How to Adapt When Your Income is Cut In Half | Making a Millionaire

Summary

Podcast Summary

Money Guy Show

Episode: How to Adapt When Your Income is Cut In Half | Making a Millionaire

Date: November 24, 2025
Hosts: Brian Preston and Bo Hanson
Guest: Rachel

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Episode Overview

This episode of the Money Guy Show centers on Rachel, a public defender whose finances were turned upside down after a divorce that effectively cut her income in half. The discussion navigates how she has adapted, re-prioritized, and rebuilt her financial plan to pursue freedom, philanthropy, and security for her children. Brian and Bo walk Rachel through assessing her goals, optimizing her strategy, and making space for both giving and growing wealth—providing actionable insight for anyone dealing with a significant income reduction or financial setback.

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Key Discussion Points

1. Rachel’s Background and the Financial Setback

• Rachel is a lifelong public defender, mother of two young children (ages 5 and 6.5), and recently divorced.
• Before her divorce, Rachel and her husband enjoyed financial stability:

  “We just didn’t really think about money. We just had it...a level of just doing what we wanted. We had everything we needed and everything we wanted.” (Rachel, 03:48)

• Divorce shifted her situation: half the income, but the same bills—inspired a complete financial rework.

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2. Rebuilding After a Life Change

• Rachel went from advanced savings (step 8 or 9 in the Money Guy’s order of operations) to square one:

  “I kind of went back to one...He got all the cash and I had the house. So, yes, I was kind of starting from one. I needed to make sure I had enough for deductibles. I think I had, like $2,000 liquid cash. I mean, it was like bare minimum.” (Rachel, 08:36)

• Brian and Bo stress that perfection isn’t required to succeed:

  “Perfection doesn’t exist for anybody...you can have a lot of mistakes and there’s still tremendous margin for success to come out the other side.” (Brian, 10:11)

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3. Redefining Financial Goals and Values

• Rachel doesn’t aspire to be a millionaire:

  “I don’t think I need a million dollars to be happy. Well, I know I don’t because I’m happy now. And I don’t have a million dollars.” (Rachel, 01:51)

• Her main financial goals:

  • Philanthropy: She values supporting her community, feels a loss here post-divorce, and wants to resume giving.
  • Financial independence and retirement, aiming to retire when her son goes to college (~age 60).
  • Supporting her children’s education.

• Bo’s advice:

  "Money is nothing more than a tool that allows us to achieve our goals...sometimes the pursuit of one goal will impact our ability to pursue another." (Bo, 06:49)

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4. Current Financial Snapshot

• Net worth: ~$362,000 (10:59)
  • Cash: $22,000 (4 months’ expenses)
  • Investments: $232,000 (403B, 457, 401A)
  • Home: $349,000, Mortgage: $179,000 at 2.375% (11:44)
  • Debt: $60,000 owed to her sister from divorce settlement (13:34)
• Rachel continues overpaying both mortgage and sister’s loan (1,000/month), driven mainly by debt anxiety, even though optimal strategies may differ.

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5. Evaluating Debt Repayment and Opportunity Cost

• Brian and Bo point out the low interest on the mortgage and the sister’s loan compared to possible investment returns:

  "You would agree that 3% is low interest...you would even concede that on your high yield savings, you're making 3.8. So there's an arbitrage there." (Bo, 15:46)

• Rachel acknowledges her approach is subconsciously driven by anxiety:

  “It was an anxiety ruled decision.” (Rachel, 16:34)

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6. The Role and Risks of Public Pensions

• Rachel participates in Iowa's IPERS system—a defined benefit plan.

• Projected pension at 65: $10,254/month future dollars (~$5,700/month in today’s dollars) (18:33).

• No cost-of-living adjustment (COLA)—purchasing power falls over time; supplemental savings still needed.

  "We have to try to figure out what's the counterbalance because [the pension] is a blessing. But how do we add something so that we don't have to put all of our eggs in one basket?" (Brian, 21:04)

• Rachel also saves in 457 and 401A accounts, putting her on track for ~$884,000 in retirement assets at 65 (22:27).

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7. Social Security and Long-Term Retirement Picture

• Estimated Social Security: $2,800/month at 65 (conservative figures).
• Combining pension, retirement accounts, and Social Security, Rachel could have ~$10,000/month at 65, enough to cover expected expenses and philanthropy (23:57).
• Issue: If she retires before 65, these figures drop and the margin tightens.

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8. Optimizing for the Future vs. Debt-Free Now

• Brian and Bo advise Rachel to reconsider overpaying low-interest debts, showing how redirecting even $220/month (currently used to prepay the mortgage) into investments yields substantially better results—achieving debt freedom faster and providing greater future wealth:

  “You’re going to get there two years faster...just that little $220 a month extra that you’re paying in principal could turn into almost $160,000." (Bo, 35:54, 36:54)

• Suggestion: Redirect extra mortgage/sister-loan payments into investment accounts or philanthropic efforts, aligning spending with true priorities.

  "If my goal is X, am I deploying my dollars in such a way that it satisfies X? Or do I have the goal, but where my dollars are going is in conflict or in opposition to that?” (Bo, 39:22)

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9. Practical Homework for Rachel

Bo’s assignments for Rachel:

1. Talk to her sister about the payback speed/arrangement.
2. Reconsider mortgage prepayments—consider investing instead.
3. Audit her budget and align spending with goals: List major goals and match recent spending patterns to them, correcting any misalignment (39:34).

“I sit down and I list out all my goals, and then I look at my budget...did the dollars that I spent over here align with the things that I have on this side? If there’s misalignment, I would consider how do I realign this?" (Bo, 39:34)

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10. Empowerment and Moving Forward

• Rachel’s story is one of resilience and learning; she encourages others facing similar disruptions:

  "It is worth it if you think that's the best path for you; you can figure it out...I just didn't know, and now I feel like I know." (Rachel, 28:59, 28:54)

• Brian and Bo assure listeners: setbacks aren’t the end—small decisions and a realistic path forward still yield major gains.

