The Financial Rules Designed To Keep You BROKE

Summary

---

Money Guy Show

Episode: “The Financial Rules Designed To Keep You BROKE”

Hosts: Brian Preston & Bo Hanson
Date: December 12, 2025

---

Overview

In this episode, Brian and Bo challenge some of the most widely accepted financial “rules of thumb,” arguing that many of them—while rooted in good intentions—can actually hold you back from building real wealth if followed blindly. They break down where these rules fall short, why they persist, and provide actionable, updated strategies for achieving financial independence in the modern economy.

---

Key Financial Rules Explored & When to Break Them

---

1. “Buy Low, Sell High”

[01:26 – 09:48]

Discussion Points:

• The classic advice to “buy low, sell high” sounds elegant but is dangerously misleading in practice.
• Behavioral pitfalls: Most investors can’t time the market, which often leads to missed opportunities.
• The Money Guy alternative: “ABB – Always Be Buying.”

Case Study:

They compare three hypothetical investors from 1980–2024, all saving exactly the same amount:

• Unlucky Olga: Invests only at market peaks.
• Billy the Best: Invests only at market bottoms (perfect timing).
• DCA Diane: Uses dollar cost averaging, investing automatically every month.

Memorable Quotes:

• “This is the part where it gets controversial. We think you should always, always break this. Now, look, always has a key component to what we think will actually create success, and that is understanding. ABB baby, always be buying.”
  — Brian Preston [02:40]

• “If you're always waiting on the perfect time to invest… you're likely going to wait too long and miss out on the growth.”
  — Bo Hanson [02:59]

Insights:

• Olga: Even investing at the worst times, she still turned $137k into nearly $1.6 million.
• Billy: With perfect timing, ends up with $2.5 million.
• Diane: Dollar cost averaging, she actually ends up with nearly $3 million.
• Consistency and time in the market beats trying to time the market.

Actionable Takeaway:

Don’t wait for the perfect moment—set up automatic investing and stick with it.

---

2. “Invest 10–15% of Your Income for Retirement”

[09:48 – 17:30]

Discussion Points:

• This rule comes from classic personal finance books and assumes early, uninterrupted saving.
• Most people start saving late (average age 36), making 10–15% insufficient.
• A fluctuating savings rate or late starts require higher contributions to catch up.
• Greater savings also provide flexibility to retire or pivot on your own terms.

Memorable Quotes:

• “If you go read some of those books... and they tell you 10% or 15% and think you're going to be a-okay, it just doesn't work as well.”
  — Brian Preston [12:31]

The Money Guy Rule:

• Save 25% of your gross income for retirement.
• What counts? 401k/403b/457s (including employer match), IRAs, HSAs, pension contributions, employer stock purchase plans, and taxable brokerage—if earmarked for retirement.

Age-based nuance:

• Starting in your twenties? 10–15% may be enough thanks to compounding.
• Start late or have interruptions? Strive for the full 25%.

Tool Mentioned:

• Use the savings rate calculator at moneyguy.com/resources to personalize your target.

---

3. “Live Debt Free”

[17:30 – 30:50]

Discussion Points:

• Debt can be dangerous—“chainsaw dangerous”—but used responsibly, it can help accelerate your financial journey.
• Most people will need debt for big purchases: homes, education, and possibly cars (for reliable transportation).

When to Break the Rule:

• First home purchase and education sometimes require debt.
• Car loans are permissible under strict guidelines.

Guardrails:

• Education: Never borrow more than your expected first-year salary.
• Car loans ("23/8 Rule"): 20% down, finance for no more than 3 years, payment <8% of gross income. “Think Corolla, not Land Cruiser.”
  — Brian Preston [21:31]
• Never let car payments exceed your monthly investments.

High vs. Low Interest Debt (Guidelines):

• Student loans: <6% in your 20s; <4% in your 40s before focusing on rapid payoff.
• Car loans: Accept higher rate in your 20s (briefly), but <9% in 30s, <8% in 40s.
• Credit cards: Only for convenience or rewards—never carry a balance.

Debt vs. Investing Case Study:

• Average Allen: Pays $1,000/mo to extinguish $50k student loan in 57 months, then invests.
• Manny the Mutant: Pays minimum, invests the difference throughout.
• Result: Manny accumulates ~$12k more after 10 years—and with compounding, this difference grows to more than $200k over time.

Memorable Quotes:

• “Credit card use is a-okay. Credit card debt? No way… you’re dancing with the devil.”
  — Brian Preston [25:14]

• “Small decisions can have big results.”
  — Brian Preston [30:50]

---

4. “Must Own a House (With a 20% Down Payment)”

[30:50 – 39:46]

Discussion Points:

• The “always buy a house, always put 20% down” rule isn’t realistic in today’s economy.
• For some, especially in high-cost areas or uncertain living situations, renting and investing elsewhere is strategic.
• Most Americans only build wealth through their primary residence (“use asset”)—this is a missed opportunity if you neglect investments outside your home.

The 3/5/25 Rule:

• 3%: Minimum down payment allowed.
• 5: Plan to be in the home at least 5 years (to absorb transaction costs and weather market swings).
• 25%: Monthly housing costs <25% of your gross income.

Additional Guidance:

• Don’t buy a home unless it fits your needs and you’re financially ready (sufficient emergency savings, in proper sequence according to their “Financial Order of Operations”).
• Use Money Guy’s home buying calculator and checklist to personalize numbers and double-check readiness.

