The 401(k) Numbers Are Lying to You

⁠⁠⁠⁠Record-high 401(k) balances may make retirement savers feel like they are finally getting ahead—but the numbers could be creating false confidence. Vanguard’s latest retirement savings data shows median 401(k) balances rising sharply, while much of that growth appears tied to strong stock market returns rather than improved saving habits. We explain why investment growth alone may not be enough, how the declining personal savings rate affects retirement readiness, and why increasing your contribution rate—even by 1%—can meaningfully strengthen your financial plan. Learn how much you should save for retirement, evaluate your 401(k), and become an active participant in building long-term wealth. Jump start your journey with our FREE financial resources⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Reach your goals faster with our products⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Take the relationship to the next level: become a client⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Subscribe on YouTube for early access and go beyond the podcast⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Connect with us on social media for more content⁠⁠⁠⁠⁠⁠⁠ Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:02Speaker 00

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• 1:07Brian Preston?

  There are lies and then 401K number lies.

• 1:10Speaker 03

  Brent, I am so excited about this because sometimes a piece of information or a headline or an article will come out and at first blush, you'll think, okay, ooh, this is good. This is awesome. But I love that we get to sit in this spot where we get to look behind the numbers and determine, okay, is this actually a good thing or is there some creative accounting going on?

• 1:32Brian Preston?

  Well, it's also the context. Always be careful. Numbers are great. We are big math people, but you need the additional context to kind of know what's truly going on. And what's all over the headlines right now is 401Ks are hitting all time highs.

• 1:48Speaker 03

  That sounds pretty good.

• 1:49Brian Preston?

  But there's a catch and that's what we kind of want to cover today because I want to make sure you don't fall into a trap of overconfidence because this is not the first time we've covered this. It's just today it's going to be with 401Ks. We'll talk about in the past, it's been on net worse with the Fred data. There's all kind of behavioral traps that we just want to make sure you kind of are immune to.

• 2:10Speaker 03

  Yeah. So Vanguard recently released their study. This is the How America Saves 2026 report. And this is what came out of it. They looked at defined contribution 401K balances and what the median balance of 401Ks are. And they look at this over the course of every year. And what you can see is since 2022, it's been increasing. Median balance in 2023 was 35,000. Median balance in 2024 was 38,000. Median balance in 2025 was 44,000. So you might say to yourself, holy cow, the median balance of 401Ks are increasing. That must mean that people are listening to the Money Guy Show. They're beginning to take heed that they need to save for their future and they're beginning to save more,

• 2:55Speaker 03

  but that may not be the truth.

• 2:56Brian Preston?

  Well, there's also, if you look at this, it's kind of a curious thing. This is almost more like the Warren Buffett quote of being greedy when others are fearful and fearful when others are greedy. And the fact that you look at this and go, wait a minute, why was it so high in 2021? Why did it get its teeth kicked in in 2022? Man, what a recovery or what a savings strategy in 2023. And then let us go ahead and let the cat out of the bag. If you overlay the S and P 500's performance, what do you know? This is less about the behavior of good savings and investing habits and more about just what is going on in the financial markets. And that's something that we want to be, it's something to be celebrated.

• 3:37Brian Preston?

  Look, I'm happy the markets are going up, but when you find out account values are going up less than what the rate of return is from the general market, we have a disconnect from the behavior of actually what creates the dollars in your bank and in your investment accounts.

• 3:54Speaker 03

  Now, look, don't mishear us. We're not saying that we don't like seeing account balances go up, but we want to be careful that when you see that there was a 16% increase from 2024 to 2025, I don't want you to think it's because, oh, well, people have finally realized I need to be saving. I need to be doing more. It's likely more driven by how the market performed and the data would actually substantiate this. We know that from the Fred data that the national average savings rate across the average American has now dropped to 3%.

• 4:28Brian Preston?

  Yeah.

• 4:28Speaker 03

  An average savings rate of 3%.

• 4:30Brian Preston?

  It's disgusting. And that's the, this, this is the part that I hate to be, because we're optimists. I am Mr. Good Time Rock and Roll, but I am one of those people that when I see a troubling trend and it's always about the behavior of saving and investing. And Americans are notorious for, we like to consume and spend. And look, there's industries out there trying to help facilitate that or grease the skids, but I'm here to tell you there's a better way to do money. And you need to actually intersect, what are your goals? What are your desires for what you want this money to do? And if you start early and do it often with your savings rate, you can find that actually the heavy lift is just the behavior and the discipline, but the hard, all the work is going to be

• 5:13Brian Preston?

  done by your actual investment dollars through compounding growth, but you are missing it all if you don't start saving and investing.

• 5:21Speaker 03

  Well, you said that, hey, if you start early, it doesn't have to be super hard. And so you may be saying, okay, well, maybe if we think about the average American, maybe we have a younger workforce and maybe that this 3% savings rate actually just represents the fact that a lot of young people and housing has gotten expensive. Inflation's gotten expensive, but maybe it's okay. Maybe if you're a young person who's 20 years old, just starting out and you're only saving 3%, maybe that's all right. And again, don't mishear us. We want you doing something. If you're going from zero, any sort of improvement is improvement. But even at a young age, even at 20, 21, 22, 3% savings rate is not going to get the job done.

• 5:59Brian Preston?

  And you don't have to guess on this. We've actually, if you just go to moneyguy.com/resources, we have a great deliverable. How much should you save? And this thing is powerful. And look, even if we took the most optimistic scenario possible, a 20-year-old who discovers the Money Guy Show and starts saving and investing and wants to have a normal retirement at 65, they still need to be saving and investing 6%. So maybe 3% is enough. If you work for a company with a dollar for dollar match of 3%, but that's not the majority of people. Cause we know the typical American doesn't even discover investing until they're typically 30 years of age. So that puts you well into the double digit savings rate.

• 6:39Brian Preston?

  So go with that knowledge and use that knowledge to make you better and then harness the power of compounding growth. Guys, that's the part that gets me excited is if you think about the fact that when you get to retirement, if you do this right, it could be 85 to 90% of your account values, not what you saved and invested. Yes, that was the hard work early that you did, but it's the compounding growth. It's the hard work of your army of dollar bills. So you don't have to work so hard with your back, your brain or your hands.

• 7:08Speaker 03

  So what's the key takeaway here is that when it comes to building wealth, we want you to not be a passive participant in your wealth. And no, don't mishear us. If you can do this early and if you can get your money working for you, your money is going to be the active part. It's going to do a lot of the heavy lift for you, but if you can be active in the sense that, okay, maybe I just started out, maybe I got my first job, maybe my employer match is 3% and so I'm going to do 3%. So I'm saving 6% total, but maybe next year I get a pay raise or I get a bonus or I change jobs and I want to increase it from 3% to 5%. And then from 5% to seven and then seven to 10 and 10 to 15. If you can just do slightly better over time, working towards that 25% full

• 7:53Speaker 03

  savings goal, then you can write your financial future, but it's going to take some active movement on your end.

• 8:01Brian Preston?

  Now, a lot of you, maybe you are one of these people and you're 28 years old or you're 32 years old or you're 35 and you haven't even started saving and investing. You go, guys, I can't do 20, 25% yet. I'm okay with that. I would just want you to start doing something. So we actually have a great deliverable. If you go to moneyguy.com/resources, what 1% more can do for you. Guys, start with one, start with two, maybe even 5% just to, and look, we count your employer match. If you make under $200,000 as a married couple. So count that as in your savings rate and you might find that you're more on the path. Because what I like about the 1% you can, in this deliverable, you can

• 8:40Brian Preston?

  actually look at your age that you are, and if you take 1%, what that will buy you in future retirement.

• 8:48Speaker 03

  Yep.

• 8:48Brian Preston?

  And you, and think about the fact that if you could, maybe it's not 1%, maybe it's 5%. You can stack these percentages and you really quickly will decide, hey, this is what a retirement plan looks like and building a great, big, beautiful tomorrow.

• 9:01Speaker 03

  Brent, I love that we get to sit here. I love that we get to see these articles come out and we get to celebrate the fact that 401Ks are hitting all time highs, but also be realistic that that's likely more because of market performance than participant behavior. And we can encourage you guys to do that. And we love that we get to be part of that. We love that every single Tuesday at 10 a.m. Central, we can show up right here to speak to the things that you care about. We can answer your questions. We can give you our takes on your situation. So if you have a question you want us to weigh in on, or if you want our insight into something in your life, we have the team out in the wings collecting your questions because we really do believe that there is a better way to do money. So with that, Crater Dr. Rebe, I'm going to throw it over to you.

