The 401(k) Numbers Are Lying to You

Summary

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Money Guy Show: "The 401(k) Numbers Are Lying to You"

Hosts: Brian Preston & Bo Hanson
Date: August 5, 2026

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Episode Overview

This episode of The Money Guy Show takes a critical look at a surge in media headlines celebrating all-time high 401(k) balances. Brian and Bo explain why these statistics can be misleading, delving into the behavioral traps that can accompany “good” financial news and emphasizing the importance of disciplined saving over market luck. The duo uses recent Vanguard and Federal Reserve data to debunk misconceptions about American savings habits, provide practical advice for participants at all stages of their career, answer listener questions, and discuss effective wealth-building tactics grounded in behavior, not just returns.

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Key Discussion Points & Insights

1. Understanding Misleading 401(k) Headlines

• Median 401(k) balances rising: Vanguard’s How America Saves 2026 reports median balances went from $35k (2023), $38k (2024), to $44k (2025).
• Surface vs. Reality: While this appears to show improving American finances, the rise is more attributable to market performance than actual behavioral changes in savings.
  • “If you overlay the S&P 500’s performance, what do you know? This is less about the behavior of good savings and investing habits and more about just what is going on in the financial markets.” — Bo Hansen [02:53]

2. The Real National Savings Crisis

• Savings rate down: U.S. average savings rate has dropped to 3%.
  • “Average savings rate of 3%... it’s disgusting.” — Brian Preston, Bo Hansen [04:26]
• Behavior > Market Returns: Account balances going up due to market returns shouldn’t give false confidence; sustainable wealth is a product of good saving and investing habits.
  • “When you find out account values are going up less than the rate of return from the general market, we have a disconnect from the behavior that actually creates the dollars.” — Bo Hansen [03:22]

3. Saving Rate Benchmarks & Compounding Power

• Start early, save more: Even optimistically, a 20-year-old needs at least a 6% savings rate (including employer match) for “normal” retirement. Most Americans start saving at 30+, requiring “double-digit” rates.
  • “If you can be active in the sense of steadily improving your savings rate ... working towards that 25% full savings goal, then you can write your financial future.” — Brian Preston [07:04]
• Compounding’s magic: 85-90% of a well-invested retirement account’s value can come from growth, not just savings—if you start early.

4. Practical Strategies to Increase Savings

• Incremental improvements: Start wherever you can, utilize tools like the “1% More” strategy, and count employer matches in your savings rate.
  • “Start with 1, start with 2, maybe even 5%. And look, we count your employer match if you make under $200,000 as a married couple.” — Bo Hansen [07:57]

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Notable Quotes & Memorable Moments

• On market-driven 401(k) increases:
  • “We want you to not be a passive participant in your wealth... It’s going to take some active movement on your end.” — Brian Preston [07:04]
• On behavioral caution:
  • “There are all kinds of behavioral traps that we just want to make sure you are immune to.” — Bo Hansen [01:45]
• On teaching kids investing:
  • Story: Brian teaching his daughter about interest, savings, and stock ownership, transitioning to index funds when the educational lesson is learned. [24:48–27:30]
  • “She was like, ‘If she owns Lululemon, we can just walk in there and get whatever we want.’” — Brian Preston (recounting his daughter’s logic) [25:58]

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Listener Q&A Highlights

Understanding Target Retirement Date Funds

• Q: When will target date funds diverge from S&P500 returns?
• A: They track the S&P closely while “aggressive” (far from the retirement date) and become more conservative (less equity) as retirement approaches. Differences depend on provider and fund glide path.
  • “Once you get to your late 30s, early 40s, that’s when you should take a more nuanced approach to your investment strategy.” — Bo Hansen [11:40]

Car Purchase Dilemma

• Q: Should I buy a Tesla now if it fits 23/8, or wait to pay cash in a year?
• A: Prefer cash, especially for luxury vehicles (including Teslas). Only buy if it’s a true need, not just a want; make sure your savings behavior is on track first.
  • “23/8 does not apply to luxury vehicles. If you have the means to pay cash, I like the idea of paying cash for it.” — Brian Preston [22:42]

Roth vs. Pre-tax in "Tax-Free" States

• Q: Should I favor pre-tax accounts if my state doesn’t tax retirement withdrawals?
• A: Only state tax is exempt, not federal. Factor your combined marginal rate and your future lower tax bracket to decide if pre-tax is best; large “arbitrage” possible if you retire to a low/no-tax state.
  • “If you’re paying 50% marginal while working and 12% in retirement, Roth conversions can make sense in retirement.” — Bo Hansen [30:16]

Handling Debt Prioritization

• Q: Pay off low-interest credit card (4%) or higher-interest 401(k) loan (9%) first?
• A: Always tackle the credit card debt first, even with a lower rate, because it’s riskier and can change.
  • “Credit card balances carry that month-to-month is no-go land, no matter what the interest rate is.” — Brian Preston [35:36]

Savings Allocation in Your 20s

• Q: My advisor has most of my money in a money market. Should I invest more in ETFs/brokerage?
• A: In your 20s, unless cash is for an emergency fund, it should be invested for growth, not sitting in cash or a money market.
  • “If you’re decades from touching those assets, I want those army of dollar bills working, not trapped in cash.” — Bo Hansen [40:35]

Use of Roth 401(k) When Young but in High Tax Bracket

• Q: Should I favor Roth 401(k) or traditional for high-income young workers?
• A: Favor a blend: pre-tax for high-income years, but also structure for backdoor Roth conversions later on to maximize flexibility.
  • “Without knowing more, we don’t think it’s either/or. We think it’s both/and.” — Brian Preston [44:10]

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Timestamps for Important Segments

• 01:02 – Episode intro: “401(k) numbers are lying to you”
• 02:06 – Breakdown of Vanguard’s 401(k) data
• 04:26 – National savings rate discussion
• 05:54 – How much should young people be saving?
• 07:04 – Stair-stepping your savings rate
• 10:01 – Target Retirement Date Funds explained
• 18:10 – Car-buying and the 23/8 rule vs. paying cash
• 24:48 – Brian’s story about teaching his kids about investing
• 29:36 – State “tax-free” retirement withdrawals and savings strategy
• 33:18 – Debt prioritization: credit card vs. 401(k) loan
• 37:40 – Rapid-fire Q&A starts
• 52:34 – Does the Financial Order of Operations (FOO) apply if you win the lottery?
• 58:49 – Listener’s pilot license savings/guilt questions
• 60:52 – Show closes (resources/announcements)

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Additional Memorable Moments & Lighter Exchanges

• Financial order of operations (FOO) applies to all, even lottery winners: "You likely just run through the FOO in a very compressed timeline." — Brian Preston [53:24]
• Counterculture in personal finance: Not being controversial is, in fact, countercultural today [16:40; 51:27].
• Mashed potato debate: Hosts joke about proper mashed potato ingredients (butter, sour cream, etc.), showcasing their approachable tone [42:47].

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Takeaways

• Don’t be lulled into complacency by rising account balances if your savings behavior isn’t changing—market luck is temporary.
• True financial progress is about disciplined habits: keeping savings rates high, starting early, and making incremental improvements.
• The Money Guy Show provides actionable, non-sensational advice focused on helping listeners build sustainable wealth—offering the “why” behind every “what.”
• Listeners are encouraged to utilize the show’s free resources, calculators, and deliverables for personalized growth.

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For tools, calculators, and further resources mentioned in the show, visit:
www.moneyguy.com/resources

Transcript

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[Bo Hansen]

They're lies. And then 401k number lies.

[Brian Preston]

Brent I am so excited about this because sometimes a piece of information or a headline or an article will come out and at first blush you'll think, okay, ooh, this is good. This is awesome. But I love that we get to sit in this spot where we get to look behind the numbers and determine, okay, is this actually a good thing or is there some creative accounting going on?

[Bo Hansen]

Well, it's also the context. Always be careful. Numbers are great, we are big math people. But you need the additional context to kind of know what's truly going on. And what's all over the headlines right now is 401ks are hitting all time highs.

[Brian Preston]

That sounds pretty good.

[Bo Hansen]

But there's a catch. And that's what we kind of want to cover today because I want to make sure you don't fall into a trap of overconfidence because this is not the first time we've covered this. It's just today it's going to be with 4.1Ks. We'll talk about. In the past it's been on net worth with the Fred data. There's all kind of behavioral traps that we just want to make sure you kind of are immune to.