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Notable Quotes & Moments

• On happiness and wealth:

  "Maybe being a millionaire is a bad thing. I guess it depends on how you use your money." (Rachel, 01:44)

• On setbacks:

  "Perfection doesn’t exist for anybody...you can have a lot of mistakes and there’s still tremendous margin for success to come out the other side." (Brian, 10:11)

• On money as a tool:

  "Money is nothing more than a tool that allows us to achieve our goals...It's just a means to an end." (Bo, 03:07)

• On fear and motivation:

  "It was an anxiety ruled decision.” (Rachel, 16:34)

• On financial alignment:

  “If my goal is X, am I deploying my dollars in such a way that it satisfies X?...try to realign those.” (Bo, 39:22)

• On rebuilding confidence:

  "It is worth it...I just didn't know, and now I feel like I know." (Rachel, 28:59, 28:54)

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Timestamps for Key Segments

| Segment | Timestamps | |---------------------------------------------- |--------------| | Opening, episode setup | 00:45–01:40 | | Rachel’s background and pre-divorce status | 01:15–03:48 | | Impact of divorce, rebuilding finances | 04:11–09:04 | | New financial goals and value of philanthropy | 04:47–06:15 | | Financial order of operations, setbacks | 08:24–10:44 | | Current asset/debt snapshot | 10:59–13:39 | | Sister’s loan and attitude toward debt | 13:34–16:34 | | Public pension details & risks | 17:04–21:04 | | Retirement assets, Social Security | 21:29–24:44 | | Prepayment of debts vs. investment strategy | 33:15–36:54 | | Homework for Rachel (reassignment suggestions)| 38:32–39:53 | | Empowering final words | 28:54, 39:55 |

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Tone and Takeaways

The tone is compassionate, practical, and encouraging. Brian and Bo blend numbers and optimism, repeating their signature message: there’s no perfection—just good, better, and best steps forward. Rachel’s honesty about her struggles makes her an everywoman avatar for listeners.

Final thought:
Life may force you back to step one—but with a thoughtful plan and self-awareness, you can recover, align your dollars with your values, and continue building the life (and legacy) you desire.

Transcript

[Brian]

Extra value meals are back. That means 10 tender juicy McNuggets and medium fries and a drink are just.

[Bo]

$8 only at McDonald's for a limited time only. Prices and participation may vary. Prices may be higher in Hawaii, Alaska and California. And for delivery.

[Brian]

Hi, I'm here to pick up my son, Milo. There's no Milo here who picked up my son from school.

[Bo]

Streaming only on Peacock.

[Brian]

I'm gonna need the name of everyone.

[Bo]

That could have a connection.

[Rachel]

You don't understand.

[Brian]

It was just the five of us. So what are you gonna do?

[Rachel]

I will do whatever it takes to.

[Brian]

Get my son back.

[Bo]

I honestly didn't see this coming.

[Brian]

These nice people killing each other. All her fault.

[Bo]

A new series streaming now only on Peacock.

[Brian]

Perfection doesn't exist for anybody. You can have a lot of mistakes, and there's still tremendous margin for success to come out the other side. And I think that's what we're gonna hopefully uncover for you today, Rachel, as we go through this is that, yes, there's a big step back with this big life change, but how do we fulfill those three big goals that we kind of uncovered? But also, you came out the other side feeling much better and with purpose.

[Bo]

45 years old.

[Rachel]

That's right.

[Bo]

$362,000 net worth. You make about $120,000 a year.

[Rachel]

Yes.

[Bo]

Sounds like you were in a fantastic spot. And it's been just a super easy journey from just straight from where you were to where you are now, right? Yeah. No problems with that.

[Rachel]

That's the way it went. Yep. The good news is I don'. Want to be a millionaire. So, you guys, this may be a quick, easy. Check the box. We're done.

[Bo]

We're out of here. Why don't you want to be a millionaire? Was being a millionaire a bad thing?

[Rachel]

I don't know. Maybe. Oh, maybe being a millionaire is a bad thing. I guess it depends on how you use your money.

[Bo]

Depends on what a million dollars means for you, right?

[Rachel]

Exactly. Yeah. For me, I don't think I need a million dollars to be happy. Like, I. Well, I know I don't because I'm happy now. And I don't have a million dollars. I'm a public defender. Kind of lifelong public defender. I love my work. I have two great kids.

[Bo]

And how are the kids again?

[Rachel]

They are five and six, but six and a half are so important. I do not want to insult my daughter. My ex husband and I got a divorce last year, so about almost exactly a year ago. So my financial situation changed markedly. You Know, it basically is kind of cutting your income in half, but all your bills stay the same. So I've just been trying to reconfigure this past year and kind of figure out how to manage what I have now and what needs to go and what needs to stay. And I have had some. I guess I want to think about how to do this year a little bit differently, to prioritize some things that are important to me.

[Bo]

What was life pre this, like, huge life change. And then what has changed specifically around the financial stuff?

[Rachel]

Sure.

[Bo]

Because it's you. I think you use the term reconfigure and rebuild. I want to dive into what was it like and then what is it like now? But what are some of these goals you have? Because you said, hey, I don't need a million dollars to be happy.

[Rachel]

Right.

[Bo]

And we would agree with that sentiment that we recognize money is nothing more than a tool that allows us to accomplish the things we want to accomplish. It's just a means to an end. It's not the end itself. So for some people, that's a million dollars. Some people, it's much less. Some people it's much more. And so we are in alignment.

[Rachel]

No, I appreciate that. And that's why I've been drawn to your ideology, because I think that resonates with me.

[Brian]

Well, it's also. I mean, our big thing is own your time. I mean, and to own your time, do you want to retire at some point?

[Rachel]

Yes.

[Brian]

We have to have an army of dollars somewhere.

[Rachel]

Yes.

[Brian]

Y' all were in steps 8 and 9. Am I getting this right? I mean, we've come a ways back, so still, this thing had a cost to it.

