How She Built $380k by 38 (Without a Six-Figure Job) | Making a Millionaire

Summary

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Podcast Summary

Money Guy Show

Episode: How She Built $380k by 38 (Without a Six-Figure Job) | Making a Millionaire
Hosts: Brian Preston and Bo Hanson
Guest: Rachel
Date: November 10, 2025

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Episode Overview

In this "Making a Millionaire" episode of the Money Guy Show, Brian and Bo speak with Rachel, a 38-year-old single mom from Colorado who has amassed a $380,000 net worth despite never having a six-figure salary. Rachel shares her financial journey, concerns about spending, and strategies for saving for both her own retirement and her son's future. The hosts provide her with personalized feedback, modeling out her financial future through multiple scenarios, and offer actionable advice on investment strategies and insurance products. The episode is filled with practical insight, moments of vulnerability, and the reassurance that financial security is possible with consistent habits—even without a high income.

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Key Discussion Points & Insights

Rachel's Background and Money Mentality

• Rachel is a single mom to a nearly nine-year-old son and works as a tech writer for an engineering firm, earning about $83,000/yr.
• She struggles with guilt and anxiety around spending on vacations or home improvements, fearing unforeseen setbacks.

  “I'm just afraid like I'm gonna spend a bunch of money and then something is gonna happen and I'm not gonna have that anymore.” — Rachel (01:44)

Net Worth Breakdown (Age 38)

• $380,000 total net worth
• Major investments:
  • $140,000 in a traditional 401(k)
  • $19,000 in Roth 401(k)
  • $80,000 in Roth IRA
  • ~$34,000 in traditional IRA
• Emergency fund: $30,000+
• Consistently saves ~29% of her income (including employer match)

Early Good Habits

• Started saving diligently after securing a job post-college, using bonuses wisely for student loans and retirement accounts.

Addressing Financial Anxiety and Past Experiences

• Rachel’s conservative approach is influenced by her parents’ risky decisions and financial setbacks.

  “I might be overcorrecting… because I save so much money, I'm wondering if I'm doing my present self a disservice because I'm too thrifty.” — Rachel (05:17)

Future Modeling: Is She on Track?

Dream Scenario: 10% Annual Return

• At current savings rate and portfolio:
  • Projected nest egg at 65: $5.6 million
  • Equivalent to ~$100k/year (in today’s dollars) of pre-tax retirement income

  “You get a pay raise.” — Brian Preston (07:03)

Realistic Down-to-Earth Scenario: 8.3% Return

• Using "wealth multiplier" methodology:
  • Portfolio at 65: ~$3.85 million
  • Can generate ~$67,000/year, which replaces ~80% of her current income

  “We think it looks pretty good, pretty great.” — Bo Hanson (10:56)

"Doo-Doo" Scenario: 6% Return

• Portfolio at 65 drops to $2.4M (yielding ~$41,000/yr), but this is still considered sustainable—before factoring in Social Security and paid-off mortgage.

  “Even in the do do scenario, it looks pretty good.” — Bo Hanson (08:30)

Mile Markers

• Rachel is on target to hit the show’s financial independence benchmarks, such as having 1x income invested by 30, 3x by 40.

Rachel’s Reaction:

“It does make me feel a lot better. Makes me feel hopeful for like what I can give my son for sure.” (11:26)

Adjusting the Path: Potential to Save More

• Bo notes her projections are conservative, with no increases in savings or income modeled.
• Rachel’s mortgage will be paid off in 2045 (freeing $1,200/mo), and she will receive a $15,000 life insurance “return of premium” lump sum in 2038.

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Insurance Review & Advice

Return of Premium (ROP) Term Life Insurance

• Rachel and her son’s father bought ROP term policies for estate protection, but weren’t aware of cost inefficiency.

• Brian cautions that ROP and permanent life insurance policies are often marketed as investments, but typically cost more than pure term and are less efficient.

  “Every dollar that you can put to work or put with purpose while you're young... has an exclamation point on it.” — Brian Preston (15:14)

Whole Life Policy for Son

• Rachel pays $70/mo for a $100k whole life policy on her son (currently $1,100 cash value).
  • Future values: $3,400 at 18, $9,300 at 30, $46k at 65 (guaranteed)
  • With paid-up additions, $127k possible at 65

Comparing to "Invest the Difference"

• Bo runs a comparison:
  • If $70/mo is invested at 9% from age 9:
    • $15,000 at 18 (vs ~$7,000 with the insurance policy)
    • $58,000 at 30
    • $1.4 million at 65
  • During working years (age 25-55), term insurance is in place for realistic needs; outside those years, funds are invested.

  “Which one gets you more excited?”— Bo Hanson (28:33) “Definitely the 1.4.” — Rachel (28:33)

Accessibility and Risks

• After-tax investment accounts (UTMA/UGMA) would give her son easier access at age of majority, but also require education and oversight.

Hosts' Recommendation

“If I'm gonna be using $70 a month to do something for my son... might it make sense to surrender that policy and divert that $70 a month elsewhere?” — Bo Hanson (33:22)

Rachel’s Takeaway

• Appreciates the clarity and plans to re-evaluate her insurance policies.