• 9:46Speaker 04

  I'm excited to dive into some questions. We're going to kick it up with Devo6912. He's first up. It says, with target retirement date funds, how soon till 65 will people notice their returns no longer match the highs and lows of the S and P 500?

• 10:05Speaker 03

  Well, you see, it depends. And I get to say that right now.

• 10:09Speaker 03

  Depends on what target date retirement fund you're talking about. For those who are not familiar, a target date retirement fund is basically a basket of holdings set to adjust automatically on some specific time horizon. So if you think that you might retire in the year 2045, then you would go buy the target retirement 2045 fund, and we like the index versions of those. Well, what's going to happen is while we are many, many years away from that target timeline, it's going to be more aggressive and more aggressive means it's likely going to have a higher equity composition than a fixed income or risk off composition. As such, it's probably going to more closely mirror what's going on in the S and P 500 or the broad index that that target retirement done, target retirement fund is allocating

• 10:54Speaker 03

  to. But as time moves on and as the allocation gets more and more conservative, you're going to see more of the risk on assets get decreased and more of the risk off or risk reduced assets increase. Well, as that happened, there's now going to become, oh my goodness, look at how good you guys are. As that happens, you're naturally going to have a larger tracking error between the MSCI All World Index or between the S and P 500 index, because you're taking some risk off the table. Now, when that happens in a target date retirement fund, depends on which fund family you're using, because they're not all the same. Fidelities are different than Vanguard's are different than Schwab's. So it's worthwhile to go, look, if you are using a target retirement fund, you should

• 11:36Speaker 03

  go look at their composition and see if you can determine what the glide path is to make sure that that matches what your ultimate timeline is.

• 11:44Brian Preston?

  Yeah, and I think if I was just giving you an answer off of the feeling of when you probably comes, you asked the question, when will you notice? I think likely probably in your mid 40s. If I was just giving you a, you know, finger in the, in the air to tell you where the wind's blowing, probably in the mid 40s. But that's probably also, because remember there's the make wealth phase, there's the maintain wealth, and it's once that make wealth, once you, this thing has reached a substantial size where you need to start thinking about the tax efficiency of your portfolio, how you're going to use this money, because maybe you're in step seven of the financial order of operations, you very likely will be graduating from these indexed target retirement funds, and that might be in your late 30s, early 40s.

• 12:26Brian Preston?

  And at that point, that's when I would love for you to consider getting more specific and nuanced with your investment strategy. And that's probably a great point to take the relationship to the next level. That's why I don't like it when 20 and 30 year olds, when they need to be focusing more on the behavior of their savings rate and their investments. I don't want you to get caught up in the noise of what all the different crazy investments. We can just go buy a simple index fund that will accomplish those goals. You don't have to waste the mental horsepower. You can focus on what really matters and own your time during those periods. But then there comes a point where you've reached enough level of success that now you can't ignore the, the set it and forget it. You need to actually take an active role, get into the tax efficiency, get into the asset allocation.

• 13:11Brian Preston?

  That's, there, there is a jump off graduation point on that.

• 13:14Speaker 03

  Love that.

• 13:15Brian Preston?

  By the way, here, can I tell you another little thing about indexed target retirement funds? It's interesting. Fidelity, and look, I'm doing this off memory, so maybe they've changed this since the last time I looked, but it was either 20, 25 years in the future, even though they put different tickers in different years, if you look, the allocations are the exactly the same, meaning they go so far. And once you get too far out on the aggressive, on 25, 30 years in the future, they don't change the allocations anymore.

• 13:41Speaker 03

  But it doesn't mean it's the same fund, what means, what it means is they're going to start in the same place, but the glide path will begin at different time periods.

• 13:49Brian Preston?

  But I guess they're basically saying there is, this is the most aggressive we're going to go, but the glide path will be impacted sooner, depending upon the year you chose is when you needed the assets. It's just an interesting, I remember when we doing the, doing research and due diligence on these different funds, and that's why Bo's exactly right also. Vanguard, Schwab, and Fidelity are the three biggest kind of providers of indexed target retirement funds. They all have different risk bins that you ought to go look at their different holdings and take an active role in choosing which one kind of reflects what you like.

• 14:23Speaker 04

  That was great. Devo 6912, thank you for the question. Happy you're here.

• 14:29Brian Preston?

  Can I give two, kind of two celebrations for our audience this week? First of all, we did, we announced the paperback, and I was really proud that once again, because y'all did, y'all showed up, we immediately started charting on, on Amazon.

• 14:46Speaker 04

  Number one in finance books.

• 14:49Brian Preston?

  That, that's pretty awesome. The other thing is, is that-

• 14:52Speaker 03

  Did you say number one?

• 14:53Speaker 04

  Number one.

• 14:54Speaker 03

  In personal finance books?

• 14:55Brian Preston?

  The other thing-

• 14:56Speaker 03

  Like number one, top of the list.

• 14:57Speaker 04

  Number one. Millionaire Mission on paperback.

• 14:59Speaker 03

  Buddy.

• 15:00Brian Preston?

  The other thing I thought was interesting was, and look, I don't, the, the, the whole S, you know, S tier structures, I don't completely get it. Somebody told me it's based off a Japanese system or something, but it shows up on my feed.

• 15:14Speaker 03

  You tell somebody to rank something, it's like A, B, C.

• 15:16Brian Preston?

  We never, and I, I realize I don't know if it's because we're the gentle men and ladies of the personal finance base, we're not controversial enough, but we typically don't ever get listed on those lists, but you guys and, and you guys out there, my financial mutants, y'all are in force on the comment section, to the point that eventually the creators all have to say, yeah, I guess I'm going to have to go check that out. So thank you, thank you. I know that sometimes we don't have the razzle dazzle controversy that puts us on all the list, and that's, because I remember even when we were bringing it back to the millionaire mission, the publicist we hired when the first book, first edition of the book came out, she's like, so what's your counterculture claims? Because she goes, that's what's going to make you stand out, that's what the press is going to like. And I was like, we just tell people how to be good with money.

• 16:00Brian Preston?

  And she goes, no, but that's, it's got, you gotta have a controversial thing that's really going to catch the headlines. And I'm like, we're good with money. I was like, I on purpose don't want to be the one that creates sensation just for the sake of sensation. And I know that works against us, but that also should give you some peace of mind that somebody's actually out here trying to actually help you be better and educate you, instead of just razzle dazzling to get the clicks. Because in this new modern world, sometimes it's hard to tell, is somebody rage baiting you or actually trying to help you be better? I can wholeheartedly, and I sleep good at night knowing, we want you to be the best version of yourself.

• 16:37Speaker 03

  Love that.

• 16:38Speaker 04

  Well said, well said. I like that. I want to know, what do you think the Money Guy's countercultural take is?

• 16:44Brian Preston?

  It is. I mean, it's a great question.

• 16:46Speaker 04

  Because I remember really trying to come up with something.

• 16:48Brian Preston?

  Yeah, I was like, let me think about that.

• 16:49Speaker 04

  They were still so vanilla, they were good though.

• 16:51Brian Preston?

  I was like, we do buy age.

• 16:52Speaker 04

  They were good, like-

• 16:53Brian Preston?

  We like index funds.

• 16:54Speaker 03

  I don't think any of that's very-

• 16:56Brian Preston?

  I know, that's the problem.

• 16:58Speaker 04

  Drop it in the chat or on the Moneyverse, I'm just curious to know what you would say. All right. Oh, and if you do want to be part of that number one book in finance, we are offering some perks if you go and preorder the paperback of Millionaire Mission. So go to moneyguy.com/millionairemission.

• 17:15Brian Preston?

  Oh, you don't have the mug. Bo, every week, every week.

• 17:18Speaker 04

  I literally have the other version.

• 17:20Brian Preston?

  Because Rebe and I are repping the merch.

• 17:23Speaker 03

  Why don't you just say to me, Bo, grab a different mug?

• 17:26Brian Preston?

  You know, you love your kids.

• 17:27Speaker 03

  I do love my kids.

• 17:28Brian Preston?

  We don't want to take away from that.

• 17:29Speaker 03

  I do love my kids.

