This Will Change How You See MONEY…

We’re launching a game-changing (and free!) compound interest calculator to help you see exactly how your money grows. From hitting your first $100K to building a $7 million nest egg, we walk through real scenarios that show how small decisions today can make you rich tomorrow. Plus, your money questions answered - from Roth IRAs to risk management. ⁠⁠⁠⁠Jump start your journey with our FREE financial resources⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Reach your goals faster with our products⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Take the relationship to the next level: become a client⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Subscribe on YouTube for early access and go beyond the podcast⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Connect with us on social media for more content⁠⁠⁠⁠⁠⁠⁠ Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. NordVPN.com/MONEYGUY Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:01Speaker 00

  This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration blog, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up require compatibility and availability varies 18 plus.

• 0:27Speaker 01

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• 1:02Speaker 02

  This show, it might change the way you see money, and it's definitely going to tell you if you're on track. And we're unveiling a really exciting new tool for you.

• 1:10Speaker 03

  I am so excited about this because this is something that is a long time in the making. I mean, you hear us talk about things here like the wealth multiplier, or like the know your number tool, or all these different things, where we use math to help you figure out how you turn money into the ultimate goals that you have, how you use it as a tool to accomplish the things that matter to you. Well, at the very base of that, like at the very smallest form, what's happening when we put our money to work for us is we are allowing compound interest to take place. We're allowing our dollars to begin working even harder than we do with our back, with our brains, and our hands. And we are so excited because we've wanted to do this forever,

• 1:55Speaker 03

  and we've actually done it. Our team has built a tool, and it is absolutely free for you guys, that will change the way you see money.

• 2:03Speaker 02

  We thought it was long overdue to give you a Money Guy Compound Interest Calculator. So it's going to show you what your investments and contributions can actually turn into. And we've got some really fun extra Money Guy spins and extras. Once you get that graph that shows you the growth, it's going to show you more about how you can Hit your goals or accelerate your goals and we're going to show you all that today on the live stream and it's all a free tool.

• 2:29Speaker 03

  That's right.

• 2:29Speaker 02

  On moneyguy.com/resources that is ready to roll for you today.

• 2:33Speaker 03

  I have a question for you.

• 2:34Speaker 02

  Yes.

• 2:35Speaker 03

  When you get like a new toy or a new gadget, are you one of these people that like takes the instruction manual and just throws it out and starts like trying to play with a toy or gadget or do you read the instruction manual to understand how to use it well?

• 2:48Speaker 02

  I usually like start playing with it and then end up at the instruction manual.

• 2:52Speaker 03

  You know, I would, I would have guessed that. I would have guessed, so I.

• 2:55Speaker 02

  I don't think you use the instruction manual.

• 2:57Speaker 03

  I use it every time.

• 2:58Speaker 02

  Oh, you do?

• 2:59Speaker 03

  I do because I never want to misutilize a tool. I never want to like miss all the cool features.

• 3:05Speaker 02

  Right.

• 3:05Speaker 03

  So like, you know, and I got my very first iPhone back, you know, a hundred years ago. I was like, I want to know all the things that this thing can do.

• 3:11Speaker 02

  Oh.

• 3:12Speaker 03

  And so we thought maybe.

• 3:13Speaker 02

  That's what this is.

• 3:13Speaker 03

  Obviously you can go to moneyguy.com/resources and you can check out the compound interest calculator and you can play with it for yourself, but I thought it might be helpful if we walked you through a few different ways you can use it. So that way you can actually see in real time, how can I use this to inform the way that I make financial decisions. So let's assume that you listener out there are an early starter and you're trying to figure out, okay, am I doing enough? Well, here's one of the ways that you might use a calculator. Let's say that you are 28 years old and you've got $50,000 saved up. You've been following the financial order of operations. And so the amount that you are currently starting with is $50,000.

• 3:55Speaker 02

  All right. So you type in $50,000.

• 3:57Speaker 03

  Let's also assume that's 500. That would be a 28 year old who's absolutely killing it.

• 4:01Speaker 02

  Crushing it.

• 4:02Speaker 03

  You should go to moneyguy.com/becomeachildifthat'syou. Let's assume that the annual rate of return is going to be 9% because this is someone that's younger with a longer time arising, they'd be more aggressive. And let's assume that they are saving $1,000 on a monthly basis, so $12,000 a year. They are 28 years old. So let's assume that they're going to invest for the next 37 years and they're going to have a normal retirement at age 65. You put all of this into the compound interest calculator, you hit calculate and watch what happens. It gives you just a plethora of information and we wanted to highlight some exciting things that the calculator will tell you. Let's start with sort of the basics first.

• 4:44Speaker 03

  The very first thing it shows you is hey, we talk all the time about how it's so important to build to $100,000 because once you hit that point, you are now at the boiling point. You are now at the point where your dollars can really begin to build momentum and pick up steam.

• 4:59Speaker 02

  What is it, the bowling point?

• 5:01Speaker 03

  I'm sorry, the bowling point is the point that you have to hit. And we show you when that happens. So in this scenario, this individual would hit that in year three.

• 5:08Speaker 02

  Yeah.

• 5:09Speaker 03

  We also show you based on this current trajectory that this person is on, when they hit liquid millionaire status. And you can see that for this specific example, they'll reach their first liquid million in year 21 at age 49. And you can see that if they continue on this trajectory all the way out until they get 65, they will have an ending balance of just under about $5 million. So that's the basics. That's kind of the exciting part about it. But we didn't want to stop there. We wanted this to be a tool that you could use to not only figure out, okay, based on what I am doing now, where am I headed? We wanted it to be a tool to figure, okay, how can I change my behavior to impact what the ultimate outcome looks like?

• 5:51Speaker 03

  So let's assume that this person says, okay, I know, because maybe I've done the Know Your Number course, or I've read some articles. And by the time I retire, I really want to have $7 million.

• 6:01Speaker 02

  This is not $7 million.

• 6:02Speaker 03

  This is not $7 million. We have like a $2 million shortfall. So if you scroll down just a little bit, it will show you, hey, do you realize if you just saved $100 more a month, starting right now, this is how much more you could have at retirement. If you saved $200 a month, this is how much more you could have. Or if you needed another $1 million, how much would you need to save more? And so in this example, this individual, they could save an extra $282 per month. That would result in another $1 million by retirement. So if they knew $2 million, if they need $2 million, you would just double that amount. So if they could save an additional $564 each month,

• 6:44Speaker 03

  they would be on their way to a $7 million retirement value.

• 6:50Speaker 02

  And that's pretty exciting. And that's doable. It shows you what you need. I think if you're just looking for a roadmap to kind of see how you can get to where you want to go, this is a great way to do that and start that conversation.

• 7:01Speaker 03

  I love it. All right. You want to do, let's do another example.

• 7:02Speaker 02

  Let's do another one.