  “You don't know what you don't know. And so I appreciate that.” — Rachel (34:04)

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Portfolio Diversification and Next Steps

• Rachel inquires about her current investment mix and accounts.

• Bo reassures her that she’s following a good strategy (prioritizing tax-advantaged accounts, healthy savings rate), and doesn't recommend major changes.

• Suggests considering starting a regular after-tax investment ("Step 7" of the Money Guy "Financial Order of Operations") if she wants future flexibility or early retirement.

  “Keep doing what you're doing, but also... if there are things you feel like you're missing out on, you are on track, you are on pace.” — Bo Hanson (37:07)

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Notable Quotes & Memorable Moments

On life balance:

“I don't want to sacrifice getting to create memories and doing things today just to have some slightly bigger pot of money later. If I know that I'm already doing the stuff that I'm supposed to be doing.”
— Bo Hanson (00:00, echoed at 36:16)

Personal financial anxiety:

“I might be overcorrecting… because I save so much money, I'm wondering if I'm doing my present self a disservice because I'm too thrifty.”
— Rachel (05:17)

On investment projections:

“Your $140,000 plus that savings... you get to like $5.6 million.”
— Bo Hanson (06:25)

On permanent vs. term life insurance:

“I'm telling you, when we talk about the better way... the hard part is the saving. Let's actually just do the easy part...putting the money to work.”
— Brian Preston (29:43)

On financial parenting:

“If you can instill that in a nine year old, my kids are around that same age. That's awesome.”
— Bo Hanson (33:12)

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Timestamps for Important Segments

• 00:00 – 05:17: Rachel’s background, money mentality, and spending anxiety
• 05:29 – 11:26: Investment breakdown; models for future retirement (dream vs. realistic vs. “doo-doo” scenario)
• 12:12 – 14:13: Rachel’s future cash flow accelerators (mortgage, insurance lump sum)
• 14:13 – 28:33: Deep dive on life insurance; ROP and whole life pros/cons; invest-the-difference strategy
• 28:34 – 34:18: Custodial investment accounts, accessibility, teaching kids good habits
• 34:18 – 37:07: Portfolio review, diversification, and personalized next steps
• 36:16: Key life philosophy on balancing saving and living
• 37:07 – End: Rachel’s homework and closing encouragement

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Actionable Takeaways

• Rachel should revisit her insurance products, especially whole life, and consider redirecting premiums into a custodial investment account for her son.
• She can afford to slightly relax her rigorous saving—her future projections are strong, giving her permission to enjoy life now.
• Continues to follow the fundamentals: regular investing, prioritizing tax-advantaged accounts, living below her means.
• As her income grows and mortgage is paid off, increasing taxable investing will offer more flexibility for early retirement or legacy goals.

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Final Thoughts

The episode illustrates how consistent, smart financial habits can yield impressive results—even without a huge income. The key lessons include the power of investing early, the importance of understanding financial products (especially insurance), and granting oneself the grace to both save and enjoy life. Rachel exemplifies the "Money Guy" ethos of intentional living, making her financial journey an inspiring case study for listeners everywhere.

Transcript

[Bo Hanson]

I want you to be able to focus on doing the stuff with your son and creating the memories and doing the stuff now. Cause yes, it's great and wonderful to one day have a huge pot of money sitting there waiting for you. But you don't want to look back and say, man, I wish I would have. Because your 9 year old is only going to be 9 once. I don't want to sacrifice getting to create memories and doing things today just to have some slightly bigger pot of money later. If I know that I'm already doing the stuff that I'm supposed to be doing. And I think you are in that same exact place.

[Brian Preston]

So.

[Rachel]

I'm from Littleton, Colorado. It's like 20 minutes outside of Denver. I am a single mom to an almost nine year old.

[Bo Hanson]

Oh nice.

[Rachel]

And I do tech writing for an engineering firm.

[Bo Hanson]

Tech writing for an engineering. What's that mean?

[Rachel]

Basically like I tell them where to put their commas and yeah, sometimes I.

[Bo Hanson]

Do tech writing for a financial planning firm every now and then.

[Brian Preston]

It used to be in the past for a specific advice for one specific person.

[Bo Hanson]

That's awesome.

[Rachel]

Yeah.

[Bo Hanson]

How long have you been doing that?

[Rachel]

It'll be three years in March.

[Bo Hanson]

You're 38 years old. You let us know that you make about $83,000 a year and I think your total net worth is like $380,000. So like why are we here today? What's the thing that we're going to be talking about today? What made you decide you wanted to come on Making a Millionaire?

[Rachel]

I really like your guys ideology on money and I wanted to see if you guys felt like I was on the right track to retire comfortably. I am hoping if you feel that I am on track and that maybe it'll make me feel more comfortable to spend money on bigger things because I have a problem with that.

[Bo Hanson]

Tell us more about that. What's the problem and what kind of stuff are you not spending money on?

[Rachel]

Like vacations with my son or to do like home improvement projects, maybe not by myself to hire somebody to get them done. I'm just afraid like I'm gonna spend a bunch of money and then something is gonna happen and I'm not gonna have that anymore.

[Bo Hanson]

So you kinda like hold onto it for fear of like the unknown unknowns that are gonna come your way?

[Rachel]

Yeah.

