Home Prices Are Being SLASHED (What You Need to Know)

Summary

Money Guy Show: Episode Summary

Title: Home Prices Are Being SLASHED (What You Need to Know)
Hosts: Brian Preston and Bo Hanson
Release Date: July 2, 2025

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Introduction

In this episode of the Money Guy Show, hosts Brian Preston and Bo Hanson delve into the recent trends in the housing market, particularly focusing on the significant reductions in home prices across various markets. The discussion provides listeners with valuable insights into the factors driving these changes and offers actionable advice for potential homebuyers navigating this evolving landscape.

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Current State of the Housing Market

Brian Preston opens the conversation by addressing the noticeable decline in home prices in certain markets. He attributes this trend to increasing housing inventory—a shift from the limited supply seen during the post-pandemic period which had previously driven prices upward.

"We shut down all the supply chains. We lost a lot of people that were in the home building process and you saw inventory kind of taking a toll. And you know what happens when you limit the supply of houses available? Prices go up a lot."
— Brian Preston [00:57]

Reby highlights data from the Federal Reserve, indicating a steady rise in active home listings from July 2016 through May of the current year, marking a reversal from the post-pandemic slump.

"Active listings have steadily been increasing. We have more inventory. That's one thing that's potentially affecting home price..."
— Reby [01:26]

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Impact on Home Prices

The increase in housing inventory has led to longer market times for properties, resulting in price reductions.

Brian Preston notes that one in five homes have experienced price cuts since April, with 30-32 out of 50 metro areas witnessing month-over-month declines in May.

"One in five homes have actually seen price reductions since April in the month of April."
— Brian Preston [02:58]

Reby adds that this trend is a positive sign for prospective buyers who have been previously sidelined by rapidly escalating prices.

"Maybe now it's getting to a more reasonable level where I can actually act and actually move on."
— Reby [03:44]

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Challenges for First-Time Homebuyers

Despite the encouraging signs, significant challenges remain for first-time homebuyers. Notably, the average age for first-time buyers has risen to 38 years old, a new all-time high.

"First time home buyers are now reaching an age of 38."
— Reby [02:01]

Brian Preston expresses concern over this trend, emphasizing the increased difficulty many face in fulfilling their dream of homeownership.

"It seems to get harder and harder."
— Brian Preston [02:01]

High mortgage rates, currently averaging 6.8%, continue to impede affordability, despite being lower than the previous peaks of 7.5% to 8%.

"Now, that's lower than it has been. It has been as high as 7 and a half, 8%, but that's still relatively high."
— Reby [02:28]

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Advice for Prospective Homebuyers

The hosts provide comprehensive advice for individuals considering purchasing a home in the current market:

1. Assess Personal Necessity:

   • Reby encourages listeners to evaluate whether they genuinely need a new home, rather than following societal or peer pressures.
     "Just because someone else bought a home or just because that was someone else's trajectory does not mean that that has to be your trajectory."
     — Reby [04:48]

2. Financial Readiness:

   • Reby emphasizes ensuring that saving for a home does not compromise other financial goals, such as retirement savings.
   • Brian Preston underscores the importance of strategic planning, recommending a commitment to living in the home for at least five to seven years to justify the investment.
     "Make sure you have a plan to live there for five to seven years."
     — Brian Preston [04:48]

3. Maintain Affordable Housing Costs:

   • Both hosts advocate for keeping total housing expenses below 25% of gross income to prevent financial strain.

     "Keep your total housing costs less than 25% of your gross income."
     — Reby [05:37]

     "The whole purpose is to make sure you don't end up house rich, life poor."
     — Brian Preston [06:24]

4. Utilize Available Resources:

   • Reby points listeners to tools like the Home Buying Calculator and Home Buying Checklists available at moneyguy.com/resources to aid in decision-making.
     "We have a couple tools out at moneyguy.com resources we want you to check out."
     — Reby [06:56]

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Tools and Resources

The hosts highlight several resources designed to assist potential homebuyers:

• Home Buying Calculator: Helps determine how much home one can afford based on individual financial variables.
• Home Buying Checklists: Guides users through essential considerations before making a significant home purchase.

Reby reiterates that homeownership is beneficial for many but not a necessity for building wealth, encouraging listeners to make informed decisions aligned with their personal financial situations.

"Owning a home can be a wonderful thing for you, but it's not a necessity to be able to build wealth or reach financial independence."
— Reby [07:54]

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Conclusion

This episode of the Money Guy Show offers a balanced perspective on the current housing market, acknowledging both the optimistic trends of increasing inventory and the persistent challenges faced by homebuyers. Brian Preston and Reby provide practical advice, encouraging listeners to carefully assess their financial readiness and personal needs before embarking on homeownership. By leveraging available tools and maintaining disciplined financial habits, individuals can navigate the market more effectively and make decisions that align with their long-term financial goals.

For more information and access to helpful resources, visit moneyguy.com/resources.

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Notable Quotes:

• "We shut down all the supply chains. We lost a lot of people that were in the home building process and you saw inventory kind of taking a toll."
  — Brian Preston [00:57]

• "First time home buyers are now reaching an age of 38."
  — Reby [02:01]

• "Keep your total housing costs less than 25% of your gross income."
  — Reby [05:37]

• "Make sure you have a plan to live there for five to seven years."
  — Brian Preston [04:48]

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Disclaimer: The information provided in this summary is for informational purposes only and does not constitute financial advice. Please consult with a financial professional for personalized guidance.

Transcript

[Brian Preston]

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[Bo Hanson]

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[Brian Preston]

Home prices in certain markets are being slashed. What do you need to know?

[Reby]

Brian? I am so excited about this because finally it sounds like maybe, just maybe there's a glimmer of hope. There's some light at the end of this housing tunnel because we're seeing something right now that we have not seen for a while and I think it's going to be exciting to to a lot of folks out there.

[Brian Preston]

Well, it's a long time coming. Is because a lot of the issues with what has driven prices up post pandemic is inventory. I mean you think about it, we shut down all the supply chains. We lost a lot of people that were in the home building process and you saw inventory kind of taking a toll. And you know what happens when you limit the supply of houses available? Prices go up a lot. So this is a very positive thing that actually see some positive changes in inventory.

[Reby]

Yeah. When you actually look at the data itself and this is data from the Federal Reserve you can see exactly what happened with the number of active listings From July of 2016 all the way till May of now. It kind of bottomed out right there Post pandemic around 2021, 2022. But now active listings have steadily been increasing. We have more inventory. That's one thing that's potentially affecting home price and the other thing is that first time home buyers right now, this is a thing to know, a thing to be aware of. First time home buyers are now reaching an age of 38.

[Brian Preston]

That's an all time high. I don't like. That's a whole time high. That's something. That's why I like any positive information that actually shows that homer ownership is and pricing is getting better is because I don't like seeing the stat that instead of it being because it seems like it was just a blink of an eye go it was 33, now we're at 38. I don't want to see us cross into 40 for something that I think is a lot of people's dream of owning a house, setting roots, it seems to get harder and harder.

