We HATE This New Money Trend…

Buy Now, Pay Later is everywhere, but is it helping or hurting your finances? We uncover the dangerous reality behind BNPL services, how they encourage overspending, and why young consumers are particularly at risk. Then we answer your financial questions about The Financial Order of Operations, down payments, budgeting vs. cash management plans, and a whole lot more. ⁠⁠⁠⁠Jump start your journey with our FREE financial resources⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Reach your goals faster with our products⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Take the relationship to the next level: become a client⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Subscribe on YouTube for early access and go beyond the podcast⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠Connect with us on social media for more content⁠⁠⁠⁠⁠⁠⁠ Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:00Speaker 00

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• 0:27Speaker 01

  The best part of waking up? A full cup of Folgers coffee and music on full blast.

• 0:54Speaker 01

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• 1:03Brian Preston?

  Boy, oh, boy, there is a money trend that we absolutely hate.

• 1:08Speaker 03

  Brent, I am so excited to talk about this because I feel like we're going to do the world a service right now. Because this is frankly gross. And I'm so glad that we can draw attention to it and put like a giant flashing beware, do not fall into this trap sign on today's show.

• 1:28Brian Preston?

  So without much to do, but what trend are we talking about?

• 1:32Speaker 03

  So Klarna, who a lot of you may recognize if you've ever gone out to buy something and it says, hey, okay, you want to pay for this thing? How about instead of paying for all of it today, like you originally planning on doing, why don't you spread this out? And this $19 purchase you can pay for in the next six months.

• 1:48Brian Preston?

  Buy now, pay later.

• 1:50Speaker 03

  That's exactly right. Buy now, pay later. So Klarna, the company that's notably known for that, has now introduced a debit card that allows people to now make that consumption decision on this.

• 2:03Brian Preston?

  Now, I had, we had a team member. Not to be named, said, guys, this slide, this sounds a lot like a credit card.

• 2:11Speaker 03

  It's like a credit card, right?

• 2:12Brian Preston?

  But it's more sinister than a credit card. Explain why we have issues with this.

• 2:16Speaker 03

  Yeah, so the way a credit card works is obviously, you know, you swipe and if you carry a balance month over month, you incur an interest charge. An interest charge on credit cards can be greater than 20%, but when it comes to buy now, pay later, it's so enticing. It's that siren song because there are no interest charges. If I buy something for a hundred dollars rather than paying a hundred dollars today, I can just pay $25 in each month over the next four months and there is no interest. So the financial mutant in you would naturally say, oh, well, this, this is great. I have to take advantage of it. Time value of money would suggest that this is something I should be doing, but unfortunately that is not the case.

• 2:56Brian Preston?

  But it sounds too good to be true and without a doubt it is, but let's walk through, what are some of the dangers of buy now, pay later and then adding a debit card on top of that? This could be a recipe.

• 3:10Speaker 03

  Yeah, so some of the dangers, number one is it encourages overspending. The idea, and we say this all the time, that so often consumers fall into this trap of, man, I can afford anything at just a hundred bucks a month or I can afford anything so long as I can afford the payment. Well, buy now, pay later has become so easy and so convenient that it has now exacerbated that problem that I can have a thousand different payments every month for stuff that I bought in the past. So it naturally causes us to consume more and more and more.

• 3:40Brian Preston?

  And by the way, don't take our word for the fact that it encourages overspending. There's actually some stats on this. Look at this, nearly half of buy now, pay later users report at least one financial problem.

• 3:50Speaker 03

  And there are some financial problems specifically related to this. Think about this, 24% of these users say that they overspent, like 24% of buy now, pay later.

• 4:00Brian Preston?

  This is self-reported, yeah.

• 4:01Speaker 03

  Said, hey, I overspent. How about this, 16% of buy now, pay later users missed a payment. You know when buy now, pay later falls apart, Brian? Falls apart when you miss a payment.

• 4:14Brian Preston?

  Yeah.

• 4:14Speaker 03

  That's when all of a sudden.

• 4:15Brian Preston?

  And all the other stuff kicks in.

• 4:16Speaker 03

  That's exactly right. And 15% said they regretted a purchase because buy now, pay later was a thing that was available to them that was there. It caused them to make a purchase that perhaps they otherwise would not have made. So this is just not encouraging the right behavior.

• 4:31Brian Preston?

  So if you ask, because we actually pulled the average buy now, pay later debt is around $3,800. And that, you know, a lot of people say, when you compare that to all the other debts out there, that doesn't sound so large until you consider this next fact is that the majority of people that are using this are super young people. So if you lay over the fact that this is young people that are running up this type of debt, how are you ever going to get out of the starting gates if you're already starting behind?

• 5:01Speaker 03

  Yeah, it's young people and those that are in the most dire financial circumstances that are taking advantages. The most vulnerable people are the ones that are end up using these services. And we know that 66% of Gen Z'ers, Gen Z folks that use buy now, pay later, end up encountering issues, end up having a negative outcome with this. And you just like, when you start out on your financial journey, this world is hard enough to navigate just getting out of the starting blocks. And when you allow yourself to fall prey to one of these consumerism traps, it just makes the journey that much harder right from the get go.

• 5:40Brian Preston?

  Well, and you think that this isn't one and done. 60% of buy now, pay later are actually doing it, running multiple loans and they're averaging nine and a half loans per year.

• 5:49Speaker 03

  It's unbelievable. So that was, so that way, what ends up happening is that you buy a thing and you have the payment. You buy another thing and you have a payment. You buy another thing, you have a payment. The more you end up trying to take advantages, the further out on the risk spectrum you go, to end up falling in a bad spot. And that's been what some of the fallout has been. According to Fox Business, one in five borrowers, so 20% of folks that are using buy now, pay later, actually ended up incurring late fees or interest. So this thing that was supposed to be amazing, that was supposed To be this awesome tool actually caused the consumption that you were doing to be more expensive anyways.

• 6:28Brian Preston?

  Well, and here's the thing, it's a death by a thousand paper cuts. If you think about the fact that it's eroding your long-term potential because check out this stat, 72% of borrowers saw their credit score drop. Now, how do you think, because if we already know this is young people.

• 6:44Speaker 03

  Yep.

• 6:44Brian Preston?

  When you go get that first mortgage, I already told you guys the mistakes I made because when you're getting that first mortgage, it's not like you've had enough credit history that your, your credit rating is so high that they give you the best and greatest right out of the gates.

• 6:58Speaker 03

  Nope.

• 6:58Brian Preston?

  Typically, I remember I blew up my first mortgage because I did a, a 10 to 15% discount at a furniture store.

• 7:06Speaker 03

  Yeah, you got the couch cheaper.

• 7:07Brian Preston?

  Because then you have the, because you have all these inquiries on your credit, other things. This is a problem right as you're starting out for that purpose. And then here's what I, I think we ought to close out with some key takeaways.

• 7:19Speaker 03

  Sure.

• 7:19Brian Preston?

  And I'll, and I'll start us off. Bo, the big thing I hate about this is it is a punch in the gut to discipline.

• 7:27Speaker 03

  That's right.

• 7:28Brian Preston?

  We tell you all the time that the first ingredient to wealth building is your ability to live on less than you make and exercising, building up that discipline muscle. Well, if you are going to take this consumption trap, because that's what this is, you're not even going ahead and working on the muscle. You're taking the, the trained easy town or perceived easy town. Because, and that's what debt and buy now pay later is a false mirage that is a gut punch to your discipline muscle. And you just can't fall into that trap.

