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- [00:00]
Brian Preston
Sometimes you want to know where you are, where you're going. Guess what? Today we got seven cash flow milestones to hook you up.
- [00:13]
Bo Hanson
Brian, I am so excited to talk about this because oftentimes we talk about net worth milestones and oh, I want to be a millionaire, I want to hit this number, I want to achieve this thing. But a lot of times those are sort of longer term, longer form in nature. And so I'm excited for. We can talk about some milestones today that maybe happen a little earlier in our financial journey.
- [00:35]
Brian Preston
Well, since they're cash flow based, they do happen earlier, as you just said. But they also, this really lets you hone in on the behavioral side of your decision making and get that fruit really quick or the dividends from your discipline. And we're going to jump right into that.
- [00:49]
Bo Hanson
And we know that you guys love milestones. If you do want to know more about some of the net worth milestones we've talked about, we have a great show called are you on track to becoming a multimillionaire? This will tell you some of those net worth milestones that you ought to be hitting along your financial journey. But again, those, Brian, those stay so long dated. A lot of times it's hard to like stay focused, stay on track, stay committed, stay devoted to building towards that. So we came up with some cash flow milestones, some milestones that no matter where you are in your journey, you can hit. And what I like about these milestones is that not all of them are required in order to be able are required in order to be able to hit financial independence. Some of these milestones you may hit and some of the latter milestones you may never hit. And that's okay. That's what's beautiful about wealth building.
- [01:39]
Brian Preston
Doesn't mean you're not on track.
- [01:40]
Bo Hanson
That's right.
- [01:40]
Brian Preston
Financial independence. So let's jump right into these. The first one is milestone number one, cash flow positive. This is actually can you live on less than you make? We talk about all the time. Bo. There are three key ingredients to wealth creation. Creation. We've got discipline. Like I said, living on less than you make that margin from living on less than you make creates the money that if given enough of the third and most powerful ingredients, time, that's how we get to wealth building. So we wanted to focus on that discipline first because it means that you're actually making progress.
- [02:15]
Bo Hanson
That's exactly right. Once you can do this, once you can get to cash flow positive, you have now flipped the script of wealth building. You are now moving more close to your financial goals, not moving further away from it, you're not moving backwards. And we know that most Americans unfortunately end up moving backwards in their financial situation. They get into debt, they live beyond their means, they are not cash flow positive, which means they're not in the place that they want to be. So if you can just be net positive, you are already well ahead of a lot of your peers.
- [02:47]
Brian Preston
So how do we get to zero and beyond? I think the first thing, Beau, if we were asking, how do you do it? We got to make some big changes. Let's make the macro Big things you've got going on in your life, I'm talking about where do you live, what cars do you drive? These are the things, it's not the latte effect necessarily on, that you can make some big decisions and really move things in a way that you're going to see results almost immediately.
- [03:10]
Bo Hanson
This may sound extreme, but you cannot build wealth if your outflow is greater than your inflow. If you are spending more than you were bringing in, there is none left over to build for the future. So sometimes it does require huge, significant decisions. One of those decisions might be cutting up all your credit cards. If you're someone who is just so easy to swipe and even if you don't quite have in the bank account, you know, if you swipe that plastic, you can still have the thing. You may not be a credit card person, so you may have to go zero tolerance and get rid of those completely.
- [03:43]
Brian Preston
Also, I think about it in career and job. I mean, look, sometimes if you're waiting for the perfect job, you might be sitting on the sidelines. Or maybe you can also make the heavy decisions. If you need to actually make a hard decision to go into a completely different career. Don't sleep on these things. This is what's going to help you get ahead and get beyond zero.
- [04:04]
Bo Hanson
But maybe you're someone who says, hey guys, I'm in a really tough income spot, or I'm lower income and there's just not enough left over at the end of the month to make ends meet. And that's what's causing me to live beyond my means. Don't forget to recognize that there are some community resources out there available. Maybe it's SNAP benefits, or maybe there's some sort of affordable housing you may have access to, or maybe there are resources in your community that you can tap into if you're in the in that situation. This is the exact situation those benefits are there for. So make sure you understand what they are, you understand where they are, so that if you need to take advantage of them, you can take advantage of them.