[Brian Preston]

Yeah. So Vanguard recently released their study. This is the how America saves 2026 report and this is what came out of it. They looked at defined contribution 401k balances and what the median balance of 401ks are. And they look at this over the course of every year and what you can see is since 2022 it's been increasing. Median balance in 2023 was 35,000. Median balance in 2024 was 38,000. Median balance in 2025 was 44,000. So you might say to yourself, holy cow, the median balance of 401ks are increasing. That must mean that people are listening to the Money Guy show. They're beginning to take heed that they need to save for their future and they're beginning to save more. But that may not be the truth.

[Bo Hansen]

Well, there's also, if you look at this, it's kind of a curious thing. This is almost more like the Warren Buffett quote of being greedy when others are fearful and fearful when others are greedy. And the fact that you look at this and go, wait a minute, why was it so high in 2021? Why did it get its teeth kicked in in 2022? Man, what a recovery. Or what a saving strategy in 2023. And then let us go ahead and let the cat out of the bag. If you overlay the S&P 500's performance, what do you know? This is less about the behavior of good savings and investing habits and more about just what is going on in the financial markets. And that's something that we want to be. It's something to be celebrated. Look, I'm happy the markets are going up, but when you find out account values are going up less than what the rate of return is from the general market, we have a disconnect from the behavior of actually what creates the dollars in your bank and in your investment accounts.

[Brian Preston]

Now, look, don't mishear us. We're not saying that we don't like seeing account balances go up, but we want to be careful that when you see that there was a 16% increase from 2024 to 2025, I don't want you to think it's because, oh, well, people have finally realized, I need to be saving, I need to be doing more. It's likely more driven by how the market performed. And the data would actually substantiate this. We know that from the FRED data that the act, the national average savings rate across the average American has now dropped to 3%. Yeah, and look, average savings rate of 3%.

[Bo Hansen]

It's disgusting. And that's the, this, this is the part that I hate to be, because we are optimists. I am Mr. Good Time Rock and Roll, but I am one of those people that when I see a troubling trend, and it's always about the behavior of saving and Americans are notorious for we like to consume and Spend. And look, there's industries out there trying to help facilitate that or grease the skids. But I'm here to tell you there's a better way to do money and you need to actually intersect what are your goals, what are your desires for what you want this money to do. And if you start early and do it often with your savings rate, you can find that actually the heavy lift is just the behavior and the discipline. But the hard all the work is going to be done by your actual investment dollars through compounding growth. But you are missing it all if you don't start saving and investing.

[Brian Preston]

Well you said that hey, if you start early it doesn't have to be super hard. And so you may be saying okay, well maybe if we think about the average American, maybe we have a younger workforce and maybe that this 3% savings rate actually just represents the fact there are a lot of young people and housing has gotten expensive, inflation's got expensive, but maybe it's okay. Maybe if you're a young person who's 20 years old just starting out, you're only saving 3%, maybe that's all right. And again, don't mishear us, we want you doing something. If you're going from zero, any sort of improvement is improvement. But even at a young age, even at 20, 21, 22, 3% savings rate is not going to get the job done.

[Bo Hansen]

And you don't have to guess on this. We've actually if you just go to moneyguy.com resources we have a great deliverable how much should you save? And this thing is powerful. And look, even if we took the most optimistic scenario possible, a 20 year old who discovers the money guy show and start savings and investing and wants to have a normal retirement at 65, they still need to be saving and investing 6%. So maybe 3%'s enough if you work for a company with a dollar for dollar match 3%. But that's not the majority of people because we know the typical American doesn't even discover investing until they're typically 30 years of age. So that puts you well into the double digit savings rate. So go with that knowledge and use that knowledge to make you better and then harness the power of compounding growth. Guys, that's the part that gets me excited is if you think about the fact that when you get to retirement, if you do this right, it could be 85 to 90% of your account values, not what you saved and invested. Yes, that was the hard work early that you did, but it's the Compounding growth. It's the hard work of your army of dollar bills so you don't have to work so hard with your back, your brain or your hands.

[Brian Preston]

So what's the key takeaway here is that when it comes to building wealth, we want you to not be a passive participant in your wealth. And don't mishear us. If you can do this early and if you can get your money working for you, your money is going to be the active part. It's going to do a lot of the heavy lift for you. But if you can be active in the sense that okay, maybe I just started out, maybe I got my first job, maybe my employer matches 3% and so I'm going to do 3%, so I'm saving 6% total. But maybe next year I get a pay raise or I get a bonus or I change jobs and I want to increase it from 3% to 5% and then from 5% to 7, and then 7 to 10 and 10 to 15. If you can just do slightly better over time working towards that 25% full savings goal, then you can write your financial future. But it's going to take some active movement on your end.

[Bo Hansen]

A lot of you, maybe you are one of these people and you're 28 years old or you're 32 years old or you're 35 and you haven't even started saving, investing, you go, guys, I can't do 20, 25% yet. I'm okay with that. I would just want you to start doing something so we actually have a great deliverable. If you go to moneyguy.com resources what 1% more can do for you guys, start with 1, start with 2, maybe even 5% just. And look, we count your employer match if you make under $200,000 as a married couple, so count that as in your savings rate and you might find that you're more on the path because what I like about the 1% you can this deliverable, you can actually look at your age that you are and if you take 1%, what that will buy you in future retirement. And think about the fact that if you could maybe it's not 1%, maybe it's 5%. You can stack these percentages and you really quickly will decide hey, this is what a retirement plan looks like. And building a great big beautiful tomorrow.

[Brian Preston]

I love that we get to sit here, I love that we get to see these articles come out and we get to celebrate the fact that 401ks are hitting all time highs but also be realistic that that's likely more because of market performance than participant behavior. And we can encourage you guys to do that. And we love that we get to be part of that. We love that every Single Tuesday at 10am Central, we can show up right here to speak to the things that you care about. We can answer your questions. We can give you our takes on your situation. So if you have a question you want us to weigh in on, or if you want our insight into something in your life, we have the team out in the wings collecting your questions because we really do believe that there is a better way to do money. So with that creative director Ribe, I'm going to throw it over to you.

[Reby (Creative Director)]

I'm excited to dive into some questions. We're going to kick it up with Devo6912. He's first up. It says with target retirement date funds, how soon till 65 will people notice their returns no longer match the highs and lows of the S&P 500?

[Brian Preston]

Well, you see, it depends. And I get to say that right now depends on what target date retirement fund you're talking about. For those who are not familiar, a target date retirement fund is basically a basket of holdings set to adjust automatically on some specific time horizon. So if you think that you might retire in the year 2045, then you would go buy the Target Retirement 2045 fund. And we like the index versions of those. Well, what's going to happen is while we are many, many years away from that target timeline, it's going to be more aggressive. And more aggressive means it's likely going to have a higher equity composition than fixed income or risk off composition. As such, it's probably going to more closely mirror what's going on in The S&P 500, the broad index that that target retirement done target retirement fund is, is allocating to. But as time moves on and as the allocation gets more and more conservative, you're going to see more of the risk on assets get decreased and more of the risk off or risk reduced assets increase. Well, as that happen, there's now going to become, oh my goodness, look at how good you guys are. As that happens, you're naturally going to have a larger tracking error between the MSCI All World Index or between the S&P 500 index because you're taking some risk off the table. Now, when that happens in a target date retirement fund depends on which fund family you're using because they're not all the same. Fidelities are different than Vanguards are different than Schwab's. So it's worthwhile to go look. If you are using a target retirement fund, you should go look at their composition and see if you can determine what the glide path is to make sure that that matches what your ultimate timeline is.

[Bo Hansen]

Yeah, and I think if I was just giving you an answer off of the feeling of when you probably kind of you asked the question, when will you notice? I think likely, probably in your mid-40s. If I was just giving you, you know, finger in the, in the air to tell you where the wind's blowing, probably in the mid-40s. But that's probably also because remember there's the make wealth phase, there's the maintain wealth and it's once that make wealth, once you this thing has reached a substantial size where you just need to start thinking about the tax efficiency of your portfolio, how you're going to use this money. Because maybe you're in step seven of the financial order of operations. You very likely will be graduating from these index target retirement funds. And that might be in your late 30s, early 40s. And at that point that's when I would love for you to consider getting more specific and nuanced with your investment strategy. And that's probably a great point to take the relationship to the next level. That's why I don't like it when 20 and 30 year olds when they need to be focusing more on the behavior of their savings rate and their investments. I don't want you to get caught up in the noise of what all the different crazy investments. When you just go buy a simple index fund that will accomplish those goals, you don't have to waste the mental horsepower. You can focus on what really matters and own your time during those periods. But then there comes a point where you've reached enough level of success that now you can't ignore the set it and forget it. You need to actually take an active role, get into the tax efficiency, get into the asset allocation. That's there. There is a jump off graduation point on that.

