Pod Insights Money Guy Show Why Some People Become Rich, But Most Don’t About this episode Building wealth isn't a competition, but this episode might be! We walk you through a battle between Average Allen (based on typical American data) and Manny the Mutant (based on Money Guy Rules). We walk through 4 key financial decisions and show how the small decisions make a big impact. See if you're Allen, Manny, or somewhere in between!
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:01 Speaker 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 block, 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.
0:27 Speaker 01 Born from the intensity of a night in the eternal city. Introducing Born in Roma Fragrances by Valentino. Feminine perfume Donna Born in Roma features juicy black currant, central jasmine, soft cashmerin, and warm vanilla. Masculine leaning but unisex Womo has notes of fresh violet leaf, aromatic sage, green vetiver, and mineral salt. Shop holiday gifts at Macy's.com.
0:56 Brian Preston? Here's the thing. Getting rich, everyone wants it, but the gates are narrow and only a few make it. If you want to be part of that wealthy crowd, you need to hear today's show.
1:05 Speaker 03 Brian, I am so excited because while we know that many people don't end up actually building significant wealth, we can actually pinpoint some of the reasons why that's the case. And hopefully, after today, help lead you down a very different path.
1:19 Brian Preston? Now, you guys know, we're financial advisors here to put the math behind the mistakes. And with that, let's jump right in.
1:32 Speaker 03 Brian, we call our community Financial Mutants for a reason because they tend, at least when it comes to like financial matters, they go against the grain and they live life from a financial aspect, a little bit differently.
1:44 Brian Preston? I mean, if I could just get anybody out there who's brand new to our content to understand that small decisions can create dramatic or life-changing results. And that's really what I hope that we can cover on today's show is we're going to change people's lives with this.
1:58 Speaker 03 And what I think is, what we recognize is that these small decisions, and sometimes even these large decisions, they stack up over time. And when you stack decisions, both on the good side and the bad. Bad side, they can both compound. So on today's show, we're going to do a case study across two different types of people. We're going to look at average Allen, which is a representation of the way that most Americans make their financial decisions. And then we're going to contrast that with our favorite financial mutant, man of the mutant. And you're going to be amazed at how a few small decisions can have a huge impact in each of their financial lives.
2:33 Brian Preston? Look, I'm old enough, I'm, I'm the kind of after, I'm, I'm not the before pitcher, I'm the after. And then what I think is interesting is I look back at my own life and I think about a group of my peers where we all came out of school, making about the same amount of money. But I'm telling you, it is these things we're covering today that when I look back, and if you want to know where people's book of regrets are on things that they wish that they could have over, it is going to be these four topics.
3:00 Speaker 03 Yeah, I think when we think about common decisions that people make, these are the ones we're going to outline today. We're going to outline savings rate, buying a car, buying a home, and then maybe the most devastating of all, that we see the most often, waiting to invest, assuming that you can always do it in the future. And I think you're going to be amazed when we compare these two different individuals, how different their lives look at the end of their financial journey. So Brian, with that, let's dive right into the very first one. The first decision that most people face when they begin earning some sort of money, some sort of paycheck is, okay, what am I going to do with it? How am I going to save it? And what's my savings rate going to be?
3:40 Brian Preston? Well, first, let's get some context. What is the typical American doing? I mean, when we pull the research, research, research.
3:48 Speaker 03 When we pull the research.
3:50 Brian Preston? When we pull the research from the Bureau of Economic Analysis, the average American has a savings rate around 4.6%.
3:58 Speaker 03 It's kind of abysmal.
3:59 Brian Preston? Compare and contrast that to what we say on the financial, what financial mutants should be doing.
4:05 Speaker 03 Yeah, we say that we want you to aspire to saving 25% of your gross income. So 4.6% is far off from 25%. A lot of people have asked, okay, well, guys, did you just kind of like pull that number out of thin air? How'd you come up with it? No, we actually put the math behind it and there's a reason why we want you saving 25% of your gross.
4:26 Brian Preston? I mean, when you look at this slide, look, if you start, if you're blessed and you found our content and you're in your late teens or early twenties, you can actually see a little really does go a long way. You can, as little as 10% savings rate is going to create dramatic results. But unfortunately, we know from the stats, the typical American does not discover the great, wonderful world of finance until their mid 30s. And that's voila, the intersection point of where 25% comes from. But I want you to notice, when you go to moneyguy.com/resources and look at this and download this for yourself, you're going to notice, none of them have 5%. So Americans are missing the mark completely, even when you look at what the stats say you should be saving.
