Home Prices Are Being SLASHED (What You Need to Know)

Home prices are falling in many cities, inventories are rising, but interest rates remain high. We break down what it all means for first-time buyers, why the average age is now 38, and how to decide if now’s the right time for you. Plus, stick around as we answer your financial questions! ⁠⁠⁠⁠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. NordVPN.com/MONEYGUY 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.

• 0:00Speaker 00

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• 1:05Brian Preston?

  Home prices in certain markets are being slashed. What do you need to know?

• 1:10Speaker 03

  Brent, I am so excited about this because finally it sounds like maybe, just maybe, there's a glimmer of hope. There's some light at the end of this housing tunnel because we're seeing something right now that we have not seen for a while. And I think it's going to be exciting to a lot of folks out there.

• 1:27Brian Preston?

  Well, it's a long time coming because a lot of the issues with what has driven prices up post pandemic is inventory. I mean, you think about it, we shut down all the supply chains. We lost a lot of people that were in the home building process and you saw inventory kind of taking a toll. And you know what happens when you limit the supply of houses available? Prices go up a lot. So this is a very positive thing to actually see some of the positive changes in inventory.

• 1:56Speaker 03

  Yeah, when you actually look at the data itself, and this is data from the Federal Reserve, you can see exactly what happened with the number of active listings from July of 2016 all the way till May of now. It kind of bottomed out right there. Post pandemic around 2021, 2022, but now active listings have steadily been increasing. We have more inventory. That's one thing that's potentially affecting home price. And the other thing is that first time home buyers right now, this is a thing to know, a thing to be aware of. First time home buyers are now reaching an age of 38.

• 2:31Brian Preston?

  That's an all time high. I don't like that stat. That's something, that's why I like any positive information that actually shows that home ownership is, and pricing is getting better. Is because I don't like seeing the stat that instead of it being, because it seems like it was just a blink of an eye ago, it was 33. Now we're at 38. I don't want to see us cross into 40 for something that I think is a lot of people's dream of owning a house, setting roots. It seems to get harder and harder.

• 2:58Speaker 03

  Well, and I think one of the reasons why that number has been pushed up is not only have home prices been increasing, but interest rates have not been super attractive. We know that right now, the average mortgage rate in this country is about 6.8%. Now that's lower than it has been. It's been as high as seven and a half, eight percent, but that's still relatively high. So it's making it harder and harder for people to get into homes. So even though we're seeing glimmers of hope, it's still not an easy market for home or for, for individuals that are not homeowners to get into homes right now.

• 3:28Brian Preston?

  But let's actually, let's talk about where the rubber meets the road and the fact that now that we've got increasing inventories, we've got houses that are sitting on the market longer. It's led to one in five homes have actually seen price reductions since April or in the month of April.

• 3:44Speaker 03

  It's been a while since we've seen the prices of homes come down. And we know that 32 out of 50 metro areas actually saw a month over month decline in the month of May. So maybe, just maybe, if you are someone who's been trying to get into a home, thinking about buying your first home, thinking about changing homes, you're now beginning to actually feel like, okay, maybe this thing isn't sprinting away from me the way that it had been. Maybe now it's getting to a more reasonable level where I can actually act and actually move on.

• 4:13Brian Preston?

  Now realize buying a home, it's not only a financial decision, but in a lot of ways it's an emotional decision. I always tell people, don't feel like you have to get in a hurry. So just because we're seeing some positive trends doesn't mean you need to run out this weekend and go put a contract in.

• 4:28Speaker 03

  That's right.

• 4:28Brian Preston?

  Because there's still, there's some analysis and homework you need to do. So that way you can take the emotion out of the decision making and actually see, is this something you should do for your best interest?

• 4:38Speaker 03

  Yeah, I think there are some questions that you can ask yourself. The first of which is, do I actually have a need for housing? I think so many of us have been taught, okay, well, graduate college and then I get a career and then I get married and then I buy a house. Or I start my career and I buy a house. And it's just this natural progression. That's not necessarily the case. Just because someone else bought a home or just because that was someone else's trajectory does not mean that that has to be your trajectory. So you want to make sure before you make this giant decision, what for most people is the largest purchase you will ever make in your life. You want to make sure that it is something that actually matches where you are in your financial life and something that you actually need.

• 5:19Brian Preston?

  And then have that, we say this on our home buying checklist, but make sure you have a plan to live there for five to seven years. It's back to the Bo's point about achievers sometimes are so excited to get to the milestone of having a house, that they'll house hack and they do other things. And I always remind them, hey, I love all those strategies. That's a great thing to get into homeownership. But make sure that you're actually where you're going to set roots. If you're, if you're part of that job, if part of what is going to make you successful is landing the job in the right area with the right opportunities for going up and getting pay raises and so forth, then buying a house that locks you into that area that might not be ideal is less than the right decision.

• 6:01Brian Preston?

  So make sure you are measuring twice on can you stay in this house five to seven years before you make that big decision?

• 6:07Speaker 03

  And then you have to think about the other side of it, not just the lifestyle situation, but also the financial situation. Is this something that you can actually afford? Just because prices have come down does not mean that it's automatically made housing or homeownership affordable. So there are a few rules that you ought to abide by. And the one of which that we've seen the most people run afoul of or ignore in this The recent housing market is we want you to keep your total housing costs less than 25% of your gross income even with housing prices coming down if you find yourself where housing is costing you 35 40 45% of your gross income you are likely going to be setting yourself up in a more risky situation than you want to be in and it's going to prevent you from being able

• 6:51Speaker 03

  to build wealth the way that you want to outside of homeownership.

• 6:54Brian Preston?

  And look, I get it that that 25% can feel kind of constricting because but it really the whole purpose is to make sure you don't end up house rich life poor because a lot of people there's a risk that you won't have a lot of money left over if you let all of it go towards housing and it's back to that point we do give a lot of grace on your first house purchases that you only have to put down three to five percent so if you run afoul of the 25% there's nothing that says you can't make a larger down payment if that's what's necessary to keep that that that rule respected.

• 7:26Speaker 03

  And so if you are someone who's thinking about this and you are someone who's entertaining the idea of buying a home particularly your first home we have a couple of tools out at money guy dot money guy dot com slash resources we want you to check out one of them is our home buying calculator where you actually can input your variables and it will tell you how much home can you afford and we also have home buying checklist that tell you here are the things that you want to think about before you make this huge decision I think that home ownership is a wonderful thing and it makes a lot of sense in the financial lives of a lot of people but it's not a necessity it's not I think that so many people operate in this world where I have to own a home I have to own home have to own a home and that's just not the case

• 8:08Speaker 03

  owning a home can be a wonderful thing for you but it's not a necessity to be able to build wealth or reach financial independence so you want to make sure if you're gonna make that decision you make that decision at the right time for the right reasons for your unique situation.

• 8:23Brian Preston?

  Well and look an old man on the porch here I actually love people owning homes but it just has to be such a It has to line up. You have to do the homework. Don't let it be an emotional decision. Make sure you're using our checklist. Use our calculators. That's why moneyguy.com/resources is going to be your friend. So you can feel like you've done the homework. You've done the, all the due diligence you need to do to make sure this aligns with your future goals, but also gives you your best, great, big, beautiful tomorrow in the housing market decisions.