[Reby]

I think one of the reasons why that number has been pushed up is not only have home prices been increasing, but interest rates have not been super attractive. We know that right now the average mortgage rate in this country is about 6.8%. Now. That's lower than it has been. It's been as high as 7 and a half, 8%, but that's still relatively high. So it's making it harder and harder for people to get into home. So even though we're seeing glimmers of hope, it's still not an easy market for home or for, for individuals that are not homeowners to get into homes.

[Brian Preston]

But let's actually, let's talk about where the rubber meets the road and the fact that now that we've got increasing inventories, we've got houses that are sitting on the market longer. It's led to one in five homes have actually seen price reductions since April in the month of April.

[Reby]

It's been a while since we've seen the prices of homes come down. And we know that 30, 32 out of 50 metro areas actually saw a month over month decline in the month of May. So maybe, just maybe, if you are someone who's been trying to get into a home, thinking about buying your first home, thinking about changing homes, you're now beginning to actually feel like, okay, maybe this thing isn't sprinting away from me the way that it had been. Maybe now it's getting to a more reasonable level where I can actually act and actually move on.

[Brian Preston]

Realize buying a home, it's not only a financial decision, but a lot of ways it's an emotional decision. So I always tell people, don't feel like you have to get in a hurry. So just because we're seeing some positive trends doesn't mean you need to run out this weekend and go put a contract in. Because there's still, there's some analysis and homework you need to do. So that way you can take the emotion out of the decision making and actually see, is this something you should do for your best interest?

[Reby]

Yeah, I think there's some questions that you can ask yourself, the first of which is, do I actually have a need for housing? I think so many of us have been taught, okay, well, graduate college and then I get a career and then I get married, then I buy a house, or I start my career and I buy a house and it's Just this natural progression that's not necessarily the case. Just because someone else bought a home or just because that was someone else trajectory does not mean that that has to be your trajectory. So you want to make sure before you make this giant decision, what for most people is the the largest purchase you will ever make in your life. You want to make sure that it is something that actually matches where you are in your financial life and something.

[Brian Preston]

That you actually and then have that. We say this on our home buying checklist, but make sure you have a plan to live there for five to seven years. It's back to the bo's point about achievers sometimes are so excited to get to the milestone of having a house that they'll house hack and they do other things and I always remind them, hey, I love all those strategies. That's a great thing to get into homeownership or but make sure that you're actually where you're going to set roots. If you're part of that job, if part of what is going to make you successful is landing the job in the right area with the right opportunities for going up and getting pay raises and so forth, then buying a house that locks you into that area that might not be ideal is less than the right decision. So make sure you are measuring twice on can you stay in this house five to seven years before you make that big decision.

[Reby]

And then you have to think about the other side of it. Not just the lifestyle situation, but also the financial situation. Is this something that you can actually afford? Just because prices have come down does not mean that it's automatically made housing or homeownership affordable. So there are a few rules that you ought to abide by, and the one of which that we've seen the most people run afoul of or ignore in this recent housing market is we want you to keep your total housing costs less than 25% of your gross income. Even with housing prices coming down, if you find yourself where housing is costing you 35, 40, 45% of your gross income, you are likely going to be setting yourself up in a more risky situation than you want to be in. And it's going to prevent you from being able to build wealth the way that you want to outside of homeownership.

[Brian Preston]

And look, I get it that that 25% can feel kind of constricting because but it really the whole purpose is to make sure you don't end up house rich, life poor. Because a lot of people there's a risk that you won't have a lot of money left over if you let all of it go towards housing. And, and it's back to that point. We do give a lot of grace on your first house purchases that you only had to put down 3 to 5%. So if, if you run a file this 25%, there's nothing that says you can't make a larger down payment if that's what's necessary to keep that, that, that rule respected.

[Reby]

And so if you are someone who's thinking about this and you are someone who's entertaining the idea of buying a home, particularly your first home, we have a couple tools [e-mail] resources we want you to check out. One of them is our home buying calculator where you actually can input your variables and it will tell you how much home can you afford. And we also have home buying checklists that tell you, here are the things that you want to think about before you make this huge decision. I think that home ownership is a wonderful thing and it makes a lot of sense in the financial lives of a lot of people, but it's not a necessity. It's not. I think that so many people operate in this world where I have to own a home, have to own a home, have to own a home, and that's just not the case. Owning a home can be a wonderful thing for you, but it's not a necessity to be able to build wealth or reach financial independence. So you want to make sure if you're going to make that decision, you make that decision at the right time for the right reasons for your unique situation.

[Brian Preston]

Well, look, old man on the porch here. I actually love people owning homes, but it just has to be such a, it has to line up. You have to do the homework. Don't let it be an emotional decision. Make sure you're using our checklist, use our calculators. That's why moneyguy.comresources is going to be your friend. So you can feel like you've done the homework, you've done all the due diligence you need to do to make sure this aligns with your future goals, but also gives you your best, great, big, beautiful tomorrow in the housing market decisions.

[Reby]

I love that we get to share this. I love that we get to stay abreast of the things going on out there in the financial world. And I love that we get to answer your questions. We get to weigh into the things that you care about. So if you have a question you'd like to get our take on. We have the team out in the wings collecting those questions. Make sure you get them in the chat, because we do believe there's a better way to do money and we want to load you up with that. So with that creative director Ribe, I'm going to throw it over to you.

[Creative Director Ribe]

Yeah, thanks. You know, I think it's interesting. So we've got a lot of financial mutants in our chat. At all varying points of their journeys. 57% said they own a home, meaning that 42% don't. And so I just thought it was an interesting poll to see that it's not a sign of financial success or being a financial mutant. So I thought that that was interesting to share. That was straight from our live stream.

[Reby]

I love that, man. I love when we do things where we get to, like, ask our audience our financial mutants information. They share information with us and then we get to, like, synthesize that and share it with the world. Isn't that a fun thing we get to do?

[Creative Director Ribe]

Absolutely.

[Brian Preston]

Good. Good setup for. We do have another questionnaire that will be coming out for. I mean, is it bad to preview that again? I mean, I felt like you were teeing it up.

[Reby]

I laid it up for Reby to see if she was gonna swing, and she just watched it. So I was like, okay, that's fine.

[Creative Director Ribe]

It is coming.

[Reby]

She doesn't wanna get you.

[Brian Preston]

Because, you know, we already do our survey of our clients, the millionaire survey. But we. I'll let you share. We. You know, we. Last year, so many of you guys responded. I mean, we don't take that for granted. We wanna do it again because I think it just creates the greatest content to show not only what our millionaire clients are doing, but what financial mutants out there in the money God audience are doing as well.

[Creative Director Ribe]

Yeah. So if you took the financial mutant survey last year, watch for it because we want your data again. We want you to be part of the show. We want you to help us create the show and see how financial mutants stack up compared to the average American. And if you haven't taken that survey, also watch for it because it'll be a new experience for you. And it's really fun to. To see what comes back and to get a real picture for where you are in your financial journey so that we can make even better content.

[Brian Preston]

I know you're about to read the question, but I also want to preview that, and I don't. I'll let you. It's because I know it's not ready yet. But in the next week, I think we have some new calculators coming online. They're going to be pretty exciting, too. Is that too early?

[Creative Director Ribe]

What else do you want to tell secrets on Brian? What do you want to do?