[Brian Preston]

Do you feel like currently you're ahead of the curve, behind the curve, right where you're supposed to be? What's your gut if the curve is.

[Rachel]

This normal person my age in America? I feel like I'm ahead of it.

[Brian Preston]

I say that with a question. The way your voice just dropped, you didn't sound like a lot of security with that.

[Rachel]

Well, that's kind of. I kind of wanted like more of a personalized touch because the calculators can only go so deep. I feel like I'm doing a good job, but I want to know if I should be doing more or if I can like take my foot off the gas a little bit.

[Bo Hanson]

Let's look at what you've done so far because again, 38 years old, that's not old. When we look at your investment portfolio, we can see that right now you have a total amount invested of like $140,000 in your traditional 401k. You have about 19,000, you have about 10,000 in a Roth 401k, almost $80,000 in a Roth IRA, which is awesome. You have a ton of tax free assets and then about 33, $34,000 in a traditional IRA. So from like a pre tax tax free standpoint, you're in a fantastic spot. So obviously I would imagine to be able to get to this level of assets by 38, you must be a pretty good saver.

[Rachel]

I was really fortunate to get a job right after my son was born for somebody that I nannied for in college. That's how I put myself through college. He gave me a 10% bonus at the end of every year and 10 grand in cash that he let me do whatever I wanted with. So I put them into the retirement account after the first year. The first year I spent it on a car and I regret that. But after that I paid off my student loans with that money and then I put the rest into those IRAs that I started. That's why they're so large. I love it like 10 years.

[Bo Hanson]

And you said that was like 10 years ago, like right when your son was born. And it seems like that savings behavior has stayed pretty consistent because when we look at your savings right now, you're absolutely crushing it. Right now you have 12% going into the Roth portion of your 401k. You get a 6% employer match.

[Rachel]

It's actually, it's actually 150% up to 6%, so it's actually 9%.

[Bo Hanson]

Oh, you're getting even. So it's even better than what we're modeling here. So we're at 12% plus 9%. And then you're doing your Roth IRA, maxing that out at $583 a month. So that's another 8%. So I'm going to do this math. Brian, check me on this. That should be like 29 savings rate, 38 year old, $140,000 in investments, saving almost 30%.

[Brian Preston]

All the models are telling you you're ahead of the curve, but yet your voice. There has to be something that's working in the background that's just saying it's not enough or concerns. What is it?

[Rachel]

I think it's just like some experiences that I've had throughout my life with my parents taking some financial risks growing up, and then they crumble. And I just want to be prepared. And I feel like my son's my only one. And so I want to leave him a good legacy. He doesn't have to share it with anybody, but I'd like to be able to help him. And the more I have, the more I can give when he's ready. Because it's getting harder. I think, like it's not the way that it was when I was younger.

[Bo Hanson]

Your past with money, you've seen how maybe not making sound financial decisions didn't play out well, and you want to kind of flip the script on that. You want to do it differently than perhaps, maybe it was modeled for you completely.

[Rachel]

Yeah, I might be overcorrecting, but that's another reason too, is like, because I save so much money, I'm wondering if I'm doing my present self a disservice because I'm too thrifty.

[Brian Preston]

We always say, put on your 3D glasses. Let's go ahead and give you a little more confidence by actually throwing it through the 3D glasses to kind of see how that's played out.

[Bo Hanson]

One of the reasons that we're able to help people, clients, come up with clarity whenever face any large life decision, whether it be, am I saving enough for retirement or should I change jobs or should I move or whatever this, we like to put on three glasses. And in retirement planning, we do the exact same thing. So we said, okay, let's take Rachel's current investments and let's take her current savings rate and let's say, okay, what's the dream plan look like? What if she does this and she does it from 37 all the way out until age 65. And let's say that in the dream scenario, she can annualize 10% rate of return. Let's let, let's let the return be the variable we affect here. If you can make 10% on your investments and you can do that consistently for the next nearly 30 years, your $140,000 plus that savings.

[Brian Preston]

Right.

[Bo Hanson]

And by the way, ours is even a little muted because we model 26% savings. It's actually 29 when you consider the employer match, you get to like $5.6 million. Oh, you smiled. I just immediately when I said that. How's that make you feel? Give me some, give me some reverberation feedback on that.

[Rachel]

It feels good. I definitely think I could work with that.

[Brian Preston]

Well, it's even better because you get to bring it back to present value to say, hey, what does this mean from a cash flow in retirement? If I had to model it, I mean, and it's close to 100 grand a year in pre tax income if you bring it back for today's dollars. How does that feel?

[Rachel]

It's more than I make now.

[Brian Preston]

Exactly. You get a pay rent.

[Bo Hanson]

Ding, ding, ding, ding. Yeah, that's exactly right.

[Brian Preston]

So this has to feel pretty strong that you are ahead of the curve for sure. Now, do we think we're going to make 10% every year though?

[Rachel]

No. And that's another thing too. You put in the variables like we could have another crash. I've already lived through a couple, so.