[Rachel]

Oh, yeah, for sure. Yeah. I mean, I think, you know, it's just gonna sound real spoiled, so I'm just gonna say it. We just didn't really think about money. We just had it. Okay. And so there was a level of just doing what we wanted. You know, we had everything we needed and everything we wanted. I guess that's why I always question why people need more money. Because I felt like we didn't have a ton of money, but we had plenty, you know, and so it was just different.

[Bo]

I think that's really interesting. Cause I think a lot of people go through that. They're in a season or stage where maybe income is good, maybe expenses are low, maybe health is good, relationships, whatever that thing is. And in your case, it was a divorce. Sometimes it's sickness, sometimes it's job loss or a move or a change. And then all of a sudden, it changes, and there's, like, a mindset shift that happens 100%. I started with this view of what it was going to look like, and something changed completely.

[Rachel]

That's exactly what it was like.

[Bo]

I want to dive into that. When it comes to finances, what are your goals? What do you want money to do for you?

[Rachel]

So I think one thing I really liked about having money is when we saw something in our community that we thought would benefit from the money that we had, we just gave that thing money.

[Bo]

Like philanthropy?

[Rachel]

Yes, exactly. Like, if there's something in our community that needs help, that we. That aligns with our values, we just give them money, you know? And it just wasn't really a question. Obviously, we had conversations about it, but it wasn't like a question about if we had it. And I think in this past year, when I was kind of figuring out budgets, one of the things that changed is, like, my ability to assist in that way. And I love my community. I can tell people in Franklin are very proud of their community. I feel like that about my community. Waterloo, Iowa. And I just. I want to be useful in that way. And I feel like in the past year, I have not done that in a way that I'm happy with, is.

[Bo]

Being able to do more. From a philanthropic standpoint, you mean? Okay. What I want to do is I want to revisit my budget, and I want to figure out how I can cut expenses as much as possible so I can give as much as possible. Or is I want to figure how I can build a level of wealth so that one day I can write checks freely the way that I used to write checks freely. And neither of those are right or wrong. I don't understand what the goal is.

[Rachel]

Right.

[Brian]

Well.

[Rachel]

And I don't know that they're mutually exclusive either.

[Bo]

Fair point.

[Rachel]

I mean, I think, you know, it would be great to do both. But I think my immediate concern is helping now.

[Bo]

How do I help now?

[Rachel]

Yes, exactly. And there are some institutions that I'm concerned will not remain if people don't step up to help now.

[Bo]

Well, let me ask you some questions, then. Cause a lot of times I'll ask people, hey, what are your goals? And they'll say, this one thing, which I love, and that's obviously the top priority. So I'm gonna ask you about some other things. Right. Do you want to retire one day?

[Rachel]

I sure do.

[Bo]

So I'd call that a goal. Right. Like I say, one financial goal would be working towards financial independence for your kids age 5 and 6, do you have a desire or hope for one day then to go off to like higher education and college and that sort of thing?

[Rachel]

Yes.

[Bo]

Is your intent that you would like to be able to assist with that or is that okay, so we got. All right, we're at more. We're at more goals. This is an exercise we encourage everyone to do.

[Brian]

Right.

[Bo]

Money is nothing more than a tool that allows us to achieve our goals. We have to realistically list out our goals. And in the pursuit of our goals, sometimes the pursuit of one goal will impact our ability to pursue another. And so we kind of list all of our goals out and then we prioritize them as we think about how we deploy our capital. We want to deploy it in the most efficient way to satisfy all the goals. Not funding one goal today at the expense of another goal tomorrow. If we can avoid that.

[Brian]

When do you want to retire?

[Rachel]

I had kids late in life, so I feel like I'm in a weird spot because, you know, I'm middle aged, but I have very young kids. My goal was to retire about the same time my son goes to college.

[Brian]

Okay, so is that so?

[Bo]

I don't know.

[Brian]

So I would be like 60 years?

[Rachel]

Yeah, I'd be 60.

[Brian]

Okay, so that's an intersection point because we all have these inevitable dates that will happen. So retirement at 60, education, how much? You said they're five and six. Yes. So we have 13, you know, 12 and 13 years.

[Rachel]

Yes.

[Brian]

These are two things that will need to be taken into account.

[Bo]

Pre divorce. What was life like? You said? Hey, we didn't really think about money a ton. Were you diligent savers? Were you saving for the future, like maxing out retirement accounts, doing that kind of stuff, doing all those things, if I remember correctly, maybe even like prepaying mortgage early on. So I would argue you were kind of in like the step 8, 9 phase of the financial order of operations. Right. Like when we think about it, you kind of made it past all sort of the base level steps and you were there. Now this large life event has happened. Where are you now? Like, if you had to assess, where would you say that you are? The financial order of operations.

[Rachel]

Yeah, I've been thinking about that a lot. I would think I'm probably more at like four or five.

[Bo]

Four or five?

[Rachel]

Yeah. Got it.

[Brian]

Is that where, when you went through the divorce, did you just fall back from 8 to 4 or did you have to go all the way back to one?

[Rachel]

Oh, so that's a great question. Yeah, I kind of went back to one. I kept the house, but obviously I bought my ex husband out of the house because I had saved so much for retirement. We had different levels of retirement, so I had to give him a chunk of money to even that out. So really, he got all the cash and I had the house. So, yes, I was kind of starting from one. I needed to make sure I had enough for deductibles. I think I had, like $2,000 liquid cash. I mean, it was like bare minimum.

[Bo]

You know, so often when people think about the financial order of operations, they think about it as a straight line. I go from step one to step two to step three to step four, and I just kind of track up this mountain. And perhaps that even was your journey initially. But then inevitably, something happens. And in real life, when we see the way that food practically plays out, it looks a lot different. Like, I'm in step nine for a bit, but then I went all the way back to step one, and then now I'm slowly building back. And so we thought it'd be interesting. We think about, okay, well, if we look at where you are now, your food journey kind of looked like this. Right, Right, Totally. So step nine down to step one. But now we are beginning to build. Now we're building back. We've got deductibles covered. We're going to talk in a moment about your match, which is a little bit different because of your vocation.