[Brian Preston]

There's other stuff behind the scenes I'm keeping. You have no idea. I'm sitting here like, ooh, I want to share that too, but I'm not. I'm keeping some under wraps.

[Reby]

Here's what. Here's what you need to make sure you do. If you. If you are hearing Brian share all these things that he's not supposed to be sharing at all, and you want to be aware of when these things happen, I want you to do two things. One, I want you to go out to moneyguy.com and make sure you are on our email list. Because whenever we announce new, exciting stuff, it goes out to our email list. So if you're not on that list, make sure you get on that list. We don't spam you. We don't blow you up. It's just how we communicate interesting things in our world that we think you need to know about. And if you want to know when we have new content out, make sure you subscribe right now so that, you know, every time we put a new piece of exciting content out all week long.

[Brian Preston]

Man, you did that really good. It's almost like you do this for a living.

[Creative Director Ribe]

Almost. Let's get to the questions. The other thing you do for a living, Personal finance. T bone says question. My company's 401k match is $0.50 on the dollar with no limit.

[Brian Preston]

Wow.

[Creative Director Ribe]

Leaving me in golden handcuffs if I'd like to buy a home in the next two years. What goal should I now have for my 401k? I'm 25 years old, married, with one kid on the way, a 110k household salary in the D.C. metro area. What do you think, man?

[Reby]

Okay, so we have gotten variations of this question so many times over the years. Hey, I've got this thing going on, but, man, I want to do this thing or have this opportunity, but, man, I want to do this thing. And I think that the best way to sort of level set on how to approach thinking through this is to remind ourselves that money is nothing more than a tool that allows us to achieve the goals that we have. And one of the things that we have to do as people who are the main characters in this life that we're living is determine, okay, what are our most important goals? What are the things that we want to move towards the most. And for a lot of people it might be financial independence. And for some people it might be, hey, you know what? I do want to achieve financial independence, but before I do that, I'd like to own a home and I want to be able to set roots and I want to be able to grow my family and I want to be able to whatever that thing is for you. And so it's okay if sometimes along your financial path you have to prioritize some goals over the other. So you might say, hey, I really need to save up for a down payment. And as amazing as being able to build my portfolio and continue to grow and take advantage of this is financial independence or maximizing the employer match money to the extent that I can't walk away from it. And that would be a hard one because that's free. Money is. You have to ask yourself, how important are these two goals and how am I willing to prioritize? You about to say something? Because I can tell you didn't like that.

[Brian Preston]

No, no. It's just that I think it is a great problem to have. But we have to. You have to. This is like all things, all big decisions financially have incremental decisions you have.

[Reby]

To make and opportunity.

[Brian Preston]

So the first thing, let me give you the home. I would go read your plan document so you understand vesting schedules and know how much of this money is truly yours and how fast. That's the first thing to know, how excited to get. But it is incredibly generous if your employer is truly offering 50 cents on the dollar all the way up to the maximum you can contribute, which is 23,500. If you think in those terms, that's a guaranteed 50% rate of return. So that's super powerful. But I also understand. So that means if you were prioritizing this in a financial order of operations, you're like, holy cow, do I never get out of step two unless I'm putting 23,500 into my 401k. In theory, that's why you should think that's a great maximization opportunity. But understand life happens and we always. There's two illustrations I want the content team to pull up. If y' all could pull up what food, what people think fu looks like versus what it actually is. And as you can see, this visual is a lot of people think it's just an incremental. You're going to go through each step of the nine steps, you know, in their time and place. And it's going. You'll Work through it quickly. That's not the way life happens. Life will happen is that you have steps forward and then you have steps back. And it actually will be a walk up the mountain, but you're going to have some valleys built into there as well. So buying a house could be one of those things that takes you a step back if you determine that this is so important. But here's the second illustration I need the content team to pull up. I always call it what 25% can do for you, but it's actually taught how much should you save? I would look at your, your how old you are, where you are in life, and see what percentage of your income you should be taking saving so you don't fall behind. And that way you can compare and contrast where you are on the intersection point of saving for the future. But then knowing, because you can quickly realize, especially if you make under $200,000 of income, that employer contribution is going to be a big thing on that percentage. So it'll let you say, well, hey, if I'm in my 20s and maybe I only have to save, you know, 15 to 17%, I don't have to do 25% gives me already. It gives me some margin. Not feel like you're sacrificing your future self, but I do want you to feel the pressure that, holy cow, my employer is so generous that as soon as I get this goal funded to get this house, let me get back on this to maximize that 50%, because that is going to be your quickest account to reach seven figure status with having an employer that's that generous with it.

[Reby]

I love it. Agreed.

[Creative Director Ribe]

That's great, T Bone. Thank you for the question. Thanks for joining us in the live stream.

[Reby]

Can you believe that we are halfway through this year?

[Brian Preston]

No.

[Reby]

Isn't that what?

[Brian Preston]

I don't know.

[Reby]

I woke up this morning thinking that to myself, like, because, well, I woke up to myself thinking, hey, we're halfway through summer. Well, but I was like, we're halfway through the year.

[Brian Preston]

Well, it's also. This year has been so unique in the fact that I feel like for six months we've done 18 months worth of work. And the fact that. Because I was on a call with a client just yesterday and they're like, hey, can you pull up my portfolio? I want to know how much we're up. And we pulled it up and it was up a little under 6%. He's like, oh, I thought it was going to be so much higher than that because the market's Been on a tear. And I was like, you realize the market was down 20% at a point in the. So, yeah, we've had a lot. We've made back a ton of money. But. But I think that that's what a lot of you guys. I just want to make sure you're. You're keeping up with the fact that we've covered a lot of ground.

[Reby]

Oh, yeah.

[Brian Preston]

I made this analogy earlier, and I'll do it again.

[Reby]

I knew it was coming. I would have bet you a thousand golf.

[Brian Preston]

It's like my golf swing. There's multiple ways a golf swing can be bad. It could be like the guy who knocks the ball, you know, into space, but then it comes down. It looks like a high pop. You know, like what your dad used to throw up to you when you're trying to catch high pops. Or it could be a bad slice where it slices out and then comes out to the middle of the fairway. But it only went 100 yards, but it covered 320 yards worth of distance. I feel like that's what we've done with the stock market this year. Yes, we had ups, we had downs, and we've recovered, but overall, it looks like a standard year. That's what's so wild about intra year volatility, is these ups and downs. You just have to digest it and know it's part of the process. Us. That's right.

[Creative Director Ribe]

All right.

[Brian Preston]

That wasn't even part of the Q.

[Reby]

And A. Oh, no, that part. That part was for free.

[Creative Director Ribe]

Just talking about, you know, the year, the markets, all good stuff. The second golfer.

[Reby]

So that landed with her.

[Brian Preston]

What we all know, if you go.

[Reby]

To a big golfer. So that analogy land.

[Brian Preston]

When you see somebody who actually hits the golf ball. Right. You feel so bad about yourself. Their ball, their ball flight is completely different than us guys who get out there once or twice a year. I mean, it's true. If you watch somebody who hits it pure, it's pretty incredible.