[Brian Preston]

Love that.

[Bo Hansen]

By the way. Here, can I tell you another little thing about index target retirement funds. It's interesting fidelity and look, I'm doing this off memory. So maybe they've changed this since the last time I looked, but it was either 20, 25 years in the future, even though they put different tickers in different years, if you look the allocations are the exactly the same meaning they go so far. Once you get too far out on the aggressive on 25, 30 years in the future. They don't change the allocations but it

[Brian Preston]

doesn't mean that's the same fund. What it means is they're going to start in the same place but the glide path will begin at different time periods.

[Bo Hansen]

But I guess they're basically saying there is this is the most aggressive we're going to go but the glide path will be impacted sooner depending upon the year you chose is when you needed the assets. It's just an interesting I remember when we doing the doing research and due diligence on these different funds and that's why Bo's exactly right. Also Vanguard, Schwab and Fidelity are the three biggest kind of providers of index target retirement funds. They all have different risk bins that you ought to go look at the different holdings and take an active role in choosing which one kind of reflects what you like.

[Reby (Creative Director)]

That was great. Devo6912, thank you for the question. Happy you're here.

[Bo Hansen]

Can I give two kind of two celebrations for for our audience this week? First of all we did that we announced the paperback and I was really proud that once again because y' all did y' all showed up we we immediately started charting on on Amazon number one in finance books that that's pretty awesome. The other thing is is that number

[Brian Preston]

one number one in personal finance. The other thing number one top number

[Reby (Creative Director)]

one Millionaire mission on paperback Buddy.

[Bo Hansen]

The other thing I thought was interesting was and look I don't the the the whole S, you know S tier structures I don't completely get it and somebody told me it's based off a Japanese system or something but it shows up on my feed you tell more

[Brian Preston]

somebody ranks something it's like ABC we

[Bo Hansen]

never and I, I realize I don't know if it's because we're the gentleman men and ladies of the personal finance space. We're not controversial enough but we typically don't ever get listed on those lists. But you guys and you guys out there, my financial mutants, y' all are in force on the comments section to the point that eventually the creators all have to say yeah, I guess I'm gonna have to go check that out. So thank you. Thank you. I know that sometimes we don't have the razzle dazzle controversy that puts us on all the list. And that's because I remember even when we were bringing it back to the Millionaire mission, the publicist we hired when the first book first edition of the book came out, she's like so what's your counterculture claims? Because she goes that's what's going to make you stand out. That's what the press is going to like. And I was like, we just tell people how to be good with money. She goes, no, but that's. It's got. You got to have a controversial thing that's really going to catch the headlines. And I'm like, we're good with money. I was like, I on purpose don't want to be the one that creates sensation just for the sake of sensation. And I know that works against us, but that also should give you some peace of mind that somebody's actually out here trying to actually help you be better and educate you instead of just razzle dazzling to get the clicks. Because in this new modern world, sometimes it's hard to tell is somebody rage baiting you or actually trying to help you be better. I can wholeheartedly and I sleep good at night knowing we want you to be the best version of yourself.

[Brian Preston]

Love that.

[Reby (Creative Director)]

Well said. Well said. I like that. I want to know what do you think the money guys countercultural take is?

[Brian Preston]

It is.

[Bo Hansen]

I mean it's a great question.

[Reby (Creative Director)]

I remember really trying to come up with something.

[Bo Hansen]

Yeah. I was like, let me think about that.

[Reby (Creative Director)]

They were still so vanilla. They were good.

[Bo Hansen]

I was like we do buy.

[Reby (Creative Director)]

They were good.

[Bo Hansen]

Like we like index funds.

[Brian Preston]

I don't think any of that's very that's the problem.

[Reby (Creative Director)]

Drop it in the chat or on the money verse. I'm just curious to know what you would say. All right. Oh and if you do want to be part of that number one book in finance, we are offering some perks if you go and pre order the paperback of Millionaire Mission. So go to moneyguy.com millionaire mission oh

[Bo Hansen]

you don't have the mug bo.

[Brian Preston]

Every weekly have other versions cuz Remy

[Bo Hansen]

and I are repping the merch to me.

[Brian Preston]

Bo, grab a different mug.

[Bo Hansen]

You know you love your kids.

[Brian Preston]

I do love my kids.

[Bo Hansen]

You don't want to take away from that.

[Brian Preston]

I do love my kids.

[Reby (Creative Director)]

You do. That is good. I can't argue with that. But if they're millionaires watching or listening would like a special edition limited edition Millionaire Mission or Money Guy mug. Go pre order the paperback and go to moneyguy.com millionaire mission for how to cash in on the perks that you're going to get for pre ordering is just a huge thank you and being part of the mission and getting that book to more and more people. So thank you so much for doing that.

[Brian Preston]

Can I tell one story? You know, let's answer question just.

[Reby (Creative Director)]

All right, your story's next. Say to me just a question and then a story.

[Brian Preston]

Say to me he's got a kids

[Bo Hansen]

story after the next question.

[Reby (Creative Director)]

Okay, this one's from Bo Hansen. Spotter. I feel like I've seen his chat dude.

[Bo Hansen]

Jacked is all I can say. Jacked to be Bohanson. Spotter.

[Reby (Creative Director)]

Hi, money guy team and those in the wings. I got a raise and I'm fighting the lifestyle creep urges. Like the green goblin is in my head saying, buy a Tesla. Should I give in if it fits 23. 8 or pay cash in a year?

[Brian Preston]

Okay, let me stop.

[Reby (Creative Director)]

There's so much for those of you

[Brian Preston]

that don't know when it comes to buying a car, whether you're buying a new car, used car, if you can't pay cash. Because we always love the idea of paying cash and you need to finance, we like to subscribe to the 23.8rule. It suggests I'm going to put 20% down. I'm not going to finance it for any more than three years or 36 months and the total of all my car payments will not exceed 8% of my monthly gross income. Now, however, there are two caveats that sometimes we forget to mention. But if you look at the deliverable, they're always there. One is that you need to make sure that your monthly savings is greater than the car payment. If you are only saving 500amonth for your future self, which you got a thousand dollar car payment, you're likely getting it out of whack. That's caveat number one. But caveat number two is 23. Eight does not apply to luxury vehicles. Right. If you're going to buy the nicer vehicle, if you're going to get the upgraded trim package, if you're going to do those sorts of things, we would argue that paying cash is the best solution or else you might consider looking at a different car. And so one of the questions we have to ask Spotter is, is a Tesla a luxury automobile?

[Bo Hansen]

They got out of that game.

[Brian Preston]

Is it not a luxury?

[Bo Hansen]

I don't know if you heard they closed down the luxury factory. That's the Model X and the S. They can start making all the robots.

[Brian Preston]

So model. So is Model Y a luxury? Is Model 3 a luxury?

[Bo Hansen]

I think it's luxury only in the fact that if you're looking at like a minivan, is a minivan a luxury? When you look at a Toyota or a Honda, and I would say it all fits back and I want to get back to the answer, because look, this is an interesting take and you hit all around it. Is that. Because what's funny is we have a great video editor who's on paternity leave right now and we haven't heard from him. And then last night he starts sending me messages and it's all about the Tesla because he had a chance to test drive with full self driving. And it's, I was like, if the public knew how legit full self driving was, they would be. Especially if you're out there buying expensive Mercedes, BMWs, Range Rovers and other things and you're like, if you're spending this much money on a car and it doesn't drive you home, you're like, what am I doing? You know, why is everybody else so far behind on this? But it does come back to how bad is the die? Is the, is how dire is the need? Because if you have a perfectly good car that's getting you to work and you could just, you know, say wait a year, that, that probably is going to work. But if you, if you're, every, every morning you go out there and say a little prayer, be like, lord, if you will, let this car crank up and get me to my job, you know, and you, you fill in the blanks with whoever. You're probably at the need that this is a jump in and maybe more

[Brian Preston]

of a need than a want.