• 7:58Speaker 03

  Yeah. So don't fall into the trap. And then the other thing is when it comes to consuming, because we're not anti-consumption. We're not anti-spending money. We're not anti-buying things. But when you do that, we want you to be very intentional. If you want to buy something that costs $500, we want your mind to think through, okay, this is a purchase I actually want to make. And I'm willing to part with 500 of my hard earned dollars to buy this. Not, oh, I'm going to take the easy one and I'm just going to pay a hundred dollars a month over the next five months. We want. Want you to only spend money on the things that it makes sense for you to spend money on. And if it feels a little painful, that's okay.

• 8:40Speaker 03

  That's the way that it's supposed to feel, especially early on in your journey.

• 8:44Brian Preston?

  And that leads to this, this point is that I've told you guys, especially for young people, you are billionaires of time, which is the most valuable resource. But you are in the beginning at that component where you're trading your time for wages and you know, that, that sacrifice is hopefully so you can build something for the future. And if you understand that value of your billions of seconds of time, you will spend money differently because you are on a clock that is going faster than you realize that it will start working against you. If you don't turn compounding interest for you, it's going to be working against you. And that's why, please go to moneyguy.com/resources.

• 9:27Brian Preston?

  Check out our wealth multiplier because this thing, there's a reason we have koozies and other things that say for a 20 year old who discovers the value of their time, every dollar has the potential to become $88 at retirement. But this is a cruel, cruel world because at 30, that same dollar has potential to become 23. Still amazing, a 23 times multiple. Believe me, 40 year olds are jealous of that with their seven time multiple. People in their 50s and beyond, when you get below $3 or three times multiple, you quickly realize you will spend differently. You will save and invest differently. If you just understand what your time and your money is worth.

• 10:08Brian Preston?

  Don't fall into these innovations that supposedly make your consumption life easier, but really are just a primrose path to destruction and failure.

• 10:18Speaker 03

  I love it. I think I am, I'm so excited that we get to talk about this kind of stuff, that we get to share these things. I mean, this is obviously a consumption thing. There are all kinds of traps out there that you need to make sure you're staying aware of so that you don't fall into them, so that you don't get derailed off your financial path. And one of the ways we love helping make sure you don't get derailed is we want to answer your questions. We want to speak to the Things that you care about. So right now, we have the team out in the wings collecting your questions. So if you have something you want to get our take on, want us to weigh in on, make sure you get your question in the chat right now. So with that, Creative Director Rebe, I'm gonna throw it over to you.

• 10:58Speaker 04

  Yeah, we're actually gonna kick this off with a question to you watching and listening. If you're in the YouTube live chat right now, you know, we just conducted a poll that said, if you take a free sample at the grocery store, do you feel obligated to buy? And in case you were wondering, yes, this is based on a real life conversation that we had together.

• 11:19Brian Preston?

  I see where this thing is already run afoul. We were talking about samples at like ice cream shops, at the mall, when you're, you know, when the guy's handing out chicken at the mall to try to get you to come to the store. Grocery store, we went with the lowest one.

• 11:37Speaker 03

  Hey, you know what?

• 11:38Brian Preston?

  Let's run it back.

• 11:39Speaker 04

  Let's run another poll. Does any free sample anywhere?

• 11:42Brian Preston?

  You know what? Bias in the way samples are structured.

• 11:45Speaker 03

  No, hey, we're gonna, here's what we're gonna do. We're gonna, this is gonna be a little teaser we're gonna give. I'd like, uh, content team, I'd like a new poll. Uh, when you receive a free, let's go mall food court.

• 11:54Brian Preston?

  Yeah, that's the best one.

• 11:55Speaker 03

  If you receive a sample, like if you walk to the mall food court and the guy says, hey, would you like to try some teriyaki chicken? Or would you like to try whatever? Uh, and you take that, have you now engaged in a social contract where you feel obligated to now purchase said good, said food? Uh, we're gonna put that poll out there. We want to get your take and we want to know what the financial mutant community thinks about that. Uh, and while we're waiting for the results to flow in, I guess we can answer a question.

• 12:23Speaker 04

  All right, great. We will go to the first question and then we will come back to this riveting research that we are conducting.

• 12:29Brian Preston?

  Why do y'all think they offer these samples, guys? It's, it's an emotional manipulation.

• 12:34Speaker 03

  I, I understand. I understand.

• 12:37Brian Preston?

  Let's get to the question.

• 12:38Speaker 04

  Okay. Pause?

• 12:39Brian Preston?

  Our audience is gonna come through.

• 12:41Speaker 04

  We'll come back with some more research. We're gonna kick it off with a question from Ost the Boss. It says, hi, guys. I am 20 years old, in college, and on step three of the foo. I am currently paying for school, saving for an engagement ring and honeymoon, and paying on a 3,800 unsubsidized student loan at 5.5%.

• 13:03Speaker 04

  While I know this doesn't follow step three, I want to have no debt of mine when I graduate. So we can save and invest 25% or more when we are married. Thoughts? P.S. I'm getting my employer match from an internship, which I feel like is

• 13:20Speaker 03

  That's pretty ballin'.

• 13:21Speaker 04

  Yeah, that's great.

• 13:22Speaker 03

  Eligible for long-term retirement benefits as an intern is pretty awesome. Well, here's how I'd like to start. My response to us is that money is nothing more than a tool that allows you to accomplish the things that you want to accomplish. You, you set the goals and then you deploy your dollars to help you achieve those goals. So what I don't want to do is sit here and tell you, hey, if you have a goal to be completely debt-free, that's wrong. You should not do that. If that's one of your goals and you need to be like, okay, hey, that's my goal. And if that's my number one priority, then I would structure my financial life in order to pursue that number one priority. So when you ask what we think about it, my response to you is, we think that your goals

• 14:07Speaker 03

  for yourself should take precedence and take priority. Now, one of the questions we get asked and one of the conversations we'd want to have is, all right, what other goals do you have? Cause I just heard, hey, I'm saving for an engagement ring and hey, I'm saving for a honeymoon and I have to get through school. And I imagine one of the things you want to do is, you know, get a place together once you're married and maybe think about home and all of these other things. And so then if the question becomes, okay, I have all of these goals and I'm trying to figure out what's the most efficient use of my dollars to begin moving towards those goals? I would argue, Aus, for you with student loans at five and a half percent, in my mind,

• 14:48Speaker 03

  that does not count, for a 20-year-old, that does not count as high interest debt. So I would argue that is not a step three thing as it relates to the student loans. In my mind, in your situation, that's more of a step nine thing. So I think there are other places that your dollars could go. There would be a better use with the caveat, if being debt-free is your top priority, then that has to, then, then that is Your prerogative, even if it's a little bit less efficient than what I would suggest.

• 15:17Brian Preston?

  No, I think you, I wrote down some other notes and I'm gonna get to those, but I immediately said, is he really in step three? When somebody who is under 30 years of age has a student loan that's less than 6%?

• 15:30Speaker 03

  Yep.

• 15:30Brian Preston?

  And I don't know that I completely agree with it. And I think it's very noble to want to pay off the debt as fast as possible, but you got, you gotta triage all the life, other things that you got going on, because I'll just go ahead and tell you, I don't know, I'm old. So things were, maybe things are different now than they were back when I was in school back in the 90s. And the fact that I was dating my now wife of close to 30 years in college, and she had to make some hard decisions on where her career was going to go, and she was gonna have to move and other things, and we had been dating for over a year, and it wasn't an ultimatum, but I've definitely felt the crux of her thing was, is what are we doing here? You know, I need to know.

• 16:12Speaker 03

  Is this thing for real or not?

• 16:13Brian Preston?

