Will Saving for Retirement Before 40 Make You Miserable?!

so well saving for retirement before age 40 make you miserable uh brian um this one is interesting to me right and you notice i didn't say that i'm excited because i'm not as excited when we talk about stuff that just seems like tomfoolery and if you've been listening to our show for any amount of time you know that we love saving we think it's a great thing so how on earth could we have an article come out that says that saving especially for young folks will make you miserable i know we're hitting on something out there with you guys when articles like this are dropped and you guys hit us up on facebook on twitter and say moneyguy team come on give me some feedback on this because i love that you come to us to kind of decipher how in the world could such smart people put out something so ridiculous so so let's kind of jump into this first of all if you want to know what all the hub hub is about it's that there's a research group called the national bureau of economic research that sounds fancy they came out with a paper titled is automatic enrollment consistent with a life cycle model now life cycle model in their terms kind of means happiness you know you know in full taking into account everything that sounds like an enthralling article that i could not wait to pour into well this was covered this research report written in the small print on the right you can see from the screen here but it was really covered and kind of everybody started paying attention when business insider and hillary half hour um covered this and this is what blew it all up is everybody's like oh my goodness there is a lot of academics that are actually saying hey wait until you're in your 40s in your peak earning years that's when you should save for retirement so i kind of want to jump into this and by the way if you were just curious on how smart these researchers were all you had to do was turn to page six of their research report and you'll see they have an entire an entire of your eight and a half by eleven page half of it is this crazy formula that einstein would be very happy with yeah it looks uh i'm not gonna lie that looks pretty complicated and i like to consider myself even a math guy i would need elon musk to help me figure out what the heck this means but but look with something so fancy so smart what in the world could be wrong here and i'm gonna go ahead because i don't want you guys to waste an a a a second of your time reading this research sure i did it for you but i will tell you i'll go ahead and give you the cliff notes version these are the three factors on why they rationalize why you should have zero retirement savings in your 20s and 30s and this is what they had number one and they said this in really nerdy fancy way number one is in the presence of borrowing constraints what the heck does that mean i'll tell you what it means they're worried you're gonna be so poor in your 20s and 30s that this forced savings because remember the whole thing premise of this research report is odd is automatic enrollment consistent with good management and happiness and so number one is they're worried about you getting in credit card debt because you're saying so because you're saving it's going to cause you to exacerbate your lifestyle go rack up credit card debt yeah because you went and took that free money from your employer because they're talking about employer retirement plans and a lot of plans quacka came out a number of years ago which was legislation that encouraged employers hey do auto enrollment on your employees so we can increase participation because we think saving for retirement is a good thing so this is a counterpoint to that number two is near zero real interest rates lower the cost of current consumption relative to future consumption that's a fancy way of them saying hey what are the impacts of us having a federal reserve that's keeping interest rates dragging at zero so you're actually not making money on your investments my problem with this is is that and this is the the rate of return they use in their research reports zero and three percent i mean that's um that bothers me because i i had this question this actually came up in one of our meetings yesterday okay great client who also listens to and watches a lot of our show he's also a content creator part of the fire movement and we were talking about these anticipated rate of return in the future and there's a lot of new research people are going out there and making hay with the fact they're saying we're only going to grow it two three four at most five percent a year because of how robust things have been sure i always ask people before you're willing to hook your caboose to that train ask yourself do you feel like innovation is accelerating or is it slowing down sure there is no way i mean i was watching today's show yesterday three vaccines within a year from when the the the kova virus came onto our shores here in america we have three vaccines that are going out there how in the heck is that possible without innovation sure if you look at all the things i mean you can't tell me what i'm gonna have in my pocket in seven years meaning from iphones or smartphones whatever technologies could be driving things so i don't know that i think interest rates necessarily impact it and that leads to number three of their point of why you don't need to save is that a lot of people there's a high social security replacement rate that can rationalize lower savings at all ages so because there's going to be a social safety net there for everyone we'd have to save as much for the future well we all know social security even though the majority of the public uses social security nobody actually thinks they're going to get social security so that's that's kind of a very concerning thing and i want to just read the last kind of statement from the conclusion of the research report so once again to save you the time so you don't have to do this yourself our results suggest that nudging people to save for retirement at all points of their career may be inconsistent with a life cycle model aka happiness in such a model it is not optimal for someone whose earnings are temporarily low such as college graduates at the start of their career to save for retirement how could such brilliant people blow this up and here's what i found remember their goal was to see if automatic enrollments in employer-provided retirement plans with matching was causing people to be unhappy and also increase their debt the fundamental flaw i think is that they even though they were looking at employer plans they didn't actually use employer plan investment options like there was no index funds there was no target retirement funds they used they assumed you were either going to make zero percent because interest rates are lower or on the high they and i have to use the ear the rabbit ears high three percent but they even mitigated that because they said inflation was going to be two percent in their research report so you're either losing money when it's at zero right or you're making one percent guys if that was where we were with you what the power of your army of dollar bills we would nobody would save for the future we'd all spend like a bunch of knuckleheads i mean that is so you can see how they they built the bridge to get there but how in the heck do you build this bridge with the fundamental flaw you didn't even use the products the investment vehicles that people actually use to save money with so this this is a bridge too far and i want to just show you because i feel like it's spitting in the face of the three components of what creates wealth the first component discipline how many times do we tell you guys you've got to live on less than you make and you do that through discipline through deferred gratification that leads to that discipline and deferred gratification leads to the second component is that you actually have margin it creates money that money is then put into the markets it's invested into this ever expanding global economic growth and then that it gives it time the third component is time you give it enough time to grow and compound it doesn't grow linearly it grows exponentially and we have a slide that shows you how powerful that is yeah so you've seen this before if you've listened the show we like to talk about how much is required if you want to be a millionaire by age 65 and what's remarkable is that the earlier you save the less you have to save to get demand millionaire status so for a 20 year old they only need to save about 95 a month to be a millionaire by the time that they get to 65. if you wait until 40 you have to save 780 dollars a month to get to millionaire status by the time you get to 65 or if you wait till 50 you have to save almost 2500 a month so this shows at early ages it requires much lower levels of saving to get to that same level of wealth because in your 20s 95 of that million dollars you've accumulated is from growth it's from earnings it's from your army of dollar bills doing what your army of dollar bills can do so their premise remember this is directly from the research report labor market earnings at age 25 are only 42 of peak earning at age 45 or 50. so they're saying since you're poor while you're in your 20s and 30s don't even worry about saving because you'll just catch it up because you'll have your peak earning years in the future i'm telling you guys if you look at this chart 20 year old 95 of their million dollars is coming from the growth of their army of dollar bills