Pod Insights Money Guy Show The Financial Rules Designed To Keep You BROKE About this episode We break down four popular financial rules that you might actually need to break to achieve true financial independence.
From the myth of "buy low, sell high" to the outdated 10-15% savings guideline, we show you why conventional wisdom doesn't always lead to optimal outcomes.
We reveal a fascinating case study comparing three investors from 1980 to 2024: Unlucky Olga (who invested at every market peak), Billy the Best (who perfectly timed every market bottom), and DCA Diane (who simply invested consistently every month).
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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0:59 Brian Preston? You know, there are plenty of financial rules out there, but some of them you just might want to break.
1:04 Speaker 03 Brent, I am so excited about this because when it comes to financial advice, we know that there is a better way to do money.
1:11 Brian Preston? We'll talk through some of those rules today, when to break them and what to do instead. With that, let's jump right in.
1:24 Speaker 03 All right, Brian, this first one is going to start with a bang. This is already going to raise some controversy. Let's talk about the first rule that we think you should know and potentially should maybe even break. And that rule is buy low, sell high.
1:39 Brian Preston? Now, come on, Bo. What is wrong? This is, anybody who knows anything about investing, this is like fundamental. You put this at the base level and say, okay, if you're going to be successful, you've got to buy low and then just hang in there. We've even reacted to videos where somebody says this easy. You just go in there and buy, watch it as it goes up, and then sell it when it's high. What's wrong with that rule?
2:01 Speaker 03 Well, let's talk first, we'll talk about what's wrong with it. Let's talk about why the rule even exists. Well, the reason that buy low, sell high exists is that if you do it Right. And if you time it perfectly, you can get ahead. You can make money. You can be successful. And basically, at the lowest level, this helps people understand how stocks work, how investments work, how growth works. So if that's the reason that the rule exists, and it can be a fundamental foundation of financial education, when should we potentially maybe almost kind of think about breaking this rule, Brian?
2:37 Brian Preston? Well, this is kind of, this is, this is the part where it gets controversial. We think you do always, always should break this. Now, look, always has a key component to what we think will actually create success. And that is understanding ABB, baby, always be buying.
2:56 Speaker 03 That's right. Here's the issue. If you're always waiting on the perfect time to invest, one of two things is likely going to happen. Either you're going to get the timing wrong because no one knows exactly what the future holds, or you're likely going to wait too long and miss out on the growth. You're going to wait to buy low, buy low, buy low, buy low, buy low. And that entire time that you're waiting, you're going to miss out on tons of market opportunity. While it sounds great in theory, in practice, it can be pretty costly.
3:25 Brian Preston? Well, I think, look, there's nothing wrong with buy low, sell high is just an understanding. But when you put in the human behavior component, this is where it falls off. Exactly what you said is because perfection doesn't exist. And if you don't have the DeLorean with the sports almanac, it's better if you're just in the game and have a consistent behavior than trying to get it perfect. And we even have a case study to show this.
3:49 Speaker 03 Yeah, I was going to say, let's put some actual numbers to this. Let's look at three different investors. Let's look at unlucky Olga, Billy the Best, and DCA Diane. Unlucky Olga is going to have the worst timing ever. She's going to invest at the absolute worst possible times. Billy the Best is going to have the sports almanac. He's going to be the one that's able to time it just right. And DCA Diane instead is going to be very, very boring. And she's going to do what we say here at the Money Guy Show. She is going to always be buying. So. How are they going to approach this? Well, they're all going to save and invest from 1980 until 2024. And all three of these investors are gonna make the average income that was being earned in 1980,
4:33 Speaker 03 which was about $12,500, and they're all gonna save 25% of their monthly income a month. So they're gonna save about $260 every single month. And get this, they're all going to invest in the exact same thing. All we're changing is when they are buying. So if we think about unlucky Olga, Brian, she's gonna save up her money, and unfortunately, she's gonna invest at the market peak, right before the next big crash. So from 1980 all the way through the end of 2024, she's gonna have six different entry points. She's gonna invest in August of 87, July of 90,
5:11 Speaker 03 September of 2000, October of 07, January of 2020, and January of 2022, right before significant drops.
5:21 Brian Preston? How unfortunate for Olga. You have trouble saying it. I have even more trouble saying it.
