Money Guy Show Podcast Summary
Episode Title: Should I Slow Down Saving to Buy a Car?
Release Date: December 18, 2024
Hosts: Brian Preston and Bo Hanson

Introduction

In this episode of the Money Guy Show, hosts Brian Preston and Bo Hanson delve into critical financial decisions that listeners often face. The primary focus revolves around whether individuals should adjust their saving strategies to accommodate significant purchases, such as a new car. Throughout the episode, the hosts address listener questions, providing in-depth analysis and actionable advice to help optimize financial growth and stability.

Segment 1: Navigating Employer-Provided Roth Conversions

Listener Question:
Andrew B. inquires about his employer's provision for in-plan Roth conversions: "My employer has started to allow in plan Roth conversions. How does one decide how much traditional or the match to convert to Roth? Is this an example or a reason to take it to the next level?" [00:07]

Discussion Highlights:

• Understanding Mega Backdoor Roths:
  Bo Henderson explains the concept of a mega backdoor Roth contribution, a sophisticated strategy that allows high-income earners to contribute significantly more to their Roth accounts beyond standard limits. He states, "You can actually do a mega backdoor Roth contribution. So a lot of folks out there have access to this, are able to do 20, 30, $35,000 Roth contributions inside of their 401k by this planning opportunity." [00:36]

• Strategic Contribution Allocation:
  The hosts discuss the importance of balancing pre-tax and after-tax contributions, especially for higher earners who benefit from pre-tax deferrals due to their higher marginal tax rates. Bo mentions, "If you're in the 30% or above marginal tax bracket, pre-tax contributions are incredibly valuable." [02:00]

• Complexities and Cautions:
  Megan emphasizes the intricacies involved in executing mega backdoor Roths, advising listeners to be cautious of exceeding contribution limits and ensuring employer matches are not compromised. She uses a relatable metaphor: "It's kind of a very graceful dance. You have to do measure twice, cut once." [05:27]

Notable Quote:
Bo Henderson reflects on the decision-making process for Roth conversions: "Is it worth it for me to pay the taxes now? Meaning do I believe that I'm in a much lower tax situation now, then I think I will be in retirement or later on." [03:41]

Segment 2: Managing and Diversifying Vested RSUs

Listener Question:
Skinning Potato asks, "I'm 26 on step seven. What should I do with my monthly vested RSUs? The total vested amount is about 60% of my after-tax portfolio. Should I diversify them and if so, how should I go about doing that?" [08:50]

Discussion Highlights:

• Risks of Concentrated Equity:
  Megan warns against having a significant portion of one's portfolio tied to employer stock, citing historical examples like WorldCom to illustrate the potential downturns of over-concentration. She advises, "You have two things tied up when you have all your eggs in that employer basket... you want to create a system to liquidate them and diversify." [09:58]

• Strategic Diversification:
  The hosts recommend creating a systematic approach to selling vested RSUs to mitigate risk and ensure financial independence. Bo adds, "Even if you're selling some off as they vest, it's likely you're being granted more on the backside." [12:10]

• Balancing Human and Investment Capital:
  Megan emphasizes separating human capital (income from employment) from investment capital to protect against potential job or company-related risks. She states, "Make sure you're building assets and resources outside of your ventures so you actually have the money to do what you want." [10:30]

Notable Quote:
Bo Henderson cautions, "Pigs get fat, but hogs get slaughtered," underscoring the dangers of excessive concentration in employer stock. [13:06]

Segment 3: Balancing 401k Contributions with Car Purchases for Young Professionals

Listener Question:
JDR610 poses a scenario: "My 23-year-old daughter just got married this weekend. She has no debt, outside her home, has an emergency fund, but she needs a newer car. Should she reduce her 401k investments down to company match to save for a car faster or maintain a higher 401k contribution? What do y'all think?" [13:27]

Discussion Highlights:

• The Power of Early Investing:
  Megan highlights the long-term benefits of consistent saving and investing, especially for young individuals. She encourages using tools like the Wealth Multiplier to visualize future financial growth, stating, "Every dollar that she can save... has the potential to turn into tons of money down the road." [15:14]

• Assessing Needs vs. Wants:
  The hosts discuss the importance of evaluating whether the car purchase is a necessity or a luxury. Megan advises setting boundaries on spending for vehicles, recommending, "Put down at least 20%, don't finance for longer than three years, and ensure payments don't exceed 8% of income." [16:18]

• Maintaining Financial Balance:
  Bo suggests that if reducing 401k contributions is necessary, one should at least maintain contributions to secure employer matches and continue building retirement savings. He advises, "She might not save up for the whole value of the car. She should save up for that 20% and potentially buy the car to get back to saving." [17:52]

Notable Quote:
Megan warns against dealership financing strategies that can lead to unfavorable loan terms: "They ask what monthly payment you can afford, but that's a trap... the majority of Americans now are driving around with equity, meaning they owe more than the car is actually worth." [16:17]

Conclusion

Throughout the episode, Brian Preston and Bo Hanson provide nuanced insights into complex financial strategies and everyday financial decisions. They emphasize the importance of strategic planning, diversification, and balancing short-term needs with long-term financial goals. By addressing listener questions with expertise and practical advice, the hosts empower their audience to make informed decisions that can lead to greater financial confidence and security.

For more personalized advice and resources, listeners are encouraged to visit moneyguy.com.

Disclaimer:
Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission. In accordance and compliance with securities laws and regulations, Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only and does not constitute financial, tax, investment, or legal advice.