[Bo Hanson]

Well, let's go through that because I mean, so you mentioned a crash and obviously at 38 years old, you were there for the Great Recession, likely as an investor early on in your career, you were there for the COVID pandemic, you were there for fourth quarter of 2018, you were there for 2022. So you've seen some volatile markets. But let's say that over the next 30 years, maybe it doesn't manifest to make 10%. What if we did have. We're going to call it sort of the do do scenario. What if you only made 6% annualized again, exact same starting value, exact same behavior, something outside of your control. That's what makes it the doo doo part. And you only make 6%. Even at that, the $140,000 plus that savings rate gets you to a portfolio at retirement of almost $2.4 million. Okay, so that's significantly and substantially less than 5.6. But how does that sound? 2.4 million.

[Rachel]

I like the first number better. I'm not going to lie. I mean, I wouldn't have a mortgage anymore, I wouldn't have a kid to take care of anymore. I mean, of course I'll always take care of him, but hopefully he has.

[Bo Hanson]

Flown out of the nest at that.

[Rachel]

Yeah, I could probably make that work too. Things get so expensive. Colorado's expensive.

[Bo Hanson]

I want to remind you, this is $41,000 and this just assumes a sustainable 4% withdrawal rate. What that's showing, it's kind of like living off the interest. I never actually bite into the principal, so I'm able to kind of live off the interest for all of retirement. Well, this doesn't factor in any other sources of income like Social Security, which could very likely be there for you. So there's a good chance even a portfolio of this size, plus other outside resources you may have, like Social Security or other things that happen between now and then, that's pretty solid. Even in the do do scenario, it looks pretty good.

[Brian Preston]

But it's still, it gives you a little pause though, because it's less than you currently make. And you start thinking, I know I would do that myself, is I would internalize it and be like, oh, I'd at least like to cover a lot of my current expenses. Now, you did say some mitigating factors there. Not going to pay for your son anymore, you're not going to pay for the mortgage. But it's still, we think there's room for improvement on that because that's one that I would not feel comfortable letting my foot off the accelerator at $41,000. But the good news is we have the down to earth plan next.

[Bo Hanson]

That's right. You know, one of the things we talk about on the show all the time is wealth multiplier. And one of the beautiful things about you being 38 years old is that you still have a lot of time for your money to work for you and your money can still be pretty powerful. So we said if we just use our wealth multiplier assumptions, what do we think is probably a down to earth reasonable rate of return for someone your age to expect on their portfolio over the long term? And we would say 8.3%. Right. That's just kind of what we use for wealth multipliers. Who said for a 38 year old, let's apply that here again. Same starting value of 140,000, saving the same amount. But if you can annualize right around 8% per year, you get to a terminal portfolio at age 65 of almost $4 million, 3.85 million. And we feel confident that a $3.85 million portfolio can very easily generate about $67,000 in annual income for you. So now if you think about math, your current income is 83,000. And a lot of the rules of thumb say that you should shoot for like an 80% income replacement. The portfolio by itself is replacing about 80% of your pre tax income, not even factoring in Social Security and other things that might change. So in our down to Earth plan, we think it looks pretty good, pretty.

[Brian Preston]

Great, you know, if you follow any type of our content. By age 30, we want you to have one time your income. By the time you get to age 40, we want you to have three times your income. With the down to earth plan, you're actually on track to actually hit that metric as well. So that's a, that's kind of a mile marker on the path towards financial independence. It says green light, We've hit this marker, Things are going well. Proceed and keep going. We see a lot of positives here with exactly what you're doing. Give us some feedback on how that makes you feel.

[Rachel]

Oh, yeah. I mean, it makes me feel better. It's more personalized, which there's no face behind those calculators online. So I like that. And I like that the different variables because you're not gonna get 10% probably every year. Hopefully it won't be 6% every year either. So I like that. It does make me feel a lot better. Makes me feel hopeful for like what I can give my son for sure.

[Bo Hanson]

Well, and the only variable we changed here was rate of return, which is somewhat outside of your control. And one of the things you had mentioned to our producers is, hey, okay, if I am behind the curve, if I'm like behind and I need to kind of catch up, I do have some stuff that's coming down the pipe that's going to change. If I'm not saving enough now, it might allow me to save a little bit more. Do you remember having that conversation?

[Rachel]

Yeah, of course. I want to have like a sinking fund where I can do some of the things that I feel uncomfortable doing right now. And then, you know, as I make more money, I want to save more money and keep that 12%, it'll go up. Assuming I continue to make more money. Yeah.

[Bo Hanson]

So we didn't assume any increases in savings, any increase in pay. So even what we've laid down here with the dream plan, the down to earth and the doo doo, they're all relatively conservative. But you've mentioned to us there are some things coming down the pipe that could change in terms of what cash flow looks like. You mentioned that your mortgage will be paid off by 2045. And we know that right now that's about $1,200 of principal and interest that would be freed up for you, that you would then be able to apply and use elsewhere. And then there was this thing, a return of premium, about a $15,000 lump sum in 2038. Tell us what that is.

[Rachel]

So I have a life insurance policy where if I don't have to use it, my son's father and I both have one when we get back like 90 some percent of what we put in. So I'll get back around 15,000.

[Bo Hanson]

It's a term policy you pay for a certain amount of. But rather than those premiums completely going away, you get to receive those back at the end of the term.

[Rachel]

Yeah, just a portion of them. So that'll be when my son's 20.

