Money Gears: Ordering Your Money Decisions Properly (Bestie Ep) #1006

Summary

Podcast Summary: How to Money – "Money Gears: Ordering Your Money Decisions Properly (Bestie Ep) #1006"

Podcast Information:

• Title: How to Money
• Host/Author: iHeartPodcasts
• Episode: Money Gears: Ordering Your Money Decisions Properly (Bestie Ep) #1006
• Release Date: July 7, 2025

---

Introduction

In episode #1006 of How to Money, co-hosts Joel and Matt delve deep into the foundational principles of personal finance through their proprietary framework known as the Money Gears. This episode, titled "Money Gears: Ordering Your Money Decisions Properly (Bestie Ep)", serves as a comprehensive guide for listeners to structure their financial decisions in an optimal sequence, ensuring long-term financial health and stability.

---

Revisiting the Money Gears Concept

Joel and Matt introduce the Money Gears as a core philosophy that underpins all financial advice provided on the show. They emphasize the importance of revisiting this concept, especially during Financial Literacy Month, to remind listeners of the structured approach needed to manage personal finances effectively.

Notable Quote:

"The Money Gears are so important. They are a core philosophy, essentially, in how it is that we talk about money here on the show."
— Matt [03:28]

---

Detailed Breakdown of the Money Gears

Money Gear 1: Basic Emergency Fund

The journey begins with establishing a basic emergency fund. Joel and Matt stress that having $2,467 set aside can significantly reduce financial anxiety and provide a safety net for unforeseen expenses.

Key Points:

• Importance: Alleviates money-related stress.
• Statistics: "57% of Americans cannot access $1,000 in a financial emergency."
  — Joel [22:28]
• Implementation: Use a high-yield savings account, preferably with an online bank to maximize interest earnings.

Notable Quote:

"Saving up a basic emergency fund... is an underrated, massive first step to take that's going to really alleviate a lot of money anxiety."
— Matt [22:28]

Money Gear 2: Stagging Your Company Match

Next, listeners are encouraged to maximize their employer’s retirement plan match. This step leverages free money offered by employers, ensuring listeners don’t leave potential earnings on the table.

Key Points:

• Benefit: Employer matches often offer the best return on investment.
• Action Steps:
  • Log into your company’s employee portal.
  • Ensure you’re contributing enough to receive the full match.

Notable Quote:

"It's impossible to get a better return on your money than the company match."
— Joel [27:22]

Money Gear 3: Paying Off High-Interest Debt

Prioritizing the elimination of high-interest debts, such as credit cards with rates around 20%, is crucial. This step prevents debts from spiraling and frees up income for other financial goals.

Key Points:

• Focus: Debts with interest rates 7% or higher.
• Strategies:
  • Avalanche Approach: Pay off debts with the highest interest rates first.
  • Snowball Approach: Pay off the smallest debts first for psychological wins.

Notable Quote:

"It's not the type of loan, but the rate that determines its priority in the Money Gears."
— Matt [31:29]

Money Gear 4: Fully Funded Emergency Fund

Building upon the basic emergency fund, the next gear involves expanding savings to cover three to six months of living expenses. This provides enhanced financial security, allowing for greater flexibility in career and personal decisions.

Key Points:

• Flexibility: Offers a buffer for significant financial changes or emergencies.
• Considerations:
  • Job stability
  • Number of dependents
  • Personal risk tolerance

Notable Quote:

"Having that three to six months worth of backstop set aside is going to provide you with a lot of stability."
— Joel [42:21]

Money Gear 5: Investing More in Tax-Sheltered Retirement Accounts

With a solid emergency fund in place, listeners are encouraged to increase their contributions to tax-advantaged accounts like HSAs, IRAs, and 401(k)s. The hosts recommend aiming for 15% of income to expedite financial independence.

Key Points:

• Goal: Achieve higher investment contributions to accelerate retirement savings.
• Action Steps:
  • Maximize contributions to available tax-sheltered accounts.
  • Invest in low-cost index funds within these accounts for optimal growth.

Notable Quote:

"Increasing your contribution level is going to over the years pay huge dividends in your pursuit of financial independence."
— Joel [47:35]

Money Gear 6: Knocking Out Lower Interest Rate Debt

After addressing high-interest debts, the next step involves eliminating lower interest debts such as student loans and more favorable car loans. This further reduces financial obligations and enhances overall financial freedom.

Key Points:

• Types of Debt: Student loans, car loans with moderate interest rates.
• Strategies: Continue using either the avalanche or snowball method to systematically eliminate debts.

Notable Quote:

"Once you pay off the worst debts, you can focus on lower priority debts... being debt-free apart from mortgages is a great goal."
— Matt [52:52]

Money Gear 7: Achieving Bigger Financial Goals

The final gear represents financial independence and the pursuit of larger life goals. With most debts cleared and substantial savings and investments, listeners can now focus on aspirations such as starting a business, significant home renovations, or extensive travel.

Key Points:

• Opportunities: Starting a business, investing in properties, funding education, or expanding philanthropic efforts.
• Mindset: Financial security allows for proactive and fulfilling life choices without monetary constraints.

Notable Quote:

"Money Gear number seven opens up just a whole world of possibilities."
— Joel [53:54]

---

Metaphors and Analogies

Throughout the episode, Joel and Matt employ the biking gears metaphor to illustrate the progression through the Money Gears. Just as selecting the appropriate gear on a bike ensures a smoother ride up and down hills, following the Money Gears sequence facilitates a more manageable and less stressful financial journey.

Notable Quote:

"If you use your money gears properly, we know that you will arrive at your financial destination with a whole lot less financial stress along the way."
— Matt [13:40]

---

Psychological Aspects of Financial Progress

The hosts emphasize that financial decisions are not solely about numbers but also about the psychological satisfaction they bring. Achieving small wins, such as paying off a minor debt, can motivate continued progress, highlighting the importance of balancing numerical strategies with emotional well-being.

Notable Quote:

"The money gears... help from a psychological aspect as well... you are doing it in a way that is emotionally satisfying."
— Matt [14:42]

---

Handling Setbacks

Joel and Matt address the inevitability of financial setbacks and stress the importance of resilience. Whether it’s an unexpected expense that necessitates revisiting earlier Money Gears or a temporary halt in debt repayment, maintaining the overall strategy is crucial for long-term success.

Notable Quote:

"It's important to keep pushing through because it took you a while to get into this debt. It's going to take a little time to climb out of it."
— Joel [34:32]

---

Conclusion

In this comprehensive episode, Joel and Matt provide listeners with a structured and phased approach to personal finance through the Money Gears framework. By following this sequence—starting with emergency funds, maximizing employer matches, eliminating high-interest debt, and progressively advancing towards investment and financial independence—listeners can achieve a balanced and secure financial future. The episode underscores the importance of orderly financial planning, psychological motivation, and resilience in navigating the complexities of personal finance.

Final Notable Quote:

"With the money gears, it's just important to note that going out of order, it can be like throwing a wrench into your personal finance situation, but smoothly shifting through the money gears, that can help you to make progress more swiftly."
— Matt [57:23]

---

Additional Resources

Listeners are encouraged to visit the How to Money website for visual representations of the Money Gears, detailed articles on budgeting and investing, and tools like Monarch Money for managing finances effectively.

Visit: howtomoney.com

---

Stay Tuned: Joel and Matt invite listeners to subscribe and join them in future episodes where they will continue to explore essential financial strategies and insights to help everyone live a richer, more financially secure life.

Transcript

[Matt]

This is an iHeart podcast.

[Joel]

Hey, it's Joel and Matt from how to Money. Matt, you and I, we do a decent amount of traveling. So what's a place that you think lived up to the hype?

[Matt]

That one is tough. But immediately what comes to mind is Scotland. The scenery in particular was insane. I'm specifically thinking about when we went and hiked Old Man Store.

[Joel]

Oh yeah.

[Matt]

Felt like we were on a completely different planet. It was otherworldly.

[Joel]

Sure was. Yeah. Yeah. And our Airbnb on the Isle of Skye, man, it looked straight out this field into the sea, Total tranquility. And the castle gardens that we saw. And it felt straight out of a fairy tale.

[Matt]

It's true. Yeah. That trip showed us how big a difference the right place makes. And if you've got travel plans, don't let your place sit empty. Airbnb's co host feature makes it easy to earn a little cash while someone else manages the day to day.

[Joel]

That's right. Find a co [e-mail] host There's a myth.