5:28 Speaker 03 Okay, so that's what unlucky Olga's doing. Well, let's look at Billy the Best, because Billy's gonna do the exact opposite of Olga. He's gonna still save up his money, but rather than investing at the world's worst time, he's gonna get it just right. He's gonna invest at the market bottom. So he's putting his money to work in October of 87, and October of 90, October of 2002, March of 2009, March of 2020, and December of 2022, at the very bottom of these significant market drawdowns. And then we're gonna have DCA Diane. And rather than trying to figure out when to buy and when to hold, she's just gonna always be buying. Every single month, she is going to put her money to work.
6:10 Brian Preston? Here's what I think is interesting about this, when you're thinking about from a thought experiment and then putting it into practice. Nobody's gonna be as unlucky as Olga. That's the good news. And then, but also, all of my market timers, you're never going to be as good as Billy the Best, because I just, you just, nobody can call it that well and that consistently. Even if you're an outperformer one year, the consistency carryover is just nonexistent. So what I do love is at least with DCA Diane. You can control the behavior being consistent. This is something that is you can repeat and replicate over and over and learn from. So, but a lot of people are gonna say, there's gotta be a catch.
6:54 Brian Preston? Did these people invest the exact same sum of money?
6:58 Speaker 03 Exact same sum of money. Remember, if they weren't investing, they were saving it up. It was at $260 a month. So, when you look at the total contributed from 1980 all the way till 2024, all three of these investors saved the exact same amount, $137,650. And the question becomes, okay, who ends up on top? And I think we'd all naturally think, well, it's gotta be Billy the best, right? Cause we look at unlucky Olga, and we know that, okay, hers must not be great, but she's still in it up with almost $1.6 million.
7:31 Brian Preston? This is, this is how amazing just being any investor is. Is even if you're horrible at it, absolutely horrible at it, you still tenfolded your money. Can we go back? The thing I think is interesting, we took the median income back then, 1980, and which was like $13,000. We did 25%, which worked out to be $260 a month. Fast forward to now, to think that a person over their career can save $260 a month. But, you know, cause that's what a lot of people, now that coffees cost six to eight bucks a piece. I mean, that's, that's doable and be horrible at it and still have $1.6 million.
8:08 Speaker 03 It's wild.
8:09 Brian Preston? It's amazing. So, we have nowhere to go but up from here.
8:11 Speaker 03 Okay, so I think what we've learned from Olga is that just investing is a pretty successful outcome. But what if you can do what Billy said? What if you can actually time and get it just right? Well, instead of ending up with about $1.6 million, what Olga ended up with, Billy actually ends up with a million dollars more. He ends up with $2.5 million by getting the timing exactly right. But you've already said, Brian, no one has the ability to do this. It would be very, very difficult unless you had a crystal ball to do this. So, the question becomes, how much better did Billy do than DCA Diane? How much better did his number turn out than DCA Diane's? And the answer is. It didn't.
8:55 Brian Preston? Look at that. That's amazing. Almost $3 million. And I think, you know, people were saying, well, how does this work? What type of crazy math have y'all done to contort this? Remember, this is just showing all those years where there's uncertainty and it's not the best. It's not the worst. It's just growing in the background. That's the power of DCA. And realize, when you don't, when you're just consistent with your behavior, markets make money eight out of 10 years. So you're in the game and you're taking advantage of that. And if we have, if you believe in the law of accelerating returns like we do with innovation and all the things that are going on from a technology and the pizza pie of success keeps growing the economy bigger and bigger, guys, you can get in on this and you don't
9:38 Brian Preston? have to be unlucky. You don't have to be the perfect timer like Billy the Best. You just gotta be consistent and be in the game.
9:45 Speaker 03 All right. So buy low, sell high is a rule that perhaps you should consider breaking. Let's talk about the next rule, Brian. And this is one, I think a lot of people hear early on. I think a lot of us grew up hearing this rule that we should be investing 10% to 15% for our retirement. If we just do that, then we're going to be set.
10:05 Brian Preston? Well, I mean, think about it. I talked about books that influenced me at the beginning of my career. Wealthy Barber, you know, David Chilton, by the way, I think he's got an update out. I have not checked out the update. So I don't know if he's changed the savings percentage, but it was always one of those things when this came out in the mid 90s, 10% is what he suggested. And I think, you know, back if you wrote a book in the 1990s, that probably made sense. A lot of us had pensions back then. Social Security was on much firmer financial foundations. And then, you know, you could put in 10% and you'd probably be okay. But for, we just haven't seen that. And then you think about like even Dave Ramsey, he wrote his book in the mid 90s as well. He's 15%. Is this a rule you can use in 2026 and beyond and still be successful? We're going to have some color on that.