• 8:53Speaker 03

  I love that we get to share this. I love that we get to stay abreast of the things going on out there in the financial world. And I love that we get to answer your questions. We get to weigh into the things that you care about. So if you have a question you'd like to get our take on, we have the team out in the wings collecting those questions. Make sure you get them in the chat because we do believe there's a better way to do money and we want to load you up with that. So with that, Creative Director Rebi, I'm going to throw it over to you.

• 9:20Speaker 04

  Yeah, thanks. You know, I think it's interesting. So we've got a lot of financial mutants in our chat at all varying points of their journeys. 57% said they own a home, meaning that 42% don't. And so I just thought it was an interesting poll to see that it's not a sign of financial success or being a financial mutant. So I thought that that was interesting to share. That was straight from our live stream.

• 9:43Speaker 03

  I love that. I mean, I love when we do things where we get to like ask our audience, our financial mutants, information, they share information with us and then we get to like synthesize that and share it with the world. Isn't that a fun thing we get to do?

• 9:57Speaker 04

  Absolutely.

• 9:57Brian Preston?

  Good, good setup for, we do have another questionnaire that will be coming out for, I mean, is it bad to preview that again?

• 10:05Speaker 04

  No, it's fine.

• 10:06Brian Preston?

  I felt like you were teeing it up.

• 10:08Speaker 03

  I laid it up for Rebi to see if she was going to swing and she just watched it. So I was like, okay, that's fine.

• 10:12Speaker 04

  It is coming. We are working on it.

• 10:14Brian Preston?

  We already do our survey of our clients, the millionaire survey, but we, I'll let you share, we, you know, we, last year, so many of you guys responded. I mean, we don't take that for granted. We want to do it again because I think it just creates the greatest content to show not only what our millionaire clients are doing, but what financial mutants out there in the Money Guy audience are doing as well.

• 10:37Speaker 04

  Yeah. So if you took the financial mutant survey last year, Watch for it because we want your data again. We want you to be part of the show. We want you to help us create the show and see how financial mutants stack up compared to the average American. And if you haven't taken that survey, also watch for it because it'll be a new experience for you. And it's really fun to see what comes back and to get a real picture for where you are in your financial journey so that we can make even better content.

• 11:01Brian Preston?

  I know you're about to read the question, but I also want to preview that, and I don't, I'll let you, it's because I know it's not ready yet, but in the next week, I think we have some new calculators coming online. They're going to be pretty exciting, too. Is that too early?

• 11:14Speaker 04

  What else do you want to tell secrets on, Brian? What do you want to spill the beans on?

• 11:17Brian Preston?

  There's other stuff behind the scenes. I'm keeping, you have no idea. I'm sitting here like, ooh, I want to share that too, but I'm not. I'm keeping some under wraps.

• 11:23Speaker 03

  Here's what, here's what you need to make sure you do. If you, if you are hearing Brian share all these things that he's not supposed to be sharing at all, and you want to be aware of when these things happen, I want you to do two things. One, I want you to go out to moneyguy.com and make sure you are on our email list because whenever we announce new exciting stuff, it goes out to our email list. So if you're not on that list, make sure you get on that list. We don't spam you. We don't blow you up. It's just how we communicate interesting things in our world that we think you need to know about. And if you want to know when we have new content out, make sure you subscribe right now so that you know every time we put a new piece of exciting content out all week long.

• 11:58Brian Preston?

  Man, you did that really good. It's almost like you do this for a living.

• 12:01Speaker 04

  Almost. Let's get to the questions. The other thing you do for a living, personal finance. T-Bone says, question, my company's 401k match is 50 cents on the dollar with no limit.

• 12:14Brian Preston?

  Wow.

• 12:15Speaker 04

  Leaving me in golden handcuffs. If I'd like to buy a home in the next two years, what goal should I now have for my 401k? I'm 25 years old, married with one kid on the way, a 110k household salary in the DC metro area. What do you think?

• 12:34Speaker 03

  Man, okay, so we have gotten variations of this question so many times over the years. Hey, I've got this thing going on, but man, I want to do this thing or have this opportunity, but man, I want to do this thing. And I think that the best way to sort of level set on how to approach thinking through this is to remind ourselves that money is nothing more than a tool that allows us to achieve the goals that we have. And one of the things that we have to do as people who are the main characters in this life that we're living is determine, okay, what are our most important goals? What are the things that we want to move towards the most? And for a lot of people, it might be financial independence. And for some people, it might

• 13:17Speaker 03

  be, hey, you know what? I do want to achieve financial independence. But before I do that, I'd like to own a home, and I want to be able to set roots, and I want to be able to grow my family, and I want to be able to whatever that thing is for you. And so it's okay if sometimes along your financial path, you have to prioritize some goals over the other. So you might say, hey, I really need to save up for a down payment. And as amazing as being able to build my portfolio and continue to grow and take advantage of this is, financial independence, or maximizing the employer match money to the extent that I can't walk away from it, and that would be a hard one, because that's free money, is you have to ask yourself, how important are these two goals? And how am I willing

• 14:01Speaker 03

  to prioritize? You about to say something, because I can tell you didn't like that.

• 14:03Brian Preston?

  No, no, it's not. It's just that I think it is a great problem to have, but we have to, you have to, this is like all things, all big decisions financially have incremental decisions you have to make.

• 14:14Speaker 03

  And opportunity cost.

• 14:15Brian Preston?

  So the first thing, let me give you the homework. I would go read your plan document so you understand vesting schedules and, and know how much of this money is truly yours and how fast. That's the first thing to know how excited to get. But it is incredibly generous if your employer is truly offering a 50 cents on the dollar, all the way up to the maximum you can contribute, which is 23,500. So if you, if you think in those terms, that's a guaranteed 50% rate of return. So that's super powerful. But also understand, so that means if you were Prioritizing this in a financial order of operations, you're like, holy cow, do I never get out of step two unless I'm putting 23,500 into my 401k. In theory, that's the way you should think. That's a great maximization opportunity, but

• 14:58Brian Preston?

  I understand life happens. And we always, there's two illustrations I want the content team to pull up. I want, if y'all could pull up what food, what people think food looks like versus what it actually is. And as you can see this visual, is a lot of people think it's just an incremental, you're going to go through each step of the nine steps, you know, in their time and place and it's going, you'll work through it quickly. That's not the way life happens. The life will happen is that you have steps forward and then you have steps back. And it actually will be a walk up the mountain, but you're going to have some valleys built into there as well. So buying a house could be one of those things that takes you a step back. If you determine that this is so important to you. But here's the second illustration I need the content team to pull up. I always call it what 25%

• 15:40Brian Preston?

  can do for you, but it's actually taught, how much should you save? I would look at your, your, how old you are, where you are in life and see what percentage of your income you should be taking, saving. So you don't fall behind. And that way you can compare and contrast where you are in the intersection point of saving for the future, but then knowing, because you can quickly realize, especially if you make under $200,000 of income, that employer contribution is going to be a big thing on that percentage. It'll let you say, well, hey, if I'm in my twenties and maybe I only have to save, you know, 15 to 17%, I don't have to do 25% already. It gives me some margin not feel like you're sacrificing your future self. But I do want you to feel the pressure that holy cow, my

• 16:24Brian Preston?

  employer is so generous that as soon as I get this goal funded to get this house, let me get back on this to maximize that 50% because that is going to be your quickest account to reach seven figure status with having an employer that's that generous with it.

