Pod Insights Money Guy Show All of Our Money Rules (And When to Break Them) About this episode Think Money Guy rules are set in stone? Think again. Every financial guardrail we've built, from 20/3/8 car buying to 25% savings rates, has exceptions that could have the potential to help you build more wealth. We walk through all 12 Money Guy rules and reveal exactly when it's not just okay, but sometimes smarter to break them. Personal finance is personal, which means understanding when to break the rules matters just as much as knowing the rules themselves.
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.
DRINKAG1.com/MONEYGUY
Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed sponsored jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed sponsored jobs. Get a $75 sponsored job credit at indeed.com/podcast. Terms and conditions apply. Hiring now? Then this is a job for Indeed sponsored jobs.
0:31 Speaker 01 Low energy, unfocused, foggy? You might be dehydrated. Whether it's hot yoga, over 100 degree weather, or too much sun. Gator Light, with a specialized blend of five electrolytes, was scientifically designed to help move fluids into the body faster for rapid rehydration. Shop now at retailers nationwide. Gator Light hydrates faster than water. Is it in you? Symptoms noted are signs of mild to moderate dehydration. Consult a healthcare professional if symptoms persist.
0:59 Brian Preston? Here's the thing, the Money Guy rules exist for a reason. We want to give you financial guardrails to help you succeed. But what happens when life doesn't fit neatly into those guardrails?
1:10 Speaker 03 Brian, I am so excited because today, we're going to cover all of our Money Guy rules, why they matter, and when it's okay to break them. Because as you guys know, personal finance is personal.
1:20 Brian Preston? I'm Brian, he's Bo, and we're financial advisors here to help you build wealth and break the rules. And with that, let's jump right in.
1:34 Speaker 03 All right, Brian, so the very first rule we're going to look at is one that I think a lot of people are familiar with, at least when they think about sort of the Money Guy ecosystem. And it's our rule around buying a car, the 238 car buying rule. We say, when you buy a car, whether it's new or used, we want you to put 20% down. We want you to not finance it for any more than 36 months or three years, and we want your total payments to not exceed 8% of your monthly gross income.
1:59 Brian Preston? The reason we came up with this is way too many Americans are literally driving around in their wealth. Cars are the biggest wealth killer. If you don't believe me, I want you to take any Consideration that if you look at what the median income is, it's around $45,000 for individuals.
2:16 Speaker 03 That sounds fine. Nothing crazy there.
2:18 Brian Preston? That sounds fine. Until you take into consideration that the average new car is now $50,000. There's a lot of people out there that are driving around cars that cost more than they make in a year.
2:30 Speaker 03 And look, we know that a lot of financial influencers out there say, only pay cash, only pay cash, only pay cash. And that sounds wonderful and it's great. And we actually agree and subscribe to that idea when you can. But if you're early in your journey, or you're just starting out, or maybe you're in that messy middle, a lot of times paying cash is not an option. And you have to have an automobile so that you can actually get to your J O B.
2:53 Brian Preston? So let's talk about when do you break our rules? When do you break 238? We just said it, Bo just, and we do echo this. If you, if you're at the season of life that you can pay cash for a car, pay cash for the car. But if you need to get to your J O B to start the wealth building journey, we're A okay as well with using 23.
3:13 Speaker 03 Another time when it might make sense to break 238 is if you decide you actually want to be more aggressive than 238. So perhaps you want to put more down than 20% so that that way you can buy a more expensive car or get a nicer car. Maybe you don't want to finance it for the full three years, or you don't want to use a full 8% of your monthly gross income. It's okay to break it if the numbers go down, not if the numbers go up.
3:37 Brian Preston? But remember, this is not to buy luxury cars. This is really so that if you think about a family trying to extend it out so they can now get that more expensive minivan or something that's more functional. We still want you to understand that you don't use 238 for luxury cars. And you've got to make sure that your monthly investments still exceed that monthly car payment.
3:56 Speaker 03 All right, Brian, let's talk about rule number two. This one also has to do with consumption, but this is a much bigger purchase. This is our home buying rule. And we think that when it comes to buying your first home, we want you to follow 3525, where you put down 3% as a down payment. You plan on being in the house for at least five years. And we want your total housing cost to not exceed 25% of your monthly gross income.
4:20 Brian Preston? And if you want to know, why does this even matter? Why are we focused on this? The biggest financial decision that most people will make is their primary residence. So you've got to make sure you understand the ins and outs so that you don't wrangle yourself where you're house rich, life poor, or you never build enough margin to even save for the future.