[Creative Director Ribe]

I agree. As someone who can't golf, I think it's all very impressive. All right, the second rush has a question for you. How do you stay focused once you're solidly making wealth? I moved from 10% to a 25% savings rate in three years.

[Brian Preston]

Congratulations.

[Creative Director Ribe]

But now feel like there's no clear milestone to aim for. Do I just check back in every three years now? 30 years old, married, own a home, 25 years left on the mortgage, and we have no plan for kids. So what does he do now? I feel like that's his Question.

[Brian Preston]

Oh, man, I feel like this question is a tee up for some content that we not only had come out last year, but have coming out in the next few months. I'm just gonna screw up the title, so I'll just leave it for you.

[Reby]

Yeah. So here's the thing I would tell you to do. First thing I'll tell you to do second rush is I want you to subscribe right, right now to the channel because we do have a show coming out that's going to walk you through milestones that you ought to be looking for and thinking about as you move through your portfolio. There's some really exciting milestones that we hit on our journey to financial independence. So you said, the question you asked is, okay, well, how do I stay motivated? Because one thing is just understanding what milestones. One of my favorite things in the world to do, and I know it's Brian's too, is every single year we do an annual net worth statement. We do ours at the end of the year 1231, where basically we list out all the things that we own and then we list out all the things that we owe and we calculate the difference and we track where we are. Well, one of the things that makes us stay motivated is even if your savings rate is a good, good place and you were saving 10%, now you're saving 25%. As you begin to see that snowball roll down the mountain and get bigger and bigger and bigger and bigger and you're going to start seeing some really fun stuff starting to happen on your net worth statement, that the result, the product of that is that motivation that gets you to next year. Like, okay, I saved 25% next year, but man, if I can do that again this year, my portfolio made this last year. I can. Man, if you are actually tracking it and keeping an eye on it rather than just checking in every three years and saying, okay, well, I guess I'm doing okay. Find a way to do an annual net worth statement. By the way, if you need a tool, you can go to learn.moneyguy.com and check, check out our tool. And it even puts on there some really fun stuff in addition to just tracking your net worth. It'll show you like, okay, here's what my liquid assets are doing through time. Here's what my money guy accumulator score is. Here's what my journey to abundance looks like. All those are exciting little metrics that will allow you to stay motivated and recognize the areas in your life that you can still get excited about even when things seem to be on autopilot.

[Brian Preston]

And that's the only thing I was going to add is that I love the dashboard view that the net worth tool does because it really does take the net worth statement to another level. Because not only plus you get to see the three buckets, you get to see how much your money is in tax deferred, how much is in tax free like Roth assets, how much is in after tax. I mean those are the type of things that I'm always trying to look at. I love the pay down debt schedule, you know, because I loved kind of seeing where debt is going on my net worth every year in comparison to the liquid net worth and then even putting your total net worth, which includes all the stuff that you can't necessarily eat, like your house and your car. Cars. But it's, it's, it's definitely a valuable resource to keep you motivated. And then that's why I, I do like those milestone shows is because, you know, part of what we try to give you here is the why component as well, is that you, what is your money supposed to do since it's only a tool? Well, part of the 25% is to free you to get outside of the analytics of this and live your best life. So I would go through some of the, the software exercises of what is this? Why am I saving? What am I saving for? This is all part of step seven of the financial order of operations. If you haven't gone and checked out Millionaire Mission, I really, like I said, that chapter is the chapter that really sets up the thank you BO for the prop chapter. You know, when we talk about step 7 hyper accumulation, it really does give you the why exercises so you can stay motivated. But then you get to, from there you get to do what you want, when you want, how you want. You know, if you want a nicer vacation, you want to drive a nicer car, you want to get into residential real estate or commercial real estate, this is going to set you up to kind of do those type of things. But it's not supposed to feel constricting, it's supposed to feel freeing that now you get to go live your best life. I feel like so many things out there in the financial world people get caught up in, you know, I have to be so rigid and I, you know, and to do this is going to say no and take away. I want you to have that abundance mindset where we're going to do this. So now we get to do more and you get to Live your best life both in this decade plus the decade as you save for your 50s and 60s, you're not going to have regrets.

[Reby]

Love that.

[Creative Director Ribe]

Excellent. Well the second Rush. Thank you for your question. I hope that helps you think through what to do next. Millennium Interests has a question. What's your take on the current projections from Vanguard showing a 0 to 3% real returns for the US stocks over the next decade? I know the mantra is to always be buying, but does this impact strategy?

[Brian Preston]

Can we put the I need to get on the calendar the date that Vanguard puts this out because I feel like every year I get to oh yeah. To answer this is what so and I think it's brilliant on Vanguard's part in the fact that they post this. They get all kind of press on it. I mean so it gets a lot of attention. Probably a lot of eyeballs. A lot of clicks go to Vanguard website. But but the thing is is that I just shared with you guys and you know, if this turns into highlight, that part won't show up. So I'll reiterate it one more time is we just came through a 20% recovery in the last quarter. I mean do you think about that? And here we are sitting with the at the point we're recording this where we're, I mean most the, the indexes like the s and P500 are up right around 5 to 6% I think year to date after having an 11% second quarter. So to hear 3% I've been hearing 3% by the way last year I heard 3% the previous year. Vanguard, you can almost set your clock to the low expectation setup that Vanguard does. And the truth is they don't know. If you've ever seen the analysts that predict interest rates, the analysts that predict where the equity market's going to I would much more look at what is the historic normal return that you see out of these index funds and then think about the law of accelerating returns is that as innovation and technology and economies continue to expand, how are you going to be able to capture that? Don't try to beat it, but can you just be part of that growth? That's what I'd be focusing on. So yes, once again concludes always be buying, making it automatic for the people is definitely one of those things you ought to be empowering and taking charge of.

[Reby]

I just get, I get so frustrated because I feel like this happens over and over and over and over again. Why do I was I was rapidly doing some research over here because what I remember is it was like circa 2010, maybe, something like that. When I remember the Vanguard article coming.

[Brian Preston]

Out, you never can find the old history of. I couldn't. Were you able to find it?

[Reby]

Just found it, bro. You ready for this?

[Brian Preston]

Good for you.

[Reby]

So, because, well, I was thinking about, I was trying to remember what year was it? If you, if you remember, you know, 2009 was a recovery year coming out of the Great Recession. And the market went, even though it was down really bad at the beginning, it went gangbusters. And in 2010, Vanguard came out like, hey, we're going to expect lower, you know, lower returns moving forward. And it gave a number of different reasons why that was the case. So I just went and asked, hey, what was Vanguard's investment outlook in 2010 moving forward? And it said in 2010, following the 2008 crisis, Vanguard published research suggesting that the annualized real returns over the next decade would most likely be like 6% for stocks and 0 to 2% for bonds. So you think about if you had like a diversified portfolio there, you're earning less than 6% moving forward. I just very quickly said, hey, what was the annualized rate of return since 2010 for the S&P 500? And in reality it has been like 12 and a half to 13.5% annualized, double what Vanguard said. And so I think what ends up happening is my guess, and I don't think you said this, but my guess is they operate under the assumption, hey, we're going to over promise and we're under promise, we're going to under promise and over deliver. No one's going to be mad if we tell you the outlook for the stock market is going to be 4 to 5% and then the outlook actually turns out to be 9 to 10. But if we say it's going to be 9 to 10 and it turns out to be 5 to 6, well then everyone's going to be up in arms. So they're setting themselves up not to let anyone down. When in reality, law of large numbers would suggest if you look at the way the market has performed for the last 40, 50, 60, 70 years, it tends to be pretty consistent. There are ebbs, there are flows, there are ups, there are downs. We have a great illustration. This is not one we have in the coffers, but shows like if you just look at market performance on a year by year basis, it's absolutely chaotic. There is no rhyme or reason to how it works. But if you then look at three year rolling periods and then five year rolling periods and then you look at 10 and 20 year rolling periods, it becomes very, very, very, very consistent through time. You just have to give it time to do that. So I'd be careful letting someone else tell you they know what the future is going to hold because I don't think that that's the case.

