Bo Hanson (3:40)

Yeah, I think I would be a proponent in terms of setting this up again. Behavioral finance becomes so key here. I would think about how you could gamify and outsmart the system. I'm going to use some really round numbers here. Let's say that your annual income is $50,000. And I'm only doing this because I can do the math in my head and on the calculator that I have in front of me. Your annual income is $50,000, but it's going to come in $10,000 a month for five months. You cannot live as though your income is $10,000 a month. What you have to do, you have to take $50,000 a year, divide that by 12, and so it turns into about $4,100 a month. So if it's me, what I'm going to do is every time one of those paychecks hit, I'm going to put in a separate account, I'm going to put it over here in a high yield savings account sitting there. And then every month from that savings account, I'm going to have $41 hit my checking account and I'm going to budget off of that and I'm going to live off of that and I'm going to save off of that. And I'm going to pretend like my income is only $4,100 a month. And what is going to allow me to do is not let my eyes get bigger than my wallet. And that 10,000 comes in and I live like I make 10,000. And then I'm going to have seven months out of the year where no income is coming in and I'm in sort of like an OH position. So I think if you have to set some sort of system up like that to protect yourself, there's nothing wrong with that. And then just like anything else in personal finance or in life, the muscle memory will set in. Once you've done this for a year, two, three years, then it'll just become a natural cadence in terms of how your cash flow works, even though it doesn't flow in like, nice, even systematic chunks.

Brian Preston (5:10)

That's why I think automation is your friend. Structure as much of this to be systematic and automatic. Meaning you're paying the bills automatically. You're doing the savings and the transfers to different accounts automatically. And just make sure you're sticking to the budget. And then I like having the separate accounts, meaning have the paycheck go into the account that is not the account that you pay all the bills or do your living expenses out of. So that way you have separation. So you're doing exactly what Bo said. You're turning the five months of income into 12 months of transfers. That feels like your monthly paycheck is actually X versus being that 5 lump sum, much bigger twofold of what you normally get paid.

Bo Hanson (5:53)

Yep.

Rebecca (5:54)

Great answer, Casey. Thank you for the question. Hope that helps you out. Next up, we've got a question from then. And again, it says, I have a weird money psychology question. I was gifted a lot of shares in one company. I will receive more in an inheritance. I'm attached to these shares because my grandparents worked at the company and I'm having a hard time selling someone talk me into it. I know diversification is the way.

Bo Hanson (6:26)

So this is not an uncommon thing. A lot of times folks, you know, especially folks that are like second, third generation financial mutants, their grandparents or their parents will come up this idea, hey, when, when Junior's born, we're going to go buy 100 shares of X and that's going to be juniors that one day they're going to end up with, or maybe we're going to pass that along. Well, then it does become this sentimental thing. Hey, I've had people like, oh, you know what I know and have a baby. I'M going to have to buy a lot of like Johnson and Johnson goods, the baby wipes and the butt paste and all this kind of stu. And so I'm going to go buy shares of Johnson and Johnson. So that way every time I'm going to the supermarket to make a purchase, I feel like I'm paying myself as a shareholder. And then one day I'll gift that to the kids, so on and so forth. And so it does become a bit of an emotional thing. Now here's what I would say. There's nothing wrong with money being emotional. There's nothing wrong with holding on to an asset that has sentimental value to you, so long as it does not derail your other financial planning goals, your other financial priorities in life. And so if these gifted shares are a substantial portion of your net worth, let's say that your total net worth is $200,000 and these shares represent $100,000 of that, then yeah, I would argue that you have a concentration risk inherent in these shares. And so one of the things I would think through is if it's going to be really, really difficult to sell it all today and diversify because there's some sort of emotional tie, is there something we can do to remove the emotion from it? First of all, you said, you know, you're going to get an inheritance where more of this is going to come. So it probably matters less about holding onto those shares today because you know, there's still more sitting in the background that's going to come your way. So I would think through, is there a very non emotional, systematic way I could begin to exit this exposure just like a dollar cost average into the market or into a position can I dollar cost divest out of that position over time? So that way it makes the sting hurt a little bit less. And then I'll determine what's an appropriate number for me. Maybe it's 5% of my net worth or 10% of my net worth. How do I then sell that position down in a tax efficient way so that I'm not risking my entire financial picture by holding onto this stock that maybe I know is not the absolute best thing for me.