[Bo Hanson]

What was the thought process reasoning around doing our return of premium policy?

[Rachel]

Basically, if my husband and I both got hit by a bus at the same time, we didn't want our families to not be able to take care of our son. And so we each got a policy for like 250,000 which would cover the house and then the other amount would be able to, you know, spend some money on my son to help raise him.

[Bo Hanson]

What was the. And we agree with that completely. We love the idea of having those protections in place While we're huge advocates for life insurance, but specifically, you did a return of premium policy. You know, again, the way those work is you pay in premiums at the end of the term, you get some of those premiums back. But do you know the reason why they're able to give you some of those premiums back?

[Rachel]

I assume because we don't use it, but I'm not sure.

[Bo Hanson]

Well, you don't use it. You actually pay a higher premium amount throughout the course of the whole term. It's a more expensive type of insurance than if you were to just go get purely term.

[Brian Preston]

Oh, okay.

[Bo Hanson]

And so I didn't know if there was some reason why you didn't just buy a pure term policy, not worry about the return of premium and have a lower insurance cost. Was that something that you guys talked about or thought through?

[Rachel]

I think honestly this is going to make me sound like such a novice here, but I think we just had somebody that my husband worked with and he came by and gave us his spiel and we just knew we needed to have something in place and we went with. It was probably just an accident, to be honest.

[Brian Preston]

Well, I imagine it's a mindset thing too, because think about it, if you're sitting across the table and you're talking about this concept of insurance, if it's traditional term, it's just straight up Expense, Yes. It's giving you protection. The thing I always remind people, and this is the thing that I'll let Beau kind of go in deeper in. Insurance is serving a very important purpose. It's to fulfill the promises of replacing income or paying obligations, because you can't make it at that moment in time because you're just not there. You hadn't had enough time going. Your assets haven't grown to the point where I think that people get lost. It's the same thing, is that when you have, you know, homeowners insurance, car insurance, there is a very valuable thing that it's also providing with that set. I don't think it has to be just because you're paying money and it's a financial instrument. It has to be an investment. And that's where I think people get the. The brain kind of has a hard time understanding. And the insurance industry has done a great job of marketing off of this, of saying, hey, while you're in here doing this great service to protect or fill in the gaps of what you need this coverage for, let's actually get you some money back. Because we like investments, and I think we've been pounded into us that investing is a good behavior. But you can see how this kind of gets skewed from an efficiency. Is this the best use of money? We've coined the term messy middle. When you're young, your age, and you have children and you have things, your most valuable resource is your time. But you're also. Your most limiting factor is you just don't have a lot of money laying around. So every dollar that you can put to work or put with purpose while you're young and have so much time has an exclamation point on it. So that's why I get frustrated when people sell products that, yes, can serve some good, but also it's the wasted opportunity and misalignment of the efficiency of what those dollars could be. And that's why I know Bo and I was so proud when I heard them talking about it, because this all goes to Beau and the producers who were designing this behind the scenes. They were like, let's make sure that we're sharing with Rachel what could have been.

[Bo Hanson]

We saw this thing about how return of premium was changing in the future and coming back. And so. Okay, well, that's interesting. She has an insurance policy. Let's look at her broader net worth. And when we look at it, we've already acknowledged you have, like, $380,000 net worth, which is amazing. We love seeing the cash on hand at $30,000. We love seeing the investments. But then we got to the asset side and we said, okay, there's her home. That makes sense. But then there is a whole life policy and a term life policy. Term life makes sense. I'm assuming that's the ROP return of premium policy. But then there's this whole life policy sitting on there Brian, if you had to choose one tool to help you with tasks like writing work emails, planning documents and show notes and remember, just one tool to help you set the right tone and get your message right, what tool would that be?

[Brian Preston]

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[Bo Hanson]

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[Brian Preston]

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[Bo Hanson]

Brainstorm, summarize meeting notes, get ideas for better tone, wording and spelling. It is all there. Sign up for free and experience how Grammarly Grammarly can elevate your professional writing from start to finish. Visit Grammarly.com podcast that's Grammarly.com podcast money's.

[Brian Preston]

Just a tool to help you focus on what really matters. And for me, that's making memories with my family. We love to travel together, but between those crowded airports, packing and planning, it can really take a toll if you're not careful. I don't want to stress or have low energy keeping me from being fully present on our trips.

[Bo Hanson]

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[Bo Hanson]

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[Brian Preston]

So head to drinkag1.commoneyguy to get a free welcome kit with an AG1 flavor sampler and a bottle of vitamin D3 plus K2 when you first subscribe. That's drinkag1.com moneyguy what's that guy?

[Rachel]

It's another policy that I have for my son that it has a special feature where you can choose to up the amount that you are insured for at different points in his life and you don't need a medical examination for it. Then he is the beneficiary. So when he becomes older, he can leave it to his spouse or his child if he has children. And so it's similar to one that my dad got out on me that I have Lincoln, a beneficiary of. When I die, she can't roll it anymore.

[Brian Preston]

So this is something you had even for yourself as you were growing up too?

[Rachel]

Yeah, my dad, I took over once I had my son. Yeah.