4:39 Speaker 03 Yeah, that's the whole idea. The reason that we have this rule is so that you don't allow your financial life to get out of whack. We don't want you to have so much money going towards housing, so much money going towards putting a shelter over your head that it begins to either one, crowd out the other areas where your dollars should be going, or even worse, an unknown unknown comes your way and you can't afford the place that you're living.
5:02 Brian Preston? So let's talk about when do you actually break this? Is it, and look, this one's, this one's a little in that gray zone, but we're okay because we understand that personal finance is definitely personal. And I think a lot of you guys, especially with housing right now, we just came from a post inflationary run-up of housing where over three years it went up like 50%.
5:19 Speaker 03 Very much.
5:19 Brian Preston? So the affordability is a completely different equation now. So a lot of you, maybe you're on the up and up with your career and you, you're looking at your income and you say, hey, this is where my income is, but I know in two years, three years from now, my income will be here. And you're pretty assured because maybe you're an engineer, maybe you work in the finance space, maybe you're, you know, an attorney or a doctor. We think it's okay to kind of spread that out and extend the budget a touch. Like I said, we're breaking rules here. If you know that you're going where the ball is going, not where you're at currently.
5:55 Speaker 03 And again, the idea is if you go above 25% in the very near future, one, two, three, four years, it would be down below 25%. You need the income trajectory to that. If you have an income trajectory that's just at the rate of inflation and it's not going to meaningfully move that needle on the 25%, then you might want to avoid it. Now, another time when you might want to break, and a lot of people fall in this category is if you live in a high cost of living area, it may literally be impossible to follow three, five, 25 if you're trying to borrow on one of the coasts or in a major metropolitan city. So if you live in a high cost of living area, but there are other resources available to you like Public transportation or things like that to cause the cost of living to come down.
6:39 Speaker 03 In those scenarios, it might be okay to stretch slightly above the 25%.
6:43 Brian Preston? What I love is because we just gave you essentially an asterisk or exception to the rule where you can maybe take this 25 up to 30%. Cause you don't have the 8% of your income car payment. But realize even if you break this rule, you have to create margin because this doesn't take away from the fact that you've still got to save for the future. So don't use this exception to the rule as a thing is just think that you're going to be, you know, rosy days and rainbows and unicorns are here. No, you have to figure out how do you find margin in other areas of your life that you can still save for the future.
7:16 Speaker 03 If you're someone who's out there thinking about buying a home and you want to make sure you're doing it the right way. You're really running the numbers. We have a great tool for you. Go to moneyguy.com/resources and check out our home buying calculator. You can plug in your income, you can plug in what your down payment is going to be, the interest rate you're assuming, the loan term, and it will tell you based on those factors, how much home can you afford? This is a huge financial decision, so you want to make sure that you make it wisely.
7:42 Brian Preston? The next rule, and I love this one because this is a trap that a lot of young people fall into is rule number three, which is first year financing. If you're not familiar with this, what we'd like you to do is when you're choosing how much student loan debt that you can take, go out there and check yourself by saying, hey, what's my first year salary anticipated to be? Don't let your student loans exceed that number.
8:04 Speaker 03 All right. So why does this matter? Well, a lot of people are making one of their largest, most impactful financial decisions of their entire life. When they are 18 years old, they are getting a lot of power to make a very big decision. They can have a huge impact later on in their life. A matter of fact, right now. Forty-four percent of Gen Z'ers have an outstanding student loan balance. It's almost half of the Gen Z population has student loans. And fourteen percent of all student loan borrowers owe more than $50,000. We just told you that the median single income in this country is about $45,000. Fourteen percent of borrowers owe more than that.
8:47 Speaker 03 And maybe even the most saddening statistic related to student loans. Twenty-four percent, or one in four adults that are responsible for the student loans, either whether they're paying for themselves or paying for their children, don't actually believe that they're ever going to pay those student loans.
9:04 Brian Preston? Well, I mean, it makes sense. If you actually go look at the research on how long the average student loan is hanging around, it's 20 years.
9:11 Speaker 03 It's unbelievable.
9:11 Brian Preston? I mean, you can see how, and these are decisions, like I said, that we bring in this full circle. People made when they were 18 years of age. So this is very scary stuff. It's okay to definitely be very strict and have guardrails. But all rules usually do have exceptions. So we can, we can talk about why it matters, but also when do you break this?
9:30 Speaker 03 Yeah, and if you are someone who's starting off, you understand that starting off with this huge amount of debt, it can derail the other areas of your financial life. It's hard enough coming into adulthood. If you're starting on a level playing, on a level playing field, it's hard. You're having to adjust to all the new intricacies of independence and being on your own. And if you combine with that, the idea that you have this huge burden of debt that you're dragging behind you, it just makes the journey that much more difficult.