[Narrator]

A lot of us grow up believing that hair loss is just a part of life. It happens, it runs in the family. And once it starts, there's no stopping it. But here's the truth. That's outdated thinking. Scientific understanding of hair loss has advanced in recent years. Today we have a deeper knowledge of underlying causes and we've developed science backed solutions that are both effective and safe. And that's at the very root of Happy Head. Dermatologists led innovation offering stronger FDA approved ingredients that work. But what really sets Happyhead apart is how perfect personalized it is. They don't do one size fits all fixes. You fill out a comprehensive consultation and their board certified dermatologists assign a formula specifically for your hair loss pattern, goals and lifestyle. And whether you're early in your journey or more advanced, Happy Head offers targeted options that actually work. Topical treatments, oral capsules or potent dual action bundles all deliver directly to you, discreetly and freshly compounded. In the US most people start seeing results in three to six months. But the real magic? It's sustainable. This isn't just about growing hair, it's about keeping it long term. So no, hair loss isn't inevitable anymore. Visit happyhead.com and find out what's possible. When science, expertise and personalization come together, Hair happiness starts here.

[Matt]

Run a business and not thinking about podcasting?

[Joel]

Think again. More Americans listen to podcasts than ad supported streaming music from Spotify and Pandora.

[Matt]

And as the number one podcaster, iHeart's.

[Joel]

Twice as large as the next two combined. Learn how podcasting can help your business. Call 844-84-IHeart. Welcome to how to Money. I'm Joel.

[Matt]

And I am Matt.

[Joel]

And today we're talking about the Money Gears. Ordering your money decisions properly.

[Matt]

That's right, buddy. We are revisiting the Money Gears. This is a topic that we've touched on before. This is actually a term, a phrase that we've coined. So this is proprietary information. But the Money Gears are so important. They are a core philosophy, essentially, in how it is that we talk about money here on the show. It informs how we answer listener questions. It informs what you and I, what we do, even with our money. And so because of the importance of this, it's been, I don't know, like 2, 300 episodes since we've last dedicated an entire episode to the Money Gears. We felt that they were certainly worth revisiting.

[Joel]

Yeah, they're that important. And it's April. It's Financial Literacy Month, actually, interestingly enough.

[Matt]

That's right.

[Joel]

So we're like, what, it's the only.

[Matt]

Special month that we. Nah, I take that back. There's other special months that we care about as well.

[Joel]

I mean, National IPA Day, that's something we care a lot about. But I think it's important for us to, yeah, tackle this again because it's been a while and because, yeah, why not in the month of April? Kind of talk about a subject that really, when you're talking about, like, where you start from, knowing the order of operations, when. When to do what with your money is an important topic for us to cover.

[Matt]

That's true, man. But first, I wanted to share a quick little story, I guess, with you. So last night was our date night. Thank you, by the way, for coming over and watching the. The kiddos.

[Joel]

Well, it was less eventful than the one before where there was a sick kid on hand.

[Matt]

Don't you. Don't share that.

[Joel]

I'm not going to share details. It was rough.

[Matt]

Don't want to spoil anybody's meal. Maybe you're eating your lunch right now as you.

[Joel]

Usually they're uneventful. And I get to, like, listen to a podcast or watch a movie.

[Matt]

Sorry about that.

[Joel]

That one was.

[Matt]

That one was. It was rough. But either way, Kate and I, we were. Last night, we were sitting there, we were talking, and we were just. Kate was actually reflecting on how our lives right now, they look a lot different than we could have foreseen them looking like they. And this is a Good thing, right? This is a good thing. Basically, she's been spending a lot of. A lot more time recently volunteering, and she would not have expected that she would be doing that as to the degree that she's doing. But we were just reflecting on how awesome it is for her to be able to do those things right. And, like, we are just so fortunate that we are in a decent financial place. And it got me thinking about the show and how it is that we do talk about money here because oftentimes, like, what the world tells us essentially. Right. It's just a live for now. There aren't things in the future that you should be thinking about that you should care about. And even if you're fairly responsible with your money, there's always the thought that, oh, I can. I can always make more money off in the future. But really, dude, that's not guaranteed.

[Joel]

It's like counting your chickens before they hatch.

[Matt]

Yeah. And not only that, but. So, like, you might not be able. Able to earn money. Like, let's say something bad comes along and yeah, like, you've counted your chickens before they've hatched and you no longer have those. But just even when it comes to goal setting, I'm just constantly reminded that our goals are constantly shifting. Like, you know, that just generally speaking, your goals are off in a certain direction and that you're striving towards just health in these different ways. But what specific things that you're striving after that can change fairly dramatically. And so I guess I'm just making an argument for folks. This is one of the big reasons why we talk about handling your money well here on the show is because you never know what different goals you might have for yourself, often to the future.

[Joel]

And that's where I think absorbing extra money that you might have into your budget to spend in the here and now, when you're like, it could be worth more to you down the line at some point depending on what changes happen in your life. So I think that's. I think it's really. That's a good point, Matt. And I think sometimes we are.

[Matt]

And it looks different for all sorts of folks.

[Joel]

Right?

[Matt]

Like, I mean, it could look vastly different depending on who you're talking to, what their life, you know, and what those future financial goals might look like. But either way, the steps that you take now to prepare for those things, those all look similar. And that actually kind of ties into, like, what we're talking about today, like, with the. With the money gear.

[Joel]

Yeah, But I, too, I'm glad that I had such a high savings rate, even though it cost me certain things early on, because as our goals, as our lives have changed, we just have a lot more flexibility than we otherwise would have had, you know, if we had just kind of spent all that money that was coming in or most of it. And. And having a high savings rate really gives you a lot more options, especially as the years progress, so. Totally, man, having those conversations, having those check ins is good. And it's good to be reminded of just like how far you've come and the abilities that. Yeah, like volunteering, man, that's the thing. A lot of people wish they could do that. Even when they get to retirement age, they're like, man, I wish I could spend more time volunteering, but I gotta keep working. And I hate that. That's a tough position to be in.

[Matt]

That's why it's so good to prepare in advance even before you have some of these bigger, loftier goals that you might be pursuing.

[Joel]

Exactly. All right, so let's mention the beer we're having on this episode. This one is called Vinology Simeon by Monday Night Brewing.

[Matt]

Very good. I think that's right.

[Joel]

All right. Okay, cool. But Matt and I, we drink a craft beer every episode because it's something that we prioritize spending money on in the here and now while we're also saving for the future.

[Matt]

It's kind of like the opposite of what we just talked about.

[Joel]

But you have to enjoy some of the. There's the fruits of your labor in the here and now.

[Matt]

There's a balance to strike, and that's oftentimes what we're trying to do, which is always to hear on the show.

[Joel]

There's always tension in that.

[Matt]

Yes.

[Joel]

Yeah, but it's a good kind of tension that we all have to wrestle with continually. But, Matt, let's move on to the subject at hand, which is the money gears. That's what we're talking about. How to order your money decisions properly. And Matt, I was listening to this podcast about history and this guy.

[Matt]

You listen to other podcasts?

[Joel]

Not many, except for ours. Well, I listen to ours on repeat. Just, you know, to hammer everything home. Right. But. But no, this was. This particular episode of this history podcast was about the Vikings. And. And they're like, basically, discovery of Greenland. And the cool thing is before modern instruments of wayfinding were created, like folks a thousand years ago were able to get to and from Norway and Greenland, which is just kind of mind boggling, no Google Maps or Anything like that. They're able somehow to get through this. These massive chunks of ice. And this incredibly long distance. I want to say it's like 1500 miles or something like that from. It's pretty Norway to green. That's a long way to go in like a rudimentary ship. And. And even some of them made it all the way to North America hundreds of years before Columbus.

[Matt]

I didn't know that.

[Joel]

Who somehow gets all the credit? Yeah. Leif Erickson, I think, was the original guy. Yeah. You've heard of that? I've heard of that in like the 1200s. And there might have even been people from. From Norway before him.

[Matt]

Yeah.

[Joel]

But they had incredible knowledge about wayfinding and it allowed them to yet to navigate these treacherous waters. They were using like Moana style ways to get around. Right. Which is it? Maui. That teaches her how to navigate in that movie.

[Matt]

Yeah, I think so.

[Joel]

I.

[Matt]

Well, so a demigod.