• 16:42Speaker 04

  That's great. T-Bone, thank you for the question. Thanks for joining us in the livestream.

• 16:46Speaker 03

  Can you believe that we are halfway through this year?

• 16:50Brian Preston?

  No.

• 16:50Speaker 03

  Isn't that what, I don't know, I woke up this morning thinking that to myself, like, because, well, I woke up to myself thinking, hey, we're halfway through summer. But I was like, we're halfway through the year.

• 16:58Brian Preston?

  Well, it's also, this year has been so unique in the fact that I feel like for six months, we've done 18 months worth of work.

• 17:05Speaker 03

  No, yeah.

• 17:05Brian Preston?

  And the fact that, because I was on a call with a client just yesterday, and they're like, hey, can you pull up my portfolio? I want to know how much we're up. And we pulled it up and it was, you know, it was up a little under 6%. He's like, oh, I thought it was going to be so much higher than that because the market's been on a tear. And I was like, you realize the market was down 20% at a point in the, so yeah, we've had a lot, we've made back a ton of money. But, but I think that that's what a lot of you guys, I just want to make sure you're, you're, you're keeping up with the fact that we've covered a lot of ground.

• 17:36Speaker 03

  Oh, yeah.

• 17:36Brian Preston?

  And I've made this analogy earlier and I'll do it again.

• 17:39Speaker 03

  I knew it was coming.

• 17:40Brian Preston?

  It's like a bad golf swing. It's like my golf swing, there's multiple ways a golf swing can be bad. It could be like the guy who knocks the ball, you know, into space, but then it comes down. It looks like a high pop, you know, like what your dad used to throw up to you when you're trying to catch high pops. Or it could be a bad slice where it slices out and then comes out to the middle of the fairway, but it only went 100 yards. But it covered 320 yards worth of distance. I feel like that's what we've done with the stock market this year. Yes, we had ups, we had downs, and we've recovered, but overall, it looks like a standard year. That's what's so wild about intra-year volatility is that these ups and downs, you just had to digest it and know it's part of the process.

• 18:21Speaker 03

  That's right.

• 18:23Speaker 04

  All right.

• 18:23Brian Preston?

  That wasn't even part of the Q and A.

• 18:25Speaker 03

  Oh, no, that part was for free, really.

• 18:27Speaker 04

  Just talking about, you know, the year, the markets, all good stuff.

• 18:32Speaker 04

  The second rush.

• 18:33Speaker 03

  That landed with her.

• 18:34Speaker 04

  What?

• 18:35Brian Preston?

  Everybody, we all know, if you've ever watched.

• 18:36Speaker 03

  You're a big golfer, so that analogy landed, obviously.

• 18:38Brian Preston?

  When you see somebody who actually hits the golf ball right, you feel so bad about yourself. Because their ball, their ball flight is completely different than us guys who get out there once or twice a year. I mean, it's true. If you watch somebody who hits it pure, it's, it's pretty incredible.

• 18:54Speaker 04

  I agree. As someone who can't golf, I think it's all very impressive.

• 19:00Speaker 04

  All right. The second Rush has a question for you. How do you stay focused once you're solidly making wealth? I moved from 10% to a 25% savings rate in three years.

• 19:12Brian Preston?

  Congratulations.

• 19:13Speaker 04

  But now feel like there's no clear milestone to aim for. Do I just check back in every three years now? 30 years old, married, own a home, 25 years left on the mortgage, and we have no plan for kids. So what does he do now? I feel like that's his question.

• 19:29Brian Preston?

  Oh, man, I feel like this question is a tee up for some content that we not only had come out last year, but have coming out in the next few months. I'm just gonna screw up the title, so I'll just leave it for you.

• 19:38Speaker 03

  Yeah, so here's the thing I would tell you to do. First thing I would tell you to do, second Rush, is I want you to subscribe right now to the channel because we do have a show coming out that's going to walk you through milestones that you ought to be looking for and thinking about as you move through your portfolio. There's some really exciting milestones that we hit on our journey to financial independence. So you said, the question you asked is, okay, well, how do I stay motivated? Because one thing is just understanding what milestones. One of my favorite things in the world to do, and I know it's Brian's too, is every single year, we do an annual net worth statement. We do ours at the end of the year, 1231, where basically we list out all the things that we own, and then we list out all the things that we owe,

• 20:21Speaker 03

  and we calculate the difference, and we track where we are. Well, one of the things that makes us stay motivated is even if your savings rate is a good place, and you were saving 10%, now you're saving 25%. As you begin to see that snowball roll down the mountain and get bigger and bigger and bigger and bigger, you're gonna start seeing some really fun stuff starting to happen on your net worth statement. And that, the result, the product of that, is that motivation that gets you to next year, be like, okay, I save 25% next year. But man, if I can do that again this year, my portfolio made this last year, I can... Man, if you are actually tracking it and keeping an eye on it, rather than just checking in every three years and saying, okay, well, I guess I'm doing okay, find a way to do an annual net worth statement. By the way, if you need a tool,

• 21:05Speaker 03

  you can go to learn.moneyguide.com and check out our tool. And it even puts on there some really fun stuff in addition to just tracking your net worth. It'll show you like, okay, here's what my liquid assets are doing through time. Here's what my money guy accumulator score is. Here's what my journey to abundance looks like. All those are exciting little metrics that will allow you to stay motivated and recognize the areas in your life that you can still get excited about even when things seem to be on autopilot.

• 21:33Brian Preston?

  And that's the only thing I always got to add is that I love the dashboard view that the net worth tool does because it really does take the net worth statement to another levels because I don't, plus you get to see the three buckets. You get to see how much your money is in tax deferred, how much is in tax free like Roth assets, how much is in after tax. I mean, those are the type of things that I'm always trying to look at. I love the pay down debt schedule, you know, because I loved kind of seeing where debt is going on my net worth every year in comparison to the liquid net worth. And then even putting your total net worth, which includes all the, the stuff that you can't necessarily eat, like your house and your cars, but it's, it's, it's definitely a valuable resource to keep you motivated. And then that's why I do like those milestone shows is because, you know,

• 22:18Brian Preston?

  part of what we try to give you here is the why component as well as that you, what is your money supposed to do since it's only a tool? Well, part of the 25% is to free you to get outside of the analytics of this and live your best life. So I would go through some of the, the soft exercises of what is this, why am I saving? What am I saving for? This is all part of step seven of the financial order of operations. If you haven't gone and checked out millionaire mission, I really, like I said, that chapter is the chapter that really sets up the, thank you, Bo for the prop. Chapters, you know, when we talk about step seven, the hyper accumulation, it really does give you the why exercises.

• 23:01Brian Preston?

  So you can stay motivated, but then you get to, from there, you get to do what you want, when you want, how you want, you know, if you want a nicer vacation, you want to drive a nicer car, you want to get into residential real estate or commercial real estate. This is going to set you up to kind of do those type of things, but it's not supposed to feel constricting. It's supposed to feel Freeing that now you get to go live your best life. I feel like so many things out there in the financial world. People get caught up in, you know, I have to be so rigid and I, you know, and to do this is going to say no and take away. I want you to have that abundance mindset where we're going to do this. So now we get to do more. And you get to live your best life, both in this decade, plus your, the decade as you save for your 50s and 60s, you're not going to have regrets.

