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Are You Worse Off Financially in 2025? | Ask Money Guy
00:58:57
Ask Money Guy | May 6th, 2025
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- [00:01]
Brian Preston
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- [00:35]
Bo Hanson
Here's a question. Are Americans worse off in 2025?
- [00:39]
Reby
Brian, I am so excited to talk about this because we love for people to have confidence and feel secure and feel good about their financial circumstance, but a lot of stuff out there suggesting that right now, today, in 2025, as we sit, Americans are actually worse off financially. And so we want to answer the question, is that true? And even should it be true?
- [01:03]
Bo Hanson
Well, we're constantly looking for data to just kind of help us read the tea leaves, also just get a pulse of what's going on. And there was a Gallup survey that just came out and we're going to kind of go over those results. But I'll tell you what, I, it's not too different than the way I look at the market and we'll talk about the data for today, but I think where the real value is is the trends that have happened really over the last 10 to 15 years just watching the change. And is there anything we can read into it on what might be coming our way in the future?
- [01:33]
Reby
Yes. The way that Gallup actually outlined this is there were two questions they asked. They said, first, would you say that you are financially better off now than you were a year ago, or are you financially worse off? So that's question number one. And then question number two was, do you expect that at this time next year you'll be in a better financial position or worse? So where are you today relative to last year? And then where do you think you'll be next year relative to the day? And like you, I thought the trend here was kind of interesting.
- [02:02]
Bo Hanson
Yeah, I mean, now look, we have to share that based upon the way the results came back is that 38% said that they feel like they're better off, 44% said that they're worse off. And then there's this whole section that's a little less than 20% that are kind of neutral. So what they do is they take the spread between the better and the worse and they come up with a negative 6%.
- [02:24]
Reby
Yep.
- [02:24]
Bo Hanson
Now, at first you're like, well, that doesn't sound good. But then, like I said, you zoom out and you look at the trends and look at what happened post, you know, the pandemic, really, from 2020, we've been in a state of decline. This is really one of the first years where we've actually seen where the better off and the worst off kind of have converging and getting closing closer to each other to the point that it makes me wonder, are we headed towards more like that 2008 to all the way to 2020, where things were on the. Seems like before the future.
- [03:00]
Reby
Opportunistic. Yeah, that's exactly right.
- [03:01]
Bo Hanson
And that even follows up with the data, because the next question that Gallup asked was, what do you think about next year? Now, I brought this up in the content meeting. Y'all said that this is. I shouldn't make that inference, but I'll say it anyway.
- [03:15]
Reby
You're like, brian, you shouldn't do this. So you said, you know what? On air, we'll do it.
- [03:19]
Bo Hanson
Any. The majority of Americans, for my own reason, whenever we do studies and we do show content on. Are Americans pessimists or optimists? Sadly, the majority are actually pessimists. But I was pleasantly surprised to see that in this survey. When you ask Americans, 66% believe that they'll be better off next year. And that's more of an optimist take. And I like optimists because I think that, you know, it's the villains and victims they typically, you don't see the stories written about them, but you do see stories written about people who kind of try to figure out what are the things that I can take from my life and improve upon and kind of create a plan to live my great big beautiful tomorrow.
- [04:04]
Reby
And what I like is you guys, you financial mutants out there are different than the average American. We did a poll, we said, hey, do you think you're better off financially compared to a year ago? And Brian, you haven't seen this. Our respondents, you guys, right now out in the live chat, 74% of folks said they are better off today than they were last year, which is a wonderful thing. It moves that we're moving in a positive direction. But what we want you to do is we want you to always have confidence in where you are financially, and we really want you to have confidence in where you're going financially. So what are some things that you can think through or how can you approach this so that you feel that way, even if there is uncertainty out there economically or maybe even uncertainty in your unique financial situation. What are some of the things that you can think through? What are some of the things you can process to hopefully have that optimistic outlook? And the first one, this is no surprise. We think that if you can have a plan in place, you are automatically putting yourself far ahead of your peers.
- [05:05]
Bo Hanson
Well, remember, we always have 40% of new people who are coming into the show brand new. So that's why I tell you, if you don't know about the better mousetrap that we've created, the financial order of operations, I'll make the sounds is your friend. I mean we literally have written the book on how, what to do with your next dollar. So you don't have to have any guesswork. I mean we even tell you all the whys, we put you through, all the mistakes that we've made, we've seen our clients make so you can fill in the gaps and then once again live your best financial life.
- [05:35]
Reby
And I think a lot, a lot of people, a lot of the angst they have around finances is just not knowing what the best step is, what the next best decision is. That's exactly why the financial order of operations there, it's a nine step process to help you figure out what do I do with my next dollar, how do I move forward, where do I go? So step number one is to have a plan. Well then step number two, immediately following that is to track your progress. Okay. Am I actually doing the things that I said I was going to do? Hey, I said I was going to increase my 401k contributions this year. When I look at my 401k account today versus where it was last year, has it gone up? Has it improved? Are you actually doing an annual net worth statement to see where am I today and how does that compare to where I was last year? If I can do that. What I can observe over time is that things are steadily and consistently getting better. If I'm making the decisions that I know I should be making.
- [06:31]
Bo Hanson
Well, in tracking your progress is there's some great tools out there. We often talk about budgeting plan and cash flow management plans. Then don't sleep on also doing that annual net worth statement and then using that as a great communication tool. But there will reach a point. Look, we count on it. That's why we always say we leave the light on for you is if we train you right and give you all the building blocks of what creates success with money, I know that there will become a point that success will create complications and there will be blind spots, there will be things you just don't know the answer to or you're even just nervous. Even if you're good with money, you'll be like, I'm only going to do this the first time. Do I really want to kind of be naked in my decisions and do this and not know what I don't know? And that's why we do talk about the abundance cycle. The next stage or the stage of graduation is after you reach a level of success. You know, getting closer to seven figure success. Consider taking the relationship to the next level.