• 17:30Speaker 04

  That is good. I can't argue with that. But if you, watching or listening, would like a special edition, limited edition Millionaire Mission or Money Guy mug, go preorder the paperback and go to moneyguy.com/millionairemission for how to cash in on the perks that you're going to get for preordering is just a huge thank you and being part of the mission and getting that book to more and more people. So thank you so much for doing that.

• 17:55Speaker 03

  Can I tell one story? You know, let's answer a question.

• 17:57Speaker 04

  All right, your story's next.

• 17:58Speaker 03

  Say to my kids.

• 17:59Speaker 04

  Let's do a question and then a story.

• 18:00Brian Preston?

  He's got a kid's story after a next question.

• 18:02Speaker 04

  I'm excited. Okay, this one's from Bo Hanson's spotter. I feel like I've seen him in the chat before.

• 18:10Brian Preston?

  Dude, jacked is all I can say, jacked to be Bo Hanson's spotter.

• 18:14Speaker 04

  It says, hi, Money Guy team and those in the wings. I got a raise and am fighting for the lifestyle creep urges like the Green Goblin is in my head saying, buy a Tesla. Should I give in if it fits 238 or pay cash in a year?

• 18:30Speaker 03

  Well, okay, hold on, let me stop.

• 18:32Speaker 04

  There's so much here you can unpack.

• 18:33Speaker 03

  For those of you that don't know, when it comes to buying a car, whether you're buying a new car or used car, if you can't pay cash, because we always love the idea of paying cash, and you need to finance, we like to subscribe to the 238 rule, which suggests I'm going to put 20% down, I'm not going to finance it for any more than three years or 36 months, and the total of all of my car payments will not exceed 8% of my monthly gross income. Now, however, there are two caveats that sometimes we forget to mention, but if you look at the deliverable, they're always there. One is that you need to make sure that your monthly savings is greater than the car payment. If you are only saving $500 a month for your future self, but you got a $1,000 car payment, you're likely getting it out of whack. That's caveat number one.

• 19:14Speaker 03

  But caveat number two is 238 does not apply to luxury vehicles, right? If you're going to buy the nicer vehicle, if you're going to get the upgraded trim package, if you're going to do those sorts of things, we would argue that paying cash is the best solution, or else you might consider looking at a different car. And so one of the questions we have to ask, Spotter, is, is a Tesla a luxury automobile?

• 19:39Brian Preston?

  They got out of that game, Bo.

• 19:40Speaker 03

  Or is it not a luxury automobile?

• 19:42Brian Preston?

  I don't know if you heard, they closed down the luxury factory, that's the Model X and the S, so they can start making all the robots.

• 19:49Speaker 03

  So Model, so is Model Y a luxury? It's Model 3.

• 19:53Brian Preston?

  I think it's luxury only in the fact that if you're looking at like a minivan, is a minivan a luxury when you look at a Toyota or a Honda? And I would say it all fits back. And I want to get back to the answer to, because look, this is an interesting take and you hit all around it is that, because what's funny is we have a great video editor who's on paternity leave right now, and we haven't heard from him. And then last night, he starts sending me messages. And it's all about the Tesla, because he had a chance to test drive with full self-driving. And it's, I was like, if the public knew how legit full self-driving was, they would be, especially if you're out there buying expensive Mercedes, BMWs, Range Rovers and other things. And you're like, if you're spending this much money on

• 20:38Brian Preston?

  a car and it doesn't drive you home, you're like, what am I doing? You know, why is everybody else so far behind on this? But I, it does come back to how bad is the, is the, is how dire is the need? Because if you have a perfectly good car that's getting you to work, and you could just, you know, save, wait a year, that probably is going to work. But if you, if you're every, every morning, you go out there and say a little prayer, be like, Lord, if you will let this car crank up and get me to my job, you know, and you fill in the blanks with whatever, you're probably at the need that this is a, a jump in and

• 21:14Speaker 03

  Maybe more of a need than a want.

• 21:15Brian Preston?

  It's a need more than a want. And that's a great way of putting it. Need versus a want, bringing it back to the basics. I'd also be curious, you, and you talked about this, what's your current behavior? Because sometimes us financial mutants, now, look, if you're already saving 20 plus and investing 20, 20 to 25% for the future, and this is just more of you trying to figure out if you're going to give yourself this little luxury, then I would say go and enjoy yourself and go do this thing for yourself. But if you're somebody who's not even loading up your Roth IRA yet, and you're out there test driving Teslas, it's back to, is this a need or a want? And how does this fit in? And then the last question, and this is just more of a sweetener, you know, whipped cream and cherry, what's the interest rates that your bank is offering? What are they offering?

• 21:59Brian Preston?

  What's the opportunity cost of how that plays out when you're laying that against 238 versus cash? All those things kind of will layer the cake so that you can know the answer that fits your specific situation.

• 22:13Speaker 03

  I agree with everything you just said.

• 22:15Brian Preston?

  But there's a but coming, isn't there?

• 22:17Speaker 03

  There's no but. I read the question a few more times.

• 22:20Brian Preston?

  Look, I have a conflict of interest. I like Teslas. I mean, nobody, nobody is shocked. So I don't mind disclosing my conflict of interest.

• 22:28Speaker 03

  No.

• 22:28Brian Preston?

  I also own, I own Tesla stock. Not that that's really choosing, pushing my, my decision, but it is something I feel like.

• 22:35Speaker 03

  You have a conflict, right? If he goes and buys this Tesla, your stock price, you could roof.

• 22:41Brian Preston?

  That's not really.

• 22:41Speaker 03

  You're trying to front-end load it.

• 22:43Speaker 04

  We're very integrous around here.

• 22:45Speaker 03

  Here was the question, though. Should I give in and do 238 or save cash and pay for it in a year? 238 is really supposed to be this mechanism that allows you to get into transportation. If you have the means to be able to save cash for a year, or even to be able to buy a car and pay it off in a year, I really like doing that. Me personally, I've set out to do 238 a bunch of times, and I can never do it. I just don't like car payments. I am averse to car payments. So if you have the, if you have the ability to pay cash, that's where I am going to fall. Because in my opinion, those cars always drive so much better when they're completely paid off. Oh, well, what about the arbitrage? What about the interest rate? I don't want to major in the minors. If I can have that

• 23:27Speaker 03

  car payment gone and off and one less thing to think about, I think that's a win. So if you're in that situation where you can pay cash, I like the idea of paying cash for it.

• 23:39Speaker 04

  Great. That was a good answer. You, I think you talked around a lot.

• 23:43Brian Preston?

  Well, I was just gonna say, EVs in general depreciate a lot, too. So you just, if you buy this, you need to go in with your eyes open, knowing this is going to be something you plan on staying with for a number of years. So that's why if you're going to look in, especially if you're going to go look at used ones, make sure it's got hardware for. That's the thing I always tell people, don't, don't get caught up looking at the, how cheap you can get into another one. If you really want to maximize full self-driving, you need hardware for.

• 24:11Speaker 03

  I have a, one of my buddies, you know this guy, he, he has a Tesla also. I guess the computer tells you how much time, like how much of the time you've been in the car that it's been driving versus you've been driving?

• 24:22Brian Preston?

  Yeah.

• 24:23Speaker 03

  I think in the last, it was either six months or a year, his car's been driving him 70% of the time.

• 24:28Brian Preston?

  Well, I bet it, I bet it's sooner than, because it's really in the last two months, it's gotten really good. So.

• 24:34Speaker 03

  70% of the time.

• 24:35Brian Preston?

  I would, I bet in the last two months, it's 70%. I bet for me, in the last, I'll just say month and a half, it's probably 60 plus percent.

• 24:42Speaker 03

  That's wild.

• 24:43Brian Preston?

  I don't really drive anymore.

• 24:44Speaker 03

  It's wild. Wild.

• 24:47Speaker 04

  Well, Bo Hanson spotter, great conversation starter. Thank you for the question. Bo, you had a story.