- [04:43]
Brian Preston
I want to talk about milestone number two. This is one that gets me really excited because I even see myself within it. If we can get you to saving a hundred dollars a month, but there's a pretty shocking stat that we cover every year that comes out from bankrate that says that the majority of Americans can't even put their hands on $1,000. So if we can get you saving $100 a month, you are that much closer to being beyond 60% of your peers.
- [05:12]
Bo Hanson
That's right. That alone will put you ahead of them. And, Brian, this was even you said that back in your journey. I think you wrote about this in Millionaire Mission. This was the very impetus that started you on your wealth.
- [05:23]
Brian Preston
If you think about, I call it my Morrow moment. I had a Mr. Morrow, who was my economics teacher. It was not part of the curriculum. And this is the actual story that starts out Millionaire Mission is he came into the class and he said, look, every one of you guys, if you just save $100 a month, you'd be a millionaire when you retired. And I remember thinking, oh, my gosh, he just took something that seems impossible and put it right here in front of me to where it seemed tangible. And now I had a game plan. And he turned out to be exactly right. Talking about the wonderful, powerful thing of compounding growth.
- [05:54]
Bo Hanson
So what are some ways that you can get there? How do you save $100 a month? Well, one of the things you can do is maybe you can lower your fixed expenses. Maybe you have some ungrateful service providers out there. Maybe it's insurance carriers, maybe it's cell phone carriers, or maybe you have subscriptions that you just don't need and you could cut out. If you can lower those fixed expenses, all of those savings that you're able to accumulate can go towards that $100 a month saving.
- [06:19]
Brian Preston
We've talked about how the world has gotten crazy with subscriptions and other things. So sometimes you can just adjust your behaviors with how often you eat out what subscriptions you have. It doesn't take a lot, even how you go and grocery shop. I know, because we, you know, if you do a pantry audit before you go to the grocery store, you might find that you're not. You're not going to end up with three ketchups or two mayonnaises. I mean, there's all kind of things you can do to adjust your behaviors as small Changes can lead to big results in the long term.
- [06:45]
Bo Hanson
And when it comes to making financial decisions, we often have two levers we can pull. We can either decrease what we spend, lower our expenses, or we can increase our income. So maybe you might be able to find a side gig or a side hustle or some way to create additional income that would then give you the opportunity to begin saving that hundred dollars a month.
- [07:04]
Brian Preston
And then this is a big one, because I feel like in America we're big on the consumption, and typically consumption leads to a lot of consumer debt. We've got to figure out how we can eliminate the high interest debt. That's why it's number three of our financial order of operations.
- [07:18]
Bo Hanson
All right, so the question then becomes, okay, why would I do this? $100 a month? That seems small, that seems insignificant. Why is that meaningful? Well, do you recognize that if you can just start saving $100 a month and you could do that over 10 years, that $100 a month can turn into $18,000? And while that sounds amazing, you might not be thinking, oh, well, that, that doesn't seem incredible. That's not liable. I mean, if I think about, If I save $100 a month over 10 years, I've saved 12,000 and my portfolio is worth 18,000. That's only about a 35% growth metric. That's, that's something, but that's not like life changing. Well, if you can use that third ingredient of wealth creation, you can give it enough time. If you just save $100 a month, every month, over a 40 year working career where you will have saved $48,000 over that 40 years, your portfolio has the ability to grow to over $350,000. That means that 86% of what you've been able to save is your money. Working for you is compound interest doing what it does. So even if you just start small at the very beginning and you give it enough time, it can have a huge meaningful impact over the long term.