[Brian Preston]

What feels risky in the short term, historically in the long term can be much safer because it protects you from inflation and other things. And then what feels safe in the short term can actually be very risky in the long term because of those exact same factors.

[Reby]

Yep.

[Creative Director Ribe]

It's not about what you feel when it comes to the stock market. Let's what I heard.

[Reby]

I'm going to. I'm going to. Can I just take a. Can I pause the show for a moment to do a note for my content team over here? Hey, we ought to think about putting together, doing some like, research to go find historical Van Vanguard. I'll be picking on Vanguard because that was where the.

[Brian Preston]

Well, they do it every year. I mean it is. This is.

[Reby]

Pull their predictions and then let's just like back test them because so often people don't get back tested to go see that.

[Creative Director Ribe]

That'd be interesting.

[Reby]

I'm gonna take a risk here. I love it. I had someone, there's someone here visiting the other day yesterday and I went out there to meet him and I was talking to him like, hey, started listening to you a couple years ago. Really, really love the show. I thought it was so interesting. I went and listened back in the very beginning, like circa 2006, 2007, 2008.

[Brian Preston]

Be careful.

[Reby]

And you know, it was wonderful that she said, she goes, man, you guys are saying the same stuff. Like, it's pretty. If you want to go back, test, hey, the things that we say and the things that we subscribe to about how money works. Go back and listen to a show from 10 years ago. You'd be like, oh, wow, this is.

[Brian Preston]

Pretty consistent troll comments. They're like, these guys don't say anything new. So it cuts both ways. It really does.

[Creative Director Ribe]

Oh, man.

[Reby]

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[Brian Preston]

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[Reby]

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[Reby]

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[Brian Preston]

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[Reby]

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[Creative Director Ribe]

All right, you ready for another question? You're not? You have another thing to say?

[Reby]

No.

[Brian Preston]

No, wait. Here he is.

[Creative Director Ribe]

Oh.

[Brian Preston]

Nice.

[Creative Director Ribe]

There it is. I just wanted to second drink.

[Reby]

Someone in the comments this past week said, you know what, Bo? Why don't you just have like a nice pregnant pause, open your drink and that way no one can complain about it and you'll be able to stay hydrated.

[Brian Preston]

Oh yeah, because we beat Bo down around here all the time. Poor Bo.

[Reby]

It's pretty rough, humble boy.

[Creative Director Ribe]

Well, you didn't open it while anyone was talking today, so.

[Reby]

Exactly right.

[Creative Director Ribe]

Props to you. Okay, Donovan H. Says, have you heard of the extra mortgage payment a year to help lessen the principle of the loan to lower paid interest? Would you recommend this strategy for a household currently in step six of the foo?

[Reby]

Brian, you start.

[Creative Director Ribe]

I want Beau to start.

[Brian Preston]

No, I mean this look. Yes, this is. This is a common trend. And look, with interest rates being where they are on houses. You know, if you're paying the 6.8% right now, obviously this is a, this is a good strategy as long. And I love that you shared that you're in step six. I'm, I'm not a minimum payment type of person myself, so I've been rounding up my payments for years. The difference is, and this is where Bo's go jump in. And that's why he wanted me to go first, is so I could fall into the trap and then, and he could snare me and make fun of me. I mean, I have a 2 1/2% mortgage, by the way. And the mortgage is. I just pulled it up because I had an insurance claim and we had to do this stuff and I had to get the insurance, the goofball mortgage company involved, even though I owe 50 grand on my house. But I even told the insurance adjuster, I was like, I ought to just write a check to pay this thing off. But I was like, it's just so hard when I owe two and a half percent interest bills.

[Reby]

Could you imagine being Brian's insurance adjuster? And you're like, why are you talking about your mortgage?

[Brian Preston]

No, we had a great, great rapport. I met him out at the house. We went over everything. We talked. I mean, when I had an issue with the check, I called him up. We're on first name basis.

[Reby]

You think he's, you think he's in the live chat right now. Is he a fan of the show now?

[Brian Preston]

Did you mention what I did for a living?

[Reby]

Oh, but you got to say, hey, you ought to check out the.

[Brian Preston]

When you meet anybody. Like we have somebody painting at the house right now. By the way, have you seen the podcast?

[Reby]

I do it at the grocery store. Someone's bagging my groceries.

[Brian Preston]

If you meet me like I met my brand new neighbors, I have no idea what they do for a living. They don't know what I do for a living. No, you don't walk around and be like, hey, have you seen my YouTube channel?

[Reby]

No, I don't say that. I'm like, hey, do you love personal finance? There's a show that I really like. It's called the Money Guy show. You should check it out.

[Brian Preston]

And then when they pull up and they see me and you there, wouldn't that seem like the most ridiculous thing ever?

[Reby]

Well, you know, hey, you're funny.

[Creative Director Ribe]

So, all right, so what were we saying about.

[Reby]

No, no. So I love, I love that. I love that answer. Because there's a mathematical approach to this right? Mathematically, okay, yes. Can I pay an extra mortgage payment and pay down my mortgage faster? Yes, that is true. And that is a strategy. Is that optimal? It depends on what your dollars could earn outside of the interest rate you're paying on your mortgage. So there's an arbitrage situation. If you're someone in your 20s, there's a good chance that you could put your money to work and it could have a higher rate of return than what you're paying on your mortgage. So there's a positive arbitrage situation there. Having said that. Having said that, I think a lot of people play, like, little mortgage gains, and I'm not going to fight you on this. And so maybe your mortgage game is I make one extra payment. Or maybe your thing is I pay every two weeks. I'll tell you mine, and I'm not even a mortgage prepay guy. I round up. So every year, you know, property taxes and insurance or whatever, my mortgage payment comes out and say that. It's like, you know, my mortgage, $190. I rounded up to $200. Right.

[Brian Preston]

Like you would give us his real mortgage payment. I love it. He got. He got himself in a pickle there. He's like, tell my real mortgage. Mortgage payment.

[Reby]

He decided, smart audience.

[Brian Preston]

Go back into how much mortgage.

[Reby]

So. So, yeah, so I round up again. It's not a strategy to prepay, and I do it just so I can, in my mind, mentally account for what my mortgage is. But if those sort of things allow you to stick to your plan and make you feel good about the decisions you're making, I'm not going to fight you on that. But if you're doing that, if you do that extra mortgage payment instead of your Roth IRA or that extra mortgage payment instead of your hsa, then I start to have a little bit of pause and think that maybe you're operating suboptimally.