10:50 Speaker 03 Well, let's talk about why it exists. Obviously, you kind of said, who has made it super popular? But one of the reasons they were able to say this is that numbers actually do work sometimes, but not all the time. If you're a 25 year old making 70,000 Thousand dollars a year and you just invest 10% of your income every single month. So it's about $580 every month. And let's say that you can earn 9% on average and let's even factor in a 3% inflation rate. You could still grow a portfolio into about 1.1 million dollars in today's dollars by the time you retire. That means that you could create an income using a sustainable withdrawal rate of about $44,000.
11:28 Speaker 03 Again, in today's dollars. So if you're someone who's 25 and you start saving at this rate and you stay consistent for your entire working career. The number works. That's one reason why the rule exists. Another reason why that exists is it encourages folks to start somewhere. It motivates, hey, if you could just save 10%, if you can just save one tenth, if you can just save $1 out of every 10 that you earn. It gives you some reason, it gives you some motivation to just get the ball rolling. So if that's the reason for the rule and right exists, then when should we break it, Brian? When does it not make sense to hold fast to this rule?
12:05 Brian Preston? Well, that's where unfortunately we have to throw some cold water and actually share when people start saving and investing. Because look, when you can, if you think about this specifically, if you start late. I mean, the typical American doesn't start saving and investing until they're 36 years of age.
12:27 Speaker 03 It's wild.
12:28 Brian Preston? So if you go read some of those books that I mentioned and they tell you 10% or 15% and you're 36 years of age. And think you're going to be A okay, that it just doesn't work as well. So that's what these are problems that I think we have to share. You've got to know the math behind what creates these numbers. So you can know if you need to break it or stay within the bounds.
12:50 Speaker 03 And another time to consider breaking this rule is if your savings rate fluctuates. Maybe you are someone who didn't start late and you started early on, but because life happens and because messy middle happens. And because you get pulled in a thousand different directions, maybe saving 10% early on was your plan. But you had to take a season off where you didn't save or you had a job change or you had something in your life happen that caused you to drop that. Savings rate. Well, now saving 10% might not get it done. You might have to actually increase it to make sure that you can reach your long-term goals.
13:22 Brian Preston? And then I think about, I think I resemble this last one a lot. If you want more flexibility, when I was in my early twenties, I was saving beyond 25% of my income because at the time, I thought that I wanted to be done with work by the time I was 50 years of age. And I knew that the only way that was going to be even realistic is if I took a lot of my savings and my earnings at that stage of life and put it to work as fast as possible. Now, I'm here to tell you, I'm beyond 50 years of age right now, and I couldn't imagine, you know, quitting work because I absolutely love coming in and doing what we do. But what I do like is I get the flexibility to make decisions on my terms because of some of those big sacrifices
14:05 Brian Preston? early on, they've built up in the background and let me do things in a very non-traditional way. And I think that's what a lot of you guys are trying to do. You're trading your time and your labor to build resources so you make decisions on your terms and own your time that much sooner.
14:19 Speaker 03 Okay, so if saving 10 to 15% is the rule, but it makes sense to break that rule, what's our rule? What will we have you do instead? We want you saving 25% of your gross income for retirement for all those reasons we just laid out. Because maybe you're starting late, maybe you're that 36-year-old that's just now figured it out, or maybe life has not been as consistent or as fluid as you thought it would be. If you can save 25%, there's a really, really good chance that you can set your future self up for success. But we get it. We know that that's a high number, Brian, and we get asked this all the time. Okay, guys, well, what gets included in 25%? If I'm paying extra on my mortgage, does that count? If I'm saving for my kid's college, does that count? How do I quantify? What are the things that actually go into the 25%?
15:03 Brian Preston? So let's go ahead and spill the tea on this. If we go ahead and look at your employer sponsored plan, that's your 401k, your 457, 403B. It will even, look, I'll skip around a little bit in the fact that we're even going to let you count your employer match on those employer plans, assuming that if you're single, your income's under a hundred thousand, 200,000 if you're a married couple, that we Wants you to be able to count that money and then count the IRAs, the HSAs, the pension contributions, the employee stock purchase plans, all these things, and even your taxable brokerage account, if you're earmarking this for retirement.