- [08:31]
Brian Preston
This is the powerful thing. Look. And we went super conservative on this illustration. We used 8%. The S&P 500 is averaged over 10%. So we could have even amped this up even more to where we could have turned that 86% growth just from the portfolio to 90 plus, 95 plus percent. But this is overall, it just shows you guys, if you will put your money to work, it can actually work harder than you can with your back, your brain, or your hands. But you just got to give it the time. You got to give the discipline and create that margin so you actually have money that goes to work for you.
- [09:02]
Bo Hanson
All right, Brian, let's talk about our third cash flow milestone. And this is actually in my financial journey, this is the first one that I remember remembering. It's the, the first one I remember hitting and thinking, man, this is awesome. And that is maxing out your Roth ira.
- [09:16]
Brian Preston
Yeah. First, it's probably important to understand, you know, maxing out a Roth, what would that take? The annual funding limits right now is $7,000 for those that are under 50. But if you're 50 and over, you can actually do $8,000 with the $1,000. Catch up. But that's going to work out. If you're trying to break this down into what does that mean on a monthly basis. If I want a dollar cost average or set it and forget it is around $583 a month is what you would need to max out your Roth ira.
- [09:43]
Bo Hanson
And one of the things that's beautiful is maybe you're hearing this later in the year and you're not hearing this in January, like, oh guys, I really want to max it, but I don't have enough months at 583. One of the beautiful things about Roth IRAs is they are, they are a type of account that you can actually fund in the next year. So even if you don't get it fully funded, fully maxed out by December 31st of this year, you have up until April 15th the following year to max out that Roth IRA. So even if you start now, it's still possible to hit this cash flow milestone, even if you don't do it inside of this calendar year.
- [10:15]
Brian Preston
Well, there's, there's so much social media content that's kind of against your 401ks, your Roth IRAs. I think it's important for us to share, to give context. Why do we actually love Roth iras? First of all, we love the fact these things are low expenses. If you think about the fact that they get completely tax free growth and distributions, how many things, there's a reason the government's restricting who can contribute and how much you can put in there is because they know that getting is good on these type of products. So you need to take advantage of that. And they also have a large selection of investments and then of course, flexibility with those contributions. If you are choosing the provider, use a low cost provider. You can buy index funds, you can really amp up the compounding growth opportunity with all the other benefits that we just shared.
- [11:03]
Bo Hanson
You know, another Reason why we love maxing out the Roth ira, and we love you hitting this cash flow milestone is this is just another check mark as you're working through the financial order of operations. Brian, can you hold the thing up as you're working through the financial order of operations, once you've maxed out your Roth ira, that means you've completed or you're on your way to completing step five, and there's a good chance at this point you get to move to step six. So once you've done this, you know that I'm continuing to move along and progress in my financial journey. All right, Brian, let's talk about this next cash flow milestone, because this one, I said that the first one I remember really remembering was maxing out the Roth. But this next milestone was one you said was a little poignant when you think about your, your financial history. And this milestone was saving $1,000 a month.
- [11:51]
Brian Preston
I mean, remember we just gave a stat earlier. Bankrate says that 60% of Americans can't even come up with a thousand dollars. Not going to remember. And look these, that these data points don't change a ton. But I can remember being in my late 20s, married, my wife and I both working, and when we had set up an automatic account builder doing a thousand dollars a month, I was like, honey, we've load up. This is something incredible. Let's go celebrate and have a meal to kind of think about this milestone. And it's, it really is a milestone because if you can think about it in terms, remember, we've been sharing that $100 does incredible things. Imagine what happens when you multiply that by 10.
- [12:32]
Bo Hanson
What, what I think is great is if you think about just saving $1,000, you think about the. Brian, when you hold the thing up again, the financial. If you're just maxing out your Roth IRA at current limits and you're maxing out your health savings account, the sum of those two comes out to about $941 a month. If you're just doing those two, you are right there at $1,000 a month. And if we think about the average American, we know that right now the median household income is just over $80,000 a year. Well, if you have the median income in this country and you're saving $1,000 a month, that automatically puts you at a 15% savings rate without factoring in your employer match, without factoring other contributions. So, so if you can just get there, you are well on your way to our 25% savings goal. That we want our financial mutants to hit.
