Money Guy Show: Falling Behind? The RIGHT Way to Catch Up This Year

Release Date: January 22, 2025

Hosts: Brian Preston and Bo Hanson
Description: Bringing confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life.

Introduction

In the January 22, 2025 episode of the Money Guy Show, hosts Brian Preston and Bo Hanson address a pressing concern for many listeners: feeling financially behind and seeking effective strategies to catch up. The episode emphasizes that while the best time to get your financial house in order was yesterday, the second-best time is today. The hosts are eager to assist listeners in navigating their financial challenges by answering live questions and providing actionable advice.

Key Discussion Points

1. Overcoming the Feeling of Financial Lag

Brian Preston initiates the conversation by acknowledging the common feeling of being financially behind. He encourages listeners by stating, “the absolute best time to do it was yesterday. Which means the second best time to get your house in order is today” (00:10). This sets a motivational tone, assuring listeners that it's never too late to start improving their financial situation.

2. Audience Q&A Session

The episode features several listener questions, each addressing different aspects of financial planning and wealth building.

a. Amy B.’s Dilemma: Maximizing Retirement Contributions

Question: Amy B. is uncertain about where to allocate her savings, currently contributing 8% to a 401A with an 8% match and contemplating additional investments in a 457A Roth IRA.

Bo Hanson responds by highlighting Amy’s commendable savings rate:

“You’re saving 8% with an 8% match. She’s got 16%. That’s huge” (02:04).

Brian Preston adds that simply starting to save puts Amy ahead of many peers:

“Just the fact that you are saving now puts you way ahead of a lot of your peers” (02:27).

They introduce the Financial Order of Operations, a systematic approach they advocate for managing finances, which includes prioritizing debt elimination, building emergency reserves, and then optimizing investments.

b. Josh M.’s Concern: Roth IRA Income Limits and Dollar Cost Averaging

Question: Josh M. faces income limits impacting his ability to contribute fully to a Roth IRA and seeks advice on balancing dollar cost averaging.

Brian Preston explains the Backdoor Roth Contribution as a viable solution:

“You can fund a traditional IRA with a non-deductible contribution... then convert those dollars to Roth” (10:00).

Bo Hanson compliments Josh for proactive planning:

“I wish Amy didn't feel so far behind because you’re already working huge with your 8% match” (02:04).

They discuss the practicality of dollar cost averaging versus lump-sum conversions, advising against frequent conversions due to hassle factors and recommending an annual approach instead.

c. Future Polyglot’s Plan: Balancing HSA and Law School Savings

Question: At 26, Future Polyglot is maxing out his Health Savings Account (HSA) due to medical reasons and is planning for law school. He wonders whether to prioritize law school savings over contributing to a Roth IRA.

Brian Preston emphasizes the importance of a holistic financial picture:

“Is your ability to save for law school going to allow you to pay for law school in total, or are you still going to have to take out some sort of debt?” (17:00).

Bo Hanson advises maintaining robust cash reserves before venturing into additional investments:

“I don't want your cash reserves to be a little frothier... I just don't want to break the moat of your cash reserves” (14:12).

They recommend evaluating the long-term costs of law school and the impact on financial stability before diverting funds to retirement accounts.

d. Ashley Kate’s Inquiry: Harvesting Capital Gains in Kids' UTMA Accounts

Question: Ashley Kate asks about the downsides of harvesting capital gains in her children’s UTMA accounts while keeping income below the kiddie tax threshold.

Brian Preston clarifies the strategy:

“You can sell positions and harvest these gains... ensuring they remain below the 0% capital gains rate” (23:38).

Bo Hanson provides tax details, noting the importance of understanding income thresholds to maximize tax efficiency:

“In 2024, any amount above $2,600 of income generated in a custodial account... is taxed at the parent's rate” (25:42).

The hosts highlight the benefits of using tax-efficient funds like index funds and the potential advantages of harvesting gains to optimize tax outcomes for children’s investments.

Strategies and Insights

Financial Order of Operations

The Financial Order of Operations is a recurring theme, guiding listeners through prioritizing financial tasks:

1. Covering Deductibles: Ensuring health insurance deductibles are met.
2. Maximizing Employer Matches: Fully leveraging 401A or similar retirement plans with employer contributions.
3. Eliminating High-Interest Debt: Prioritizing the payoff of credit card and other high-interest debts.
4. Building Emergency Reserves: Accumulating 3-6 months’ worth of living expenses.
5. Optimizing Investments: Maximizing contributions to Roth IRAs, HSAs, and other tax-advantaged accounts.

Backdoor Roth Contributions

For high-income earners like Josh M., the Backdoor Roth Contribution is a pivotal strategy. It allows individuals to contribute to a Roth IRA indirectly by converting after-tax traditional IRA contributions, thereby bypassing income limits.

Capital Gains Harvesting

Ashley Kate’s question underscores the strategic use of capital gains harvesting in custodial accounts to maintain tax efficiency. The hosts elaborate on leveraging income thresholds to minimize tax liabilities, enhancing the growth potential of children’s investments.

Wealth Multiplier Tool

Brian Preston introduces the Wealth Multiplier, a tool available on moneyguy.com. This tool allows listeners to project the future value of their investments based on varying contribution rates, serving as motivation to increase savings rates.

“Let that be your motivation to keep plowing forward... you can get the shit moving in the right direction towards your great big beautiful tomorrow” (05:04).

Notable Quotes

• Brian Preston: “The absolute best time to do it was yesterday. Which means the second best time to get your house in order is today.” (00:10)

• Bo Hanson: “You have 16%. That’s working huge.” (02:04)

• Brian Preston: “Creating the muscle memory of doing the work necessary to build wealth before you even get to the mathematics.” (15:39)

• Bo Hanson: “This is going to let you triage your personal financial situation, figure out exactly where you are.” (04:00)

Insights and Conclusions

The episode reinforces that feeling financially behind is a common concern, but proactive planning and strategic financial management can significantly mitigate this feeling. By adhering to the Financial Order of Operations, leveraging tools like the Wealth Multiplier, and employing strategies such as Backdoor Roth Contributions and Capital Gains Harvesting, listeners can effectively catch up on their financial goals.

Brian Preston and Bo Hanson emphasize the importance of disciplined saving, strategic investment, and continuous financial education. They provide a blend of motivational support and practical advice, empowering listeners to take control of their financial futures.

Final Thoughts

"Falling Behind? The RIGHT Way to Catch Up This Year" serves as a comprehensive guide for individuals seeking to improve their financial standing. Through real-life examples, expert advice, and interactive Q&A sessions, the Money Guy Show equips listeners with the knowledge and tools necessary to build a more secure and prosperous financial future.

For more resources and tools mentioned in this episode, visit moneyguy.com.