- [07:32]
Reby
That's right. We think that a lot of folks are generally like three times that you might find either one. Like you said, the gravity of your financial decisions is so great that you're nervous that a 10% mistake on my financial situation now could be a big oh, or maybe it's just gotten so complex that I don't know the things that I don't know. Or maybe I'm just at that stage of life where I'm so busy that the financial matters of my life fall to the back burner far too quickly. If one of those three describes you, then it might be a great time for you to consider completing the abundance cycle. Reaching out, checking out moneyguy.com become a client and see what it means to actually have someone in your corner so that you can have a positive outlook and not worry about any unknown unknowns that the economic world out there might throw out to you.
- [08:21]
Bo Hanson
And hey, if you're out there in the podcast world, at a minimum, go check out what we look like in sports coats.
- [08:26]
Reby
There we go. That is a great point. We don't often do that. Brian, I have a question for you. You ready? First question, this is our. We've recorded now in the studio. How you feeling about it now? You feel like we're getting our sea legs about us a little bit.
- [08:41]
Bo Hanson
I love this new studio. I mean it is. What's interesting is my mother in law, coincidentally her had a like a retiree group that was just touring Nashville and somehow the city of Franklin was on their Saturday morning stopover.
- [08:57]
Reby
I love it.
- [08:57]
Bo Hanson
So I got to bring her into the new studio, got to bring the family in and they all loved it too. Everybody we have shown the studio. I can't wait when we start doing studio tours and other things when that gets cranked back up because this thing is a whole another level.
- [09:12]
Reby
Yeah, I think when they put it on the brochure, like when you come to Nashville, the things you're supposed to do. You're supposed to go see the country music hall of Fame, and you got to go check out Broadway and see what that's all about. And then you got to come to the money guy studio. So I think those are probably, like, the three highlights, main things that you have to do when you get here. So, you know, we love that we get to sit here, we get to share this information. We get to hopefully give you a different perspective on how you ought to look at finances. But we also love that we can speak to the things that you care about. It's why we have the team out in the wings right now collecting your questions because we want to load you up. We believe there is a better way to do money, and so we want to answer your questions to help you do that. So if you have a question, make sure you get it in the chat right now. So with that creative director, Reby, I'm gonna throw it over to you.
- [09:58]
Bo Hanson
Ribi, I have a question. Yours is still a static microphone. You can't, like, you can't dance with yours?
- [10:04]
Josh
No, I can't, but. No, this is a great upgrade, though. Like, I was kind of excited, like, oh, I get a new microphone, too. This is so fun.
- [10:11]
Reby
You said you can't dance with your microphone.
- [10:13]
Bo Hanson
I know, but I realize that, like, Josh over there is probably like, as.
- [10:17]
Reby
Soon as you did that, because I'm.
- [10:18]
Bo Hanson
Over there swinging it away from my voice as I'm talking, so I'm breaking all kind of rules in broadcasting.
- [10:23]
Reby
That's hilarious.
- [10:24]
Josh
Well, I do have a question queued up from Shane W. He says in your show Making a Millionaire, you mentioned that cash can be a wealth builder when used to buy undervalued assets in a downturn. At what point is keeping cash on the sidelines an attempt at market timing?
- [10:43]
Bo Hanson
Oh, I mean, that's a solid question.
- [10:45]
Reby
I love this question.
- [10:46]
Josh
Interesting question.
- [10:47]
Reby
You and I have talked about this exhaustively over the years, and I'd love to get your take. For those of you who aren't familiar, though, Shane referenced something. Making a Millionaire. It's a brand new show that we've released that comes out every other Monday morning. So if you've not subscribed to the channel, you're not going to know when. We have new episodes coming out and we have all kinds of different guests come on, and we basically get to do a deep dive into millionaires and millionaires in the making. So if you've not checked that out, make sure you go check out those episodes. But Shane is right. One of the things that we did say in that episode is that having additional cash, additional powder money can be a wealth builder when volatility or opportunity presents itself. But how, how do you parse that between market timing versus this is, this.
- [11:31]
Bo Hanson
Is what I once again, I love the all terrain vehicle status of the financial order of operations. And, and I detailed this pretty handily in Millionaire Mission and the fact that I consider when you're using the powder money of cash, meaning as a wealth builder, this is really a step eight type thing. So if you think about all the nine steps of the financial order of operations is that after you've gone through the basics of, you know, keeping yourself from making desperate decisions with steps one and four, getting the free money from your employer, avoiding the high interest debt, then loading up, you know, these tax favored retirement accounts between the Roth, the hsa, then loading up those employer plans, of course, seven, you're going to think about how you're going to use the money in retirement, but then you get to prepaid future expenses. A lot of times, you know, we chose to use the diploma or the graduation hat on there because we're thinking about the kids education. This might also be when you get into rental property, but also like this might be when you start running a little, a little fatter on cash because and I don't think it is market timing to the point, I mean, but the 25% is going in automatic for the people. This is more of you're trying to, you have resources that are building in the background like a good field general. You're trying to figure out how you navigate in the best way possible. Is this going to be more generosity? Is this going to be more investments? Is this going to be, hey, all of a sudden there's values disconnected from what prices are in the marketplace. This might be generational opportunities here to buy this building for my business to do. You know, this is how this is all kind of manifested in my life. And I just felt like, and that's why it's so detailed in the book is that if we're not sharing these things because I think financial mutants naturally think cash is trash. I mean, how often do we see financial mutants go the other way with it where they're running cash so lean because they see it as this is man, we're just not maximizing our money. So I just wanted to flip that argument upside down and say when you look at people like Warren Buffet, you look at some of the decisions we've made with commercial real Estate. You quickly realize that there's another narrative as long as you've done all the other things of steps one through seven, where cash can be an amplifier of wealth if you're in the right place at the right time with that precious resource that nobody else has because they're running it. So lean in those moments where the economy changes.
- [13:57]
Reby
But you can't do that before you hit the 25%. You can't do it before you get to step eight. Like if you were going to, I think we did this a couple years ago. They did like a bracket with some of our phrases and stuff. And I think one of the winners or one of the final four was always be buying. And that is what we feel like for most people out there. You should always be buying. That's what your 25% is doing. It's only above and beyond that point that it might make sense to build up extra cash if you have extra liquidity for opportunistic type investments. It's not. Instead of the 25%. That's a fantastic point.