[Bo Hanson]

Is there some reason why insurability was something you were concerned about for your son, like being able to make sure that he was able to be. Cause he's a nine right now, so pretty low mortality, insurable risk. Is there some reason you were trying to protect against the ability to get insurance in the future?

[Rachel]

I think it was because I had these dreams of putting money aside every month for my son when he was born and life just got away from us and we didn't. And so I thought, well, this way he'll have that at least.

[Bo Hanson]

I want to look at the details. Let's look at your son's policy because you were kind enough to share it with us. So we have some details around how it's currently structured. You can see that right now it has a monthly premium of about $70 a month. That's how much you're paying into it every single month. The death benefit, the face value of the policy is about $100,000 and currently it has about $1,100 of cash value. Right. And I think you had mentioned something to the producers about, hey, I understand that with life insurance policies there's the ability for him to borrow against it in the future. Was that part of the thought process?

[Rachel]

Yeah, that was another side of it. That was sort of like a selling point when I was talking to my person about it.

[Bo Hanson]

Got it. And a lot of people, when they take on like some sort of permanent life insurance or some sort of insurance that has a cash accrual benefit to it. But that's one of the things they think there's, hey, I can borrow against this and use it. And so when we look at how the insurance policy plays out from a guaranteed cash accumulation standpoint, we know that at age 18, based on what you're paying, the guaranteed cash value would be about $3,400.

[Rachel]

Okay.

[Bo Hanson]

By age 30, guaranteed cash value about 9,300. And then guaranteed cash value for your son in this policy, about $46,000 by the time that he gets to 65.

[Rachel]

I have a feeling you're going to tell me, I, this is what would happen if you invested it for him.

[Brian Preston]

Let's take out that, because we'll get there. Nine years old, 18 years of age. If you just did nine years, I did nine years times 12 months, $68 a month is what we're paying. I mean, we're over $7,300 just from premiums paid. So. And the cash value currently is what, 11 was the number?

[Rachel]

1183.

[Brian Preston]

It's almost $1200. So the Delta only went up, you know, a little over two grand and we paid another 7,300. There's just a very inefficient use. And you have to ask yourself, okay, well, where did that money go? Because cost of insurance on a child who's healthy is practically peanuts. I mean, I'm always amazed when I, you know, every year when I renew the insurance, the term insurance on my wife, or even when I was in my 20s when I got my first term policy, they practically give you this stuff because they know statistically there's just not a lot of young people, fortunately, that succumb to death. It doesn't take much to ensure that risk because it's a large pool with very limited people who are actually making, you know, who need this money paid out.

[Bo Hanson]

I don't want to be disingenuous to the insurance companies because what they're going to.

[Brian Preston]

No, we love insurance companies because here's.

[Bo Hanson]

What'S going to happen immediately in the comments. We're going to have a lot of insurance agents write us and say, guys, guys, guys, you did her wrong. Guaranteed cash value is not likely the way it's actually going to pay out in the real world. Yes, that's what the policy says, but that's not actually what's going to happen. So again, you were kind enough to share the policy. So we kind of went into like the nitty gritty details and we're kind of going to lay out what the brochure explains. The brochure says, hey, in addition to this, you can also like to have what are called paid up additions inside the policy. So as you're paying for the insurance and as this company pays out dividends, you can then use those dividends to increase the death benefit of the policy and also increase the cash value. So this is a common add on that people have inside a permanent life insurance policies to increase the cash value and increase the death benefit through time. And that is indeed what the illustrations you gave us showed is, hey, if we have paid up additions happening inside this policy, it can actually look a little bit better. So let's show you what it looks like. When we factor in the paid up additions, the picture does get a little bit better. By age 18 now, your son would have about $7,200. That's almost 100% of the premiums that Brian had calculated were paid.

[Brian Preston]

But I only did it from nine. If we actually did 18 years times 68, times 12, I mean, it's close to $15,000. So still half is gone.

[Rachel]

I think I set this up when my son was, I think maybe like four or five.

[Bo Hanson]

Got it.

[Brian Preston]

Okay. To be fair, times 12, to be fair to your commenters, that's 11,000.

[Bo Hanson]

11,000. And you can see that if we again let it continue to grow out to age 30, it'd be worth about 22,000. Let it grow all the way out to retirement, it can turn into about $127,000. So yes, you are creating an opportunity where there is an asset technically that could grow through time, but we think potentially there's a better way. We would argue that right now, at age 9, your son likely does not have an insurable need on his life.

[Brian Preston]

Does he have a lot of income coming in?

[Rachel]

I wish.

[Brian Preston]

Man, kids cost money, don't they?

[Rachel]

They really do.

[Brian Preston]

I'm going to jump into the morbid insurance salesman. The biggest risk you have with children is if they died prematurely. You have to cover their burial expenses. So that's a true risk. But you probably ought to build that into the emergency reserves. I mean, I know that's easier said than done, but I'm just telling you, when we talk about the better way, I want to give, I want to go into the dark stuff that they're going to use to sell these products as well. But remember, most life insurance is to cover obligations and income that's currently needed that needs that. You, if you died prematurely, you would need to replace that in some type of lump Sum so if we're trying.