  In my eyes, that meant, hey, in my triage of life, I need to figure out how I can buy an engagement ring and lock this all down. I mean, because you can imagine, I don't know the relationship you have with this, and it sounds like it's serious if you're thinking about honeymoons and engagement rings, but you say, hey, we're going to, maybe this is the modern way, is let's just put off putting married, because I'm gonna pay off all this debt. You know, maybe that's the way it works, I don't know, but in my eyes, I needed to lock things down in the relationship, because in the priority of life, it's just like, there are certain things, I think financial mutants, and I already see it in the way you asked this question, financial mutants and achievers of life are trying to go through life checklist as fast as possible.

• 16:56Brian Preston?

  And I would tell you, sometimes you need to slow down and make sure the big decisions are right. You know, that spouse decision is a major one.

• 17:04Speaker 03

  You want to get that one right?

• 17:05Brian Preston?

  If you don't believe me, go look at the bitterness of the comments that will probably come up from people who've unfortunately made bad decisions, and will now share that stuff with anybody who will listen on how marriage is a horrible institution, all these, they got burned. And that's why I said, measure twice, cut once on that big decision. Measure twice, cut once on where you're gonna live, what you're gonna do for a living. You know, all these things come into play, but I think sometimes achievers are like, let's go, let's get married, let's go buy the house, let's go start, you know, they just boom, boom, boom, boom, all this on top, when you're like, whoa. Let's get the life parameter stuff first down and then, because this other stuff will start falling into shape much better. And that's why I think that, you know, evaluate the relationship.

• 17:49Brian Preston?

  If that's the most important thing you need to be doing, there's nothing wrong with saving up, because that's going to happen all throughout life is you have things that will temporarily cause your attention to focus your next dollar on that. And then you quickly get back to trying to build the financial order of operations as fast and efficiently as possible. But life is going to happen. It's just a fact.

• 18:11Speaker 03

  And dare I say, and look, I don't want to like give you, I don't want to like go too easy, but you're 20 years, you're already way ahead of the, just the fact that you're even analyzing and assessing where I'm at in the financial order of operations as a college student at 20 years old. Oh, you're, you're in a great.

• 18:29Brian Preston?

  Eighty-eight times over.

• 18:31Speaker 03

  It's amazing.

• 18:32Speaker 04

  That is great. Austin Boss, thank you for being here. Thank you for your question. We appreciate it. Okay, now back to the free samples. We have some more information to share.

• 18:43Brian Preston?

  By the way, I feel like whoever wrote the first sample question, I was not attacking them. I want to make sure we don't get into a content meeting.

• 18:50Speaker 03

  No, no.

• 18:51Brian Preston?

  But I just saw the question. I just wanted to clarify.

• 18:54Speaker 03

  Well, you know what?

• 18:55Speaker 04

  Well, we did clarify.

• 18:56Brian Preston?

  Moment of clarification.

• 18:56Speaker 04

  So let me read the new question.

• 18:58Speaker 03

  It may be, and it may be valuable even for you to share the results of the old poll and the new poll, so we can see how it's.

• 19:02Brian Preston?

  I can tell by Bo's snickering that I'm going to get pummeled. And so that's why probably my reaction was the way it was.

• 19:08Speaker 04

  We'll go with the newest question first. It's if you get a free sample at the mall, do you feel obligated to buy? How many people do you think said no?

• 19:18Brian Preston?

  Look at you guys, heartless.

• 19:20Speaker 04

  It's 91% said no, they do not feel obligated to buy if they take the free sample.

• 19:27Speaker 03

  For just us to enjoy, it adds to the ambiance of the experience? No social contract entered.

• 19:33Speaker 04

  How much, well, I'll just tell you. At the grocery store, there was a slight difference, but 95% said no, and even higher percentage said, no, they do not feel obligated when taking a sample at the grocery store.

• 19:47Brian Preston?

  I told you guys, the reason I don't do a lot of the grocery store samples is because I think I just have a face where they all just wanna

• 19:53Speaker 04

  They start selling.

• 19:54Brian Preston?

  Tell me their life story. So it's just that there's a cost also to.

• 19:57Speaker 04

  A social element.

• 19:58Speaker 03

  But it's interesting. So again, being the true financial mutant that you are.

• 20:01Brian Preston?

  You said, nobody ever tries to talk to you at the grocery store.

• 20:03Speaker 03

  I thought this was wonderful.

• 20:04Brian Preston?

  Maybe I'm just old enough that they're like, yeah, this, this guy's old enough that he'll want to hear my life stories.

• 20:08Speaker 03

  But you, you recognize that you feel to thine own self be true, you feel that if you take a sample, that you are now entering into a social contract where you feel this obligation to buy. So because of that, you actually abstain from the samples at the food court unless you're going to buy, because you know that that's like, so I think that that's at least, what you're not saying is, hey, I just go hog wild and I take all the samples and I just end up buying a bunch of meals. You say no, you say no to the samples. And I think that's a great example of knowing what your own unique biases are to make sure that you're being a protector of your dollars.

• 20:40Speaker 04

  As funny as this all has been, I do respect that.

• 20:42Brian Preston?

  Well, no, the reason, I feel like, cause people are like, what do they do with these content meetings? The reason this came up is because I made the statement, it's a hot take, cold take, I don't ever get these things right, but it was the take that I feel like this falls, all these new modern trends of conveniences, the buy now, pay later, that's supposed to make your life easier. The DoorDash's of the world and all these other things. I think that they're a trap very similar to samples and other things is that you, it's a slippery road. When you start doing, I know that those things don't all, they're not congruent and they don't all fit into the puzzle. But the point, that's what this came up. And then you guys, when I made the point that this falls under the same kind of umbrella as samples, you're like, oh my God.

• 21:27Speaker 03

  Well, you had us until samples.

• 21:29Brian Preston?

  That's how this all came about this morning.

• 21:31Speaker 04

  Yeah, we don't see that.

• 21:32Brian Preston?

  But, but I do, that's why I don't DoorDash, I don't do any of that stuff. Now I've bought, you know, cause look, if you have somebody in the hospital, you know, and you're at the hospital and you want to give a gift card so somebody can have meals brought in, that's, that's a completely different thing than, but for, like, I've been where, she doesn't cut my hair anymore, but I was, but I had a person who was cutting my hair and they were, they were DoorDashing in like steaks from this nice restaurant down the street. And I was like, what are they doing there? You know, I was just like, what, what in the world are we doing here? It's just, I don't know.

• 22:06Speaker 03

  But you know what we are doing for you guys? We are sampling great financial content. That's what this is every single Tuesday at 10 a.m. So if you feel like Brian, you've entered a social contract where you ought to offer some renumeration for all of this free content, would you please subscribe? That's all the payment that we ask, or that's all that we want. If you subscribe so that we know you are out there. Look at that tie in.

• 22:32Brian Preston?

  Yeah, but, but I will, I'm honest. Part of the reason we want you to just to take all of our free stuff, our free samples, is because when you become so successful and your life gets complicated beyond the simple decisions of, you know, living on less than you make and basic things like that, I do want you to come back. I mean, even, even the design of this, I want you to give us a shot. Remember who planted the seeds of knowledge. Come back to us and fulfill the abundance cycle. See, it all is interconnected in how we designed this thing.

• 23:01Speaker 03

  I love it.

• 23:02Speaker 04

  Moneyguy.com, click on become a client if you want to do that. Okay, we do have some more financial questions to get to, so we're going to go to John B. next. It says, hey, Money Guy team, my wife and I, both 29 and on step seven of the foo, have 100K saved for a down payment. If we use it all, we would be under 25% on housing. If we used 50K, that would put us right at 25% of their gross income being spent on housing. Would you invest the difference or put it towards the down payment for cash flow flexibility? We have 450K invested between Roth, pre-tax and brokerage, and we're looking to do fine,

• 23:45Speaker 04

  which is financially, financial independence or next endeavor around 55. Thanks.