- [14:33]
Josh
Love it. Shane W. Great question and great conversation that followed. We appreciate you being here. Kelly P's question is up next. She says, oof, that's backwards. Foo. We were on step six, then had an ER and hospital stay needing us to dip into emergency reserves. Now we're back on step four. So what's the best way to rebuild?
- [14:58]
Reby
All right, so one, I want to pause there for a moment and say kudos to you guys because one, it sucks whenever we have like an unknown medical emergency and we find ourselves in the ER that stinks. And when that visit actually leads to hospitalization, that's an awful outcome. But you just, by telling me your story, let me know that you had an emergency fund in place. And that emergency fund in place was there for the very thing that happened, the very emergency that came your way. And so what you were able to do is when that happened, you were able to tap into the emergency fund. Here's what I didn't hear. I had to go cash out my 401k. I had to go rack up credit card debt. I had to go borrow money from a family member. You did not have to do those things because you had your emergency fund there for such a time as this. So now your question becomes, okay, I, you know, I took a step back in the food because of this unknown. Unknown. I was on step six. I was maxing out my employer. Sponsored. Now I'm back in step four. How do I get back to where I was first.
- [16:01]
Bo Hanson
Lean into the fact that you're back in step four. I mean, by the way, we have the. I'm going to challenge the content team if they throw up the slide where we. Often people think that the financial order of operations is going to be a linear process where you go through steps all the way from the ground rules all the way to step nine. But the reality is life just comes at you. We know this once again, Foo is an all terrain vehicle is that it's not uncommon that you'll have setbacks in life that will actually take you backwards. I liked how they oofed, you know, essentially took food backwards because it does naturally happen. So lean into the fact that you're back to emergency reserves and then let's measure twice on that. Meaning that your emergency reserves needs might be different than they were because you talked about you had a medical emergency. So once again just go remeasure, what do we need? Are we three months? Are we six months? Are we somewhere even beyond that? So that way you can hone in on what do you actually need in the emergency reserves in this new version of the life you're in. And then after you kind of determine what that number is, get white hot focus with getting through step four and then right back into the building process of the financial order of operations. Meaning you're going to focus entirely on making sure you get the emergency reserves built up. And then once that is kind of closing out, then yeah, let's get back to those tax favored investments with step five with the, you know, Roth with the HSAs and then get step six and load up those employer plans. You will be there in no time. But you do need to have, you know, really laser focus in on making sure that you get the cash reserves done right.
- [17:32]
Reby
And now I think one of the things where people fall short and Kelly, you're likely going to have an inkling to do this and we see this in a lot of our making a millionaire guests where they'll be like, okay, I want to build my emergency fund, but I also, there's some other stuff I want to do. I want to build my merchant fund and I want to do the roth and the HSA and I want to put some in a 529 and I want to have some going into this. But if, if what you're trying to do is do all of the steps at once, what you're likely going to have is a suboptimal sub efficient outcome that's not going to actually put you in the financial place that you want to be in. So even though it might be painful, I love how you said get white hot focused on actually getting that emergency fund built up so that then you can start focusing on the fun stuff.
- [18:15]
Bo Hanson
Well, and think about step five is typically Roth and Health Savings accounts. Both of those give you the grace of January to April of the following year. You can still make contributions for the previous year. So I don't know how the timing works out, but a lot of times people don't realize you actually have a way to go back and even fund those prior years. If you can do that white hot focus that much sooner so that you can get on the other side of it.
- [18:39]
Reby
Love that.
- [18:40]
Josh
Love that too. Robert S. Thank you for the question. That wasn't Robert S. That was Kelly.
- [18:44]
Bo Hanson
P. That was Kelly P. Oh, Kelly Pickler's out there.
- [18:47]
Josh
Maybe.
- [18:48]
Reby
I'm Nashville native, by the way.
- [18:50]
Bo Hanson
You know, we got all types out there.
- [18:52]
Reby
I love you.
- [18:53]
Josh
No Kelly P. Sorry about that. Thank you for your question. Oh, it wasn't Kelly S's question.
- [18:58]
Reby
Probably was. Hey, can I, can I say something before we do Robert's question? I, I don't try. I don't often read the comments on the show, but this one was so good. I thought you'd love this. This is from Jason B. Said this. I took Brian's 200 challenge. For those of you that don't know Inside a Millionaire mission, Brian came with this idea like, man, I want to give people this actionable thing that can actually put money in their back pocket. Right. That's what, that's where the $200 challenge came out.
- [19:22]
Bo Hanson
Yeah, because I think, I think people without you having. Because we always say you have to make more, you have to spend less. But is there an easy way to do that without feeling like you're actually cutting your life? And I came up with the $200 a month challenge just by ungrateful service providers calling your insurance companies, calling utility providers, as well as just everyday purchases that you're probably just inefficient with.
- [19:43]
Reby
Yep. I love it. So this is what Jason B. Said. I took Brian's $200 challenge and I found $400. He said, we will be free with maxed out Roth retirement investments a little over a year. Foo is for real. There's like a real world practical example of someone who read the book, took a thing out of it, and is now charging forward.
- [20:03]
Bo Hanson
I just, my heart goes, pity Pat, because that just makes me happy.
- [20:07]
Josh
Oh, pity Pat makes me happy too. Okay. Robert S's question is here. Speaking of emergency funds, if I have an hsa, should I count that as part of my emergency fund? Depending on that answer, I could be doing better or worse in 2025. So can you help him think about this in a more constructive way?
- [20:30]
Bo Hanson
Well, I'll even. Because Bo, I'll let you kind of jump in first. But we get this question because HSAs Roth IRAs are always, those are step five transactions. And a lot of people because it's true in an emergency break glass, if you have money in these accounts, you can usually get access to the principal. Does that mean we should count those as step four?