[Brian Preston]

Do you think I'm at the point I should just pay off the mortgage since it's down to 50 grand?

[Reby]

Yeah.

[Brian Preston]

Even you.

[Reby]

I mean, honestly. I mean, just because, like, you know, we're at the point, I hear so much about it, right? You know what I mean?

[Creative Director Ribe]

A meme at this point, right? Like, I think I might pay it off.

[Brian Preston]

What's funny is Megan sitting over there, and I remember when we were starting the boy book tour, you know, which was June of a year ago, I was like, my goal is, is I'm going to have the mortgage paid off so that I don't. So I can tell Everybody on the tour that I paid off the mortgage, but for some reason I just didn't do it because that two and a half percent just really, I mean I would have thought interest rates would have been down further now on cash, so it was going to be a much easier decision. But yeah, you can still make. If you know where to put the money, you can still make over 4% on your cash. It seems crazy.

[Reby]

I kind of. There are a lot of financial things though where I kind of subscribe to the Forrest Gump methodology of hey, is one less thing. So even though like at that where your mortgage amount is right now, if you know, just pay it off and hey, it's just one less thing. You know what I mean?

[Creative Director Ribe]

I agree with that. Where you are.

[Reby]

Just one last thing.

[Creative Director Ribe]

Let us know if you decide to actually do it. Keep us posted.

[Reby]

We're gonna lie.

[Creative Director Ribe]

Live stream you paying it off.

[Brian Preston]

Clicking the button.

[Creative Director Ribe]

That would be funny.

[Brian Preston]

I might do it soon. Why not?

[Reby]

Hey, one last thing.

[Creative Director Ribe]

I think it's because BO still wouldn't.

[Brian Preston]

Be debt free because of all our commercial real estate though.

[Reby]

No, you're not gonna go today.

[Brian Preston]

Do a commercial, you know, a debt free scream because I, I owe commercial debt.

[Creative Director Ribe]

It's just a battle.

[Reby]

Would that be hilarious? We go do our debt fee scream and we're like, I'm debt free. Except for all the commercial stuff. Not actually.

[Creative Director Ribe]

All right, ready for the next one? It's from Carrie. She's 45 years old with a 2 year old and a 4 year old kid. 2 year old and 4 year old kids. I will be 59 plus when they need funds for college, et cetera. Is saving extra money for this in my Roth 401K and Roth IRA. Okay. It seems more flexible and lower cost than a 529. Thanks.

[Reby]

So here my question would be, what, what, what caused you to draw the conclusion that it's more flexible and lower cost than 529s? Because 529s have changed a bunch over the years and now 5 to 9, I think they're offered by all 50 states. Right. You can actually do one at all 50 states, depending on the state in which you live. Because by the way, we love Roth IRAs and we love Roth 401ks. We love the fact that you put the money in and it can grow tax deferred. And if you draw it after 59 and a half, you can actually pull the money out completely tax free. But for a lot of people, if you live in a specific state that has State income tax. There's a chance that not only can you get that Same Roth type benefit 529 tax free growth, you can also get a deduction on the front end if your state has an incentive for doing that. So Kerry, not knowing what state you're in, that would be one of the considerations I would make is okay, should saving to a 529 be part of my strategy? Because there's an extra little tax benefit there that I want to do. Now here's what I want to make sure you're doing. Saving in that saving for that college education needs to come above and beyond what you were already saving for your future financial independence. Meaning this is like after you're at your 25%, do I want to save even more to my Roth 401k or even more to my Roth IRA? And I bet if you think through it that way, by the time you get through your Roth IRA you've already saved 7,000. Well, you can't really use that because that's going to be like financial independence money. And so maybe depending on your income inside your Roth 401k, yeah, maybe you could plus that up some if you have room. But there's a good chance if you're saving 25% doing the thing that you're supposed to be doing, you're going to need the 529 capacity anyways to make sure you're not actually cannibalizing your future retirement assets to pay for college.

[Brian Preston]

That's why I think you have to keep them separated. I mean that's why I love the. Because they have different goals. I mean 529 and college savings is a step eight. You know, these abundance goals, prepaid future expenses. Whereas your Roth IRA, your Roth 401K, those are steps five and six of the financial order of operations. And what I worry about is if you are just throwing them all into the Roth assets and you think you'll create some weird dynamics for yourself in the futures because first of all, every person I know who has Roth accounts, it's like you're precious. You don't like to pull money out of those, you're hoping you die with those and then your beneficiaries get to let them grow for 10 years before they pull out of them. So Roth assets become very valuable and you just don't want to walk away from them. And I just worry you get a false sense of security because your accounts are going to look so good. But then you, you, you start pulling this money out for college and all of a sudden you gutted, you know, one of your biggest retirement assets. That's why if you keep them separated and they, they, they have a goal and a purpose, you won't do that mental accounting where you have a false sense of security because you know we're, because maybe sometimes to save more for college, beyond what you have to do for yourself in retirement is kind of a selfless act. It's going to require discipline and require some sacrifice. I don't want you just feeling like, hey, I'm in this and I'm loading up my Roth, I'm loading up my 401k. This will also cover college. And then like I said, you gut it. And whereas maybe if you just started a little earlier and felt the pressure of keeping them separated and knowing, man, in addition to my retirement, I got to save for the kids college, you might have made some different decisions on your consumption, on your lifestyle. So that's why I like keeping those things separated, so those goals can, can live each their best life, but be accounted for appropriately so you don't get this convoluted, jumbled up all for one goal out of my Roth account.

[Reby]

Love that. Yeah, it would be, it'd be kind of a bummer just thinking through this, like practically, because it is the precious thing. Like most people I know, most clients I work with who have retired and they're in their early 60s, they do not like to pull out of that Roth. I mean, I mean, it's only if, like, okay, if I do another distribution, I'm going to trip Irma or I'm going to cause my Social Security be tight or whatever the strategy we're employing is, if they can avoid it, they do. And so writing those tuition checks out of that, that's going to suck.

[Brian Preston]

I mean, it's just Roth feels like you're getting away with something and then it's just hard to want to pull that money out. I'm just telling you from our client experience, people don't like to pull money out of the Roth. Even myself, I mean, I'm not that I'm pulling money out, but just watching the account growth, I'm like, what can I do to get that Roth account up to seven figures? Because I wanted it to be a seven figure Roth account. I think that would be just a cool stick it to the man legally type thing.

[Reby]

Same.

[Creative Director Ribe]

No, it's a good experience share. Kerry, thank you for the question and I hope that that helped you out too. Tyler H. Says I was saving For a large expense that I ended up not having to pay, I saved around 20k. And I have also right around 20k of high interest debt. What are we doing here at 8.6%? Should I just use the full amount to pay off the debt?

[Brian Preston]

This is the easiest one.

[Reby]

Yes, yes.

[Brian Preston]

Well, I mean, wait a minute. First, obviously go through the financial order of operations. What do you have in steps one and four? But without a doubt, I mean, if I had 8.6% and this was money above and beyond emergency reserves, extinguish it.