15:38 Speaker 03 That's right. You want to count the dollars that are building towards your future financial independence. So it's not things like debt satisfaction, it's not things like colleges, things that are actually building toward your financial independence inside of your army of dollar bills. And so the question you ask, okay, well, guys, you said, oh, sometimes 10 to 15% works, and you guys want 25. How can I know? How can I figure it out? Well, we have a tool available for you. If you go to moneyguy.com/resources and check out how much should you save, we will show you based on your age and your savings rate, how much of your pre-retirement income you would likely be able to replace at that savings rate. So if you are someone who's early on, or you are someone who's got a good head start, then maybe you can have
16:22 Speaker 03 a lower savings rate. But if you are starting later, maybe you have a little bit less certainty in your financial life, we want to show you why a 25% savings rate can give you that flexibility that you desire, so that you really can live a great, big, beautiful tomorrow.
16:37 Brian Preston? This is what I love about our content is that we give you the perfect balance of motivation, but also the analytics of the numbers. So I know a big portion of our audience are in their twenties. And we often say when like, we're going and doing 401k presentations, 25% savings rate for a 20 something is aspirational. We don't, the math doesn't even say it's required. What I think is amazing, if you start at age 20, according to our chart, 10% is going to rocket for you. If you're 25, when you finally figure out this wonderful world of finance, 15% is going to be your friend. But we know personal finance is very personal, and that's why I love being able to share the analytics. So you can actually say, hey, I don't have to just take a rule of thumb. I can actually go to moneyguy.com/resources,
17:22 Brian Preston? cross-reference where I'm at based upon my age and my savings rate, and see where I'm at in this moment in time.
17:27 Speaker 03 All right, Brian, we're talking about financial rules that likely should be broken. This next one is one that's become incredibly popular and there's a lot of voices out there really promoting and pushing this idea. And this is how the rule goes that if you want to be successful, if you want to make wise financial decisions, the way that you need to do that is you need to live a debt free life.
17:50 Brian Preston? Look, and I get it. Don't, don't mishear us. We are not leverage kings. It's just, but I also have a no hypocrisy policy. I don't like to, if I, if I look at my life and then I see if I'm one of these talking heads out there telling you, hey, avoid debt at all costs. And then I think about my life and how I lived it and how I've created what I have. If I use debt, that would feel wrong to, to not disclose that to you. So what we've tried to do is we've tried to show there's a better way. That you can nibble or dabble in debt if you understand what it can and cannot do for you. But the first thing we ought to say is bring it back to the basics. Why does this rule even exist? Why do people say, live a debt free life?
18:34 Speaker 03 Because they recognize that debt is dangerous. We say all the time on the show, it's chainsaw dangerous. It can be useful, but if used incorrectly or if used haphazardly, it can have devastating results in your financial life. And a lot of people just can't handle that. Or a lot of people recognize how dangerous it is and say, hey, you should avoid that altogether. So that's kind of the first reason why the rule exists. And then the other reason why this rule came to be is that it does encourage people to implement the right behaviors. If I don't use debt, if I don't try to pay for things I'm using today with future dollars, then it's naturally going to build discipline. If I have good discipline, I've built one of the ingredients of true wealth creation.
19:17 Speaker 03 So by avoiding debt, I'm able to increase and improve the discipline I have in my financial life. So those are both noble and those are both okay. However, there are times when this rule does likely need to be broken.
19:32 Brian Preston? Well, this is gets back to now we can put some, some actual examples. So when I said that, In my own journey, debt has been necessary. I can actually give you examples is that, you know, I had to use debt for my first home purchase.
19:48 Speaker 03 Yep.
19:48 Brian Preston? And I didn't put down 20%, by the way, and we're going to talk about that in a minute. And then I definitely had to, I was fortunate that I had scholarships and other things. So I didn't have to use debt for education, but for a lot of people, you know, debt is going to be that path to let you go to higher education and improve yourself. So you can improve your, your shovel so you can make as much money as possible based upon your skillsets. And then, but the third thing is cars. And look, cars are napalm for your finances, but I had to have a reliable transportation to get to me to that first job. And we want to make sure that we're honest with everybody about this whole process.