[Rachel]

Sure.

[Bo]

You're rebuilding your mercy fund, so you are squarely in step four. So we're tracking back up the mountain. I just want to pause here, say that's okay.

[Rachel]

Oh, yeah.

[Bo]

A lot of people, they get discouraged and frustrated, but this is what happens in life. And you were like a living testament to that happening and being okay.

[Rachel]

Totally.

[Bo]

There's a path out of that.

[Brian]

Perfection doesn't exist for anybody. This whole book is full of mistakes. And that's what I think is so great, is that you can have a lot of mistakes and there's still tremendous margin for success to come out the other side. And I think that's what we're going to hopefully uncover for you today, Rachel, as we go through this, is that, yes, there's a big step back with this big life change, but how do we make you and fulfill those three big goals that we kind of uncovered? But also, you came out the other side feeling much better and with purpose.

[Rachel]

Yes. No, totally. And I'm very proud, honestly, of the work that we've all done this year. And I'm very proud of my kids. You know, it's a change in how things have gone, and I think we've done a great job. So, yes, I do not feel shame about having gone back, but of course I want to keep moving forward.

[Bo]

Love that we've already mentioned, even with this large life event, your net worth is at like $362,000. When we look at your net worth statement, it looks pretty good. I mean, you said, okay, you've got about $22,000 in cash. You said that's about four months of living expenses. Our goal is to get to 6. In investments, you have about $232,000 broken up between a 403B, a 457 and a 401A, which is just all through the same employer that you're working with. You have your primary home, which is worth about $349,000. So on the asset side of the ledger, things look fantastic. Yes, that's great. On the debt side, looks like you have two debts. You have your primary mortgage 100 and about $79,000 at 2.375.

[Rachel]

Wow.

[Brian]

Is that a 15 year mortgage?

[Rachel]

I wish it were. No.

[Brian]

What type of mortgage is it?

[Rachel]

It's a 30 year fixed.

[Brian]

Oh, it's even better, though. No, when I asked you, typically when I see rates that low, I always think it's a 15 year because typically 15 years are about a half a percent cheaper than 30 years. So if you'd have a 30 year, 2. Did y' all prepay it? I mean, y' all buy some points or something. That. That's a low rate.

[Rachel]

No, we got. We just got it at the exact right time.

[Brian]

Wow.

[Rachel]

And honestly, we talked about doing a 15 year. That was 1.8.

[Brian]

Holy cow, you must have that. I don't. I mean, we watched the market pretty close, y'.

[Rachel]

All.

[Brian]

I mean, we go and try to choose the bottom of markets. I think you. Y' all must have just stuck the landing perfectly.

[Rachel]

Yeah, we really did.

[Brian]

That's an incredible race.

[Bo]

And so. And when. But you said y' all were prepaying. Y' all were like paying the mortgage off quickly.

[Rachel]

Yeah. What we were trying.

[Bo]

Okay.

[Rachel]

And you and I know you guys are gonna be like, that was not a good idea, Rachel. You should have been putting more money in savings.

[Bo]

Well, we're not about good ideas or bad ideas. We're about optimal ideas and suboptimal ideas.

[Rachel]

I love that phraseology.

[Bo]

Do you still have a desire to pay off that mortgage?

[Rachel]

Yes. And I have been Doing it. I know. And so that's my question. That's my big question.

[Brian]

No, wait a minute. I see a high yield savings account there on cash. What are you getting paid on that right now?

[Rachel]

3.8. I know.

[Brian]

3.8.

[Rachel]

I know.

[Brian]

We have a delta there of like, you know, a percent happen. By the way, this isn't even. Because there's moments where you're probably making 5% on that cash, too, right?

[Rachel]

Yeah. Yes. I feel like I have anxiety related to debt. Like, I just want to get out of it as soon as humanly possible. And so I'm overpaying, but I understand my margins would be larger if I weren't, and I may be able to meet my goals a little more.

[Brian]

You were trying to do charitable work. Was it for the banks or was it for these organizations that you did for these organizations. Okay, okay. I just want to make sure we're clarifying here, you know, because there is.

[Rachel]

Thank you.

[Bo]

We're gonna put a pin in the mortgage for a second because you just said something. I want to get out of debts as quickly as possible. Your mortgage is not your only debt. You do have this other debt. There's a $60,000 loan from Sister. What's that? Walk us through what that is.

[Rachel]

Yeah, so that was part of the settlement piece in terms of, you know, you could do the qualified domestic relations order.

[Brian]

Quadros.

[Rachel]

That's right. Very good. We elected not to do that. I did not want to fight about a cuadro. I just kind of wanted to wrap things up. And so that was our decision, that I would just do a straight cash payment to my ex husband rather than.

[Bo]

Do a quadro from your retirement account.

[Rachel]

Yes, my sister. God bless. She's a lawyer who makes money. She.

[Brian]

I've never heard it said that way. That's hilarious. Yeah.

[Rachel]

I mean, as a public defender, you have to delineate. Right. So she was very generous and loaned me $70,000 so I could make that payment to my ex husband.

[Bo]

And so you've only paid 10,000 in the first.

[Rachel]

And she was very. I mean, she would let me take as much time as I wanted. Again, just anxiety about. I don't like that being there.

[Brian]

Are you paying that monthly, are you paying it yearly, or just when you have money coming in?

[Rachel]

No, we have just a set up, like through my account that she just gets $1,000 every month on the same date.

[Brian]

Does she prioritize you going through the financial order of operations, or do we need to lean heavily into making sure your sister is Paid back faster.

[Rachel]

Yeah. No, she's so kind. I mean, we. So again, you guys are not gonna like this. We originally had an agreement where I would pay her 700amonth. And then I got. Once I figured out, like, okay, here's where my margins are, I felt like I could pay more, and so I wanted to. So we changed the agreement.

[Brian]

Okay.