10:00 Brian Preston? Well, always when, I remember when we were coming up with this rule, I'm hoping that people will be a little more deliberate with what their major is and where they go to school, so that they can actually not drag around this debt for 20 years. That's why I spent a lot of time in Millionaire Mission, talking about, it does matter where you go to school. It matters what you major in, because when we interviewed our clients, our millionaire clients, over 70% of our clients work in their field of study.
10:26 Speaker 03 That's great.
10:26 Brian Preston? Meanwhile, you can compare and contrast that to the general population. Seventy percent plus of the population don't even work in their field of study. So We have a huge disconnect in education, but so that's why we came up with this rule. But now it's probably a good time to talk about, well, when do you break this rule?
10:43 Speaker 03 Well, I think one of the times that you can break this is if you're someone who is pursuing a specialized degree and that specialized degree has a high likelihood, a high probability of producing outsized income. So these are people like attorneys, doctors, medical professionals. If you're someone who's going to school for those, it might be necessary for you to rack up more student loan debt than what your starting salary will be or what your resident salary will be, with the understanding that the income is going to increase, that you will be able to extinguish that at some point in the future.
11:17 Brian Preston? Yeah, but I still, I like that we put this little footnote on there is I still want you to keep and aim to keep the student loan as low as possible.
11:24 Speaker 03 That's right.
11:24 Brian Preston? Because I don't want you, you're already naturally going to have a much larger student loan debt because of how long you're in school. Let's not exasperate that problem by loading up on expensive housing because you can, that's the bad thing about student loans. They let you pay for anything.
11:38 Speaker 03 They let you do anything.
11:39 Brian Preston? I mean, you can go buy a case of beer with your student loan. You can go do rental. I mean, there's
11:43 Speaker 03 How about Greek life, sorority dues, fraternity dues?
11:45 Brian Preston? Do not fall into these traps, guys. Keep that student loan as low and small as possible. Your future self will thank you.
11:53 Speaker 03 All right, Brian, let's talk about our next rule. This is rule number four, and this is one that we absolutely love. And the rule is simply this, always be buying. No matter what the market's doing, if the market's going up, you should be buying. If the market's going down, you should be buying. If the market is going sideways, you should be buying. We always want you putting your dollars to work.
12:13 Brian Preston? Well, I mean, why this matters to me is that I'm trying to create systems that take the emotion out of the process. A lot of people say, well, what good is a financial advisor? Well, a big thing that we do for clients is we talk them off the ledge is because you got to have a system so that when the stock market gets beat up, the two out of every 10 years, you're not looking for the exits. And then also, I want you to have the fortitude that when things are cheap and you get the best opportunities to buy, when you can get the biggest discounts and the biggest growth factors, I want you to have a way to run In when everybody else is running out and you know how you do that? Always be buying, baby, because if you have a system to where automatic for the people, everything is happening every month, you don't get to outsmart yourself with your emotions.
12:57 Speaker 03 So if you're supposed to always be buying, when does it make sense to break this rule? Well, it's okay to break this rule if you're not at that stage of your financial journey. And Brian, we hold the thing up for you. We have a nine step process that will tell you what to do with your next dollar. So if you're someone who has not got your deductibles covered, you're not getting your full employer match, you have high interest debt, you've not built your emergency fund, you might not be at the place where your dollar should be buying, they should be doing those other parts of the financial order of operations. But once you get through step four, then we want you to always be buying.
13:35 Brian Preston? Well, and also when you retire, I mean, this is the thing is that you do get to a point where so good. What's weird is we live in a consumption society. So the majority of Americans are actually really good at consuming and using their assets. But a lot of you financial mutants, we're great at saving and investing. I want you to know it's a okay to when you get to that point, celebrate that you now have reached the the threshold to where it's okay to use the resources to consume like your peers because you did all the hard work in the years earlier.
14:06 Speaker 03 All right, Brian, let's talk about our next rule. This is rule number five. And this is actually sort of a rule that encompasses a number of different things. And these are high interest guidelines. We get asked all the time, Brian. All right, I love the financial order of operations, but I see that there's sort of like these two different categories. There's step three, which is pay off all the high interest debt. And then there's step nine, which says pay off all the low interest debt. Well, how do I decide what's low interest and what's high interest? And why should I tack the high interest first?
14:37 Brian Preston? Yeah, we look, we tried to put some math to this in a process. I laid that out once again in Millionaire Mission on risk free rates of return and, you know,
14:45 Speaker 03 Equity risk premium.