[Reby]

You know What? Yes, agreed, 100%. Just behaviorally, one of the things I'd like to think about, Tyler, is this large expense that you were saving up for. I don't know what the expense is behaviorally, though. I would ask myself, man, if it was saving up, oh, I'm a buy a new car or I'm going to pay for a trip or I'm gonna do whatever. Was saving up for that appropriate given the fact that you have $20,000 of high interest debt at 8.6%? I just want you to think through because there's a good chance that if it was a large discretionary expense, it was want, not a need. You probably should have knocked out that debt before saving for that. Because what I don't want to see happen again is you're going to do this, you're going to pay it off. I don't want to be in a live stream three years from now. And all of a sudden Tyler H. Asked a question like, hey, I got this high interest debt again. Like, I want you to break that cycle. I don't know where it came from or what happened.

[Brian Preston]

What type of debt was it though? Do we know?

[Creative Director Ribe]

He just said high interest debt, 6%. I don't know if it's like student loan or credit card.

[Reby]

Could have been car, could have been a credit card room full of furniture. Well, maybe could have been a room full of furniture. Yeah, but the fact that you were saving up for another expense while you had that debt, I just. And look, it may all be completely on the up and up, but it's certainly worth taking a moment, having an assessment and saying, man, okay, am I doing, Am I thinking about my money the right way? And you may very well be, but it never hurts to just kind of work through that exercise to make sure that you are all right.

[Creative Director Ribe]

Good stuff. Tyler H. Thanks for being here. Thanks for asking the question. KYPA has a question. It says, can you break 23. 8 if you're not paying Rent. I'm a college student who's working part time and I bought a used car. Is it okay to break the rules in this case?

[Reby]

Well, you're not going to get arrested, right? I mean like this, this whole everyone asked, hey guys, can I do this? Sure. It's your life. You can if you want to. You can do, you know, 17 19, right?

[Brian Preston]

Yeah, but here's, here's what he said, what you should do.

[Reby]

Is it what you should?

[Brian Preston]

Can you go, if you're living at home with your parents, can you go buy that convertible Mercedes that you've always wanted that will make you look really cool to your friends?

[Reby]

I mean, you can, you physically can. The question is, it's a should question. It's a should question. Is it okay?

[Brian Preston]

I just don't think, I mean, because I think that it's a life lesson, is if you're going out there and using this opportunity, it is an opportunity. If you're living at home and don't have to pay rent, do you realize how you could just be just printing money, stacking in the background and running through the financial order of operations very quickly, but it just seems like a wasted opportunity. If you go buy a nicer car just in this moment in time, you can say you're a car person. But man, I just know as a person who's now in my 50s, consumption decisions like cars and those type of things just seem so, just empty compared to having money in the bank so that I can live the most flexible and own my time and do what I want, choose to be what I'm involved with, that's going to pay so much more life dividends than just the feel good moment of in your 20s or even younger. I don't know how old this individual is since they were living at home, but of driving a fancy car.

[Reby]

Yeah, I just, I don't know. The 23 8, it's there because it's a helpful metric to help us, but some of it's also to protect us from ourselves. If you find yourself in the situation like, man, I can't save up 20% for this car. Maybe you can't afford that car, man, I can't get the payments inside of three years. It's just too, ah, maybe you can't afford that car, man, if I do this 8%, that's going to be high. Okay, maybe you can't afford. Some of it is to protect us from ourselves, to make sure that we don't prematurely make financial decisions that we are not ready to make because I don't know your situation, your circumstance, but there's a really good chance if we were to fast forward 20 years in the future, I just don't think you're going to look back and say, man, I'm so glad I bought that more expensive car that had that higher payer with the higher interest rate. I think you're probably going to say, man, I'm glad I made those wise, prudent decisions so that now at this stage of life, 20 years in the future, I can go buy that nicer car because I get to pay it off all in one year, same as cash. And I'm not actually faking it. I'm actually in the financial situation where I can do this.

[Brian Preston]

Well, I think it's important, it's a mindset issue, is that you quickly realize when you're young that the system is not going to protect you. It's actually designed to help you consume more. If you think about what's going on with car loans where the average car loan is beyond $700 a month, the term of car loans has gotten where it's what was six years? Close to six years. Now you quickly realize the guardrails are not there. So it's on you to develop the behaviors and the systems to set yourself up for the future because nobody's coming to rescue you, nobody's coming to save you. So don't. That's why it just troubles me when you're in this moment of opportunity, especially when Tom, you're a billionaire of time. Depend upon how young you are where you can totally own the system that much sooner. And if you fall into that consumption trap and you know, and let the system with the siren song of you look so cool, you'll, you know, your friends will love you more. Whatever. The thing is, it's enticing you to live this fake life. Remember, it's better to be rich than to look rich. And I'm just telling you, don't fall into those consumption traps. That's great.

[Creative Director Ribe]

Good stuff. And as usual, kypa, we appreciate you being here and asking your questions so that we can chat about it on the show. Brian, I thought it was interesting. The financial mutants have spoken. We asked a poll in our livestream that said should Brian pay off his mortgage.

[Brian Preston]

Oh wow. I didn't know we were gonna make this a community group project. What'd they say?

[Creative Director Ribe]

64 said yes.

[Reby]

Look at that.

[Brian Preston]

You know what?

[Creative Director Ribe]

So majority.

[Reby]

You know what?

[Brian Preston]

I'll be right.

[Reby]

I'm gonna go grab his checkbook. I'll be right.

[Brian Preston]

Okay. I'm going on vacation. I'm in by the way realizing these 7 inch in seams a little short in this air conditioning vacation mode. I'm wearing shorts today because I'll be on a. I'm going down to Florida and then I'm catching a cruise. Not after the fourth of July. It's good living. I'm in a. I'm in a good mood. When I get back from the. The cruise I'll figure out and we'll. I'll pay off the mortgage kind of.

[Creative Director Ribe]

Like before the book tour. Sorry.

[Brian Preston]

As long as Bo. Once it was a big deal. When Bo says you should pay it off because you have to understand Beau and I in the background, we're constantly talking and he's like, you really go pay that thing off. Because I think when the book came out, was it right around 100 grand?

[Reby]

There's a more. A little bit more than 100 or.

[Brian Preston]

Maybe it's 90 grand. I can't remember. But here's the thing is I owe so little now. Even my monthly payments just knock down it gives a ton of it. Ton principal each. Each month.

[Reby]

Yep. One last thing.

[Creative Director Ribe]

One last thing.

[Brian Preston]

It'd probably be paid off within a year anyway. Just with.

[Reby]

They don't really cutting a lot off that corner right now.

[Creative Director Ribe]

Oh man.

[Reby]

He's gonna go write that check. The mortgage. But Mr. Preston, this loan's already paid off.

[Brian Preston]

Well, I have to get through this insurance thing because I need. I need the mortgage company to send me the insurance check back. I didn't. But y' all have never done an insurance claim. If you have a mortgage, they put the mortgage company on the check. And it is a pain because I wrote on there for deposit only. Well, as soon as I wrote for deposit only, now I have to. The insurance company said they can't take that check, so I had to get the. I mean the. Yeah, it's a. I mean the bank wouldn't. They said they needed the endorsement from the mortgage company. The mortgage company wouldn't take the check because I wrote for deposit only on it. So thank goodness I have the resources to cover all these repairs without having a need because goodness gracious, it's an act of congress to get this thing.