• 24:52Speaker 03

  Oh, yeah. I was gonna tell you all this. So my, my daughters, we were sitting at dinner the other night, and I'm like, hey, so you know, my daughter started this, my oldest, this trash can business, right? Where she's making money. And we've just been saving, putting money in savings account. And I've taught her about how interest works. And so every month, and this is, it's, I have this statement mailed to us on purpose, because I want her to be able to open the statement and look at it and see. And like, her mind's like, oh, this is incredible. So I was like, hey, when your, when your account hits this value, it's a thousand bucks. When it hits a thousand bucks, here's what I want you to start doing. I want you to start investing, baby. You know what investing is? And she's like, no, what's investing, dad? And I walk her through it. And I explained to her that like, hey, you can actually be an owner in a company. You can like, like, what's something

• 25:36Speaker 03

  that you like? And she threw out some stuff. And, and she was like, we mentioned Starbucks. I was like, yeah, you can own Starbucks. Or she was like, what about this, dad? I was like, yeah, you could own Lululemon. And I kind of, I'm walking her through this. And so my nine-year-old is sitting right there. And she's like, Barry, you have to do this. You have to do this. And I was like, baby, that's awesome. This gets you excited. She's like, yeah, are you kidding me? If she owns Lululemon, we could just walk in there and get whatever we want.

• 26:02Brian Preston?

  Oh, my gosh. Oh, no.

• 26:03Speaker 03

  We could just walk in there. No, no, no. Okay.

• 26:06Speaker 04

  Oh, I wish that was the case.

• 26:08Speaker 03

  Pump the brakes. So by the end of this conversation, my daughter was ready to own Amazon, Lululemon, Starbucks, and there was one other one.

• 26:15Brian Preston?

  She had discovered a hack.

• 26:16Speaker 03

  Oh, man. She was like, this is going to be the greatest thing in the world. So I had to like walk that back. But she's so excited, because now, and I told her, hey, every, this, every single month, when you make a decision, you want to invest some money, I will match it dollar for dollar. So you put 20 bucks, I'll put 20 bucks. I will get her eventually to index funds, and I'll get her eventually to S and P 500. But we're going to start with, and let her pick some individual stocks, just to understand what it feels like to own them. And I'm super excited about that.

• 26:43Brian Preston?

  There is a dorky hack you can do, because I, I remember, we probably could do content on this, that if you want to drink Starbucks forever.

• 26:52Speaker 03

  Yeah.

• 26:52Brian Preston?

  For, for free, essentially, you know, taking what your, your daughter's thought. What, I can't remember if it was 10,000 or 15, you, you basically take the dividend yield, you figure out how much a cost of whatever your drink is, multiply it by however many times a month you think you'd want to go buy the coffee. You can back into how much of the Starbucks stock you would need to buy to essentially make it virtual, perpetual as an investor. So it's kind of a fun, little dorky thing that you could do down the road.

• 27:20Speaker 03

  I'll tell you what, what I'm going to struggle with is she's throwing out some companies. I'm like, oh, that's not a good stock.

• 27:24Brian Preston?

  But reality, reality is also, when you see S and P 500 just come in, because that's what, I love the idea of the education, but at some point, you're just buying the market instead of trying to beat the market.

• 27:34Speaker 03

  But look, these are building blocks, right? She's 11. So I got to get her to understand, like, okay, what is this? And here's, here's what will really happen. I'll have her pick two or three. Some of them will do poorly. And I'll be like, hey.

• 27:43Brian Preston?

  You think.

• 27:44Speaker 03

  Do you recognize that like, hey, instead of buying this stock that did poorly, we could have just bought the S and P 500, which is like this basket of stuff.

• 27:52Speaker 04

  All the good ones.

• 27:52Speaker 03

  I'm like, I'm laying the groundwork to be able to teach her that. So.

• 27:57Speaker 04

  I feel like this is a monumental occasion, because I've always heard Brian talk about how he proudly did the dollar for dollar match with his daughter.

• 28:05Speaker 03

  I'm not doing it, I'm not doing it in a Roth IRA.

• 28:08Speaker 04

  You're about to.

• 28:08Speaker 03

  In an account, it's going to be, it's right there, not over complicating it.

• 28:13Brian Preston?

  Why are you not doing a custodial Roth once it's earned income?

• 28:15Speaker 03

  Because it's not, I mean, it's, because I don't, because I don't want to, I don't want to say why. I mean, I'll say why, but I don't want to say. In order to be able to do a custodial Roth, you have to have a filed tax return where you're showing income.

• 28:28Brian Preston?

  Oh, gosh. Yeah, don't incriminate yourself.

• 28:30Speaker 03

  Yeah. You see what I'm saying? You see what I'm saying?

• 28:33Brian Preston?

  Goodness gracious.

• 28:33Speaker 03

  This trash can business, you know, it might be a homing right now. You know what I'm saying?

• 28:37Brian Preston?

  Oh, boy. Y'all heard it. We probably have some listeners out there.

• 28:41Speaker 03

  There's, I do have one, one of my, she's a dear client of mine who works for the IRS, and I, I'm going to get an email after this.

• 28:47Speaker 04

  Yeah, she's going to be like, excuse me.

• 28:49Brian Preston?

  I'm scared of the, the branch of governments with the guns. So just be careful.

• 28:53Speaker 04

  Well, hey, I'm going to go to the next question. But first, make sure you get your rapid fire question submissions in. Put them in the YouTube live stream chat if you're watching live. And we will be collecting some questions for Bo and Brian to answer rapid fire style. Just put RF at the beginning, and we will know that that's for that segment. But first, we're going to go to FedEx Pope's question. Hi, Money Guy team. I live in a state that taxes income, but not retirement income, including Roth conversions. Is there anything I should use as a, is, is there any reason I should use a Roth IRA instead of loading the pre-tax 401k and converting it?

• 29:40Speaker 03

  Well, okay, so this is not uncommon. States like Georgia, we know this because we live there, will have a large exclusion on state income tax for retirement income, where if on the certain threshold of up to retirement income, you don't have to pay any state income tax. You're still going to be taxed at the federal level, though. So it's not like it's completely tax-free income. So there's still merits. I think what Pope is asking here is, oh, well, why should I save? If I'm not going to be taxed on that income, why should I just save in pre-tax and I can pull it out tax-free? It's only going to be state tax-free, not federal tax-free.

• 30:14Brian Preston?

  But it brings up a good point of you have to pay attention to what your marginal rate is.

• 30:20Speaker 03

  Total marginal rate.

• 30:21Brian Preston?

  Yeah, and that's why we always, because, look, you had your federal plus state marginal. If y'all don't know, because there's effective rate and then there's marginal rate. Effective rate is kind of like what you, you add up all of your income, you figure out what you paid in taxes, and you just do a quick math calculation. That's your effective rate of what you paid in income taxes. Marginal rate is what the next dollar you will be taxed at, because, you know, we're in a progressive tax system. So as you're going up through the different tax rates, you want to know what the one you're in is and what every dollar is, because then you can figure out, hey, is this a, is this a high number? Is this a low number? Historically, where does this fall? And that's why we actually give the details. If you fall, and take into account also your age, if you're really young, obviously, we

• 31:04Brian Preston?

  love Roth IRA and compounding growth for young people, but as you get older, you might realizing your peak earning years, you're going to be paying 30-plus percent marginal rates if you add your federal and state. And you're like, wait a minute, just because of exactly what FedEx Pope brought to the attention, when I retire, not only is my federal rate going to go down, but now it's from the state that I live in and retire in will be zero? Man, instead of me paying, you think about if you lived in a state, I mean, federal government, you're in the highest tax bracket of 37%, and then you live in a state that has a really high income tax.

• 31:38Speaker 03

  Like California.

• 31:39Brian Preston?

  It's like California, where it could be up as high as 13%. You literally could be at a point where 50 cents on every dollar you make is getting taxed, but you could potentially retire, move to a state like Georgia, or no income tax state like Tennessee, Florida, Nevada, and so forth, or Texas. And then all of a sudden, when you're pulling that money out, and because you have no earned income, you could be, I don't know, 10%, you know, 12%? It could be really low, 20, even 20. I was doing a Roth conversion analysis where we were doing 22%. And you're like, wow, that is significantly, there's an arbitrage there for me paying 50 while I'm working to where I'm paying 12 in retirement? Yeah, let's do Roth conversions at that point.

• 32:24Brian Preston?

  And that's why we say 30-plus percent is your marginal rate. Maybe you ought to do pre-tax and play the arbitrage when you retire, when you drop down to a much lower. If you're somewhere between 25 to 30, take into account your age and other factors that might be personal in your situation. And if you're under 25%, hey, let's go ahead and load up those Roth dollars and really maximize the tax-free growth opportunity in this moment right here.