[Rachel]

And did a new amortization schedule. So the goal as it's set right now, I would pay her off in spring of 2031.

[Brian]

But we can treat this as low interest debt. There's not some asterisk next to it that there's a time certain for just relationship purposes.

[Rachel]

Sweet. And this is not like money that she. I'm guessing she doesn't even really think about it at all. You know, but it's more like, I.

[Brian]

Think about it, we're gonna get her in next month for renting a million.

[Bo]

Yeah, but. But I am. It isn't. It is an interesting thing. Again, just kind of thinking through where your goals are. Like, you would agree that 3% is low interest.

[Rachel]

Yes.

[Bo]

Right. And. And you would even concede that on your high yield savings, you're making 3.8. So there's an arbitrage there. Not that we want to take advantage of the sister or anything, but there's an arbitrage there. But you did say, hey, one of my goals is like philanthropy today, present day. And we haven't talked about retirement savings or any of that kind of stuff, but just in my mind, well, it was $700, and it could have stayed 700. That would have freed up $300 a month for philanthropic purposes, Right?

[Rachel]

Totally.

[Bo]

I just want to understand the mindset. You said, I have one goal, and my number one goal is to be philanthropic. And I'll be philanthropic today to the extent that I can. But when faced with the opportunity to do that or get out of debt, you said, hey, I'm gonna get out of debt more quickly.

[Rachel]

Yeah.

[Bo]

So I just wanna.

[Rachel]

Such a good point. There is some cogn. There, isn't there? Okay.

[Bo]

Okay.

[Rachel]

Yeah.

[Bo]

So it wasn't. It was likely more subconscious and unintentional than intentional decisions.

[Rachel]

100%. Yes. It was an anxiety ruled decision.

[Bo]

Got it.

[Brian]

Y' all keep using these SAT words, and I'm going to. I mean, we're going to have to go have a discussion here in a minute. Good at math. If you saw my sat, he's not so good with some of the other SAT words.

[Bo]

So now let's talk about your savings. The way that you build. And the way that you. Now you said you're public defender. So the way that your retirement is structured and set up is a little bit different. Can you tell us a little bit about that? It's not like you just have a 401k like some people might be familiar with.

[Brian]

Sure.

[Rachel]

So we have a system called ipers, the Iowa Pension System. I'm sure it has other words in it that I don't recall right now, but basically a part of my paycheck comes out every month. I think it's approximately $300, maybe 290. And then the state pays maybe like 430 or something each month. And then that's just set aside. So when I retire there will be like a pension amount that I will receive monthly until I die.

[Bo]

Is it based off of the money that you put into the system or is there a different formula that determines what your pension amount is?

[Rachel]

It depends on when you retire. So the amount is markedly different. I could retire at 55 under our system, but I think I would get like $3,000 a month or something.

[Bo]

So one of the things that we try to determine is, okay, your pension is based on your highest five earning years. And then there's multiple factor based on how long you've worked there, like what your age is, how many years you've put in. And so we said, okay, well let's kind of estimate what this looks like. And you said right now your income is about $120,000 a year. And we said, okay, what if we just assume 3.5% wage growth, like just fairly conservative inflation adjusted wage increases by the time that you get to 65. We're going to use 65 as our base level assumption here. Your projected monthly benefit at age 65, if we assume that three and a quarter percent. I'm sorry, I said three and a half. We used three and a quarter annual wage growth about $10,254.

[Rachel]

That'd be pretty good.

[Bo]

Sounds pretty good, right?

[Brian]

It's a future value though.

[Bo]

It is a future value. So when we think about that, $10,254 at that point will not feel the way that 10,000 feels today.

[Rachel]

Sure, of course.

[Bo]

So that would be the equivalent at age 65 of about $5,700 today. What's your burn rate like? Do you know what you spend on a monthly basis to do the things you want to do the way you want to do them?

[Rachel]

I try to spend no more than $5,000 total. So I would be totally Fine there.

[Bo]

So if we have 5,700 coming in, that's great. One of the issues though with the IPER system is that there are no cost of living adjustments on that. So once your pension starts, it's kind of locked in at that number. So we don't just want to think about year 65, we want to think about age 70, 75, so on. And so we just want to kind of model for you as you go through time, the purchasing value of your pension goes down. As you can see, it starts at $5,700 a month in today's terms. But as we go through time, the purchasing power of those dollars becomes lower and lower and lower. Well, likely your lifestyle will either stay the same or when you retire, hopefully it would actually increase a touch. So we have these two things moving in different directions. A lot of times we have people ask us this question, hey, if I have this big pension and I'm able to like, you know, get the, you know, the average five and just why would I save anything else? Why would I continue to build? This is why. Right.

[Rachel]

Makes sense.

[Bo]

So I think we agree your pension is going to solve a huge problem chunk of your need in financial independence, but it's probably not going to solve all the needs. Is that a fair statement?

[Brian]

Well, and also there's an underlying risk that's sitting out there that if we went through, and I don't know that we will, because typically high inflationary strikes, I've lived through two now, because the late 70s, early 80s and then during the pandemic period that we had this huge run up of inflation, you're running some risk. As long as inflation went back to normal or below average, your pension's actually going to be great. Yes, but we do run a risk that if we have any extended periods of higher inflation, it does minimize the value of this future promise because that's really what, because that's what you're trading in some of your earning potential so that you can get this promise from the government and the promise, depending upon what the purchasing power of dollars is in a many decade in the future. It is a big question mark.

[Rachel]

Sure.

[Brian]

So that's one of those. As a financial planners, we're always like, well, we have to try to figure out what's the counterbalance because this is a blessing. But how do we add something so that we don't have to put all of our eggs in one basket? And that's where we're going to talk to you about trying to once again, using the Financial order of operations. How do we build something in the background to kind of, you know, be a flex system on what's going on with the pension plan?