- [20:51]
Reby
Well, I'm going to say this is sort of, this is an interesting robber. I'm going to put an. It depends on this and because it depends on how you're using your health savings account because there are some different and varied ways that you can use it. If you're using your health savings account as like an intra year slush fund where you put money in there and you pull money out for qualified medical expenses and you keep those dollars in cash, I would argue that some portion of your HSA could be considered your emergency fund. Now, not all of it because you may have non medical emergencies like if your car goes out, you can't pull HSA dollars out to pay for the car or if you have, you know, some other unknown thing happen at the house. HSA dollars can only be used for qualified medical expenses. So the it can take up part of your emergency fund, but only a small part based on medical and it has to stay in cash if you're doing that though I would argue my opinion you're being a little bit suboptimal here because the way that we really love to see health savings accounts used is we love to see those dollars get invested so that they can grow and they can compound through time. And then ultimately one day when you pull those dollars out, they can be completely tax free, whether they're paying for current medical expenses or medical expenses that you incurred in the past. So I love HSA is to actually be tax free dollars. So when it comes to like funding the HSA and thinking about it, I like to think about that the same way as my investment assets which would be above and beyond step four when I've actually got a fully funded emergency reserve.
- [22:24]
Bo Hanson
I wrote down three quick notes. Is that look, I think it's a bonus feature that Health Savings and Roth IRAs can. In a really dire emergency, you actually can have more access to resources than you. You might have originally counted, but I still stand by. And this is the second note. Cash reserves should stand on their own two feet because we're creating a plan before this is before the chaos comes your way, before the poop hits the fan. That's what you're designing your emergency reserves through steps one and four so you can get ahead of it instead of reacting like it seems like most Americans do. And I worry that if you take into account that, you know, you have access to this health savings account, you know, you have Roth, you're going to run the risk of running your cash very lean and take on additional risk. And that's just not, that's not honoring the intent of why we design steps one and four. And so that's why I really do want emergency reserves to be built on a plan where they stand on their own and they cover your, you know, your monthly expenses for that three to six months or even beyond if you're getting closer to retirement or you have some unique situation. But I do think it's a bonus feature that, yes, you can be aware of in case of emergency. You've got, you know, kind of a parachute that you can get access to this as well. But, but don't, don't use, don't let that access point or that bonus feature skew you from having a subpar amount in your emergency reserves.
- [23:50]
Reby
Greed.
- [23:52]
Josh
Fantastic. Robert S. Thanks for the question. Vegas has a question for you. He says, I did the smart thing ahead of the April 9 dip and sold into cash. When do I know?
- [24:08]
Bo Hanson
Smart thing.
- [24:09]
Josh
Well, you can speak to that. And then his question is, when do I know when to buy back in?
- [24:14]
Bo Hanson
Oh, man. In that, the million dollar question there, there is the other side of the coin.
- [24:20]
Reby
So I'm going to reframe Vegas's question. Hey, I got real, real lucky. How do I know when to get real, real lucky again? I mean, that's, that's, that's a problem.
- [24:29]
Josh
Yeah, that's the problem.
- [24:30]
Reby
Market timing. Whenever you try to time the market, you got to get it right twice. You got to get your entry point right, and you got to get your exit point right. And if you're going to be someone who's going to do this over and over, you got to keep repeating that process, repeating that process. I'm going to assume, Vegas, that you just had a momentary lapse in judgment and you said, oh, I accidentally sold everything on April 9, and it happened to work out for me. So now that it's time to think about putting that Money back to work. One of the things I'm going to think through is I'm going to remove emotions from the equation. I'm going to wait to try to. I'm not going to wait and try to find the perfect entry point. Now I'm going to put together some sort of emotional strategy or process. Maybe that's just dollar cost averaging. Every month I've got, you know, I sold my portfolio, it's $100,000 and I'm just going to buy $25,000 a month in each of the next four months in the same day, whether the market's up or down. And I'm going to get those dollars back to work for me so that I don't get caught in this analysis. Paralysis, inertia, position of doing nothing. Because what if there's not another, like, clear entry point and the market just kind of does what the market does and just keeps going up and up and up? How much are you going to be willing to miss out on before you recognize the opportunity to jump back in?
- [25:43]
Bo Hanson
I worry about behavioral traps and sometimes some of the things that can turn behavioral traps into behavioral bad habits is when you're actually rewarded for doing something you shouldn't do. And I can tell by the way you frame the question, you're like, I did the smart thing, smart thing, and I sold before the market went down. Well, we know as of Friday all this tariff stuff now look, moment in time. I don't know what's going to happen next week. I don't know what's going to happen. Six months we might be like, wow, you know, sure is going to go a lot worse from here or it could be even better. But I do know from as a Friday, all the headlines are saying it seems like we had recovered a lot of the tariff downfall stuff that had happened. And that's the problem, I worry for Vegas is that you did something. Now you're questioning, when do I get back in? Meanwhile, the market's moving in the background. You've got to take, you got to create as many habits that you can to make good behaviors easy. Easy.
- [26:44]
Reby
That's right.
- [26:44]
Bo Hanson
And you know what's the best way to build wealth is to just set it, forget it and just be consistent. Always be buying. And that's why even I talked about in the book and somebody put it out on Twitter or X here in the last week. And I don't know if the social media team caught it, but it was a quote from Millionaire Mission where I said that, where they quoted Me in the book as saying that investing is one of those things where you can actually be bad at it, meaning your timing could be horrible. But yet if you're consistent and even buy through the bad stuff that's going on in the market and the economy, you're going to look back and even the worst investors can be super successful investors. And that's why Vegas, I want you on that side of the always be buying the always being consistently building assets in the background versus somebody who's rolling the dice, hoping that you get lucky. And then you can string together not just one smart thing, but you can string together 2, 3, 4. It's just because I don't want you now, it's going to feel easier to you the next time there's volatility, you'd be like, I got rewarded that last.
- [27:53]
Reby
Time, might as well do this again.
- [27:54]
Bo Hanson
Let's do it again. This works for me. I'm a timer, I'm smarter than the market. And that's usually famous last words. You know, just ask Bo and myself when we got into doing options trading.
- [28:05]
Reby
Worst thing you can do is be right the first time.