• 23:52Speaker 03

  So, John B., this is a, this is a great question. I don't know if you're new here. So this answer, if you are new here, you may not have heard this yet. But if you've been here for a while, you've probably heard this one.

• 24:06Brian Preston?

  Starts with a D.

• 24:07Speaker 03

  It starts with a D. It depends. It depends very much on your unique circumstances. Now, I love that you laid some stuff out for us. Hey, we're 29, we have $450,000 saved up, and we have a desire to be part of the Financial Independence Next Endeavor Movement. We want to have options in life sooner than we might have them otherwise. Well, that gives me some like hints. That gives me some clues about how to think about this. But I think a lot of people are faced with this problem. I could put more money down on the mortgage and that's going to cause my payment to be less. Or I could put less money down. It's going to cause my payment to be more. And then I can deploy those dollars elsewhere. I think what you have to do in order to decide what is the optimal decision for you

• 24:51Speaker 03

  is you have to begin with the end in mind. Have you gone through the exercise of doing something like knowing your number? And if you don't know what that means, or you have no context there, context, you can go to learn.moneyguy.com and check out the Know Your Number course, where basically you define, okay, if we know we want to be part of the fine movement, and let's say that our number is 1.5 million by the time we hit 45, making that up. But let's say that's our number. Okay, based on where we are today and based on our current savings rate, would it be necessary for us to take that $50,000 and deploy that to move towards that ultimate financial independence goal? Or are we already going to be on track to do that? And if we just get our mortgage payment lower and we're able to save the difference, are we still going to be on track?

• 25:34Speaker 03

  So you have to do a few derivatives of the calculation to determine what's the best use of those dollars, given your unique specific goals.

• 25:43Brian Preston?

  I love this because this proves the point. You know, the whole purpose of step seven, there's a reason when I was writing Millionaire Mission, I considered this the most improved chapter. And I was really proud of it afterwards because I think I finally, I stuck the landing on really the heart of what's going on at step seven. And you just kind of laid it out in your own way too, Bo, is that begin with the end in mind. Is that step seven is when you have hit hyper accumulation, meaning you are saving and investing 25% towards the future. But now, instead of it just being all tax motivated. And optimizing from that standpoint, you're thinking about, man, how will I actually use this money in the long term? And you've given us enough breadcrumbs because you have

• 26:25Brian Preston?

  two things that are in conflict with each other right now is that you have a, you have a large down payment that can go towards the mortgage. It's great that you saved up that much money. You have an extra cash reserves there, but what's in conflict is the, how big your mortgage is versus this fine goal of the next endeavor of retire, having financial independence at an early age. Those things are somewhat in conflict and that's perfectly fine, by the way, because that's what I love. Cause step seven flows right into step eight, which is abundance goals. And part of the reason we wrote with the foo, abundance goals are prepaid future expenses is that once you get to 25% and you're fulfilling, because you did the exercises in step seven, you can spend and save that money however you

• 27:07Brian Preston?

  see fit. That's why it's the first stop where you can, if you want a nicer car, you want to get into, you know, funding the kids college, you want to get into residential rental property, you know, Bob's your uncle, do what you want, because it's, it's the opportunity to go that direction. So I think you're in the perfect place in step seven and eight. Do the homework though. That's why you are in step seven of the fact that you got to find out, are you ahead of the curve, behind the curve? You're definitely ahead of the curve, but you, the, the problem you have to worry about is that you're ahead of the curve with a very ambitious goal. So that changes the, the mathematics of 25% in a lot of cases. If you think you're leaving the workforce at age 50, it might require you to save 30,

• 27:48Brian Preston?

  35%. You've just got to do that math on that before we can say, yeah, go use those resources on the house. Now, if you do the math and you say you're so far ahead of the curve, if you choose because it makes you sleep better and it's just more fulfilling to, to pay down the, or put down a bigger house down payment. So you have less of a mortgage, knock it out. I mean, that's the thing. I've had so many content creators that they, they do the, the Dave stuff where they, they just become debt crusaders and they tell me they prepaid, they, they paid off their house when they were 32 years old. And I always say, hey, look, before I pick on you about, you know, not understand the difference between making wealth versus maintaining wealth. You know, when you're in the make wealth phase of your life is that were you already

• 28:30Brian Preston?

  doing 25% towards like your, your work retirement and your Roth IRA? Oh yeah, I was doing, I was like, well, I'm never gonna pick on somebody who has done the hard work of getting 25%. What you do from there, I, I would be, it's not right because that's the part of the, it depends and you have to know yourself and what brings you value. What I get upset about is when people do things like do a huge mortgage down payment and they never even thought about, hey, do I need to be funding a Roth IRA? Do I need to be, you, you're not skipping those steps. It's just you need to make sure you fulfill that step completely and I think you'll be in a great place.

• 29:06Speaker 03

  I just want to add one little small caveat and, and I'm certain that you've already thought about this. I want to make sure the $100,000 you have saved for the down payment is a separate compartmentalized bucket of money because what I don't want you to do is if you do decide, hey, I am going to put this in the mortgage to get my mortgage payment down, you can't take your emergency fund down to the quick because when it comes to buying a house, there are other costs that are going to be associated with that. So we, a lot of home buyers want to get the down payment as high as they can, not recognizing that that liquidity, that cash you have post home purchase is incredibly valuable. So I'm hoping the $100,000 is above and beyond your fully funded emergency fund. And if that's the case, I think you have the flexibility to make the decision accordingly.

• 29:49Speaker 04

  That's great. John B, thank you for the question. I hope that helps you think through this exciting financial decision.

• 29:56Speaker 00

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• 30:24Speaker 01

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• 30:51Speaker 01

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• 30:55Speaker 04

  Mike D. has a question for you guys. "My wife and I are on step seven of the foo and have used a zero-based budget for our 10 years of marriage. What triggers do you consider to determine when it's time to switch from budget to cash managed, from a budget to a cash management plan?"

• 31:17Speaker 03

  Brian, I hear you talk about this all the time because this is one of the things, I think you even wrote a little bit about it in Millionaire Mission. Do you remember there being like a moment in time when it happened? You're like, "All right, it's Tuesday, I'm budgeting. Oh, today's Wednesday, I'm cash flow managing now."

• 31:35Brian Preston?

  No, I think it's an evolution. I mean, there's a lot of things that evolve in your life financially. Is that like I was a tightwad, now I'm not a tightwad. I mean, I think budgeting in turn into a cash management plan, it's more about you've got to put in the reps because I don't want to, I don't want to, I don't want to make this sound too easy. You have to put in the reps of knowing where your money's going first before you get the easy way out of saying cash management. Cash management is the muscle memory and the dividend of being a well-worn path of discipline in the past. So if you do budgeting and you get to a point where automatic for the people, you're saving and investing what you need to to reach your goals.

• 32:18Brian Preston?

  It seems to me, because I've seen it in relationships, it's crazy for you to hyper-focus on where every dollar goes to your spouse. It creates some weird dynamics in the relationship and other things, but that doesn't mean you get to skip the budgeting because you don't want to have the conflict of where your money went. I'm just saying, there should be a reward for good discipline and a life well-lived that you eventually graduate to the next phase of the evolution. So that's how it happened for me is that, so if you find out that you've had continued success, you know that step seven's the perfect place. Because that's where you're actually doing the the exercise of thinking not only how my saving and investing in a tax favored way, but I'm thinking about how I'm actually going to use this money.

• 33:03Brian Preston?