Brian Preston (8:38)

So I'll basically play the part of summary because Bo just stole all the great meat off of that question bone. I wrote down success with or without stock, meaning how material is this? That was the part where Bo was saying, does it impact your life? I wrote down spread it out, just like Beau was talking about dollar cost averaging. You can also spread out mean you don't have to do this all at once. It's not or nothing. Why not make this change over a period of time? And then the last thing I think this probably is a little new is that when you get gifts from family, there are expectations even if they're not told to you. So I would encourage you make sure you know what the family members who gave this to you. Now that doesn't mean you have to do everything that they tell you, but I would at least want to know what the family expectations are with this gift so that you can try to navigate that. Keep the relationships happy, but also keep your financial life in a better place. Because that's something. Look, we've had experiences where, look, if you're from Atlanta, there's a lot of Coca Cola people out there. If you're from Columbus, Georgia, there's a lot of Aflac people out there. So I imagine a lot of you guys, no matter where you're from, there's some corporate story where great grandparents got into the shares way early and now every generation passes it down. That's why those expectations probably need to be discussed. But then lay it against all those measurement tools that Beau laid out with. If this is going to ruin your life, if that stock does poorly, then you at least need to come up with some way to balance those expectations and you living your best financial life.

Bo Hanson (10:13)

And then another thing that I would just think there is, you said that these shares were gifted to you. Well, if that's the case, then the basis in those shares carries over. So there's a big chance, there's a good chance you have like large embedded gains in this holding. If it's been something that's held for a long time. There's nothing that says you can't even be creative in terms of how you dispose of this. Let's say that you're someone who happens to be charitably minded and every month you want to give $500 to charity. Well, instead of giving $500 in cash every month of that charity, that organization you support, you could begin donating this appreciated security. That way there's no tax bill, you're using it for good, you're carrying out the wishes of your loved ones and it's allowing you to right the ship on your financial lives. So it doesn't mean that you just have to sell it to be able to correct it. There are strategies that you can employ to slowly shift this through time in a super tax efficient and goal efficient manner.

Brian Preston (11:05)

And then that's probably a great segue into. I see so many people, when they get sick, they immediately say, well, we got to start gifting the assets out to our loved ones. Let's put the. Change the title of the house. Let's, you know, go ahead and start gifting these shares. You guys do realize in estate planning, look, the exemption is, is pretty big now. Look, it is expected to go back in 2025, but right now it's well over $13 million per person. So for a couple, it could be over $25 million. That. That's big. And you get what's called a step up in basis if you die with appreciated holdings. Whereas when you gift, it's exactly what Bo said, the basis goes with the gift, meaning you have to pay the income taxes as the recipient of it. So just pay attention to that. That's why I always get on to people when they start changing titles and making gifts without really understanding what they're creating in the taxes.

Rebecca (12:00)

Good thoughts then. And again, thank you for asking that question. We appreciate you being here.

Bo Hanson (12:05)

Oh, you know, another great thing that you could do, you could subscribe right now to the channel to make sure that as we put out all this new information, you're up to date when new content comes out. So if you are not subscrib, you're renting your seat right now, the purchase is super, super cheap. All you gotta do is hit that subscribe button and you can hang out with us every single week.

Brian Preston (12:24)

I feel a little bit like Bo today because I've got a Starbucks coffee in front of me and I want to thank Caleb. You know, this, this is actually spot on. Nice cup of joe right here. And it was. Even though when I was sending the instructions, it was not very clear, I.

Rebecca (12:40)

Did laugh because you were not being clear.

Brian Preston (12:41)

And then me trying to correct it while I'm dropping my daughter off at school was just in the spell check. Americano. I don't know if it's just if I'm spelling it wrong or if it's just not recognized by Apple phones. The alpha, that sounds American like three.