- [28:07]
Bo Hanson
You get it right one time and you think you're a genius. And then, man, the world can humble you very, very quickly. And that's what I worry Vegas. That's why. And it's also an emotional thing because if, for instance, and I don't know, like I said, I don't know what the markets could do, but what if we took off from here, there's some great trade deal worked out with all these countries, tax rules change and all this other positive, you know, economic things, and then maybe the interest rates even start showing some pressure. And if the market spiked up 10 to 12%, how are you going to feel the same emotion that got you in this trouble that you went for the exits and went to cash is going to be the same thing that's going to just gall at you that you're sitting on the sidelines while your peers and everybody else is making money. You feel like you should be now making. And we've seen this happen time and time again where it's because it feels good to go to cash. You think about all the indicators economically where, like in the Great Recession where the peak opportunity to be investing cash was at all time highs, because that's just human nature is that we seek comfort at the world's worst time. And then typically when the markets are overvalued and it's the peak weakness that you could get burned that's when we're the greediest. Typically so human nature, human emotion is your enemy. And the sooner you can get a hold of that, the better you'll be and the wealthier you'll be.
- [29:30]
Reby
Love it.
- [29:31]
Josh
Great question, Vegas. Classic question. An important answer. So glad we got to talk about it today. May the food be with you.
- [29:39]
Bo Hanson
Oh, man, that's a good timing.
- [29:41]
Josh
Yep. They have a question for you. It says question. Brian says if income is over 200k to not count the retirement match in your savings rate.
- [29:52]
Bo Hanson
That's right.
- [29:53]
Josh
I'm wondering if he can expand on that thinking and the reasons behind that. Thank you.
- [29:59]
Reby
I bet he can.
- [30:00]
Bo Hanson
Yeah. Those who, if you're blessed or talented enough that you make a lot of money, you get further and further away from that social safety net. And that's also going to. Meaning Social Security and protections. You think about pension guarantee, protection, all these things are kind of start going away when you're in this high income situation. And then also what typically happens when you have a high income, you have high expenses. So, you know, I don't want you to live this lavish life, have tremendous success, and then you have this false sense that I'm going to be okay because you're counting your employer match and all these other things and you're not adjusting your savings rate with your success. And then you get closer to retirement and you realize, oh my gosh, do you know how many millions of dollars I have to have to replace $150,000 a year? It's not, it's not like somebody, you know, think about, you know, you hear about the wealthy school teacher who has the pension, who has Social Security, and then, you know, they, they saved up a million dollars in their portfolio. So they're living like a close to a six figure life. You're not going to have that. If you're making, you know, two or $300,000 a year, you're spending $200,000 a year, you better start building up some assets in the background because there's no Social Security that's going to cover the majority of that. There's not. You're going to pay. You're going to. There's potential. It could be means tested. This down the road, could be means tested. There's just a lot of risks that you're now starting to carry and a lot of responsibility you need to backfill.
- [31:35]
Reby
I agree. I literally have nothing to add to that. That's wonderful.
- [31:38]
Josh
It was a great answer. Well, that was a great answer for you. May the food be with you. And I hope that that helps you understand.
- [31:43]
Bo Hanson
Well look, it's supposed to be a carrot for those under a hundred thousand, you know, if you're single, under 200,000 as a married couple to understand because I know in this day and time where cost of living has gone way up, especially on like housing for a moment, you know, even on some food. Food and other prices. So I like the fact that when people hear our 25% and then you find out hey, my employer putting 7, 8% in there for me makes that a much more manageable. It makes it you now you feel like man, this, this plan is not disconnected from reality because I get to count my employer. But I have to also be soberly honest with you is that if you make a ton of money, you better be prepared to save extra because those responsibilities fall on your shoulder squarely.
- [32:25]
Reby
Exactly right.
- [32:27]
Josh
Love it. All right, Paul's question is up next. He says the wife and I are 26. We make 160k.
- [32:35]
Bo Hanson
Nice.
- [32:36]
Josh
I'm saving 15% to retirement and 15% to to home. I'm guessing that's to buy a home. His wife's parents took 60k out in parent plus loans at 5 to 7 and a half percent for her and expect us to pay. We're making minimums. When should we prioritize this?
- [32:56]
Bo Hanson
What was the interest rates?
- [32:58]
Reby
Parent plus loans 5 to 7%. So here's one of the things and it's so funny whenever we have people who tell us about their student loans, that's normally the way that it's always phrased. Hey, I've got X amount of loans at an average rate of 6.4% or at a range of 5 to 7. I think Paul, one of the things that I'd want to do to really be able to like analyze the absolute best decision is I don't want to see what the actual loan amounts and actual loan rates are because some that are at 7%, seven and a half.
- [33:30]
Bo Hanson
I saw on the next.
- [33:31]
Reby
Yeah, maybe less excited, less acceptable. But for a 26 year old, someone in their mid-20s who's trying to save for a house and has a huge wealth multiplier, something down around 5% may be okay. It may not be necessary to have to attack those. So I'd want to like order all of my student loan debts again. We've done, we've done this exact exercise on an episode of Making a Millionaire where you can see, okay, it might not make sense to prepay or to pay off all of the student Loans, but man, the ones that are high interest we should potentially attack. And that way you're able to satisfy that. You're able to do step three of the financial order of operations, but you're still able to pursue your other goals. Like it sounds like saving for a potential future home purchase as well as building towards financial independence with that 15% savings rate.
- [34:17]
Bo Hanson
Yeah. And we've detailed, we talked about risk premium and other things in the past. I think for somebody in their 20s, you know, over 6% would probably be higher interest debt. So you could go knock out those seven and a half percent and then naturally by the time you reach your 30s, we scale that number down because the older you get, the more you need to de risk premium risk because that risk premium through asset allocation, not uncommon. Then all of a sudden when you're in your 30s, that 5% now is considered higher interest. But that allows you to kind of understand and differentiate what you know. So you're not missing out on that wealth multiplier. Because through the financial order of operations you're going to have some money going towards the long term, but you're also going to be knocking out the higher interest rate debt that's in, you know, step three and then, but you also have a, now a plan forward when you, you know, 30 plus, hopefully you're in that new house, you've had additional success for your assets to be growing in the background and all of a sudden that 5% student loan seems like, yeah, let's pay that off too. And we give you the, the guidance and the timing of when that's possible and why.
- [35:17]
Reby
Love it.
- [35:19]
Josh
Awesome. Well Paul, thank you again for being here. Thank you for the question.
- [35:22]
Reby
I just want to throw two 26 year olds making 160.