[Joel]

Right. And not completely without peril. Some people got lost at sea, never made it back, but it's still impressive. And I think while some of us might see our personal finances as like this limitless ocean that feels completely unnavigable, too hazardous for us to venture into, we want to help. And the thing is, knowing where you're starting from and where you're headed, it makes it a whole lot easier to find your way.

[Matt]

Yeah. You know, I don't even know if they had maps back then. If so, I'm sure that they weren't all that great. But this episode is essentially going to be a map that is going to assist you in reaching your financial goals. And though I don't know anything about the Vikings, like, I know that they didn't have smartphones.

[Joel]

Right. Well, they also, they did some pretty bad stuff too. And those are my people, I'm not gonna lie. So maybe I should feel bad about it.

[Matt]

There's a lot of good and bad when you look back into the past. But like, I'm talking about technology, I'm talking about smartphones. And so that means that there were no modern apps that we use on our phones all the time. Right. That we all take for granted. And one of the greatest features about using Waze or Maps on your phone is the ability to hit that little triangle, that. That current location button, and then it immediately zooms into where you are at that very moment. And that, in a sense, that's what we're doing today when it comes to you and your finances. We're. We're going to help you to geo locate your financial situation so that you can then start moving in the right direction.

[Joel]

Yeah, yeah. And if you don't know kind of your starting point, it's sure. It's sure hard to figure out which direction you're going. Right. And we, we really believe that going in the wrong order can screw up folks, even if they have the best intentions. So if you start investing, let' before you've saved a dime, you're getting things out of whack. And it's similar to baking a cake. Right. Putting ingredients in at the wrong time, you might screw up the recipe. And Matt, you actually kind of did this a little bit early on in your kind of personal finance journey.

[Matt]

Yeah, yeah. I mean, so essentially it was. So you're talking about my Roth IRA.

[Joel]

Yeah.

[Matt]

Okay, so which.

[Joel]

We love Roth IRAs, and we want people to have a Roth IRA, but you maybe opened one up too soon.

[Matt]

Yeah. And it's because I heard about investing and I thought, oh, that's something I need to participate in. And I was earning money, like from a real job for the first time post graduating. That being I did not have enough money on hand to get me through a little, like, a little rough patch in my life where I was changing locations, I was moving back to Atlanta. And so that caused me to have to sell some funds when otherwise I would not have wanted to do that. I would have wanted to have kept that money invested for the long haul. And so basically, we're just, we're talking about this because we don't want you to become like me. At the very least, we don't want.

[Joel]

You to be the poster child for what not to do.

[Matt]

We don't want you to make the same mistakes.

[Joel]

Right. Well, I did something similar in a way. I paid off student loans that were at basically a 2% interest rate before I prioritize other things. So we'll talk about that too later on. But like all the different topics that we cover on the show are, you know, good practices and disciplines. It's not like we're encouraging folks to do anything that's going to take them further from their financial goals. Unless your craft beer habit maybe is getting a little bit out of hand. Let's hope not. But the order that you tackle all these different strategies and practices is vitally important. It's going to make the difference in how financially prepared you feel and how prepared you actually are. And so if you can see the plot points on the way to your destination, figure out where you are, but then also be familiar with the route that you're going to take, it makes a journey far less daunting. And so we kind of want to put these pieces together and say, yeah, we talk about all these different things all the time, but the order that you do them in just matters a lot. And so, like, let's lay that order out today.

[Matt]

That's right. And so let's talk about why we call these the money Gears. And the reason for that is because biking specifically, that's one of our favorite things to do. If you've been listening to the show for any amount of time, you know that. And so it just made sense for us to use bike gears as a way to describe how we move through money decisions within our lives. Joel, you and I, we both bike to work every single day. We encourage biking for physical but also financial reasons. But the gears on a bike are pivotal. You like that? Pivotal. It's extremely tough to bike up a gargantuan hill just using, like one of your big, fast gears. Even honestly, getting rolling to begin with, that can be extremely tough if you're on too high of gear. Yeah, it can just be so incredibly frustrating if you don't understand this basic concept. And so if you properly use the gears on your bike, it's going to allow you to arrive at your destination a whole lot less sweaty and you're going to have a whole lot more fun in the process. And similarly, if you use your money gears properly, we think, dare say we know that you will arrive at your financial destination with a whole lot less financial stress along the way.

[Joel]

Yeah, agreed. And every individual, by the way, is going to move through the money gears at a different pace. Some of you are shooting for fire. Fire movement. The financial independence. Retire early. You want to retire at 37 with a million or more in your investment accounts. More power to you and you might be saving 50 plus percent of your income, Something like that, which is awesome. Others, you might have just started learning about personal finance. This, this might even be your first how to Money episode. Who knows? You might not even have an emergency fund set up at all. You might have four kids or five kids or something like that. More mouths to feed, which means that progress is going to happen more slowly. Like everybody is in a different boat and there's no, no shame. That is true. Shame is not a part of kind of how we talk about money on this show. Our goal at how to Money is to offer helpful advice to folks all throughout that spectrum. And so the thing is, the money gears are accessible for everyone. No matter where you currently are and no matter how long it's likely going to take you to reach those money goals that you have.

[Matt]

That's right, yeah. The money gears, they make sense from a purely rational and from a numbers and monetary standpoint, for sure.

[Joel]

Right.

[Matt]

Like what we're going to share with you today, if you opt to follow the order that we're laying out, they're going to help you to build wealth over time while also reducing how much you have to worry about money in general. But the money gears, they also help from a psychological aspect as well. It's not that you're just making financial progress, but that you are doing it in a way that is, that's emotionally satisfying. And when you're encouraged by your progress, you're likely going to keep it up. You're going to keep doing the thing that you're winning at, which is only going to lead to even more financial progress. And so it's important to point out too that it's not just the numbers from a psychological, from an emotional standpoint too, you are going to be in a much healthier place.

[Joel]

So I feel like I should use an illustration here based on biking. And so when I go for neighborhood rides with my kids, daughters who are 9 and 7, and so they're on their geared bicycles and they can lose steam if they're going up a hill and if they're in the wrong gear. And it just feels so defeating to be going up that gear, we're like usually heading towards one of those little free libraries in the neighborhood to see if there's like some free books or something that we can snag. And I always, like, when one of my girls is struggling, I say, what gear are you in? And I'm just encouraging them to like pull it down a couple notches. Right. Because if you're going get down to that little gear. Yeah, I think they have eight, eight gear bikes maybe, or seven or eight gears. I fig forget how many they have. But when they're in gear six trying to go up a steep hill, man, you're talking about like a real slog, a lot of sweat and just a lot of frustration. But if they can dial it back down to gear two, yeah, maybe the going is going to be a little bit more slow, but actually not really because while it feels like it's going more slow, at least you're keeping steady and at least you're moving up the hill with regularity. And so, yeah, that's just something like, that's always the Question. Well, what gear are you in? Can we move it back down so that you can continue this momentum, so you can keep climbing and not basically have to, like, stop and walk your bike up the hill? Which just like, man, that. That's like a. That's a frustrating thing too. Yeah, that's the worst.

[Matt]

Yeah. And to extend the metaphor, there is a place, there's a time and a place for those taller gears.

[Joel]

Yeah.

[Matt]

But it's after you've.

[Joel]

It's.

[Matt]

It's once you're going down the other side of the hill. Right. Like, and that. And that's when it's fun. But oftentimes we're trying to shortcut to what we think is going to be the faster, funner gears, but we're not in the position to be able to handle some of those taller gears. And. And so that's just a preview that we will talk about some of those more fun gears that hopefully everyone listening to this episode will be able to attain here in short order.

[Joel]

Yeah, agreed. Well, in these gears, I want to say also, they stand the test of time. Like we came up with them a few years ago. But the truth is, no matter the economic environment, we've seen some changes, some shifts in the economic environment over the past few years. Of course, you can still use our money gears formula to decipher what it is you should be doing with your money next. The macroeconomic reality might sometimes cause us to make small tweaks in our decision making, but when it comes to these broad based money gears, it doesn't really have an impact. That's true on kind of the order of operations that we feel is most important for your money. Okay, so we are going to get into all of the seven money gears. We're going to describe them in detail, and we'll discuss how you should be progressing, the proper order for things. We'll get to all the fine details on that right after this.

[Matt]

The first step in solving any problem that we have in life, whether we're talking about a conflict in a relationship, why the check engine light is on. Right. Flashing on the car, or even why we can't seem to set aside enough money for different goals we have. The first step is to clearly define the problem. We've got to assess the situation, what's going on with your spending, and that is where Monarch money comes in. But Monarch is more than just a budgeting app. It works as your own personal cfo, giving you full visibility and control over all your accounts, investments, and financial goals.