• 32:51Speaker 03

  Love it.

• 32:52Speaker 04

  Well, thank you, FedEx Pope, for the question. We're going to go to Donald M.'s question next. In step three of the FOO, is it better to prioritize a credit card with lower interest, 4%, or a 401K loan with a higher interest of 9% first? Given the balances are similar, 401K loans do not show up on credit. Okay, so he's giving, I think, he's giving you a counterpoint there. So he's worried about his credit, and he has two different types of bad debt. What does he do?

• 33:23Speaker 03

  I know my answer. I want to think about why it's my answer.

• 33:25Speaker 00

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• 33:55Speaker 01

  Blowing ad budget on metrics that look great, till the CFO sees them? That's bull spend, and marketers are calling it out in Dashboard Confessions.

• 34:05Speaker 05

  I remember telling my boss, it'll be good for the brand, when leads were slow. Yeah, it wasn't.

• 34:12Speaker 01

  Cut the bull spend. LinkedIn lets you target by company, job title, and more. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to LinkedIn.com/campaign. Terms and conditions apply.

• 34:25Brian Preston?

  Well, it is interesting, is that there's credit card with a, so whenever I see somebody says they have a credit card with a low interest of 4%, that means this is, this has to be like a transfer balance or some opportunity that somebody gave. So this is a moment in time. It is back to our point that this isn't, there's not a credit card out there with a 4% for the next five, six years. Because then, then you get into the argument, is this step number three of the Financial Order of Operations or step number nine? But I'm here to tell you, credit card companies will offer you teaser rates, but they're kind of like mirages from, you know, the old Looney Tunes commercials where it feels like you're

• 35:07Brian Preston?

  getting something good, but it's really, you're still trapped in the desert. You know, you just, you're artificially feeling like this is a great opportunity. Because I worry about credit cards trapping people, because they sprung a trap where you go from 4%, all of a sudden you're paying 26%. You'd be like, how did I get here?

• 35:25Speaker 03

  Yeah, I think where I'm landing on this, my opinion, so write this in pencil, I would prioritize the credit card. I would pay the credit card off first, even though it's a lower interest rate, because we believe that credit card use is okay, but carrying a credit card balance?

• 35:40Brian Preston?

  No way.

• 35:41Speaker 03

  There we go. No way.

• 35:43Brian Preston?

  I didn't see, I was over here drinking coffee and I didn't see you point, so I apologize for the queue.

• 35:48Speaker 03

  Carrying a credit card balance, no way. So credit card balances, carry that month on month is like no-go land, no matter what the interest rate is. I want you to pay that off. Now, if you're looking for a mathematical justification with that, when you're paying interest to a credit card company, you are paying interest to an outside third party. It's disappearing. On the 401K loan, technically, you're paying interest to yourself when you pay that back. Now, the bigger issue is the opportunity cost of those 401K dollars being gone. But I'm going to argue, if they're roughly the same balance, I want you to relentlessly and ruthlessly cut everything out of your budget you can to get out of step three. Because as soon as you get the credit card paid off, the very next thing, the very next step three item would be that 401K loan. But I want to see that credit card balance gone, zilch, zero, off your balance sheet,

• 36:32Speaker 03

  and then work on the 401K loan. That would be, that would be my recommendation.

• 36:36Brian Preston?

  Yeah, because there's going to be a time certain, there's no interest in the credit cards are not, it's not like they're out there so generous, like, ooh, we like your credit score, you, here's your 4% for forever. Those don't exist. So there's sometimes certain limitations. It's a teaser rate. It's a trap waiting to be sprung.

• 36:54Speaker 04

  All right. Thank you for the question, Donald M. We appreciate you being here. I am just getting ready for our "It Does Not Depend" rapid fire segment, where Beau and Brian work together to answer your question in under 30 seconds combined.

• 37:11Brian Preston?

  Using that loosely together. We try to one-up each other.

• 37:15Speaker 04

  They compete against each other to answer your questions in 30 seconds or less. And then remember, if there is something, oh, wait, I forgot the most important part, they can't say it depends during those 30 seconds, so they have to get creative. And then, as I was saying, if there's something we really need to get back to, clarify, make sure we truly educate and teach around, we will follow up on that in our segment afterwards, the "Maybe It Does Depend" segment. So stick around for that. Without further ado, are you guys ready for a rapid fire segment?

• 37:48Speaker 03

  Oh, so ready.

• 37:49Brian Preston?

  Let me get to the new screen.

• 37:51Speaker 04

  We'll get 30 seconds on the clock, and here is the first question. Take a 4% mortgage on a potentially crummy new build, or a 6.5% on an older, better quality build? Which would you choose, and why?

• 38:07Speaker 03

  I would be careful letting something like an interest rate dictate a lifestyle decision that I'm going to make. For most people, home is the most valuable, most expensive thing you'll ever spend money on. You want to make sure that you buy something that's worth the money. Don't let the interest rate wag the investment dog.

• 38:23Brian Preston?

  It's too valuable of an investment for you to choose this off just the interest rate. Look, I chose my first house because of the square footage, didn't think about distancing a commute, and it hurt me.

• 38:36Speaker 04

  Next question. My wife and I are in the final step at 55 and will retire in the next few years. What should we be focused on to retire into our best life?

• 38:49Brian Preston?

  I mean, what do you like to do outside of work? So many people focus on the dollars and cents and don't think about what they're actually going to spend their time doing. So don't get and go beyond just travel and golf and the fun stuff. Think about what are actual hobbies and things you'll be doing to occupy your time.

• 39:04Speaker 03

  Yeah, not most people have a very clear idea of what is they're retiring from, what is they're leaving. We want our retirees to have a very clear idea of what they're retiring to. How am I going to spend my days, the rest of my life? And how can I use my resources to allow me to do that?

• 39:19Speaker 04

  Well said, and right on time. Next, you talk about HSA a lot, but not FSA. HSAs aren't possible for everyone. Are FSAs worth exploring?

• 39:31Speaker 03

  Sure, FSAs are great. For those who don't know, FSA is a flexible spending account. You defer some money from your paycheck to pay for medical expenses, but in most circumstances, you have to use it all by the end of the year. It's use it or lose it. The reason we like HSAs is they can be invested for the long term. FSAs are short-term temporal solutions entry year.

• 39:47Brian Preston?

  Yeah, flexible spending accounts, like if you know you're going to do LASIK in a coming year, you have a procedure or other things. I love the fact that you can be proactive with using it, but it is use it or lose it. So keep that in mind as you plan.

• 40:01Speaker 04

  Well said. A financial advisor question for you. It says, our financial advisor has majority of our funds in money market. We max both Roths, we're married, minimum to get the 401k match. So I think they're doing the minimum to get the 401k match. We're in our mid twenties with extra money past current investments. Should we move more into brokerage for ETFs?

• 40:28Speaker 03

  It's difficult to give you specific investment advice. One thing I would say is you have a big portion of your portfolio in money markets inside of retirement accounts. That's likely not going to be the best solution for you. You may want to consider looking for a different solution. Great place to go look for that solution might be aboundwealth.com/becomeaclient.

• 40:44Brian Preston?

  Look, in your twenties, and if you're decades from touching those assets, I want those army of dollar bills working, not trapped in cash. Cash is primarily for emergency reserves and keeping your life out of the ditch when you're young.

• 40:57Speaker 04

  All right. Next question. Should I file?

• 40:59Speaker 03

  You think it's an emergency fund?

• 41:00Brian Preston?

  I hope not.

• 41:03Brian Preston?

  That's I that the way that question was asked, it was, there's a lot of, we have to come back.

• 41:07Speaker 04

  There's a lot of unknown. We'll come back to it.

• 41:11Speaker 04

  Next question. Should I file jointly with my wife? I can contribute to my Roth IRA without doing a backdoor, but we wouldn't if we filed together.

• 41:20Speaker 03

  Your accountant, when did you decide to file married filing separately versus married filing jointly?

• 41:25Brian Preston?

  Now, there's, I need, I need more details. I'm about to be out of time on, on the whole jointly versus single, because it doesn't necessarily work that way. Go ahead.

• 41:36Speaker 03

  I would not let the Roth decision drive whether you just file jointly or whether you file individually. What I do is I'd have your accountant run it both ways. Here's your tax burden if you're married filing jointly. Here's your tax burden if you're married filing separately and determine which one's most advantageous for the household from a tax cost standpoint.

