out, it's like, how do I, how do I get me there? And that's why it's a great transition to think about, you don't have to go looking for complexity.
35:13 Speaker 03 That's right.
35:14 Brian Preston? A lot of times, success is naturally going to create it for you. Is, that's why we can give you all this free information on how to maximize this stuff. And we know if you do this right, just the, the success you're going to create is naturally going to create a complexity, not only of your portfolio allocation, of your tax situation, of how you need to be planning for all of your different financial planning goals. And that's why we're going to be waiting for you. This is the thing is that personal finance is very personal. We can load you up with all the free stuff, but at some point, if you do this well enough, you're probably going to want to take the relationship to the next level. And that's why we'll leave the porch light on for you. Go to the website, go to moneyguy.com slash become a client and we'll load you up. We've got all kinds
35:58 Brian Preston? of information because it is the right time to take that relationship to the next level and let us help you become the best version of yourself.
36:05 Speaker 03 We believe that there is a better way to do money. And one of the better ways to do money is to figure out how to master your finances. And we genuinely believe that you can do that with the tools, tips and tricks that you learn here at the Money Guy Show.
36:21 Brian Preston? Guys, thanks for tuning in. Hopefully you've learned how to do the beginner, advanced, as well as mastery of all these financial concepts. I'm your host, Brian Preston, joined by Mr. Bo Hanson, Money Guy team, out.
36:32 Speaker 03 The Money Guy Show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.
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