for a 30 year old 89 is coming from the growth if you do what these super smart knuckleheads tell you to do you will actually miss out on all that exponential growth and that is just less than ideal because i want you to put your money to work so it can grow so we got with fte daniel and we said daniel let's knock the leather off this ball let's show them why this is wrong i want them to actually go home and actually realize man next time we do a research report that gets into the fundamentals of building your army of dollar bills we better think twice because this thing's going we're going to get hurt so here's here's what we came up so here's the case study that we put together let's assume that you're that person that waits until 45 you want to wait to your peak earning years and then you can start saving aggressively let's say in those peak earning years you make eighty thousand dollars per year and let's say from that eighty thousand you contribute six percent of your salary and you get an employer match of three percent so you have nine percent of your total compensation going into your retirement accounts by 65 you will have accumulated almost three hundred and forty thousand dollars which isn't too shabby all you did was save about 96 000 but your retirement accounts are worth about 340 000. doesn't sound too bad that's what this article is proposing you ought to do so if you wait till 45 that's sort of the behavior that you could carry out before you slip flip the slide so realize by 65 you will have saved of your money 96 400 but it would have grown the employer match plus the growth of your armies would have created 339 thousand 000 that means you would have put in 28 of the money of what that in that total 339 and that means the growth in your employer was 72 keep those two numbers 72 percent of the money was still growth and from your employer let's see what happens to the younger person and what their results are so if we know that in our early years we make less than we do in our peak years 42 according to this research report let's assume that somebody at 25 years old makes 42 percent of what their 45 year old self would make and they make 33 600 per year well they too are going to like to save six percent into their 401k and they're gonna get a three percent employer match so they also have nine percent going in on their behalf by age 65 that person will have had will have 838 000 even though they had only themselves saved about 81 000 over that time now look i wanted to show off when we did this this study is that we chose 33 600 because that was exactly 42 of the 80 000 we use for the 45 year old because remember that's peak earning years but we did one better we gave zero pay raises to this individual meaning they never made a dollar more than 33 600 sure they only had to put in six percent to get their employer match so that's it and here's the other thing guys that this is fundamentally flawed and it showed me that these super smart researchers or academics knew nothing about the tax code either you guys realize that if you're a married couple and your household income is less than 65 000 you qualify for what's called the savers credit so you can actually create where everything you put into this retirement plan potentially could give you a tax credit not a deduction a tax credit that will actually lower your income taxes so you actually make money off of the transaction of saving the government has incentivized you to save so not only did they not use investment vehicles they also didn't take into account the tax code this thing is building but let's even show how it's worse because your army of dollar bills actually work so you can see 837 000 is what your money becomes i think it's interesting that you only contributed eighty thousand eight hundred dollars that's 9.6 essentially 10 is from you 90 is from your employer and from your army of dollar bills and compounding growth and look how much more money you have you have almost a million dollars you're right under nine hundred thousand dollars whereas the 45 year old the epicurean that waited until they were 45 before they started saving because some super fancy research report told them hey enjoy today don't worry about that great big beautiful tomorrow they only have 339 000 who do you think is going to have more happiness through life that's the question i'd ask is who would you rather be the person with a retirement pot of money of 340 000 or the purse with a retirement pot of 800 and for almost 40 thousand dollars so here's the closing point we get a lot of comments on our channel and i get i love it if you want another rocket fuel for the future is when i get a comment saying man i just discovered you guys where were you when i was in my 20s where were you if i could have just seen this this ought to be played to every high school student in america look these are some of the screenshots i had the team put together i have a whole bunch of people that tell us i wish i'd have found you guys earlier so i could have started doing this in my 20s and 30s i have yet to find a successful people and i'll even say we work with a whole bunch of successful people i've never had somebody that says you know where i screwed up brian i wish i had never started saving in my 20s i should have waited until i was in my 40s you know why because they'd never be clients you wouldn't have money this is so this i i hate to get so emotional about it but i just hate when people come up with content like this and i don't know if it was just to get the clicks to get the eyeballs because being a contrarian sometimes can get you more attention than being the smooth selling actually telling people the truth and i think truthfully i think that's where we've had issue is that we're too honest with you guys if we were much more sensational we probably have more clicks more subscribers more views but i'm not gonna do that because i'm more concerned at making sure you build just taking a little bit of today so you can have you know all the exponential growth and get that great big beautiful tomorrow in the future just take a little bit of the day you'll get that awesomeness in the future but you just have to listen and do what we tell you yeah i think a big takeaway you ought to take from this is be careful trying to seek out articles or viewpoints or ideas that reinforce something you want to believe right we see this with dietary stuff all the time that hey there's a new diet and all i've got to do is eat ice cream every day and i'm going to lose 50 pounds because a research report said that that was going to happen we all know that there are a few things you have to do if you want to become more healthy if you want to lose weight if you want to whatever personal finance is no different we know that there are a few things that you have to do to set yourself up for success don't let the world don't let the financial noise try to create an idea in you that there's some other way there's some other magic bullet because i just don't think that there is hey when did it say i should eat that ice cream i know right that's a good i made that one up uh i'd sign up for that one okay hey let's let's answer some questions obviously uh we do this show every other tuesday we can answer your questions so if you have some questions start getting them rolling into the into the chat right now we've got the team all around us dropping them in here and we're going to see if we can't load you guys up um okay so this first one is from siren i and this is what siren i said they said i'm 37 throwing money into a backdoor roth 401k at 57 000 per year so this person is like a hyper hyper saver uh currently that accounts at 106 000. okay so that way you're doing a backdoor roth contribution or doing the mega it sounds like they're doing sure it sounds like they're doing a mega backdoor roth since they mentioned the 401k and they're doing the 57 000. sounds like they're they're maxing out their 4k 57 000 they currently have 106 in there i make 150 000 a year and i live on 40. so high income low living expenses the only asset uh is my paid for car and this is the question should i diversify my portfolio by owning a home and i think that's really the crux of the questions a lot of details in there but we get this all the time hey you know i've got this going on i'm a good saver and i've been renting but you know should i go buy a house should i for the purpose of investment reasons or because i'm supposed to or because that's what the manual on how to live life says should i go buy a home for that reason i think all use assets i'm talking about now use assets include your primary residence your vehicles you know that type of product that you these are assets that go on your net worth statement but you don't really get they don't create income for you it's something that you're using for shelter and so forth the the good benefit of a house compared to like the other things like the vehicles i mentioned or household goods is that it actually appreciates whereas the others actually depreciate and lose value over time so that definitely is a good thing with that that you actually get some appreciation when you buy a house there are some things you need to make sure you check the box on from a happiness factor as well as a life factor to to know if this is a good decision for you first of all do not buy any type of real estate whether it's rental property a use asset like your primary residence unless you plan on holding it for a long time because real estate by its sheer nature is very illegal that's right i