[Bo]

And it doesn't seem like this is news to you because if you look at your savings priority again, you are currently contributing to some of the defined contribution account you are putting into your 457. There's money going into your 401A. So you can see that all in. If we just kind of remove the pension from the equation, you are saving and investing or have a total amount being invested on your behalf of about $3,000 a month. So if we just take the amounts that you have in your retirement accounts now plus that level of savings, when you look at the portfolio path, we go from $232,000 today, and this is assuming a very conservative 6% rate of return. When you get to 65, just that level of contribution is going to get you to like $884,000. Now, again, 884 in the future won't be worth the same today. So if we bring it back in today's dollars, that would create annual retirement income for you of about $20,000 a year. Right. So if we just, you know, take 20,000 divided by 12, it's about $1,600 or so a month. Now in retirement, we're starting to stack. So we have our pension coming in and then we have some portfolio resources we can use. All right, well, now at age 65, if we think about today's dollars, just based on what you're currently doing, you're on track to have like $7,300 a month. And the beautiful thing is your portfolio assets, those do keep up with inflation, so it will retain purchasing power. But we still have a little shortfall. As we get into the later years, we get into the 80s and 90s, we're falling below that, like critical 5,000, assuming that's like, about what you spend.

[Rachel]

Yes, sure.

[Bo]

So we do still have a little bit of a shortfall we have to make up for, but in true Billy Mays fashion. But wait, there's more. There's more, there's more. Because one of the things that a lot of people and, you know, I don't want to say controversial, but some people are more certain of it and some people are less certain of it. But as of right now, Social Security is part of what's available to a number of Americans when they retire. And so we said, okay, well, so if we think about how much your Social Security that you've paid in, plus what we estimate if you continue to work, your Social Security would generate at age 65, about $2,800 a month for you. Now, we like to be very conservative with Social Security because some of the.

[Rachel]

Unknowns don't know yet.

[Bo]

So we said, hey, what if we assume that it only grows at about a percent and a half per year, it is going to lose some purchasing power in retirement, but still likely going to be there. Well, what you can see is that at age 65 you actually have a $10,000.

[Rachel]

Yeah, okay.

[Bo]

Living income coming in.

[Rachel]

Oh, that's really good.

[Bo]

That does decrease through time.

[Rachel]

Sure.

[Bo]

It does seem to create that opportunity at that stage of life you'll likely be able. If your living expenses are 5,000, that leaves a lot of room for using those resources and those dollars for other things.

[Rachel]

Yeah, right.

[Bo]

Philanthropy and giving and that sort of thing. So it seems that with what you're doing right now, you are on a pretty healthy track. Assuming an age 65 retirement, sure.

[Brian]

How does that make you feel?

[Rachel]

I don't think a lot about retirement. I feel like I've felt some comfort just because of the situation I'm in. But it is nice to see how it stacks up. This would be a time when my kids would be in college, presumably, like I could maybe be more assistive there and then be a lot more assistive in my community.

[Brian]

Hey Beau. Imagine we're waiting to catch a flight. You're walking back with your pre flight coffee in hand. And since we all know I'm the nervous traveler, I'm already in line at the gate.

[Bo]

All right, it sounds accurate. Keep going.

[Brian]

Then all of a sudden you get a work call. You need to access one of our crucial systems from your phone. So what do you do? Imagine you yell across the airport to me and you say, hey Brian, what's the password? And then to make it worse, what if I yelled the actual password back to you?

[Bo]

Okay, no, no, that's insane. As our chief compliance officer, I am entirely opposed to this analogy.

[Brian]

I completely agree with you. But my point is that public WI fi, just like in this example, is basically like shouting your password across. The term ExpressVPN is that whisper you need to keep you safe.

[Bo]

Alright, that makes sense. Every time you connect to an unencrypted network, your online data is not secure.

[Brian]

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[Bo]

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[Brian]

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[Bo]

Of being behind the wheel, allowing you.

[Brian]

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[Bo]

One of the things I think is important to note though is all of this is predicated upon age 65.

[Rachel]

Yes. Right.

[Bo]

So one of the things that we would encourage you to think about as you move forward because I don't think a lot about retirement. Whether you think about it or not, barring something else happening, it's likely going to happen. You know what I mean? You're going to make it to age 65 probabilistically wise. Right. If you were to begin making decisions around like, hey, I think I want to, I want to exit the workforce at 60. Well now all of a sudden my highest five years of earnings are likely lower. The multiple I get on my pension is likely lower. I've had less time to save up and build assets, so that's lower. And I've also paid less into the Social Security system, so I'm likely to have a lower Social Security. Sure. Every year that we move earlier has a cost associated with it. The longer we wait to begin thinking about that, the more difficult it is to overcome that cost.

[Rachel]

I think this year my anxiety has been related to like I just didn't know what life was gonna look like, you know, I really had to reconfigure that. And your book has been very helpful. Just to tell you I read it.

[Brian]

After Were you the money person in Yalls relationship or was it your spouse?

[Rachel]

He really was honestly I'm sort of embarrassed to say that.

[Brian]

Well, no, but I think that's good for the public to hear is because you hear people. And so you had to not only lose this important part of your life, but you had to now go back.

[Bo]

And essentially gain a new skill set.

[Brian]

Gain a new skill set to take on that and you've done this all in a year. This is like. It's not like you ease into this. This is like, welcome to the deep end.

[Rachel]

Well, I have to give it credit. My friend Susie is the one who recommended your book. I was reading Dave Ramsey and telling. I called her, like, look, apparently I'm supposed to have, like, three jobs and never spend another dollar again. And she's like, no, no, no, no, no, no, no, no, no. You need to be reading this book. And so that was very helpful in kind of structuring how I was gonna do things differently. There's a lot in there that resonated with me. Like, it felt. I love that you put generosity first. I think that's great. There was a lot in there that made sense to me, so I appreciate that. I think I was just trying to figure out this year, like, what it looks like. I just really did not know, and now I feel like I know. So now I would like to, like, think about it differently in terms of.

[Brian]

How to prioritize anything that you wish that you could tell somebody if they were going through this.