[Bo Hansen]

It's a need more than a want. And that's a great way of putting it. Need versus a want, bringing it back to the basics. I'd also be curious, you and you talked about this. What's your current behavior? Because sometimes us financial mutants, now look, if you're already saving 20 plus and investing 20, 20 to 25% for the future, and this is just more of you trying to figure out if you're going to give yourself this little luxury, then I would say go and enjoy yourself and go do this thing for yourself. But if you're somebody who's not even loading up your Roth IRA yet and you're out there test driving Teslas, it's back to is this a need or a want? And how does this fit in? And then the last question, and this is just more of a sweetener or you know, whipped cream and cherry. What's the interest rates that your bank is offering? What are they offering? What's the opportunity cost of how that plays out? When you're laying that against 23, 8 versus cash, all those things kind of will layer the cake so that you can know the answer that Fits your specific situation.

[Brian Preston]

I agree with everything you just said.

[Bo Hansen]

But. There's a but coming, isn't there?

[Brian Preston]

There's no but. I read the question a few weeks ago.

[Bo Hansen]

I have a conflict of interest. I like Tesla. I mean look, nobody, nobody. So I don't mind disclosing my conflict of interest. No, I also owned, I own Tesla stock. Not that that's really choosing, pushing my, my decision, but it is something like.

[Brian Preston]

You have a conflict, right? If he goes and buys his Tesla, your stock price shoot through the roof. Obvious you're trying to load it.

[Reby (Creative Director)]

We're very integrous around you here was

[Brian Preston]

the question though, should I give in and do 23eight or save cash and pay for it in a year? 23eight is really supposed to be this mechanism that allows you to get into transportation if you have the means to be able to save cash for a year or even to be able to buy a car and pay it off in a year. I really like doing that. Me personally, I've set out to do 238 a bunch of times and I can never do it. I just don't like car payments. I am averse to car payments. So if you have the, if you have the ability to pay cash, that's where I am going to fall. Because in my opinion those cars always drive so much better when they're completely paid off. Oh well, what about the arbitrage? What about the interest rate? I don't want to major in the minors. If I can have that car payment gone and off and one less thing to think about, I think that's a win. So if you're in that situation where you can pay cash, I like the idea of paying cash for it.

[Bo Hansen]

Yep,

[Reby (Creative Director)]

great answer. You, I think you talked about a lot.

[Bo Hansen]

Oh yeah, I was just gonna say evs in general depreciate a lot too. So you just need, if you buy this, you need to go in with your eyes open knowing this is gonna be something you plan on staying with for a number of years. So that's why if you're going to look, and especially if you're going to go look at used ones, make sure it's got hardware for. That's the thing I always tell people. Don't. Don't get caught up looking at the. How cheap you can get into a. Another one. If you really want to maximize full self driving, you need hardware for.

[Brian Preston]

I have a, one of my buddies, you know this guy, he, he has a Tesla also. I, I guess the computer tells you how much time like how much of the time you've been in the car that it's been driving versus you've been driving? Yeah, I think in the last, it was either six months or a year. His car's been driving him 70% of the time.

[Bo Hansen]

Well, I bet it. I bet it's sooner than. Because it's really. In the last two months, it's gotten really good.

[Brian Preston]

So 70% of the time.

[Bo Hansen]

I bet in the last two months it's 70%. I bet for me, in the last. I'll just say month and a half, it's probably 60 plus percent.

[Brian Preston]

That's wild.

[Bo Hansen]

I don't really drive anymore.

[Brian Preston]

Wild. Wild.

[Reby (Creative Director)]

Well, Bo Hanson, Spotter, great conversation starter. Thank you for the question. Bo, you had a story.

[Brian Preston]

Oh, yeah. I was gonna tell y' all this. So my. My daughter's. We were sitting at dinner the other night, and I'm like, hey, so you know, my daughter started this. My oldest. This trashcan business right where she's making money, and we've just been saving it, putting money in the savings account. And I've taught her about how interest works. And so every month. And this is. It's. I have the statement mailed to us on purpose. Cause I want her to be able to open the statement and look at it and see. And like, her mind's like, oh, this is incredible. So I was like, hey, when your. When your account hits this value, it's a thousand bucks. When it hits a thousand bucks, here's what you start doing. I want you to start investing, baby. You know what investing is? And she's like, no, what's investing, dad? And I walk her through it, and I explained to her that, like, hey, you can actually be an owner in a company. You can. Like, like, what's something that you like? And she threw out some stuff. And. And she was like, we mentioned Starbucks. I was like, yeah, you can own Starbucks. Or she was like, what about this, Dad? I was like, yeah, you could own Lululemon. And I kind of. I'm walking her through this, and so my 9 year old is sitting right there, and she's like, barry, you have to do this. You have to do this. And I was like, baby, that's awesome. This gets you excited? She's like, yeah, are you kidding me? If she owns Lululemon, we can just walk in there and get whatever we want.

[Bo Hansen]

Oh, my gosh. Oh, no.

[Brian Preston]

We can just walk in there. I was like, no, no, no. Okay.

[Reby (Creative Director)]

Oh, I wish that was the case.

[Brian Preston]

So by the end of this conversation, my daughter was ready to own Amazon, Lululemon, Starbucks. And there was one other one she

[Bo Hansen]

had discovered a hat. Oh, man.

[Brian Preston]

She was like, this is going to be the greatest thing in the world. So I had to, like, walk that back. But she's so excited because now. And I told her, hey, every this, every single month, when you make a decision, you want to invest some money, I will match it dollar for dollar. So you put 20 bucks, I'll put 20 bucks. I will get her eventually to index funds, and I'll get her eventually to S&P 500. But we're going to start with. I'm going to let her pick some individual stocks just to understand what it feels like to own them. And I'm super excited about that.

[Bo Hansen]

There is a dorky hack you can do, because I remember we probably could do content on this, that if you want to drink Starbucks forever for free, essentially taking your daughter's thought, I can't remember if it was 10,000 or 15. You basically take the dividend yield, you figure out how much a cost of whatever your drink is, multiply it by however many times a month you think you'd want to go buy the coffee, you can back into how much of the Starbucks stock you would need to buy to essentially make it virtual perpetual as an investor. So it's kind of a fun little dorky thing that you could do down the road.

[Brian Preston]

I'll tell you what I'm going to struggle with is she's throwing out some companies. I'm like, oh, that's not a good stock.

[Bo Hansen]

But reality, reality is also, when does the s and P500 just come in? Because that's what I love the idea of the education. But at some point, you just buy in the market instead of trying to beat the market.

[Brian Preston]

But look, these are building blocks, right? She's 11. So I got to get her to understand, like, okay, what is this? And here's what will really happen. I'll have her pick two or three. Some of them will do poorly. And I'll be like, hey, do you recognize that? Like, hey, instead of buying this stock that did poorly, we could have just bought the s and P500, which is like this basket of stuff, all the good ones. I'm like, I'm laying the groundwork to be able to teach her that.

[Reby (Creative Director)]

I feel like this is a monumental occasion because I've always heard Brian talk about how he proudly did the dollar for dollar match with his daughter.

[Brian Preston]

I'm not doing it. I'm not doing it to that Roth Ira, you're about to in and up my account. It's going to be, it's right there. Not overcomplicating it.

[Bo Hansen]

Why are you not doing a custodial Roth once it's earned income?

[Brian Preston]

Because it's not. I mean, it's because I don't, because I don't want to. I don't want to say why. I mean, I'll say why, but I don't want to say. I think in order to be able to do a custodial Roth, you have to have a file tax return where you're showing income.

[Bo Hansen]

Oh, gosh. Yeah. Don't incriminate yourself.

[Brian Preston]

Yeah. You see what I'm saying?

[Bo Hansen]

Goodness gracious.

[Brian Preston]

This trash can business, you know, it might be a hobby right now.

[Bo Hansen]

Oh boy. Wow. Y' all heard it. We probably have some listeners out there.

[Sponsor Voice]

There's.

[Brian Preston]

I, I do have one. One of my. She's a dear client of mine who works for the irs and I, I'm gonna get an email after this. Yeah, she's gonna be like, email, I'm

[Bo Hansen]

scared of the, the branch of governments with the guns. So just be careful.

[Reby (Creative Director)]

Well, hey, I'm going to go to the next question, but first make sure you get your rapid fire question submissions in. Put them in the YouTube live stream chat if you're watching live. And we will be collecting some questions for Bo and Brian to answer. Rapid fire style. Just put RF at the beginning and we will know that that's for that segment. But first we're going to go to FedEx. Pope's question. Hi Money Guy team. I live in a state that taxes income but not retirement income, including Roth conversions. Is there anything I should use as a. Is, is there any reason I should use a Roth IRA instead of loading the pre tax 401k and converting it?