[Bo Hanson]

To model out, okay, what would likely make sense for your son over the course of his Life from age 9 to age 65? What you can see is that we think it would probably make sense from 8 to 24, let's not necessarily have life insurance for him. What if we just took that amount that we were spending on life insurance, $7 a month, and we just put it in an account to grow and we just invested that for him and we did that. But then again, we want to be intellectually honest in our illustration. At age 25, let's assume that he needs to get life insurance, and let's assume that he can go get term life insurance and he needs $750,000 of coverage. So, $750,000 policy. We went and quoted a 30 year term policy and we didn't even give him the best health rating. We gave him the second. We just gave him a preferred rating for $750,000. So from age 25 to 55, we're going to take the $70 we're going to pay for term insurance, whatever that costs, and then we're just going to invest the difference over that time period. And then from 55 to 65, once that term policy ends, we're going to go back to investing $70 a month. So when you actually look at what happens, the cash value, the accumulation value there at age 18, just doing this, investing that $70 instead of using it to buy an insurance policy, that account could be worth about $15,000. So then by age 30, that number could turn into $58,000. But this is where compound interest gets really, really exciting. From age 30 at 58,000 all the way out till age 65 can turn into $1.4 million. And look, we assumed a 9% rate of return because if you just go out and buy the S&P 500 index or some low cost for someone who's nine years old, that does not seem outside the realm of possibility. So when I tell you, okay, you have a product that could yield $127,000 according to illustrations, or you could implement a behavior that could potentially have a million and a half dollars, which one gets you more excited?

[Rachel]

Definitely the 1.4.

[Bo Hanson]

Definitely the 1.4.

[Brian Preston]

Let's bring it back to the reality of this though, because you know when he reaches 65, you won't be here. Or even if you are, that's just so far in the future. It's hard to even conceive that when he's age 18. Now, we said it could have been 15 to 20 depending upon when you started. If you needed it for education, if you needed it for whatever a car, whatever life need, 15 to 20 is going to go a lot further than that. Best case, $7,000. Fast forward to age 30. You think about the first house down payment, because that's the other legacy thing. I think, because you said something earlier, you said, but I think for younger people it's getting a little bit harder. So you're probably thinking about like house down payments because that's the biggest, the headwinds I see for young people is education and housing. So both of these things could be a part of that solution. But at age 30, if he wanted to have a house down payment, 58,000 is going to be a one heck of a. That's a pretty good head start. This is the power of going back to the moment. How do you maximize the fruit, the dividend that you get from that discipline? And this is the part that I feel like so much of the public, you're doing the hard work. The hard part is the saving. Let's actually just do the easy part. But the easy part, unfortunately, is one of the most important parts, which is actually putting the money to work. And a lot of people just skip that step or they don't know about that step.

[Bo Hanson]

One of the things that people might say is, yeah, yeah, yeah, but your son would have had life insurance coverage this whole time. Well, even in what we've done here with buying term and investing the difference, your son would have had life insurance coverage from age 25 all the way out until age 55. And it would have been not $100,000, it would have been $750,000. So it's just a very different thing. You are solving a problem that exists for a real moment in time as opposed to solving a problem that doesn't really exist on either one of those tails of that bell curve. The other thing that I think is important to mention is some people are going to say, yeah, yeah, but you, you can borrow against the cash value of life insurance tax free. If you do this whole term and invest a difference thing. If you want to access that money, you have to pay taxes on that. It's going to have capital gains. And while that's true, I would rather pay capital gains on $1.4 million or something along that line than only be able to borrow against 127,000. So even though there are likely going to be taxes, the outcome of the illustration is so Much more compelling. I don't know that it's a cogent argument that would cause me to lean one way or the other.

[Rachel]

With the amount that he could get at different ages, can he access that or does he have the same rules that we all have with our investment accounts where he can't get into it until 55?

[Bo Hanson]

No. So this our recommendation. It depends on the type of account you open. Whether you open like an UTMA or UGMA account that's kind of you're the custodian until 18 or whether it's in an account that's in his name post 18 or if you did a custodial Roth, it would depend on the account structure. But most likely when people buy Termin invest the difference, they just set up a regular normal after tax brokerage account for your son. It would look like an UTMA till 18 or agent majority, a custodial account. And then it would likely just be an individual account in his name that he could access at any point in time for any reason.

[Brian Preston]

You just have to pay income taxes on any current income, capital gains tax capital gains and you know, income, any dividends or whatever it generated. But very accessible. There is one risk though with these custodial accounts is that whatever the age of majority in your state is, because states have different, different ages of majority, the kids get it. And here's. I'll go ahead and tell you the horror story with this stuff is like if you use a custodian like Fidelity or some others, they group it off your Social Security number. So when you get excited about your child turning 15 and getting their first paid gig like Chick Fil A and you prime the pump by giving them dollar for dollar matching on whatever they want to put in their custodial Roth ira. And then you say, you know what would be a great idea is if my daughter could every month go in here and look at this so you could see the value of investing and prime the pump here. And then when you log in that first time with her to celebrate this moment and then you see that custodial account and you're like, oh my gosh, they show. So you can't keep secrets. Unfortunately, with custodial accounts, eventually when your children get older, they're going to find out. But that's okay. This is another learning opportunity where you as hopefully when your kid's 14, 15, 16, you start talking about and you model what good money management looks like so that, that they're not undisciplined and want to go buy a car or do something crazy when they, when they get agent majority and have access to this pot of money.