14:46 Brian Preston? Getting a return for the risk that you're taking. But at the end of the day, we still want you to pay off these debts. We want you to. Own your life. So that's why student loans, we do, we base it down by age. We want you, obviously, when you're in your twenties, you can take more risk. We're okay that you might have a 6% student loan that you're, you know, you're making sure you're doing your Roth IRA and other things. Car loans, to a lot of you, you have to get to your J O B to start building wealth. Of course, we want you to be paying cash. We'll talk about the exceptions of the rule or when to break it. But it's understandable in the beginning, you might have to take for a very short period of time, an interest rate higher than you'd want to, just so you can get to your job. And then
15:27 Brian Preston? credit cards, a lot of people are shocked because we just have zeros all the way down. We'll talk about that in a minute because I think a lot of financial mutants are looking at this. They're falling into the dope trap that the credit card companies have laid out for them.
15:41 Speaker 03 So why does this matter? Why does discerning what counts as high interest debt and low interest matter? Because we want you to be able to strike that balance and recognize that there is an efficient and an effective way to deploy your dollars. We want to really doing two things. We want you to pay off debt and knock that out and get your liabilities knocked down. But we also want you to be building up the asset side of your equation. So understanding what counts as high interest and what counts as low interest allows you to discern how much to be going to each one of those buckets.
16:13 Brian Preston? So when can we break this? As we already kind of shared with you, car loans, look, 238, but they, we, that's why we put a little bit higher rate in there.
16:23 Speaker 03 10% is a high car loan. I don't want to like act like it's not, but if you have a 10% auto loan and it fits inside of 238, we would argue that's okay. That's acceptable for someone in their twenties. Continue paying that on the 238 and use your resources to do something else rather than extinguish that debt quickly.
16:44 Brian Preston? And I know we didn't put it in here, but I did think it was worth at least highlighting is that 0% interest rates. I know all my financial mutants think that you're getting away with something. It really is a rope of dope, is that they're trying to get you, the credit card companies are giving you that first shot, very low interest rates. So you'll fall into their trap. Don't do that. That's why, you know, I know that kind of goes. Counterintuitive is when to break the rules, but I'm just telling you, don't fall into the trap that the credit cards and the banks have put out there for you.
17:11 Speaker 03 All right, Brian, rule number six, this has to do with your emergency fund. We want you, if you're following the financial order of operations, Brian, hold the thing up for me. If you're following the financial order, by the time that you get to step number four, we want you to have a fully funded emergency reserve. And we consider a fully funded emergency reserve likely somewhere between three months of living expenses or six months of living expenses. And there are a number of different factors to determine which one makes the most sense.
17:38 Brian Preston? Yeah, and I love that we've got it right here on the screen. You can see, you know, you can compare and contrast these. Obviously, if you have a good job with high job security, or you could go get another job really quickly, that lets you be more on the three month. Whereas if you got low job security, or you have to move across the country, you want to have a little more buffer. If you've got multiple people counting on you for money, that's going to push you higher on the buffer. But if you and you have another spouse in the house that are making about the same amount of money, that's lower. So you could go through this list, you can figure out, are you three months? Are you six months? But you're still probably trying to figure out, well, why does this matter? And then Bo kind of alluded to this, this is what's going to keep you that margin of protection. It's going to keep you from making the desperate decisions that like you go run up credit card debt,
18:23 Brian Preston? use payday loans, all the horrible stuff when you hit an emergency and you don't have the money in the bank. None of the options are good. So that's why we have emergency reserves to keep you safe from those bad decisions.
18:35 Speaker 03 All right. So now we're trying to think through, okay, well, when does it make sense to break this? And you may be thinking, okay, well, if you have high interest debt, well, if you have high interest debt, you're in step three, you haven't made it to step four. So by paying off high interest debt, you're not actually breaking the rules. So what is an example, we really need to think through this of when you might actually break the three to six month emergency fund rule? We said, if you're someone who has almost a full funded emergency fund, but you're not quite there yet, and maybe we're getting towards March, towards April, and you haven't maxed out last year's Roth IRA contribution, it's okay, in our mind, if you take some of that emergency fund-
19:12 Brian Preston? For a moment.
19:13 Speaker 03 For a moment, and use that to retroactively fill up how much you have left in that Roth IRA bucket, so that you can make sure you get those dollars in. Because if you miss the Roth window, you don't get to go back in time and make those contributions in the future.
19:27 Brian Preston? So, but get in there, use that, I want you to be scared if you do this, so that you're not letting this break glass moment last for that long. The other one is, is that obviously, when you reach financial independence, this has two folds to it, isn't the fact that you might be a person that when you get to step eight of the financial operations, you want to expand cash so that you can play mini Warren Buffett, and buy things when nobody else has cash, like the next time we have a market downturn. The other side of this is retirement. I want when you reach to retirement, now you're going to be living off these resources, and you're no longer working. This is a point where actually your cash reserves is going to go bigger. Is instead of it being three to six months, it might be 12 to 18 months.