mean you guys know whenever you buy any type of real estate there's appraisals you've got to get attorneys involved you know commissions on both sides admissions there's a lot of recording fees and state stamps and so forth title insurance these are all it's not a process that you can go in and at 10 o'clock if you decide you know what i think i want to sell this property today by one o'clock you're not going to have that transaction complete it's going to take weeks if not months so with that understanding i tell people do not buy any type of real estate unless you can be there i think it's a seven year decision at a minimum yep because you gotta cover the fees now look a few of you go right probably in the comments i did it in three years you got lucky i mean because we're in a highly appreciating market right now probably some inflationary pressure going on don't always assume luck is going to bail you out of situations that's what we're trying to plan for all all things that are coming towards you and then so that's the financial part is but what about happiness um i think if you have a job that you're going to be in that area you know you're not moving for seven ten years and you like owning you the thought of owning this house and proving it making it better knock yourself out go do it but it's not a magic bullet for everybody i mean that's the biggest thing yeah and i wouldn't do it strictly for the portfolio purposes of it i mean i was talking to one of our team members yesterday who's new to the area and he was talking to he's like hey you know i really don't want a single family home you know earlier in life i did the thing where i cut the grass and i did the weed eating i think i want to move into like a condo or a town home or something where i don't have to worry about that and that's going to be great you have to figure out what makes sense for you not what you think society thinks you should do as it relates to oh well now it's you know i've checked this box and this box this one now i need to go buy a home it should be much more about what your ultimate goals are because even all your portfolio is is a mechanism to help you do the things you want to do when you want to do them the way you want to do them so the decisions you make should all move in that line if home ownership isn't part of that i wouldn't try to use homeownership as a means to get you to that plus somebody who's saving 57 58 000 whatever the annual limit is um they are definitely a financial mutant so i got to believe their army of dollars is going to build to the point that it definitely provides financial independence this is just kind of a cherry on top of maximization so if you definitely are plant growing roots in the community um you you think you want to tie down because the other thing i do like about owning a house i've had made some great friends for throughout life from neighbors of course because i mean there is something i'm a neighbor person i'm not you know there's always this temptation you want to go buy 50 acres you know and have some animals on there that's not me i want to be i want to roll the trash cans out there and then yell over at the neighbor you know and say you know hey how things going talk to them you know i don't know i don't know that's a good thing or a bad thing in my head i just saw you as like cousin eddie and like the boxer shorts in the robe like wheeling the trash can out hey neighbors but i made great friends i mean every time we like you know if i could tell you a side effect or a silver lining in this pandemic was i am closer to every one of my neighbors around me because we're all home more there's nobody traveling and also when we had a snow we had a huge snowstorm here recently we didn't lose power fortunately but we couldn't use the roads guess what we did we hung out with neighbors it's a great opportunity this next question this is a youtube question this is from jacob s he says does the foo the financial order of operations change if i want to retire at 50 i'm 26 maxing roth ira roth 401k and hsa but have but have little for taxable account contributions is it too early to be concerned about this so he has two questions that he's asked the first is if i want to retire early say 50 does food change second one is i'm 26 i'm on the front end of my career i'm at the beginning should i be thinking about that piece of the puzzle yet no look i i'm going to tell you i think foo works even for fire folks because guess what step number seven of our nine step process of the financial order of operations step number seven is hyper accumulation hyper accumulations entire purpose is is now you've made it through the basics of you know going through them really quickly deductibles covered employer match high interest debt is vanquished emergency reserves maximizing that tax-free growth of roth iras health savings accounts and then you're also picking up anything else that's left out there with your employer max out retirement savings because those are incentivized through tax savings step seven like i said is where you can then start thinking about the three bucket strategy where you want to have your tax deferred you want to have your tax free and then of course you want to have your after tax because that is going to be your bridge account that a lot of fire folks are going to use to retire early we pay respect to that so i don't know that i do think it changes i think you just have to make sure because he's 26 right 36. there's a lot of earning potential there's a lot of money that's going to be invested between 26 to when he's 50 or whenever he said he was going to retire early so i think that the opportunity has not been passed to build up those after-tax savings in that brokerage account i think one of the things that you do get to do though is while you are young i wouldn't start freaking out about it i wouldn't start worrying oh my goodness am i putting all the money in the perfect pots and when you get a little bit closer to age 50 when you start closing in on your late 30s and 40s some of that will begin to coalesce you'll begin to see where you have deficiencies right now i would just focus on that savings rate follow the food get to 25 and just go through the paces filling up the financial order of operations and then as your accounts grow as your circumstance grows then you can start focusing more on asset location and which buckets you're funding at which levels at 26 just sock it away and you will not regret it hey two two closing points by the way if you want the free deliverable on this go to moneyguy.com resources we actually have this non-step process completely free to you the second thing is that you just triggered when you are saving don't over complicate this because i can tell financial mutant look at indexed target retirement funds from like a vanguard a fidelity those things are going to serve you well also just to make sure you you are building and maximizing that army of dollar bills love it love it love it um all right let's ask uh sort of a nitty gritty investment question this is from peter peter said with bond yields so low i wonder if there are any smart alternatives for balancing a retirement portfolio that is heavy in stocks i know just the other week bo mentioned that bonds still have a place in your portfolio even with yields down but i was unfortunately busy at work it wasn't as tuned in uh as i would have preferred all right peter we're gonna give you another go around at this question uh yeah we're in a low interest rate environment right and we all know we've done that we do this all the time that when it comes to fixed income or bonds when the re when interest rates rise the value of current bonds go down when interest rates drop the value of current bonds go up so generally speaking you want to hold bonds when interest rates are high and likely to drop because you'll get some capital appreciation on those bonds you want to be clever in how you hold bonds notice i didn't say you don't want to hold bonds you want to be clever in how you hold your fixed income when interest rates are low and it seems that they might rise now his question was different though his question wasn't specific about bonds his question was hey are there alternatives i ought to think about inside of my portfolio to replace fixed income that's a really really nuanced question so when it comes to like investment return there are really two components to investment return the first is the one that we all think of it's capital appreciation i buy something for ten dollars today and tomorrow's worth twelve dollars my capital is appreciated two dollars i've got some growth in there but the other component of return is income right uh if i own something or i have a cash account and i own it and i get interest paid to me i get these payments this income that's generated from it well one of the things that generally happens is that if you're looking for sort of the risk off or the conservative or the fixed time or the bond portion of your portfolio what you're really doing is you're focusing on that stable asset base with an income component so his question are there alternatives i would look at other types of investments that might generate income in the portfolio and hold a stable asset base and there are certainly options out there yeah i get nervous because i will tell you for our clients we do try to go there's there's some balancing between bonds equities and then we do have asset categories that kind of fit in between there i don't because we don't do product recommendations on on this show and