• 7:03Speaker 03

  Kind of walk, again, this is I want you guys to recognize how this can be a tool to help you navigate your financial life. Let's assume that maybe you're at the fork in the road. Maybe you're someone who's 40 years old and you're trying to think about should I begin saving more? If I begin saving more, what are the implications of that? What would be the outcome from that? So let's assume that you start with $400,000 at age 40. Let's assume that you have an 8% rate of return that you want to assume. Let's assume that you're saving $30,000 a year currently and you want to retire a little bit early. You don't want to go all the way till 65. You want to retire at 60. So let's say that you're going to invest for 20 years. When you go down and you hit

• 7:47Speaker 03

  calculate based on this, what you can see is first, you're already at the boiling point. You have $400,000 saved. So you've already reached your first $100,000. You've already done one of the hardest parts in the wealth building journey, but you're not quite in the two comma club yet. If you continue on this trajectory, you will actually hit $1 million in year eight and that comes right around age 48. And you can see on this trajectory, you get to about $3.4 million. But remember this couple of said, okay, this is what I'm on track for. What if I just saved a little bit more? What if instead of saving $30,000 a year, I save $40,000 a year? Well, now you can see if you save an additional $40,000

• 8:28Speaker 03

  a year, it adds almost half a million dollars to your terminal portfolio of value. So you can play with your savings rates to see how your behavior impacts what your future financial life could look like. But now let's say, okay, well, you're worried. You're reading the headlines and you're seeing that, man, okay, I don't know that the market's going to perform well and maybe the last 20 years, the next 20 years. What if I don't achieve an 8% rate of return? What if I only achieve a 6.5% rate of return? How does that impact the numbers? You can play with all of these assumptions and all of these numbers with our compound interest calculator at moneyguy.com/resources. So we think this is a wonderful

• 9:13Speaker 03

  tool that you You can use it's something that's out there and readily available for you because we really do believe that there's a better way to do money. We believe that these kind of tools you can use so that you can stay on the path towards true financial freedom.

• 9:30Speaker 02

  Yeah, I'm really excited for you to use it. Let us know what you think. Again, moneyguy.com/resources is actually the very first calculator on the list, so should be really easy for you to find, too.

• 9:40Speaker 03

  Hey, and you know what? We'd love feedback from you. If you go use this and you're thinking, man, this is awesome, or hey, here's how I use it. We would love to hear about that. You can comment on any of our socials. You can go out on the subreddit. Tell your friends about this because we believe that if people can start recognizing that your money really is a tool and it can be something that you can use to accomplish the goals that you have in life. It can be an absolutely amazing thing.

• 10:05Speaker 02

  If you're one of those people who starts playing with the tech right away and you've already run like five scenarios while we were talking, comment below. Let us know how you like it because we'd love to hear and we're just excited to have this out in the world. It's something we've wanted to do for a while. And since this is a personal finance show, we do want to answer your questions. So we've got some queued up. Are you ready to go on that, Bo?

• 10:25Speaker 03

  Someone was asking, uh, where is the team or how do I get my question? And if you have a question and you want us to weigh in on it, make sure you get it in the chat right now. And I don't, I don't want to like, I don't want to like, uh, stack the deck here, but today's a special day.

• 10:40Speaker 02

  It is special.

• 10:40Speaker 03

  Today is a Tumblr day. So if we select your question, if the team out in the wings grabs your question, they will be, we will be sending, they, we will be sending you a Tumblr. So if you have a question, make sure you get it in the chat. With, I normally look over there with that creative director, but this is the first time you've sat on this set, right?

• 11:01Speaker 02

  It is. Yeah, I was actually really excited, but it feels really legit over here. I like it. I like it. Okay, we do have a question queued up from Chris K. He says, "In the most recent Making a Millionaire episode, you talk about the 17 funds in the Roth IRA. She had a lot going on in her Roth IRA and was kind of over complicating it. Can you speak more to when you should include more than just one or two index funds? Like, is it ever, do you ever need more? Like, what does that actually look like?

• 11:28Speaker 03

  I love that. For those of you that aren't familiar, for those of you that have not subscribed, step number one, make sure you subscribe right now so you know when we have new content coming out. Because yesterday, on Monday, we had a brand new Making a Millionaire episode come out. We sat down with Megan, we were basically looking at her financial life, trying to triage and discern, okay, where is she at and where is she heading? And one of the things that we noticed is she had these different types of accounts. And in every one of her accounts, she just had a ton of holdings. You know, she had eight in this holding and 10 in this holding. And Chris just reminded me, she had 17 different holdings in her Roth IRA. And so, one of the questions that we would ask a client, or one of the questions that we asked Megan is, hey, why do you have these 17?

• 12:11Speaker 03

  You know, a lot of people, they will, you know, watch YouTube Shorts, they'll listen to a podcast, they'll read a book, and they'll hear, oh, you know what? I hear that diversification is a good thing. So, I'm gonna go buy a whole bunch of different things. And if I buy a whole bunch of different things, I'm gonna be well diversified. Well, you can think about it like going to the grocery store. And if you go to the grocery store and you just go to one section, the produce section, you may buy some bananas, and you might buy some apples, and you may buy some grapes and some strawberries and some blueberries. And I'm running out of berries to think of, and you buy all these different kinds of fruits. You may feel like you have diversified what you got at the grocery store, but all you really did was you bought, you bought a whole lot of one thing.

• 12:55Speaker 03

  You bought a whole bunch of fruit. You bought a whole bunch of the same thing. You did not venture out and actually add any true diversification benefits to your diet. Investing is no different. It's not uncommon. We'll even look at somebody's portfolio, and they may have...

• 13:12Speaker 03

  US Large Cap Growth and then Mega Cap Growth and then, you know, North American Growth and they'll just have every single fund that has growth in it. When you actually look at the underlying holdings, all of those funds are buying the exact same stocks, investing in the exact same companies. They just have subtle differences. And so while you may think that you're diversified, you may not be. So buying a whole bunch of holdings does not necessarily mean you're diversified. But I think for Meghan where she was at, and I think this is what Chris K's question is, okay, well, do I just buy one fund? Do I just stick to one type of investment? Well, the answer is it kind of depends. You've heard us talk all the time that we love low cost index funds.

• 13:57Speaker 03

  We love things like the S and P 500 that's super low cost. It gets you broad diversification across 500 different US Large Cap Holdings. But we also love things like Target Retirement Index Funds where with a Target Retirement Index Fund, you only have to answer two questions. Question number one, how much can I save? Question number two, when do I think I'll need this money? So if I think I might need this money 40 years in the future, I would go select the Target Retirement Index 2065 Fund. And that what it's going to do is right now where we're way off from 65, it's going to be more aggressive. And then as we move through time, it's going to naturally become more and more conservative. It's going to auto allocate for you. Well, if you're someone in the stage of your financial life cycle where it makes sense

• 14:41Speaker 03

  to use something like a Target Retirement Index Fund, it's okay if you have one fund. It's okay if that's the only thing you have. So if I look in your Roth IRA, I see that fund and I look in your 401k, I see a similar type fund. I look in your after tax account, I have that fund. That's a fantastic solution because early on in your financial journey, your savings rate is exponentially more important than your rate of return. So you should focus all of your attention, all of your effort on how do I save more, put more away, get more working for me, not how do I, you know, slice up the pie so that I can really optimize return. Now, at some point, you will reach a critical mass, right? And you have to kind of define what that is for yourself.