• 23:44Speaker 03

  Love that.

• 23:45Speaker 04

  Excellent. Well, the second rush, thank you for your question. I hope that helps you think through what to do next. A millennium interests has a question.

• 23:56Speaker 04

  What's your take on the current projections from Vanguard showing a zero to 3% real returns for the US stocks over the next decade? I know the mantra is to always be buying, but does this impact strategy?

• 24:09Brian Preston?

  Can we put the, I need to get on the calendar. The, the date that Vanguard puts this out, because I feel like every year I get to, to answer. This is what so, and I, I think it's brilliant on Vanguard's part in the fact that they, they post this, they get all kinds of press on it. I mean, so it gets a lot of attention, probably a lot of eyeballs, a lot of clicks go to Vanguard's website. But, but the thing is, is that I just shared with you guys and, and you know, if this turns into highlight, that part won't show up. So I'll reiterate it one more time is we just came through a 20% recovery in the last quarter. I mean, do, do you think about that? And here we are sitting with the, at the point we're recording this where

• 24:51Brian Preston?

  we're, I mean, most the, the indexes like the S and P 500 are up right around five, you know, 6% I think year to date. Um, after having an 11% second quarter. It's so to hear 3%, I've been hearing 3% by the way, last year I heard 3% the previous year Vanguard. You can almost set your clock to the low expectation setup that Vanguard does. And the truth is they don't know. If you've ever seen the analysts that predict interest rates, the analysts that predict where the equity market's going, I would much more look at what is the historic normal return that you see out of these index funds.

• 25:30Brian Preston?

  Um, and then think about the law of accelerating returns is that as innovation and technology and economies continue to expand. How are you going to be able to capture that? Don't try to beat it, but can you just be part of that growth? That's what I'd be focusing on. So yes, once again concludes, always be buying, making it automatic for the people is definitely one of those things you ought to be empowering and taking charge of.

• 25:55Speaker 03

  I just get, I get so frustrated because I feel like this happens over and over and over and over again. While I was, I was rapidly doing some research over here. Cause what I remember is it was like circa 2010, maybe something like that. Uh, when I remember the Vanguard article coming out.

• 26:12Brian Preston?

  You never can find the old history of, I couldn't. Were you able to find it?

• 26:17Speaker 03

  Just found it, bro. You ready?

• 26:18Brian Preston?

  Good for you.

• 26:18Speaker 03

  So, cause I, well, I was thinking about, I was trying to remember what year was it. If you remember, you know, 2009 was a recovery year coming out of the great recession and the market went, even though it was down really bad at the beginning, it went gangbusters. And in 2010 Vanguard came out like, hey, we're going to expect lower, you know, lower returns moving forward. And it gave a number of different reasons why that was the case. So I just went and asked, hey, what was Vanguard's investment outlook in 2010 moving forward? And it said in 2010, following the 2008 crisis, Vanguard published research suggesting that the annualized real returns over the next decade had most likely be like 6% for stocks and zero to 2% for bonds. So you think about, if you had like a diversified portfolio there, you're earning less than 6% moving forward. I just very quickly said, hey, what was the annualized rate of return since 2010 for

• 27:03Speaker 03

  the S and P 500? And in reality, it has been like 12 and a half to 13 and a half percent annualized, double what Vanguard said. And so I think what ends up happening is my guess, and I don't think you said this, but my guess is they operate under the assumption, hey, we're going to over promise and we're going to, we're going to under promise and over deliver. No one's going to be mad if we tell you the outlook for the stock market's going to be four to 5% and then the outlook actually turns out to be nine to 10. But if we say it's going to be nine to 10 and it turns out to be five to six, well, then everyone's going to be up in arms. So they're setting themselves up not to let anyone down. When in reality, law of large numbers would suggest, if you look at the way the market has performed for the last 40, 50, 60, 70 years.

• 27:48Speaker 03

  It tends to be pretty consistent. There are ebbs, there are flows, there are ups, there are downs. We have a great illustration. This is not one we have in the coffers, but shows like if you just look at market performance on a year by year basis, it's absolutely chaotic. There is no rhyme or reason to how it works. But if you then look at three year rolling periods and then five year rolling periods and then you look at 10 and 20 year rolling periods, it becomes very, very, very, very consistent through time. You just have to give it time to do that. So I'd be careful letting someone else tell you they know what the future is gonna hold, uh, because I don't think that that's the case.

• 28:25Brian Preston?

  What feels risky in the short term historically in the long term can be much safer because it protects you from inflation and other things. And then what feels safe in the short term can actually be very risky in the long term because of those exact same factors.

• 28:39Speaker 03

  Yep.

• 28:40Speaker 04

  It's not about what you feel when it comes to the stock market. That's what I heard.

• 28:45Speaker 03

  I'm gonna, I'm gonna, can I just take a, can I pause the show for a moment to do a note for my content team over here? Hey, we ought to think about putting together, doing some like research to go find historical Van, Vanguard. I'll be picking on Vanguard because that was where the question.

• 28:56Brian Preston?

  Well, they do it every year. I mean, it is, this is a common thread.

• 28:58Speaker 03

  Go pull their predictions and then let's just like back test them because so often people don't get back tested to go see that.

• 29:05Speaker 04

  That'd be interesting.

• 29:06Speaker 03

  I, I, I'm gonna take a risk here. I love it. I had someone, uh, there was someone here visiting the other day, uh, yesterday and I went out there to meet him and I was talking to him. They're like, hey, started listening to you a couple of years ago. Really, really love the show. I thought it was so interesting. I went and listened back in the very beginning, like circa 2006, 2007, 2008.

• 29:23Brian Preston?

  Be careful.

• 29:24Speaker 03

  And you know, it was wonderful that she said, she goes, man, you guys are saying the same stuff. Like, like it's pretty, if you want to go back test, hey, the things that we say and the things that we subscribe to about how money works, go back and listen to a show from 10 years ago. You'll be like, oh, wow, this is pretty consistent through time.

• 29:39Brian Preston?

  But you realize there's troll comments. They're like, these guys don't say anything new. So it cuts both ways. It really does.

• 29:47Speaker 04

  Oh, man.

• 29:50Speaker 00

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• 30:49Speaker 04

  All right. You ready for another question?

• 30:51Speaker 03

  Sure.

• 30:51Speaker 04

  You're not. You have another thing to say.

• 30:52Speaker 03

  No, no.

• 30:52Brian Preston?

  Here he is.

• 30:54Speaker 04

  Oh.

• 30:57Brian Preston?

  Nice.

• 30:57Speaker 04

  There it is.

• 30:58Speaker 03

  I just wanted to...

• 30:59Speaker 04

  It's time for the second drink.

• 31:00Speaker 03

  Someone in the comments this past week said, you know what, Bo? Why don't you just have like a nice pregnant pause? Open your drink and that way no one can complain about it and you'll be able to stay hydrated.

• 31:09Brian Preston?

  Oh yeah, because we beat Bo down around here all the time. Poor Bo.

• 31:13Speaker 03

  It's pretty rough.

• 31:13Brian Preston?

  Humble Bo.

• 31:14Speaker 04

  Well, you didn't open it while anyone was talking today, so...