[Rachel]

I don't know if this is, like, answering your question, but that, like, it is worth it if you think that's the best path for you, like, you can figure it out. You know, I don't know that I fell into any traps. I think I got anxiety about losing. Just not knowing. Just not knowing. I just didn't like that. Yeah, I think I got very rigid for a. And probably stress my kids out, like, with, you know, we're not buying anything right now, but we did get to the other side of that. We figured out what we could do, and I think we're.

[Brian]

Any credit card debt or anything. Did you stay away from it the whole way?

[Rachel]

You stayed away? Yes. Oh, thank you for saying that. Yes. No, I was scared to. I didn't want to use credit cards at all.

[Brian]

And where does that come from? Has you always just been avoid credit card type?

[Bo]

Well, you heard she was reading Dave before us.

[Rachel]

Yes, exactly. Right, Exactly. I mean, I was just worried that I would overspend.

[Brian]

Okay.

[Rachel]

I literally charge on it and then pay from my bank account. So it's really to just get points, honestly. But so, no, that has not been an issue, fortunately.

[Brian]

That's great.

[Bo]

Well, one of the things we want to show you is that because as you sit here today, small changes, small adjustments can have pretty significant impacts. We said. All right. If you recognize. Okay. What if I did want to give myself some flexibility earlier on, and I want to be true to and honor the financial order of operations. And I wanted to save more. Where would I go? Well, once you get the emergency fund knocked out and you come through step four, well, then you end up in step five. That's Roth IRAs and HSAs and building up your tax free. We said, okay, well, what would it like for Rachel if all she did was just max out a Roth IRA? She just said, hey, I'm gonna start doing that $7,000 a year. Even just deciding to do that now at age 45, rather than your investable assets only growing to be $884,000, just saving that additional $7,000 a year in the Roth now takes your portfolio by 65 to $1.1 million. That's not really the point I would draw your attention to. What I want to draw your attention to is that at age 65, on the path that you're on, you'd be able to generate from your portfolio about $20,000 of income a year. By saving in a Roth, you see that you actually are able to generate about $20,000 a year of income for the portfolio five years earlier.

[Rachel]

Yeah, that's great.

[Bo]

So if your goal is to buy back time and to create flexibility, the earlier you can begin making those decisions, the more impact those decisions can have over the long term. We think about your dollars right now. What I want you to take away from today is, all right, there's probably an optimal way to use my dollars, and there's probably less optimal way. And defining optimal is gonna be up to you based on your goals we already discussed. You know, your sister, I could pay her 700, but instead I paid her 1,000. Right. Well, there's $300 that could go towards a Roth IRA, or there's $300 that could go towards philanthropic endeavors if that was your desire. So I want to talk about another area where we think perhaps we could free up a little bit of capital. And you already know where we're going with this. You said you're prepaying your mortgage. Right? And you said, I just have this desire to be out of debt and not have that. But when I asked you what your goals were, you said, I want to give. And then you said, that was it. And then I kind of pulled out of you. I also want to be financially independent, and there's probably this tertiary goal of wanting to be debt free.

[Rachel]

Right.

[Bo]

If you were thinking about priority, is it more important for you today to be debt free or financially independent?

[Rachel]

I mean, I think financially independent.

[Bo]

Financially independent. Right.

[Brian]

All Right. Are you leaning that you would do the Roth? Once you get your emergency fund fully funded, do you think you'll do this Roth?

[Rachel]

Well, Megan Green asked me if I would follow your advice if you gave it to me, and I told her yes. So I feel like I should say yes. I mean, I'm hearing you say it, and I'm thinking maybe instead that I could do more philanthropic stuff. But I'm open to thinking about it, too.

[Brian]

Cause you've been nibbling around the edges. You can still do both. I think now I am all of the above. It's just. But I do want to challenge you as a parent also. Do you think your children will have this boom shakalaka opportunity you have with. I mean, because seriously, you put six in, the government puts in nine. You get 15 for six. Even in my lifetime, we've seen a huge transition away from that. It seems like more and more of the world is pushing it more and more on your shoulders.

[Bo]

Totally one of the places if we were going to think about, hey, where should your money go? Not hearing you say, paying off my house is my top priority, above philanthropy, above financial independence. And yet here you are, you're paying extra on your mortgage every single month. And remind me again what that mortgage rate was.

[Rachel]

Yeah, 2.37.

[Brian]

Was saying out loud.

[Bo]

If we were in a live chat right now and asked for a poll, you know how many people would absolutely lose their mind if they had a 2.3?

[Brian]

Do you know how many young people would be throwing tomatoes at the store? Yeah, right.

[Bo]

So we said, okay, well, let's not. Obviously, she understand this academically. Right? Like, I make 3.8 on my savings and I pay. But I was like, let's show her, like, the real math. And so let's say that, okay, even if. Even if your goal were to be debt free, I don't even think you were attacking being debt free in the most efficient manner. I think you could do it different. So we think about your current mortgage amortization. If you were just making the minimum payments on your mortgage, you'd have it paid off by October 2047. And you said, that's, hey, that's not good enough. I don't want this mortgage for that long. I want to pay it off early. So you said, I'm going to pay, what, an extra $200 every month on your mortgage?

[Rachel]

Yeah, basically.

[Bo]

Basically 200 bucks a month. Well, with doing that extra $200. I'm sorry, $220. It's even more than I said you are on track to pay it off by 2042. So five years earlier, it's going to save you $13,000 in interest, which is awesome. Right? That's.

[Brian]

That doesn't sound like a lot for that many years.

[Bo]

I'm doing a thing.

[Brian]

Okay, go ahead. I'm sorry.

[Bo]

I'm sorry. Really? That's where you're going?

[Brian]

I'll stay quiet so you can pay.

[Bo]

It off five years earlier. That is a thing that you could be doing.

[Brian]

Divide 13 by five.