• 15:21Speaker 03

  In our mind, it usually happens somewhere around three, four, $500,000 of investable assets. Where, okay, maybe now the generalized solution of a target retirement index fund is not the perfect solution. What I need is I need a personalized solution where not only am I thinking about asset allocation, how I spread out my assets, I'm also thinking about asset location. What types of accounts do I hold? Which types of investments? Once you hit that critical mass, three, four, $500,000, then you can begin to really hone in on the benefits of that strategy and your rate of return begins to become more important. Up until that point, I think you're just majoring in the minors.

• 16:05Speaker 03

  So the question, Chris, that you asked is, okay, when does, you know, when is one fund enough? Early on in your journey till you get to that critical mass? So then, once I get there, does that mean I need 100 funds? Not necessarily. It just means you need to understand if I'm buying a holding in my portfolio, I'm buying it for a reason. I buy US large cap because I want large cap exposure. I buy international developed because I want international exposure. I have fixed incomes because I want fixed income exposure, so on and so forth. You just want to make sure that when you're beginning to make those allocation decisions, you understand what it is that you're doing. We actually did a great show. Oh, my gosh, I can never remember the names of our shows.

• 16:44Speaker 02

  I might be able to help. What did we talk about?

• 16:46Speaker 03

  It was a portfolio show where we stacked up a couple of different types of portfolios.

• 16:51Speaker 02

  Financial advisors rank the most popular investment portfolios.

• 16:54Speaker 03

  If portfolio allocate, say it again one more time?

• 16:56Speaker 02

  Financial advisors rank the most popular investment portfolios.

• 17:00Speaker 03

  I love it. So if you, if you are curious about asset allocation and how to structure a portfolio, how to design a portfolio, how to think about that, it's a great show because we walked through some like really nerdy, really deep investment type stuff. I would encourage you to check that out.

• 17:14Speaker 02

  Yeah, it was a good one.

• 17:15Speaker 03

  If you have not.

• 17:16Speaker 02

  Really popular one, too. And I like the grocery store analogy, first of all.

• 17:20Speaker 03

  Did that one work?

• 17:21Speaker 02

  I think it did.

• 17:21Speaker 03

  I got halfway in it and I was like, is this going to make sense? Because I was like, you are diversified in terms of your fruit selection, but you're not diversified in terms of your diet.

• 17:30Speaker 02

  And then I have to give one more shout out to Meghan, our Making a Millionaire guest. This, this question was inspired by, she was just so lovely and so relatable. Whether your financial situation looks exactly like hers or not, like I think the... Some of her struggles and pain points are very relatable. So definitely go check out her episode. It's called "Her Finance's Need A Total Reset."

• 17:51Speaker 03

  You know,

• 17:52Speaker 02

  So yeah.

• 17:53Speaker 03

  I had a lot of favorite parts about Meghan, but you know, one of the parts that was not my least favorite that's you should, if you listen to it for no other reason, she had an amazing accent.

• 18:01Speaker 02

  She did.

• 18:02Speaker 03

  Her accent, like it just, that South African accent, I could listen to it forever.

• 18:06Speaker 02

  So yeah, that's an added bonus for sure. Just kind of fun to listen to. Okay. Well, Chris K, thank you for your question. It is a Tumblr day, as we said, so just email [email protected] since we answered your question on the show. Next question is from Vidax. It says, "My wife is returning to the workforce this month after a few years as a stay at home mom. Her employer does not offer a match to her 401k. Should we start a Roth IRA instead of contributing to that matchless 401k? What do you think?"

• 18:38Speaker 03

  Ruby, this is a great question and we have a lot of-

• 18:42Speaker 02

  A step two question, right?

• 18:44Speaker 03

  Yeah, that's exactly right.

• 18:45Speaker 02

  401k, but it's not free money. So what do you do?

• 18:47Speaker 03

  There isn't, there is a way to figure out the answer. Ruby, will you hold the thing up? Oh, she don't know where it's at. Look, I got it. We got a secret drawer over here. We got a secret drawer.

• 18:57Speaker 02

  Here it is. Financial Order of Operations, moneyguy.com/resources.

• 19:00Speaker 03

  We have a-

• 19:01Speaker 02

  Get your copy for free.

• 19:02Speaker 03

  We have a, um, we have a systematic process, nine steps that will allow you to figure out, what should I do with my next dollar? And what Vidax is asking is, okay, I understand that in step number two, I'm supposed to go get my employer match. I'm supposed to be able to maximize that free money because it might be a 50% or 100%, 100% rate of returns. We can't go away from that. So I want to do that. But my wife is going back and that's not there. What should I do? Well, if you have no employer match to get, well, then you just begin going to the next steps in the Financial Order of Operations. So when you move from step two to step three, you get to high interest debt.

• 19:43Speaker 03

  Well, do you have credit card debt, consumer debt, high interest student loan debt, high interest auto debt? If you have those kinds of things, you want to make sure you extinguish those inside of step three. You have all your high interest debt knocked out, then you go to step four, fully funded emergency reserve. You want to make sure that you have somewhere between three to six months of living expenses in an emergency fund, liquid account, so that you can keep your life out of the ditch. Well, now, once you've done that, then you get to where VIX is, then you get to step five and you say, okay, I wasn't able to capitalize on the employer 401k because there was no free money, no match. Now, what I'm going to do in step five, if I'm a part of a high deductible health plan, I'm going to go max out my HSA.

• 20:27Speaker 03

  If I don't have that, or maybe I've already maxed out my HSA, then I'm going to go to a Roth IRA. So I love the idea of it. X. If you're working through the financial order of operations, you can't do the employer sponsored plan. That's okay. Knock out that Roth IRA. And what you're likely going to find is your wife is going back to work, so income is going to increase for the household. Maximum for IRA contributions this year, $7,000 for those under 50. There's a good chance that she's going to go knock that out and her Roth IRA will be maxed out. So then where do you go? Well, then you get to step six. We hold the thing up again when we talk.

• 21:05Speaker 03

  Max out your employer sponsored retirement plan. This is the point where after you've done the HSA, after you've done the Roth, now you can go back to the 401k and there are still, even without a match, 401ks can still be incredible benefits because you can get tax deferral on current income. If that's what makes sense for you, you might be able to get Roth growth on that if that's what makes sense for you. So even without the employer match, employer sponsored retirement plans are a fantastic savings vehicle because there are still tax incentives, even if it's not like free money tax incentive. So yes, VIX, I think that doing a Roth is a great idea, so long as you're working through the financial order of operations in the right way. And congratulations to your wife for heading back into the workforce. That's exciting.

• 21:50Speaker 02

  VIX, thank you for the question. If you would like a Money Guy Tumblr just winner or email winner at moneyguy.com and we will send one out to you.

• 21:59Speaker 02

  All right. Abthahi R. has a question for you. What doesn't, why doesn't buying term life insurance and umbrella insurance come after step four in the foo? Should we focus on building wealth with HSA and Roth IRA if we can't protect in case there's a big oopsie? I think this is a misunderstanding. Can you clear it up?

• 22:21Speaker 03

  It's for sure a misunderstanding. So, we do some episodes, oh my gosh, what's the name of these episodes?

• 22:29Speaker 02

  We're really going into the archives this week.

• 22:31Speaker 03

  Where we walk through, it's like Financial Planning 101. We walk through the pyramid.

• 22:35Speaker 02

  Yeah, Financial Planning 101.

• 22:36Speaker 03

  Is that what it's called? Did I just nail that?