- [13:22]
Brian Preston
And as I've already kind of laid a precursor for it, if $100 a month can create amazing things, you can imagine as soon as you get to $1,000 a month, a tenfold increase that, you know, you Fast forward to 40 years of saving and investing. Now that might be a little extreme. Even if it was just 30 years, you're still going to see that. You're going to see 80 plus percent of your account is growth. And here's what I like. You're a multi, multi millionaire. It's truly incredible.
- [13:49]
Bo Hanson
It's unbelievable. You know a lot of folks, they don't start their wealth building journey at the very beginning of their career. Maybe they didn't start at 22 or 23, but if you can get to where you are in the one comma club saving, that means you're saving four digits a month for most people over the course of their working career. If it's going to be 30 to 40 years, that behavior in and of itself will put you into seven figure status. It moves you into millionaire status. You just said over a 30 year timeline that thousand dollars a month can turn into a million and a half dollars. And if you can give it 40 years, you will have saved 480,000 of your own dollars. But your actual portfolio is worth over three and a half million dollars. You are in multi millionaire status without having to do anything remarkable other than begin saving early and save consistently through your financial journey.
- [14:41]
Brian Preston
That sets up milestone five. There's two ways I like to think about this is that you really get it into two categories here in America. You either are a builder or you're a consumer.
- [14:52]
Bo Hanson
That's right.
- [14:52]
Brian Preston
And one, this milestone number five is if your monthly savings and investments can exceed what your monthly debts are. From a mental perspective, I just can't help but get excited about that means the building has overtaken the consumption in a lot of ways.
- [15:10]
Bo Hanson
What I think is amazing is when we think about what is debt payments. Debt payments are us paying for something that happened in the past. And what is investing or savings. It's us planning for something in the future. When your monthly savings is greater than your monthly debt payments, it means that you are now investing more into your future self than you are making up for decisions your past self has made. It means that you have now flipped the script in your wealth building journey. And what's what's wild is if we think about how much Americans currently service, we know that according to LendingTree, Americans on average pay a little under sixteen hundred dollars a month towards debt. So as you are on your financial journey, if you can get your monthly savings above that amount, moving towards the future, it means that there's a really good chance your future life will look better than, more exciting than, more flush than your past life. And that's ultimately what we all want. That's what we're all striving toward as we move towards financial independence.
- [16:12]
Brian Preston
This doesn't take into account, I know people live in different parts of the country, have different debts, other things like that, but still. And even your life is going to change. You know, as you upgrade your housing, your debt numbers will change. But I still think the, the, the point of this, it's pretty exciting when your savings rate can actually exceed what your monthly debt payments are.
- [16:32]
Bo Hanson
That's exactly right. All right, Brian. So that's a fun milestone to hit, but again, it varies. There, there's, there's some nuance to it because like you said, you may have a debt fall off and another debt come on. And so it changes. But this next milestone doesn't change, because once you do this, this is kind of like that. I almost want like a little pin that you get to wear that says I did it, because this is a unique one. And I don't, I don't know that like most Americans get to do this, but if you do or if you are the situation where you can hit this milestone, it's one worth celebrating, and that's maxing out your salary deferral into your 401k.
- [17:07]
Brian Preston
So what would that lapel pin say? Like 401k max.
- [17:09]
Bo Hanson
401K max, I think is what it.
- [17:11]
Brian Preston
Would say turn into a verb.
- [17:13]
Bo Hanson
401K max is what my lapel pin.
- [17:16]
Brian Preston
And what would if, if we were trying to say what is a 401k max? Or what's the dollar amounts on that?