  When it comes to retirement. And if you've done that homework and you realize, hey, we're going to be set if we just set these autopilot, you know, make the good habits as easy as possible. And the bad habits that much harder. If you're already doing that stuff naturally, if you hyper focus on the details on the focus on the minors. You might be creating more dynamics. It's really the hassle factor gets to a point that it creates weird, weird things in your relationships.

• 33:29Speaker 03

  Yeah, it's, I think it's a function really of muscle memory. I'm not a great golfer. I'm not even really a very good golfer. But I've played with some great golfers and it's wild. A really good golfer can go out there, grab a club. And when they swing. It's just going to be pure contact and the ball is going to fly great. They don't have to think about it. It's just part of the muscle memory. They've done it so many times. They just have it down. I think that budgeting versus cash flow management is kind of the same way. I don't have to. Think about how much is going categorically in each bucket. Like if I were to ask you, Brian, do you know what you spent eating out last month? Or do you know what you spent at the grocery store? No, it's just, it's not something that I'm able to track and put my, wrap my head around anymore.

• 34:10Speaker 03

  Where there was a point in time in my life where I could have told you to the dollar, hey, this is how much was on groceries and this is how much was. Once you kind of get past the fact of knowing, okay, I know that I'm not overspending. I know that I'm funding all of the savings vehicles and the way that I'm supposed to be funding them. It does not matter if, you know, my eating out budget was a hundred dollars this month and it's $200 next month. That becomes inconsequential relative to the financial plan that I have in place. Once you start to recognize that you have. That level of muscle memory developed around the way that you spend and consume. I think that's the indication that you're now ready to move on to a cash management plan.

• 34:48Brian Preston?

  Yeah, I mean, it should be a reward. Do the work and be rewarded for the hard work. And by the way, Mike D. License Deal was a very formative album. For me, so thank you for.

• 34:58Speaker 03

  It was wild. I could not, I was listening to a thing in Mike D. I was like, he's gonna, he's gonna mention the Beastie Boys. He's gonna, and I was like, oh, my gosh, he didn't. But he saved it till the end.

• 35:06Brian Preston?

  He hung on to that one.

• 35:08Speaker 04

  Well, Mike D, truly, thank you for being here and thank you for your question.

• 35:12Speaker 03

  Um, Ruby, can I share something with you?

• 35:14Speaker 04

  You may.

• 35:15Speaker 03

  You know, I um, I do not like bullying. I'm like very much against it.

• 35:20Speaker 04

  I'm glad to hear it.

• 35:21Speaker 03

  I'm very much against it.

• 35:22Brian Preston?

  Does that mean you're about to bully me?

• 35:23Speaker 03

  No, no, no, no. I'm actually a victim in this, is what I'm saying. I'm parched right now. I have no coffee left. I've drank all my coffee. And I would love.

• 35:32Brian Preston?

  Would you like me to pop your top?

• 35:33Speaker 03

  I would love to be able to open my beverage to have a drink, but I'm nervous that, because I've now been chastised.

• 35:39Brian Preston?

  I'm a giver. I'm a giver.

• 35:41Speaker 03

  So if we could just pause the recording.

• 35:43Speaker 04

  There it is.

• 35:43Speaker 03

  Can our editing team?

• 35:45Brian Preston?

  Look, I'll be the nourishment you need in the desert.

• 35:48Speaker 03

  Thank you. I believe that this was much better than me casually pulling off the side and popping it.

• 35:52Speaker 04

  While Brian was talking. Yes.

• 35:54Speaker 03

  So thank you very much for that.

• 35:56Speaker 04

  That was very polite of you.

• 35:56Brian Preston?

  Where did the bullying come in?

• 35:57Speaker 03

  You bullied me into not even wanting to drink now because I can't open my own drink.

• 36:01Brian Preston?

  Good manners is bullying.

• 36:02Speaker 04

  You're the bully, it turns out, Brian.

• 36:03Brian Preston?

  Good manners is bullying in a handsome house.

• 36:06Speaker 04

  What if it was just, you know, constructive criticism?

• 36:08Speaker 03

  Well, it was that.

• 36:11Speaker 04

  All right. E-money has a question.

• 36:16Speaker 04

  Would being ahead on retirement ever justify spending more than 25% of your gross income on housing? We are 28, but we have three times our annual income in retirement already. How would you think about this?

• 36:31Brian Preston?

  But you wouldn't, you know, you just put down more money.

• 36:35Speaker 03

  That's a great.

• 36:36Speaker 04

  Oh.

• 36:36Brian Preston?

  I mean, because it's not, I mean, if you, do you realize, because part of this, when we create rules and things, you realize your biggest risk with success is that your spending gets to be so big and so far from the social safety net that when you retire, your money just doesn't go as far as you thought it would. And so I have no problem with people live, live the baller life, but just make sure you're not faking it. I mean, because it's so much better to be rich than to look rich. And if I see that all of a sudden your, your housing is more than 25% of your income, and you didn't make that up with a much larger down payment, it just, it feels like you're faking it until you make it.

• 37:17Speaker 03

  Yeah, I think the language you use is, hey, I'm so, I'm ahead of the curve. Was that the language?

• 37:22Speaker 04

  He's ahead on retirement.

• 37:24Speaker 03

  Ahead on retirement. I'm like winning the race. In my opinion, the best way to screw up having a lead is kind of when you start showboating, right? Like when you start showboating in the race, that's a really good way there. If you're already ahead of the curve and you're doing all the things that you're supposed to be doing and you're making the financial decisions that a financial mutant would need to make to have three times their annual income saved up by the age of 28, I would argue, why do you need to make the decision to go run afoul of the housing rule and go buy a house that's 30% of your gross income or 35% of your gross income? Because what if something changes? What if there's a reduction in force with one of your employers? Or what if something

• 38:05Speaker 03

  happens income wise? Or what if you want to make the decision to have a single income if you're a dual income household? By making that aggressive decision, what you're doing is you're moving yourself further out on the risk spectrum for no reason. So I love that advice. Hey, if you want that bigger, nicer, more expensive house, just save up for a bigger down payment so that you can put enough down to get your mortgage, your housing costs inside of that 25%. I just don't see a reason to stretch that.

• 38:34Brian Preston?

  Well, I think, and there's an analogy here. You know, one of the things, if you're looking for hobbies, people who get into private aviation, they usually buy themselves out of their hobby. And I think that successful people can buy themselves out of a comfortable retirement. And what I mean by that is, is like, people get into private aviation, they buy a Cessna. They can afford the Cessna. They can afford the insurance on the Cessna. They can afford the burn rate of the fuel. Then they move into the Cirrus, a little bit more price point. But then, all of a sudden, they're getting into different brands that just, the cost is more, the burn of the fuel is more, the insurance is more. And then, you can't even get in private jets when you're getting into $5,000 an hour burn rate on, you

• 39:16Brian Preston?

  know, on just the fuel. I mean, it's things, this is what I see wealthy people do too. And this is why there is something valuable. Have you noticed the wealthier people get, the poorer sometimes they look? Go look at Rolex's and other things. You've quickly realized that a lot of people who buy these brands that the unwealthy perceive as great. People who are wealthy just don't care about this stuff as more.

• 39:40Speaker 03

  It's not as valuable to them.

• 39:42Brian Preston?

  We live in a community where it's just like I was telling Bo, I couldn't believe the price point of a brand new neighborhood by a, it's not even a custom home builder. It's a, it's a semi-custom builder. And I was like, so there are people, either these people are in debt up to their eyes, or there are enough people concentrated in this area that they can afford to pay those millions of dollars. But that's a choice. And that's why I think that it needs to be a choice that you truly can afford, not that you're leveraging up to your eyeballs. So you take away your flexibility, you take away your options and all the benefits of actually being a disciplined financial mutant who lets your money create more time and resources for you to do what you want, when you want, how you want with your money versus being

• 40:25Brian Preston?

  indebted to that commitment, just because you, you want to impress people who probably don't even care.