i don't feel completely comfortable sharing all of that because first of all i don't think the sec would love us sharing that type of stuff and our biggest thing is to help you focus on the key fundamental things as you're going this is you know higher level stuff when you're trying to balance out income appreciation but also giving you stability in your portfolio if you're getting to the point where you need to graduate beyond index target retirement funds it might be time to talk to somebody and i know that's such a punt question answer to the question but it really is because i'm telling you guys when you get closer that you're nervous about this type of nuance thing you don't know what you don't know and we're also in such a unique time i mean warren buffett in his most recent letter to shareholders that we'll be covering shortly he talked about what an uphill battle that bond investors will have in the coming decades but i want to counter that a little bit i mean i completely agree i'm not i'm not going against the oracle whatsoever but here's the the part that we don't know the timing of it all because every central banker in the world right now because of the crazy balance sheets that all of our governments have done they are artificially keeping interest rates low on purpose and if you would have told me last year that the typical bond investor in 2020 would have probably made over seven to ten percent i'd be like are you crazy how is that possible and nobody else in the market knew it either because the pandemic hit interest rates went backwards to where there's even places in the world right now that you have negative interest rates i don't know that there's going to be any hurry for many central bankers to push those rates up to that would have that huge negative impact but i don't think people will know when that's going to happen i'm just telling you just realize this is more complex than us so know what the value of the bond is in your specific portfolio focus on what you can control and then build around it and and that might require some customization i i hate answering a question with a question but i think when you get to sophistication it's important and i think it's pretty personalized i mean even your account structure whether you have a lot in pre-retire or pre-tax assets versus tax assets will affect the type of alternative exposure you might utilize to satisfy that risk off piece of your portfolio but what we're saying is there certainly are options out there that you can utilize but it's not a one-to-one replacement for fixed income we still stand by fixed income holds a place in most portfolios especially well diversified portfolios for people who are mature in their wealth building life cycle and so just because interest rates are low i would not allow that to push me further out on the risk spectrum than i should be yeah and pay attention to duration too because shorter term is probably better in the in in the coming years all right here's a here's another one this is another kind of academic one this is from zumba elena i bet she does zumba just a shot question might teach zumba maybe she teaches them with this hey you should decept solo 401k love it uh how does 401k withdrawal rule work if the market tanks we get this question all the time say you have a million dollars and next year it's worth 500 000 which which one of those balances do you draw four percent from is it the million or is it the 500 i actually love this question because this is one of the fallacies i feel like i see in the fire in in retirement circles all over the place they get so caught up on this idea of the withdrawal rate we think in our opinion the withdrawal rate should be the thing that lets you cast vision on the portfolio that you're building towards when it actually comes time to distribute your withdrawal rate is something that you should monitor as you move through retirement to make sure that you don't get out of whack this may be surprising to a lot of you but for the majority of retirees they don't have a flat static withdrawal rate that stays at exactly 3.27 percent every month or every year every couple years rather it's much more fluid than that because what ends up happening is when we retire often our expenses are fluid we have some level of fixed expenses but then we might have to do home improvements or buy cars or we want to travel or we have these things that might cause our annual year-over-year withdrawal rate to kind of go up or down so the first thing i'll say is it's not something quite so static here's the second thing i would say that i think is really really interesting specifically in your question if you are retired and you are drawing off of your portfolio and you're in a portfolio that this year is worth a million dollars and next year is worth half a million dollars you may have a problem there may be a risk component inside of your portfolio that you have not taken to consideration because i would argue for someone in retirement living off of the assets a 50 swing in portfolio value is probably less than ideal well you're bumping into what's called risk capacity because we know a good diversified portfolio you hit even a great recession type downturn you're probably gonna be back to making money within two to three years whereas if you're too far out on the risk spectrum and you're you're actually living off these assets it might take six to seven years to actually recover that's just too long if you're pulling off because you will eat your corporates alive if that's the case i want to answer the question in a little different way in the fact that i like when i'm doing retirement planning to do a goals-based retirement plan that is is influenced by not only a safe withdrawal rate but also the monte carlo simulations as well as your personal living expenses so you get the freedom if it's goal based you know if you have a big goal that you know you have your travel wish list that you want to go to australia for three weeks this coming year because you felt all locked down for the last year because of the pandemic i want that built in now that might be the travel expenses of the next you know of the equivalent of what would be normally four years but if it's goal-based planning based upon your actual living expenses plus what you've built into the plan it's going to be much more dynamic and actually be able to absorb what's going on and reflect you better than just a static percentage that you're using kind of in the in the early stages of building wealth i think if you're in your 20s 30s 40s use the safe withdrawal rate to do the the napkin planning to see where you are in your retirement savings but if you actually get to the future and you're close to retirement that's you're kind of skipping some steps by just using that it's not very dynamic and you aren't into these weird situations where you're like well if it rained last thursday and the market went down how does that impact the the answer is is look the reality is us humans we're very emotional creatures i will tell you from my experience of managing money for going i mean i'm in my third decade people when markets are making money you're going to kick it up a notch you just naturally and that's what i like about a goals base is you're testing that to make sure that you're not getting out over your skis on your spending when markets go down naturally the human emotion is you're not even spending your four four and a half to five percent safe withdrawal rate because you're you're all nervous you're scared that's why the economy is typically tank in tandem with some other economic downturn in the fact that we all quit buying washing machines we all quit buying cars we all quit going on vacations at the same time it kind of is a pile on effect and that's what causes these market cycles it have a dynamic plan that takes into account and is good through all cycles of what's going on in the economic market and that's the big part of a retirement plan i'm amazed when i see comments where people tell me they're running their retirement plan with total market index like at 100 but they're maxing it they're having a two or three year cash reserves and they're thinking that's all they need in their diversification because you just don't know what you don't know on how scary it is when the market gets its teeth kicked in and you know that there's some point in the future you're going to have to go pull off of those assets and you can't just go work more because that's what happens when you're truly retired it's on more of your army of dollar bills than it is on your back your brains and your hands that's a scary psychological dynamic make sure your portfolio reflects where you are from a risk standpoint too because it's not always the nuts and bolts of what the math tells you to do it's also balancing out the important parts of the behavioral side of things love it love it love it all right this question is from nate he said speaking of saving for retirement i don't know what part of the show that he actually put that question in there but i think we're always speaking of saving for retirement if i can invest in both a roth ira and an hsa which investment choices parentheses grow stocks index funds dividend stocks should i make in each for maximum tax benefit so he's actually asking a really interesting question here one should the options that i use inside of an hsa and roth be similar or different and two what types of holdings does it make sense to hold in those types of accounts well first of all both of the they're two different accounts