• 41:50Speaker 04

  Ooh.

• 41:51Speaker 03

  That's where I thought you were going. Because you used to do that. Remember you used to do that in some way?

• 41:54Speaker 04

  He really wanted to say it depends. I know he did.

• 41:56Brian Preston?

  We'll come back to that.

• 41:57Speaker 04

  It does. Okay, we'll come back to it.

• 42:01Speaker 04

  All right. What step of the foo is buying the paperback Millionaire Mission a part of?

• 42:06Speaker 03

  Ground rule, baby.

• 42:09Brian Preston?

  Look, we all need an instruction manual. You don't try to assemble the IKEA furniture without an instruction manual. Kind of money is the same way. It's the whole why it's called the financial order of operations. Just like you have to do, please excuse my dear Aunt Sally to solve a math problem. You need to do the same thing with your finances.

• 42:24Speaker 03

  Where can they go get Millionaire Mission right now if they want to get a copy?

• 42:28Brian Preston?

  Well, I would go to, I mean, you can buy it anywhere, but go to moneyguy.com/millionairemission.

• 42:34Speaker 04

  You got it.

• 42:34Speaker 03

  Perfect.

• 42:35Speaker 04

  No, it's all the retailers.

• 42:36Speaker 03

  And if you do it right now, there's all kinds of perks that you get.

• 42:38Speaker 04

  You preorder it. You get perks also available at moneyguy.com/millionairemission. Okay, over 30 seconds.

• 42:45Speaker 04

  Next question. Is there ever any reason to use mayo or sour cream when making mashed potatoes when butter and milk are so perfect?

• 42:55Brian Preston?

  It's all the above. I mean, I actually use every one of those things. I love making mashed potatoes.

• 43:00Speaker 04

  Mayo and sour cream?

• 43:01Brian Preston?

  I don't use mayo. I use sour cream though. I've used sour cream in my mashed potatoes.

• 43:05Speaker 03

  Like make them or like?

• 43:06Brian Preston?

  And I like buttermilk and yeah, so I, yeah, I put it all in there. I don't put mayo in them.

• 43:12Speaker 03

  Like as an accoutrement on top or as like while you're making it?

• 43:16Brian Preston?

  While you're making it. That's why when you go to restaurants, you notice like the garlic mashed potatoes or sour cream, it all, it adds a little extra. You're like, man, this isn't, why doesn't my stuff at home not taste like this? Because they put stuff in it.

• 43:27Speaker 03

  Never made mashed potatoes. Couldn't tell you how. I'd assume you mashed potatoes, but outside of that, no idea how to do it. How much butter?

• 43:35Brian Preston?

  Lots of butter and milk.

• 43:37Speaker 03

  Is it four sticks of butter? I don't know. Is it one stick of butter? How many potatoes do you need? I have no idea.

• 43:43Speaker 04

  We should do a vlog where Beau makes mashed potatoes and swims.

• 43:48Speaker 03

  Why are you throwing darts? I can swim.

• 43:51Speaker 04

  It's just so easy.

• 43:52Speaker 03

  Basically.

• 43:52Speaker 04

  Okay, let's move on to the next rapid fire question. There's the photo of Beau swimming. Legend. Legendary photo.

• 44:02Brian Preston?

  Oxygen to my lungs.

• 44:04Speaker 04

  Next rapid fire question. Here we go. Should someone who's in a high tax bracket but young still use a Roth 401k instead of traditional in the expectation that tax rates might be a lot higher in the future?

• 44:18Speaker 03

  Without knowing more about your circumstance, we don't think it's either or. We think it's both and. We love you doing pre-tax if you're in a high tax bracket, but instruction accounts is such a way that you can do things like backdoor Roth, because odds are in the future, you'll have an ability to convert Roth dollars at a lower tax rate.

• 44:34Brian Preston?

  Yeah, I was, that was like, hopefully he's going to leave the backdoor Roth for me because it's a big ditto. I want you doing both. Take advantage of the tax arbitrage on the 401k, but then make sure you're backdoor Rothing. You gotta have the right structure.

• 44:48Speaker 04

  You've got backdoor Rothing.

• 44:49Speaker 03

  Backdoor Rothing.

• 44:51Speaker 04

  All right. Last but not least. Hey, Money Guy team, I've inherited an IRA and I need to withdraw down to zero in the next six years. How should it be rebalanced if I'm trying to draw down an equal portion, one of six each year or one sixth each year?

• 45:08Brian Preston?

  Is that a personal choice? That's the first question is why are you choosing? Because you could, you might want to defer it for the six years, you know, do the, if there's, maybe they had to make minimum distributions, but I, I need to know more details. And I hate to say, I'm not going to say the, the D word, but.

• 45:26Speaker 03

  I would think if it fits into the overall allocation, I wouldn't get too cute trying to adjust the allocation because in most circumstances, when you take those distributions, if you're just going to reinvest, your allocation can stay true inside the IRA to outside the IRA. I don't think you have to overthink it.

• 45:41Brian Preston?

  There's so much more you could add.

• 45:43Speaker 04

  Well, good thing is it's time to go to our, it does, maybe it does depend segment where now that we've answered rapid fire, we will go back and make sure you've said all that needs to be said.

• 45:54Brian Preston?

  Look, like on an inherited IRA, if it's a small balance, there's no tax consequences when you have to sell to, to make your annual distribution. So if it's a small balance, I would just have it in the holding. And then when I take my annual distribution, but if it's a large balance, then you could build that into the asset allocation and distribution plan. Or, but it's back to what do you, what's the minimum you have to take? And what's the opportunity of what you could let it grow to? And I would, I would, don't skip out on that planning method either.

• 46:21Speaker 03

  Yeah, I don't think I would try to have it be a standalone allocation inside the inherited IRA, because unless you're, unless you're using these dollars for paying for your expenses, meaning you're like an older person at Financial Independence, I would have the allocation there match your total allocation, not individually standalone. And then you just take the distribution and then redeploy, take the distribution, redeploy. I don't think it has to be more complicated than that.

• 46:46Speaker 04

  There you go. So we had a couple more to talk through. One was, um, the young couple who had the majority of their funds in the money market.

• 46:55Speaker 03

  They have a current financial advisor. Read that question to us one more time.

• 46:58Speaker 04

  Our financial advisor has majority of our funds in money market.

• 47:01Speaker 03

  Majority, that, right there, red flags, ding, ding, ding, ding. If that's not your emergency fund, that tells me that your financial advisor is likely trying to time the market.

• 47:09Brian Preston?

  Or you're hiring a financial advisor too early. If all of your, if you, if all of your capital is in emergency funds, because that's where you are. And because remember financial order of operations, it's steps one and four is pretty much emergency reserves. So maybe they're just at the beginning of their journey and they hired somebody.

• 47:24Speaker 03

  Yeah.

• 47:24Brian Preston?

  That, that's a red flag in itself.

• 47:25Speaker 04

  They are in their mid twenties, they said.

• 47:27Speaker 03

  Or, or worse, this financial advisor, assuming you have an emergency fund, is trying to time the market. Hey, we're going to build up cash when there's an opportunity. Right now, markets are all at high highs. We're going to build cash and we're going to redeploy it. My opinion, that's a losing proposition.

• 47:39Brian Preston?

  I would rather than try to, instead of beating the market, I'd try to be the market and just load it up into the dollar cost average into the index funds.

• 47:47Speaker 03

  Love that.

• 47:48Speaker 04

  That was good. Good clarification. And then another one was about, should I file jointly with my wife? And there was the backdoor Roth consideration?

• 47:57Brian Preston?

  Look, most of the time, it's going to make sense to file jointly because the, the tax code is written in a way where it just basically splits it. And the reason you don't typically file jointly is there are unique situations where maybe your spouse has horrible credit. They made horrible decisions and you, they got people chasing them, calling it all hours. And you're like, well, I don't, they're so bad with money. I don't want to be attached to that. Or you know, they're doing criminal activity and you don't want to be attached to that. I'm, I'm just giving you.

• 48:25Speaker 03

  The Walter White thing. Yeah.

• 48:26Brian Preston?