Bo Hanson (12:55)

Or four times maybe it's not a.

Brian Preston (12:57)

Yeah, so I kept saying American, I want a cup of American. And that's not. That's not what I wanted. So I, I appreciate, but that's. If you're wondering why I look like Bo sans the mustache.

Rebecca (13:09)

I like how that's what looking like.

Bo Hanson (13:11)

That's exactly.

Rebecca (13:12)

I don't know how you feel about that.

Bo Hanson (13:13)

You know, Caleb did not bring me coffee this morning. Did you know that he Brough cough. I, I got here super early. I had some stuff I didn't knock out before we recorded so I went and grabbed my own this morning. Caleb didn't bring me one.

Brian Preston (13:23)

You know that's probably because you didn't respond to the the invitation to which.

Bo Hanson (13:27)

I have now updated him. The answer is always yes. If you're ever bringing coffee and coming in. Does Bo want coffee? Answers always. If you ever come to visit and you just want to know what does Beau want today? He probably wants a cup of coffee. Yeah, I'm just throwing that out there.

Brian Preston (13:39)

That sounds like an entitled Answer vs Be Showing Appreciation and actually responding to the to slide through it.

Bo Hanson (13:47)

Hey, thanks for being you Caleb.

Rebecca (13:51)

All right, well on that note, all about your coffee habits. You ready to do some more questions? Yes ma'am, Just making sure Jonathan has one for you. He says I'm 43 and the rule of 55 is interesting for flexibility. Should I roll my Vanguard IRAs into my 401k to have that option? Well I have to say what the rule of 55 is.

Bo Hanson (14:16)

Yeah, well the answer is Jonathan because we're really good financial advisors. Is it depends. Right. Should I do this? It's very difficult to say. Well your unique situation, does this make sense? So let's talk for a moment about what the rule of 55 is. And Brian, then you can talk about like the applicability, like how will Jonathan decide? Essentially we know that with retirement assets, 401ks and IRAs and Roth IRAs, generally speaking we can't access those assets penalty free until age 59 and a half. They are built and designed to be retirement assets. So you have to make it all the way to 59 and a half before you can start pulling those out. Except there is an exception. If you retire from the company who held your 401k in the year that you turn 55, you can begin withdrawing assets from your 401k plan without paying a penalty. You're still going to have to pay ordinary income tax if you're pulling out of the pre tax portion but the 10% penalty goes away. So we tell people often, hey it's you're 54 man, if you could just stick it out until next year then you'll be able to access those dollars if you're going to need them for part of your retirement planning. So a lot of people don't realize that and so they might decide oh okay, I'm retiring and I'm 56 years old, I'm going to roll my whole 401k into an IRA not realizing what they've really done is they have now encumbered those assets where they can't get to them for a few more years. So Rule of 55, a fantastic planning opportunity for those who are thinking about leaving the workforce before 60. So then the question is one, Brian, does it work? Can I just roll IRA assets into a 401k and will that, will I then be allowed to use those at 55? Then how do I know if this makes sense for me? Is this something that I should do?

Brian Preston (15:55)

Did Jonathan give us his age?

Bo Hanson (15:57)

43.

Brian Preston (15:58)