20:28 Speaker 03 And we understand that while those things are necessary, if we do want to use those things, and if we do have to have that there, we need to have rules in place to keep us protected. So even when we think about education, one of the rules that we think about is the first year financing rule. We don't want you to accumulate any more student debt than you think you're likely going to have in first year salary. If you can do that, you're not going to carry that student loan debt with you when you're 30s, into your 40s, into your 50s, you're going to be able to knock it out early on if you follow the first year financing rule. And when it comes to cars, Brian, you need reliable transportation to get to your job. And one of our rules for making sure that you can stay inside those guard rails, guard rails is 238.
21:10 Speaker 03 When you buy a car, whether it's new or used, we want you to put 20% down. We don't want you to finance it for any more than three years or 36 months. And we do not want your car payment or all of your car payments combined to exceed 8% of your monthly gross income. If you can do that, you can prove to yourself that you are using debt responsibly.
21:28 Brian Preston? And don't skip out on the fact that this does not pertain to luxury cars. This is, we want you basic, basic, basic reliable transportation. Think Corolla, not Land Cruiser. And remember this key thing, I don't want your car payments to exceed your monthly investment. So if you're one of these people out there with the $1,000 plus car payment, but you're not putting a dime into your Roth IRA, you are doing this completely wrong. That is not why we gave you the bridge of 238.
21:59 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.
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22:58 Speaker 03 All right, so the rule is to live debt free and we're saying you should break that. So what is our rule? What we replace it with? Well, our rule is, is if you must use debt, if that is something that is necessary in your financial life, we want you to use it responsibly. We want you to recognize that it can be a tool and it can be useful, but it needs to be respected because if it's not respected, it can put you in a very bad spot financially.
23:25 Brian Preston? Yeah, if you're using debt and you're not scared to death, you're probably using it wrong, but we at least want to give you some analytics or put some meat on the bones of what counts as high interest debt? Cause that's the debt we're really trying to avoid. And when we, we actually want to give you some parameters. So we think that like student loans, if you're in your twenties, 6%, if you can beat, you know, if we think that you can go, if you're trying to decide, am I paying down a student loan or am I funding my Roth? Well, if your student loan rate is less than 6%, get some money in that Roth IRA because the compounding growth factor is that valuable. But if you're looking at this when you're in your 40s, we kind of need to be serious about paying off that student loan debt. So that's why it drops down to 4%. Car loans, now look.
24:09 Brian Preston? Don't mishear us. If you're sitting on a pot of cash, you know, because I, when I watch these videos that we react to and I see somebody who tells me they have $1,500 car payment, but then they're rolling out their hundred dollar bills that they still have in their pocket. I'm like, no, if you're sitting on a pot of cash, go put it on the car because car debt is napalm for your finances. But if you're broke as a joke and you're trying to figure out, how do I take a car loan to get to my J O B? It's okay in your twenties if it has a higher rate because remember this is a moment in time. We're going to have it paid off within three years.
24:40 Speaker 03 That's right.
24:40 Brian Preston? It's a very short term process. So we give you some, some, some flex in the system. Obviously the number goes down. Nine percent in the thirties, forties, it's eight percent because this is just getting you transportation to get to your job. Credit cards, this one's hot. We think credit card use is A. Okay. Credit card debt, no way. Even if the interest rate is zero percent, you financial mutants think that you're doing something magical by doing these balance transfers. No, I think that you are, you're dancing with the devil in some ways. And the fact that you could get, if you're not careful, if you read the fine print, some of these things, they have transaction fees,
25:19 Brian Preston? but they also, if you mess up anywhere, they're trying to ensnare you in a trap. So don't even play around with that. Credit cards are supposed to be for convenience, for protection and for just, you know, the fact that you get some rewards, but you need to be paying them off every month. If you can't do that, you're not a credit card type person.
25:37 Speaker 03 What you're likely discerning right now is that there are different types of debt and the type of debt matters. And the way that we're approaching even putting these rules in place is based simply on mathematics. What is the optimal and best use of your dollars? And let's walk you through a case study to show this. Let's say that we have two individuals. We have average Alan and we have man of the mutant. Let's say that both have accumulated $50,000 of student loan debt and they both anticipate making more than $50,000 in their first year. So this is acceptable. They followed the first year financing rule. Well, let's say that they both have a 5% interest rate and they're going to be a 10 year term. So that's how long they're going to have. Have to pay back this debt.