• 31:18Speaker 03

  Exactly right.

• 31:18Speaker 04

  Props to you. Okay. Donovan H. says, have you heard of the extra mortgage payment a year to help lessen the principal of the loan to lower paid interest? Would you recommend this strategy for a household currently in step six of the FUE?

• 31:38Speaker 03

  Brian, you start.

• 31:39Speaker 04

  I want Bo to start.

• 31:40Brian Preston?

  No, I mean, this, yes, this is, this is a common trend. And look, with interest rates being where they are on houses, you know, if you're paying the 6.8% right now... Obviously, this is a, this is a good strategy as well. And I love that you shared that you're in step six. Um, I'm, I'm not a minimum payment type of person myself. Um, so I've been rounding up my payments for years. The difference is, and this is where Bo's gonna jump in. That's why he wanted me to go first is so I could fall into the trap and then he could snare me and make fun of me.

• 32:13Brian Preston?

  I mean, I have a two and a half percent mortgage. By the way, and the mortgage is, I just pulled it up because I had an insurance claim and we had to do this stuff and I had to get the insurance, the goofball mortgage company involved, even though I owe 50 grand on my house. But I even told the insurance adjuster, I was like, I'll just write a check to pay this thing off. But I was like, it's just so hard when I owe two and a half percent interest. It just feels-

• 32:34Speaker 03

  Could you imagine being Brian's insurance adjuster and you're like, bro, why are you talking about your mortgage?

• 32:39Brian Preston?

  No, we had a great rapport. I met him out at the house. We went over everything. We talked. I mean, when I had an issue with the check, I called him up. We're on a first name basis now.

• 32:46Speaker 03

  You think he's, you think he's in the live chat right now? Is he a fan of the show now?

• 32:49Brian Preston?

  I don't, I didn't tell him what I did for a living.

• 32:51Speaker 03

  Oh, but you gotta say, hey, you ought to check out the Money Guy Show.

• 32:53Brian Preston?

  No, I don't, you meet anybody. Like, we have somebody painting at the house right now. By the way, have you seen the podcast?

• 32:59Speaker 03

  I do it at the grocery store. Someone's bagging my groceries.

• 33:01Brian Preston?

  If you meet me, like I met my brand new neighbors. I have no idea what they do for a living. They don't know what I do for a living. So I don't, no, you don't walk around and be like, hey, have you seen my YouTube channel?

• 33:11Speaker 03

  No, I don't say that. I'm like, hey, do you love personal finance? There's a show that I really like. It's called The Money Guy Show. You should check it out.

• 33:16Brian Preston?

  And then when they pull up and they see me and you there, wouldn't that seem like the most ridiculous thing ever?

• 33:22Speaker 03

  Well, you know. Hey.

• 33:24Speaker 04

  You're funny.

• 33:24Speaker 03

  So, alright, so-

• 33:26Speaker 04

  What were we saying about-

• 33:27Speaker 03

  No, no, so I love, I love that, I love that answer. Uh, because there's a mathematical approach to this, right? Uh, mathematically, okay, yes, can I pay an extra mortgage payment and pay down my mortgage faster? Yes, that is true and that is a strategy. Is that optimal? Well, it depends on what your dollars could earn outside of the interest rate you're paying on your mortgage. So there's an arbitrage situation. If you're someone in your twenties, there's a good chance that you could put your money to work and it could have a higher rate of return than what you're paying on your mortgage. So there's a positive arbitrage situation there. Having said that, having said that- I think a lot of people play like little mortgage games and I'm not going to fight you on this. And so maybe your mortgage game is I make one extra payment. Or maybe your thing is I pay every two weeks.

• 34:12Speaker 03

  I'll tell you mine and I'm not even a mortgage prepaid kind of guy. I round up. So every year, you know, property taxes and insurance, whatever. My mortgage payment comes out and say that it's like, you know, my mortgage was a hundred and ninety dollars. I rounded up to two hundred dollars, right?

• 34:27Brian Preston?

  He wouldn't give us his real mortgage payment. I love it. He got, he got himself in a pickle there. He's like, you want to tell them my real mortgage payment? Cause you know, our smart audience has gone back into how much mortgage he has.

• 34:38Speaker 03

  So, uh, so yeah, so I round up again. It's not a strategy to prepay and I do it just so I can in my mind mentally account for what my mortgage is. But if those sort of things allow you to stick to your plan and make you feel good about the decisions you're making. I'm not going to fight you on that, but if you're doing that. If you do that extra mortgage payment instead of your Roth IRA or that extra mortgage payment instead of your HSA. Then I'll start to have a little bit of pause and think that maybe you're operating sub optimally.

• 35:08Brian Preston?

  Do you think I'm at the point I should just pay off the mortgage since it's down to 50 grand?

• 35:14Speaker 03

  Yeah.

• 35:16Brian Preston?

  Even you?

• 35:17Speaker 03

  I mean, I honestly, I mean, just because like, you know, we're at the point, I hear so much about it.

• 35:23Speaker 04

  It's basically a meme at this point. You've been like, I think I might pay it off.

• 35:27Brian Preston?

  What's funny is Megan sitting over there and I remember when we were starting the book tour, you know, which was June of, you know.

• 35:33Speaker 04

  Over a year ago.

• 35:34Brian Preston?

  Basically, a year ago. I was like, my goal is, is I'm going to have the mortgage paid off so that I don't, so I can tell everybody on the tour that I paid off the mortgage. But for some reason I just didn't do it because that two and a half percent just really, I mean, I would have thought interest rates would have been down further now on cash. So it was going to be a much easier decision. But yeah, you can still make, if you know where to put the money, you can still make over 4% on your cash. It seems crazy.

• 35:58Speaker 03

  I kind of, there, there are a lot of financial things though, where I kind of subscribe to Forrest Gump methodology of, hey, it's one less thing. So even though like at that, where your mortgage amount is right now, if, you know, just pay it off and hey, it's just one less thing.

• 36:11Speaker 04

  I think I agree with that. Where you are, just pay it off.

• 36:15Speaker 03

  One less thing.

• 36:16Speaker 04

  Let us know if you decide to actually do it. Keep us posted.

• 36:19Speaker 03

  We're going to live.

• 36:19Brian Preston?

  I gotta get through this insurance claim first.

• 36:21Speaker 04

  Can we live stream you paying it off, clicking the button? That would be funny.

• 36:26Brian Preston?

  I might do it soon. Why not?

• 36:29Speaker 03

  Hi, one last thing.

• 36:30Speaker 04

  I think it's because Bo told him to do it.

• 36:32Brian Preston?

  I still wouldn't be debt free because of all our commercial real estate, though.

• 36:34Speaker 03

  No, that's right.

• 36:35Brian Preston?

  So I couldn't go, I'm going to go on Dave's show and do a commercial, you know, a debt free scream because I owe commercial debt.

• 36:41Speaker 04

  It's just about.

• 36:42Speaker 03

  I just want them to hear, Larry, we go do our debt free scream and we're like, I'm debt free, except for all the commercials, though.

• 36:47Speaker 04

  Not actually.

• 36:49Speaker 04

  All right, ready for the next one? It's from Carrie. She's 45 years old with a two-year-old and a four-year-old kid, two-year-old and four-year-old kids. I will be 59 plus when they need funds for college, etc. Is saving extra money for this in my Roth 401K and Roth IRA okay? It seems more flexible and lower cost than a 529. Thanks.