Memorable Quotes:

• “I have a no hypocrisy policy… When I bought my first house… I only put down 3%… Let’s go ask all our financial advisors. How much did they put down on their house? We found out… They all put down 3–5%.”
  — Brian Preston [31:24]

• “If you’re buying your first house, you need to make a down payment of at least 3%. You don’t have to go all the way up to 20. It’s okay if you make a lower down payment as long as you plan to be in the home for at least five years.”
  — Bo Hanson [37:27]

---

Overarching Takeaways

• Personal finance is deeply personal; rules of thumb are just starting points.
• Consistency and behavior matter much more than perfection or timing.
• The “standard” financial rules emerged under very different economic circumstances—adapt them wisely for today’s reality.
• Use debt extremely carefully as a tool—not a crutch.
• Focus on growing assets outside of your primary residence for true independence.
• Take advantage of tools and resources to tailor strategies (see moneyguy.com/resources).

---

Notable Quotes (with Timestamps)

• “ABB baby, always be buying.”
  — Brian Preston [02:40]

• “If you’re always waiting on the perfect time to invest, one of two things is likely going to happen. Either you’re going to get the timing wrong… or you’re going to wait too long and miss out on the growth.”
  — Bo Hanson [02:59]

• “If you go read some of those books… and they tell you 10% or 15% and think you’re going to be a-okay, it just doesn’t work as well.”
  — Brian Preston [12:31]

• “Credit card use is a-okay. Credit card debt? No way… you’re dancing with the devil.”
  — Brian Preston [25:14]

• “Small decisions can have big results.”
  — Brian Preston [30:50]

• “I have a no hypocrisy policy. When I bought my first house… I only put down 3%… Let’s go ask all our financial advisors. How much did they put down on their house?… They all put down 3–5%.”
  — Brian Preston [31:24]

---

Segment Timestamps

• [01:26] Buy Low, Sell High — Why to Break This Rule
• [03:52] Investor Case Study — Olga, Billy, Diane Comparison
• [09:48] 10–15% Rule for Retirement Savings — Why It’s Outdated
• [14:22] The 25% Savings Rate — Components and Rationale
• [17:30] Debt-Free Life — When and How to Use Debt Responsibly
• [21:31] The 23/8 Car Rule — Guardrails for Responsible Car Loans
• [26:33] Debt Payoff vs. Investing — Student Loan Case Study
• [30:50] The “Must Own, 20% Down” Homeownership Myth
• [37:27] 3/5/25 Homebuying Rule — A Modern Approach
• [38:58] Two Critical Questions Before Buying a Home

---

Tone & Style

Brian and Bo employ a friendly, approachable, and slightly irreverent tone. They challenge sacred cows but remain grounded in actionable, date-driven logic. Their aim is to empower listeners with both motivational encouragement and robust analytics, so individuals can confidently make financial decisions based on their personal circumstances rather than outdated one-size-fits-all advice.

---

For calculators, checklists, and the referenced savings-rate tool, visit moneyguy.com/resources.

---

Summary prepared for listeners seeking an actionable, modern approach to personal finance, with clarity on when and how to break outdated “rules” for a wealthier, more flexible future.

Transcript

[Depop Advertiser]

Kids, they grow up so fast. One day they're taking their first steps, and the next they don't fit into the tiny sneakers they took them in. You blink your eyes, and their princess dress is two sizes too small. And their dinosaur backpack isn't cool anymore. But don't cry because they're growing up. Smile because you can profit off of it. For real. There are a bunch of parents on depop looking for the stuff your kid just grew out of. Download depop to start selling.

[Brian Preston]

Close your eyes, exhale. Feel your body relax, and let go of whatever you're carrying today.

[1-800-Contacts Advertiser]

Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this class. I got them delivered free from 1-800-contacts. Oh, my gosh, they're so fast.

[Brian Preston]

And breathe.

[1-800-Contacts Advertiser]

Oh, sorry. I almost couldn't breathe when I saw the discount they gave me on my first order. Oh, sorry. Namaste. Visit 1-800-contacts.com today to save on your first order, 1-800-contacts.

[Brian Preston]

You know, there are plenty of financial rules out there, but some of them you just might want to break.

[Bo Hanson]

Brent, I am so excited about this because when it comes to financial advice, we know that there is a better way to do money.

[Brian Preston]

We'll talk through some of those rules today, when to break them and what to do instead. With that, let's jump right in.

[Bo Hanson]

All right, Brian, this first one is going to start with a bang. This is already going to raise some controversy. Let's talk about the first rule that we think you should know and potentially should maybe even break. And that rule is buy low, sell high.

[Brian Preston]

Now, come on, Bo, what is wrong? This is. Anybody who knows anything about investing, this is, like fundamental. You put this at the base level and say, okay, if you're going to be successful, you got to buy low and then just hang in there. We've even reacted to videos where somebody says this easy. You just go in there and buy, watch it as it goes up, and then sell it when it's high. What's wrong with that rule?

[Bo Hanson]

Well, let's talk first point about what's wrong. Let's talk about why the rule even exists. Well, the reason that buy low, sell high exists is that if you do it right and if you time it perfectly, you. You can get ahead, you can make money, you can be successful. And basically, at the lowest level, this helps people understand how stocks work, how investments work, how growth works. So if that's the reason that the rule exists, and it can be a fundamental foundation of financial Education. When should we potentially maybe almost kind of think about breaking this rule, Brian?

[Brian Preston]

Well, this one, this will kind of. This is the part where it gets controversial. We think you to always, always should break this. Now, look, always has a key component to what we think will actually create success, and that is understanding. Abb baby, always be buying.