26:20 Speaker 03 Well, let's assume that average Alan says, you know what? I really want to, I want to extinguish this debt as quickly as possible. I want to pay it off. It's 5%. I'm in my twenties, but I'm still going to prioritize that. So, average Alan pays a thousand dollars a month towards the debt. But then, once it's paid off, he begins investing all 1,000. Manny, on the other hand, recognizes that in your twenties, 5% for student loans is not egregious. So rather, Manny is going to pay the minimum payment. He's going to pay $530 per month. And he's going to invest the difference. He's going to invest $470, $70 a month until those loans are paid off. So, how does this actually play out? Well, Alan, that was a debt crusader, said, you know what? I'm going to get this knocked down. I'm going to have it paid off in 57 months.
27:05 Speaker 03 Manny, on the other hand, actually took the full 10 years. So it took 120 months for him to actually get out of debt. And what a lot of people say is, I want to get the debt paid off. And then, once I do that, I can start investing more, more quickly. And that's exactly what Alan does. So Alan begins deploying that thousand dollars every single month after the debt is gone. And when he does that, he's able to build up a portfolio of about $84,000. However, Manny, remember, it took him 120 months to get that debt totally paid off. But he was saving and investing the entire time. Over this exact same time period, at month 121, he also has a paid off student loan. But instead of only having $84,000, he has $95,000 saved up.
27:50 Speaker 03 He was actually able to accumulate more by making the minimum payment and having his money work for him than trying to knock the debt off as fast as possible.
28:00 Brian Preston? Two key points I want to focus on because I feel like I'm a bow echo here.
28:06 Brian Preston? You also, you have the ability, because 57 months is when Alan is going to have it paid off. But the reality is if you look at the intersection point of where the market value actually crossed where the debt balance was, Manny could have paid it off four months earlier.
28:22 Speaker 03 So even if his goal was to be debt free, he could have done it more quickly than Alan did.
28:26 Brian Preston? But here's the thing, and look, we've even, we've, we've gone conservative here. Cause there's a, a little less than $12,000 market value difference for this 10 year difference. Same pot of money, same dollars. I don't want people to think that we, we gave more money to this one versus more to this one. And you're like, well, maybe $12,000, I'd rather be debt free. That 12, I'd be willing to, to leave $12,000 on the table. But we all know, we have something called the wealth multiplier. And you realize even if we took the scenario, most people graduate college like when they're 22 years of age.
28:59 Speaker 03 They were 22 years old when they started this.
29:01 Brian Preston? So if you, at 32 years of age, your wealth multiplier is 18. So if you multiplied this close to $12,000 by 18, we're over $200,000 from this difference. This is why, guys, when you make car loans and you're trying to figure out, hey, a car that I'm buying for 25,000 versus 37,000, that $12,000 difference might not seem like a lot, especially when they amortize it over six years and they make it seem like your car payment's only a little bit. No, these small decisions have huge multiplying effects. Don't fall in those traps because yes, this decision right here in a 10 year period is a $12,000 difference, but when you look at your retirement itself, it could be over a $200,000 difference.
29:46 Brian Preston? This is the power of compounding interest, but also the power of incremental decision making. Understand that small decisions can have big results.
29:54 Speaker 03 All right, Brian, so we just came through this rule that you might not need to live debt free. It might be okay to use debt and use it responsibly. That actually dovetails nicely into our next rule because our next rule involves a lot of debt that most of us need to incur. And this is what the rule says, and it gets kind of twofold. It says, number one, you must buy a house. If you want to be financially independent, if you want to be wealthy, if you want to be successful, you must be a homeowner. And by the way, when you do it, you must put 20% down on that home.
30:28 Brian Preston? Yeah, there's, there's so much to unpack on this. First of all, We just know housing has gotten where it's not necessarily affordable. And the other thing is, I think when I look at the the Fred data, meaning the data coming from the Federal Reserve, sadly, most Americans never start building assets outside of their home equity.
30:48 Speaker 03 That's right.
30:48 Brian Preston? And as any impact we see on increases in the typical American's net worth is only in, you know, their primary residence. That is a failure to be to to let your money become your army of dollar bills that works harder than you can with your back, your brain and your hands. We've got to build out assets outside of just the house you live in because that's a use asset. So we're going to unpack that. The second thing is, I have a no hypocrisy policy. And when I bought my first house, everybody, every talking head out there, now a lot of them have amended. This is what I love about the all terrain rules that the Money Guy Show does. We didn't have to amend our rules because we were honest and transparent the whole way through.