20:10 Brian Preston? So you can see we have both extremes covered here on when to break this rule.
20:14 Speaker 00 This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed sponsored jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed sponsored jobs. Get a $75 sponsored job credit at indeed.com/podcast. Terms and conditions apply. Hiring now, then this is a job for Indeed sponsored jobs.
20:44 Speaker 04 Low energy, unfocused, foggy, you might be dehydrated.
20:49 Speaker 04 Gatorade Zero powders have been scientifically designed to help improve hydration balance in the body with a clinically proven electrolyte blend and no artificial colors or flavors. Great tasting hydration, no matter where you're going. Shop now online or at retailers nationwide. Gatorade hydrates better than water. Is it in you? Symptoms noted are signs of mild to moderate dehydration. Consult a healthcare professional if symptoms persist.
21:13 Speaker 03 All right, Brian, our next rule, rule number seven, has to do when you have a large windfall come your way. Maybe you received a pension payout, maybe you sold a capital asset, maybe you received an inheritance, whatever that thing may be. One of the questions we often get asked is, how do I think about deploying these dollars? What should I do? Should I invest them all at once, or should I spread them out over time? And that's why we came up with the Goldilocks rule. And basically, we said, you should determine at what pace to invest those dollars, based on how big those dollars are relative to your total portfolio. So if this windfall, this lump sum that's come your way is less than 10% of your total portfolio,
21:54 Speaker 03 maybe you consider just investing it all at once as a lump sum. But if this lump sum represents over half of your liquid portfolio, and it's a really big chunk, then maybe you want a dollar cost average, investing the same amount of money on a monthly schedule over the course of a full year, over the course of 12 months, to smooth out that volatility.
22:15 Brian Preston? I'm always amazed, because there's a big part of the financial community is that this is a debate between lump sum and dollar cost averaging. This is not a debate whatsoever, because, I mean, statistically lump sum is superior, but because personal finance is personal, it's exactly what you just covered both. Some of the times, these windfalls are such large sums of money, there's a lot of emotional baggage-
22:38 Speaker 03 That's right.
22:39 Brian Preston? -as well as financial risk, because what happens? You come into the windfall of your lifetime, and then you invest into the 2008 market, and you watch 30% to 50% of your assets evaporate within a six-month period. You would be just destroyed. So that's why we were like, okay, yes, statistically- It's better to lump sum, but sometimes decisions are so big, we have to come up with a way that we can make it systematic to protect us from the 2008 type of things. But also, if we're very emotional people and we find ourselves as perfectionists, we're trying to figure out the right time to get in. Or the, you know, because we're just so worried that we gotta do things right. You know what will work you through the emotional side of that?
23:21 Brian Preston? A good system. So our, our rule is going to combine to make sure you're not sitting on the sidelines too long, but also protect you from something really bad that could happen and derail your entire financial life.
23:32 Speaker 03 All right. So when should you break the Goldilocks rule? When is a time when maybe you don't follow these guidelines? Well, you have to know yourself and you have to understand what is true about you. Cause it may be okay to break this rule. If you know that no matter what, you're a financial decision maker. Maybe this lump sum, this windfall you came in, that came in is less than 10% of your portfolio, but maybe it's still a big chunk of money. If you have a $2 million portfolio and you have $200,000 come as a windfall or come as a bonus. The Goldilocks rule, it's a go ahead and invest that right now lump sum all in one. But if you're someone who knows if I invest that and over the course of the next few months, the market loses five, 10, 15, 20%.
24:14 Speaker 03 I'm going to kick myself and I'm going to second guess myself and I'm going to have some angst. That's okay. Dollar cost average it, allow yourself to remove the emotion from it. Know what kind of investor you are and you should implement the plan and the strategy that gives you the highest probability of staying the course.
24:33 Brian Preston? And then this next exception is really for my financial mutants out there. I couldn't help it. I was like, maybe this is two in the weeds, but I was like, you guys are going to love this. I will, I have found when the stock market and the financial markets go into bear market status, meaning they are down greater than 20%. You have to look at the values of these, these, these investments and you have to go, holy cow, maybe this opportunity is good. So then I want you to understand every time the market goes down below 20% and then every 5% down increment on top of that, you might want to accelerate another month in your dollar cost averaging plan to take advantage of the volatility. This is why, you know, because I know you're sitting there thinking, well, Brian, this is exactly,
25:13 Brian Preston? but think about if you were in 2008 and the market lost 20 to 30% over that three month period. If you had a big lump sum and you know that historically every time it went down 20% and then went down every other 5% increment, if you lump summed in on those increments, you would be sitting pretty when you came out on the recovery because we all know the rubber band effect is that the sharpness of the decline typically is also the sharpness of the recovery. And you need to come up with a system that can help you take advantage of that.