[Rachel]

Okay. Yeah. No. My son saved up half for a new PS5, so I love it.

[Brian Preston]

But that's disciplined muscle, strong.

[Bo Hanson]

You're showing him. Hey, if you save and you have a goal, you can save and work towards that. That's awesome.

[Rachel]

Yeah.

[Bo Hanson]

If you can instill that a nine year old, my kids are around that same age. That's awesome.

[Rachel]

Yeah. So your guys recommendation is to maybe cancel that policy and use those dollars.

[Bo Hanson]

That's what I would do some research on that and I would do an analysis to determine is the best use. If I'm gonna be using $70 a month to do something for my son. Is paying into this policy the most optimal use of that or might it make sense to surrender that policy and divert that $70 a month elsewhere?

[Rachel]

Okay, I did just take. I was rolling CDs for him and I just rolled it into like an investment before it like two or three months ago. So I could just.

[Brian Preston]

Simple index funds would do wonders too.

[Bo Hanson]

So as you're sitting here, you've got $40,000 invested, you're saving 29%, you're building for your son, you're helping him learn how to make financial decisions. Are you feeling better about where you're at?

[Rachel]

Yeah. And I'm super glad that you guys told me about the life insurance thing and showed me the other side of the coin because I really didn't know any of that. And you don't know what you don't know. And so I appreciate that.

[Bo Hanson]

Are there other questions you have or anything else that you would like? Our take on that might be helpful and valuable since you got us right here in front of.

[Rachel]

I guess the other question that I had was if there's another way I should be investing. Like you guys saw, I've got a couple of accounts and with different companies, do I need to be diversifying anymore or am I doing it the way that I should be doing it?

[Bo Hanson]

Well, I think overall, I think that the asset mix inside your portfolio is fine. I don't know that you need to change that. And I love the way that you're saving your income. I love that you're prioritizing tax free. You're getting the employer match, you're doing the Roth ira. The one piece that you don't quite yet have is that after tax bucket.

[Rachel]

Right.

[Bo Hanson]

You have your cash, you have your emergency fund, but you don't have that third bucket. But I think that's okay. At your age now, as you begin to move closer and closer towards financial independence and as you begin thinking about, okay, well, when am I actually going to retire? When do I think I might actually use these dollars? And you might say, man, I really want to retire at 50 or 55 or something along those lines. Then you may be one of those people that gets to step seven of the financial order of operations and figures out, okay, rather than just put doing my 401k and just doing the Roth, perhaps I want to start doing an after tax. But right now you're following the foo, you're doing the financial order of operations. I don't think I would change a whole lot. And if anything, and this is something we don't normally say, we just showed you that the down to earth plan works really, really well. And we were like 3% under what you're actually saving because of your employer match. I want you to be able to focus on doing the stuff with your son and creating the memories and doing the stuff now. Because, yes, it's great and wonderful to one day have a huge pot of money sitting there waiting for you, but you don't want to look back and say, man, I wish I would have. Because your 9 year old is only 9 once and only be 10 once. And my wife and I are going like, I'm going to start crying. If I think about it, my oldest daughter's 10 years old. We got like eight more summers, we got eight more Christmases, we got eight. And I'm just like, the reality that is hitting us and I imagine you're thinking the exact same thing. I don't want to sacrifice getting to create memories and doing things today just to have some slightly bigger pot of money later. If I know that I'm already doing the stuff that I'm supposed to be doing. And I think you are in that same exact place.

[Rachel]

That's great. I appreciate that. Thank you so much.

[Bo Hanson]

All right, you ready for your homework? Yours is pretty. It's pretty simple. First thing, I think it'd be worthwhile to revisit the life insurance, do a little bit of analysis, maybe call the agent, ask some questions, send a link of this video to the agent and say, hey, give me some thoughts on this. I'm sure he's gonna love that. Yeah, he's not gonna like that. Or he or she's not gonna like that a lot. So that's number one. Number two, based on what you decided with life insurance, determine if a custodial account makes sense for your son. It sounds like you already have one set up. Just determine should that $70 be redirected there. And then number three, I just wrote keep doing what you're doing, but also if there are things that you're not doing, if there are things you're not focusing on, if there are things you feel like you're missing out on, you are on track, you are on pace. Don't feel like you have to miss those things and give those things up.

[Brian Preston]

Thank you, Rachel for coming on today. Bo, if anybody else is interested in coming on Making a Millionaire, where do they need to go?

[Bo Hanson]

Yeah, if you'd like to be a guest on Making a Millionaire, you can go to moneyguy.com or if you want to check out any of our free tools and calculators, you can go to moneyguide.com resources Rachel, thanks again for coming on today.

[Brian Preston]

I'm your host, Brian Preston. Mr. Bo Hanson. Money Got Team Out.

[Bo Hanson]

Making a Millionaire is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners at 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 Making A Millionaire. 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. The guests featured on Making a Millionaire are not clients of Abound Wealth Management at the time of recording. Their participation should not be considered a testimonial or endorsement of Abound Wealth Management.