- [35:27]
Josh
That's true. We kind of just glazed over that.
- [35:29]
Reby
You have a shovel. I don't know what part of the country you live in, but you have a shovel where you can likely attack all of these financial goals and be able to do the things that you want to do. Because that level of income at that age is super unique. I think we live in a world where everyone assumes, oh, if you're not sure you're not making half a million dollars a year, you're not doing it. That's not, that's not reality. That, that's, that is a fake made up social media world. The fact that you're making 160 grand at 26 is awesome. And that's a big, that's a big income.
- [36:00]
Bo Hanson
And look, I think it's important for the audience to know your peers that are out here doing a live stream with you. You're doing a live stream of a financial show that there's a reason, like we kicked off this show with, you know, 44% of Americans are actually feeling like this year is worse off than it was last year. But meanwhile, we ask our audience, it was 70 plus percent feel like this year's better.
- [36:20]
Reby
Yeah.
- [36:20]
Bo Hanson
So I mean this is the, this you're, you're dealing with financially minded people. It's. No, it's that, that rom quote or whatever where you know, you're the sum of the people you hang out with. So you're in good company. But also give yourself the grace to understand just because the people who are in these live streams are crushing it, you're probably more than likely still well above what the typical American's doing. And you should be rewarded and also be praised for making the effort to make yourself better financially.
- [36:53]
Reby
You know, that's a great point. Really. I think this is just a thing worth noting. Like, I know I have a lot of buddies, they just make horrible financial decisions now. They do slightly better because I hang out with them and I try to influence them. But a lot of times in life it's hard to surround ourselves with people that are like making sound financial decisions and doing like really good things financially. It's one of the things I love the most about this community, about this group of folks. And that's why if you go out on like our Reddit or you go out to any of our social, is it called a Reddit or subreddit? Is there you go out to our subreddit. I don't want to say that wrong. You go to our subreddit or you go to any of our socials or maybe your, you've bought one of the courses, one of the tools and you're a member of the Facebook group. This community of people are like minded people that think the way that you do and approach things the way that you do and solve problems the way that you do. I'm amazed again on the subreddit where people are like, hey, I've got this question or how do I attack this? Or what do I do here? How do I figure this out? Or what would you say about this? It's awesome. Whereas you know, if I just went and asked my buddies like, hey, I'm thinking about they're ah, no, here's go buy the car. If you just stretch out your loan for 84 months, you'll be Able to afford it in no time. Our financial meeting community does not do that. And I love that. I think it's one of the greatest things about this. This ecosystem that we're building. And I think it's awesome.
- [38:10]
Bo Hanson
Surround yourself with people who have goals similar, and I think you'll. You'll, you know, run just as fast and become a better version of yourself.
- [38:18]
Reby
Yep.
- [38:19]
Josh
So true. Are you ready for some more financial questions?
- [38:23]
Reby
For those friends who don't. Who don't make sound financial decisions, A great gift that you can give a graduation's coming up. A fantastic graduation gift intermission. If you just get a book in their hand, say, hey, here's a great tool for you to stop being a bonehead when it comes to money. Depending on how close you are, the friends, that's something you can do that's just on my mind. I just. I just have some friends that aren't do. They're just. You know what I mean?
- [38:46]
Bo Hanson
Yeah.
- [38:46]
Reby
You know what I mean? You have friends like that drives me nuts. Sorry, that's my soapbox.
- [38:51]
Bo Hanson
Why don't you go ahead and give us their names and they'll probably. Yeah, go ahead. And we'll reach out personally to the public. We'll probably snap that back in the direction really quick.
- [39:00]
Reby
Shame public. Shame them into wise financial methods.
- [39:03]
Bo Hanson
Shame.
- [39:04]
Josh
Wow. All right, let's dive back into some personal finance questions. All that to say. Elle Baker has a question for you. It says, I'm seven years from retirement and always had a modest salary. I max my HSA and Roth plus catch up each year, but I don't make enough to max my 403. Do I still need a taxable account? Am I stuck on Foo Step 6.
- [39:34]
Bo Hanson
Now, this is, you know and I know I keep pointing back to the financial order of operations. The FOO is definitely an all terrain vehicle. And Bo and I. I can't remember if I shared the exact story, but I definitely detailed this in Millionaire Mission. Bo and I were speaking to a bunch of structural engineers, and I remember the hand raises, and she was like, I'm not doing anything for my kids. I'm not doing this. You know, it seems crazy that all I'm trying to do is load up and max out my retirement accounts in step six. And we're like, no, no, no. Once you hit 25% of your savings, you know, and by the way, if you make under, you know, 100,000 for a single person, 200,000 for a married couple, you get to count your employer match in that 25% once you do that, you can move on to step seven. And that's where El Baker, you're going to figure out is, what do I, you know, in step seven, when will I need this money? What is. It's not just the asset allocation, it's not just the tax benefits anymore. It's actually when will I need access to money, at what age and what accounts will actually provide that access point. And that's when. Yes, somebody who's leaving the workforce before 59 and a half or 55. If you've got a 401k with the rule of 55, you might say, yeah, I probably need to have a taxable account to give me a bridge so that I'm not just retirement rich and life poor. That's how we've designed that process so you can move on from step six even if you're not loading up the legal maximum amount according to the government.
- [41:10]
Reby
If it makes sense to do that. One of the questions I'd have for El Baker is, you said you're seven years away from retirement. I'd ask how old you are. 60 years old and you're gonna retire at 67, I think. And look, this is, we get a bad rap for this. We talk about the tax buckets and we love for you to have the three distinct and unique tax buckets. Where you have your tax free bucket, you have your taxable bucket and you have your pre tax bucket. I do that other thing. We love for you to have those. But if you are someone who's just following the financial order of operations and you're technically stuck in step six, that's okay. If you end up with a multi million dollar portfolio and a lot of it's in pre tax assets, but you do have tax free Roths and HSAs, you're still going to be able to get access to those dollars. So don't think just because you hear us talk about the after tax account or you've read some stuff about how you need to have all three buckets, that may not be true for your unique and specific situation. Personal finance truly is personal. If you're maxing out your hsa, maxing out your Roth, your seven years to retirement, you've stress tested your plan, you know what your number is, you know where you're going to put your dollars from, and you're still putting money in the 403B, but not maxing it out, not going to tax a brokerage account, that might be okay, there's nothing wrong with that. You just need to Understand how do you need to use these dollars and what makes the most sense in your specific situation.