• 22:38Speaker 02

  Yeah.

• 22:38Speaker 03

  Awesome. So we have.

• 22:39Speaker 02

  That's in the title.

• 22:40Speaker 03

  So we walk through some content, Abthahi, where we'll talk about when you're like designing a financial plan, you kind of work up this pyramid and you start with sort of the baseline, then you move to the next, and you move to the next. Well, the financial order of operations is specifically about like, where do I deploy my dollars when I'm ready to start building wealth for the future? I'm ready to start like building towards the future. Before you even get to that step, before you even start doing that, one of the things you have to make sure that you have covered is risk management. Risk management is kind of like that very bottom of the pyramid, that very bottom of the pyramid, that baseline. So if you're someone who has people depending on you, maybe you have a spouse, or maybe

• 23:24Speaker 03

  you have children, or there are other people that depend on your ability to produce income for their livelihood and their well-being, to an extent that if you were no longer here, they would be in a very difficult, tough spot, we would argue that you have an insurable need on your life. And one of the best ways that you can solve that is by inserting insurance to be able to protect against that need. So, life insurance, specifically term insurance, is a great way to do that. Oftentimes for a brand new family starting out and they're like, oh man, hey, I really am so gung ho. My wife and I, we just got married. We just had a brand new baby. We're ready to start saving. We want, we've listened to the show. We want to open up that Roth IRA. Let's do it.

• 24:07Speaker 03

  The very first question we ask is, hey, that's awesome. Before we get there, let's talk about some of the risk management stuff.

• 24:12Speaker 02

  Right.

• 24:13Speaker 03

  Where are you in terms of your life insurance? Do you have a will in place that says, hey, if we get hit by a bus, here's the person that's going to take care of our kid? Because if you think that conversation's hard, and it's a diff, I mean, you've got young kids, it's a hard

• 24:26Speaker 02

  Yeah, it's a strange conversation. But it's worth having now because you, and it's true. You always say, how much harder will it be if you're not here to even speak into it?

• 24:35Speaker 03

  That's exactly right.

• 24:36Speaker 02

  So.

• 24:36Speaker 03

  You would rather make that decision than have someone else try to guess what your decision would have been. So we tell people in that stage, hey, yeah, you, you gotta make sure you have a will in place. You gotta make sure you're covering that. Well, part of that risk management is also, hey, make sure you have life insurance. If you're someone who has assets that are built up, you want to make sure you properly insure those assets through your auto coverage, through umbrella insurance. So those are not steps of the financial order of operations. Those are kind of riddled through. That's risk management. Now, you may be someone who is young and just starting out in your career and you're not married and you're early on and you don't have any assets. You don't own anything yet. There's a good chance you don't need life insurance.

• 25:19Speaker 02

  Yeah.

• 25:19Speaker 03

  Right? So like, ah, no life. There's a good chance if you're early on in your career, you may not need umbrella insurance yet either. So it's one of those things that those things will be part of your financial life, but when they become part of your financial life, they have to become a top priority. So it's not like a step in the foo. It's a step in the life cycle that you're in.

• 25:41Speaker 02

  It's just, yeah, it's, it depends on your situation, not what step you are in the foo. So that was a great explanation. And the nice thing is term life insurance, I mean, we can't speak totally blanket statement here, but it's not crazy expensive.

• 25:53Speaker 03

  No, it's super cheap.

• 25:54Speaker 02

  Especially for, you know, young families who really do need it. Like, so it's, it's a totally reasonable to fit it in to the foo wherever you are.

• 26:02Speaker 03

  You know, life, term life insurance is one of these interesting ones. Uh, I've never had someone complain. About paying for it, who received a benefit, right? I've never heard someone say, ah,

• 26:13Speaker 02

  Sure.

• 26:14Speaker 03

  It's just, this is too much life insurance. That's not a thing that happens. And I've also never had someone complain about paying for it and never having to utilize it. Meaning, oh, man, I bought 20 year term and I'll live 21 years. No one's ever upset at that. That's like a wonderful thing. Uh, life insurance, in our opinion, is a temporary solution to a temporary problem. If you're doing things the way that you're supposed to be doing and you're building wealth the way that you're supposed to be building and you're moving along in your financial journey, the way that you're supposed to be moving along, odds are at some point you're going to be self insured. Meaning you no longer, if you were to get hit by the bus tomorrow, you don't need the life insurance company to step in and take care of your loved ones.

• 26:58Speaker 03

  You have built an army of dollar bills large enough that it can do that for you. So, life insurance, you want to get the most amount of coverage you can at the lowest cost possible. And you just want to race to get to the point where you actually don't need it anymore. And if you do it that way, you're doing life insurance the right way.

• 27:15Speaker 02

  That's good stuff. So, Abtahi, if you would like a Money Guy Tumblr, since it is a Tumblr day, we'd love to send you one, just email [email protected]. And, uh, apparently there was a poll about who should make the transformer sound, because Brian's out.

• 27:31Speaker 03

  Who won?

• 27:33Speaker 02

  Unfortunately, me.

• 27:34Speaker 03

  There we go. Let's, are you gonna do that?

• 27:36Speaker 02

  It does make me, I'm gonna borrow your Tumblr for a second. This is a Money Guy Tumblr, but it's also a koozie for keeping your drinks cold if you would rather use that. Are you gonna open your drink?

• 27:45Speaker 03

  I was gonna wait to see if you're gonna do the quack, quack, quack, quack.

• 27:48Speaker 02

  Quack, quack, quack.

• 27:48Speaker 03

  Oh, look at that, she did it. That was actually pretty good.

• 27:52Speaker 02

  I'd rather hear Brian.

• 27:53Speaker 03

  Brian's gonna be so-

• 27:54Speaker 02

  One of the answers, uh, was Brian on speakerphone, and I wish I could have, um, followed through on that, but we don't have that queued up.

• 28:01Speaker 03

  Our tech team would have been pretty upset if we would have tried to pull that one off.

• 28:04Speaker 02

  I just start calling Brian right here. But yes, Tumblr Day, we're excited to give those away. And Abthah, make sure you email [email protected].

• 28:14Speaker 03

  I'm curious, have you guys checked out the compound interest calculator yet? I mean, we've been talking for a little bit now. I'd be curious, are people using it, guys? Are people checking it out? Oh, yeah, awesome.

• 28:23Speaker 02

  We're getting nods.

• 28:24Speaker 03

  It's another, you know, another great way to use it is if you have someone in your life, like, like, oh, man, oh, my gosh, I forgot, I forgot to say this. So my daughter, she just turned 10. And one of the things we did is me and mom did an overnight, just, just the three of us.

• 28:40Speaker 02

  Very special.