[Joel]

Monarch is truly a game changer. And I love how you can choose goals that you want to hit and then you can rank them in order of priority. It's pretty rad. It makes those goals a lot more concrete and tangible. My top goal has been funding our family summer travels.

[Matt]

Nice.

[Joel]

So start managing your finances to build the life you actually want. The truth is, without a clear financial picture, your financial dreams really can feel out of reach. And Monarch makes managing money simple, even for busy lives.

[Matt]

That's right, man. Get control of your overall finances with Monarch Money. Use code [e-mail] in your browser for half off your first year. That's 50% off your first year at monarchmoney.com with code howtomoney. You probably think it's too soon to join AARP, right? Well, let's take a minute to talk about it. Where do you see yourself in 15 years? More specifically, your career, your health, your social life. What are you doing now to help you to get there? Well, there are tons of ways for you to start preparing today for your future with aarp.

[Joel]

What about that dream job you've dreamt about? Sign up for AARP Re skilling courses to help make it a reality. How about that active lifestyle you've only spoken about from the couch? AARP has health tips and wellness tools to keep you moving for years to come, but none of these experiences are without making friends along the way. Connect with your community through AARP volunteer events.

[Matt]

So it's safe to say it's never too soon to join aarp. They're here to help your money, your health and happiness live as long as you do. That's why the younger you are, the more you need AARP. Learn more at aarp.org wisefriend this episode is brought to you by Navy Federal Credit Union. Navy Federal can help you find and finance the right vehicle with ease. Assuming you hadn't saved up the cash and this summer you are in the driver's seat with savings. You could get a $250 bonus when you buy your next car through Navy Federal's car buying. Powered by TrueCar and Finance with Navy Federal.

[Joel]

With this tool, you can find the vehicle that's right for you as you search through inventory and compare models. And you can get an amazing rate when you finance with Navy Federal. Navy Federal strives to support all active duty veterans and their families to achieve their personal and financial goals, and this partnership with TrueCar is one of many tools Navy Federal uses to help its members.

[Matt]

That's right, make your plan With Navy Federal and TrueCar today. To qualify for the $250 bonus, car purchase and financing must be completed by September 2, 2025. Terms and conditions apply and are available at navyfederal.org TrueCar Credit and Collateral subject to approval. Navy Federal is insured by ncua. Alright man, we are back from the break and it is now time for us to dive into these money gears. And so there's seven money gears and of course we're gonna start with, with money gear number one, which is the basic emergency fund. Let's kind of make a case for having an emergency fund. There's a brand new study from Secure Save and they found that 75% of Americans are stressed about their finances and then those increased levels of stress are then impacting their productivity at work, which is not a good thing of course. And I mean saving up a basic emergency fund that's not going to bring on like full on economic security and relief to everyone out there. But it is an underrated, massive first step to take that's going to really alleviate a lot of money anxiety for folks out there. And so when you've got that basic emergency fund of $2,467 set aside in your savings account for any sort of emergency that could arise, you've got the beginnings of some real financial power. And so we don't want you to be a part of. Here's another stat of the 57% of Americans who can't access $1,000 in a financial emergency. Essentially this is living paycheck to paycheck which simply means you're dependent on that next deposit showing up in your account to, you know, every two weeks when you are living in that kind of estate, when you're living on the financial edge like that, it has all sorts of cascading consequences and we don't want you to be living with that day to day stress.

[Joel]

Yeah, There was another study recently about how a lot of people, if they lost their job tomorrow, they would have a really hard time buying groceries. And so it's very, very similar. There's a lot of people living in this sort of state in our country. And I will say it's not always the fault of the individual. Right. But there are still a lot of things I think we can do as individuals to bring power back into our lives. And this is the first step, this is the first way, this is the first part of the process to get some of that financial power back in your life. And it really, when you think about it, when you Boil it down, this could be a reality for more people. Even though the stats make it seem dire that most people are not in this position. I think more Americans really could get into this position, Matt. And let's talk about the reason we picked the number 2,467. Because it's very specific. Very, very specific.

[Matt]

It's not a random number we just decided upon.

[Joel]

Right. We didn't pull it straight out of our butts or anything like that. But basically, economists did some research a couple years back and they specifically found that having this amount of money on hand would allow people to navigate most financial emergencies without a problem, without breaking a sweat. And so with inflation roaring, we might need to adjust this number at some point. It might be like 2767 or something, but right now we're going to stick with 22,467. I think partly. I love that it's not a round number because it makes it easier to remember. And if you've got that much cash on hand, you're at a low risk of not being able to afford an emergency that comes along, which is really just a really, really crucial thing for most. When, when most people aren't able to do this. You're already living counterculturally, just achieving money year number one.

[Matt]

Yes. And by the way, that money should be in a high yield savings account. And typically you're going to find that with an online bank because they pay the best rates. We want you to ditch your local brick and mortar, one of the bigger banks like that, because they ain't paying jack.

[Joel]

Well, also they're probably feeing you, which is prohibiting you from being able to amass that sort of emergency fund we need you to have.

[Matt]

That's right. Yeah. And by the way, an emergency is not needing Christmas presents here at the end of the year because that's a known expense. It happens same time every single year. It's an expense that you should be budgeting for and you've got plenty of time to start saving. The emergency fund is for bigger money and financial messes that pop up like a transmission failure on your car, but not the oil change that you need, or not tires, because again, those are things that you can plan for. It's for something like a job loss, something that you're not expecting to happen, not for a regular expense.

[Joel]

It's not. Because tickets to Hawaii are on sale. Right, exactly. That's not what this is for.

[Matt]

Yeah. And so in order to achieve this level, this is going to involve you tracking your spending and Cutting back in some different areas. And specifically if you need some ideas for the best places to start trimming, we'd recommend for you to check out episode 260. That's when we talked about seven specific things that you can do this week in order to cut back and save. And then we want you to put that money in a special savings bucket. That's what they call them over at Ally. But essentially we want you to put some parameters around what it is that you can use this money for because we want you to use them for actual emergencies, not just because you want to be able to go hang out with your. Hang out with your buds.

[Joel]

Yeah. Earmark it for sure so that it's really only for that intended purpose. And if it takes siphoning 50 bucks out of your account every month and putting it into another bank altogether to build up this emergency fund, this $2,467, do that. Like whatever it takes to make sure you have this achieved and that you're not going to touch it is important. And then if you're already here, congrats. If not, this is the number one goal.

[Matt]

This is the first thing that you need to be working on your number one.

[Joel]

But let's move on. Matt Gear number two, stagging your company match. And we want all how to money listeners to be investing, but we don't want them to. And I hate to harp on your mistake, but we don't want people to make that mistake of opening up a retirement account before they're ready. That's right. And because then you might need to pull that out, you might need to pull that out that money out at a loss. And that's not a great position to be in when you're getting started. And so over the long term, this is really how you grow wealth in order to become truly financially free. Savings alone isn't going to get you there. And so money gear number one gives you a taste of freedom. Right. It gives you more than you have if you're living page to paycheck. But money year two is, is pushing you further in that direction. So if you have a company retirement plan and if it comes with an employer match, contributing enough to get the full amount of free dollars is really important. That's clutch. And so that's just the next move we want you to make. Some companies, they're going to offer a dollar for dollar match, which I love. I think that's wonderful. If yours does that, you're even better off. Others do something like 50 cents on the dollar. If you contribute something like 6%, they'll put in three. Either way, though, it's impossible to get a better return on your money than the company match. Because even if it's just 50 cents on the dollar, where else are you going to get a better return on your investment than that? That's why this is such a huge financial priority. And really, it's got to be number two in the order of operations.

[Matt]

Yeah. It also helps to just get the ball rolling when it comes to investing, which is of critical importance for your future. More companies are automatically enrolling you into the different workplace retirement plans that they offer, and a lot more employers actually required to do this on your behalf starting next year. But you may not even have a clue as to how much money that you're putting in your 401k or maybe your 403b. And so we would recommend for you to log into your company's the back end. Right. Like the employee portal. Make sure to check how much you've got going towards your retirement savings. And if you have the financial ability to cut back in some areas in order to increase your contribution to that full match level, we would highly recommend it. Because again, this is money you are not going to see a return on your investment as much as you're going to see with an employer match.