- [42:40]
Josh
Great. Well, L. Baker, I hope that that really helps your situation, helps you think through that. Thank you for being here. Thank you for asking the question. William P's question is up next. It says, I would like to pay for my next vehicle in full and plan for that to be in 10 years. Should I accumulate that money in a high yield savings account or a taxable brokerage?
- [43:05]
Bo Hanson
Well, I mean, he's given us some breadcrumbs there. We, of course, taxable brokers.
- [43:11]
Reby
Nice question. I'm kidding.
- [43:13]
Josh
Well, can you say why?
- [43:15]
Bo Hanson
Well, think of it. I mean, now look, we always say, I think the average American discounts the fact that anything you put into the financial markets is supposed to be assets you don't plan on touching for five to seven years at a minimum. So when people come to me and say, hey, I'm getting married in three years, should I have that invested or should I have it in cash? Well, I'm like, for the wedding ring, like, how do I say, you know, and it could be the same, you could do the same thing on a car purchase to say, I'm know in the next 24 to 36 months I'm going to be buying a new car. That should be cash reserves. Now, you've run it through a different lens there, a different filter. And the fact that you said this is 10 years away because it's 10 years in the future, you've now passed. You can put a big check mark next to is this something that's five to seven years beyond in the future. And since the answer is yes now, it's going to be a balanced approach. There's going to probably be a portion of this. Yeah, should probably be liquid just in case you have that awesome opportunity of a car or something that comes up that you know, because the economy is getting crushed and you know, there's just hundreds of cars sitting on the dealership and you're like, man, I know I was planning on buying a car in 10 years, but I'm in year seven right now. And this seems like a pretty daggone good time from a, from an opportunity where value is disconnected from the price. That's why I like having a diversified answer to this. A portion of this will probably be cash. Portion of this will be short term assets. A portion of this will be longer term assets. So you can get a little extra sweetener of growth potential. That's the way I would handle this. Because you said 10 years in the future.
- [44:50]
Reby
I think that flexibility is your friend here. I'm trying to think about 10 years ago I had two less kids than I have right now. I lived in a different house than I lived in live in. Right. We office in a different office than we are in. Just so much life can happen in 10 years. I like you giving yourself maximum flexibility. What I don't want to see you do is just have that money sit there in cash and yeah, it's going to make whatever cash is paying. Maybe it's 3%, maybe it's 4%, but it's not going to grow a ton. It's going to likely keep up or just underpace inflation. So by using a taxable brokerage account and dollar cost, average those dollars in there and let them build, maybe you end up in a situation where at the end of one year you get a big bonus or your income changes or something else happens to where you don't even need those dollars to buy that car and pay it in full. 10 years is a long time for a lot of stuff to change. So I would, I like the idea of investing those dollars and then I give my future self maximum flexibility on how to use them.
- [45:52]
Josh
Love it. William, great question. Thank you for being here and for asking it. Jay Z has a question for you. I don't think it's the Jay Z, but we could imagine. I mean, you never know.
- [46:05]
Bo Hanson
I mean, we had Kelly Pickler here earlier today.
- [46:08]
Reby
Maybe musicians in today's episode.
- [46:11]
Josh
I mean, we could give them some great financial advice, I'm sure, right?
- [46:15]
Reby
Jay Z, if you're listening, please reach out.
- [46:17]
Josh
Yeah, become a client. Moneyguy.com that's right.
- [46:21]
Reby
I love it. She can't even get that one out without lying.
- [46:23]
Josh
I couldn't. I was like, this is a lot. Okay, well the Jay Z from the chat is asking, is it still better to have a portion of a small cap fund in your portfolio if you have a long time horizon or just allocate the portion to that portion to a large cap growth fund for the plus 10 year time horizon?
- [46:45]
Bo Hanson
Basically a modern portfolio theory question here, Bo.
- [46:48]
Reby
Well, here's what he's asking. What's better, small cap or large cap? That's really the question. Is it better? That's a question that we can't answer. That's not a question that we can say, hey, definitively, you should do this or you should do that. Here's what we do believe when it comes to portfolio construction though. We like diversification and we like when you invest dollars, you spread it out across a number of different asset classes, both risk on asset classes as well as risk off or risk reduced asset classes. Well, even inside of that risk on asset class, you might want to hold different types of risky investments. You might want to hold domestic holdings, you might want to hold international holdings, you might want to hold large capitalization companies, mutual funds, ETFs, or you might want to hold small company. We like the idea of building a portfolio. Once you're at the point that custom portfolio construction makes sense, building a portfolio that matches your unique risk tolerance, risk capacity, time horizon, account structure, account availability, so that you have a nice well oiled machine working for you. I don't think it's as blanket as saying, hey, well should I buy a large cap fund today or should I buy a small cap fund? It depends. You talking about the whole portfolio? Talking about a portion of the portfolio. Could you have both of them? Likely is an answer. I don't think that's one that you can just say definitively, yes, no, this, that either, or yeah.
- [48:13]
Bo Hanson
I mean I can tell you in my career there haven't been periods where I, where I'm like, yeah, let's go sell all of our large cap and go buy small cap. Typically it's nibbling around the corners where you see once again value disconnected from where the market is or is going and you try to capitalize off of that. So it's probably going to be a balanced approach where you have both small cap as well as large cap. But you now have to kind of figure out based upon all the things BO just shared, risk profile, risk capacity, goals, when you need access to the money, what that perfect mix looks like.
- [48:49]
Reby
Love it.
- [48:50]
Josh
Awesome. Well, Jay Z, whoever you are and wherever you are, we're glad that you're here in the live stream today. And thank you for your question.
- [48:58]
Reby
If I was more clever, I would have like thought of like lyrics and I would have tried to work lyrics into my answer, but I wasn't that singing or rapping like rapping lyrics. I would have, I would have tried to work, you know, first, but I didn't.