[Bo]

Okay, Brian, we get it. So we said, hey, what if instead of paying that 220,000 on the mortgage, what if you set out with the desire to be debt free, but used a different vehicle than actually putting it on the mortgage? Mortgage. Because do you know how much interest every dollar you pay on your mortgage saves you? 2.37 cents. Right? Like, that's the way that that math works. If instead we took that $220 and we started investing it and we said, let's just put this to work and let's say we can earn 8%. Right. You're young, relatively moderately aggressive risk tolerance, 8% rate of return. Do you realize that the intersection of your current mortgage and the dollars that you would be building in that account actually happened two years earlier?

[Rachel]

I did not realize that.

[Bo]

Than the path you are on right now.

[Rachel]

I did not.

[Bo]

So even if your desire was to be debt free, I would argue this is probably the optimal way to get there, because you're going to get there two years faster.

[Brian]

Well, it's not even telling you how much that amount. I mean, you can look at it because I can cross reference, even though I'm getting older. Is that 80 grand?

[Bo]

That's about $75,000.

[Brian]

Yeah. That's a decent amount of money just sitting in a bank account, too. I mean, an investment account.

[Bo]

And so you're also going to be at this position in the year 2040, where you're going to have a $75,000 mortgage at 2.375%.

[Rachel]

Sure.

[Bo]

And you're going to have $75,000 sitting in an investment account. You're going to have some decisions to make, and you may decide, okay, this is great. I want to be able to help my kids. I want to be able to do philanthropy. I want to be able to pay off the mortgage. Or there is a scenario say, hey, I just want to let this money keep growing all the way out to retirement. By the time that you paid off your mortgage on its original schedule by 2047, just that little $220 a month extra that you're paying in principal could turn into almost $160,000.

[Rachel]

Yeah, that's a big difference.

[Bo]

And we thought, okay, she's not going to believe us. Right? We have to, like, double down on this even more. We said, okay, well, what if you kept on your current trajectory paying off that mortgage? Guys, I'm so disciplined. As soon as I pay off my mortgage, I'm going to start investing the whole amount. I'm going to start investing that whole amount. Well, even if you did that, by the time you got to the same 2047 year, you would have 89. Almost $90,000. You're talking about, like, $70,000 less value from implementing what I'm going to call a suboptimal strategy.

[Rachel]

Sure.

[Bo]

So if there were other goals that you had, like financial independence or even like, like philanthropy, I would argue that those goals could likely be better satisfied by rethinking how you're deploying your dollars.

[Rachel]

That's super helpful. It's nice to see those numbers that way. That makes sense.

[Bo]

Because, see, I don't think she's. I don't think we're not going to convince her to do the Roth. I mean, we might, but if we tell her, hey, we just freed up $300 from your sister and $200 from Worth, that's an extra $500 a month. There's a lot of meaningful change and meaningful impact you can have with a number of organizations.

[Rachel]

At $500 a month, that's a big deal.

[Bo]

Or at $250 a month towards that goal and $250 a month towards financial independence goal. It doesn't have to be all goal.

[Brian]

That's where my heart was. I was like, why can't we do both? I mean, 250 to each. That way you end up, like I said, you get to model some good behavior for your kids, but then you get to also model being generous. That's the win for me, is to do both.

[Bo]

All right, you ready for your homework?

[Rachel]

Yes.

[Bo]

Homework. Item number one. Have a conversation with your sister.

[Rachel]

Okay.

[Bo]

Hey, sis, I just want to understand, you know, we had this original agreement. I adjusted it. Give me some feedback. Where are you? How does this. And she might say, you know, getting 3% on my cash is pretty good. I could just kind of think of that as my emergency fund is paying me 3%. My high yields pay me 3.8. Not that far off. She may be okay with that interest rate. It may be something that she's comfortable with. Number two, I'd really think about my mortgage strategy. I'd really think about do I really want to be paying that 220 extra a month, or do you want to do something else with it? Whether that be open up a taxable account and invest it? Whether it be give it to causes that I believe in, I would revisit that. And then number three, and I just said I would decide if where your dollars are going actually align with what your goals are.

[Rachel]

Yeah.

[Bo]

If my goal is X, am I deploying my dollars in such a way that it satisfies X? Or do I have the goal, but where my dollars are going is in conflict or in opposition to that? And I would try to realign those.

[Rachel]

Sure.

[Bo]

And so it's an easy exercise. I sit down and I list out all my goals, and then I look at my budget for the last month, two months, three months, six months, and I say, where did my dollars go? And did the dollars that I spent over here align with the things that I have on this side? If there's misalignment, I would consider how do I realign this?

[Rachel]

Okay, I think that's great. I'm gonna do it.

[Bo]

I love it. She said she's gonna do it. You've been wonderful. Thank you so much for coming.

[Brian]

It's really fun.

[Rachel]

I really appreciate it. Thank you.

[Brian]

By the way, Rachel, you had because you had let us know charities you were super excited about, was your local library there?

[Bo]

That's where she got Millionaire mission from.

[Brian]

We are sending you home with some extra copies so you can give them even more copies.

[Rachel]

Oh, that's perfect. They will love that. Thank you.

[Bo]

Are we gonna sign those? You think we'll sign those copies?

[Brian]

Do libraries want copies?

[Rachel]

Maybe. I don't know.

[Brian]

You know what? If your goal is to get people to keep them so then you can rack up library, maybe that's an alternative revenue source. Thank you, Rachel, for coming on both. If somebody else wanted to come on Making a Millionaire, where do they need to go?

[Bo]

Yeah. If you want to be a guest on Making a Millionaire, you can go to moneyguy.com apply or if you want to check out any of our free calculators or resources, go to moneyguy.com resources.

[Brian]

Guys, as you could tell from hearing Rachel's story, sometimes life just happens, and it takes you back. Not from step eight where she started, but all the way back to step one. Small, incremental decisions can still have huge results. We love sharing this type of content. It's our hearts of educators, you too can make big changes in your life. I'm your host, Brian, Mr. Bo, and for Rachel Moneyguide team out.

[Bo]

Making a Millionaire is hosted by Bryan 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.