• 40:31Speaker 03

  I love that.

• 40:32Speaker 04

  Look at you guys being such a good check and balance. Cause there is an undercurrent, like clearly he's a good saver, maybe he has a big shovel, like he could do a bigger down payment. It's looking like, like if we're reading the signs correctly, right? It's a harder way, but he could probably do it.

• 40:46Speaker 03

  The easier path was just have a bigger monthly payment. The harder path is a bigger down payment. That's the better path.

• 40:49Speaker 04

  Right. No, good stuff. Thank you, E-money, for the question. I hope that helps. I hope that gives you some good food for thought. All right, Walker K. has a question next. It says, "My wife is planning to start med school in about three years. We're debating whether it's better to focus on contributing to a Roth IRA or a 529 right now, considering flexibility and tax benefits. Any suggestions or thoughts?"

• 41:16Brian Preston?

  That's like saying.

• 41:18Speaker 03

  I don't know, I don't know enough.

• 41:21Brian Preston?

  Cause you don't know the state tax benefits.

• 41:23Speaker 03

  I don't know the state tax benefits. I don't know how old you are. I don't know what your other savings has looked like, right? Because I don't know what other options you have to fund, uh, to fund med school. Is this going to be something you guys are going to cash flow? Or are you going to have to borrow money from this? Do you need to be able to save up in the 529 to a certain extent to be able to afford it over the next couple of years? There's just a lot of unknowns. Um, and I do not consider those to be equivalent things. Uh, and this is what I mean. Saving in a raw fire, it's a step five type issue. It's a saving for your future self, building towards financial independence. It's a retirement type savings. Saving for med school, even for yourself, is like a prepaid future expense.

• 42:08Speaker 03

  An expense you're going to incur at some point in the future. Now, this is different than college for your kids because it's so near dated. So it's really a cash flow item. And so the decision that you're going to have to make between which one of those to fund is less about, okay, which accounts are more attractive and what are the tax benefits? It's more about which one of the accounts more aligns with the goals that we're trying to achieve. It's not comparing apples to apples, you know, one account to another account. It's comparing, hey, does it make more sense for us to put money towards our future self? Or does it make more sense to put money towards an expense that we're going to have in the near term? And that's something where you'd have to know more about your overall financial situation to determine which of those would be the most efficient ways to tackle that.

• 42:52Brian Preston?

  Here's the way to, because I love how this dovetails perfectly into what you're saying. Since this is a cash flow and just knowing where the future of your life is going, I look at this as a perfect opportunity to put on your 3D glasses. Because when you get into big life decisions, when we talk about 3D glasses, we're talking about if you're trying to start a business, if you're thinking about sending, you know, going to medical school and probably running up multiple, you know, six figures of student loan debt and beyond, these are all big choices that in the, the next one to five years will impact your life a great deal. So you ought to at least go into this with your eyes fully open. So here's what I mean when I say put on your 3D glasses. I want you to create three plans.

• 43:37Brian Preston?

  You're going to have your dream plan. This is like your wife goes to medical school. Y'all are able through, through lifestyle discipline, keep the borrowing costs as low as possible. She sticks the landing on not only getting a great city for the residency, but then when she gets out and gets into practice, she just crushes it. Because she is, you know, it's in the city y'all want to live in. It's making more money than you ever thought. That's the dream. Now I want you to do the down to earth. A few things where maybe, you know, it's going to be harder. You have to take on more debt than you figured for. You know, cost of living is more than you anticipated. Put in some, some roadblocks in there, but put in some wins as well. And then don't skip the third and most important part of the 3D glasses. Put in the do do plan.

• 44:21Brian Preston?

  This is like, oh my gosh, it just goes bad. You know, you run up debt. The job markets aren't as good. You don't get into the market. You don't, you know, she doesn't have as much opportunity as you had hoped. Are you going to survive and is it going to work out? And this is the reason this is so important. So it's so much easier to focus on the do do plan on paper than it is actually living.

• 44:43Speaker 03

  To live it. That's right.

• 44:44Brian Preston?

  Because that's, that's what, you know, everybody has a plan until they get punched in the nose, you know, and that's the thing is that I want you to at least have the plan. So you can go ahead and numb yourself to what, how bad things could be. So you can at least not be in that shock phase. When things don't go perfect. And you know, I think there's a lot of life decisions I've made where the 3D glasses has saved me. And I know I hate giving homework, answering a question with an intensive homework project. But man, this is your life and this is a big decision that it requires the extra work to make sure you stick the landing. It's great.

• 45:19Speaker 04

  Great. Well, Walker K, we really appreciate you being here and for asking the question. Next question is from JL421. I inherited a Roth IRA with no RMDs and eight years left to empty it. It's invested and covers about 14 months of expenses for him. Would that fulfill Fu Step Four Emergency Fund?

• 45:44Brian Preston?

  No.

• 45:44Speaker 04

  And allow me to move on to steps five plus.

• 45:49Brian Preston?

  No, because it's access to cash. It's not actually cash.

• 45:53Speaker 03

  No, I'm, I'm sorry.

• 45:54Brian Preston?

  Next question.

• 45:54Speaker 03

  Yeah.

• 45:55Speaker 04

  I can go, I can say what an emergency fund actually is. Cause he technically has the 14 months of expenses.

• 46:03Brian Preston?

  No, he has access to the money.

• 46:03Speaker 03

  Right, right. The, the money's there, but I would argue if, if you. The reason I'm going slow here is because there's a lot of decisions, RMD rules have changed a lot over the past couple of years and the way that you have to navigate inherited assets is a little bit different. But one of the best types of assets to get to inherit are Roth IRAs. Because yes, there is this 10-year window in which you must deplete the account. But you know what that means? You get to let those dollars continue to grow tax-free for the next 10 years, or in this case, for the next eight years. So if all you did was, okay, well, if we've got 14 months of expenses in there, I'm just going to liquidate that and that's

• 46:43Speaker 03

  going to be cash in that Roth. You're like, you're absolutely neutering how powerful that Roth IRA could be. I would argue, no, you want those dollars invested. And if you're really thinking about, if you're at the stage in your financial journey where you don't just focus on asset allocation, how you spread out your assets, but also asset location, what types of investments you own in which type of accounts, inside that inherited Roth IRA might be a great place to hold like high-growth assets, S and P 500 index, international index, those kinds of things that have a lot of growth potential. Because then you're going to maximize that tax-free benefit. If you're putting it even in like cash or conservative holdings so that you can access it for an emergency fund, you're just taking the teeth

• 47:27Speaker 03

  out of what that account can do for you. So I do not think it should be considered short-term money by any stretch. But.

• 47:37Brian Preston?

  Cash, you know, emergency reserves is such a valuable part of your financial life that it is two steps to the financial order of operations. It is highest deductible coverage, step one, and emergency reserves, step four. So you have this, this money that's come, come to you. You now need to figure out, how much money do I need to have if I was respecting the financial order of operations in emergency reserves? And then here's the next question you need to ask yourself. Because you really don't want to touch the Roth. I mean, Bo is spot on. This is powerful. But if, if it, worse comes to worse and you have no more access to any other money, maybe that's a place you go free up some cash to,

• 48:21Brian Preston?

  to, to go ahead and fill up the emergency reserves. But if you do the exercise of, of saying, how, how much do I need? And then ask yourself this next question. Here's the, here's the pivotal question. Is there some, because I know how valuable this Roth is, is there some disciplined step I can take right now that if I triage this, that I can fix this over the next three to six months?

• 48:45Brian Preston?