• 28:41Speaker 03

  And it was awesome. Like, we went and we like stayed downtown Nashville and did all these like fun little activities. Well, one of the things I thought was like, hey, baby, you're now at this point, hey, you're, you're like six years away from driving, right? Like it's, and one of our favorite things to do is like, when I get home, she'll be like, hey, Dad, can I help you drive? And like, I'll put her in my lap and we'll drive around the neighborhood because that's a cool thing to do. And she looks, I'm like, hey, baby, you realize like we're six years away from this. So I said, hey, one of the things we need to do this summer before like we start back up on school and stuff is we gotta go to the bank and let's go like open, you know, open up your first bank account and like you got some money from your birthday. Let's take that and deposit that and start working through that. Well, one of the things I'm going to do is I'm going to sit her down with this compound. I'm going to, I'm going to show her the wealth multiplier because that's a cool tool at

• 29:26Speaker 03

  moneyguy.com/resources. But then I'm also going to like walk her through this compound interest calculator. So that way she can see, hey, okay, if I, if I help around the house and I put this money to work and I save this much and I just do that, she'll be able to see. And, and what's great about it, and we did this on purpose, a lot of the stuff we do, like wealth multiplier, is targeted for retirement. Like, hey, okay, if I, at age 20, $1 turns into 88. One of the things I love about the compound interest calculator is you can do it over a more finite, shorter time period. So what I'm going to show her is, hey, baby, if you, if you just invested until you're 20, so from 10 to 20, over the next 10 years, here's what that could turn into, or here's what that could turn into by the time you're 25.

• 30:11Speaker 03

  And it's going to be super, super fun. So I would encourage you, if you have young people in your life or people that are just starting to figure out about money, use the compound interest calculator as a tool to show them how money can work for them.

• 30:23Speaker 02

  Yeah, no, that's really good. It definitely helps you kind of customize some of these Money Guy principles even more. So moneyguy.com/resources. Thanks for checking it out already to our live stream, folks.

• 30:35Speaker 02

  Okay, Natalie Kay has a question.

• 30:37Speaker 03

  All right.

• 30:38Speaker 02

  It says, "We are at step five of the FUE and are starting to save for our first home in two to five years. How much should be set aside for after purchase costs on top of the emergency fund?"

• 30:51Speaker 03

  Hmm.

• 30:52Speaker 02

  Good question, because you definitely want that emergency fund, or at least very close to it, to be left after you purchase the house, because you never know what's going to happen, right? Especially with a new house.

• 31:00Speaker 03

  This is a, honestly, this is a pretty hard question to answer, Natalie, but it's the right question to be asking. I'm always amazed, specifically with young people, when they're like so excited to buy their first home, and they're like, "I'm gonna save, save, save, save, save, save." And they're like, "Oh, I'm gonna go, I'm gonna go buy this house, and I need a $20,000 down payment." And they, you know, in their savings account, they hit $19,995, and they put that last $5 and hit $20,000, and they go buy the house. And I'm like, "Whoa, whoa, whoa, slow down, slow down." If you put all of your money in the house, what you don't recognize is that after you close, after they hand you the keys, the costs don't necessarily stop there. I remember

• 31:43Speaker 03

  for me, I bought my very first house when I was 21 years old. It was, it was, it was not a wise decision. It was, it was, it was foolhardy of me. And I literally remember, I got the keys, I went, and I'm like, "Look at, look at this mansion that I live in." And then I noticed every window I could see straight outside, right? And I noticed that if someone was standing outside, they could see straight inside. This is like bathroom windows, bedroom windows. I was like, "Oh, my gosh, I gotta have something for these windows." And I was like, "Oh, I'll just look up some blinds." And I looked up, and I was like, "Oh, my gosh."

• 32:15Speaker 02

  Heads up, especially if it's all your windows.

• 32:17Speaker 03

  Right. So I went to Home Depot, and I bought a bunch of like $8 paper blinds. It doesn't, I know it sounds silly, but like, it added up, because there were a bunch of windows.

• 32:25Speaker 02

  You were young, too. It's not like you were, you know.

• 32:27Speaker 03

  Right. And so like, I didn't even think about that. And then, I was in the house for like, gosh, I think maybe a week and a half, two weeks. I closed in summertime, or like early spring, and, and the grass started growing, and I was like, "Oh, my..." I don't have a lawnmower. I gotta go, I gotta go buy a lot. And like, you don't recognize that there's all these different costs. So Natalie, how much do you save up? Well, it depends on a few factors. One of the factors is what kind of home are you buying? Are you buying a home that has been built for a while that someone else has lived in for a while? Are there things that might need to be coming? Like, maybe it's gonna, coming up on the time to put a new roof on, or maybe the HVAC system?

• 33:05Speaker 02

  You kind of know that. Like, if it's an old HVAC system, you gotta be ready for that.

• 33:09Speaker 03

  That's right. That's right. So how, so one, how much should you have saved up? It depends on, and this is where you have to kind of put on your math brain, probabilistic outcomes. Like, what's the probability that if I buy this house and it comes to utilities, I got, I have to like, replace the refrigerator, replace the washer and dryer, I have to, you know, you fill in the blanks of the things that you think you might have to do, and say, I'd say, okay, what do I think those things could be over the first year? Well, I'd like to have at least a big chunk of that covered. Now, the great thing is, is if those things don't happen, you're okay. You have that money sitting there, and then you can kind of continue to build. But you don't want to take your emergency fund all the way down to zero. You don't want to be so lean that all of a sudden the HVAC goes out and you're like, oh my gosh,

• 33:53Speaker 03

  I can't, I can't fix this. I have no capital. The only solution is to put it on the credit card. And then you get yourself into a really bad spot. So I would look at the home that I'm buying. I have my emergency fund sitting there. I have my down payment that I'm gonna use. And then I would figure out, okay, what are the likely and probable additional costs? Whether that be window treatments, or furniture, or utility, or not utilities, appliances, or other things like that. And then what are the maintenance items I might have? And I'd come up with just a spreadsheet of the potential costs. And then I figured, okay, where is my comfort zone with all these likely expenses I could have? And what's the probability that they'll happen? And I would shoot for that number. I wish that I could tell you it was, oh, well, you just needed Zach. And there are some rules

• 34:38Speaker 03

  of thumb. You can go Google it. There might be like, 1% of your, of the value of your home. But that stuff is total crap, because the 1% of a brand new home versus 1% of a 35-year-old home is just different, right? So I would think about, realistically, what expenses do I think I could incur? And I'd shoot for that number to have, so I knew that I've got some liquidity post-close.

• 35:01Speaker 02

  Yeah. No, that's a good answer, because it certainly is one of those that depends, but you should. Think about these factors. And that was a great answer. So Natalie Kay, if you would like a Money Guy Tumblr, since we answered your question, we'd love to send you one. Just email [email protected].

• 35:18Speaker 00

  This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration blog, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies. 18 plus.

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• 36:14Speaker 02

  Renata has a question for you.

• 36:17Speaker 02

  How do raises factor into how much you should have saved by age? I'm in a lower-paying job, hoping to switch to a better-paying job in the industry soon. I'm 25 and almost have one times my income invested. But now it says, am I behind? Right? And I think this is a great question because we do a lot of kind of episodes about benchmarks, milestones, what you should have by age, which is super helpful. But some people have kind of varying incomes or big life changes, whether in the positive direction or the negative direction. So how do you factor that in to know if you're still on track?