[Bo Hanson]

That's right. Here's the issue. If you're always waiting on the perfect time to invest, one of two things is likely going to happen. Either you're going to get the timing wrong because no one knows exactly what the future holds, or you're likely going to wait too long and miss out on the growth. You're going to wait to buy low, buy low, buy low, buy low, buy low. And that entire time that you're waiting, you're going to miss out on tons of market opportunity. While it sounds great in theory, in practice it can be pretty costly.

[Brian Preston]

Well, I think, look, there's nothing wrong with buy low, sell high is just an understanding. But once you put in the human behavior component, this is where it falls off. Exactly. What you said is because perfection doesn't exist. And if you don't have the DeLorean with the sports Almanac, it's better if you're just in the game and have a consistent behavior than trying to get it perfect. And we even have a case study to show this.

[Bo Hanson]

Yeah, I was going to say let's put some actual numbers to this. Let's look at three different investors. Let's look at Unlucky Olga, Billy the Best, and DCA Diane. Unlucky Olga is going to have the worst timing ever. She's going to invest in at the absolute worst possible times. Billy the Best is going to have the Sports Almanac. He's going to be the one that's able to time it just right. And DCA Diane instead is going to be very, very boring. And she's going to do what we say here at the Money Guy show. She is going to always be buying. So how are they going to approach this? Well, they're all going to save and invest from 1980 until 2024. And all three of these investors are going to make the average income that was being earned in 1980, which was about $12,500. And they're all going to save 25% of their monthly income a month. So they're going to save about $260 every single month. And get this, they're all going to invest in the exact same thing. All we're changing is when they are buying so if we think about Unlucky Olga, Brian, she's going to save up her money and unfortunately she's going to invest at the market peak right before the next big crash. So from 1980 all the way through the end of 2024, she's going to have six different entry points. She's going to invest in August of 87, July of 90, September of 2000, October of 07, January of 2020 and January of 2022 right before significant drops.

[Brian Preston]

How unfortunate for ol ol Olga, you have, you have trouble saying it. I have even more trouble saying it.

[Bo Hanson]

Okay, so that's what Unlucky Olga's doing. Well, let's look at Billy the best because Billy's going to do the exact opposite of Olga. He's going to still save up his money, but rather than investing at the world's worst time, he's going to get it just right and he's going to invest at the market bottom. So he's putting his money to work in October of 87, October of 90, October of 2002, March of 2009, March of 2020 and December of 2022 at the very bottom of these significant market drawdowns. And then we're going to have DCA Diane. And rather than trying to figure out when to buy and when to hold, she's just going to always be buying every single month. She is going to put her money to work.

[Brian Preston]

Here's what I think is interesting about this. When you're thinking about from a thought experiment and then putting it into practice, nobody's going to be as unlucky is Olga. That's the good news. And then, but also all of my market timers, you're never going to be as good as Billy. The best because I just. You just. Nobody can call it that. Well and that consistently, even if you're an outperformer one year, the consistency carryover is just non existent. So what I do love is at least with DCA Diana, you can control the behavior being consistent. This is something that is, you can repeat and replicate over and over and learn from. So but Bo, a lot of people could say there's got to be a catch. Did these people invest the exact same sum of money?

[Bo Hanson]

Exact same sum of money. Remember if they weren't investing, they were saving it up. It was that $260 a month. So when you look at the total contributed from 1980 all the way till 2024, all three of these investors save the exact same amount, $137,650. And the question becomes, okay, who ends up on top? And I think we'd all naturally think, well, it's got to be Billy the best, right? Because we look at unlucky Olga and we know that, okay, hers must not be great, but she's still ended up with almost $1.6 million.

[Brian Preston]

This is. This is how amazing just being any investor is. Even if you're horrible at it, absolutely horrible at it. You still tenfolded your money. That. Can we go back? The thing I think is interesting. We took the median income back then 1980, which was like $13,000. We did 25%, which worked out to be $260 a month. Fast forward to now. To think that a person over their career can save $260 a month, because that's what a lot of people now that coffees cost six to eight bucks a piece. I mean, that's doable. And be horrible at it and still have $1.6 million wild. It's amazing. So we have nowhere to go but up from here.

[Bo Hanson]

Okay, So I think what we've learned from Olga is that just investing is a pretty successful outcome. But what if you can do what Billy said? What if you can actually time and get it just right? Well, instead of ending up with about $1.6 million, what Olga ended up with, Billy actually ends up with a million dollars more. He ends up with $2.5 million by getting the timing and exactly right. Well, you've already said, Brian, no one has the ability to do this. It would be very, very difficult unless you had a crystal ball to do this. So the question becomes, how much better did Billy do than DCA D? How much better did his number turn out than DCA Diane's? And the answer is, it didn't.

[Brian Preston]

Look at that. That's amazing. Almost $3 million. And I think, you know, people were saying, well, how does this work? What type of crazy math have y' all done to contort this? Remember, this is just showing all those years where there's uncertainty and it's not the best, it's not the worst. It's just growing in the background. That's the power of DCA Realize when you don't, when you're just consistent with your behavior, markets make money 8 out of 10 years. So you're in the game and you're taking advantage of that. And if we have. If you believe in the law of accelerating returns like we do with innovation and all the things that are going on from a technology and the. The Pizza pie of success keeps growing the economy bigger and bigger. Guys, you can get in on this and you don't have to be unlucky. You don't have to be the perfect timer like Billy the best. You just got to be consistent and be in the game.