  And then do it. Now, if you ask yourself that question and you're like, no, there's no way it'd take me two years to get my emergency reserves, then I think you have to make a hard decision and you have to probably take a portion of this inherited money to sure yourself up. But you ought to be so mad at yourself that you couldn't do this through side hustles or discipline, that you use this to be a motivation point to figure out how you fix this for the future because you left some on the table. There's a reason when I talk about my Roth follies, you can sense that I turned that $10,000 I missed out on, when I lay out the opportunity costs of the hundreds of thousands of dollars that it could have become, you'll see that that hurts and that creates a motivation to

• 49:28Brian Preston?

  do things better and be more efficient. I want you to kind of feel that same thing, JL421, is that this money can immediately be your fix, but that shouldn't be the first thing you do. You ought to first ask yourself, could I fix this myself so I can build these emergency reserves up maybe over the next three months? And if that's the case, then I get the best of both ways. That's right. And I get to keep my Roth money and have this legacy. Whoever I inherited this money for, they have to be just so pleased that the legacy going forward is going to be this tax-free growth, this leg up, this opportunity. But then if you also honor that by being super disciplined yourself, or maybe taking on humping a little bit extra to get some extra dollars by working harder,

• 50:12Brian Preston?

  taking on an extra shift or something like that, then I think that that also can be a part of your solution.

• 50:22Speaker 04

  Quit it. Don't.

• 50:25Brian Preston?

  Seriously, guys, are y'all elementary school kids?

• 50:27Speaker 04

  Sorry, they were, there were people-

• 50:29Brian Preston?

  No, middle school kids. We'll say, middle school kids.

• 50:31Speaker 04

  They're throwing me off.

• 50:32Speaker 03

  I, you lost, I held it together. That was you. Everything's, that was great.

• 50:37Brian Preston?

  Before long, I'm just going to have to just recite things because I can't just go off my vernacular.

• 50:42Speaker 03

  No, that was great. That was-

• 50:45Speaker 04

  I like seeing what you're gonna say next. It was a great answer, though.

• 50:48Speaker 03

  It was a great answer.

• 50:49Speaker 04

  JL421.

• 50:50Brian Preston?

  Is it not, now, look, I get a lot of stuff wrong. Humping can be another term for getting out there and busting it, right? Getting to work?

• 50:59Speaker 04

  Since you're-

• 51:00Brian Preston?

  No? Y'all, I give up. I just give up. Y'all are a mess.

• 51:06Speaker 03

  Maybe. Maybe.

• 51:08Speaker 04

  I'm gonna go with no, since you asked.

• 51:11Brian Preston?

  There is, I'm telling you, that is, y'all didn't grow up where I grew up.

• 51:15Speaker 04

  I did not, you're right.

• 51:19Speaker 04

  Alright.

• 51:20Speaker 03

  Let's just keep pumping, let's go.

• 51:21Speaker 04

  Let's go.

• 51:24Speaker 04

  You're the worst.

• 51:26Brian Preston?

  You are. Talking about bullying.

• 51:31Speaker 04

  Well, okay, can we get, can we bring it back to another personal finance question?

• 51:36Brian Preston?

  I sure hope so, you dirty-minded folks around here.

• 51:39Speaker 04

  Alright.

• 51:40Brian Preston?

  Uh, you know what?

• 51:41Speaker 03

  What's funny is, people out there can't see that every other person in this room right now had the exact same reaction.

• 51:47Speaker 04

  I know, but honestly, we didn't do too bad, but then-

• 51:49Brian Preston?

  We try to create a nurturing work environment around here, and you dirty-minded folks, I just, we're gonna have to work on that.

• 51:57Speaker 04

  It's when the production team lost it that I couldn't, I-

• 51:59Brian Preston?

  I know, that's when I hear all this in the background, I'm like, goodness gracious.

• 52:04Speaker 04

  Alright, we do have some more good questions in here, so let's go to Mitch M.

• 52:09Brian Preston?

  Oh, Mitch!

• 52:10Speaker 04

  Mitch, he says, "Hi, guys. I'm 24, with a 172K mortgage at 7.37%."

• 52:19Speaker 04

  Where would you place this in the foo? Only other debt is my car at 2.9% and I'm saving 25% in my 401k and Roth IRA. I'm also currently working on my emergency fund. Thanks. So lots going on for Mitch. What do you think?

• 52:37Speaker 03

  I was ready to answer the first question.

• 52:38Speaker 04

  I know. It was a bit of a ping pong in the foo. So we need to talk about it.

• 52:41Brian Preston?

  Go ahead and tell him, because we have mortgages. You notice when we talk about high interest loans. Mortgages are unique, but share how we think mortgages are unique.

• 52:51Speaker 03

  Well, here's a really interesting thing, Mitch. I don't know when you bought your house, but you have a prevailing interest rate of 7.37%.

• 52:57Brian Preston?

  You bought it at the worst time.

• 52:58Speaker 03

  Well, the rates have actually come down a little bit right now. Like we're seeing right now, we have clients that are buying, first time home purchasers buying, and it's like 6.5%. So it's, there has been some reprieve from these rates. And so one of the things I would encourage you to think on is, okay, maybe this isn't high interest debt. This mortgage debt might not be high interest, especially for a 24 year old, because there are going to be two options you're likely going to have at some point in the very near future. If interest rates continue to decrease, if they continue to move in a downward trajectory, then there's a really good chance you could refinance this mortgage potentially. And if you refinance the mortgage, even if you keep your payment the same, so you're paying it down on the same schedule,

• 53:38Speaker 03

  but the interest rate goes down, you're going to apply more towards principal and it's going to be a win-win, where you're going to have less interest costs, you have the same cash flow. It's, it's a wonderful thing to be able to do, but there's actually a second thing, and this one might be even more exciting to you. One of the things, and it may be a little early yet, again, depends on when you bought this, is a lot of people don't realize, one of the things you can ask your mortgage company to do is, hey, is there an opportunity for me to have a rate adjustment? Is there an opportunity?

• 54:07Brian Preston?

  A modification.

• 54:08Speaker 03

  A rate modification, a rate modification, where rather than doing a true traditional refinance, I'm going to pay a couple hundred bucks. There's not the same underwriting, not the same closing costs, and I can get my rate modified from 7.37 down to like 6.5. Again, that it's not, that's not a 2% mortgage, but it's moving it in the right direction. And because you have these options with mortgages that are possible to you, in my mind, for a 24-year-old, I don't think that applying excess capital towards the mortgage is likely the most efficient mechanism. I think your dollars could likely be used better going in a different direction.

• 54:50Brian Preston?

  So Mitch, without a doubt, go out there and see if you can rate modify it, do a mortgage modification, call the lender. If they don't do it, they're potentially, and by the way, I have to amend what I said. I said, bought at the worst time. I meant the worst time for mortgage rates. That's 7.4% is probably one of the worst I have seen.

• 55:09Speaker 03

  Yep.

• 55:09Brian Preston?

  So I would definitely take your advice, call and see if there's a rate modification since rates potentially are, you know, percent lower than where they were when he purchased. If that's not, go and price out and see where you are with, with refinancing to see what the options and the cost of that are. And then, but here's the thing, I'm going to give you a little more grace than Bo did. You said something really key. You said you were already beyond 25% with your Roth IRA, with the 401k. To my eyes, that puts you in step eight slash even going towards step nine. If, if, if you're the type of person that peace of mind wise, you want to throw a little bit extra on the mortgage, I'm not going, I'm not going to fight you on that because you are in that phase because you've

• 55:51Brian Preston?

  already done the hard work of saving and investing 25% and doing the Roth, doing the employer.