• 36:54Speaker 03

  So financial mutants, they have this problem all the time. We, and by the way, I'm saying we because you're in good company. We just like a little, we're like, we're like a good pet. We just want like a little scratch behind the ear. We just want like a little You're doing well. Just like, oh, good boy, good girl. Right. Like, that's what you want. And so that's a lot of these milestones that we talk about. Hey, by the time you hit 30, you ought to have one time your annual salary saved up. Or by the time you hit 40, you should have three times your annual salary saved up, so on and so forth. And we're like, man, I just want to check the box. I want to be able to say that I did it. But, you know, I'm 29 years old and I get this big pay raise and, and I was going to have one time. But now I've got this pay raise or I changed jobs or I moved vertically and now I'm not there. Oh no, am I behind?

• 37:39Speaker 03

  Well, are you behind? No. Has your lifestyle automatically adjusted to that new income? No. Are you probably right where you should be? Absolutely. Do now you have a great opportunity to be able to save more and build to try to get back to that metric? Absolutely. So what are some tools that you can do? And we tell those people all the time. We have a, there's a great formula you can use. Dr. Stanley wrote about it, Million Next Door. You take your age, multiply it times your income and divide by 10. That'll tell you where you should be if you want to be an average accumulator of wealth. If you want to be a prodigious accumulator of wealth, you double that number. Uh, but what we found is for young people, that's a hard thing to do, right?

• 38:22Speaker 03

  That's a hard metric to hit. So we, you know, sprinkled a little money guy dust on it to change the formula touch. And we said, hey, why don't you do this? Take your age, multiply it times your income and then divide it by the number 10 plus how many years until you turn 40? So if you're 32 years old, it would be 10 plus eight, so your denominator would be 18. Well, that will tell you, okay, where you should be. Well, Renata, you're having the same question. Well, my income just went up. How to, if you're going to do any sort of these formulas or use any of these things, if you're someone who has variable income, there's nothing wrong with averaging your income over the past couple of years. Okay, I make this income now, but over the last three years, it averaged to this.

• 39:03Speaker 03

  Or over the last five years, that's totally an okay thing to do, knowing that, hey, with this raise,

• 39:11Speaker 03

  I'm gonna have a higher burden of responsibility saving because here's what I don't want you to do. Oh, okay. Well, Bo said I was good because you know, I'm almost at one time.

• 39:20Speaker 02

  I have one times now, yeah.

• 39:21Speaker 03

  Yeah, so I'm just, I got this raise. We're gonna go live large. And don't, don't mishear me. I want you to increase lifestyle. I, I want you to enjoy the fruits of being able to make more money, but not all of it. So if you get a raise or you get a bonus, maybe go like the 60/40. Hey, here's what I'm gonna do. I'm gonna let 60% of this go to savings. Or maybe if you're in a, already a fantastic savings, I'm gonna let 40% of this go to savings. I'm gonna let the remainder of it go towards lifestyle. That's okay, so long that as your lifestyle creeps up, so too does your savings behavior. So that you don't find yourself in a spot when you are 35 or 45 saying, oh, man, I'm behind. I didn't, my savings rate didn't keep up with my lifestyle.

• 40:05Speaker 03

  So long as you're protecting against that, you're okay. So don't be so hard on yourself. And a matter of fact, celebrate and congratulate yourself. Hey, I just got a raise. Hey, I'm, I just changed jobs. I'm, I'm increasing my income. Those are all net positive, good things. Now, turn that increased income, turn that shovel into real wealth.

• 40:25Speaker 02

  Yeah, that's really good. And we always break it down for you. So I love that we explain that Millionaire Next Door formula and how we changed it. But remember, if you want to go, uh, just have that calculated for you, go to moneyguy.com/resources because we actually have a per-digit accumulator of wealth calculator for you.

• 40:43Speaker 03

  I shouldn't have given the formula. I just gave it away. I shouldn't tell, I forget everything I said about the formula.

• 40:47Speaker 02

  They can do the math, but this is easier. So now they understand it and they can do it the easy way. It's both.

• 40:53Speaker 03

  I forgot that was out there.

• 40:54Speaker 02

  I know. It's a good one. It's a really good one. So it'll kind of, you can use whether your income now or that average like Bo said, and actually see kind of where you fall. And so, uh, you can use it today and then you can use it as a check-in point in the future too. Moneyguy.com/resources.

• 41:08Speaker 03

  Can I, can I give one, one more shameless little plug here?

• 41:11Speaker 02

  Absolutely.

• 41:12Speaker 03

  So I love calculating your, your Money Guy Wealth Score, right? That's, that's what we call that, your Money Guy Wealth Score. We're doing that formula. One of the things that's awesome is if you're someone who uses our net worth tool, right? You can go to learn.moneyguy.com to check that out. One of the things we actually track on there is current year, your current Money Guy accumulator score, but in the bottom left, we actually have this tracker that tracks your journey to abundance. And what it's really tracking is where am I? So when I was 25, maybe I was an average accumulator, but now that I'm 30, okay, now I'm moving towards prodigious. And it actually shows the path through time. So it's really, really exciting if you are someone who's tracking your net worth every year, which you should

• 41:55Speaker 03

  be, you should be doing that every year. It gets exciting seeing how that changes through time, even with income increases, even with income bumps.

• 42:03Speaker 02

  Yeah, no, that's good stuff. So Renata, great question. Be sure to go to moneyguy.com/resources to use that calculator and also email [email protected] because we would love to send you a Tumblr as a thank you. Okay, Isaac G. says, which is better? You ready for this? Refinancing my house. It's currently at a 7.625% fixed rate with 266,000 remaining and 29 years left on the loan. So first choice, refinance my house or max out my Roth IRA? My wife and I are 23 on step five and can't do both. What do you think? You just gave

• 42:48Speaker 02

  a very exasperated, like silent sigh or something.

• 42:53Speaker 03

  Here's, I'm going to use my context clues here. You owe $266,000.

• 43:05Speaker 02

  Yes.

• 43:06Speaker 03

  29 years left on the loan. Do you know, Raby, this is not a trick question. You know the normal term for mortgage loans? When you take out a mortgage loan, you know how long they normally are?

• 43:15Speaker 02

  Thirty years, right?

• 43:16Speaker 03

  Thirty years.

• 43:17Speaker 02

  Pretty common.

• 43:18Speaker 03

  So I'm doing some math here. Thirty year mortgage. We've got 29 years left. You just bought this. You just, you just went through all of the-

• 43:27Speaker 02

  That 7.6 interest rate though is hurting him.

• 43:29Speaker 03

  Yeah, I get it. I understand. But you realize every time that you, you close a loan, that's the terminology used when you buy a house and even when you refinance, it's called closing a loan. There are going to be costs associated with that. And the cost can vary from 1 to 2% of the value of whatever the loan you worked- So you, if you're only one year into this, haven't likely even recouped the costs of the initial- Like, like the price appreciation of the home is likely not even recouped the cost that you had for closing on the home. So, okay, you, you could refi and you could use that money to pay for that. And there's some math you could do on that. But man, what I would really think through

• 44:10Speaker 03

  is one, where are rates currently? Uh, Money Guy Team GPT, what is- Rates are currently what? 6.5? Right, right around there prevailing? 6.5, 6.8 is what they're telling me? So yeah, you could save a little bit on this loan. But what if rates continue to fall? What, what if we see rates get closer to 6%? Or maybe what if we just get crazy and we see rates in 5? And I'm, I'm not suggesting that could happen, but it's not like we're so far below 7.625 that I'm like, oh, you gotta capitalize, you gotta capitalize. So I would think, and because what you don't want to do is you don't want to get in this habit of every year, I'm just gonna refi, I'm gonna refi, because you're gonna end up spending a ton of money in closing costs. So that's like one side of the equation. On the other side of the equation, you're 23 years old.