[Joel]

If it means cutting back on Taco Tuesdays where you go out to eat and you just make tacos at home, or Steak Sundays, I don't know if that's a thing, but I would like that to be a thing. But if it means kind of cutting back on some more expensive endeavors so that you can funnel 1 or 2% more to make sure you're getting the full match, we would say that's important and that is such a high financial priority. And really, we're still at the beginning of the money gears here. So this is an important step that we want everyone to achieve. We don't want you leaving, like I said, that free money and the best return on your money possible on the table. If you can't contribute enough to get the full match right away, set a goal for when you're going to be able to do it, like investing 2% more every time you get a raise so that you're able to hit this level in the next year or so, if you don't have a plan for when you can achieve this, it's probably going to fall off your radar. So making that plan to achieve this money year in the near future is crucial because it means if you got the plan and you're implementing it, it's going to happen, as opposed to leaving it to chance, which I don't know about you, Matt, when I leave things to chance, they don't get done.

[Matt]

It's more wishful thinking at that point, knowing that it's something that you should do as opposed to clear, actionable steps that you can take.

[Joel]

Yeah, and it's important to mention a caveat here too, because make sure you take into consideration how long it takes for any matching dollars that your employer contributes to vest. How long is that vesting period? How long have you been at? Because if it takes a while and you don't plan on being with this employer for long, if you're already shopping looking for jobs down the street, it doesn't necessarily make sense to make this as high of a priority. But for most people, this is the next money goal to be aiming for after you've secured that basic emergency fund. And if you don't get a company match at all, sorry, but you can just keep pedaling and move on to Money Gear number three.

[Matt]

That's right, which is paying off high interest rate debt and credit cards. 30 the likeliest culprit here. That being said, we're actually fans of credit cards specifically as a method of payment because of the different benefits and rewards protections that they offer. But that being said, just about 50% of Americans, they're not paying off their balance on time, they're not paying those off in full, which means they've got lingering credit card debts. They're carrying those balances over month to month. And considering that the average credit card interest rate is like in the 20% range at this point, your credit card debt has become a bigger problem than ever. And ditching that debt as soon as possible, that should be a very high priority, not a top priority because that would be getting your emergency funds set aside. But third down the list, paying off that high interest rate debt. And personal loans or other like high interest car loans, they can actually easily fall into this Money gear as well as they they tend to have some higher interest rates. But it's important to point out that it's not the type of loan per se that causes it to go into Money Gear 3 but it's the rate that is associated with the loan, those higher rates that should cause you to set your sights upon it. And so typically we define that as about 7% or higher. Anything below that, we want you to kind of kick that can down the road a little bit. There are some Other priorities that we want you to turn your attention to first, but certainly anything in the double digits and we would say even, you know, once you start getting around 7%, that's kind of up to you whether or not that's something you want to tackle now. But definitely anything higher than that falls into money gear number three.

[Joel]

Yeah, I like how you said it's not the type of loan. Some people might say, okay, what about my auto loan? Well, it depends what the interest rate is right now and whether or not that should be a top priority or not. If you got one of those, you know, 1.9% APRs on that car for four years ago and you're almost done paying it off, well, just pay it off as agreed because that's actually, that's not bad at all. That's not a bad form of debt necessarily at this point in time. But if you're like, I had bad credit, I got that 18% car loan. That's a very, very different ball game that we're talking about. And so it' really important to assess not the kind of loan that it is necessarily, but more than anything the interest rate and the terms associated with it. That's right.

[Matt]

It's about the numbers.

[Joel]

Yeah. And I think this is also a time to kind of tell people, hey, we'd prefer you to stop using these forms of debt altogether. And then if you can't actually afford the vehicle without taking on some sort of high priced loan, it's probably not worth it. And it would behoove you to look towards a lower cost form of transportation. And so we want all how to money listeners to hopefully avoid this kind of debt moving forward. The best possible thing once you get out of Money gear three, paying off this high interest rate debt would be to ensure that you never fall back into that by avoiding all these kinds of, the worst kinds of loans really in the future. And so to really tackle money gear number three, it's important to create a debt payoff plan. We just talked about, Matt, how important these plans are and writing down all your debts on a piece of paper or in like a Google Sheets or Excel file. That's going to go a long way. Documenting all those debts, listing out how much you owe, what the interest rates are, so you can look up smack dab in the face and see kind of what you're dealing with. And if you want to go digital, that's fine too. A site like Undebt it that can help you kind of come up with this plan for the order and the approach for paying, paying that, that debt off. Facing the facts though, is just a necessity here. And so whether you want to take the avalanche or snowball approach, that can be really up to you. We've got an article we'll link to in the show notes about kind of how to make that decision. The snowball approach kind of prioritizes psychology. The avalanche approach prioritizes math. Depending on what debts you have, what you owe and what the interest rates are, it's going to determine probably which route you choose to take.

[Matt]

Yeah, well, I want to mention too that back in the day, you and I would say 100%, you should be taking the avalanche approach. You should be focusing on the debts in your life that have the absolute highest rate. But what we were discounting is the psychology involved and the fact that it's if you were so convinced by the, you know, the different interest rates and the numbers, that likely you wouldn't have gotten into debt in the first place. A lot of times, just like with the money gears, there are psychological wins that come along with kind of taking, getting some of those wins and then using that momentum to build upon some of the bigger, more audacious goals that you're striving after. The same thing can be true when it comes to paying off your debts a lot of times by eliminating the smallest balances, because that can add fuel to the fire and can give you the kind of encouragement that you need to continue on with that plan.

[Joel]

Math's great, but if math doesn't actually get the job done because it's not getting you to actually follow through and take the action, then the math isn't enough.

[Matt]

Absolutely.

[Joel]

I think that's a really important thing to mention. I'm glad you brought that up. It's also important to mention that if you encounter a setback, don't let that get you down. Don't let that push off Money Year three. It's important to keep pushing through because it took you a while to get into this debt. It's going to take a little, a little time to climb out of it. If, let's say you, a transmission goes bad in your car and you are working diligently on Money Gear 3 and it feels like you got to go back to money gear number one for a second because you got to re re up that emergency fund, that happens. But just remember, that's what the emergency fund is there for. And boy, isn't it a good thing you took that step before that that emergency came down the pike. We're all going to have financial setbacks along the way. But that doesn't mean that we abandon the gears and just throw in the towel. What is we kind of go back at it and we, we might have to dial back a year in order to continue making progress. But that doesn't mean we've lost. It means we're just delayed in our effort to win, which I feel like actually kind of sounds like a high school Friday Night Lights coach or something like that speech. But really that's, that's what's happening. It's, it's really give us that pep talk. Yeah, well, and we're, we are going to be delayed. We're not going to get there maybe as quickly as we thought. But hey, that kind of stuff happens to like all of us, Matt, you and I included. Like stuff happens that we didn't expect and it might push back the timeline just a little bit, but it doesn't erase the fact that we're still going hard for that same goal.

[Matt]

That's right. Yeah. It doesn't erase the progress that we've already made. And so, so far the money gears we've discussed are money gear number one, which is the basic emergency fund, money gear two, which is snagging that company match, and then money gear number three, paying off high interest rate debt and no matter what you need to go in that order. But what do you do once you have graduated from money gear number three, once you've paid off that last year high interest rate debt and that's when things get maybe a little more fun. We'll talk you through those gears right after this. You probably think it's too soon to join aarp, right? Well, let's take a minute to talk about it. Where do you see yourself in 15 years? More specifically, your career, your health, your social life. What are you doing now to help you to get there? Well, there are tons of ways for you to start preparing today for your future with aarp.

[Joel]

What about that dream job you've dreamt about? Sign up for AARP reskilling courses to help make it a reality. How about that active lifestyle you've only spoken about from the couch? AARP has health tips and wellness tools to keep you moving for years to come. But none of these experiences are without making friends along the way. Connect with your community through AARP volunteer events.

[Matt]

So it's safe to say it's never too soon to join aarp. They're here to help your money, your health and happiness live as long as you do. That's why? The younger you are, the more you need AARP. Learn more at aarp.org wisefriend this episode is brought to you by Navy Federal Credit Union. Navy Federal can help you find and finance the right vehicle with ease. Assuming you hadn't saved up the cash and this summer you are in the driver's seat with savings, you could get a $250 bonus when you buy your next car through Navy Federal's car buying service. Powered by TrueCar and Finance with Navy Federal.

