Transcript
Travis (0:00)
You're listening to the Travis Makes Money podcast presented by GoHighLevel.com for a free 30 day trial of the best all in one digital marketing software tool on the planet, just go to gohighlevel.com travis. What's going on, everybody? Welcome back to the show. This episode is just me, you and the mic. And today we're talking a little bit about why you need more money. This is the inception of the Travis Makes Money podcast. Basically, what, what I saw was that there was a bunch of personal finance experts, a lot of whom I follow, and I like their advice. If you, you know, take the whole broad area of work that they're talking about, I, I, I like a lot of it. Like, I, I love a lot of the Ramsey stuff, I follow a lot of people who are in the space. But the one thing that I, I guess my, my only complaint or gripe is that for most personal finance people there's a huge emphasis on cutting expenses and saving money and budgeting and not enough emphasis on going out and learning how to make more money. And I found that the latter is probably more of a valuable use of your time because it is theoretically unlimited in terms of scale, meaning that you cannot cut your expenses further than zero. And obviously your expenses will never be zero. But I'm saying even if you could theoretically do that and you're making 80k a year, then the most delta you could ever create, theoretically, if you could get your expenses to zero, the most delta you could ever create would be 80k a year. Whereas if you, if you cut your expenses and you're smart with your money and you budget and you save, you do all the sort of bare bones principles of, of personal finance, then the only thing left to do at that point that actually gives you real leverage in your ability, ability to create wealth, is your ability to go earn more income because you will always need more money than you think you're going to need. Life has a way of demanding more from you than you expect. So even for those of you who are listening, who have planned this out, who you, you stick to a budget and you, you tell your money where to go at the end of the month and you're not spending money or wasting money on stupid stuff all the time, and you have a plan and you're contributing to 401k and you think everything's good, even you are going to need more money than you think that you need because life will always demand more from you than you think that it will. Meaning that your house is going to need a new roof. Or you might not be able to buy a house because you can't get enough delta. So you're going to have to account for the increase in rent over the next five to 10 to 15 to 20 years, which will probably dramatically increase in that same period of time. Then your car is going to need new tires. Or you bought a used car thinking that you're making a good decision. You buy a car for ten grand cash, and then six months later the transmission goes out. And now you have to think about, do I spend six grand on replacing the transmission or do I sell the car for six grand and go buy another $10,000 car? And then your, your, your mom has some unexpected medical expenses that she can't afford to cover and you're trying to help her out. And then your brother has this thing, and then your daughter has this thing. And then you, to factor in the preschool, and then you wanted to put your kids in private school. And then they have sports and they have activities. And then you start, you start actually looking at the, the, the money that you're spending and it tends to be greater than what you accounted for in your actual budgetary, in your actual budget. So that was, became the whole reason for the show because what I found was like sort of this personal finance advice is like, you know, cut, cut, cut, cut, cut. And then you, you know, you're, you're, you're wildly undervaluing the amount of money that you need to be able to become a millionaire. And it's like, just put a hundred bucks a month into the s and P500, and then in 30 years you'll turn around and you'll have $1.2 million or something like that. And while that is true and all of those things are good, you just need to put in more than a hundred bucks a month. You need to put in more than 200 bucks a month. You need to put it like you, you have to reverse engineer the total number that's going to be able to let you live the rest of your life the way that you want to live it. And then in my pers, double it. It's just like it sounds like a lot because you might be thinking in your head like, man, a million dollars of life changing money. Or man, if I just had $5 million, I could live the rest of my life. Okay, great, but let's do the math on that. Can you actually do that? Can you actually live the rest of your life on this money? Because you're not going to be able to take, you're not gonna be able to take. Like if you want your balance, if you want your principal and your investment accounts to remain the same, then you can only really take out 4 to 5% of the total, the, the interest that you're earning. So if you're investing in the S P, which has historically returned about 10% a year for the past 100 plus years, then when you're, when you're taking money out of that for living, because you put $5 million in this account, you don't want to touch it, that in order for that balance to remain the same, you can only take out 4 or 5%, not the full 10%, in order to maintain that same balance. Balance. And then, but that doesn't account for the increased cost of living in 10 years, 15 years, 20 years, 30 years. And so I pulled up a couple here that I thought were really interesting. And that's to say that yes, you should be putting money into these things. Yes, if you can't afford to put in a bunch, then you should be putting in at least a little bit just to start to start realizing the value of the compound interest that it's earning to you. So the, the thing that you're looking to calculate first of all is the rule of 72. And if you've not heard about that before, it's very simple. Basically, it's a way to figure out how quickly your money is going to double using compound interest. You take your, your doubling time is equal to 72% divided by the annual rate of return. So at a 10% s and P500 historical average, then your money's going to double approximately every seven years. You know, 72 divided by 10% or divided by 10, not 10% divided by 10 is 7.2, which would mean that it would take about 7.2 years to double. However, in that same period of time, you have to calculate inflation. You have to think about inflation. Now, historically we see that inflation is around 3%. The Fed targets 2%. However, if you look at actual inflation compared to what they're estimating inflation to be, especially in the last few years, it's obviously been significantly more than 3%. But even if we just say it's 3%, that 3%, the prices are going to double. If you take the same rule, rule of 72, and you divide, you know, 72 divided by three, then your prices are going to double every 24 years. So your investment might double every seven years. You're. But the prices of Everything that you do in your life are going to double every 24 years. But again, I think that that is probably more like 12 years. I think it's probably about double what they're estimating it to be or what they're at least reporting that it is. If you look at the actual inflation numbers. But let's assume that it's the bare minimum of the 3%. I, I, your, your, your money is not actually worth the amount that you think that it's worth. So just like in the 1950s, if you had a hundred thousand dollars, that's worth way more than it, than it is worth today. A hundred thousand dollars doesn't get you much today, but a hundred thousand dollars in 1950 got you a good amount of stuff. So that is exactly what's going to happen over the course of our lifetimes as well. And we have to be able to account for that. So that's why I say that putting the 100 bucks, 200 bucks a month into the stock market and then being like, oh, it's $1.2 million, I'm good to go. I'm a millionaire now. It's like, yeah, but it's also the year, you know, now it's also the year 2056. So the, your money that's in the account that you thought was $1.2 million is probably going to be a fraction of that in terms of how it actually spends in the year 2056. So let's, let's take the assumption that you're putting in 200 bucks a month. It's for 30 years, you have a market return of about 10%, and that, that grows to around $400,000 in nominal dollars. Okay, this is obviously ballpark. This is just based on historical data of how the S P 500 head has historically performed. Performed. However, at the inflation adjusted value, this number might actually spend closer to 150,000 rather than 400,000. So if it's 1.2 million, it's a 3x of that, then 3x of 150 is really about 450,000 in terms of what spending power is going to look like. Again, there's a lot of other factors that can determine whether or not this is going to be the case, because like I said, I genuinely believe that inflation is much higher than this. So, you know, if, if it is much higher than this, then it's not going to spend like $450,000 at 1.2 million. It might actually spend closer to $250,000 at 1.2 million, then $250,000 when you're 65. Especially with the fact that we're all living longer and that western medicine and preventative medicine have enabled us to increase our lifespan, that's just not enough money. You're going to have to continue working into your 60s, into your 70s. And that to me is not a great scenario.