• 44:55Speaker 03

  I want you to go to moneyguy.com/resources and I want you to look at the wealth multiplier. I want you to look at the wealth multiplier for a 23-year-old. Now, I don't have them memorized. I should. But I know the wealth multiplier for a 20-year-old is 88. So every dollar can turn into 88 times. That means that for a 23-year-old, it's still gonna be in the high double digits. You have it for me?

• 45:19Speaker 02

  57, almost 58 really.

• 45:21Speaker 03

  Almost 58. So every dollar you invest that you put to work inside that Roth IRA has the potential by you retired to turn into $58. So I can have this $1 turn into $58, or I can have this $1 go save me 7.625% in interest this year. While I like the idea of saving the interest and I like the idea of you not having to pay that and I like that you have a lower rate, when I look at these two and think about what's the most valuable, best use of my next dollar, ah, man, I think I'm leaning towards that Roth IRA. I think, I like the idea of you having an eye towards refinancing. Or, let me tell you a little secret, Isaac.

• 46:03Speaker 03

  You said, "I don't have enough to refinance or to do my Roth IRA." There's another little thing you may not know about. Have you called your mortgage company and asked for a rate modification? That's the language you want to use. You can call them and say, "Hey, mortgage company, I noticed that rates are 6.5% and I just got this email from, you know, ABC Loan Company and they said they would love to hold this mortgage for 6.5%." Rather than me having to move it over to them and take all that and go through all that process, what if I paid you guys a couple hundred bucks and you gave me a rate modification down to 6.5%? And sometimes mortgage companies will actually do that. So, it's at least a conversation worth having, a phone call worth making, because maybe

• 46:48Speaker 03

  you can get some reprieve on the interest rate, but still not sacrifice maxing out that Roth IRA. Because I love the idea of you building those tax-free Roth dollars.

• 46:58Speaker 02

  Yeah, so, I mean, refinancing can be a great thing, but just based on all the things that you shared, you should, you know, consider the power of that compounding interest, for sure. Um, Isaac, love that question. Thank you for being here. Just email [email protected]. We'd love to send you a Money Guy Tumblr as a thank you. All right. You good there?

• 47:20Speaker 03

  Oh, I'm great. I was, I went to reach. I don't know if you saw this.

• 47:24Speaker 02

  You look confused for a moment.

• 47:25Speaker 03

  I'm not used to having beverages on both sides and that, this is where I'll put the empties.

• 47:29Speaker 02

  Oh, gotcha. You have a whole system.

• 47:31Speaker 03

  It's a system.

• 47:32Speaker 02

  I love it. Okay. Ronald P. has a question next. If you've maxed out all retirement accounts, 401K, Roth IRA, and HSA, and are able to contribute more, how do you decide between contributing to a taxable brokerage account or an after-tax 401K account? This is a great question, great problem to have, Ronald.

• 47:55Speaker 03

  So, for those of you that don't know, most people are aware that there are two common ways to put money in your 401K. You can do pre-tax salary deferrals where you put the money in and you get a current year tax deduction. The money grows tax-deferred, and when you go to pull it out in retirement, you pay income tax on it. So I'm not going to pay tax today, I'm going to pay tax later. That's option one. The second way that people can put money in their 401K is they can do a Roth 401K contribution, where I don't get a current year tax deduction. So I pay money, I pay tax on the money. I put it in, it also grows tax-deferred, but so long as I meet certain qualifying standards, when I go to pull that out in retirement, it's completely tax-free. So I can get a tax benefit today, or I can get a tax benefit in the future.

• 48:39Speaker 03

  Those are the two common ways to put money in a 401K. Well, what a lot of people don't realize is there's actually a third way that is lesser known, lesser talked about, called after-tax 401K contributions. And what this is, this says, hey, I can put money into my 401K. I'm not going to get a current year tax deduction. So it's going to be taxed, kind of like the same way that a Roth is. And I'm going to put the money in, and the dollars are going to grow tax-deferred. And when I go to pull that out in retirement, I'm still going to pay income taxes on the earnings, but I'm not going to pay tax on the original contribution. That's the way that a normal after-tax contribution works. What Ronald's asking is, okay, should I take advantage of that? Or should I do a taxable brokerage account? Well, question number one you have to ask is, does my 401K allow for after-tax contributions?

• 49:24Speaker 03

  Because it's not a given. A lot of plans, because they want to make sure... That sounded like a chicken, I heard it that time. You ever hear what people say, my because sounds like a chicken? I heard that one. That one was a cluck. That one caught me off-guard.

• 49:37Speaker 02

  Okay, that's really funny.

• 49:38Speaker 03

  That one caught me off guard. Where was I going with this? I was talking about after-tax 401k contributions. I was talking about, oh, so the reason that a lot of plans don't have after-tax 401k contributions is because they want to be able to pass testing at the end of the year. There's a couple of different tests you have to make, you have to pass to make sure that highly compensated classes of employees are not discriminat- discriminatarily favored over non-highly compensated. I'm getting way in the weeds. So, a lot of plans don't offer after-tax, but some do. Well, after-tax, you, so I told you how it works. One of the things you can do is if your plan also allows for in-plan Roth conversions or in-plan rollovers, you can do the after-tax 401k contribution, and then you can immediately convert those dollars to Roth or do an in-plan rollout to Roth,

• 50:21Speaker 03

  and it's completely tax-free, because remember, you already paid tax on it. So, it's basically a way of doing a mega backdoor Roth conversion. It's awesome. And here's the other cool thing about after-tax. Pretax deferrals and Roth deferrals are limited to 23,500 for those under 50. After-tax contributions are not limited to salary deferral limits. They can go all the way up to the Section 415 limits, which is $70,000 this year. That means that if you're someone who is like well-heeled enough, you could do like a $34,000, $35,000 mega backdoor Roth. Okay, so that was all the context of the question. Now to actually answer Ronald's question. Hey, which one should I do?

• 51:05Speaker 02

  How do I know what to do?

• 51:07Speaker 03

  It depends on your personal situation. It depends on how you're going to utilize these dollars. If you're someone who thinks, man, I really want to retire early. I'm part of this FIRE movement. I'm part of this FINE movement. I think that I am going to want to access these dollars in my early 50s, mid 50s. I'm going to need that. Then the after-tax brokerage may be your best bet, because it's going to be the place where you're going to have liquidity to be able to cover that bridge from whenever you retire to 59 and 1/2, when you get access to all of your other retirement dollars. On the other hand, if you're someone who says, hey, you know what? I'm actually probably going to work all the way till full retirement and I've been building up my assets and I really have this after-tax brokerage account available to me, or this

• 51:50Speaker 03

  after-tax 401k option, I might take advantage of mega backdoor because now what you're able to do is you are able to supercharge those Roth dollars. Instead of just doing $7,000 a year, you might be getting tens of thousands of dollars a year in there. So for you specifically, Ronald, you have to answer the question of how am I going to utilize these dollars? Which one of these two would be best, dependent upon where I am in my current financial situation, how my accounts are currently structured, like how much do I have in each one of my buckets? And then when am I going to use the dollars? When do I want to be able to access them? Well, if you can define those three things, then you'll be able to answer which one likely makes the most sense for you.