• 37:14Speaker 03

  Um, so here, my question would be,

• 37:20Speaker 03

  uh, what, what, what caused you to draw the conclusion that it's more flexible and lower cost than 529s? Because 529s have changed a bunch over the years and now 529s, I think they're offered by all 50 states, right? You can actually do it in all 50 states. Depending on the state in which you live, because by the way, we love Roth IRAs and we love Roth 401Ks. We love the fact that you put the money in and it can grow tax deferred. And if you draw it after 59 and a half, you can actually pull the money out completely tax-free. But for a lot of people, if you live in a specific state that has state income tax, there's a chance that not only can you get that same Roth-type benefit for 529 tax-free growth,

• 38:03Speaker 03

  you can also get a deduction on the front end if your state has an incentive for doing that. So Carrie, not knowing what state you're in, that would be one of the considerations I would make is, okay, should saving to a 529 be part of my strategy because there's an extra little tax benefit there that I want to do? Now, here's what I want to make sure you're doing. Uh, saving in that, saving for that college education needs to come above and beyond what you were already saving for your future financial independence. Meaning this is like after you're at your 25%, do I want to save even more to my Roth 401k or even more to my Roth IRA? And I bet if you think through it that way, by the time you get through your

• 38:46Speaker 03

  Roth IRA, you've already saved 7,000. Well, you can't really use that because that's going to be like financial independence money. And so maybe depending on your income inside your Roth 401k, yeah, maybe you could plus that up some if you have room. But there's a good chance if you're saving 25%, doing the thing that you're supposed to be doing, you're going to need the 529 capacity anyways to make sure you're not actually cannibalizing your future retirement assets to pay for college.

• 39:12Brian Preston?

  That's why I think you have to keep them separated. I mean, that's why I love the, because they have different goals. I mean, the 529s in college savings is a step eight. You know, these abundance goals, prepaid future expenses. Whereas your Roth IRA, your Roth 401k, those are steps five and six of the financial order of operations. And what I worry about is if you are just throwing them all into the Roth assets and you think you go create some weird dynamics for yourself in the futures because first of all, already every person I know who has Roth accounts, it's like you're precious. You don't like to pull money out of those. You're hoping you die with those and then your beneficiaries get to, you know, let them grow for 10 years before they pull out of them. So Roth assets

• 39:55Brian Preston?

  become very valuable and you just don't want to walk away from them. And I just worry you get a false sense of security because your accounts are going to look so good. But then you, you, you start pulling this money out for college and all of a sudden you gutted, you know, one of your biggest retirement assets. That's why if you keep them separated and they, they have a goal and a purpose, you won't do that mental accounting where you have a false sense of security. Um, because you know, because maybe sometimes To save more for college beyond what you have to do for yourself in retirement is kind of a selfless act that's going to require discipline and require some sacrifice. I don't want you just feeling like, hey, I'm in this and I'm loading up my Roth, I'm loading

• 40:37Brian Preston?

  up my, my 401k. This will also cover college and then, like I said, you got it. And whereas maybe if you just started a little earlier and felt the pressure of keeping them separated and knowing, man, in addition to my retirement, I got to save for the kids' college, you might have made some different decisions on your consumption, on your lifestyle. So I, that's why I like keeping those things separated. So those goals can, can live each their best life, but be accounted for appropriately. So you don't get this convoluted, jumbled up, all for one goal out of my Roth account.

• 41:11Speaker 03

  Love that. Yeah, it would be, it'd be kind of a bummer, just thinking through this like practically, because I, it is the pressure thing. Like, most people I know, most clients I work with who have retired and they're in their early 60s, they do not like to pull out of that Roth. I mean, I mean, it's only if like, okay, if I do another distribution, I'm going to trip Irma, or I'm going to cause my social security to be, or whatever the strategy we're employing is, if they can avoid it, they do. And so writing those tuition checks out of that, that's going to suck.

• 41:43Brian Preston?

  I mean, it's just Roth feels like you're getting away with something. And then it's just hard to, to, to want to pull that money out. I'm just telling you, from our client experience, people don't like to pull money out of the Roth. Even myself. I mean, I'm, not that I'm pulling money out, but just watching the account grow, I'm like, what can I do to get that Roth account up to seven figures? I mean, because I wanted it to be a seven-figure Roth account. I think that would be just a cool, stick it to the man legally type thing.

• 42:09Speaker 03

  Same.

• 42:10Speaker 04

  No, that's a good experience share. Carrie, thank you for the question. I hope that that helped you out, too.

• 42:17Speaker 04

  Tyler H. says, "I was saving for a large expense that I ended up not having to pay. I saved around 20K and I have also right around 20K of high interest debt-

• 42:29Brian Preston?

  What are we doing here?

• 42:30Speaker 04

  -at 8.6%. Should I just use the full amount to pay off the debt?"

• 42:35Brian Preston?

  This is the easiest one, yes.

• 42:37Speaker 03

  Yes.

• 42:37Brian Preston?

  Well, I mean, wait a minute. First, obviously go through the financial order of operations. What do you have in steps one and four?

• 42:43Speaker 03

  Highest deductible match.

• 42:44Brian Preston?

  But without a doubt, I mean, if I had 8.6% and this was money above and beyond emergency reserves, extinguish it.

• 42:52Speaker 03

  You know what? Yes, agreed 100%. Just behaviorally, one of the things I'd like to think about Tyler is this large expense that you were saving up for, I don't know what the expense is. Behaviorally though, I would ask myself, man, if it was saving up, oh, I'm gonna buy a new car, or I'm gonna pay for a trip, or I'm gonna do whatever, was saving up for that appropriate, given the fact that you have $20,000 of high interest debt at 8.6%? I just want, I just want you to think through, because there's a good chance that if it was a large discretionary expense, it was a want, not a need, you probably should have knocked out that debt before saving for that. Because what I don't want to see happen again is you're gonna do this, you're gonna pay it off.

• 43:35Speaker 03

  I don't want to be in a live stream three years from now and all of a sudden Tyler H. asks a question like, "Hey, I got this high interest debt again." Like, I want you to break that cycle. I don't know where it came from or what happened.

• 43:45Brian Preston?

  What type of debt was it though? Do we know?

• 43:47Speaker 04

  He just said high interest debt, 8.6%. I don't know if it's like student loan or credit card.

• 43:51Speaker 03

  Could've been car, could've been a credit card.

• 43:53Brian Preston?

  Could've been a room full of furniture.

• 43:55Speaker 03

  Could've been a room full of furniture. Yeah, I just, I want, but the fact that you were saving up for another expense while you had that debt, I just, and look, it may all be completely on the up and up, but it's certainly worth taking a moment, having an assessment and saying, "Man, okay, am I doing, am I thinking about my money the right way?" And you, you may very well be, but it never hurts to just kind of work through that exercise to, to make sure that you are.

• 44:19Speaker 04

  All right, good stuff. Tyler H., thanks for being here. Thanks for asking the question.

• 44:24Speaker 04

  KYPA has a question. It says, can you break 238 if you're not paying rent? I'm a college student who's working part-time and I bought a used car. Is it okay to break the rules in this case?