[Brian Preston]

Well, okay, so this is not uncommon. States like Georgia, we know this because we live there, will have a large exclusion on state income tax for retirement income where if on the certain threshold of up to retirement income you have to pay any stadium tax, you're still going to be taxed at the federal level though. So it's not like it's completely tax free income. So there's still merits. I think what, what Pope is asking here is, oh well, why should I save if I'm not going to be taxed on that income? Why should I just save in pre tax and I can pull it out tax free? It's only going to be state tax free, not federal tax free.

[Bo Hansen]

But no, but it brings up a Good point of you have to pay attention to what your marginal rate is.

[Brian Preston]

Marginal rate?

[Bo Hansen]

Yeah, and that's why we always. Because look, you add your federal plus state marginal. If y' all don't know, because there's effective rate and then there's marginal rate. Effective rate is kind of like what you, you add up all of your income. You, you figure out what you paid in taxes and you just do a quick math calculation. That's your effective rate of what you paid in income taxes. But marginal rate is what the next dollar you will be taxed at. Because, you know, we're in a progressive tax system. So as you're going up through the different tax rates, you want to know what the one you're in is and what every dollar is. Because then you can figure out, hey, is this a high number? Is this a low number? Historically, where does this fall? And that's why we actually give the details. If you fall and take into account also your age, if you're really young. Obviously we love Roth IRA and compounding growth for young people. But as you get older, you might realize in your peak earning years, you're going to be paying 30 plus percent marginal rates. If you add your federal and state and you're like, wait a minute. Just because of exactly what FedEx brought to the attention. When I retire, not only is my federal rate go, go down, but now it's from the state that I live in and retire in will be zero. Man, instead of me paying you, think about if you lived in a state, I mean, federal government, you're in the highest tax bracket of 37%. And then you live in a state that has a really high, like California income tax, like California, where it could be up as high as 13%. You literally could be at a point where 50 cents on every dollar you make is getting taxed, but you could potentially retire, move to a state like Georgia or no income tax state like Tennessee, Florida, Nevada and so forth, or Texas. And then all of a sudden when you're pulling that money out and because you have no earned income, you could be, I don't know, 10%, you know, 12%. It could be really low. 20, even 20. I was doing a Roth conversion analysis where we were doing 22% and you're like, wow, that is significantly. There's an arbitrage there for me paying 50 while I'm working to where I'm paying 12 in retirement. Yeah, let's do Roth conversions at that point. That's why we say 30 plus percent is your, is your marginal rate. Maybe you ought to do pre tax and play the arbitrage when you retire. When you drop down to a much lower. If you're somewhere between 25 to 30, take into account your age and other factors that might be personal in your situation. And if you're under 25%, hey, let's go ahead and load up those Roth dollars and really maximize the tax free growth opportunity in this moment right here.

[Brian Preston]

Love it.

[Reby (Creative Director)]

Well, thank you FedEx Pope for the question. We're going to go to Donald M's question next in step three of the foo Is it better to prioritize a credit card with lower interest 4% or a 401k loan with a higher interest of 9%? First, given the balances are similar, 401k loans do not show up on credit. Okay, so he's giving. I think he's giving you a counterpoint there. So he's worried about his credit and he has two different types of bad debt. What does he mean?

[Brian Preston]

I know my answer. I want to think about why it's my answer.

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[Bo Hansen]

well, it is interesting is that there's credit card with a. So whenever I see somebody says they have a credit card with a low interest of 4%, that means this is. This has to be like a transfer balance or some opportunity that somebody gave. So this is a moment in time. It is back to our point that this isn't. There's not a credit card out there with a 4% for the next five, six years. Because then then you get into the argument. Is this step number three of the financial order of operations or step Number nine. But I'm here to tell you credit card companies will offer you teaser rates, but they're kind of like mirages from the old Looney Tunes commercials where it feels like you're getting something good, but it's really, you're still trapped in the desert. You're artificially feeling like this is a great opportunity. Because I worry about credit cards trapping people because they sprung a trap where you go from 4%, all of a sudden you're paying 26%. You'd be like, how did I get here?

[Brian Preston]

Yeah, I think where I'm landing on this, my opinion. So write this in pencil. I would prioritize the credit card. I would pay the credit card off first even though it's a lower interest rate because we believe that credit card use is okay. But carrying a credit card balance,

[Bo Hansen]

no way.

[Brian Preston]

There we go. No way.

[Bo Hansen]

I didn't see. I was over here drinking coffee and I didn't see your points.

[Brian Preston]

Carrying credit card balance, no way. So credit card balances carry that month or month is like no go land. No matter what the interest rate is. I want you to pay that off. Now, if you're looking for a mathematical justification with that, when you're paying interest to a credit card company, you are paying interest to a outside third party. It's disappearing on the 401k loan. Technically, you're paying interest to yourself when you pay that back. Now, the bigger issue is the opportunity cost of this 401k dollars being gone. But I'm going to argue if they're roughly the same balance, I want you to relentlessly and ruthlessly cut everything out of your budget you can to get out of step three. Because as soon as you get the credit card paid off, the very next thing, the very next step 3 item would be that 401k loan. But I want to see that credit card balance gone, zilch, zero off your balance sheet and then work on the 401k loan. That would be, that would be my record.

[Bo Hansen]

Because there's going to be a time certain there's no interest in the credit cards are not. It's not like they're out there so generous. Like, oh, we like your credit score. You, here's your 4% for forever. Those don't exist. So there's sometimes certain limitations. A teaser rate. It's a trap waiting to be sprung.

[Reby (Creative Director)]

All right, thank you for the question, Donald M. We appreciate you being here. I am just getting ready for our It Does Not Depend Rapid Fire segment where Bo and Brian work together. To answer your question in under 30

[Bo Hansen]

seconds using that loosely together, we try to one up each other, compete against

[Reby (Creative Director)]

each other to answer your questions in 30 seconds or less. And then remember if there is something. Oh wait, I forgot the most important part. They can't say it depends during those 30 seconds so they have to get creative. And then as I was saying, if there's something we really need to get back to clarify, make sure we truly educate and teach around. We will follow up on that in our segment afterwards. The maybe it does depend segment. So stick around for that. Without further ado, are you guys ready for a rapid fire segment?

[Bo Hansen]

Oh so ready. Let me get to add a new screen.

[Reby (Creative Director)]

We'll get 30 seconds on the clock and here is the first question. Take a 4% mortgage on a potentially crummy new build or a 6.5% on an older, better quality build. Which would you choose and why?

[Brian Preston]

I would be careful letting something like an interest rate dictate a lifestyle decision that I'm going to make. For most people, home is the most valuable, most expensive thing you'll ever spend money on. You want to make sure that you buy something that's worth the money. Don't let the interest rate wag the investment dog.

[Bo Hansen]

It's too valuable of an investment for you to choose this off. Just the interest rate. Look, I chose my first house because of the square footage. Didn't think about distancing commute and it hurt.

[Sponsor Voice]

Hurt me. Love it.

[Reby (Creative Director)]

Next question. My wife and I are in the final step at 55 and will retire in the next few years. What should we be focused on to retire into our best life?

[Bo Hansen]

I mean what do you like to do outside of work? So many people focus on the dollars and cents and don't think about what they're actually going to spend their time doing. So don't get and go beyond just travel extreme and golf and the fun stuff. Think about what are actual hobbies and things you'll be doing to occupy your time.

[Brian Preston]

Yeah, not most people have a very clear idea of what it is they're retiring from, what is they're leaving. We want our retirees to have a very clear idea of what they're retiring to. How am I going to spend my days the rest of my life and how can I use my resources to allow me to do that?

[Reby (Creative Director)]

Well said and right on time. Next. You talk about HSA a lot, but not FSA. HSAs aren't possible for everyone. Are FSAs worth exploring?

[Brian Preston]

Sure. FSAs are great for those who don't know. FSA is a flexible spending account. You defer some money from your paycheck to pay for medical expenses. But in most circumstances you have to use it all by the end of the year. It's use it or lose it. The reason we like HSAs is they can be invested for the long term. FSAs are short term temporal solutions. Entry year.

[Bo Hansen]

Yeah. Flexible spending accounts like if you know you're gonna do Lasik in a coming year, you have a procedure or other things. I love the fact that you can be proactive with using it. But it is use it or lose it. So keep that in mind as you plan.