Oh, he's. This is. We gotta ways, we gotta set it to bend. So that's why, I mean, I will tell you, Jonathan and Bo kind of alluded to this, but it's just worth clarifying. Don't do this because I didn't. If you're in your 40s, you do this, you work for this company for seven years and then you leave at 50 years of age and then think you're going to come back and you'll have this basket of funds at 55 that you get access to. No, remember Bo's key part is it has to be the year that you turn 55 or you have to be over 55. So those are key elements. The second thing, look, Vanguard is one of the low cost providers. We talk about Fidelity, we talk about Schwab, and we talk about Vanguard as being some of those low cost providers that let you have great access to index funds and really create a lot of opportunities, a lot of 401ks. I mean, it's no coincidence, I think by the same discussion that the largest 401k providers for employers is. Fidelity's at the top of the list. But then Vanguard and Schwab are up there as well. So. Because they're good at being low cost plans. But that does not mean that your 401k is the equivalent because there's still a lot of 401ks. We see them for, you know, a decent amount of time where you don't know if it's the golf buddy or the college roommate or whoever it was that set up this plan. But it's expensive, it has poor investment choices and it's just not very feature rich or as useful as maybe some of the things you can set up when you, you've started funding your IRA or did your IRA rollover after you left your last job. So that's the part that rolls into the. It depends is you have, you can't skip Doing the homework. Don't skip leg day. You've actually got to do the work of making sure you understand what you'd be rolling it into now. It is. It makes it much easier. Maybe the company you work for is a Fortune 500 company, and it is one of those equivalent plans at Fidelity, Schwab, or Vanguard. You still do the homework of looking into the plan to make sure it's as low cost as we're talking about, that there's not some expensive fees that are attached to it. And then I think you just have to build it into your financial plan. This is part of that complexity that we say find you. You don't have to go looking for it. It's just as you're trying to figure out how you land the airplane and how you actually start using the resources. Go from saver to a spender of what you've been building for these decades. This is definitely part of the plan. And I'd encourage you if it gets too complicated. Don't feel like you have to figure this all out yourself and be the first one that creates and invents this path. Hire somebody who's done this hundreds, if not thousands of times.

Bo Hanson (18:33)

So you're saying it depends on, is it the right decision? Meaning is my current 401k as good as the IRAs? The other thing is, is the timing right? I'm 43. I don't necessarily have to do this. I could also carry out this strategy at 53, and it would still be just as viable. And then the third thing I would just add out is, would doing this now and today open up other planning opportunities? If you're someone who's maybe you can't do Roth contributions directly and you can't do backdoor Roth contributions, maybe rolling over the IRA today would open up the ability for you to backdoor Ross. So it's just like you said, you got to do the homework. Don't skip leg day. Make sure you understand the implications of the decisions you're making, and make sure you're making the best decision for where you are right now in your financial journey.

Rebecca (19:17)

Excellent. Jonathan, great question. Thanks for being here, as always.

Brian Preston (19:21)

Yeah, I think that's gonna be our new thing. I've always been doing it, but I think it's just when we talk about doing stuff that you don't want to do, that's leg day. Because nobody who exercises likes doing exercises. Like, you're a weirdo.

Bo Hanson (19:34)

I'm just saying. Here's what's interesting. If you don't Skip enough leg days. You know what you actually start to come to love.

Brian Preston (19:40)

What?

Bo Hanson (19:40)

Start to come to love leg days. You know what I mean? Like, you kind of get excited. Like if you do the hard stuff, you kind of like, oh, man, the hard stuff I kind of enjoy.

Brian Preston (19:48)

I'll play the other side. Is that there is. I saw a video that there was no better like exercise than like doing squats because it engages some of the biggest muscles of your body and it's exert, but it is hard. I mean, especially you put it under heavyweight, it's hard. And I think that that's what people don't understand. It's not always about the cardio of running on a treadmill or doing that stuff. Some you can get just as much of a sweat about putting yourself underweight. And it does stink. I mean, it's one thing. I mean, if you hold a dumbbell and you're doing curls and stuff that, you know, yeah, it feels heavy, but legs hurt sometimes. So I know that you're one of those freaks, you and Arnold Schwarzenegger and Lou Frigno and all those guys. But for the average man, the same category as Mr. Just trying to stay above ground, you know, so we can enjoy life and maximize healthy living. Leg day is. Is skipped by many people. That's why, you know, so I think that that's. I like that saying, is that if you're going request homework and homework that's hard, that's don't skip leg day.

Rebecca (20:56)

Okay, great.

Bo Hanson (20:58)

She says, okay, great.

Rebecca (20:59)

I just didn't know. I didn't know we were going to go there. The Money Guy show is hosted by Brian Preston. 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 and does not constitute financial tax, investment or legal advice.