• 44:40Speaker 03

  Well, you're not going to get arrested, right? I mean, like this, this whole, everyone asks, hey guys, can I do this? Sure. It's your life. You can, if you want to, you can do, you know, 1719, right?

• 44:55Brian Preston?

  Yeah, but here's, here's what he's really getting at.

• 44:57Speaker 03

  But is it what you should do? Is it what you should do?

• 44:59Brian Preston?

  Can you go, if you're living at home with your parents, can you go buy that convertible Mercedes that you've always wanted that will make you look really cool to your friends?

• 45:06Speaker 03

  I mean, you can. You physically can. The question is, it's a should question. It's a should question. Is it okay to?

• 45:13Brian Preston?

  No, I just don't think, I mean, because I think that it's, it's, it's a, it's a life lesson is if you're going out there and using this opportunity, it is an opportunity if you're living at home and don't have to pay rent, that do you realize how you could just be just printing money, just stacking in the background and, and running through the financial order of operations very quickly. But it just seems like a wasted opportunity if you go buy a nicer car, just so in this moment in time. You can say you're a car person, but man, I just know as a person who, who's now in my 50s, consumption decisions like cars and those type of things just seem so just empty

• 45:53Brian Preston?

  compared to having money in the bank so that I can live the most flexible and own my time and do what I want, choose to be what I'm involved with. That's going to pay so much more life dividends than just the feel-good moment of in your 20s or even younger, I don't know how old this individual is since they were living at home, but of driving a fancy car.

• 46:16Speaker 03

  Yeah, I just, I, I don't know, the 20, 238.

• 46:22Speaker 03

  It's there because it's a helpful metric to help us, but some of it's also to protect us from ourselves. If you find yourself in the situation like, "Man, I can't save up 20% for this car." Ah, maybe you can't afford that car. "Man, I can't get the payments inside of three years. It's just too... Ah, maybe you can't afford that car." Man, if I do this, 8%, that's gonna be high. Okay, maybe you can't afford... Some of it is to protect us from ourselves, to make sure that we don't prematurely make financial decisions that we are not ready to make. Because I don't know your situation, your circumstance, but there's a really good chance, if we were to fast forward 20 years in the future, I just don't think you're gonna look back and say, "Man, I'm so glad I bought that more

• 47:04Speaker 03

  expensive car that had that higher payer with the higher interest rate." I think you're probably gonna say, "Man, I'm glad I made those wise, prudent decisions so that now, at this stage of life, 20 years in the future, I can go buy that nicer car because I get to pay it off all in one year, same as cash, and I'm not actually faking it. I'm actually in the financial situation where I can do those sorts of things."

• 47:24Brian Preston?

  Well, I think it's important. It's a mindset issue is that you quickly realize when you're young that the system is not gonna protect you. It's actually designed to help you consume more.

• 47:33Speaker 03

  To take advantage of you.

• 47:33Brian Preston?

  If you think about what's going on with car loans, where the average car loan is beyond $700 a month, the term of car loans has gotten where it's, what, was it six years? Close to six years now. You quickly realize the guardrails are not there. So it's on you to develop the behaviors and the systems to set yourself up for the future because nobody's coming to rescue you. Nobody's coming to save you. So don't... That's why it just troubles me when you're in this moment of opportunity, especially when time, you're a billionaire of time, depending upon how young you are, where you can totally own the system that much sooner. And if you fall into that consumption trap and, you know, and let the system with the siren song of, "You look so cool. You'll know your friends

• 48:18Brian Preston?

  will love you more." You know, whatever the thing is, it's enticing you to live this fake life. Remember, it's better to be rich than to look rich. And I'm just telling you, don't fall into those consumption traps.

• 48:31Speaker 04

  Good stuff. And as usual, KYPA, we appreciate you being here and asking your questions so that we can chat about it on the show. Brian, I thought it was interesting, the financial mutants have spoken. We asked a poll in our live stream that said, should Brian pay off his mortgage?

• 48:46Brian Preston?

  Oh, wow. I didn't know we were gonna make this a community group project. What did they say?

• 48:50Speaker 04

  64% said yes.

• 48:52Speaker 03

  Look at that.

• 48:53Brian Preston?

  You know what?

• 48:53Speaker 04

  It's a majority.

• 48:54Speaker 03

  You know what? I'm gonna go grab his checkbook. I'll be right back.

• 48:57Brian Preston?

  Okay, I'm going on vacation. I'm in, by the way, realizing these seven inch seams are a little short in this air conditioning.

• 49:03Speaker 04

  Vacation mode, Brian.

• 49:04Brian Preston?

  I'm wearing shorts today because I'll be on a, I'm going down to Florida and then I'm catching a cruise not after the 4th of July.

• 49:10Speaker 03

  It's good living, man.

• 49:11Brian Preston?

  So I'm in a, I'm in a good mood. When I get back from the cruise, I'll figure out and we'll, I'll pay off the mortgage.

• 49:18Speaker 04

  Kind of like before the book tour.

• 49:22Speaker 04

  Sorry, say it first.

• 49:22Brian Preston?

  As long as Bo, it was a big deal when Bo says you should pay it off because you have to understand, Bo and I in the background, we're constantly talking and he's like, you really gonna pay that thing off? Because I think when the book came out, was it right around a hundred grand?

• 49:36Speaker 03

  It was a little bit more than a hundred, I think.

• 49:38Brian Preston?

  Or maybe it was 90 grand? I can't remember. But here's the thing, is I always say a little now, even my monthly payments just knock down against a ton of it.

• 49:46Speaker 03

  It's a ton of principal.

• 49:47Brian Preston?

  Each, each month.

• 49:48Speaker 03

  Yep. One last thing.

• 49:49Speaker 04

  One last thing?

• 49:50Brian Preston?

  It'll probably be paid off within a year anyway.

• 49:53Speaker 03

  They're not really cutting a lot off that corner right now.

• 49:56Speaker 04

  Oh, man, this is funny.

• 49:58Speaker 03

  He's gonna go write that check, the mortgage, and be like, Mr. Preston, this loan's already paid off.

• 50:01Brian Preston?

  Well, I have to get through this insurance thing because I need, I need the mortgage company to send me the insurance check back. I didn't, but y'all have never done an insurance claim? If you have a mortgage, they put the mortgage company on the check. And it is a pain. Because I wrote on there for deposit only. Well, as soon as I wrote for deposit only, now after the, the insurance company said they can't take that check. So I had to get the, I mean, the, yeah, it's, I mean, the bank wouldn't, they said they needed the endorsement from the mortgage company. The mortgage company wouldn't take the check because I wrote for deposit only on it. So, thank goodness I have the resources to cover all these repairs without this insurance check.

• 50:40Speaker 03

  Without having to need that check to be cashed.

• 50:41Brian Preston?

  Goodness gracious, it's an act of Congress to get this thing.

• 50:44Speaker 04

  Good to know.

• 50:46Brian Preston?

  Yeah, if you have a roof claim or something, come see me. I can give you all the details.

• 50:50Speaker 04

  Give you the details.

• 50:51Brian Preston?

  And then I talked about, talk about my underwriter that we're first name basis with.

• 50:55Speaker 03

  There we go. Let's add that to the content ideas. How to have a roof claim. What I have in the content calendar. Ruby got real excited about that one.

• 51:01Speaker 04

  I just fell asleep hearing that title.