i love that they both have tax-free growth opportunities but they are completely different accounts meaning the roth from day one it's supposed to be a retirement account and it's also a tax-free growth retirement account so you want to you want to hit the government hard in a legal way by maximizing growth what i do is i typically use index funds that are either like a total market index an s p 500 you even put some international in there but you do need to always be very aware that the the blessing of long-term growth can also be a curse in the fact that if you're too aggressive you don't get to deduct the loss right so don't go so far out on the risk spectrum that you're you're speculating within your roth ira and losing money because that's not the same as investing in an aggressive way so be very mindful of that hsas are a little different you know we know that what is it 96 percent of people use hsas is just as clear as a year just clearing account for your medical expenses i think it's only four percent are using it where they're actually building enough balance that they then taking the money and investing it so they can truly maximize the triple tax advantage impact if you know that there's not a portion of that money that's going to be used for medical expenses in the near term i'm okay if you are because i will tell you my my hsa i buy index funds within it because i am keeping receipts getting reimbursement years in the future after my army of dollar bills in my hsa have built up but i think if you are using it as a slush fund you need to make sure you're balancing that need for what's coming because just because it's in an hsa doesn't mean you suspend what's long-term versus short-term in your analysis and look i'm i'm probably a little overly conservative in this one of the things that i do inside of my hsa is we end up maxing it out every year and i put the dollars to work and i too use index funds just sort of broad market exposure i do leave enough in my index in my hsa to cover my my deductible so even though i don't actually ever dip into those funds i just kind of like having it there i think that's not a horrible thing to do one it allows you to immediately satisfy step one of uh financial operations but i just leave that amount in cash should i ever need to get to it for some specific reason and then i invest the rest across broad index funds now uh if if you had like just something to think about and this hit me right now uh they're both tax free intented accounts like they should be tax-free you said something interesting got my mind racing the roth starts that way the hsa ends that way assuming that you have qualified medical expenses but let's say that you decided oh man i know that this stock i'm going to make one up is just going to kill it it's going to go up i don't know like maybe it's going to make a thousand percent in one year you ever heard of a stock to do that that's speculating though i'm saying you would never do that but if you were going to hold a growth asset or a growth portfolio a growth mutual fund or something that you thought had a lot of growth potential i would err towards holding that in the roth as opposed to the hsa because remember after 65 if you don't have medical expenses hsa can turn into a closet retirement account but you do have to pay ordinary income tax when you pull the money out roth stays tax free forever so in terms of like how you think about the risk profile of those two buckets i would make that slight differentiation i do because i like just nerding out and we like you know playing like we're like you know a riff rhythm band i was thinking fish you know or why panic you know something like that and the fact that what i also like is that thinking from a tax deduction because i love what you just said about you know roth is where you really go to stick it on the growth assets also in the short term don't forget the deductibility what's great about hsas is that you get the tax deduction on your contribution to those accounts as well whereas the roth is always after tax with the contributions so really powerful stuff there i like that we hit that hard uh you want to answer an unanswerable question we just skip over that one i mean i'd like to hear what the unanswerable question is this is from wombat joe which is just an amazing name oh man he probably has a tiki bar he says uh makes makes some probably uh pain killers by the beach if he does have a tiki bar then this is going to be hilarious question uh because this tiki bar has done very well because my company is about to go ipo okay uh that means it's about to go public there's going to be an initial he's selling his painkillers that's right that's right and it will be half my net worth okay how fast and how much should i sell dropped to 10 of my portfolio immediately so as soon as i can sell you know i hear you guys say that dropped to 25 over six months and he didn't write this i'm saying hey mondays give me a prescription for exactly how i should approach this so wombat joe first of all love your painkillers just the right mix of coconut with the pineapple but but no in reality here's the thing his situation because it is it is answerable but it's answerable for a client sure because i will tell you look we don't want you to have your working capital as well as you know your investment capital all tied up to the exact same company because that is a recipe for disaster if things go horrible but it happens all the time i mean we work with executives we work with people have just tons of rsu's stock options and other things and if you if you followed this this is why you have to be careful giving just broad-based advice is because somebody who has seven figures of these things because they are in an executive position it's practically impossible for them to unload all of the assets to get it down to 10 percent and and truthfully it might not even be practical from what's in their best interest for building a retirement plan and financial independence so i hate once again answering a question with a question but i think that this is one of those very personalized very special situations where you're working through a dynamic plan you know for some people it might make sense yeah immediately you go liquidate 90 percent especially if it was just a few thousand dollars because you don't want to have that risk but for somebody who's got such a concentration you got to be a little more dynamic you got to be a little more creative you got to take a lot more financial planning into account to get to the correct answer for that individual i love it i agree with that answer wholeheartedly can i say something just a little bit different because there's an unanswerable question it's an unanswerable so that means uh i can do that one of the things that i think is really interesting is that most often when we make financial decisions we are comfortable not being a hundred percent right so long as we can assure ourselves that we're not going to be 100 wrong well one of the things when you work for a company and you put in your blood and your sweat and your tears and the company's done well you probably have a lot of confidence that company is going to continue to do well you've put in the hard work and there's a good chance that it might a lot of companies go ipo and the company will still advance and will still grow and will still progress and likely it would be rewarding for you to be a shareholder for you to be an owner for you to have that exposure as the company grows so one of the things that i love talking to my executive clients about when they have this sort of thing happen is just like we never like to take a lump sum of cash and just dump it in the market all at once because there's a chance we could be right there's a chance we could be wrong we like to dollar cost average again we like to slowly and steadily like ease it in on life-changing on life-changing sums well if this ipo amount is a big life-changing sum you're gonna have this exposure you already mentioned you gotta take into account the tax situation but i love the idea of divesting your exposure systematically if it makes sense for you to do that so that way every month you are capturing some of that growth capturing some of that opportunity decreasing your exposure but as the portfol as the company as the as the stock does well you still participate in some of that growth now what this requires is likely some dynamic divesting so maybe i want to start by selling twenty thousand dollars a month but if the stock keeps going up i might wanna increase that to forty thousand or fifty thousand or you have to figure out the numbers that make sense for you i like removing the emotion from it because this will happen guaranteed every time if you say i'm going to sell ninety percent of it the day that it becomes available stock market's gonna open that morning be like well i'll start now or do i sell in the well the market's down a little bit i'm going to wait i'm going to wait i'm going to do this afternoon afternoon well it's up it's going to keep going now and it just becomes an incredibly emotional decision so if you can put some parameters around removing the emotion it's going to set you up better for long-term success in my opinion i completely concur uh i love it um all right this next question is from bruce bombasarro it's a really cool name bruce he says hey good morning brian bo question on emergency fund savings in addition to three to six months of expenses how much should we float for recurring monthly expenses i'm going to reframe this