[Joel]

With this tool, you can find the vehicle that's right for you as you search through inventory and compare models. And you can get an amazing rate when you finance with Navy Federal. Navy Federal strives to support all active duty veterans and their families to achieve their personal and financial goals, and this partnership with TrueCar is one of many tools Navy Federal uses to help its members.

[Matt]

That's right, make your plan with Navy Federal and TrueCar today. To qualify for the $250 bonus, car purchase and financing must be completed by September 2, 2025. Terms and conditions apply and are available at navyfederal.org TrueCar Credit and Collateral subject to approval. Navy Federal is insured by NCUA Running.

[Joel]

Your own business hits different in the summer because we take more time off to be with our family, it means we have to be even more thoughtful ahead of time so things run smoothly. But just like having the right plan helps us to avoid podcast nightmares, well, you can ensure that you and the people you care for most are prepared for anything too. Trust and Will makes estate planning simple and secure so you can confidently create a will designate power of attorney, secure your digital assets and more. Visit trustandwill.com howtomoney to get 20% off their simple, secure and expert backed estate planning services.

[Matt]

Yeah, when you're young and life is simple, getting a trust or will in place is not a high priority. But life gets more complicated when you start throwing kids into the mix. Once you add an investment property or two once that's a part of the equation, I know I've got the peace of mind knowing that I've got this checked off my to do list. And you can too. Because Trust and Will's website is easy to use, it's simple to navigate. Plus all your information and documents are securely stored with bank level encryption. Each will or trust is state specific, it's legally valid and it's customized to your needs.

[Joel]

Yeah, we can't control everything, but trust and Will can help you take control of protecting your family's future. Trustandwill.com howtomoney and get 20% off. That's 20% [e-mail] howtomoney all right, Matt, let's keep going with the Money Gears episode. We talked to the first three. I feel like the first three, it is kind of that uphill climb, right? You're kind of getting. And now we're starting to crest the hill here as we're getting to four through seven, let's say four. We're kind of at the top of the hill. That's like kind of where we've reached equilibrium. And then 5, 6, and 7 is where we start kind of going downhill. And that is just such a good feeling to have kind of the wind flying in your face. You're. It's. It's momentum is on your side when.

[Matt]

It starts getting more fun.

[Joel]

That's right.

[Matt]

Well, mostly because you're not. You're. You're paying much less of your money towards other people, which is. That's the. That's what feels like the up. Uphill slog.

[Joel]

You're overcoming kind of past indiscretions, typically in those first few money gears. And now it's like, boom, I'm proactively funding my future, which is a completely different way of thinking about things. So, yeah, I agree. That's really. That's a really important way to distinguish it. But money gear number four is when you're able to fully fund your emergency fund with three to six months worth of monthly expenses and savings. And there's kind of a bunch of little nuance we've got to talk about in this one, too, but we're going back to the savings well for Money gear number four. You know, that was. Was kind of where we started at Money gear number one, but now it's like, okay, cool, you saved a little, then you invested a little, then you paid off the worst kinds of debt. Now it's time to go back to saving a little bit. And some might find our prioritization of savings before investing more a bit controversial. I don't think so, though. And, like, we realize that there can be a degree of FOMO fear of missing out as you're seeing the markets climb and you're just patting your bank account. But it makes the most sense for you to have a solid savings backup before you start to ramp up your investing efforts. It's great that you kicked off your journey to financial freedom with a basic e fund, but $2,467, while that will insulate you from some of the worst possible financial emergencies, it's only going to be able to get you so far. Right. And so having that three to six months worth of backstop, worth of expenses set aside is going to be able to provide you with a lot of stability that would allow you to weather most financial storms. Like a lot more than just, just 2,000 bucks in the bank is really going to do for you.

[Matt]

But that being said, if you find yourself in a financial situation where things are looking a little difficult, you might find yourself reverting, like paring back on your expenses a little bit. And that's where it pays to have a bare bones budget. We talked about that back in episode 362. But it's great knowing that you've got a solid three to six months. But by knowing that you can pare back a little bit, there's a, there's a chance you can even extend that to six to nine months.

[Joel]

Yeah. Stretching for the.

[Matt]

Yeah. Of bare bones living. But let's talk about whether you need three or whether you need six months worth of savings.

[Joel]

That's a big gap.

[Matt]

So people are like, yeah, how do you decide?

[Joel]

Which one do I choose for myself, guys?

[Matt]

Well, some of it depends on your job. Some of it depends on like it depends on the stability of your income. For instance, are you a tenured professor at a well respected university or are you like a, like a crypto TikTok influencer? The complexity of your specific situation that should inform just how much you are socking away within money gear number four. But there are so many different factors that you need to take into account. Like when it comes to income, does your spouse work? Right? Like do you have a partner or significant other and they're also bringing in income. Well, guess what, you now have diversified multiple streams of income. Or on top of that, let's say you have an investment property and that also generates some income as well. Well, maybe there's a, I don't know, maybe that's a bad example because there are emergencies that pop up with investment property.

[Joel]

You kind of need capital laying around for that also.

[Matt]

Yeah, but like, so like the number of kids you have, the number of folks who are dependent upon you earning an income, but it also just comes down to how much appetite you have for risk because you could, it could just be you. Maybe you don't have a partner or a family, and maybe you do have a job that is highly stable and you've got a great income. That doesn't mean that you should automatically only have three months worth of living expenses. Depending on your personality, you might want to have aside just no matter what, I want to have a healthy six months worth of expenses set aside.

[Joel]

Or you might have a friend that you could always move in with who's like, hey, I've got this pool house or something like that. You're always welcome to hang. And that might give you more confidence.

[Matt]

To have a little bit less cash on or family. Like if you have family in the area who are there to support you as well.

[Joel]

All of these I know I could always put your tent in your backyard and that means I need less cash on hand. Right.

[Matt]

You can camp out in the little playhouse there and you're more than welcome to stay.

[Joel]

Yeah, see, that gives me family tosses you out. Yeah. If it was all of us, I'd need a bigger tent, I think. But yeah. So that's money gear number four is that fully funded emergency fund going beyond just the basic 2467 number, which we outline as kind of the bare minimum. And I think that's going to give you even more confidence moving forward when it comes to changing jobs or maybe even going out to pursue your own work, saying, you know what, I'm ready to leave my job, start my own business. Well, the more cash you have on hand, the better. Right. It gives you Runway and time to maybe make income that's not quite as robust. And I mean, ideally if you're going out there to start your own thing, you probably save even more than that because this is really just an emergency fund you're going to want to plan on top of that. But that's money gear number four is having more money in savings, in liquid savings, in a bank account. And Matt, you mentioned the online bank accounts being the best. Well, money year number five, that's what you're moving into next. Once you kind of got that one taken care of and that's to invest more in tax sheltered retirement accounts. And then now we're getting back to investing so you can see how it's kind of like we're running the gamut up and then we go back to kind of square one to a certain extent, but just like a heightened version of that thing. So yeah, going to now investing step number two, which is one of year five.

[Matt]

It kind of makes me think of like moving a piece of furniture. Like you move one side up a little bit and then you move the other side a little bit. Like if you're trying to fit into tight corner, like if you're trying to move a dresser in or something like that. You don't just like slam it in, like all one side and then do the other. Like you kind of like ease it in. You go back and forth. I feel like that's what we're doing with our money here.

[Joel]

Yeah, exactly. And when you do it incrementally and kind of go back and forth between saving, investing and debt payoff, it's going to ensure that you're not going too hard on one. Leaving yourself exposed in another area of.

[Matt]

Your finances keeps you from scuffing up your financial walls.

[Joel]

Yes. Or breaking off a leg of that mid century dress, which we've all done if you move it inappropriately. Right. But yeah, I think one of the biggest mistakes that folks make is that they often go straight to money gear number five, because once they learn about investing, they immediately think this is what they should be doing. But they haven't laid really that financial foundation that's required to dedicate more dollars in this direction.

[Matt]

You keep beating that Matt invested in his Roth IRA too soon, aren't you?

[Joel]

I just want to make you look as bad as possible in this episode. That's what I'm going for. But they always talk about putting the cart before the horse and I think we all know instinctually what that means, even though I've never actually in person seen a horse pulling a cart.

[Matt]

But we need some new modern day examples.