• 51:03Speaker 03

  Sick burn.

• 51:06Speaker 04

  All right, let's do another question from Codiferous. It says, can you explain if a solo 401k is better than a SEP IRA for a 1099 employee?

• 51:17Brian Preston?

  Yes.

• 51:19Speaker 03

  Okay.

• 51:20Brian Preston?

  I can explain it.

• 51:21Speaker 04

  But can you explain why?

• 51:23Speaker 03

  I thought he was saying, yes, it's better. Yeah, can you explain?

• 51:25Speaker 04

  Yes, he can explain it.

• 51:26Speaker 03

  Hey, Ron, you're the CPA, man. Walk us through this.

• 51:30Brian Preston?

  Well, I mean, look, they, there used to be some subtle differences that made SEP IRAs better than solo 401ks for specific, certain people. It's like if you're a procrastinator and you got, you made a little extra money, you get to go do your taxes and the accountant or tax preparer is like, man, we got to find some way to lower your tax bill. You could whip out your handy dandy SEP IRA and, and it was like a time machine. It'd go back in time, let you set it up as long, all the way, if you extended the return all the way up until April, I mean, October 15th. Well, now they've updated, because the solo 401ks in the past had to be set up by year end. Now they've changed that. You can actually go back in time. I don't think you can go back in time on your salary deferrals.

• 52:13Brian Preston?

  Is that could be, because that's the W2 decision if you're, if you're a W2 employee.

• 52:17Speaker 03

  It depends on if you're a W2 employer or not.

• 52:17Brian Preston?

  Depends on how your compensation is structured. But, but, but, and realize the contribution from a SEP and a solo on the profit sharing side are pretty much the same thing because it's, um, it's a version of your net profit after you take into account self-employment taxes or, or payroll taxes. So that's why it's, it's, it's so funny. I'm old enough that I've seen so much of the system progress. Is because when I was younger, Uh, this sounds so ridiculous, but SEP IRAs were the go-to for everybody. And then, you know, you saw people then transition to solo 401Ks. Now it's gotten to where I think solos just dominate this process. Now, the only thing we remember with solos, there's some caveats we've got to talk about.

• 53:02Brian Preston?

  It's only because the only employees for the company can be you and your spouse. If you have, even if you've got like your kids working for your company, that kind of blows this all up. You've got to go traditional, more of a, you have to have a plan document and all the other things that go with a 401K. SEP IRA, you still, if you have employees, can still use it. But you realize whatever you do for yourself as a percentage, you have to do for your employees at that same, because it's an employer-only contribution. Your employees are not making any contribution when you do a SEP IRA. It's all employer-only fed. Solos are a mix because it's not only the employer portion, which is the profit sharing, but it's also your salary deferral, which is at $23,500.

• 53:42Brian Preston?

  If you're 50 and over, or you're turning 50 this year, you get that catch-up of $7,500. Did I get all those numbers right?

• 53:49Speaker 03

  I nailed them all.

• 53:49Brian Preston?

  Look at me.

• 53:50Speaker 03

  Only thing I'll add to that is our, our solos are better than SEPs. In our experience, solos allow us, allow you to save more money at lower incomes than SEPs. So if you have a $30,000 income or $30,000 net profit coming through, with a SEP IRA, you're only going to be able to save about 20% of that as an employer contribution. Again, it depends on how you're compensated. With a solo 401K, you can do a salary deferral all the way up to 23.5 of that $30,000. Plus, you can do a profit sharing contribution based on the net operating profit. So at high incomes, you can save the same in both. You're going to run into the Section 415 limits. But at lower incomes, solos allow you to save more.

• 54:34Speaker 03

  So that's why they often have more advantage. Another big advantage to solos, if you have a solo 401K and you're funding that, you will not run afoul of backdoor Roth prorata rules. If you have a SEP IRA and you're trying to do backdoor Roth, you're going to kind of run into some prorata rules you have to think through. So it provides a planning opportunity there. And now, some custodians actually offer Roth solo 401Ks. And not only can you do salary deferrals in there, you can do Roth salary deferrals into your solo 401K, which is a kind of an interesting thing. Now, here's the one caveat you need to be aware of, Brian. You started to mention this, but I don't think you mentioned this exact one. Once your solo 401k gets over $250,000 of combined assets,

• 55:14Speaker 03

  and that's you and your spouse, then you have to annually file Form 5500 before July 31st every single year. Now, there are no taxes due. There's not like a cost to doing this, but there are penalties if you fail to do it. So you have to make sure that if you are over $250,000 of total assets, you are filing a Form 5500 every single year. You're having your accountant do it, or you doing it directly. So long as you make sure you've checked those boxes, they are a fantastic and wonderful savings opportunity for you.

• 55:46Brian Preston?

  Well done. I mean, I was sitting there going, man, every one of that, I was like, I don't think I left much meat on the bone for Beau. And then you came back and on top of it. That's, that's why, dynamic duo.

• 55:56Speaker 04

  Love to see it. That's why, you know, that's why we're here every Tuesday, 10 a.m. Central. So be sure you subscribe, not only to know when we release personal finance videos, but also to know when Brian pays off his mortgage, or if he ever does. We'll keep you posted.

• 56:12Brian Preston?

  The suntan version of myself is going to pay off the mortgage.

• 56:16Speaker 04

  The suntan, I like this. I like this idea.

• 56:18Brian Preston?

  By the way, if anybody's going to be on the utopia of the, am I saying that right? The utopia of the seas?

• 56:24Speaker 03

  Is that the name of it?

• 56:25Brian Preston?

  I haven't been on the Royal, I mean, I haven't done Royal Caribbean in a while. So we're doing Royal Caribbean after the 4th of July.

• 56:30Speaker 03

  Utopian of the seas.

• 56:32Brian Preston?

  It's one of those Oasis class ships. Me and like 6,000 other people.

• 56:38Speaker 03

  It's a Royal Caribbean International's newest cruise ship, part of the Oasis class, second largest cruise ship in the world. It's known for its short three and four night itinerary to Nassau and perfect day at Coke OK.

• 56:51Speaker 03

  Thank you.

• 56:51Speaker 04

  Sounds like a great time.

• 56:53Brian Preston?

  Okay, wait. I've never had a coconut and lime drink, but there's supposed to be those things that really, I've watched a lot of YouTube videos, so we are ready.

• 57:01Speaker 04

  Got to try one.

• 57:01Speaker 03

  That's awesome.

• 57:02Brian Preston?

  Guys, remember, a lot of the why, money is only a tool. We want it to, so you can do, live life on your terms, do what you want, when you want, how you want, and really kind of know what you value and how to own your time that much sooner. That's what we're creating here. So go to moneyguy.com/resources. And then if you have, because realize, we give you so much free advice, they'll have you like, well, what's, what's the catch here? Here's the catch. It's called the abundance cycle. We recognize we can give you all this simple advice that is going to create true abundance for you, but just natural success is going to create complications. And when that happens, we're going to leave the porch light on for you, and we hope that you will fulfill the abundance cycle. Consider giving us a shot to be your fee-only fiduciary financial advisors.

• 57:47Brian Preston?

  I'm your host, Brian Preston, Mr. Bo Hanson, Rebi, and the rest of the content team. Money Guy, out.

• 57:53Speaker 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.

• 58:26Speaker 05

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