[Bo Hanson]

All right, so buy low, sell high is a rule that perhaps you should consider breaking. Let's talk about the next rule, Brian. And this is one I think a lot of people hear early on. I think a lot of us grew up hearing this rule that we should be investing 10 to 15% for our retirement. If we just do that, then we're going to be sad.

[Brian Preston]

Well, I mean, think about it. I talked about books that influenced me at the beginning of my career. Wealthy barber David Chilton, by the way, I think he's got an update out. I have not checked out the update, so I don't know if he's changed the savings percentage, but it was always one of those things. When this came out in the mid-90s, 10% is what he suggested. And I think back, if you wrote a book in the 1990s that probably made sense, a lot of us had pensions back then. Social Security was on much firmer financial foundations. And then, you know, you could put in 10% and you'd probably be okay. But for. We just haven't seen that. And then you think about like even Dave Ramsey, he wrote his book in the mid-90s as well. He's 15%. Is this a rule you can use in 20, 26 and beyond and still be successful? We're going to have some color on.

[Bo Hanson]

Well, let's talk about why it exists. Obviously you kind of said who has made it super popular? But one of the reasons they were able to say this is that numbers actually do work sometimes, but not all the time. If you're a 25 year old making $70,000 a year and you just invest 10% of your income every single month, so it's about $580 every month. And let's say that you can earn 9% on average. And let's even factor in a 3% inflation rate. You could still grow a portfolio into about $1.1 million in today's dollars by the time you retire. That means that you could create an income using a sustainable withdrawal rate of about $44,000 again in today's dollar. So if you're someone who's 25 and you start saving at this rate and you stay consistent for your entire working career, the number works. That's one reason why the rule exists. Another reason why that exists is it encourages folks to start somewhere. It motivates, hey, if you can just save 10%, if you can just save 1/10, if you can just save $1 out of every 10 that you earn, it gives you some reason, it gives you some motivation to just get the ball rolling. So if that's the reason for the rule and ride exists, then when should we break it, Brian? When does it not make sense to hold fast to this rule?

[Brian Preston]

Well, that's where unfortunately we have to throw some cold water and actually share when people start saving and investing. Because look, when you can, if you think about this specifically, if you start late, I mean, the typical American doesn't start saving and investing until they're 36 years of age.

[Bo Hanson]

It's wild.

[Brian Preston]

So if you go read some of those books that I mentioned and they tell you 10% or 15% in your 36 years of age and think you're going to be a okay, it just doesn't work as well. So that's what these are problems that I think we have to share. You've got to know the math behind what creates these numbers so you can know if you need to break it or stay within the bounds.

[Bo Hanson]

Another time to consider breaking this rule is if your savings rate fluctuates. Maybe you are someone who didn't start late, you started early on. But because life happens and because messy middle happens because you get pulled in a thousand different directions, maybe saving 10% early on was your plan, but you had to take a season off where you didn't save or you had a job change or you had something in your life happened that caused you to drop that savings rate. Well, now saving 10% might not get it done. You might have to actually increase it to make sure that you can reach your long term goals.

[Brian Preston]

And then I think about, I think I resemble this last one a lot. If you want more flexibility. When I was in my early 20s, I was saving beyond 25% of my income because at the time I thought that I wanted to be done with work by the time I was 50 years of age. And I knew that the only way that was going to be even realistic, as if I took a lot of my savings and my earnings at that stage of life and put it to work as fast as possible. Now I'm here to tell you I'm beyond 50 years of age right now and I couldn't imagine, you know, quitting work because I absolutely love coming in and doing what we do. But what I Do like is I get the flexibility to make decisions on my terms because of some of those big sacrifices early on they've built up in the background and let me do things in a very non traditional way. And I think that's what a lot of you guys are trying to do. You're trading your time and your labor to build resources so you make decisions on your terms and own your time that much sooner.

[Bo Hanson]

Okay, so if saving 10 to 15% is the rule, but it makes sense to break that rule, what's our rule? What will we have you do instead? We want you saving 25% of your gross income for retirement for all those reasons we just laid out. Because maybe you're starting late, maybe you're that 36 year old that's just now figured it out, or maybe life has not been as consistent or as fluid as you thought it would be. If you can save 25%, there's a really, really good chance that you can set your future self up for success. But we get it. We know that that's a high number, Brian, and we get asked this all the time. Okay guys, well what gets included in 25%? If I'm paying extra on my mortgage, does that count? If I'm saving for my kids college, does that count? How do I quantify what are the things that actually go into the 25%?

[Brian Preston]

So let's, let's go ahead and spill the tea on this. If we go ahead and look at your employer sponsored plan, that's your 401k, your 457, 403b, it will even look, I'll skip around a little bit in the fact that we even go count your employer match on those employer plans. Assuming that if you're single, Your income's under 100,000, 200,000. If you're a married couple, we want you to be able to count that money and then count the IRAs, the HSAs, the pension contributions, the employee stock purchase plans, all these things, and even your tax taxable brokerage account, if you're earmarking this for retirement.