5:10 Speaker 03 So let's talk about, okay, how significant of a deal is this? How big of an impact can this have in the lives of real people? So let's look at our two individuals today. Let's look at average Alan and Manny the Mutant. And let's go ahead and assume that they both make the exact same income. We're looking at the median household income right now in this country of $83,730. And what we're going to assume is that Alan is going to have the average American savings rate of 4.6% of his gross income, which is going to be about $321 a month. However, Manny knows, I need to be saving 25% of my gross income.
5:51 Speaker 03 So Manny's going to save 25% and that comes out to $1,744 a month. Now Brian, we assumed no pay raises, no significant changes in financial life. How does it stack up if one saves 4.6% starting at age 30? And the other saves 25% starting at age 30? And the numbers were mind blowing.
6:13 Brian Preston? Well, and I think this is, look, I want to give us credit on trying to be somewhat conservative. We know that saving and investing 25% of your gross income, that is so aspirational. We didn't even start this in the twenties. We could have really blown this out of the water even more if we'd have done this. Alan versus Manny in the twenties. But we said, no, let's, let's go ahead and punt. This is from age 30 to age 65. But guys, look at this. Manny ends up with close to, it is over $4 million. Meanwhile, average island doing what typical Americans, by the way, typical Americans don't even end up with the 736,000. So even this falls apart. The average American is not even doing this consistently.
6:53 Speaker 03 Now you said something right there, Brian. You said 25% is aspirational and you may be sitting out there listening right now saying, guys, it's just unrealistic. Housing is expensive. Groceries are expensive. Life is expensive. I can't do 25% right now and that's okay. What we would encourage you to think about is what can I do tomorrow? That's better than today. Maybe I can't go from 4.6% all the way to 25, but maybe I can go from 4.6 to 5.6. And then from 5.6 to 6.6 because you would be amazed at how much just a little bit extra can do. And if you don't believe us, go out to moneyguy.com/resources and check out our deliverable. That shows what 1% more can do for you.
7:34 Speaker 03 And what we've laid out is at every age, how much of your retirement income can you replace? Just by increasing your current savings rate by 1%. If you're early, if you're young, if you have a lot of time on your side, small adjustments now can have huge impacts later on in life, but you got to start today.
7:56 Brian Preston? So don't sleep on the what 1% more can do, but I also think if you get a pay raise this year, how about giving us 60%? Put 60% more towards your savings and investment of that new pay raise. And I think you'll be shocked if you just consistently can, every time you get a pay raise, start stacking more and more of the money working for you. You will end up in a much better place. It is really those culmination of those small decisions building on top of each other.
8:24 Speaker 03 All right, Brian, let's talk about the second decision that a lot of Americans face. And frankly, a lot of Americans get really wrong. And I've heard you refer to this before. You say that this is literally napalm for your personal finances and this is buying a car.
8:37 Brian Preston? Yeah, if you're trying to blow up your finances. Do this mistake, and this is one, you know, when I wrote Millionaire Mission, and I'm having a chance to make some updates right now on some things, more to come on that. But um, this is the section I'm trying to really tighten up even more is because I want people to know, this is the biggest mistake I see. I have so many people in my life, is they come out of college, the first mistake they make is they go buy too nice of a car. And I don't literally want to see you driving around your wealth, because when you get to retirement age, or the age is you want to start working less with your back, your hands, and your brains, this is the biggest mistake. I was about to say decision, but it's not a decision. The biggest mistake I see people make.
9:21 Speaker 03 Now, don't mishear us. We're going to talk about what it looks like to buy a car, but I think we had a level set, because sometimes we get a bad rap on this. We love paying cash for cars, and we think that realistically, if that's an option for you, it's most likely the best option to take. However, a lot of people just can't do that. We need a responsible automobile to be able to get us to our jobs, so that we can create the income that allows us to build for our future. And so oftentimes, we're not able to pay in cash. But if you can pay in cash, we love that. Don't mishear us. And so every year, Brian, we do an annual survey where we ask our clients, "Hey, what do you do? How do you buy cars?" And what's really, really interesting is when we look at our millionaires,
10:04 Speaker 03 only 40% of them finance their current car. The car that they're buying right now, only 40% finance. That means 60% end up paying cash, but I feel like that only tells part of the story.