[Joel]

I think we do. But if we start investing before we have the proper cash reserves in the bank, we could be leaving ourselves, like I said, exposed. Which tax sheltered accounts are we talking about here? We're talking about HSAs, IRAs and 401s in particular. We have an article all about HSAs up on the website, which are one of our top favorite retirement accounts that most people don't think of as a retirement account. And if you're in the military, we're talking about funneling money into your tsp, your thrift savings plan, and so pumping more dollars into these accounts, these tax advantaged retirement accounts. Increasing your contribution level is going to over the years pay huge dividends in your pursuit of financial independence. But it's money gear number five for a reason. You really got to do those first four first.

[Matt]

That's right, man. Yeah. So let's talk now about how much money to invest within these tax sheltered retirement accounts. Because a lot of money experts out there, they're going to say that 10%, that, that is the number to strive for.

[Joel]

I was going to go on Dr.

[Matt]

Ebel and say $1 million maybe for you depending on what your, what your FI number is. But when it comes to how much you should be socking away towards retirement, we think 15%, that that is a much better goal to have. It's going to allow you to achieve your destination of financial freedom much sooner. Like we're talking about years, like even decades. By being able to increase the amount that you're putting towards retirement, you can.

[Joel]

Shave somewhere close to 10 years off of your retirement goals by investing just 5% more.

[Matt]

That's right, yeah. So 15% of your income. For some higher earning folks out there, this is going to mean that they will quickly max out their contributions to these different tax advantaged accounts fairly quickly assuming that you have a much higher income. But others out there might find that they hit that 15% of their income invested mark and they still have some, some room left in those accounts to contribute. And that's okay, right? Like if that's you, we actually don't want you investing any more than that because there are some other financial priorities that we think that you should get to before an even higher percentage of your income is going towards retirement. We don't want you again like you're moving that dresser into the corner. We don't want you to get too far ahead of things with, with one side before you kind of make a small correction on the, the other.

[Joel]

You don't want to snap that hairpin leg, those beautiful mid century hairpin legs. Don't want to do that. And, and it's important too to give a quick word of warning here Matt, because a lot of people think of investing as socking money into that account and that is part of it. But it turns out that 53% of Americans have at least some of their retirement dollars in straight up savings account vehicles. Savings like vehicles inside of that tax advantaged account like a Roth IRA or a 401K. And that's not good. Like we want to make sure, sure that your retirement money, it's not, isn't just put into the right vehicle and then left to sit in a money market account. Although some of those are earning a little more than they used to. I think Fidelity is paying a sweet rate of return, but it's still not as high over the years as you're going to get investing in the stock market as a whole. And this is not an investing episode, so we're not going to go into a bunch of details, but we have an article about investing for beginners up on the [e-mail] we'll link to that article in the show Notes, but make sure that, yeah, you're not just like throwing some money in that account and calling it a day. You're actually buying funds, preferably low cost index funds inside of those retirement accounts.

[Matt]

That's right. So after that you're going to be moving on to money year number six, which is knocking out some of that lower interest rate debt and specifically like we're talking about student loans, maybe some of those more attractive car loans. Basically any of the debts that you have in your life that you did not address back in money year number three.

[Joel]

3.

[Matt]

It's important to note here that you could put your mortgage in this category, but they are typically the least important debt to pay off early. Especially because you can probably earn more even just in a basic savings account than what your current mortgage interest rate is.

[Joel]

Most people have a mortgage rate of less than 4%. A lot of people have it in the low threes. And you can straight up easy in savings earn 4 plus percent.

[Matt]

I think 99% of all outstanding mortgage mortgages right now are currently less than what the 30 year rate is at the moment.

[Joel]

Makes sense.

[Matt]

That being said, like at this point you've already got the worst debts paid off, but now you can focus on some of these lower priorities, some of these low hanging debts, some of this low hanging debt, fruit and student loans, they would typically be included here. But that being said, we've got all these caveats. You don't want to be paying off your student loans now because of course the payment pause and the potential for forgiveness. But even still, we want you to save up in case that doesn't actually go through. It's helpful for you to sort of like we talked about, setting up that initial emergency fund where you are making small withdrawals or making a payment to yourself into another account. You also want to do something similar with the payment, the amount that might resume once student loans fire back up. We want you to be prepared for those student loans resuming. But car loans, HELOCs, these are all good examples of some of that low hanging debt that is not so ridiculous that you knocked it out earlier.

[Joel]

Yeah, your HELOC rate might have gone from 3.5% to 6.5% or maybe even a little, little bit higher. And so it might have been a low lower priority a couple years ago and now it's becoming a higher priority. And so you find yourself in Money Gear 6 and you say, great, now it's time for me to knock this thing off because I've got that money, money saved. I've got, I'm investing a decent chunk 15% of my pay now. So that HELOC, now I got my eyes set on that joker. Or same thing with a, with a car loan. Let's say it's 4 or 5%. Money gear number six is the time to kind of knock that thing out, get rid of it. Because being debt free, other than mortgages is a great goal to have kind of at this point in when it comes to your financial progress.

[Matt]

That's right, yeah. I want to mention too that there is a chance that you stall out here in money gear number six. Or honestly even like money gear number five, where you're investing more in those retirement accounts. It takes a lot of work to invest up to 15% of your income. And even fully funding overnight. Yeah, even fully funding your emergency fund, we've got three to six months worth of expenses. I mean there's a chance that you could be in these money gears for years depending on your financial situation. And so whereas the first three money gears are designed for you to get some of those quick wins and you're able to build off of that momentum, some of these later money gears might be. Yeah, years where you're slogging away where it doesn't feel like that you're making.

[Joel]

Much financial progress, but you are making progress. And that's so important. But you're right, it feels like it. If you're like, man, it's, it's month number 15 of me trying to get to that three month worth of like expenses in my savings account. That makes sense. Like it makes sense that it takes a while to get there. And again, I think it's important to come up with like a plan of attack when it comes to paying off these lower interest rate debts too. Pay the minimums on all of them except for one that you're prioritizing the most. That gives you more focus when you're just kind of assailing one at a time as opposed to kind of spreading your resources thin, trying to pay a little bit more on every single debt. And then once you get one paid off, you set your sights solely on another one. And oftentimes that's going to give you the most success and it's going to help you advance more rapidly when it comes to paying off those debts.

[Matt]

That's right, man. Yeah. So after money gear number six, where you're knocking out that lower interest rate debt, you are then moving on to money gear number seven, where you are going after some of those bigger financial goals like you just mentioned, Joel. Like, this is an awesome place to be.

[Joel]

This is when you're going downhill on your bike at 30 miles an hour, full on. Like, especially you, Matt, with your long hair.

[Matt]

It's just blowing in the wind.

[Joel]

Blowing in the wind, man.

[Matt]

You've. You've paid off all the debts in your life, except for maybe that mortgage. If you own a home, you're also investing quite a bit already too. Basically, the. The world is your oyster. You can look to funnel maybe some money towards starting your own business if that's something you've always wanted to do. Changing how it is that you get to spend your time and the folks you get to help. Maybe that means just a small renovation there at your home because that's something that you've always wanted to do. It could mean going on an international vacation, doing that, if that's something that you want to prioritize in your life. Or even honestly just having a larger cash cushion where you are removing some of the potential for financial insecurity in the future. Right. Just having some more of that money on hand that gives you the options to participate in an opportunity that might come up that you're not even aware of. Sort of like we were talking about there at the beginning of the episode.

[Joel]

But yeah, Money Gear number seven open up just a whole world of possibilities. It can mean giving more money away, which is awesome.

[Matt]

Absolutely.

[Joel]

Like, what's your favorite nonprofit? You're like, wish I could give them five grand a year. Maybe now you can. Or maybe it could say. You could say, I've always wanted to work 30 hours a week, but man, I just have not been able to. But once you get to this place of financial security, you don't have nearly as many debts in your life. Except maybe that mortgage still hangs around. But you've been contributing to retirement accounts for quite a while. You've got a lot of cash in the bank. Bank. And you say, great, now does the time. I can live now on a smaller salary. Like there are all sorts of just options that open up to you when you hit Money gear number seven, which is a beautiful thing to see and a beautiful thing to be able to enjoy.

[Matt]

Yeah. And by the way, you mentioned giving. I want to mention too, I mean, personally, you and I, like, we've given money throughout all the different money gears. I wanted to point out that it's probably a good idea to not wait until Money Gear 7, where you feel like that you are enough position of financial security in order to Give out of abundance, as opposed to that being a discipline and a practice that you participate in throughout your. Your personal finance journey.