question a little bit because i think this is what he's asking uh and i only want us to answer this because i've done this wrong so many times i think you've matured past it uh but i do this i i recently did this wrong and i've changed my ways so i'm a proponent of like the two fund cash the two account cash approach where i've got a checking account and i have my savings account i keep all of my emergency reserves my three to six months in my savings account but i also leave a buffer and some cushion in the checking account i think what he's asking is how much of a buffer of a cushion should i leave in my checking account because i think the tendency for financial mutants is to try to maximize every single penny and so they know that i want exactly six months of expenses and i want to have exactly that amount and the highest yield savings i can get it in and not in the checking account paying me nothing his question is is is that a good idea or perhaps how should i better approach that decision what's funny is i do think us financial mutants we all are wired very similarly and that we want to maximization is so important to us and so that's what you know probably your clearing bank account is paying you nothing so that's the account that you're writing the checks paying your bills out of if it's especially if it's a local brick and mortar they're not gonna pay you anything so you're trying to keep that thing as lean as possible to get your money your savings over into that high yield account to maximize each dollar so you're right so you're trying to figure out how much float do i keep in my clearing account here's the way i do it and look when i was younger and i think that bo you're graduating through this i kept that thing super super large so lean to a point that it was dangerous because that's how you get those knuckleheaded bank transaction fees where you have to call and say put your hat in your hand and go ho-hum sorry i screwed up can you refund me the 35 overdraft fee and all these other things it just creates a lot of headache for yourself so what i've actually created i don't it's crazy how my brain does create systems just automatically i look at my monthly expenses and i ask myself what is the most expensive check or expense that will be drafted out of my account each month if your mortgage is your most expensive spent expense use that or if you're if you like invest on the 15th and it's you know six thousand dollars a month use that number whatever the biggest pull off of your account is each month you know use that as at least your baseline because there's probably enough spread between the next time there's a big pull if you always keep at least that minimum amount you run a much less likelihood that you'll run into a knuckleheaded decision that that causes you the embarrassment of running that account to zero yeah because then you have to call the bank and say hey uh ah my account got overdrafted but i promise i'm not broke no look at my savings account and they'll tell you oh we'll just link them and it'll protect you i do the same thing i don't for me personally because i've screwed this up so often i do more than just that one biggest i do about a month of what i know my automatic withdrawal because i know by the time that the next pay cycle hits it'll replenish so i know the things that come out automatically i just leave that much in there and then do you leave one month of income in there uh it's not really a month of income it's a month of automatic withdrawals so not including like payments that i manually make but stuff i know like automatic savings or uh you know 529 contributions whatever the thing is that flows out whatever the things that are said to happen automatically because then i know there's some manual stuff like writing checks and you know so that kind of floats me a little bit well i think because here's another thing is this just you saying that makes me think of another facet that we do need to take into account if you are doing a joint account that there's two or more than two people spending out of the same account but you're the funder of it make sure you know what the behavior of your partner that's also pulling off that account because i imagine that's having some influence on that as well so venmo you no you silly silly video that's actually so that's a great segue way to set that one up tee it up for me this is from kevin kevin said hey how do you know when to combine finances we've been married for three years and we're doing fine is there a reason to do so or simply just make each other dependence on the other's account should we bring finances together he's asking two questions i think so we bring finances together first question second question should we bring accounts together yeah look we've covered this before but i think it's always an important one it really depends i think the default answer is i want you to be a combined household but i also understand there's some some you know caveats if you're a later marriage a second or third marriage um there's going to be some differences there on meaning that you might be bringing in assets or maybe you come from family money or you have family resources that have been provided to you those type of situations because there is some legal protections there that i think we always have to pay respect that those accounts might need to be separate so they saved their legal protections i do like the thought though that once a couple is married you have you open a joint account together you have all the income sources for that couple flow into that joint account and that is the account that you all start making together then it's easier like if you come into the marriage both broke then you there's no reason that y'all should have separate accounts because i think in the long term that could create some weird dynamics within the relationship um you know if one especially if one is making a lot more than the other you never want to get into a type of situation i know in my house we are never ever ever and i would never do this to my wife talk about who makes the money sure because i think that that is a very disrespectful thing to the dynamic of the marriage and the respect within the relationship and the love and the relationship so it's better for me to have all the money come into one account so we can treat it as a duo and we can make joint decisions on it because it's not i'm just because i am the the financial guy of the household doesn't mean that i should be it's not an authoritarian type relationship where i get to tell my wife what to do we all know who the boss is i mean my wife is the boss so there's no reason to create some weird power structure there so i do like if you're married have a joint account you can pay you know respect to the legal dynamics of if you come into the relationship with assets that need to be separated but i do think income coming into the relationship should go into a joint account and you all should manage that together but perhaps you decide to do it separately because we have clients who do that uh you know if you decide to keep your account separate we do think you should have one solid goal in place one financial plan in place that even if you have multiple accounts you both are working towards these same common goals if you say hey i've got my accounts and i'm doing my thing and you have your accounts and you're doing your thing there's a thing you're going to be really inefficiently allocated both from an investment risk standpoint as well as from a tax standpoint so if you can at least take into consideration all of the household accounts you're going to start on much more solid footing but i agree with you brian i think bringing it together jointly makes a lot of sense where possible and then i would say walk walk a mile in somebody else's shoes if you're the the one that makes in the relationship you're the one that makes more money put yourself in your spouse's situation and think of how you to feel emotionally if you had to go to that spouse every time you need money it's just it's just not the greatest thing in the world and i think that just be healthy about that because it's these type of things that i think creep into a relationship and concrete and and kind of you know create you know essentially you're turning a scratch into something that gets infected and then it festers and then it can really create a much bigger problem in the relationship if you don't address it on the front end this next question is from kerry kerry said this is from youtube i recently rolled over an old 401k to an ira it sold the old assets and moved as cash do i need to dollar cost average it into a new investment and i think the or lump sum so i had a 401k that was invested 401k company sold it transferred cash how should i approach putting that money back to work do a dollar cost average it or do i lump sum invested wow what a great you know what it's funny is that we know this because we do this all the time but i don't remember i've ever answered this question on a q a shows and this is a great question um because we do talk about lifetime if you get a huge chunk of money that is life-changing money you should dollar cost average it but there is a component in this situation that is not respected in that in the fact that this money was fully invested only because there's a change of custodians or the account structure that it was liquidated and then rolled over in cash form should you now dollar cost average it i think the answer is no you have to look at where the the source funds came from and the