- [17:22]
Bo Hanson
Yeah. So in 2025, if you are someone who's under 50, you can put $23,500 into your 401. If you're over 50, you can actually go up to 31,000. And unique to these last couple years, if you're between ages 60 and 63, you can do $34,750 a year. And so then the question becomes, okay, well, that's, Those are the annual amounts. If we're talking about like cash flow milestones, what does that mean monthly? So if I want to be a salary deferral standard contributor, that means that in my 401k, I'm saving about $1,958 a month. If I'm someone who's over 50 and I'm doing the catch up, that means I'm saving about $2,583 a month. And if I happen to be in that sweet little donut hole where I can do the super catch up, it means that I am saving $2895 a month into my 401k.
- [18:14]
Brian Preston
But Bo, I've been watching social media content once again. There's so many people out there selling me whole life insurance. They're telling me 401ks are a scam.
- [18:21]
Bo Hanson
Yep.
- [18:22]
Brian Preston
What are they getting wrong? Because I think a good bit of context on why this is. Now look, I'm going to go and tell you because I wrote the book.
- [18:29]
Bo Hanson
On, literally wrote the book on order.
- [18:31]
Brian Preston
Of operations and there's a reason. Step number two is get in there and get that free money and I'm going to let you cover that more. But what give some additional context on why we love 401k.
- [18:41]
Bo Hanson
There are some reasons that we love them. We think they are amazing. The first of which is that when you put money into a 401k, when you make that decision, you're really making a tax decision. And you're making a tax decision either today or tomorrow. I either put money in today and I get a pre tax contribution. It lowers my taxable income and it saves me money on taxes a day. Or, or I make a Roth contribution into my 401k and I don't get a tax deduction today. But I'm going to put those dollars in and when I go to pull them out later in retirement they might be completely tax free. So I get to choose what type of tax treatment I want for these retirement contributions.
- [19:23]
Brian Preston
I just love them because they really automate the wealth building process. It also, I mean if you think about that free money from your employer plus what you're putting in, there's a reason that this is one of the first accounts that crosses into seven figure status for most millionaires is because these things really are a wealth building hack to really accelerate your journey.
- [19:45]
Bo Hanson
And then the other thing is if you are maxing out your 401k and you are taking advantage of this type of account once again, you get to progress along in the financial order of operations. You get to move along on your financial journey. Once you've mastered maxed out your employer sponsored retirement plan, you have now satisfied step number six of the financial order and you are now moving into step number seven, hyper accumulation.
- [20:10]
Brian Preston
Well, and it's, it's kind of poetic that step number seven ties into exactly our content structure, which in the financial order of operations. The goal that we really encourage you to reach is to have a milestone, number seven, which is investing 25% of your gross income towards retirement. Now look, if you're under $100,000 as a single individual, 200,000 as a married couple, that can include that free employer match money too. But the goal is to get to 25% of your gross income.
- [20:39]
Bo Hanson
Now again, I think this is one of those, if I had the pin that said 401k maxer on this breast, on this breast over here, I have my financial mutant pen. Because I think that we will say most people are either financial mutants or financial mutants in the making. And I would argue that we, once you hit that 25% savings and investing rate, you are minted a financial mutant. You have now achieved that status because it can be so powerful. There's a couple reasons why we love people saving 25% for the future.
- [21:09]
Brian Preston
Yeah, I mean, we're the intersection of the math plus the mindset that kind of goes into this. And the first thing is, is we just know people are starting later.
- [21:16]
Bo Hanson
That's right.
- [21:17]
Brian Preston
If the typical person is not even starting their first investment account until they're age 33, it's not going to be one of those lovable, squeezable 10% that you might have seen in the financial book of the past, or even 15%. I think it's going to fall more on you to get in there and get that 25% working.
- [21:34]
Bo Hanson
Not only are people waiting later to start saving and investing, but also people want flexibility earlier on, they kind of want their cake and they want to eat it too. So a lot of folks want to be able to do what they want on their terms, the way they want to do it before age 65. That means that there's a really good chance if you're only saving 5, 10, 15%, you're not going to give yourself enough time, enough resources to be able to exit the workforce and be financially independent early.