[Bo Hanson]

That's right, you want to count the dollars that are building towards your future financial independence. So it's not things like debt satisfaction, it's not things like college, it's things that are actually building toward your financial independence inside of your army of dollar bills. And so the question you ask, okay, well guys, you said, oh, sometimes 10 to 15% works. And you guys want 25. How can I know? How can I figure it out? Well, we have a tool available for you. If you go to moneyguy.com resources and check out how much should you save? We will show you based on your age and your savings rate, how much of your pre retirement income you would likely be able to replace at that savings rate. So if you are someone who's early on or you are someone who's got a good head start, then maybe you can have a lower savings rate. But if you are starting later, maybe you have a little bit less certainty in your financial life. We want to show you why a 25% savings rate can give you that flexibility that you desire so that you really can live a great big beautiful life.

[Brian Preston]

Well, this is what I love about our content is that we give you the perfect balance of motivation but also the analytics of the knowledge. So I, I know a big portion of our audience are in their 20s and we often say when like we're going and doing 401k presentations, 25% savings rate for a 20 something daunting aspirational. We don't we the math that is it doesn't even say it's required. What I think is amazing, if you start at age 20, according to our chart, 10% is going to rock it for you. If you're 25, when you finally figure out this wonderful world of finance, 15% is going to be your friend. But we know personal finance is very personal and that's why I love being able to share the analytics. So you can actually say, hey, I don't have to just take a rule of thumb. I can actually go to moneyguide.com resources, cross reference where I'm at based upon my age and my savings rate and see where I'm at in this moment in time.

[Bo Hanson]

All right, Brian, we're talking about financial rules that likely should be broken. This next one is one that's become incredibly popular and there's a lot of voices out there really promoting and pushing this idea. And this is how the rule goes that if you want to be successful, if you want to make wise financial decisions, the way that you need to do that is you need to live a debt free life.

[Brian Preston]

Look, and I get it, don't, don't mishear us. We are not leverage kings. It's just. But I also have a no hypocrisy policy. I don't like to, if I look at my life and then I see if I'm one of these talking heads out there telling you, hey, avoid debt at all costs and then I think about my life and how I lived it, how I've created what I have. If I use debt, that would feel wrong to not disclose that to you. So what we've tried to do is, we've tried to show there's a better way that you can nibble or dabble in debt if you understand what it can and cannot do for you. But the first thing we ought to say is bring it back to the basics. Why does this rule even exist? Why do people say live a debt free life?

[Bo Hanson]

Because they recognize that debt is dangerous. We say all the time, the show, it's chainsaw dangerous. It can be useful, but if used incorrectly or if used haphazardly, it can have devastating results in your financial life. And a lot of people just can't handle that. Or a lot of people recognize how dangerous it is and say, hey, you should avoid that altogether. So that's kind of the first reason why the rule exists. And then the other reason why this rule came to be is that it does encourage people to implement the right behaviors. If I don't use debt, if I don't try to pay for things I'm using today with future dollars, then it's naturally going to build discipline. And if I have good discipline, I've built one of the ingredients of true wealth creation. So by avoiding debt, I'm able to increase and improve the discipline I have in my financial life. So those are both noble and those are both okay. However, there are times when this rule does likely need to be broken.

[Brian Preston]

Well, this gets back to now we can put some actual examples. When I said that in my own journey debt has been necessary, I can actually give you examples. I had to use debt for my first home purchase and I didn't put down 20% by the way. And we're going to talk about that in a minute. And then I definitely had to. I was fortunate that I had scholarships and other things, so I didn't have to use debt for education. But for a lot of people, you know, debt is going to be that path to let you go to higher education and improve yourself so you can improve your, your shovel so you can make as much money as possible based upon your skill sets. And then. But the third thing is cars. And look, cars are napalm for your finances, but I had to have a reliable transportation to get to me to that first job. And we want to make sure that we're honest with everybody about this whole process.

[Bo Hanson]

And we understand that while those things are necessary, if we do want to use those things and if we do have to have debt, there we need to have rules in place to keep us protected. So even when we think about education, one of the rules that we think about is the first year financing rule. We don't want you to accumulate any more student debt than you think you're likely going to have in first year salary. If you can do that, you're not going to carry that student loan debt with you when you're 30s, into your 40s, into your 50s, you're going to be able to knock it out early on if you follow the first year financing rule. And when it comes to cars, Brian, you need reliable transportation to get to your job. And one of our rules for making sure that you can stay inside those guard rules, guardrails is 23,8. When you buy a car, whether it's new or used, we want you to put 20% down. We don't want you to finance it for any more than three years or 36 months. And we do not want your car payment or all of your car payments combined to exceed 8% of your monthly gross income. If you can do that, you can prove to yourself that you are using debt responsible.

[Brian Preston]

And don't skip out on the fact that this is not pertain to luxury cars. We want you basic, basic, basic reliable transportation. Think Corolla, not Land Cruiser. And remember this key thing, I don't want your car payments to exceed your monthly investment. So if you're one of these people out there with the thousand dollars plus car payment, but you're not putting a dime into your Roth ira, you are doing this completely wrong. That is not why we gave you the bridge of 23, 8. Hey guys, I absolutely love AG1. Let me tell you, what this is doing for me is the fact that in the morning I used to stack so many different supplements and I was wondering, am I getting the right multivitamin? Am I getting the prebiotics and the probiotics and all the superfoods? It is peace of mind to know health is wealth. And I get it all from AG1. But here's what I like with the holidays, I travel a lot. I head down to Florida. What I like about AG1 is you don't have to just do the big pouches. You can actually do the travel packs. And now they come in a bunch of new flavors. My favorite is actually citrus. My wife likes tropical. I was a paid customer before they even signed up to start doing ads with us. So you can imagine I am all in on making sure that I get my best day started with AG1. So if you're interested, use our link. You'll get the newest formula at the best price available and a bunch of awesome stuff. If you head to drinkag1.com moneyguy you'll get the welcome kit, a morning person hat, a bottle of vitamin D3K2. I take a few drops of that myself, an AG1 flavor sampler, and you'll get to try their new sleep supplement AGZ for free, which has been a game changer for my nightly routine because it doesn't look like a pharmacy's been in my bathroom anymore. That's drinkag1.com moneyguy for $126 in free gifts for brand new subscri scrubbers.