31:30 Brian Preston? But for our, all these talking heads have been saying 20%, 20%, 20%. And I was like, man, I feel I didn't put down 20%. I only put down 3% of my first house. Bo, what did you put down? And he was like, I don't know, 3 to 5%. And I was like, let's go ask all of our financial advisors. How much did they put down on their house? We found out, holy cow, Eureka, they all put down 3 to 5%. So why in the world are we out there telling the public you got to put down 20%? Do you see how you have to be careful what you let in your head? I mean, now, look, I've gotten way outside of what we're supposed to do. Let's talk about why we even hear these rules in the first place. Bring it back, Bo, bring me back in, reel me in. What's the reason for this?
32:07 Speaker 03 Well, you hit the very first one. For most people, this is their largest asset. A lot of people don't build large portfolios. They don't save the way that they should. So the largest asset that they actually end up getting is a home. So if you never buy a home, you never end up with a large asset. At least that's the truth for the average American. Another reason why this rule exists is because people grew up hearing about this. People listen to their parents and grandparents and they tell them about the American dream. And what I did is I ended up buying the house with the white picket fence and it was amazing and it was awesome and it was incredible. And I was able to buy this house and it went up in value and then I upgraded. Upgraded to the next house and upgraded to the next house and so on and so forth. And so you begin to think that that must be what I'm supposed to do. That must be the way that I'm supposed to build wealth.
32:53 Speaker 03 And people recognize that, okay, if I'm going to borrow on this house, I want to borrow as little as possible. So I ought to put down as much as possible and pay it off as quickly as possible. Because the faster I get out of debt, the more money I'm going to save in interest. And if I save money on interest, that must mean that I'm better off. That's why these rules have become so popular. But like all the other rules that we've covered, we do think that there are times to break them. Even in the reality that homes are valuable and even in the circumstance that homes can be fantastic for building financial wealth, there are times when it likely makes sense to break this rule.
33:32 Brian Preston? Well, first of all, I want to, I don't even know if this made it in the show notes, but we have clients that have lived in super high cost of living areas. Think about like Silicon Valley, San Francisco, other areas like that where you can make a great income, but real estate is just
33:48 Speaker 03 Crazy.
33:49 Brian Preston? wonky, but you know, you're not retiring there. You know, you're, you're moving back to so and so, or moving closer to relatives. So don't mishear us. It's okay if you build up assets outside of a house and you just rent while you're in this hot, in your income producing years. I know that's not traditional, but we're, we're, we're flexible enough to understand that that's AOK in the long term. So, but for those of you who decide, I do want to get on this homeownership train, but when is it okay for them to break this?
34:21 Speaker 03 Well, I think one of the times that you can break the 20% down is when you actually need it to be able to get into a home. You said right there, Brian, I couldn't save 20, I couldn't save 20. And I would argue it's even harder now than it was 10 or 20 years ago to save up 20% and be able to put that down on a first home. So if you are someone who needs to put down less than 20% in order to get on the homeownership train, I think that's okay. And then another time when it likely makes sense to break the conventional wisdom of 20% down, 15 year mortgage, paid off as quickly as possible is when you recognize that there are ways to optimize our financial lives. There are circumstances where our dollars may be better used, not satisfying low interest mortgage debt,
35:05 Speaker 03 but rather going to work in our army of dollar bills.
35:08 Brian Preston? And look, I'll give you a Bo Hanson echo here, isn't the fact that forever I struggled with, um, cause even the book tour, when I wrote Millionaire Mission, I had told Rebe, before we do the book tour, I'm going to have
35:20 Speaker 03 The mortgage paid off.
35:21 Brian Preston? The mortgage paid off. But the problem was, is I was, when I did the trigonometry of that, that, that announcement to everybody, I was thinking the Federal Reserve was going to be pushing interest rates to a point that, um, you know, just dropping interest rates to the point that this is going to be a no brainer because why would I keep that money in cash? When I could, you know, just pay down this debt. But the thing is, is my cash was still making four and a half, five percent. And my mortgage rate was two and a half percent. I just couldn't do it until all of a sudden my mortgage was now down to $60,000. And the squeeze of the fruit finally made it like, okay, this is dumb. I'll pay off the mortgage with a check. But you're right. Optimizing made a lot of sense. And we see people, we've done it on Making a Millionaire.