[Reby (Creative Director)]

Well said. A financial advisor question for you. It says our financial adviser has majority of our funds in money market. We max both Roths. We're married minimum to get the 401k match. So I think they're doing the minimum to get the 401k match. Were in their mid 20s with extra money past current investments. Should we move more into brokerage for ETFs?

[Brian Preston]

It's difficult to give you specific investment advice. One thing I would say is you have a big portion of your portfolio in money markets inside of retirement accounts. That's likely not going to be the best solution for you. You may want to consider looking for a different solution. Great place to go look for that solution. Might be a bound wealth.com become a

[Bo Hansen]

client look in your 20s and if you're decades from touching those assets. I want those army of dollar bills working, not trapped in cash. Cash is primarily for emergency reserves and keeping your life out of the ditch when you're young.

[Reby (Creative Director)]

All right, next question. Should I file?

[Brian Preston]

You think it's emergency fund?

[Bo Hansen]

I hope not. I don't know that the way that question was asked it was there's a

[Brian Preston]

lot of we have to come back to.

[Reby (Creative Director)]

Just come back to it. Next question. Should I file jointly with my wife? I can contribute to my Roth IRA without doing a backdoor. But we wouldn't if we filed together.

[Brian Preston]

You're an accountant. When did you decide to file married filing subway versus married filing jointly.

[Sponsor Voice]

Now

[Bo Hansen]

I need more details. I'm about to be out of time on the whole jointly versus single because it doesn't necessarily work that that way. Go ahead.

[Brian Preston]

I would not let the Roth decision drive whether you just file jointly or whether you fire individually. What I do is I'd have your accountant run it both ways. Here's your tax burden if you're married filing jointly. Here's your tax burden if you're married filing separately. And determine which one's most advantageous for the household from a tax cost standpoint.

[Bo Hansen]

I know used to do that. He really wanted to say we'll come back to that.

[Reby (Creative Director)]

Okay, we'll come back to it. All right. What step of the foo is buying the paperback Millionaire mission a part of Ground rule, baby.

[Bo Hansen]

That's a look. We all need an instruction manual. You don't try to assemble the IKEA furniture without an instruction manual kind of money's the same way. It's the whole why it's called the financial order of operations. Just like you have to do. Please excuse my dear Aunt Sally. To solve a math problem, you need to do the same thing with your finances.

[Brian Preston]

Where can they go get Millionaire Mission right now if they want to get a copy?

[Bo Hansen]

Well, I would go to. I mean you can buy it anywhere. But go to moneyguy.com millionaire mission.

[Reby (Creative Director)]

You got it. Perfect. List all the retailers and if you

[Brian Preston]

do it right now, there's all kinds

[Reby (Creative Director)]

of perks that you pre order it. Perks also [e-mail] millionaire mission. Okay, over 30 seconds. Next question. Is there ever any reason to use mayo or sour cream when making mashed potatoes when butter and milk are so perfect?

[Bo Hansen]

It's all the above. I mean, I actually use every one of those things. I love making mashed potatoes.

[Reby (Creative Director)]

Mayo and sour cream.

[Bo Hansen]

I don't use mayo. I use sour cream, though. I've used sour cream and mashed potatoes

[Brian Preston]

and I've definitely make them or like.

[Bo Hansen]

And I like buttermilk and yeah, so I, yeah, I put it all in there too. I don't put mayo in mine like

[Brian Preston]

as an accoutrement on top or as like while you're making it.

[Bo Hansen]

While you're making it. That's why when you go to restaurants, you notice like the garlic mashed potatoes or sour cream it all it adds a little extra. You're like, man, this isn't. Why is my stuff at home not taste like this? Because they put stuff in it.

[Brian Preston]

Never made mashed potatoes. Couldn't tell you how. I'd assume you mashed potatoes, but outside of that, no idea how to do it. How much butter?

[Bo Hansen]

Lots of lots of butter and milk.

[Brian Preston]

Is it four sticks of butter? I don't know.

[Reby (Creative Director)]

Conversation.

[Brian Preston]

One stick of butter. How many potatoes do you need? I have no idea.

[Reby (Creative Director)]

We should do a vlog where Beau makes mashed potatoes and swims.

[Brian Preston]

Why is she throwing darts? I can swim.

[Reby (Creative Director)]

It's just so easy.

[Brian Preston]

Basically.

[Reby (Creative Director)]

Okay, let's move on to the next rapid fire Question.

[Brian Preston]

There's the photo of Bo.

[Reby (Creative Director)]

Swimming legend.

[Bo Hansen]

Legend. Oxygen to my lungs.

[Reby (Creative Director)]

Next rapid fire question. Here we go. Should someone who's in a high tax bracket but young still use a Roth 401k instead of traditional in the expectation that tax rates might be a lot higher in the future?

[Brian Preston]

Without knowing more about your circumstance, we don't think it's either or. We think it's both. And we love you doing pre tax if you're in a high tax bracket. But then structure accounts in such a way that you can do things like backdoor Roth because odds are in the future you'll have an ability to convert Roth dollars at a lower tax rate.

[Bo Hansen]

Yeah, that was like, hopefully he's going to leave the backdoor Roth for me because it's a big ditto. I want you doing both. Take advantage of the tax arbitrage on the 401k, but then make sure your backdoor roughing. You got to have the right structure maneuver.

[Reby (Creative Director)]

Backdoor rothing, backdoor roughing. All right, last but not least, create

[Bo Hansen]

a verb out of it.

[Reby (Creative Director)]

Hey, MoneyGuide team, I've inherited an IRA and I need to withdraw down to zero in the next six years. How should it be rebalanced if I'm trying to draw down an equal portion, one of six each year or one sixth each year?

[Bo Hansen]

Well, is that a personal choice? That's the first question is why are you choosing? Because you could. You might want to defer it for the six years. You know, do the. If there's. Maybe they had to make minimum distributions. But I need to know more details. And I hate to say I'm not going to say the D word, but

[Brian Preston]

I would think if it fits into the overall allocation, I wouldn't get too cute trying to adjust the allocation because in most circumstances, when you take those distributions, if you're just going to reinvest, your allocation can stay true inside the IRA to outside the ira. I don't think you have to overthink it.

[Bo Hansen]

There's so much more you could add.

[Reby (Creative Director)]

Well, good thing.

[Brian Preston]

Let's double back. Let's double back.

[Reby (Creative Director)]

Maybe it does depend segment where now that we've answered rapid fire, we will go back and make sure you've said all that needs to be said.

[Bo Hansen]

Look like on an inherited ira, if it's a small balance, there's no tax consequences when you have to sell to make your annual distribution. So if it's a small balance, I would just have it in the holding and then when I take my annual distribution. But if it's a large balance, then you could build that into the asset allocation and distribution plan or. But it's back to what do you, what's the minimum you have to take and what's the opportunity of what you could let it grow to. And I would, I would. Don't skip out on that planning method either.

[Brian Preston]

Yeah, I don't think I would try to have it be a standalone allocation inside the inherited ira. Because unless you're, unless you're using these dollars for paying for your expenses, meaning you're like an older person at financial independence. I would have the allocation there match your total allocation. Not individually standalone. And then you just take the distribution and then redeploy. Take the distribution, redeploy. I don't think it has to be more complicated than that.

[Reby (Creative Director)]

There you go. So we had a couple more to talk through. One was the young couple who had the majority of their funds in the money market.

[Brian Preston]

They have a current financial advisor. Read that question to us one more time.

[Reby (Creative Director)]

Our financial advisor has moved majority of our funds in money market majority.

[Brian Preston]

So that right there, red flags. Ding, ding, ding, ding. If that's not your Mercury fund, that tells me that your financial advisor is likely trying to time the market.

[Bo Hansen]

Or you're hiring a financial advisor too early. If all of your capital is in emergency funds. Because that's where you are. Because remember, financial order of operations, it's steps one and four is pretty much emergency reserves. So maybe they're just at the beginning of their journey and they hired somebody. That's a red flag.

[Reby (Creative Director)]

In a sense they are in their mid-20s or worse.

[Brian Preston]

This financial advisor, assuming you have an emergency fund, is trying to time the market. Hey, we're going to build up cash when there's an opportunity. Right now markets are at all time highs. We're going to build cash and we're going to redeploy it. My opinion, that's a losing proposition.