10:15 Brian Preston? Well, yeah, definitely cash is king on car purchases. That's what financial mutants do once they're established. But if we pivot the question and say, "Hey, yeah, that's fine, but we have to meet people where they are." And we know we have a lot of people who come to the Money Guy Show, who are brand-new, freshly minted financial mutants, or aspiring financial mutants. What do you do when your biggest wealth creation tool is actually going to your J O B? You need to have reliable transportation. So your first car out, more than likely, you need a bridge that will allow you to have Responsible, reasonable, and reliable transportation. And we found out when we asked our own millionaires,
10:56 Brian Preston? their first car that they ever purchased for themselves, 72% of them financed it. I resemble this, Beau resembles this. We want to make sure we compare and contrast what millionaires do once they're successful, but also what did they do at the beginning of their journey?
11:12 Speaker 03 And so if these are millionaires that obviously had to finance at the beginning part of their journey, but now are able to pay cash, there must have been a right way to do it, a responsible way to finance an automobile. And we believe that if you have to borrow, there's a right way to do it. And that's how we came up with our 238 car buying rule. Whether you're buying a new car or a used car, we want you to put 20% down. We want you to finance no longer than three years or 36 months, and your total car payment cannot exceed 8% of your monthly gross income, 238. Now, there are two small caveats. Do not buy a luxury car with 238. If you're buying one of the luxury brands,
11:53 Speaker 03 we want you to pay cash for that, or at least have it paid off inside of a year. And as as a litmus test to whether you're making good decisions, we never want your car payment on a monthly basis to be more than the amount that you are saving for the future. If you are saving less than your car payment, there's a good chance that you're doing it wrong.
12:14 Brian Preston? Well, it's easy because we're about to compare and contrast this to what the average American does. But here's, guys, the why is very simple. We know cars depreciate like a rock when you buy them. So that's why we give you, let's get ahead of this, put a 20% down payment. We know a lot of people, what dealerships are doing to people in the auto industry is that they're saying, hey, you can finance anything at a few hundred dollars a month if we just expand out the amortization of how long you can pay for this. So we keep your eyes and your wallet and your purse in check by making sure you don't finance this for longer than three years, because then that will make you be very honest with what your car payments can be. And then we wanted to put you some guardrails of, well, how much is too much? So that's why we said, okay, let's do 8% of your gross monthly income. There's a lot of things.
13:00 Brian Preston? Vying for your monthly cash flow that's coming in and out. Let's try to give you some guardrails so this doesn't get out ahead of itself. Now, you've heard the why, you've heard the context. Both share with them what the average American unfortunately is doing.
13:14 Speaker 03 Yeah, when we look at the average American buying a car right now, we know that right now, the average car payment for a newly purchased car is $772. If we just stop there for a moment and think, okay, well, 772 and the car payment can't be more than 8% of my monthly gross income. That means you would have to have an income of almost $116,000 for a $772 car payment to make sense. And we know that the average American does not make $116,000. So, right out of the gate, we've kind of blown it up. Well, we continue going down. The average loan term right now, almost 70 months.
13:52 Brian Preston? Try twice what we said.
13:54 Speaker 03 Literally twice as long.
13:55 Brian Preston? People literally are not buying cars they can afford. The only way they can afford them is to pay for them for literally forever. And you realize, guys, the thing that while we're bringing all this to light, and we're going to do a compare and contrast of what the opportunity cost is, is but your time is the most valuable thing. You're going to see a consistent trend here. And to see that you've now delayed this by almost double is horrible. And then you think about the fact that interest rates are as high as 7% right now. The loan amounts are up to $44,000. You can see how this thing literally, as I said earlier, you are driving your wealth instead of actually building that wealth. So, you don't have to work so hard.
14:36 Speaker 03 All right, so now let's see, okay, what if we stack up average Alan versus man of the mutant? How does this compare? Well, if we assume that average Alan is going to do what the average American does, he's going to go out and finance a new car for $43,759. But man of the mutant is going to be a little more responsible. He's going to go out and buy a used car and he's going to follow 238. Alan is going to have a 69 month loan term and he's going to have a payment of $772 a month. Manny, on the other hand, is only going to have a 36 month loan term and because he bought a less expensive car, his monthly payment is only going to be $554 a month, which means
15:16 Speaker 03 right off the bat, he's able to invest $218 a month that Alan is having to put towards his automobile. When you look at Alan's additional margin for saving and investing, he has none. All of his money is going towards his monthly car payment, but Manny, after he pays off his car in 36 months, now he can invest the entire $772 a month. So you think about these two individuals, over 69 months, they have the exact same capital outlay. They're both spending or consuming $772 a month, but they are putting them in very, very different places. So when we stack them up, Brian, after 69 months, they both have a paid off car.