36:06 Brian Preston? We've seen, we've shown people who have hundreds of thousands of dollars of mortgage debt. And they're paying down a sub three percent. Let's just even say sub four percent mortgage rate. When they haven't even loaded up their retirement accounts. I'm like, what are you doing? You know, come on, understand the priority of what your money can and cannot do as a tool. So you need to understand the value of optimizing what your resources actually can do for you.
36:31 Speaker 03 So we think that there is a better way to do money. And our better way, when it comes to housing, is we want you to follow the three, five, 25 rule. And what that suggests is that if you're buying your first house, you need to make a down payment of at least three percent. You don't have to go all the way up to 20. It's okay if you make a lower down payment, so long as you plan to be in the home for at least five years. Cause you want to make sure that even if the housing market turns on you, you're there long enough to justify the transaction fees associated with this purchase. And you want to make sure. The total monthly cost of your housing is below 25% of your gross income. If you can follow 3525, you've already discerned that buying a home makes sense for you.
37:14 Speaker 03 This is going to help you keep it inside the guardrails and not let yourself get more home than you can afford.
37:19 Brian Preston? Okay, you hear the word, you hear 3525, you're like, but how's that pertain to me? It's better than that. Go to moneyguy.com/resources. We actually have a home buying calculator, so you can actually put this into practice. See the numbers, not just remember 3525, you can actually put your numbers in, see what your real numbers are. And wait, there's even more. If you also go to moneyguy.com/resources, we even have a checklist. That way you don't have to remember this stuff. Maybe you're listening to this as a podcast. You're driving down the street and you go, I'll never remember all these things these guys are saying. We got you covered. Just go to moneyguy.com/resources. We have all the checklist, we have the calculators, so you can measure twice, cut once, and make sure you're making these big financial decisions and doing it in a very good, well thought out way.
38:02 Speaker 03 These are tools for those folks who have already figured out, man, I want to buy a home. I want to be on that side. But before you even get to these tools, before you even get to that, there are two questions that you need to answer. Number one, is there a need for me to buy a home? Is this something where I'm at in my life right now, that it makes sense from a lifestyle standpoint? And if I've answered that question in the affirmative, the second question is, can I afford it? Am I financially at a place, am I far enough along in the financial order of operations to where it makes sense for me to consider doing this? And if the answer to those questions are yes, by all means, go check out the resources, go check out the calculator, so that you can make this decision, which for most people
38:44 Speaker 03 is the single largest financial decision they will ever make, so that you can make it as well as you can.
38:50 Brian Preston? You know, it breaks my heart to do a show like this, because we set up so many guardrails. We set up rules of thumbs, we set up our own rules. So to actually go out there and bust up with what is considered common sense or lay of the land out there.
39:04 Speaker 03 We're real followers, Brian.
39:05 Brian Preston? I mean, that's what it does feel like, but, but all this makes the point is that. Things can get complex very quickly and personal finance is definitely very personal. If you find that you watch a show like this and go, man, I resemble a lot of this. My journey has completely evolved. It was very simple when I started, but as I started having more and more success, this thing started getting complicated because I realized these variables, yes, it was small decisions created huge results, but I'm also realizing those small decisions now I'm making might have huge results in another way because now I'm the CEO of a household that's running a seven-figure portfolio. I just don't know what I don't know. And that's why we love telling people, this is why we can give it away. We can go give it to you at moneyguy.com/resources, all the free stuff, because
39:49 Brian Preston? we're going to be with you no matter if you're just starting your journey, or now you are the CEO of that seven-figure enterprise and you're like, man, I just don't know what I need to know, and I want to make sure I'm doing this right. We leave the porch light on for our financial mutants to know to come work with us because this is how, you know, this started as a passion project. I always want to be a teacher. I always want to be an educator. Didn't realize this is going to be the greatest marketing idea ever. So the passion in the heart was pure in the beginning, but it has turned out to be a great way for us to connect with people, financial mutants, just like yourself. If you want to know that there is a better way to do money and you want to balance out that complexity with the simple, we'll be there for you. I'm your host, Brian, joined by Bo, the rest of the content team, Money Guy team, out.
40:36 Speaker 03 The Money Guy Show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance of the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.
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