[Bo Hansen]

I would rather try to. Instead of beating the market, I'd try to be the market and just load it up into dollar cost average into the index funds.

[Brian Preston]

Love that.

[Reby (Creative Director)]

That was good, good clarification. And then another one was about should I file jointly with my wife? And there was the backdoor Roth consideration.

[Bo Hansen]

Look, most of the time it's going to make sense to file jointly because the tax code is written in a way where it just basically splits it. And the reason you don't typically file jointly is there are unique situations where maybe your spouse has horrible credit, they made horrible decisions and you, they got people chasing Them calling it all hours and you're like, well, I don't. They're so bad with money. I don't want to be attached to that. Or, you know, they're doing criminal activity and you don't want to be attached to that.

[Brian Preston]

I'm just giving you Walter White thing. Yeah, yeah.

[Bo Hansen]

I'm trying to give you reasons. You typically separate, but for the lion's. And I'm sure there's more examples out there, but for the lion's share of people, you're going to probably file a joint return unless there's something you're trying to. It's more about what you're trying to avoid than using it as a planning opportunity. And. And that's what. Because they were saying they qualify most people with their contribution, their single income,

[Brian Preston]

they qualified to do Roth when they went married filing jointly, they weren't qualified.

[Bo Hansen]

That's letting the tail wag the dog. I would not let that be the driving factor. For me, I would figure out if you could do account structure and do backdoor Roth by just doing traditional IRA contributions, non deductible. And then if you have the right account structure, you can then convert it into Roth.

[Brian Preston]

And then the other situation where I've seen it, it was like the deductibility of student loan interest. I've seen that before, where spouses might file separately. Because again, it's not about any one thing. It's not about the ability. Roth, or the ability to deduct this or the ability to get this credit. You have to look at the entire tax picture together and figure out, okay, collectively, if we're married filing jointly, what is our total tax burden? Or if we're married filing separately, what is our total tax burden? And in most circumstances, you want to go the lowest tax burden. That's going to be the most efficient structure.

[Bo Hansen]

And look, most tax preparers, it's just a click of a button, assuming they did the right. When you put the data in, you do have to put who owns all the things. Like you'd put taxpayer, spouse, or joint. And, you know, you have to make sure you check in all the boxes correctly on ownership when you're putting in the data. And a lot of financial. I mean, sometimes tax preparers are so focused on getting it done so fast, they're skipping that step, not thinking it's important, but assuming they put all the data entry right. It's most tax software, you can just click a button saying, hey, run this, you know, separate versus joint, and let me know the differences in Taxation.

[Reby (Creative Director)]

Well said. All right, that concludes our rapid fire segment. We've got time for a couple more questions. If you guys are ready to dive back into some not rapid fire.

[Bo Hansen]

I'd be curious. Did anybody put what our counter culture or what we do differently? Did anybody.

[Brian Preston]

So there were a few thoughts. One was, hey, not having an aggressive countercultural thought is countercultural right now. Somebody said, I appreciate that saving 25% of your gross income, that's a counterfeit thought, right?

[Bo Hansen]

You know, I will say that is, I guess, but you know, but then here I am. I mute it down because I say, hey, count. That counts your employer. Because even we've had friends, friends who've done content, you know, content friends. I say, who've done content picking on 25%. But I think if you all of a sudden find out most employers are doing 3 to 6% matching, all of a sudden now we're below 20%, you're like, oh, maybe it's not as we're just showing you the math and we just, you know, like I said, it's the intersection point. If you go to moneyguy.com resources, how much should you save? When the typical American doesn't start saving and investing until they're 30 plus years of age, you quickly see why we land at the numbers we land at.

[Brian Preston]

That's right.

[Reby (Creative Director)]

Yeah, I do like that. It is kind of true. Like 25%. Some people think that's high at face value. Like you could make that.

[Bo Hansen]

Well, when the typical American's doing 3%, it's a shock and awe campaign.

[Brian Preston]

It used to be countercultural that we, in a lot of circumstances, we prefer 30 year mortgages over 15. And we say 3 to 5% down payment on your first house as opposed to, you know, 10 or 20. That's a little bit countercultural.

[Bo Hansen]

Well, everybody's come to Kenya.

[Reby (Creative Director)]

I think that was one of my, like, I tried to make that our answer to that publicist who posed the question stuff about housing. Like we say you shouldn't pay off your house early a lot of the time. Yeah, yeah, that's kind of interesting. So, yeah, fun conversation.

[Bo Hansen]

I appreciate the audience putting that out there. But it's, it's, it's just an interesting, it helps us with marketing because we're just trying to help you be better, not be sensational.

[Reby (Creative Director)]

Yep. All right. We do have a final question from the. Well, maybe we have time for two. We're going to see. It depends. This question is from JQ42. It says shower thought. If you win the lottery, does the FOO still apply or does income that year prevent you from contributing to Roth IRA and other stuff? Does the FOO still apply if you win the lottery?

[Brian Preston]

Well, so let's, let's. Okay, so winning the lottery is a pretty low probability thing. But let's assume for a second you don't win the lottery. Let's assume that you get a big bonus, or let's assume that you sell a big asset. Or let's assume something happens where there's a windfall in your financial life. What likely happens when those things take place is you're going to move to the financial order of operation just much, much, much, much more quickly. If you have a huge sum of money, you're going to go through it. Okay, where's my emergency? You know, do I have a double covered? Yes. Am I getting my employer match? Already done that. Do I have all my high interest debt knocked out? If I have it go knock it out. Is my emergency fund fully funded? Great. Now Roth hsa, can I max that out? Can I max out my hsa? Am I on a high deductible? Can I do the Roth? Okay, no. Can I do it back to a Roth, then to the 401k, then to step 7, then to step 8, then to step 9. You likely might just run through the foo in a very compressed timeline, but I would argue that it still applies.

[Bo Hansen]

It's going to be a checklist what to do with your next dollar. It's just you go start all of a sudden your, let's just say it was a million dollars. When you pay off the $30,000 of credit card debt. Now it's 970. When you load up the emergency reserve with the 40 or $50,000, a sudden 9:30 when you do the Roth. For you and your spouse, we're going to take this down. We're going to get down to about 910, you know, or 9:15. And then when you max out the retirement, all of a sudden you're like, you're going to end up with a nine. You're go run through the steps and you'll have about $900,000. And then you're probably in step eight. Go say, hey, is this when I kind of reward myself with a lifestyle choice? Now you don't go crazy because you don't want to be a typical lottery person. That's turns into statistic where you went and bought too big of a house. Do something for yourself, but just don't get hog wild with it to where you're like, how did I blow through this money? And now I'm back to being broke.

[Brian Preston]

You want to tell them our windfall?

[Bo Hansen]

Rule of thumb was it 10%?

[Brian Preston]

10% windfall.

[Sponsor Voice]

Right.

[Brian Preston]

Like you. And look again, write this in pencil. This is an opinion. But in our practice, like as we've seen this with clients, you get a big windfall, maybe it's an inheritance, maybe you sell a business, maybe you sell a piece of land. There's some other capital transaction that takes place. Place. We always try to encourage our clients, hey, chisel off 10%. Let's call that blow money. I don't care. Right. Like, hey, 10 if I get a million dollars of what $100,000 I'm going to spend on that thing. That maybe is not the best financial decision.

[Sponsor Voice]

Okay.

[Brian Preston]

I'm going to go buy the boat or I'm going to go do the renovation, or we're going to go on the trip or we're going to. I think it's okay so long as you make sure you cord off that 10% and don't let the 90% begin bleeding into the 10%.

[Bo Hansen]

I think that get it out your freedom, essentially. Blow it out. You get it out of your system. You're blowing the carbon out of the system. You ever heard that with a car, you know, you got to go drive it hard to get all the blood all out.

[Brian Preston]

Well, not a Tesla.

[Bo Hansen]

It's definitely not a Tesla. That's all. But. But it is get it out of your system to where you then respect the money and don't create something because sometimes it's the lifestyle you create for yourself that's not sustainable. And that's what people, we often hear, and I think it's the Morgan Housel quote is that when people say they want to be a millionaire, they really don't want to be a millionaire. They just want to go spend a million dollars. And that's why lottery dreams typically tend up end up broke is because they don't have the skill set to know how do you actually maintain and build and keep and be a creator of wealth versus just a consumer of the money that you inherited?

[Brian Preston]

Yeah. Spending a million dollars is literally the exact opposite of being a millionaire. And it's so funny that that's how true that is.