16:01 Speaker 03 Check. Excellent. However, because Manny was able to begin saving and investing and he was able to get that car paid off, after this 69 months, Manny has been able to accumulate $42,500 in addition to having a paid off car. All Alan has to show for his 772 a month is just a paid off car, no additional assets.
16:25 Brian Preston? What I think is interesting is that I think about my younger years, without a doubt, nobody was ever asking to go ride around in my car. Like when you're all going out to eat or doing something. So you do hope that you have a friend that's making the average Alan mistakes. Because they sure do look cool and it's nice to ride in those cars when you go out as a group. But I think, you know, the point I have is that we're going to show you, just like this, this shows right here is that Manny, at the end of this term of 69 months, he not only, yes, he's driving around in a car that's not as cool, but he's got $43,000 in their army of dollar bills. Now you're like, okay, well, $43,000, how does that, what is that, how does that change your life in the long term? Well, here's what we did.
17:09 Brian Preston? We actually, if we grew this, because it's not just that period of time that you're driving the car. It's the, that, if you, the opportunity cost of what that $43,000 could become, you know, with 30 years of growth or 35 years of growth, it's close to three quarters of a million dollars. It's a little under $700,000. And a lot of you are like, okay, well, but you know, maybe I'm willing to pay a $700,000 premium to be cool and fabulous in my twenties or early thirties. But I want to remind everybody, we've done research on this. It's back to behaviors of what people who actually have money, who are building wealth versus those who just want to look rich.
17:48 Brian Preston? And we found that in our own surveys of ownership, 84% of our millionaire clients are driving their cars for seven plus years.
17:55 Speaker 03 I love that. Check the box.
17:57 Brian Preston? So compare and contrast that to, we found this from, I believe it was from Yahoo Finance. 65% of Americans drive their cars for five years or less. So this is not a $700,000 once in a lifetime mistake. This is a twice a decade disaster that the average American is doing. So if you look at it in those terms, this isn't $700,000 of opportunity. This is multi millions of mistakes that people are making. And do you see how why, when I, if I could get in the room with a bunch of 20 somethings who are freshly minted and ready to start jumping on their career and start saving for the future? Don't go buy a fancy car. That is a disaster.
18:41 Brian Preston? The only people who go smile are the people at the dealership and the auto manufacturers.
18:45 Speaker 03 So obviously.
18:46 Brian Preston? And the banks.
18:48 Speaker 03 All of those people are going to be smiling. You're going to be the one who's sad at the end of the road. So obviously, buying a car is a very expensive decision that can have huge implications down the road. But there's actually another decision that we see people making. And for most people, this is the single largest financial decision that you will ever make in your lifetime. And so as you can imagine, the single largest decision you might make could have the largest impact to your financial life, and that's buying a home.
19:23 Speaker 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 block. 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.
19:49 Speaker 01 Born from the intensity of a night in the eternal city. Introducing Born in Roma Fragrances by Valentino. Feminine perfume Donna Born in Roma features juicy black currant, central jasmine, soft cashmerin, and warm vanilla. Masculine leaning but unisex Womo has notes of fresh violet leaf, aromatic sage, green vetiver, and mineral salt. Shop holiday gifts at Macy's.com.
20:18 Brian Preston? Yeah, I mean, once again, this is showing it's not the latte effect. I mean, that's important. I want you budgeting. I want you being good with money. But man, oh, man, do you have to watch these big life decisions? And, you know, and a lot of you, if you hang out with us, we're going to give you some rules on how to do house ownership or rent very well. But if you just go get some level set of where's the context of what the typical American's doing, so we can know what average is. You can see the average American ownership is putting them at 33 and a quarter, 33 and a half percent of their income is going towards housing and their mortgage.