fact that if this was another 401k that's now into an ra rollover put that money to work because it was fully invested when it was in the 401k put it to work now in the ira don't let the lump sum it's a lot different than somebody who sold a business so it's a lot different if somebody sold a big chunk of land or they won the lottery that money the source is completely different than when it's coming from a rollover or even if you're someone who is retiring and perhaps you got a pension payout right so it was these pensionable funds and then it comes as a big lump sum i'd argue that falls into the life-changing sum category where dollar cost averaging likely makes sense because in a pension it was a defined benefit not necessarily invest in your discretion it's a little bit different i agree completely if it comes from fully invested posture it should return to a fully invested posture you know you never know what question you would get in a q a because that's a that's a great nuance question that we we deal with things like that all the time carrie he really liked your question uh this next one is from bill he said potentially retiring in the parentheses or being retired this year tips or suggestions on things to ensure i don't drop the ball my last year of working so i'm thinking about entering into retirement or potentially i'm going into retirement are there things i ought to be thinking about or maybe i don't know shows i should go listen to well that's exactly what i was just saying we just did a show on we actually have a checklist is that is that checklist on our deliverables page oh no retirement check yes it's on the deliverables yeah go to moneyguy.com resources we actually have a checklist for things you should consider before you retire um and and i don't we don't mind sharing a few of those things but i think the biggest things and i'll talk in broad sense is to make sure you actually know what you're retiring to that's the biggest we talk you know we always talk about that because i think so many of us financial mutants we're savers we build we're creators and then we don't know how to be spenders we don't know how to enjoy ourselves outside of the workforce because the workforce has defined us for so long so definitely know what you're retiring too yeah i was going to say one of the best things and we encoura we encourage all of our folks to do this you should test run you should test drive retirement in your last year or couple years of working so whatever you think you're going to live off of in retirement your year immediately before retirement or future before retirement you ought to make sure your household actually can live off of that sum if there are hobbies you think you want to pursue in retirement you should find a way to begin pursuing some of those hobbies before retirement to see if you actually like that you know you may say hey i want to learn how to surf when i retire well if you've never been to the beach before and all of a sudden you go to the beach your first day retirement turns out you hate salt water maybe surfing is not going to be your thing so if you can start test driving some of that stuff it's going to make the transition a likely once in a lifetime transition move much more smoothly all right this next question is from benjamin benjamin said my company has a 401k program but i don't like the options we should even talk about that for a moment they most don't beat inflation one tracks the s p and she goes to to set up an account on my own i can make my own choices and it costs 200 a year is it worth it so it sounds like benjamin has a 401k that has what's called a self-directed investment option go open a brokerage account and choose his own investments from the whole investment universe but there's a 200 a year annual fee is it worth it for benjamin to do that and what things should he think about well there's a very easy break even analysis that benjamin could do is that you just said something that was very important there as you said you don't like the investment options that are in your current plan because they're too expensive you could go figure out what does it cost the internal operating expenses plus whatever commissions or fees that the whoever is structured your retirement plan charges and then go do an apples-to-apples analysis with the the brokerage link or the self-directed option so that you can see now look they might have a fee still associated with so pay attention to any fees that are tied to that above and beyond the 200 like if there's an assets under management or something like that but doing apples to apples analysis and whatever that spread is you can then divide that by whatever the account balance is and figure out where you break even and if your account is bigger than that you can very easily see if you've paid the 200. absolutely uh one of the cautionary tales i would say though because we see this a lot is people say oh man the investment options have my 401k are good i'm going to go open up this brokerage account and then they lose their mind they start buying all kinds of crazy stuff inside the account just because you can just because you have access to everything doesn't mean you need to go start buying you know triple levered etfs in your 401k that's probably not a prudent investment strategy for you so before you do it have an idea of what it is you're looking for oh i am looking for low cost index funds broad diversification not trying to go day trade penny stocks inside of my retirement account i do have one key component though that i want to make sure is not lost we we have people all the time come to us with cruddy retirement plans and i always think of um you know i was going to say a country song but i'll just i'll just keep it simple and the fact that sometimes you have to love the one you're with and the fact that if their employer has a match i'm talking about free money guys i'm talking about you either make 50 or 100 if they do a dollar for dollar match that's guaranteed rate of return to do the match so i don't care how bad or stinky the investment options are if you have free employer money don't sit on the sidelines just because you're annoyed that their golf person hooked them up with a bad retirement plan because we see that situation take advantage of that free money there's definitely a lot of benefits to doing an employer plan even if it has bad investment options yeah i mean if you take the free money plus the potential tax savings there's you can overcome high expenses and poor investment options you just gotta again like you said you gotta break up the spreadsheet and do the analysis um all right this is from uh uh this isn't a real word it's uh it's just it's from a guy this is from this is a youtube comment i'm just gonna tell it it says does that mean it's an explicit nature of their name if you read it out loud go ahead no don't don't try to go go ahead i'm 42 and earn too much to contribute to a roth ira i have a rollover ira but my wife only has a roth ira can i do backdoor roth just for my wife or does my ira impact the roth conversion that's a great great that is a great question here's the cool thing about roth conversion strategies the government even though you're a married household the government treats ira and retirement accounts as you are separate individuals meaning that you know think about when you do your tax return the way you even let the government know about your iras is there's a form that you should be filing with your taxes by the way but a lot of times preparers don't do it it's called form 8606 that will show your history with your retirement accounts and the basis if there is any how much is pre-tax and so forth so yes the short answer is without a doubt you have ira assets like a rollover ra and since there's a pro rata rule to doing roth conversions meaning you could contribute to the traditional ira but when it came time to turn it into a roth a lot of it would turn out to be taxable because you have these ira rollover assets as of 12 31 of the previous year that blows it up it doesn't necessarily work for you but your wife has zero ira assets to set up her existing roth ira she is a perfect candidate where you make a traditional ira contribution and then you can convert it to a roth ira and there should not be any tax consequences because you're going to pay it with after tax non-deductible contributions and then converting it she has no other ira assets so the pro-rata rule doesn't impact it it's perfect yeah one of the things i'm amazed by that i feel like sometimes we uh we just forget to sometimes share things that are sort of second nature to us if you are married and your spouse does not work and does not does not generate income they can still make ira contributions so long as that is you make over 12 000 or 14 000 depending on your age per year so you can actually do a spousal ira contribution even for a spouse that doesn't work i'm amazed at how often i talk to a prospect or a client they're like oh no my wife doesn't work they can't do that i'm like no no yeah your spouse can do that they can contribute based on your work record based on your earnings which i think is really neat but i will tell you from income limitations like even seeing if you're eligible for roth even though your spouse can make contributions even if they don't have earned income they look at your household income so do be aware of where those income limits are this next question is from lori lori says i have a modest rollover ira that i'd like to convert to roth funds i'm in my early 40s and figure