- [22:03]
Brian Preston
And a lot of people ask us, why do you use gross versus like net? And it's back to control. What do you actually control? There's so many things in our life financially that you don't control. But you can look at what you make in the gross sense, figure out a savings rate, and these things work. It intersects with what's your future pension, what's your Social Security, all these things, we're not going to know what those situations might end up looking like at retirement. But you can, if you go ahead and proactively set an aggressive savings rate like 25%, you control all those other variables, no matter what laws, tax rates or other things are rolling around out there when you retire.
- [22:41]
Bo Hanson
And if you want to know why, why do we choose 25%? We have a great resource you can go out to moneyguy.com resources called How Much should you save? And this is the way that we've laid this out. We said that at different ages, what would my savings rate need to be to replace a certain percentage of my income? So as you look at the chart, the savings rate goes across the x axis and the age goes across the Y axis and where they intersect shows you how much of your income you would be able to replace. And so if you see if most people aren't starting to save until they're in their early to mid-30s, you can see it's that 25% savings rate that gets you to an income replacement of somewhere around 84, 85%. Obviously, the earlier you start, maybe the more margin or the more wiggle room you have. But again, you already said this. We don't know where life is going to take us. We don't know about all the unknown unknown. So if I can start saving early and often, what I'm going to do is I'm going to give my future self a lot of flexibility if life ends up happening and have to adjust my savings rate later.
- [23:43]
Brian Preston
And I love that kind of. Cole comes full circle with another FU reference is that you do this 25%, it's going to allow you to transition from step seven, that hyper accumulation to step eight, which is prepaid future expenses. This is where if you want to help the kids with their college funding, if you want to get into real estate investing, if you want to just kind of start moving into investment classes that are not your normal, you know, tried and true index funds and beyond. This is your opportunity because you've made sacrifices, you discipline, you've made the right decisions so you have more control on your financial life.
- [24:19]
Bo Hanson
The fact of the matter is, is that our wealth building journey is slow and steady. And for most of us there is a long dated future thing that we're trying to work towards. We want, want to work towards financial independence. And yet if we can recognize there are certain milestones we can hit along the way, there are certain cash flow milestones that once we do those we can mentally say to ourselves, I'm doing what I'm supposed to be doing and I'm moving in the direction that I'm supposed to be moving. It does not have to be overly complicated, but you do have to be disciplined. You do have to begin making the decisions today so that you can set your future self up for success.
- [24:57]
Brian Preston
So this one was cash flow milestones. And these are important because I think you can hit some of these pretty quickly and start catching traction. I do want to encourage you, please go check out some of the other milestones we have on net worth and how you're building your multimillionaire status. All these things are intersecting all over the place. Because the good thing is when you have a plan and that's exactly what we've done by creating the financial order of operations, you start seeing how all these things that seem so independent of each other actually do connect and create your great big beautiful tomorrow. And we've laid this all out completely free. That's why we always say there is a better way to do money. And I would encourage you go to moneyguy.com resources, download some of our free stuff, lean into it, get dialed in on our community with the Money Guy show. And then once you reach a level of success, your life gets of kind complicated and you start wondering, man, I can't believe I'm in this multi seven figure status now. I'm worried about what, I don't know, what are my blind spots. This is my first retirement. Don't worry, we're going to leave the lights on for you. That's when we're going to let the abundance cycle reach its next phase and you'll take the relationship to the next level. Go to moneyguy.com or aboundwealth.com and check out work with us. We'd love to, love to help you with your success and your abundance and, and make sure you're managing your money as good as you possibly can so you live your best financial life. I'm your Host, Brian Preston. Mr. Bo Hanson. Moneyguy team out the Moneyguy show is.
- [26:26]
Bo Hanson
Hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the securities and Exchange Commission. In accordance and compliance with the securities laws and regulations, Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors and does not constitute financial tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.