20:51 Speaker 03 You can imagine if one-third of your income is going towards housing, that doesn't leave a whole lot of room for other stuff like living life today and enjoying the present and saving for the future and building wealth. And a lot of folks fall into this trap. And again, we think when it comes to making these consumptions decisions, there's a better way to do it. That's why we came up with our 3-5-25 rule, which says... If you're buying your very first home, you don't have to put down 20%. We're okay if you only make a 3% to 5% down payment. But before you buy that home, we want you to make sure that you believe that you will be in this house for at least five years. Homes should be long-term decisions, not short-term decisions. And when you look at your total mortgage payment, when you add the costs that go into the housing,
21:36 Speaker 03 we want your total mortgage payment to be less than 25% of your gross income. So that's the rule. And yet, we know that most Americans are spending 33% of their income on their housing. That's 8% that's not going towards other financial goals, like building towards financial independence. You can see, when you do this, when you put yourself in this position, especially if it's a 30-year mortgage, that's an additional 8% for 30 years that you're not going to be saving otherwise. It puts you in a very precarious position.
22:09 Brian Preston? Well, a lot of you are probably starting to catch on that, look, we're giving you some boundaries once again. When car buying, we were talking about 8%. With house buying, we're talking about 25%. It's because we're trying to make sure you still keep some margin in your life, not only for living your life, but also for saving for the future. That whole concept of deferred gratification. If you go out there and just let the market or the consumption society we live in have its way with you, you will spend every dollar that comes into your household, and you'll be miserable. Now, yes, you might be driving a nice car. You're gonna be that commercial that we all remember, at least I do from my childhood, of a guy who's on the riding lawnmower in the front yard going, isn't, don't you like my house? Don't you like my car?
22:51 Brian Preston? I'm in debt up to my eyeballs. That's not the better way to do money. That's the way, like I said, book of regrets. This is the way. If you just go with what society tells you is going to be okay, you will have periods of looking back and going, what have I done with all this opportunity that I could have been building well?
23:12 Speaker 03 So if you want to do this right, if you're looking for a tool to help you, you've decided, okay, it is time for me to buy a house. I'm at that stage. It makes sense. We have a tool out at moneyguide.com/resources. It's our home buying calculator. What you can put in- This is my income. This is how much I have for a down payment. This is the interest rate that I can get. Here's how long I'm going to borrow for, where it will actually help you figure out, okay, how much home can I afford? If you use this tool, it'll prevent you from being in that spot where you are house-rich, but life-poor. So, again, let's look at how this might look different across two different individuals. Let's go back to Alan and Manny,
23:52 Speaker 03 Brian. Let's assume that average Alan is going to put 3% down on a $415,000 home. Manny, on the other hand, goes out to moneyguy.com/resources, uses the home buying calculator, and he recognizes that he can buy a $332,000 home, and he's going to put 3% down on that home. Because of Alan's outstanding mortgage, he's going to have a mortgage of $2,783, which is 33.4% of his income. Let's just assume that both Manny and Alan have $100,000 household income. So Alan is putting 33.4% of his income towards the mortgage. Manny,
24:34 Speaker 03 on the other hand, follows the Money Guy rule. He's only putting 25% towards his mortgage, and that's a mortgage payment of $2,083 a month. Alan, because all of his money is going towards his mortgage, he has no additional to save, no margin for building for the future. Manny, on the other hand, has an extra $700 that he can be saving every single month. Now, I can already hear people out there saying-
24:58 Brian Preston? The trolls are crawling out from underneath the bridge.
25:00 Speaker 03 This is real estate. Alan bought the more expensive home, and that's levered debt, and it's going to make money. If the more expensive home goes up in value, it's going to be better off. So we said, okay, great. Let's look at how that plays out. Let's assume that, on average, the homes increased by 3% in value. Remember, Alan's was more expensive, so it's going to be worth more. At the end of this 30-year period, once the mortgage is paid off, Alan's house is going to be worth $1 million. Now, remember, he paid a little over $400,000 for it, and now it's worth $1 million. Pretty solid ROI. On that Manny, on the other hand, bought a less expensive home. It increased to 3%. His house is only worth 806,000. So right off the bat, he said, yeah,
25:45 Speaker 03 that's why we love her. That's why we have levered growth.
25:48 Brian Preston? But wait, there's more because remember Manny was saving and investing during this period. He was taking that that margin difference and investing at $700 a month. Well, wouldn't you know it now that $700 a month has turned into right close to 1.1 million dollars. Now, look, average Alan, congratulations. On paper, you're worth a million dollars. But we all know you can't eat your house. You have to, you have to make really difficult decisions. You either have to downsize, which is a lot of people, I think you realize downsizing, especially if you stay in the same community is a lot harder than it is to just say it out loud. Because you, you know, the housing is expensive. There's all kinds of things going on. Interest rates are much higher now than they were back then, and you don't want to have debt when you're retired.