it would be worth it if i have 20 or more years for it to grow what's the best way to do that well one most custodians make roth conversions pretty easily they actually have an option when you do a distribution from your ira rollover to your roth it'll say hey are you doing a roth conversion great do you want to withhold any taxes our thought is no you don't want to withhold the taxes you want to pay with outside money to be able to do that but this is the question that i think you really have to answer laurie as to whether this makes sense when you do a roth conversion you're going to pay income tax on that so if you are in a lower tax bracket and you can pay taxes in one of the lower brackets right now and that money can grow for the next 20 30 40 perhaps it does make sense for you but only if when you get to retirement when you get later on your tax rate is higher if your tax rate is the same odds are it's going to be a wash it will neither have been more advantageous or less advantageous due to the conversion conversions make sense when there's an arbitrage opportunity now there are other estate planning thoughts that you can have as it relates to roth but that's really the thing you have to figure out is where i am now going to be higher or lower from an income tax bracket perspective than where i think i'll be when i actually go to pull these dollars out yeah i think it actually now the key thing the key hurdle is you have to have outside assets i don't want you using corpus to pay the taxes because that blows up the whole thought process i think it's a pretty easy decision if you're in that low 12 tax bracket to consider that because if you even if you add your state income taxes to 12 that's probably a still historically low tax rate to consider but when you get into higher tax brackets meaning like you you get into i mean i want to say like the 24 and then you add the state income tax on top of it your marginal rates are now getting well into the 30 range and the thought is is when you retire yes you'll be in a lower tax bracket and a lot of states don't even charge you state income tax on your retirement distributions if you're in one of those favor tax states you've got to take all that into account so it's it's definitely one of those things make sure you have enough outside assets make sure you're in those lower income tax brackets to where it is justifiable to do the roth conversion now if you check those boxes have at it i think it's a great thing i i think that was your ques if your question was actually about logistics uh most of them will allow you to online but if you're ever nervous call if you're at a vanguard or fidelity or swab or fill in the blank call the provider the custodian that houses your assets and ask them for the process it'll either be an electronic thing online or some paperwork you have to fill out but you don't want to screw it up and make sure that when you do this you notify your tax preparer or if you self-prepare you understand the right ways to do that on your tax return and reflect it so that it's taxed in the appropriate manner this next question is from mary she says would you recommend a target retirement index fund in a taxable brokerage account or just in tax deferred and tax advantage accounts it sounds like mary has heard us talk about tax location and some of the benefits that exist there so her question is well does it make sense to hold that in a taxable account because of the types of holdings that it has i think while you're saving and starting out i'm talking about accounts before you really get to four to five hundred thousand in assets total assets i'm talking about all your buckets together yeah don't don't sweat the small stuff don't outsmart yourself focus on an index target retirement fund in all the different pots i'm okay if you're buying that in your roth ira i'm okay if you're buying your after-tax i'm okay if you're buying it in your 401k and even hsa on the assets that you're letting work where it runs into issues is once you graduate past you get to 500 600 million dollars in assets yeah you want to you want to graduate beyond index target retirement funds because now you need a little more customization you're a little more sophisticated where you want to be able to harvest losses in your taxable accounts you want to be able to do charitable contributions and really hit the most appreciated assets that you can give away you want to start focusing on the bucket strategy of asset location of putting you know like your tax defer your ordinary income producing assets like bonds and your tax deferred your growth assets and your roth and then your dividend paying and your liquid assets in your after tax all that comes into place and the sophistication's there but don't sweat that stuff until you built up a level and that's where guys this is this is why i love the beauty of what we've created here with the money guy show we know we give it away to you with the advice because when you get to all those things i just mentioned on when you've outgrown the index target retirement funds that's where the abundance cycle comes in you're going to say holy cow that's a lot more stuff than i ever thought would need to go into this what is perceived as a simple decision maybe i need a co-pilot and that's when hopefully you'll consider working with a financial advisor and we work with people all across the country i love it love it love it love it all right this question is from gabe morrell he says what kind of investment strategy would you recommend for cash savings beyond an emergency fund i've avoided allocating uh i've avoided i know i'm sorry what kind of investments would you recommend for cash boundary funds this would go towards larger life purchases such as a car a wedding house upgrades et cetera so i've got my emergency fund my three to six months but there's some other stuff i want to save for down payment on a house or a wedding or a car where should i park that cash and how should i think about growing that money until i make that purchase i mean if the money is needed within three to five you know less than three to five years it's gonna be boring it's gonna be a high yield savings account i mean i hate to say it i mean because we're all looking we all are the anemic interest rates that we're all making on our savings but i can tell you guys it's important to have that liquidity i mean because opportunities will also come about i mean i get picked on because i keep a little extra cash why are you looking at me like i know that picks on you you pick on me but then notice when we've had opportunities that pop up on big life decisions cash has been helpful man it is just i feel like a little mini warren buffett because if you have enough liquidity it doesn't mean that you hoard enough cash that you're you're not you're jeopardizing how much you're saving for long-term success you know that 25 or greater but if there is nothing wrong with keeping some liquidity to be powder money for striking when opportunities are awesome that's an important thing that i think is not talked about as well but unfortunately i think you're probably going to be in a high yield savings if it's anything from three to five years now once you get past five years this is where bo kind of gets excited because this is where he picks on me about mortgages and other things put that money to work that's it we i have people ask all the time hey i i wanna save for a new car but i don't know when i'm gonna need it i love my car but you know i don't know if i'm gonna replace it in three years or four years or five years or hey i really want to save for a wedding for my kids but they just can't get it together i keep waiting because i'm ready for a kid i'm ready for the in-laws and i'm ready for grandbabies and i just but you know i'm saving but i don't know exactly when it's going to happen we love when it comes to building for longer intermediate term goals like that there's nothing wrong with a very conservative dollar cost averaging strategy to do that you know one of the things we'll talk about is just like we recommend target retirement funds you don't have to call them target retirement funds you can call them target date funds meaning if you think that you might have something that's going to happen in the next 10 years there's nothing wrong with dollar cost averaging into a target date fund that's 10 years out even though it doesn't tie to your retirement it might tie to when that specific money might be needed we see grandparents do this all the time for grandchildren they'll pick a target index fund that targets age 18 for the kids not retirement because it allows it to be more intermediate term money there's nothing wrong with doing that but i agree wholeheartedly with brian if there's something inside the next three to five years cash as painful it is as it is in this moment is king and it's something that you got to do guys thank you so much for letting us answer these questions for you thanks so much for letting us be part of your financial journey if you've not gone out to the website go check out moneyguy.com we have a resource page where you can download our food deliverable you can download our retirement checklist you can download the tax spreadsheet you can download all the things we put out there to help you take your finances to the next level moneygot team out you

Channel: The Money Guy Show

Views: 38,281

Rating: 4.9197707 out of 5

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance

Id: UUBgAOX0aSQ

Length: 74min 50sec (4490 seconds)

Published: Tue Mar 02 2021