25:44 Speaker 03 But remember, this is for lump sums. This is for big chunks of cash that you have come in your way because we have another rule as it relates to your paycheck and the money that you have coming in on a systematic and consistent basis. And that rule is we want you investing 25% of your gross income for retirement. And these are dollars that are going into employer sponsored plans like 401ks, 403Bs that are going into IRAs, both Roth and traditional, going into HSAs. This is money going into a pension or an ESOP or an employee stock purchase plan. Or maybe this is even just money that's going into a taxable brokerage account. Now, it's supposed to be clear, these are for dollars that are for future financial independence.
26:26 Speaker 03 These are not dollars for the sinking fund for the car purchase or the sinking fund for the next vacation. It's just 25% going into future financial independence savings.
26:36 Brian Preston? Yeah, I think a lot of people don't realize if you make under, you know, we have it down there in the, in the fine print, 100,000 for single individuals, 200,000 for, for married couples, you can count your employer money.
26:47 Speaker 03 That's right.
26:47 Brian Preston? So, because we take a lot of flack for this number because I think a lot of people out there and there's other financial people are saying 10%, 15% is all you need to save. And I have to remind people, look, a lot of these systems were designed back in the nineties when we had pensions, when we had, you know, more comfort that the social safety net of the government was going to be there for us. But then we, we now know that more on this falls on our current shoulders on our, we have to take responsibility for ourselves. And then you couple that with, we look at the statistical research and it shows that most people don't even start. And then until they're in their early thirties.
27:22 Speaker 03 That's right.
27:22 Brian Preston? So you couple those two things together, you're like, whoa, we need to get serious about saving and investing. So let's be honest with people. Let's not give them some false hope. Now, look, if you're watching this and you're 23 years old, yeah, maybe that number is going to be less than 25%. But if you're like everybody else and you didn't start saving and invest until you're 30, you need to lean into and understand that 25% is going to help you through this.
27:45 Speaker 03 Yeah, we know that most people don't start until they're 30. And we also know that for most people, life happens and our savings rate when we start likely doesn't stay that way forever. There are unknown unknowns and life changes. If you're investing 25% for retirement, starting at age 30, doing that, you would still have the ability to replace almost 120% of your pre-retirement income. If you retire at 65, if we just assume a very conservative 6% rate of return, but realistically, things happen in your 30s. Messy middle comes along, kids come along, house comes along. Other things happen that likely might take you off. So the earlier and sooner you can start saving 25%, the more of a head start you'll give yourself to figure out if there's times in the future where you need to course correct.
28:30 Brian Preston? So let's talk about when do you break this? And I've already, we've already alluded to the first one. And I'd encourage you, go to moneyguy.com/resources, how much should you be saving? If you're somebody who's, who's watching this content and you're under 30 years of age, there's a good chance you're ahead of the curve and you can adjust your savings rate accordingly.
28:47 Speaker 03 Or maybe you're someone who just has a unique season of life. Oh man, I just had kids or I just moved or I just changed jobs or I just, those things happen and your savings rate might have to take a hit because of that. That's okay. Let it happen, pull back, shore yourself up, and then get back to saving 25% as quickly as you can and your future self will thank you.
29:10 Brian Preston? So the next one, look, and this is one that I've already alluded to a lot of this when we were talking about high interest debt. And, and what is that by age? It's credit card rules. And y'all know the saying, I, I say it all the time, is that credit card use, that's A okay, but credit card debt? No way are we going to let you pay those predatory Rates that these banks are charging.
29:30 Speaker 03 Yeah, that's why it matters. If you look at the average annual rate on a credit card, it is not favorable. It is literally compound interest working against you. So that is the stick. But there's also a carrot to using credit cards. There are financial benefits, including rewards, security, credit building, purchase protection. There are a number of different reasons why a credit card can be useful if you're using it right, but be chainsaw dangerous if you're using it wrong.
30:02 Brian Preston? So when do you break it? Look, if you're like the 50 plus percent of Americans that are carrying a balance on your credit card, you're not a credit card person. So you don't use it. So you fall more in the camp of some of the, the people who have to run a strict line and not even use credit cards. They use debit cards and other things. It's okay. Just know thyself. If you're not paying it off monthly, you're not getting ahead.
