What Should I Do If My 401(k) Sucks?

Brian Preston
What do you do when your 401K just is not that good? Brian, I am so excited because we get to answer questions like that. Hey, I have this financial thing going on in my life. How do I approach it? How do I attack it?

Bo Hanson
How do I figure out how to navigate that? That's one of the things that we love doing here at the money guy show and we love being able to speak into the things that truly matter to you guys so that right now we have the team out in the wings collecting your question. Make sure you get them in the chat. And with that, I'm going to throw it over to you, producer Reby. Oh, yeah, we've got a question to kick us off from Jake.

Reby Hardy
He says, I have a horrible 401K. My employer doesn't give any match and the fees are close to 1.5%. I've tried to talk to HR about switching providers, but they won't budge. Should I get the tax deduction and then roll the money immediately into an IRA or just skip it and contribute to a tax taxable brokerage for now. What do you think?

What do you do if you're four hundred one k? I want to make sure. High fees. I heard the high fees. What was the other parts that no match.

No match. That's the big one and a half percent annual fee. Because we get this question all the time, people will say, hey, I don't have a match. Should I just skip the know you guys say, Brian, we hold up the financial order of operations. I know you guys say, hey, in step two, get that free employer match.

Bo Hanson
But if I don't have that, does that mean I should just forego the 401K? Well, not necessarily, but because we believe that 401 ks are still amazing investment vehicles strictly because of the tax savings available to you, because they allow you to choose, do I want to save taxes now by making pre tax contributions or do I want to save taxes in the future by being able to make Roth contributions? Well, that's a huge benefit to 401s. Not even, oh, I thought you probably said not even taking into account the match or the fees or anything like that. So we still think 401 ks are a fantastic tool for you to be able to use.

Now, if you are in this situation where you have a bad one, how do you figure out how you navigate? How do you figure out how you make lemons out of lemonade inside of a bad 401? Yeah, but you said the magical word kind of like Candyman, candyman, Candyman, Candyman or whatever. You said foo. Okay, but you didn't give the context of if there's no employer match, this now, instead of it being a step two consideration, it's more of a step six consideration.

Brian Preston
Because what I don't want anybody listening who's got high interest credit card debt and they're paying 20 something percent on their credit card. And then here we still like 401 ks. We like 401 ks that give you $0.50 on the dollar. That's a 50% guaranteed rate of return. I like 401 ks that give you dollar for dollar matches up to 6% of your pay.

That's like a hundred percent guaranteed rate of return. That's why you've got to get in there and get that guaranteed 50 and 100% rate of return over your 20% high interest credit card debt. If it's not good in those terms now, it's you, you take it into consideration on step six, max out your retirement options. But even then, it's one of those things where you have to really look into, dive into how bad are the fees, how bad are the investments? Because what I thought before I knew what the question was going to be, I thought he was going to say something like his employer gives him a match.

Like, well, you have to love the one you're with even though, because that 50%, that $0.50 on the dollar, that dollar for dollar, that 50 or 100% rate of return, so good. But when I hear a plan that has high fees, no match, this is one bo that somebody needs to go start advocating to their employer, hey, what do we do to kind of jumpstart this 401K? Do you realize how much money that, you know, you could encourage your employees to save? Do you realize how much money the government encourages you to save for yourself? If you structure this 401K right, try to make this a win win for both you, the employees, as well as for the employer, because somebody is missing a huge opportunity, Jake.

And you, if you structure this right, it could really change the potential and opportunity for everybody at your workplace. Well, and it sounds like Jake has been doing that. Didn't he say the last part of his question? I've been trying to tell HR, I've been communicating with him, I'm getting nothing back. Getting nothing back.

Reby Hardy
So he's really left with the decision like what now? What do I do? And so I would argue, even with one and a half percent fees, which is not great if you are like a higher income individual, and maybe between your federal and your state taxes, you're paying like 30% taxes, I would argue that being able to save 30% on your tax, putting a dollar in and saving $0.30 will pay for many, many, many, many years of one and a half percent fee. So it is still advantageous in that realm. I think the other thing that you can do if HR is continuing to just hit you with a roadblock.

Bo Hanson
Roadblock. Roadblock is you kind of look at it and you figure out, how do I love the one that I'm with? How do I figure out, are there any half decent, good investment options? Maybe there's a very maybe higher expense than I want it to be, but there's an S and P 500 or a low cost index option. And inside of this account, I know I'm going to be very concentrated there.

And then with my other investment accounts, my other options there, I might diversify so I can build a robust portfolio. But it does kind of stink to be stuck in a plan where they are unwilling to change. Now, he did ask one other thing. I think he said, hey, should I just put money in, take the deduction, and immediately roll it over to an IRA rollover? If that's an option inside of your plan, maybe.

Maybe you could, you know, twice a year or once a year, put money into the roll it in. But two things to think about, that'd. Be an odd, Oddity. I mean, most, most plans don't allow in service distribution. That's right.