  Yeah, I'm trying to give you reasons you typically separate. But for the, the lion, and I'm sure there's more examples out there, but for the lion's share of people, you're going to probably file a joint return unless there's something you're trying to, it's more about what you're trying to avoid than using it as a planning opportunity. And, um, and that's what, because they were saying they qualify, most people, most people with their contributions.

• 48:50Speaker 03

  On their single income, they qualified to do Roth, but when they went married filing jointly, they weren't qualified.

• 48:55Brian Preston?

  That's not, that's, that's, that's letting the tail wag the dog. I would not let that be the driving factor for me. I would figure out if you could do account structure and do backdoor Roth, but by just doing traditional IRA contributions, non-deductible, and then if you have the right account structure, you can then convert it into Roth.

• 49:12Speaker 03

  And then the other situation where I've seen it, it was like the deductibility of student loan interest. I've seen that before where spouses might file separately. Cause again, it's not about any one thing. It's not about the ability to Roth, or the ability to deduct this, or the ability to get this credit. You have to look at the entire tax picture together and figure out, okay, collectively, if we're married filing jointly, what is our total tax burden? Or if we're married filing separately, what is our total tax burden? And in most circumstances, you want to go with the lowest tax burden. That's going to be the most efficient structure.

• 49:42Brian Preston?

  And look, most tax preparers, it's just a click of a button. Assuming they did the right, when you put the data in, you do have to put who owns all the things. Like you'd put taxpayer, spouse, or joint. And you know, you have to make sure you, you check in all the boxes correctly on ownership when you're putting in the data. And a lot of financial, I mean, sometimes tax preparers are so focused on getting it done so fast, they're skipping that step, not thinking it's important. But assuming they put all the data entry right, it's most tax software, you can just click a button saying, hey, run this, you know, separate versus joint, and let me know the differences in taxation.

• 50:18Speaker 04

  Well said. All right. That concludes, concludes our rapid fire segment. We've got time for a couple more questions. If you guys are ready to dive back into some not rapid fire.

• 50:29Brian Preston?

  I would, I'd be curious, did anybody put what our counter culture or what we do differently? Did anybody?

• 50:35Speaker 03

  So there were a few thoughts. Uh, one was, hey, not, not having an aggressive countercultural thought is countercultural right now.

• 50:42Speaker 04

  I was like, respect?

• 50:44Speaker 03

  Somebody said, uh,

• 50:45Speaker 04

  I appreciate that.

• 50:45Speaker 03

  Saving 25% of your gross income. That's a countercultural thought.

• 50:49Brian Preston?

  You know, I will say that is, I guess, but you know, but then here I am, I mute it down because I say, hey, count, that counts your employer. Because even, we've had friends who've done content, you know, content friends, I say, who've done content picking on 25%. But I think if you all of a sudden find out, most employers are doing three to 6% matching, all of a sudden, now we're below 20%. You're like, oh, maybe it's not as, we're just showing you the math. And we just, you know, like I said, it's the intersection point. If you go to moneyguy.com/resources, how much should you save? When the typical American doesn't start saving and investing until they're 30 plus years of age, you quickly see why we land at the numbers we land at.

• 51:27Speaker 03

  That's right.

• 51:27Speaker 04

  Yeah. I do like that. It is kind of true. Like 25%, some people think that's high at face value. Like you could make that.

• 51:35Brian Preston?

  Well, when the typical American's doing 3%, it's a shock and awe campaign.

• 51:39Speaker 03

  It used to be countercultural that we, uh, in, in a lot of circumstance, we prefer 30 year mortgages over 15. And we say three to 5% down payment on your first house as opposed to, you know, 10 or 20. That's a little bit countercultural.

• 51:51Brian Preston?

  Well, everybody's came to us.

• 51:52Speaker 04

  I think that was one of my, uh, like I tried to make that our answer to that publicist who posed the question, stuff about housing. Like we say, you shouldn't pay off your house early a lot of the time.

• 52:01Speaker 03

  Yeah. Yeah.

• 52:02Speaker 04

  That's kind of interesting. Um, so yeah, fun conversation.

• 52:06Brian Preston?

  I appreciate the audience putting that out there, but it's, um, it's, it's just an interesting, it helps us with marketing because we're just trying to help you be better, not be sensational.

• 52:16Speaker 04

  Yep. All right. We do have a final question from the, well, maybe we have time for two. We're going to see. It depends. This question is from JQ42. It says, shower thought. If you win the lottery, does the foo still apply? Or does income that year prevent you from contributing to Roth IRA and other stuff? Does the foo still apply if you win the lottery?

• 52:42Speaker 03

  Well, so let's, let's, okay. So winning the lottery is a pretty low probability thing, but let's assume for a second, you don't win the lottery. Let's assume that you get a big bonus, or let's assume that you sell a big asset, or let's assume something happens where there's a windfall in your financial life. What likely happens when those things take place is you're going to move through the financial order of operations just much, much, much, much more quickly. If you have a huge sum of money, you're going to go through it. It's okay. Where's my emergency, uh, you know, do I have a deductible covered? Yes. Am I getting my employer match? Already done that. Do I have all my high interest debt knocked out? If I have it, go knock it out. Is my emergency fund fully funded? Great. Now Roth HSA, can I max that out? Can I max on HSA? Am I on a high deductible? Can I do the Roth? Okay. No. Can I do a backdoor Roth? Then to the 401k, then to step seven,

• 53:24Speaker 03

  then to step eight, then to step nine. You likely might just run through the foo in a very compressed timeline, but I would argue that it still applies.

• 53:32Brian Preston?

  It's going to be a checklist. You say what to do with your next dollar. It's just you go start, all of a sudden you're, let's just say it was a million dollars. When you pay off the $30,000 of credit card debt, now it's 970. When you load up the emergency reserve with the 40 or $50,000, now it's all of a sudden 930. When you do the Roth for you and your spouse, we're going to take this down, we're going to get down to about 910, you know, or 915. And then when you max out the retirement, all of a sudden you're like, you're going to end up with a nine, you're going to run through the steps and you're going to have about $900,000. And then you're probably in step eight, go say, hey, is this one I kind of reward myself with a lifestyle choice? Now you don't go crazy because you don't want to be a typical lottery person that turns into a statistic.

• 54:15Speaker 03

  Yep.

• 54:15Brian Preston?

  Where you went and bought too big of a house. Do something for yourself, but just don't get hog wild with it to where you, you're like, how did I go blow through this money? And now I'm back to being broke.

• 54:25Speaker 03

  You want to tell them our windfall rule of thumb?

• 54:28Brian Preston?

  Was it 10%?

• 54:29Speaker 03

  10%, windfall, right? Like you, and look, again, write this in pencil. This is an opinion, but in our practice, like as we've seen this with clients, you get a big windfall. Maybe it's an inheritance. Maybe you sell a business. Maybe you sell a piece of land. There's some other capital transaction takes place. We always try to encourage our clients, hey, chisel off 10%. Let's call that, uh, blow money. I don't care. Right? Like, hey, 10%, if I get a million dollars of what, a hundred thousand dollars I'm going to spend on that thing that maybe is not the best financial decision. Okay. I'm going to go buy the boat, or I'm going to go do the renovation, or we're going to go on the trip, or we're going to, I think it's okay so long as you make sure you cord off that 10% and don't let the 90% begin bleeding into the 10%.

• 55:13Brian Preston?

  Yeah. You get it out of your system. You essentially blow it out of, you get it out of your system. You're blowing the carbon out of the system. Um, you know, you ever heard that with a car? You know, you gotta go drive it hard to get all the, blow it all out real quick.

• 55:24Speaker 03

  Well, not a Tesla.

• 55:25Brian Preston?

  We, no, it's definitely not a Tesla. That's all. But, but it is, get it out of your system to where you then respect the money and don't create something. Because sometimes it's the lifestyle you create for yourself that's not sustainable. And that's what people, we often hear, and I think it's the Morgan Housel quote, is that when people say they want to be a millionaire, they really don't want to be a millionaire. They just want to go spend a million dollars. And that's why lottery dreams typically tend up, end up broke is because they don't have the skillset to know, how do you actually maintain and build and keep and be a creator of wealth versus just a consumer of the money that you inherited?

• 55:58Speaker 03

  Yeah. Spending a million dollars is literally the exact opposite of being a millionaire. Isn't it so funny that that's, that, how true that is?

• 56:05Brian Preston?