30:24 Speaker 03 And look, don't, don't assume that zero percent offers are some amazing thing that they're not. They are not a reason to break this. They're not a reason to carry a credit card balance. If you're not paying your balance off in full every single month, no matter what the interest rate is, you're likely doing it wrong.
30:42 Brian Preston? I'll echo what I said earlier. Don't fall into the dope trap. That can, that can mean multiple things. It can mean rope a dope mean, cause that's what the banks are trying to do by giving you this zero percent. So you can fall in this trap, or it could be about, and I'm going to say it, it's just as dangerous as bad drugs. If you think about the drug dealers give you that first hit for free because they're trying to get you addicted to be just like all the other consumption people of society, don't fall into that rope a dope.
31:07 Speaker 03 All right, Brian, let's talk about our next rule. And this one centers around how do I decide when it comes to 401k or retirement plan contributions, how do I decide between doing pre-tax or Roth? And we have a little test you can do. If you take your marginal federal tax rate and your marginal state tax rate and you add them together, and if you find that the combination of those two is below 25%, you may want to prioritize Roth contributions. If however, you find that your combined marginal rate is greater than 30%, you may want to focus on pre-tax. Contributions because every dollar that you put into pre-tax bucket can save you like 30 cents in taxes. It's a huge imputed rate of return at those tax rates.
31:49 Speaker 03 And if you're between 25 and 30%, then you want to factor in other things like your unique age, your tax rate assumptions and your current account structure.
31:57 Brian Preston? I mean, look, I come from a public accounting background. I've practically turned Bo into a CPA with how much I've harped on taxes. Taxes are a big part of what's going to impact your financial life. So we're always trying to find that tax arbitrage moment is how do we pay the least amount of taxes, but leave the most amount of your army of dollar bills working? And you've got to be proactive with looking at the way you're handling your taxes. That's why when you're young, yeah, we love tax-free growth because you're also probably not in your peak earning years. But you're crazy if you don't while you're in those peak earning years, if you're paying close to 50%, think about that. If you've got 37% federal taxes and then you've got a state income taxes, you know, 6% to 10%,
32:39 Brian Preston? depending on which state you live in, you can quickly see that close to half of your money is going to taxes. And if you're part of this FIRE movement or FINE movement and you think you're going to be leaving the workforce before you're 75, there might be a moment in time where you can, from an arbitrage standpoint, pay a lower tax rate to convert some of this money into Roth. We want to take advantage of those low tax rates, but ultimately it's so you keep more money working in your army of dollar bills.
33:06 Speaker 03 Yeah, and we don't know what future tax policy is going to hold. So if you can have some tax diversification, no matter what future tax policy holds, you can remain in control, literally, you can get to financial independence and you can pick and choose what tax rates you pay based on what your account you're pulling out of.
33:23 Brian Preston? Now, and when to break it, Bo just came to me recently and I was like, you know, he's like, Brian, I've been thinking about it. Yes, you're in the highest tax rate, but you're also getting to the age and you have a disabled daughter that will be able to use this money and actually stretch that money beyond. You ought to consider maybe using Roth in your retirement account instead of doing the traditional for the tax savings. That's okay because I'm building legacy. And I think a lot of you will reach that point. This is when it's okay to break the rules.
33:52 Speaker 03 All right, Brian, let's talk about our next rule. This is one, again, if you listen to our show for any amount of time, you hear us say this all the time. We want you to follow the financial order of operations. Brian, hold the thing up. The financial order of operations is a nine step process to help you know exactly what you should be doing with your next dollar.
34:11 Brian Preston? So here's the thing, and I love this because we have come up with the financial order of operations is affectionately known as the foo.
34:19 Speaker 03 That's right.
34:19 Brian Preston? Do you know what happens if you get the foo out of order?
34:24 Speaker 03 Oof.
34:24 Brian Preston? Oof. Did you hear that? Oof. That is the best dead joke I've heard all week, and I would encourage you because, look, we don't want you trying to do the financial order out of order, doing missteps, because that is going to work against simplifying, making your money work harder than you can. So don't fall into the oof.
34:45 Speaker 03 Reaching financial goals is difficult enough on its own, but if you're all scattered in your goals, it's really, really hard to stay laser focused and move in the right direction. So what the financial order of operations allows you to do is it allows you to compartmentalize what the next goal is. Okay, I know I want to get my high interest debt knocked out. Okay, great, did it. Now I want to get my emergency fund. Okay, great. Now max out my Roth. Great, max out my. It gives you these small, tangible, attainable goals that will not only help you stay optimized, but will serve as a mechanism to make sure that you stay on track.