[Bo Hansen]

But that's what people, when they have lottery dreams, they usually daydream about how they're gonna spend the money, not how you maintain it and keep it.

[Reby (Creative Director)]

Sure. Well, good thought, jq. Thanks for the question.

[Brian Preston]

Also, first thing, if you win the lottery you go to aboundwealth.com become a client, reach out. We'd love to help you make sure that you navigate that.

[Bo Hansen]

Well, do we? You know, we've had a few lottery prospects. None of them turn into clients.

[Brian Preston]

None of them are.

[Bo Hansen]

I don't think we have any lottery clients.

[Brian Preston]

We've had a few that have hit some big jackpots, but I think it's

[Reby (Creative Director)]

because they wanted to speak.

[Brian Preston]

Well, I think, yeah, you were like,

[Reby (Creative Director)]

maybe you should save more of it.

[Brian Preston]

We try to do really good. When we sit across from someone who's thinking about hiring us. We try to do really good about not telling them what they want to hear. Like, we want to tell them what they need to hear. Right? It's. We've done this before. Somebody will sit down with us and they'll be like, yeah, I've got a million and a half dollars saved up for retirement. I'm going to retire next year. Like, awesome, Great. How much do you spend a year? Oh, well, you know, my income is probably around 250. You know, we kind of spend that a year and we're like, ooh, that's, that's going to be a problem. You know what I mean? We want to help people make wise decisions, but also be realistic about where they are and what their money can do for them. So I think that's why we haven't landed the lottery winners.

[Bo Hansen]

Well, I mean, it's the same. I've had a few sit downs with some professional because, you know, I had a whole season where I worked with a lot of professional athletes at one of the firms I was at. So I've had a few that have come my way through friends and family that might have, you know, mentored or grown up with somebody who, who came into these big contracts. And sometimes us being honest and telling people what they can't do with money in the front runs them off. But I'm always, I'm trying to be honest because I think there's a lot of people that blow smoke at people and tell them how great and what they can do, but they're just trying to get the client or get the money, and that's just not who we are. I'm going to tell you the cold because the reality is a financial advisor should be the brake when they need to be the brake, but they also should be the accelerator, the gas pedal when you can go and enhance your life. And we're going to just always try to be as transparent about that as possible.

[Brian Preston]

And look, the original Question was, does the foo apply? Bro, hold the thing up for me. A lot of people say that. Or a lot of people who win the lottery, they don't have any, like, financial backing. So the foo is a great place to start, even just to get acclimated with. How should I be making these decisions? Where should my mind be? As I think about how to navigate this, it transcends all wealth levels, all experience levels, all knowledge levels. It really is. We think of it like an all weather, all weather Swiss army knife.

[Reby (Creative Director)]

That was my first thought. Like, yeah, follow the food.

[Bo Hansen]

Let's do one more though. I don't want to. I don't want everybody to think we filibustered out of one more question. So let's do one more.

[Brian Preston]

Hey, let's see if we get three or four more in. I just want to one up Brian. Let's see if we can get a few more in.

[Reby (Creative Director)]

Let's start with one and see where we land. Donald H. Does have a question for you. He says, I'm 24 years old with a wife and a kid, I on a 80k income and we are at a 25% savings rate.

[Bo Hansen]

That's really good.

[Reby (Creative Director)]

Really incredible, first of all. So good job. He continues to say, we're working. I'm working towards getting my pilot's license to make a career.

[Bo Hansen]

Oh, oh, oh, career.

[Brian Preston]

Did you see the emotional roller coaster? Ryan wasn't sure what to think on

[Reby (Creative Director)]

this question and he saw career and he was like, that sounds great. The question is, should I feel guilty for using most of our extra dollars towards, towards this

[Brian Preston]

if it were a hobby. If you're like, I just want to go fly. Well, first of all, why do we say you should save 25%? Because we want to free you up from guilt above and beyond 25%. If you're saving 25% for your future building towards future financial independence, what you do with your next dollar, you get to choose. That's, that's where. That's why we're at. It lets you spend guilt free on those things. And so if one of those things is becoming a pilot and getting your license, I'm a okay with that. And I think even in this it's kind of interesting. You're not so much doing it because it's a hobby, doing it so much because it's a pastime. It's something that you vocationally want to do. I consider that as like an additional investment in your future self.

[Bo Hansen]

I agree with a little asterisk is that you see right There in the question. Wife and a kid. Just make sure this is not, you know, you, you know, throwing your will around as hey, I asked this question on the money guy show. They agreed with me and meanwhile your spouse is upset that they your, you know, old towels and not going on vacation, you know there. Because money is only a tool and I don't want you to exert the power of hey, you came on here, asked this question. It needs to be a little bit of a discussion on make sure everybody feels heard in the marriage as well. Love that.

[Reby (Creative Director)]

Well said. You want to keep talking about this? Just because we turn off the cameras today does not mean. What are you whispering about over there? I was about to say a really great thing that people should go check out.

[Brian Preston]

I was just. I don't feel like I've, I wanted to answer another question. I didn't feel like I'd done enough. But you do you.

[Reby (Creative Director)]

Well, time is up and we do have to move on to the next thing. But you watching or listening? Don't have to. You can go to moneyguy.com resources to take advantage of all of our free stuff, downloads, calculators plus courses, tools, an archive of past episodes. So please take advantage of that. We made that for you. And there's some really great stuff on there if I do say so myself. So don't take my word for it. Go look for it. And remember, if you want to pre order Millionaire Mission on paperback, go to moneyguy.com millionairemission Be sure to take advantage of the pre order perks that are live this month as a big thank you for helping us on our mission of getting great personal finance ideas to as many people who need it and who will listen. So thank you so much from us.

[Bo Hansen]

You crack me up, Bo. Because I mean we are so bad together. Bad and great at the same time. It reminds me of the last time we had the SEC just did an inquiry with us. Our, our compliance consultant was like hey, when we get on this phone call, I just ask of one thing of you guys. Don't whisper because we, because they, they can hear you. They can hear you if you guys try to whisper between each other. And then while Reby is going through thing, you're over here. And by the way, first of all, I'm old enough I can't hear anything if you're not talking directly to me. I can't hear. So I hear you over there whispering, whispering. And it made me, I got a little chuckled thinking about that phone because we got off that phone call with the SEC and she's like, I told you guys not to whisper. We could hear everything that y' all were saying. By the way. It's all fine. There was nothing, you know, that was under the, you know that we should been embarrassed about. It's just Bo and I can't help but talk to each other when we're in a room together. But it is one of those things where I love the. And I think what he was impressed about that he was whispering is we had a little B roll thing.

[Brian Preston]

Did you see that?

[Sponsor Voice]

Did you see that?

[Bo Hansen]

That ran by Ken did that. Who's by the way, Ken. He's not checking us out. He's still on paternity leave, enjoying living his best life with his dog and his daughter hanging out on top of him. That's the pictures that he sent last night. But it is one of those things where we had. It showed all the tools, all the things. Please take advantage of the free stuff. We really do want to invest in love on you to where you come here now. Learn, apply these concepts, grow, take advantage of all the free stuff we're doing because we know if you do this right, the payoff comes when all these simple behaviors create the success that leads to the complexity that you go, man, now this seems much more complicated than I could have ever imagined. I don't know what I don't know. And it seems like instead of me doing this in a novel approach, this is my one time through. Let's find somebody who's done this literally thousands upon thousands of times. That's when we'll leave the porch light on. We work with people all across the country. I'm your host Brian, joined by Mr. Bo Reby and the rest of the content crew. Money Guy out.

[Reby (Creative Director)]

The Money Guy show is hosted by Brian Preston and Bo Hansen. Brian and Beau are partners with a bound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the securities and Exchange Commission. In accordance and compliance with the securities laws and regulations, Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors and does not constitute financial, tax, investment or legal advice. All investments involve a degree of risk, including the risk of loss. I see you.

[Bo Hansen]

Avatar Fire and Ash is now streaming on Disney plus. It's the film critics are calling the best avatar yet.

[Brian Preston]

A true epic and completely jaw dropping.

[Reby (Creative Director)]

This is the only pure thing in this world.

[Brian Preston]

Return to Pandora on Disney plus. It will be an adventure for the

[Bo Hansen]

whole family and watch the Oscar winning phenomenon at home.

[Brian Preston]

This is sick.

[Bo Hansen]

Avatar Fire and Ash now streaming on Disney Plus.

[Sponsor Voice]

Rated PG 13.