26:33 Brian Preston? So it's hard to eat a house, but you have Manny. Yes, their house is not worth what the average Alans, but they have a million dollar portfolio to live off of. So that's why their net worth statement shows close to 1.2 million, I mean, one, you know, close to $2 million in assets versus Alan, just having the, the, the seven figure house. But here's what I'm telling you. Well, once again, you can't eat the house. Manny the mutant, he has close to $44,000 a year forever that he can pull out just using a, a 4% safe withdrawal rate. That's a lot of, and you had social security on that. Now you're starting to see how just small decisions on just how you live can actually build your entire retirement.
27:15 Speaker 03 That's exactly right. It was a million dollar decision to just have the idea of instead of having a 33% housing coverage ratio, have 33% of my income, go to housing. Instead, I'm going to have 25%. Just that one decision over a 30 year period made a million dollars of difference. Again, these small decisions over time can stack up. And Brian, these have been significant, right? So savings rate has been significant and. Buying a car has been significant and buying a house has been significant, but I think the one that I see the most people fail on, and I think it's the one that I see the most people fail, the most aggressively on
27:57 Speaker 03 is decision number four, and that's waiting to invest.
28:01 Brian Preston? Yeah, I need everybody out there, if you, if you fell asleep during any portion of this, or you need to scoot the chair closer to the TV screen, this is the one that's going to be the biggest shock and awe stat for you. And this, because this, this is the culmination of something we've been sharing with you guys. The most valuable thing you have going for you when you're young, you're a billionaire of time, is that component of time. And if you need proof of this, we have what we call our wealth multiplier. And we even talk about 88 times over for a 20 year old, literally every dollar that you come into possession of is worth $88 at retirement, but this is cruel. Like most things in life, it's definitely not fair.
28:41 Brian Preston? So if you just wait and defer investing and turning your money into your army of dollar bills, by the time you're 30, that same opportunity that could be at 20, 88 times over is now dropped down to 23.
28:53 Speaker 03 That's right.
28:54 Brian Preston? So you heard that it's four times easier to build wealth when you're 20 versus it is when you're 30. If you fast forward to when you're 40, now every dollar only has the potential to become $7 at retirement. You heard that right. We're now talking about a factor of 10 for the 20 year old over the person that's 40 years of age. Guys, this is a scary thing. And then when we find out that the average American waits to start discovering the wonderful world of personal finance when they're beyond the age of 30, we got a problem.
29:26 Speaker 03 Now, I want to be clear, 30 is not as bad as it could be.
29:29 Brian Preston? It's still young.
29:30 Speaker 03 It's still young and you still have time to correct force, but again, to correct course. But again, if you start stacking these bad decisions, if you say, all right, I waited till I'm 30, I'm going to start saving, but all you save is the average American 4.6%. Now you're beginning to stack these less than ideal decisions. And if you want to see how impactful that can be, let's, again, let's go back to Alan and Manny. Let's say that both of them wait until age 30 to start investing. And let's say they both make the exact same income at age 30, $83,730.
30:03 Speaker 03 Alan is gonna wait until age 30, he's gonna say, you know what? At 30, that's when I'm gonna start saving. I'm gonna do what the average American does, but I'm gonna go from 0 to 25%. I'm gonna hit it running and I'm gonna start crushing it. Manny, on the other hand, says, you know what? I understand that maybe I can't do 25%, but I can just do something. If I can just start at age 20 and I can start saving 10%. And every year, I'm just gonna get a little bit better and a little bit better and a little bit better. I'm gonna increase by 1% all the way out until I get to age 35. And then I'm gonna save 25% from 35 all the way to the end of my career.
30:40 Brian Preston? Hit pause, cuz here's something that I need everybody to understand really quick. We just said, average Alan's gonna, at the age 30, he's gonna save 25%. That's aspirational, that's pretty powerful, that he's already at 25%. Meanwhile, Manny, because that's such a big goal, he's saying, nope, I'm gonna make this digestible. We're gonna start at 10%. And more than likely, your employer is paying for a good portion of it, if you have a 401k at work. So he starts at 10% at 20, then he starts increasing at 1% every year until 25% at age 35. So if I'm doing this, if you do the math, he never, he doesn't even catch up. At age 30, Alan is still saving more money.