Your plan would have to make that available, and you'd have to make sure that doing so didn't prohibit any other types of planning you might do. Because if you have a, you roll it into an IRA, and maybe you're like a backdoor Roth contributor by having that new IRA. Now, you can't do that type of strategy. So you just want to make sure you understand the ins and outs of why that may or may not make sense, even if it was something that was available to you. Yeah.

Brian Preston
And Bo and I are kind of saying the same thing also in the fact that we're not against, especially step six of the financial order of operations. But since step six is after step five, this is after Jake, you've hopefully already loading up that Roth IRa is, assuming your income allows for it. And then also if you have a high deductible health plan, that you're also checking into that health savings account, because we want to make sure we're taking advantage of all the tax free growth opportunities before we pay attention to the high income tax deduction opportunity, especially if you're with a bad 401k plan. Yep. Awesome.

Reby Hardy
Well, Jake, thank you for the question. Hope that helps. Okay, this next one. Lots of people are noticing your Easter eggs. Yeah.

Brian Preston
Good. What? Nothing. Keep going. That part was for Brian.

Reby Hardy
I know what Mister eggs. I know what you said. I just was focused on this next question. Okay. So.

Brian Preston
Sorry. Okay. This next question has caused a lot of conversation, and so we've got to ask it. Okay. It's trending.

Reby Hardy
It's spicy. Mary asks, what is the money guy take on the Robinhood 3% IRA match and their new 3% cashback credit card? It seems hard to pass up as a mutant, but also too good to be true. So what do you guys think? All right, Brian, let me lay out kind of what's going on here for folks who have maybe been living under rock.

Bo Hanson
And then I want to kind of get your thoughts on how they should approach it. So Robinhood, this investment company, this trading platform, has come out with this promotion right now that if you roll money into an IRA, if you roll over a 401K or roll over an IRA or put money into their accounts right now, they'll give you a 3% match up until a certain date, April 30. Up until April 30. Right. They'll give you a 3% match.

So if you move $100 into an IRA, they will give you $3. That's the. The right math. Right. So you scale that up, 10,000, 10,0000 million dollars.

They're saying there are no caps on this, but after April 30, it does change, and they're going to give you a 3% match on contributions you make to the account. And that's going to continue on. Now, in the future, when you want to do this, it's going to drop down to 1%. So right now, in this April window, there is. It sounds like it's free money.

It sounds like if I move my money over, I put my money in here, I'm going to get 3%. Now, there are some catches and some caveats. How long the money has to be there. Robin Hood gold robin. Yeah.

You have to be a member, and it's what, either $5 a month or $50 a year in order to be able to unlock this benefit, but not incredibly cumbersome to get to. And then there's also this 3% credit card. Essentially, they're offering a credit card to. Is this to only gold members as well, where you can get 3% back on all purchases, 3% cash back, and so on the surface, you can join. The waitlist to get 3% back.

Brian Preston
It's not. It's not guaranteed you'll sign up. I can't get the card yet. And so on the surface, this sounds pretty awesome. It sounds like, oh, man, this is free money.

Bo Hanson
And the guys love free money. They talk about it all the time. Is this something that I should take advantage of, or is this something that maybe I should have some spidey sense going off on? What say you? There's a few things that hit me.

Brian Preston
Look, first, let's go with the positive win here. I love it when competition creates something that changes the marketplace or starts a dialogue, because you know that probably the other retail providers of investments, you know, even, even the big boys, the vanguards, the schwabs and the fidelities, they have to be paying attention to what Robinhood is doing. Because from a pr standpoint and discussion standpoint, this is everywhere. It's all over my Twitter feed. The first thoughts I had is, number one, will this last?

We have told cautionary tales because banks and financial institutions for years, decades, have been using bait and switch tactics where they'll, you know, I could think about high yield savings accounts. I've told you, be careful about chasing the highest yield. If you go to bankrate.com and look at the highest yield and you're like, man, this one is paying like a half a percent greater than everybody else. I've never heard of them, but they're FDIC insured. And you go do it, and then you might be surprised that six months in the future, their rate is half of even what the consistent brands are.

So this could potentially be a bait and switch marketing ploy to harvest assets and then go back to something that's more in line with everybody else. But we don't know yet. Not enough time has passed to know if this will stick around. The other thing that I thought about, and I did a deep dive on this, is that I don't know, because this had nothing to do with everything that's just come out here in 2024. I just know Robinhood in the past when we had the whole GameStop trading issues and then even before the GameStop issues and the lawsuits with the stock options, and there's been some unfortunate stress and other things for some users who didn't understand because they were in products that were way too complicated for where they were in their investment.

Knowledge is that I have known for a long time, because institutional investors talk, and I know some traders and others who work for big organizations, and they talk about it's not a secret. There was even an article that came out in CNBC in 2020 that Robinhood makes its money by the trades that its people place. And here's the crazy thing that you guys probably don't realize, is that Robinhood gets to charge a 35% premium to the market makers and those who pay them for their transactions. Um, because of the reputation that a lot of the investors that are buying on Robinhood are brand new. They're freshly minted investors.

Um, the. The word dumb money is used way too often, but it does mean that the people are probably a little green. And here's the numbers back in 2020. We haven't updated. This probably could be a great exercise.