35:18 Brian Preston? Yeah, and if you're trying to figure out when to break, when to break it, personal finance is personal. And if I'm being honest, I've always tried to have a no hypocrite policy. There were moments when I was thinking about going into the entrepreneurial life and I had to build up cash reserves to make it for the first two to three years I was doing the business. I wasn't moving on to step five, like the financial order of operations would told me, because my life needed me to have a boosted up step four. So it's okay if you look at your personal life and you know, in this season, I've got to do things a little differently. I've also seen people who said, you know what? I've got a growing family. I'm in the messy middle. For the next few months, I'm going to come up with that 3% down payment. That's Outside of the financial order of operations, but we understand
36:01 Speaker 03 That's right.
36:02 Brian Preston? Personal finance is personal and we want you to live your best, best life. But also you need to feel like there is a buzzer and a ticking clock in the background. That if you don't get back to the foo, that your money will start working against you. It's okay to kind of come off the path for a moment in time, but just don't find yourself taking a nap and letting the food not work for you in the long term.
36:24 Speaker 03 All right, Brian, let's move on to rule number 12. And this is one, we get asked this question all the time. How do I know when it's the right time to consider taking the relationship to the next level? Or hiring a financial advisor? We think there's really three points in time where people either hit one of these points, or maybe some combination of these. And it's one, when your life circumstance has gotten so complex, you don't know what you don't know. Two, your time has got so limited that you recognize a lot of the important financial aspects of your life keep falling on the back burner. Or three, the gravity of your decisions becomes so great that you don't feel comfortable navigating alone. It's when the $10 decisions start turning into $100,000 decisions. If you find yourself in one of those three areas or some combination of those,
37:08 Speaker 03 that might be an indication that it's time to consider professional help.
37:12 Brian Preston? And why this matters is I think a lot of people have the wrong idea. They think we don't like do it yourselfers. Are you kidding me? We have hearts of educators. We are literally on the front lines of making sure you know exactly what to do with your money. Cause we understand that if we load you up, you're going to have success and you're going to be rewarded. You don't need a financial advisor when you're starting out. But as complexity starts showing up, you're going to potentially need help to help you optimize and make sure you don't make big mistakes.
37:40 Speaker 03 But a lot of people end up saying, oh, you know what? I, I, I listened to the show, I've got the financial rubber. I'm just gonna, I'll wait till the day before I retire and then I'll hire an advisor. I'll just wait and I'll wait and I'll wait. A lot of folks don't realize there's a lot of proactive planning that you can do early on. Yes, even in your 30s, even in your 40s, where if you make some small decisions, just a small one, two, three degree changes in your financial trajectory can have a huge impact later on in your financial life. So a lot of folks might actually benefit from hiring an advisor. Earlier, especially if they have something like a really high income or a complex income structure, or they have unique things going on in their financial life that a financial advisor might be able to speak directly to.
38:20 Brian Preston? So when to break this rule? Look, I'm okay that some of you will never graduate beyond do it yourselfers. One of my heroes is Clark Howard, and I'll never forget that one of my buddies who introduced us was his accountant at the time doing his taxes, and he always talked about how Clark wanted to know how everything worked. And Clark would never, ever probably be a financial planning client, because he's just going to be one of those guys. But he's also not going to become the biggest troll of financial advisors, because I think he understands is that, yes, there are going to be people who forever will be do it yourselfers, and that's A-OK. But there will be a moment in time that for a lot of you, you're going to recognize the complexity is going to get to a point that you just don't know what you don't know, or you're
39:03 Brian Preston? worried about if you leave this earth tomorrow, what's going to happen to your loved one, and who actually thinks about things the way you do as a financial mutant who can do this on your own? And that's when we're going to lead the porch light on for you, and you can consider going to moneyguy.com, look at the become a client section, and we help you answer the questions, and we help you live your best financial life. I'm your host, Brian, joined by Mr. Bo Money Guy Team, out.
39:29 Speaker 05 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.
40:05 Speaker 06 Now at Kroger, your points add up to more ways to save every trip. Use them your way to take dollars off groceries at checkout, or save at the pump. You can even save up to $35 on your next fill-up. Same points, more choices. And with low prices on fresh, quality food, plus digital and personalized offers tailored to how you shop, your dollar goes further. Redeem your points online or in the app. Kroger, fresh for everyone. Restrictions apply. See site or store for details.
Previous This 401(k) Trend is ABSOLUTELY DEVASTATING (And Getting Worse) Next They Were Burned by a Bad Financial Advisor | Making a Millionaire Page updated October 30, 2026 · transcript and summary are machine-generated