[1-800-Contacts Advertiser]

Ford BlueCruise hands free highway driving takes the work out of being behind the wheel, allowing you to relax and reconnect while also staying in control. Enjoy the drive in blue cruise enabled vehicles like the F150 Explorer and Mustang Mach E available feature on equipped vehicles terms apply. Does not replace Safe Drive. See Ford.com BlueCruise for more details.

[Bo Hanson]

All right, so the rule is to live debt free, and we're saying you should break that. So what is our rule? What we replace it with? Well, our rule is if you must use debt, if that is something that is necessary in your financial life, we want you to use it responsibly. We want you to recognize that it can be a tool and it can be useful, but it needs to be respected. Because if it's not respected can put you in a very bad spot financially.

[Brian Preston]

Yeah, if you're using debt and you're not scared to death, you're probably using it wrong. But we at least want to give you some analytics or put some meat on the bones of what counts as high interest debt, because that's the debt we're really trying to avoid and when we actually want to give you some parameters. So we think that, like student loans, if you're in your 20s, 6% if you can beat, you know, if we think that you can go, if you're trying to decide am I paying down a student loan or am I funding my Roth? Well, if your student loan rate is less than 6%, get some money in that Roth IRA because the compounding growth factor is that valuable. But if you're looking at this when you're in your 40s, we kind of need to be serious about paying off that student loan debt. So that's why it drops down to 4% car loans. Now look, don't mishear us. If you're sitting On a pot of cash, you know, because I, when I watch these videos that we react to and I see somebody who tells me they have $1,500 car payment, but then they're rolling out their $100 bills that they still have in their pocket, I'm like, no, if you're sitting on a pot of cash, go put it on the car. Because car debt is napalm for your finances. But if you're broke as a joke, and you're trying to figure out, how do I take a car loan to get to my job, it's okay in your 20s if it has a higher rate, because remember, this is a moment in time, we're going to have it paid off within three years. It's a very short term process. So we give you some flex in the system. Obviously the number goes down 9% in the 30s, 40s, it's 8%. Because this is just getting you transportation to get to your job. Credit cards, this one's hot. We think credit card use is a. Okay. Credit card debt. No way. Even if the interest rate is 0%, you financial mutants think that you're doing something magical by doing these balance transfers? No, I think that you are, you're dancing with the devil in some ways. And the fact that you could get, if you're not careful, if you read the fine print, some of these things, they have transaction fees, but they also, if you mess up anywhere, they're trying to ensnare you in a trap. So don't even play around with that. Credit cards are supposed to be for convenience, for protection, and for just, you know, the fact that you get some rewards, but you need to be paying them off every month. If you can't do that, you're not a credit card type person.

[Bo Hanson]

What you're likely discerning right now is that there are different types of debt. The type of debt matters and the way that we are approaching even putting these rules in place is based simply on mathematics. What is the optimal and best use of your dollars? And let's walk you through a case study to show this. Let's say that we have two individuals. We have Average Allen and we have Manny the Mutant. Let's say they Both have accumulated $50,000 of student loan debt and they both anticipate making more than $50,000 in their first year. So this is acceptable. They followed the first year financing rules. Well, let's say that they both have a 5% interest rate and they're going to be a 10 year term. So that's how long they're going to have to pay back this debt? Well, let's assume that average Allen says, you know what, I really want to, I want to extinguish this debt as quickly as possible. I want to pay it off. It's 5%. I'm in my 20s, but I'm still going to prioritize that. So average Allen pays $1,000 a month towards the debt, but then once it's paid off, he begins investing all 1,000. Manny, on the other hand, recognizes that in your 20s, 5% for student loans is not egregious. So rather, Manny is going to pay the minimum payment. He's going to pay $530 per month and he's going to invest the difference. He's going to invest $470 a month until those loans are paid off. So how does this actually play out? Well, Allen, that was a debt crusader, said, you know what, I'm going to get this knocked out. I'm going to have it paid off in 57 months. Manny, on the other hand, actually took the full 10 years. So it took 120 months for him to actually get out of debt. And what a lot of people say is I want to get the debt paid off and then once I do that, I can start investing more, more quickly. And that's exactly what Alan does. So Alan begins deploying that thousand dollars every single month after the debt is gone. And when he does that, he's able to build up a portfolio of about $84,000. However, Manny, remember it took him 120 months to get that debt totally paid off. But he was saving and investing the entire time over this exact same time period at month 121. He also has a paid off student loan, but instead of only having $84,000, he has $95,000 saved up. He was actually able to accumulate more by making the minimal payment and having his money work for him than trying to knock the debt off as fast as possible.

[Brian Preston]

Two key points I want to focus on because I feel like I'm a bow echo here. You also, you have the ability because 57 months is when Allen is going to have it paid off. But the reality is if you look at the intersection point of where the market value actually crossed where the debt balance was, Manny could have paid it off four months earlier.

[Bo Hanson]

So even if his goal was to be debt free, he could have done it more quickly than Alan.