• 55:57Speaker 03

  You ready for this?

• 55:57Brian Preston?

  Yeah.

• 55:58Speaker 03

  You ready for that? Can you bring the question back up for me real quick, team? He put a little nugget right there at the end. And I was like, I wonder if you're going to see it.

• 56:05Brian Preston?

  Uh oh, whoa. I didn't see that. Mitch, you buried the lead. Currently working on emergency fund.

• 56:13Speaker 04

  There it is.

• 56:14Speaker 03

  That's step four.

• 56:15Brian Preston?

  That's, that's foo-ish.

• 56:17Speaker 03

  That's step.

• 56:17Brian Preston?

  That's foo-ish, which is foolish because you've got to have emergency funds. So goodness gracious, you know, first thing you need to do is get an emergency.

• 56:25Speaker 03

  So that's why I would not prioritize paying off on the mortgage.

• 56:28Brian Preston?

  You're right. I did not see that. I'm over here writing rate modification, 7.4. Get an emergency.

• 56:34Speaker 04

  Well, after the emergency fund, maybe think about that.

• 56:37Brian Preston?

  Yeah, he put that, he knew it too. Cause you put that at the very end.

• 56:40Speaker 03

  Well, cause I think he even said he's doing his Roth, he said, uh, only those 2.9, I'm saving 25% in 401k and Roth. If you're doing that before emergency fund, you're already out of whack. Like an emergency fund. You gotta do that before you go to Roth, before you go to anything other than employer matching 401k. You're just, you're, you're living too far out on the risk spectrum needlessly. Uh, and you know, what, when you swim, when you swim naked and the tide goes out, you know what I mean?

• 57:08Brian Preston?

  That's right. A little naked.

• 57:09Speaker 04

  Yeah. His question was like this journey through the foo and I didn't know where we were going to land. And it was like, oh, we're landing on emergency fund. You can't skip that. But we're glad you asked the question.

• 57:20Brian Preston?

  I felt elementary, you know, reading comprehension there. I didn't catch that last sentence.

• 57:23Speaker 04

  I knew a lot of good other information about the mortgage.

• 57:26Speaker 03

  That was already, that was always my, my least favorite part of test taking is like they would, they bury like the one important thing right there at the end, but you would like get so excited. I don't know. I don't know if you know this, I'm super excitable. I got really excited about the first part of the question. I'd always miss that.

• 57:41Brian Preston?

  No, I used to, in math classes, if you could give me, like I, I used to love doing the speed drills on multiplication tables, but then you get to the math problem where they, and it's so cruel how they do it. They give you like this three paragraphs with all these details. And then there's not one question from that. They'll ask you five questions off of this thing that you have to read. And I'm like, I don't want to do this. That's why I went into accounting where they do the exact same thing to you. So I didn't learn.

• 58:06Speaker 04

  Mitch, thank you for the question.

• 58:08Brian Preston?

  If only life was just give them, you know, what's 12 times two, 15 times 15. I mean, life would be so much easier.

• 58:13Speaker 03

  So much easier.

• 58:14Speaker 04

  All right. Let's do another question.

• 58:18Speaker 03

  Okay.

• 58:19Speaker 04

  From unpopular advocate. I have a father who is retired with a multiple seven-figure net worth outside of his fully paid off house, but he still lives entirely off of social security. How can I help him be less afraid of spending?

• 58:36Speaker 03

  Well, and I want to be, I want to be clear here. Um, one of the things that you need to verify unpopular is, is the reason your father

• 58:47Speaker 03

  Only lives off of social security because he's afraid of spending otherwise. Cause I think a lot of times we'll see people who are in a fantastic financial position and have the ability and propensity to increase their lifestyle and we think to ourselves, "Oh my goodness, no, no, no, you, yeah, why don't, you need to buy the nicer house, or you need to drive the nicer car, you need to go on the fancier vacations." And what we need to recognize is oftentimes that is us imposing our biases on someone else. If your father says, "Hey, you know what? I got a pretty simple lifestyle. I live off social security. It covers all my bills. I do all the stuff that I want to do," then that's okay. Now, if it is something because he has fear around not being able to pull money because he thinks he's going to run

• 59:31Speaker 03

  out, well, then I think some education and some stress testing and actually putting together a plan that shows where the guardrails are could be valuable, but encouraging non-spenders to start spending just because they can spend, a lot of time is just causing someone to fight against, against their nature.

• 59:51Brian Preston?

  I'm going, I'm going to give you an angle that I think sometimes when, first of all, you have a conflict of interest because since you're a child, you have to be careful because they might feel that you're offering this.

• 1:00:04Speaker 03

  As a way to benefit from it.

• 1:00:05Brian Preston?

  As a way to, you know, take them on vacation or do something, loosen up those purse strings for grandkids' education. I don't know, but you have to be careful that your good intention might be perceived in a, in a different way. That's why I would give you advice if you've ever talked to a parent, you've talked to anybody who's been married for, for multiple decades and you ask them, "Hey, have you ever gone and gotten counseling?" And they're like, "Yeah, it's amazing how you can say the same thing, but when your spouse or your children hear it from a third party." They it it's like it it took root. It comes across different, yeah. It took root versus when you said the exact same thing. It came off and it just went in one ear and out the other.

• 1:00:48Brian Preston?

  This is one, at first, find out the why. If this is more about there is fear there. That could still be you need um somebody that could be, you know, be an advocate on both sides. Sure. Um to know if it's not fear and you still think this, but maybe they just need more organization. There's some benefits. That's what I love about my job as a financial advisor is be if you you guys have. I mean, I think Suzy Orman has done good. But one of the bad things I think she did in the 90s is that she gave this perception that financial advisors, because she'd have her speed drill where it'd be like, I want to go on vacation. No, you know, I want to buy a new house. No, I want to get a new car. No, I mean, she could have just cut out the speed drill altogether.

• 1:01:31Brian Preston?

  Because mostly of, I mean, I'll just say 97% of the advice was no. Don't do it. And so that's what I think a lot of people have the perception that you hire a financial advisor and they're going to basically gut your decisions to say the default no. I'm the exact opposite. I'm constantly trying to give you the balance of why you ought to maximize every moment and every decade of your life. And I think that sometimes that can be an advocate and it might be beneficial to to come from a third party. So that way, everybody feels represented and you don't have to put yourself in the uncomfortable thing. Because money, unfortunately, when it comes to to family, I've seen some ugly stuff. And that's why you always have to be very careful. It's a slippery slope in marriages.

• 1:02:15Brian Preston?

  It's a slippery slope in, you know, kids and adults, I mean, and children, adult children and and their parents. It it might be beneficial, since you've only done this once, to bring somebody who's done this hundreds, if not thousands of times, to to make sure um, you know, you you minimize all the the carnage, relationship carnage that could potentially happen. Great.

• 1:02:39Speaker 04

  Great. Well, unpopular advocate, I thank you for being here and thank you for the question. We love answering your questions every Tuesday at 10 a.m. Central, right here on YouTube. And remember to go to moneyguy.com because we have tons of free stuff there for you. Calculators, downloads, including our archive of all of our episodes on tons of different topics. So moneyguy.com, be sure to go check it out. We made it for you so that when the cameras turn off, you can keep thinking about personal finance, continuing to build that confidence so you can focus on what really matters because that's what it's all about.

• 1:03:14Brian Preston?

  That's exactly what it's about. True wealth is the freedom to focus on what matters to you. So make sure you're going out there, check out all that free stuff that we talked about. Take advantage of the resources. I'm your host, Brian Preston, Mr. Bo Hanson, Money Guy team, oh, and Rebi, Money Guy team.

• 1:03:30Speaker 03

  The Money Guy Show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.

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