31:22 Brian Preston? So this literally is gonna show the example of somebody who just starts earlier, not more necessarily from a savings rate. I'd be curious to see how this plays out.
31:32 Speaker 03 What's really, really interesting is when we look at their two tracks, you look at their two trajectories. Over a working career, from age 20 out to age 65, Alan still ends up with an amazing portfolio. Don't mishear us, we're not trying to poo poo on what Alan was able to accomplish. Cuz if you're that 30-year-old that hasn't started saving and you begin saving 25%, we love that. If you do that over a 35-year timeline, Alan ends up with a portfolio of $4.3 million. It is very, very impressive. But Manny, who figured out, man, time is my most viable resource. Just start early and get a little bit better through time.
32:14 Speaker 03 Manny actually ends up with almost $7.3 million more. It's almost a $3 million spread just from starting early.
32:25 Brian Preston? So then we were like, okay, let's do some goal seeking because we already gave Alan's doing 25%. What if he, just because he deferred, he wanted to enjoy his twenties the most. What if he increased his savings rate at age 30 to 30% instead of 25%? Are you already seeing this on the screen? He's still a $2 million delta between these. Even at 30% savings rate, just because he started later is $2 million less. It's 7.3 million versus 5.2 million.
32:54 Speaker 03 He never got passed on savings by Manny. He, he always saved 30%. Manny only saved 25%. So you would argue from age 30 till 65, Alan was the better saver. He was saving more money and still couldn't catch him. But wait, there's more.
33:13 Brian Preston? Go to 35%? That's, by the way, that is a steep savings rate for somebody in their 30. Still doesn't catch Manny the mutant who's at 7.3. And then what's the savings rate? Cause like I said, we goal seek this. You'd have to save 42% of your income. Now, don't mishear us because I do, I agree. Most Americans don't figure this out until they're already beyond their 30. I know a lot of our audience is in that key element between 30, you know, 26 years of age and 45 years of age. And you might've just come across our content. Get to 25% as fast as you possibly can, because the longer you defer this, the more the weight falls on your shoulder and your savings and investment rate. We just want to highlight the fact that get in there early and often is rewarded.
33:57 Brian Preston? And that's why we just want to draw light through mathematics and show you that you do have decisions, not only with how you save and invest, but also how you consume. And if you bring these small decisions together, you can change your life. You can change your children's life. You can change the orbit of all those people that surround you. It is that important.
34:17 Speaker 03 What I think is so wild is these four decisions, how much am I gonna save? What kind of car am I gonna buy? What kind of home am I gonna buy? And when am I gonna start investing? Are decisions that most of you out there will make. It's not like these are unique decisions that unique people are gonna have to make. We all face these decisions. But if you can have the mindset of a financial mutant, if you can go against the grain, if you can think differently than the average American, you can have a future and you can have a financial security that does not look like the world around you.
34:53 Brian Preston? So we had, um, we do shows all the time. We have collabs, we do other things. And what's funny is we've been doing this so long, since 2006, that we have you guys coming to us all the time. That you started these simple decisions, but because of your success and your discipline, your life has gotten complex. And I feel so thankful that we get to be the educators that come into your, your house many times a week, sharing the, the simple, basic facts of how money, math, the intersection, how all these things work together. And then if you do this well, and you do it often enough, success is gonna find you and success is gonna create the complexity that you realize, hey, I just don't know what I don't know. I don't know where my blind spots are.
35:35 Brian Preston? I know I've only got one retirement and I don't wanna screw this up. We'll leave the porch light on for you. That's why we work with clients. By the way, we do need to correct the record.
35:43 Speaker 03 Yep.
35:43 Brian Preston? It's not South Dakota anymore. We have one state that we're missing and it's the state of Vermont.
35:49 Speaker 03 That's right.
35:49 Brian Preston? We have clients in 49 states. We'll leave the porch light on for you. We love helping people master their money and really optimize their, their path. So they get to do more of what they wanna do and control their time and live their life how they want, when they want, and maximize all those key elements of life. I'm your host, Brian, joined by Mr. Bo, Money Guy Team, out.
36:15 Speaker 04 The Money Guy Show is hosted by Brian Preston and Beau Hanson. Brian and Beau 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 and
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