  But that's what people, when they have lottery dreams, they're usually daydreaming about how they're going to spend the money, not how you maintain it and keep it.

• 56:12Speaker 04

  Sure. Well, good thought, JQ. Thanks for the question.

• 56:16Speaker 03

  Also, first thing, if you win the lottery, uh, you go to aboundwealth.com slash become a client. Reach out. We'd love to help you make sure that you, uh, you navigate that well.

• 56:25Brian Preston?

  Do we, you know, we've had a few lottery prospects. None of them turned into clients.

• 56:29Speaker 03

  None of them have been a client.

• 56:30Brian Preston?

  I don't think we have any lottery clients.

• 56:32Speaker 03

  We've had a few that have hit some big jackpots, but it never.

• 56:34Speaker 04

  You think it's because they wanted to spend it?

• 56:35Speaker 03

  Well, I think, yeah.

• 56:37Speaker 04

  Cause you were like, maybe you should save more of it.

• 56:39Speaker 03

  We try to do really good. When we sit across from someone who's thinking about hiring us, we try to do really good about not telling them what they want to hear. Like, want to tell them what they need to hear, right? It's, we've done this before. Somebody will sit down with us and they'll be like, yeah, I've got a million and a half dollars saved up for retirement. I'm going to retire next year. Like, awesome. Great. How much do you spend a year? Oh, well, you know, my income is probably around 250. You know, we kind of spend that a year. And we're like, ooh, that's, that's going to be a pro. You know what I mean? We want to help people make wise decisions, but also be realistic about where they are and what their money can do for them. So I think that's why we haven't landed the lottery winners.

• 57:13Brian Preston?

  Well, I mean, it's the same. I've, I've had a few sit downs with some professional, because you know, I had a whole season where I worked with a lot of professional athletes at one of the firms I was at. So I've had a few that have come my way through friends and family that might've, you know, mentored or grown up with somebody who, who came into these big contracts. And sometimes me, us being honest and telling people what they can't do with money in the front, runs them off. And I, but I'm always, I'm trying to be honest because I think there's a lot of people that blow smoke at people and tell them how great and what they can do, but they're just trying to get the client or get the money. And that's just not who we are. I'm going to tell you the, the cold, because the reality is a financial advisor should all, should be the brake when they need to be the brake, but they also should be the accelerator or the gas pedal when you can

• 57:57Brian Preston?

  go and enhance your life. And, and we're going to just always try to be as transparent about that as possible.

• 58:02Speaker 03

  And look, the original question was, does the foo apply? Brian, hold the thing up for me. A lot of people say that, uh, a lot of people who win the lottery, they don't have any like financial backing. So the foo is a great place to start, even just to get acclimated with, how should I be making these decisions? Where should my mind be as I think about how to navigate this? It transcends all wealth levels, all experience levels, all knowledge levels. It really is. We think of it like an all weather, all weather Swiss army knife.

• 58:31Speaker 04

  That was my first thought. Like, yeah, follow the foo. Doesn't really matter.

• 58:35Brian Preston?

  I don't want to, I don't want everybody to think we filibustered out of one more question. So let's do one more.

• 58:40Speaker 03

  Hey, let's see if we get three or four more in. I just want to one up Brian. Let's see if we can get a few more in.

• 58:44Speaker 04

  Let's start with one and see where we land. Donald H. does have a question for you. He says, I'm 24 years old with a wife and a kid on an 80K income, and we are at a 25% savings rate.

• 58:57Brian Preston?

  That's great. That's really great.

• 58:58Speaker 04

  Really incredible. First of all, so good job. Uh, he continues to say, we're working, I'm working towards getting my pilot's license to make a career.

• 59:06Brian Preston?

  Uh-oh. Oh, oh, career.

• 59:09Speaker 03

  Did you see the emotional roller coaster going on on this question?

• 59:13Speaker 04

  And he saw career and he was like, that sounds great. The question is, should I feel guilty for using most of our extra dollars towards this?

• 59:24Speaker 03

  If it were a hobby, if you're like, I just want to go fly. Well, first of all, why do we say you should save 25%? Because we want to free you up from guilt above and beyond 25%. If you're saving 25% for your future, building towards future financial independence, what you do with your next dollar, you get to choose. That's, that's where, that's why we're happy that it lets you spend guilt free on those things. And so if one of those things is becoming a pilot and getting your license, I'm A-OK with that. And I think even in this, it's kind of interesting. You're not so much doing it because it's a hobby, doing it so much because it's a pastime. It's something that you vocationally want to do. I consider that as like an additional investment in your future self.

• 1:00:05Brian Preston?

  I, I agree with a little asterisk is that you see right there in the question, wife and a kid. Just make sure this is not, you know, you, you know, throwing your will around as a, hey, I asked this question on the Money Guy Show, they agreed with me. And meanwhile, your spouse is upset that they, you're, you know, old towels and not going on vacation, you know, they're, because money is only a tool. And I don't want you to exert the power of, hey, you came on here, asked this question. It needs to be a little bit of a discussion on make sure everybody feels heard in the marriage as well.

• 1:00:43Speaker 03

  Love that.

• 1:00:45Speaker 04

  Well said. You want to keep talking about this, just because we turn off the cameras today does not mean, what are you whispering about over there? I was about to say a really great thing that people should go check out.

• 1:00:55Speaker 03

  I was just, I don't feel like I've, I wanted to answer another question. I didn't feel like I'd done enough, but you do you.

• 1:01:00Speaker 04

  Well, time is up and we do have to move on to the next thing, but you watching or listening don't have to. You can go to moneyguy.com/resources to take advantage of all of our free stuff, downloads, calculators, plus courses, tools, an archive of past episodes. So please take advantage of that. We made that for you and there's some really great stuff on there, if I do say so myself. So don't take my word for it, go look for it. And remember, if you want to preorder Millionaire Mission on paperback, go to moneyguy.com/millionairemission. Be sure to take advantage of the preorder perks that are live this month as a big thank

• 1:01:40Speaker 04

  you for helping us on our mission of getting great personal finance ideas to as many people who need it and who will listen. So thank you so much from us.

• 1:01:49Brian Preston?

  You, you crack me up, Bo, because I mean, we are so bad together. Bad and great at the same time. It reminds me of the last time we had the SEC just did an inquiry with us. Our, our compliance consultant was like, hey, when we get on this phone call, I just ask of one thing of you guys, don't whisper. Cause we, because they, they can hear you. They can hear you if you guys try to whisper between each other. And then while Rebi is going through the, you're over here, and by the way, first of all, I'm old enough, I can't hear anything. If you're not talking directly to me, I can't hear. So I hear you over there whispering and it made me, I got a little chuckled thinking about that phone, because we got off that phone call with the SEC and she was like, I told you guys not to whisper.

• 1:02:32Brian Preston?

  We could hear everything that y'all were saying. By the way, it was all fine. There was nothing, you know, that was under the, you know, that we should have been embarrassed about. It's just Bo and I can't help but talk to each other when we're in a room together. But it is one of those things where I love the, and I think what he was impressed about that he was whispering is we had a little B-roll thing.

• 1:02:51Speaker 03

  Did you see that?

• 1:02:52Brian Preston?

  That ran by, Ken did that, who's, by the way, Ken, we, he's not checking us out. He's still on paternity leave, enjoying, living his best life with his dog and his daughter hanging out on top of him. That's the pictures that he sent last night. But it is one of those things where we had, it showed all the tools, all the things. Please take advantage of the free stuff. We really do want to invest and love on you to where you come here now, learn, apply these concepts, grow, take advantage of all the free stuff we're doing, because we know if you do this right, the payoff comes when all these simple behaviors create the success that leads to the complexity that you go, man, now this seems much more complicated than I could have ever imagined. I don't know what I don't know.

• 1:03:37Brian Preston?

  And it seems like instead of me doing this in a novel approach, this is my one time through, let's find somebody who's done this literally thousands upon thousands of times. That's when we'll leave the porch light on. We work with people all across the country. I'm your host, Brian, joined by Mr. Bo, Rebi and the rest of the content crew. Money Guy, out.

• 1:03:56Speaker 04

  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.

• 1:04:31Speaker 06

  Hey, Bo's here. On your next track, listen for the decisions, distortion on the bass, the vocal right up front, every choice deliberate. With Bo's, you'll hear it all. Your music deserves Bo's.

• 1:04:48Speaker 07

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