[Brian Preston]

But here's the thing, and look, we've gone conservative here because there's a little less than $12,000. Market value difference for this 10 year difference. Same pot of money, same dollars. I don't want people to think that we gave more money to this one versus more to this one. You're like, well, maybe $12,000. I'd rather be debt free. I'd be willing to leave $12,000 on the table. But we all know we have something called the wealth multiplier. And you realize even if we took the scenario, most people graduate college, like when they're 22 years old.

[Bo Hanson]

They were 22 years old when they.

[Brian Preston]

Started, 32 years of age. Your wealth multiplier is 18. So if you multiplied this close to $12,000 by 18, we are over $200,000 from this difference. This is why, guys, when you make car loans and you're trying to figure out, hey, a car that I'm buying for 25,000 versus 37,000, that $12,000 difference might not seem like a lot. Especially when they amortize it over six years and they make it seem like your car payment's only a little bit. No, these small decisions have huge multiplying effects. Don't fall in those traps. Because yes, this decision right here in a 10 year period is a $12,000 difference, but when you look at your retirement self, it could be over a $200,000 difference. This is the power of compounding interest, but also the power of incremental decision making. Understand that small decisions can have big results.

[Bo Hanson]

All right, Brian, so we just came through this rule that you might not need to live debt free. It might be okay to use debt and use it responsible. That actually dovetails nicely into our next rule, because our next rule involves a lot of debt that most of us need to incur. And this is what the rule says, and it's kind of twofold. It says, number one, you must buy a house if you want to be financially independent, if you want to be wealthy, if you want to be successful, you must be a homeowner. And by the way, when you do it, you must put 20% down on that home.

[Brian Preston]

Yeah, there's, there's so much to unpack on this. First of all, we just know housing has gotten where it's not necessarily affordable. And the other thing is, I think when I look at the, the Fred data, meaning the data coming from the Federal Reserve, sadly, most Americans never start building assets outside of their home equity. That's right. And as any impact we see on increases in the typical American's net worth is only in, you know, their primary residence that is a failure to let your money become your army of dollar bills that works harder than you can with your back, your brain, and your hands. We got to build assets outside of just the house you live in, because that's a use asset. So we're going to unpack that. The second thing is, I have a no hypocrisy policy. And when I bought my first house, everybody, every talking head out there, now, a lot of them have amended. This is what I love about the all terrain rules that the Money show does. We didn't have to amend our rules because we were honest and transparent the whole way through. But forever, all these talking heads have been saying, 20%. 20%. 20%. And I was like, man, I feel I didn't put down 20%. I only put down 3% on my first house. Bo, what did you put down? He was like, I don't know, 3 to 5%. And I was like, let's go ask all of our financial advisors. How much do they put down on their house? We found out. Holy cow. Eureka. They all put down 3 to 5%. So why in the world are we out there telling the public you got to put down 20%? Do you see how you have to be careful what you let in your head? Now, look, I've gotten way outside of what we're supposed to do. Let's talk about why we even hear these rules in the first place. Bring it back, Bo. Bring me back in. Reel me in. What's the reason for this rule?

[Bo Hanson]

Well, you hit the very first one. For most people, this is their largest asset. A lot of people don't build large portfolios. They don't save the way that they should. So the largest asset that they actually end up getting is a home. So if you never buy a home, you never end up with a large asset. At least that's the truth for the average American. Another reason why this rule exists is because people grow up hearing about this. People listen to their parents and grandparents and they tell them about the American dream. And what I did is I ended up buying the house with the white picket fence. And it was amazing, and it was awesome, and it was incredible. And I was able to buy this house, and it went up in value. And then I upgraded to the next house and upgraded to the next house and so on and so forth. And so you begin to think that that must be what I'm supposed to do. That must be the way that I'm supposed to build wealth. And people recognize that, okay, if I'm going To borrow on this house, I want to borrow as little as possible. So I ought to put down as much as possible and pay it off as quickly as possible. Because the faster I get out of debt, the more money I'm going to save in interest. And if I save money on interest, that must mean that I'm better off. That's why these rules have become so popular. But like all the other rules that we've covered, we do think that there are times to break them. Even in the reality that homes are valuable and even in the circumstance that homes can be fantastic for building financial wealth, there are times when it likely makes sense to break this rule.

[Brian Preston]

Well, first of all, I don't even know if this made it in the show notes, but we have clients that have lived in super high cost of living areas. Think about like Silicon Valley, San Francisco, other areas like that, where you can make a great income, but real estate is just crazy wonky. But you know, you're not retiring there. You know, you're, you're moving back to so and so or moving closer to relatives. So don't mishear us, it's okay if you build up assets outside of a house and you just rent while you're in this high in your income producing years. I know that's not traditional, but we're, we're, we're flexible enough to understand that that's a, okay in the long term. So. But for those of you who decide, I do want to get on this homeownership train, but when is it okay for them to break this?

[Bo Hanson]

Well, I think one of the times that you can break the 20% down is when you actually need it to be able to get into a home. You said right there, Brian, I couldn't save 20, I couldn't save 20. And I would argue it's even harder now than it was 10 or 20 years ago to save up 20% and be able to put that down in a first home. So if you are someone who needs to put down less than 20% in order to get on the homeownership train, I think that's okay. And then another time when it likely makes sense to break the conventional wisdom of 20% down, 15 year mortgage paid off as quickly as possible is when you recognize that there are ways to optimize our financial lives. There are circumstances where our dollars may be better used, not satisfying low interest mortgage debt, but rather going to work in our army of dollar bills.