• 52:32Speaker 02

  Yeah, that was a great answer. Ronald, thank you for asking it and I hope that that helps you think through. This is, this was a great step seven of the food type of question. So congrats on being there and I hope that helps. [email protected]. Email that if you would like a Money Guy Tumblr. Tracy M. has a question next. Would it be wise to cash out all retirement accounts to avoid?

• 52:56Speaker 03

  No, I'm just kidding. I don't even know the question. I didn't even listen to the rest.

• 52:59Speaker 02

  Well, just listen to the rest, yes. Would it be wise to cash out all retirement accounts to avoid mandatory, mandatory minimum withdrawals and put the money into an individual taxable account? I also don't know how old she is and I wish I knew that. Maybe it doesn't matter, but.

• 53:17Speaker 03

  Cash out all retirement accounts in order to avoid RMDs. Tracy, would it be a prudent strategy? If you are concerned about one day losing your hair, to today, go ahead and shave your head. I'm just getting bald right now, right? Like. No, I do not think this would be a prudent strategy to employ because what happens if you cash out all of your retirement accounts? What you're going to do is you're going to accelerate all of that income into the current year. You're going to accelerate all of that income and you're going to pay ordinary income tax on all of it.

• 54:00Speaker 03

  And if you're under 59 and a half, you're going to pay a 10% penalty. So, okay, Roth assets, maybe not that big of a deal, you're not going to pay tax, but as soon as you pull them out, they stop growing tax deferred. So they're not working for you. With your IRA assets, they're not going to grow, 401K, they're not going to grow tax deferred, they're going to start growing after tax. So are RMDs the big bad wolf that people think they are? Not really. They're not really. I mean, right now, most people are not going to have to begin drawing RMDs until age 75. And maybe, depending on your age, maybe it's 73. But 73 to 75 is when you have to start drawing that. Well, if you're going to retire at age 60 or 65, you're going to have a number of years

• 54:42Speaker 03

  between the time you retire, between RMDs, where you can do some effective planning to try to minimize your RMDs. And let me walk you through this. The way that a RMD is calculated is you take the year-end value of whatever your, all of your IRA or RMD eligible accounts were, and you divide it by some mortality factor. And I don't remember it off the top of my head, but a couple of years ago, it was like 27.6. So you take, I got a million dollar 401K, IRA, whatever, divided by 27.6, that's how much my RMD is going to be in the following year. Well, for a lot of people, if you don't have huge IRAs and huge 401Ks, the RMD may not be a huge number. It may be 10,000, 20, 30,000.

• 55:24Speaker 03

  It's not going to be like these hundreds of thousands of dollars unless you have really big assets or you're much later into the RMD cycle, meaning you're someone who's in like your 80s or 90s. So I do not think that RMDs are something you have to be terrified of. They're something you want to plan for. If you're someone who's going to be in a situation that's going to have very large RMDs later in life, I would argue that early on in your retirement, you want to start planning on strategies to potentially begin to mitigate that. Those might be Roth conversion strategies. It might be tax bracket maximization strategies. For example, hey, maybe this year I want to use my living expenses from my IRA. I'm going to pull out $80,000 and that's what I'm going to live off of. And so I'm just going to pay at that tax bracket and I'm not going to go any higher.

• 56:08Speaker 03

  And I can do that for a number of years to buy that balance down. Or I'm going to, or I'm going to convert those to Roth and then I don't have to worry about RMDs anymore. And even when you get to RMD age, or actually it's not even when you get to RMD age. When you get to age 70 and a half, there's another strategy where you can do qualified charitable distribution, qualified charitable distribution. So if you're someone who likes to support causes and wants to give to nonprofit 501(c)(3), you can, rather than taking your RMD and paying ordinary income tax on that, you can opt for some part of it or all of it to go to a qualified charity and it never actually hit your tax returns. It's a huge tax planning benefit. So there are a number of ways that you can navigate big RMDs.

• 56:52Speaker 03

  This is what I try to tell my people and look, you'll have people like, oh, RMD tax bomb and I'm going to blow through IRMA and oh my gosh, it's all these horrible things. Let me remind you, if you're blowing through IRMA and you're getting hit with Medicare surcharges and you have these huge RMDs, your problem is that you have a lot of money. That's a pretty good problem to have.

• 57:19Speaker 02

  Yeah.

• 57:19Speaker 03

  For a lot of folks, what's going to happen is when their RMDs take place, it's just going to replace the living expenses they already had anyway. So, hey, I need $100,000 to live off of and my RMDs happen and that covers $30,000 of my 100? There you go. A lot of our clients, when they hit RMD age, it doesn't change anything because they were already distributing more than the required minimum distribution anyways. So before you start trying to solve a problem that you may not have, make sure that you actually have that problem. We see so many people implement

• 57:57Speaker 03

  Good solutions to problems that don't exist. Meaning, hey, I did, I did this thing because I heard someone say I should do this thing. And I'll say, well, why'd you do that thing? That, that didn't actually solve a problem that you have. I, I, I'm getting older. I want to, I want to put my son on this account and I want to put my daughter's name on this home. And I want to get all these assets out of my estate. And I'll say, okay, great. I love that idea. Are you worth more than $30 million? Oh, you're not, if you're not worth more than $30 million as a couple, you don't have an estate tax issue. So don't try to begin solving a problem you do not have. RMDs fall into that exact same category. Yes, they should be planned for.

• 58:40Speaker 03

  Yes, there's something you should consider, but for most people, you're going to have opportunities, if it is a problem, to solve that problem before you get there.

• 58:49Speaker 02

  Good stuff. I, I figured you were probably going to say no here, but I really appreciate the thoroughness of that answer. Tracy, I hope that helps you. And also I really hope that you'll email [email protected] so we can send you a Money Guy Tumblr as a thank you. Um, thank you so much for joining us every Tuesday at 10 a.m. Central, right here on the live stream here on YouTube. And thank you for checking out that compound interest calculator. We're so excited about it and be sure to go to moneyguy.com/resources so that you can see that new tool, but also all of our free resources that we made just for you to hopefully help continue these conversations and just continue to help build that confidence in your specific financial journey. Because we know personal finance is personal.

• 59:31Speaker 02

  So be sure to go check that out at moneyguy.com. And we want to know what you think too. So comment below if you use that new tool and if you like it and let us know.

• 59:40Speaker 03

  Hopefully you guys can tell our hearts. We love that we get to do this. We love that we get to share sound financial information with you. It's the reason why we spend resources, we spend time, we spend effort to create these tools, to make them free so that you can utilize them. Because we really do believe that there is a better way to do money. If we can be part of your financial journey, helping you do money better, then we are all for that. Thank you so much for tuning in. As always, go to moneyguy.com/resources, check out all of these free resources, and we will see you back here next Tuesday at 10 a.m. I'm your host, Bo Hanson, here along with Reeve, Money Guy team. The Money Guy Show is hosted by Brian Preston and Bo Hanson.

• 1:00:23Speaker 03

  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.

• 1:00:54Speaker 04

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