[Joel]

Yes. This just allows you to do it maybe in a bigger way than you've been able to do up until. Exactly. Right. Yeah. And this could be a great time, too, to start saving up for your kids, because up until now, really, the priority. The priority should be funding your own retirement and should be kind of making sure that your home is financially a financially secure place, that you're not gonna have to be dependent on your kids when you kind of do reach retirement age, when your work life is over. But the next thing. And some people want to get the cart before the horse on this one, too, Matt. And they want to start saving for their kids when they're in Money Gear 2, 3, or 4, when it's time yet.

[Matt]

Because it feels like the selfless thing.

[Joel]

Right, right. But the. The reality is, it's. It's the oxygen mask that we always talk about on the airplane. You got to do put the oxygen mask on yourself first before you put it on the child next to you. You. I mean, that's what they recommend on the airplane videos. And so I'm just going to trust that they know what they're talking about. And I think the same thing is true when it comes to your money. So Money Year number seven is a great time to start prioritizing a 529 plan for your kid if you expect them to go to college or if you want to kind of get the ball rolling to. To put money into an IRA for them or Roth ira. So just to note that's where this fits in. If you're planning on saving money for your kids, it kind of falls under money gear seven as well. Well, that's right.

[Matt]

Yeah. And just we hope that you get to enjoy the ride down that mountain, because this is where you shouldn't be.

[Joel]

Stressed about this stuff.

[Matt]

No. Yeah.

[Joel]

It should be fun decisions.

[Matt]

This is a part of the ride where we're almost. Where gravity is almost working more for you than what you can actually accomplish by pumping your legs as hard as you possibly can.

[Joel]

Yeah.

[Matt]

This is almost at the point to where you're financially independent, which is where your money is actually working harder for you than what it is that you can actually accomplish with the hours that you've got that are allotted to you during the day. And so, you know, with the money gears, it's just important to note that going out of order, it can. Honestly, it can be like throwing a wrench into your personal finance situation, but smoothly shifting through the money gears, that can help you to make progress more swiftly. And so no matter where you are, there's always going to be room for progress. And Joel, you know you were talking about going out of order. You mentioned baking or what you said something about cooking.

[Joel]

Yeah. If you put the ingredients in at the wrong time, wrong place, especially when you're mixing wet and dry. Apparently I'm not like a hardcore baker, but I know that that can kind of throw things. Well, Kate, is ruin your cake.

[Matt]

Like, when it comes to, like, making sauces, you can, like, break the sauce. I think that's the term. But essentially what we're talking about here is this mathematical term, which is commutativity. And that's this concept where the order where it doesn't matter. Right. Like, that's like three plus two and two plus three. That's going to give you the same result. But this doesn't work as the complexity ramps up. But when it comes to your personal finances, the order, it matters in a major way. Right. Like, we're not talking about something as simple as was one plus one. And we want to make sure that you are on the right track, that you are doing things in the right order. There truly is an optimal way to go about achieving your different financial goals.

[Joel]

Yeah. If you're looking for a visual, by the way, on this, you can go to howtomoney.com, you can click start here and you can kind of we list out the money gears. So if you're saying, hey, I appreciate the audio, guys, I'd like to see a visual setup of what this looks like. Well, you can kind of run through them all. You can even print it out or whatever, keep it on hand. But I think it's going to be helpful for a lot of people, Matt, to hear this and then to actually visually see it and then to identify again where they're at inside of this order of operations so they can know kind of what they're tackling. And just like we're talking about when coming up with the debt payoff plan. Well, if you know where you're at in this money order of operations, inside of these money gears, it basically tells you what to work on, tells you what's next, gives you insight into where you are, which I think can be like, so helpful, so profound. If you're kind of like, I don't know where to go from here, which a lot of people find themselves, even if no matter which money gear they're in Sometimes you can be feel stymied because you're just not sure what the next step to take is. And if you start going in the.

[Matt]

Wrong direction, it feels like there's a thousand things that you could possibly do. But really there's just. There truly is one thing that you should be doing right.

[Joel]

So yeah, I think that this is just hopefully helpful as people are trying to figure out based on their own specific personal finance scenario where they are and kind of what they should be tackling immediately when it comes to their money. But let's get back to the beer Matt that we had on this episode. This was a vinology semillon by Monday night brewing like a kind of a beer wine hybrid.

[Matt]

Yeah.

[Joel]

What was your take on this one?

[Matt]

Yeah, it's a hybridized American wild flavored ale. And I'm not sure about that whole flavored part, but as opposed to like an actual ale.

[Joel]

But I guess the flavors in this beer are solid.

[Matt]

I think there are different requirements as to what you can call an ale. And so if they're actually taking it and they than like maybe mixing it, I think maybe they actually have to say that it's flavored as opposed to brewed.

[Joel]

Gotcha.

[Matt]

But yeah, man, this had some serious. I don't know what kind of grapes are Semillon, but I would say white wine grapes. It definitely drank like. Yeah, some of the. I don't. I know like very little about white wine.

[Joel]

Same.

[Matt]

Okay.

[Joel]

But there are more beers coming out. They're trying to be like wine beer hybrids. And I kind of appreciate like the direction this is going in. I guess it does make me actually kind of want to try more. More funky wines because I. I've had a couple and I'm like, man, these actually some of the funkier wines I've had lean more in the craft beer direction, and this almost leans more in the wine direction. So there's almost like some overlap now.

[Matt]

It's like you're meeting in the middle.

[Joel]

Yeah, yeah. Which is fascinating. And this one is like super tart, but yeah, also a little oaky, so.

[Matt]

Oh, definitely. Yeah. It had a lot of oak going on. It reminded me of some of the different. So a lot of beers, they'll age them in fooders, which are these basically like giant. Giant wine barrels. And so if you happen, maybe you're listening and you're just laughing at us because we know nothing about wine. Look for some of those different ales that are fooder aged because they're gonna have a lot of those oaky characteristics that are oftentimes associated with wines. You're gonna then find those similar notes within those beers.

[Joel]

Yeah, I think a lot of wine lovers can get into some kinds of beer. A lot of beer lovers can get into some kinds of wine. I think there's more overlap than maybe we give it credit for. And I just, just. It's a very, it's a very. Maybe just a lack of space in my brain.

[Matt]

It's a very different culture. I think that's the biggest thing is that like, in my mind, you know, what do you picture when you think of a vineyard? It's like, you know, it's kind of upper crust, it's kind of fancy. Whereas craft beer, it feels, it feels more like Irish.

[Joel]

I think of a lot of like beards and plaid, so that's what I think of when I think about the craft beer culture. But yes, that's going to do it for this episode. If you want, show notes with links to some of the stuff we mentioned, including kind of seeing the money gears, like written out so that you can consume them that, that way we'll have those at your disposal on our [e-mail] that's right.

[Matt]

And we'll see you back here on Friday with our Friday Flight episode where we're going to tackle some of the biggest stories that we've come across this week, how those stories impact your money. So don't forget to hit the subscribe button if you are not already subscribed to the podcast. But buddy, that's going to be it for this one. Until next time, Best friends out. Best friends out. Craftsman days are here at Lowes with big savings on the tools you need right now. Get a free select tool when you buy the Craftsman V22 pack battery kit. Whether it's the backyard, the bathroom or beyond, Craftsman has the tools to help you power through and get the project done right because diying is unfortunately predictable. But your tools shouldn't be. Shop Craftsman at Lowe's today valid through 79 while supplies last selection varies by location. Maximum initial battery voltage measured without a workload is 20 volts. Nominal voltage is 18. Did it occur to you that he charmed you in any way?

[Joel]

Yes, it did.

[Narrator]

But he was a charming man.

[Matt]

It looks like the ingredients of a really grand spy story because this ties together the cold war with the new. I often ask myself now, did I know the true Yan at all? Listen to Hot Agent of chaos on the iHeartRadio app, Apple Podcasts or wherever you get your podcasts OpenAI is a.

[Narrator]

Financial abomination, a thing that should not be an aberration, a symbol of rot at the heart of Silicon Valley. And I'm going to tell you why on my show, Better Offline, the rudest show in the tech industry, where we're breaking down why OpenAI, along with other AI companies, are dead set on lying to your business boss that they can take your job. I'm also going to be talking with the greatest minds in the industry about all the other ways the rich and powerful are ruining the computer. Listen to Better offline on the iHeartRadio app Apple Podcasts. Wherever you happen to get your podcasts.

[Matt]

This is an iHeart podcast.