- [49:12]
Josh
I mean, if you want to.
- [49:13]
Bo Hanson
I mean earlier in the meeting Bo was showing us tick tock dances, so maybe there might be potential for Bo to rap and then tick tock dance.
- [49:21]
Reby
I want to be clear, BO was like literally showing Tick tock. Bo was not showing.
- [49:26]
Josh
He wasn't actually dancing, unfortunately for us.
- [49:29]
Reby
But I was showing TikTok dances.
- [49:33]
Josh
Okay, we have a question from Jareth M. It says I'm 36, I make 80k per year. I have 65k in my 401k, 17k in my pension and 6k in my HSA, I get a roughly 3 to 5% pay increase year over year. Mathematically, I do not think I will hit the 3 times my earnings by 40 marker. Any advice? And this is in reference to some things we've covered on the show, like three times your income invested is a mile marker to consider for age 40, right?
- [50:08]
Reby
That's right, yeah. When you're thinking about like if I'm going to hit mile markers to be on track, if we assume that, you know, a 30 year old should have one times their annual salary saved up in investable liquid net worth and by the time you get to retirement, on average, if you want to assume like 4% withdrawal rate, 80% replacement of income ratio, which again, this is all like back of the napkin stuff, you really need about 20 times your annual income by the time you get to 65. So I'm trying to go from one at 30 to 20 by 65. There are some like mile markers I should hit along the way. At age 40, the math would say you need about three times your annual salary in liquid investments. And so Jared said, hey, based on all the stuff I'm doing, I don't know if I'm going to get there. What advice do you have? And when it comes to personal finance, when it even comes to like questions like this, for all of us, there are really ever only two levers that we get to pull. Lever one is we figure out how we can spend less money. How can I get my expenses down so that I can get my savings rate up so that I can save more towards that goal? That's lever one. Lever two is how can I increase my income if I can't cut my expenses? Is there a way that I can make more money so that I can take that additional money and I can increase my savings rate and move towards that goal, I think either one of those you could try to employ. But here's the great thing about personal finance and about the journey that we're all on trying to make it to financial independence. You don't have to be exactly on the market every step along the way. I mean, there are times when you might be a little bit behind the curve. There are times when you might be a little bit ahead of the curve. What matters is crossing the finish line at the end of the journey. So I would not be so caught up at a 36 oh man, am I going to hit my number at 40 and I'd be more focused on, okay, am I doing the things necessary at 36 to be able to hit the number I need to be at by 60 or 65 or whenever your financial independence date is. The mile markers are helpful, but they're not nearly as helpful as clearly defining what the finish line is.
- [52:19]
Bo Hanson
Well, I think it's. I want to bring another resource onto the stage here is Jareth. If you. First of all, the typical American is like 33 years old before they start investing. And I don't know when you started, but based upon your 36 and you shared the savings in the background, you didn't come out right at age 20. Start loading this thing up. This might be in something. So I don't know where you are in the, how many years you've been in this journey, but you're probably still kind of closer to the beginning of when you started funding these accounts. First, I want to commend you for this now being a hot focus. And by the way, 36 is still young, but we have an illustration called how much you should save or what 25% can do for you. Look at this. I mean, you can compare and contrast. Look at the 35 year old and then the savings rate. This is assuming when you started from zero. So you're above and beyond this to a point, but still it will show you why somebody who starts out who's 35 years of age, if you're going to have any chance of success, you're going to have to be saving beyond 25%. If you've started late, you think about somebody who starts at 40. I mean, you're going to have to go beyond 25%. And that's just the reality of the situation is that, and that's why we, we try to create the content so you know what levers, as Beau shared you can control and how serious you've got to be on structuring your lifestyle, structuring your savings goals so that you can actually live the life you want to. And if you're not going to do that, you got to make harder decisions on am I working longer? Am I going to have a backup plan where I'm going to do some type of working in retirement? There's all kind of things. This is not an all or nothing. The great thing about financial planning is that there's typically a lot of small decisions you can make that will have big impacts in the long term, but it's just having an Honest conversation with yourself now on things that you can do right now to mitigate the long term problems. Choose your hard now so that it's easier down the road or you can even see if there's things you can do down the road to mitigate it. So it makes the requirement that much smaller. But either way, you need to have those hard conversations right now. Love that.
- [54:29]
Josh
Love it. Well, Jareth, thank you for that question. I saw somebody in the chat say, oh, I mean, I want to know this answer too. So I love seeing that happen and I love that you took the time to watch the live stream and be with us today and ask the question and I hope that helps. Now remember, we're going to be here every Tuesday, 10am Central talking personal finance. But just because we turned the cameras off today, that doesn't mean that you have to stop learning. You can go to moneyguy.com/resources, check out all of our free stuff. Just start there. We've got tons of calculators helping. You know, what type of house you can afford, what amount of car you can buy, what your wealth multiplier is. Go check that out. Moneyguy.com resources it's all there for you. Just meant to expound and continue on these conversations that we start on the live stream and to just hopefully help you make your decisions a little bit more confidently and feel a little bit more peaceful today as you go on your financial journey. So thank you for being here.
- [55:24]
Bo Hanson
It was, I mean, this is typical live stream fodder, but it is amazing how often the financial order of operations came up today. And it just shows me that there is a better way to do money. That's right. And we have, we have tried to lay it out there so you don't have to reinvent the wheel yourself. We've kind of already curated it. We've told you what to do with your next dollar. And like I said, and I'll bring this full circle back to the first question or first thing we covered. Some of you are on the other side of this. You are financial mutants. You had such a level of success that you're like, man, these guys are preaching what the life I've lived and what created the success in my life. I wonder if they could help me so I don't make the mistakes that I just don't know where the blind spots are in retirement. The answer is yes. We work with clients all across the country. I'd encourage you to go, go check us out. Go, go to moneyguy.com go to aboundwealth.com look at the Work With Us section. We'd love for you to take the relationship to the next level and actually fulfill the full abundance cycle. I'm your host, Brian Preston. Mr. Bo Hanson Moneyguy Team out the.
- [56:26]
Reby
Money Guy show is hosted by Bryan 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 Shows. 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.