[Creative Director Ribe]

Good to know.

[Brian Preston]

Yeah. If you. Boy, you have a roof claim or something, come see me. I can give you all the details. And then I talked about. Talk about my underwriter that we're first name basis with.

[Reby]

There we go. Let's add that to the content idea. So how to have a roof claim. What? I have the content calendar. Ruby got real excited about that one.

[Creative Director Ribe]

I just fell asleep hearing that title.

[Reby]

Sick burn.

[Creative Director Ribe]

All right, let's do another question from Codiforous. It says, can you explain if a Solo 401k is better than a SEP IRA for a 1099 employee?

[Brian Preston]

Yes.

[Reby]

Okay, you can explain it. Oh, okay, yes, I can explain it. I thought he was saying, yes, it's better. Yeah. Can you explain?

[Creative Director Ribe]

Yes, he can explain it.

[Reby]

Hey, why not? You're the CPA man. Walk, walk us through this.

[Brian Preston]

Well, I mean, look, there used to be some subtle differences that made SEP IRAs better than solo 401ks. For specific certain people is like if you're a procrastinator and you got, you made a little extra money, you get to go go do your taxes. And the accountant or tax preparer is like, man, we got to find some way to lower your tax bill. You could whip out your handy dandy SEP IRA and it was like a time machine. It'd go back in time, let you set it up as long all the way. If you extended the return all the way until, I mean, October 15th. Well, now they've updated because the Solo 401ks in the past had to be set up by year end. Now they've changed that. You can actually go back in time. I don't think you can go back in time on your salary deferrals. Is that because that's the W2 decision? If you're, if you're a W2.

[Reby]

It depends on if you're W2, depends.

[Brian Preston]

On how your compensation structured. But, but, but. And realize the contribution from a SEP and a solo on the profit sharing side are pretty much the same thing because it's, it's a version of your net profit after you take into account self employment taxes or payroll taxes. So that's why it's so funny. I'm old enough that I've seen so much of the system progress is because when I was younger. This sounds so ridiculous, but SEP iras were the go to for everybody. And then you saw people then transition to solo 401ks. Now it's gotten to where I think solos just dominate this process. Now the only thing, remember with solos, there's some caveats we got to talk about. The only employees for the company can be you and your spouse. If you have. Even if you got like your kids working for your company, that kind of blows this all up. You gotta go traditional more of a. You have to have a Plan document and all the other things that go with a 401k sep IRA, you still, if you have employees, can still use it. But you realize whatever you do for yourself as a percentage, you have to do for your employees that same. Because it's an employer only contribution. Your employees are not making any contribution when they do a SEP ira. It's all employer only. Fed solos are a mix because it's not only the employer portion which is the profit sharing, but it's also your salary deferral which is at 23,500. If you're 50 and over or you're turning 50 this year, you get that catch up of 70 $500. Did I get all those numbers right? Look at me.

[Reby]

Only thing I'll add to that is our our solos better than SEPs. In our experience, solos allow us allow you to save more money at lower incomes than SEPs. So if you have a $30,000 income or $30,000 net profit coming through with a SEP IRA, you only be able to save about 20% of that as an employer contribution. Again, it's depends on how you're compensated. With a Solo 401k, you can do a salary deferral all the way up to 23,5 of that 30,000 plus you can do a profit sharing contribution based on the net operating profit. So at high incomes you can save the same in both. You're going to run into the section 415 limits. But at lower incomes, solos allow you to save more. So that's why they often have more advantage. Another big advantage to solos, if you have a Solo 401K and you're funding that, you will not run afoul of backdoor Roth pro rata rules. If you have a SEP IRA and you're trying to do backdoor Roth, you're going to kind of run into some pro rata rules you have to think through. So it provides a planning opportunity there. And now some custodians actually offer Roth solo 401k. So not only can you do salary deferrals in there, you can do Roth salary deferrals into your solo 401k, which is a kind of an interesting thing. Now here's the one caveat you need to be aware of. Brian, you started to mention this, but I don't think you mentioned this exact one. Once your solo 401k gets over $250,000 of combined assets, and that's you and your spouse, then you have to annually file Form 5500 before July 31st every single year. Now there are no taxes due. There's not like a cost to doing this, but there are penalties if you fail to do it. So you have to make sure that if you are over $250,000 of total assets, you are filing a Form 5500 every single year. They're having your accountant do it or you doing it directly. So long as you make sure you've checked those boxes, they are a fantastic and wonderful savings opportunity for you.

[Brian Preston]

Well done. I mean, I was sitting there going, man, every one of. I was like, I don't think I left much meat on the bone for bo. And then you came back and on top of it, that's. That's what. Dynamic duo.

[Reby]

That's what we do.

[Creative Director Ribe]

Love to see it. That's why, you know, that's why we're here every Tuesday, 10am Central. So be sure you subscribe not only to know when we release personal finance videos, but also to know when Ryan pays off his mortgage.

[Reby]

There we go.

[Creative Director Ribe]

Ever does.

[Brian Preston]

I am. I'm gonna do it.

[Creative Director Ribe]

Keep you posted.

[Brian Preston]

Come back. The suntan version of myself is gonna pay off the mortgage.

[Creative Director Ribe]

The suntan. I like this. I like this idea.

[Brian Preston]

By the way, if anybody's gonna be on the utopian of the. Am I saying that right? The utopian of the seas. Utopian seas.

[Reby]

Is that the name of it?

[Brian Preston]

I haven't been on the Royal. I mean, I haven't done Royal Caribbean in a while. So we're doing Royal Caribbean after the 4th of July.

[Reby]

Utopian utopia.

[Brian Preston]

It's one of those Oasis class ships. Me and like 6,000 other people as.

[Reby]

A Royal Caribbean International's newest cruise ship. Part of the Oasis class, second largest cruise ship in the world. It's known for its short three and four night itineraries to Nassau and perfect day at Cococay. Thank you.

[Creative Director Ribe]

Sounds like a great time.

[Brian Preston]

Can't wait. I've never had a coconut and lime drink, but there's supposedly there's things that really. I've watched a lot of YouTube videos. So we are ready.

[Creative Director Ribe]

Gotta try one.

[Reby]

That's awesome.

[Brian Preston]

Guys, remember a lot of the why money is only a tool we want it to so you can do live life on your terms, do what you want, when you want, how you want and really kind of know what you value and how to own your time that much sooner. That's what we're creating here. So go to moneyguy.com resources and then if you have because realize we give you so much free advice, they'll all be like. What's, what's the catch here? Here's the catch. It's called the abundance cycle. We recognize we can give you all this simple advice that is going to create true abundance for you, but just natural success is going to create complications. And when that happens, we're going to leave the porch light on for you and we hope that you will fulfill the abundance cycle and consider giving us a shot to be your fee only Fiduciary Financial Advisors I'm your host Brian Preston, Mr. Bo Hanson, Reby and the rest of the content team.

[Reby]

Money Guy out the 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 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.