[Brian Preston]

And look, I'll give you a Bo Hansen echo here is in the fact that forever I struggled with because even the book tour, when I wrote Millionaire Mission, I told Reby, before we do the book tour, I'm going to have the mortgage paid off. But the problem was, is I, when I did the trigonometry of that, that, that announcement to everybody, I was thinking the Federal Reserve was going to be pushing interest rates to a point that, you know, just dropping interest rates to the point that this is going to be a no brainer because why would I keep that money in cash when I could, you know, just pay down this debt? But the thing is, is my cash was still making 4 and a half, 5% and my mortgage rate was 2 and a half percent. I just couldn't do it until all of a sudden my mortgage was now down to $60,000. And the squeeze of the fruit finally made it like, okay, this is dumb, I'll pay off the mortgage with a check. But you're right, optimizing made a lot of sense. And we see people, we've done it on Making a Millionaire. We've seen, we've shown people who have hundreds of, of thousands of dollars of mortgage debt and they're paying down a sub 3%, we'll just even say sub 4% mortgage rate when they haven't even loaded up their retirement accounts. I'm like, what are you doing? You know, come on, understand the priority of what your money can and cannot do as a tool. So you need to understand the value of optimizing what your resources actually can do for you.

[Bo Hanson]

So we think that there is a better way to do money. And our better way when it comes to housing is we want you to follow the 3, 5, 25 rule. And what that suggests is that if you're buying your first house, you need to make a down payment of at least 3%. You don't have to go all the way up to 20. It's okay if you make a lower down payment so long as you plan to be in the home for at least five years. Because you want to make sure that even if the housing market turns on you, you're there long enough to justify the transaction fees associated with this purchase. And you want to make sure that the total monthly cost of your housing is below 25% of your gross income. If you can follow 3, 5, 25 and you've already discerned that buying a home makes sense for you, this is going to help you keep it inside the guardrails and not let yourself get more home than you can afford.

[Brian Preston]

Okay, you hear the word, you hear 3, 5, 25. You're like, but how does that pertain to me? It's better than that. Go to moneyguy.com resources. We actually have a home buying calculator. So you can actually put this into practice. See the numbers? Not just remember 3, 5, 25, you can actually put your numbers in, see what your real numbers are. And wait, there's even more. If you also go to moneyguy.com resources, we even have a checklist. That way you don't have to remember this stuff. Maybe you're listening to this as a podcast, you're driving down the street and you go, I'll never remember all these things these guys are saying. We got you covered. Just go to moneyguy.com resources. We have all the checklists, we have the calculators. So you can measure twice, cut once, and make sure you're making these big financial decisions and doing in a very good, well thought out way.

[Bo Hanson]

These are tools for those folks who have already figured out, man, I want, I want to buy a home. I want to be on that side. But before you even get to these tools, before you even get to that, there are two questions that you need to answer. Number one, is there a need for me to buy a home? Is this something where I'm at in my life right now, that it makes sense from a lifestyle standpoint? And if I've answered that question in the affirmative, the second question is, can I afford it? Am I financially to place, Am I far enough along in the financial order of operations to where it makes sense for me to consider doing this? And if the answer to those questions are yes, by all means, go check out the resources, go check out the calculator so that you can make this decision, which for most people is the single largest financial decision they will ever make, so that you can make it as well as you can.

[Brian Preston]

You know, it breaks my heart to do a show like this because we, we set up so many guardrails, we set up rules of thumbs, we set up our own rules. So to actually go out there and bust up with what is considered common sense or lay of the land out there.

[Bo Hanson]

Followers. Brian.

[Brian Preston]

I mean, that's what it does feel like. But, but all this makes the point is that things can get complex very quickly. And personal finance is definitely very personal. If you find that you watch a show like this and go, man, I resemble a lot of this. My journey has completely evolved. It was very simple when I started, but as I started having more and more success, this thing started Getting complicated because I realized these variables, yes, it was small decisions created huge results. But I'm also realizing those small decisions now I'm making might have huge results in another way. Because now I'm the CEO of a household that's running a seven figure portfolio. I just don't know what I don't know. And that's why we love telling people this is why we can give it away. We can go give it to [e-mail] resources, all the free stuff because we're going to be with you no matter if you're just starting your journey or now you are the CEO of that seven figure enterprise and you're like, man, I just don't know what I need to know. And I want to make sure I'm doing this right. We leave the porch light on for our financial mutants to know to come work with us because this is how you know this started as a passion project. I always wanted to be a teacher. I always want to be an educator. Didn't realize this is going to be the greatest marketing idea ever. So the passion in the heart was pure in the beginning. But it has turned out to be a great way for us to connect with people. Financial meetings just like yourself. If you want to know that there is a better way to do money and you want to balance out that complexity with the simple, we'll be there for you. I'm your host, Brian, joined by Bo, the rest of the content team, MoneyGuy team out.

[Bo Hanson]

The MoneyGuy show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the securities and Exchange Commission. In accordance and compliance with the securities laws and regulations, a bound 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.

[Walton Goggins]

So you want to start a business. You might think you need a team of people and fancy tech skills, but you don't. You just need GoDaddy arrow. I'm Walton Goggins and as an actor, I'm an expert in looking like I know what I'm doing. Godaddy Arrow uses AI to create everything you need to grow a business. It'll make you a unique logo, it'll create a custom website, it'll write social posts for you and even set you up with a social media calendar. Get [e-mail] aero that's godaddy.com airo.