This is all from SEC filings. Um, like, if you think about it, Robinhood on a stock trade gets paid, like $0.17 for every hundred shares. Schwab was $0.11. That's like 35% options. There's a reason they're pushing options is because that's, like, high $0.50, like $0.58 for every hundred shares versus Schwab.

It was like low thirties. It was like a 37 38% premium they were charging. This all leads me to say, and I'll give you the analogy of Hansel and Gretel, you know, we all know this childhood story where you had this house made of candy and baked goods and other things to attract children. And then once they got in, the witch essentially was trying to put the kids into the oven to eat them. So they lured them in to turn them into the product.

And that's kind of what Robin Hood, to a degree, has done in the past to make money, is that you are the product. It's kind of back to. I'll use the rounders saying, if you sit down at a table and you don't know who the fish is at the poker table, you're the fish. So, with all that said, I'm not against Robinhood, because this is not the only financial institution that does this, where you, the person, are the product and your trades and getting access to you is the product. Credit card companies do the exact same thing.

They give you all these incentives, they give you all these rewards and cash back and everything else, and trading vouchers to get you in, because there's this whole jeopardizing thing of paying 20 to 25, 30% interest rates on it. They also are not noble causes that they're offering you these rewards and trading. So as long as you go in, your eyes have to be wide open. I mean, don't do this while you're half asleep, because you'll find get yourself in a bad situation, but if you go into it with your eyes wide open, there's definitely some opportunities here. But I'm sitting back and waiting.

Cause I think it's just too early. I want to know is, is Robinhood maturing? And this is their way to get more market share and try to capture the excitement of. Because they're doing nothing any different than what your employer does with your matching contributions. That's what makes us so powerful.

But I need to see a little more history. I need to see a little more that the business model has evolved, because I want to know, are their people the products in a way that's 35% more than others? That's not a positive thing. Or is this just a moment in time? And you just need to be aware of the ins and outs.

Bo Hanson
We went around and casually asked a lot of our folks, hey, are you doing the Robinhood thing? Like free money? Are you doing it? And a lot of our folks said, no, I'm not doing. I'm not doing it.

And we said, why? And this was the general answer that we had. And we even asked some of our younger new associates and they said, I already have a good plan in place. I don't really want to, like, jack up the plan. I've already got my roth on autopilot.

I'm already doing this. And I think that's great because we know that personal finance is 80% behavioral. So if you're already set up in such a way where you've got your accounts open and you're saving, and you're focusing on the things you should be focusing on, and you're not majoring in the minors, you're not getting lost in the weeds, I think that's great. I don't think that the Robinhood thing has to be something that you jump on or else you're going to miss out on opportunity, because I just don't think the opportunity is all that attractive unless you are someone who's thinking, oh, hey, I'm just trying to, look, I'm trying to figure out, where do I start? How do I sign up?

I know I'm going to buy low cost ETF indices. I'm not going to be trading. Then, yeah, maybe it's a great solution, but for folks who already have a plan in place, I don't know that this is going to, like, be some magical thing that you ought to upset your entire Apple card on just to try to go grab 3%. Yeah. Another thing they don't offer mutual funds.

Brian Preston
This is one of those things. If this, if. When we turn this into a highlight, if this does well, I have even more thoughts on the behavioral stuff, as well as how you use this and some of the risks that also go into gamifying trading or getting you into more complicated products before maybe even have the experience or knowledge to do it. So if this flip does well, or if you, if you guys think this is something you'd like to do a deeper dive on, let us know in the comments. And great question.

Reby Hardy
Fantastic. Well, there you have it. The money guy take on Robinhood. As of today. Love it.

All right. Next question is from Connor. He says, good morning, longtime listener, first time caller. I just opened a Roth IRA through fidelity. Nice.

And plan to maximize contributions this year. Can you walk through the pros and cons of dollar cost averaging?

Bo Hanson
Well, here's the con of dollar cost averaging. If the market goes up this year, you will have left some money on the table. Here's the pro of dollar cost averaging. If the market goes down this year, you bought in at lower and lower and lower levels. So what we like about dollar cost averaging is that it prevents you from being 100% right or 100% wrong.

It removes a lot of the emotion. I have so many, by the way. For those of you that don't know, let's do a quick vocabulary. Dollar cost averaging is just simply the process of buying in a certain amount on a certain time period. So a lot of people will do $100 a month into the Roth IRA.

That would be dollar cost averaging into the Roth IRa. And it sounds like that's what Conor wants to do. I have had so many young people in my life that I get them juiced on these Roth IRas. I'm like, oh, you got to do it. You got to do it.

You got to do it. And I convinced them maybe they just got their tax refund. Maybe they just got some bonus money or whatever, like, hey, go do your roth. And what they would do. And this happened a lot back in like 2000, 729, I'd get them to max out their Roth.

They'd put back then it was, what, $4,000 or $5,000? And a year later, a year later, they'd be like, bo, what in the world did you tell me to do? I put in $5,000, and all you did was make me turn 5000 into 4500. You're an idiot. And I'm like, ah, man.

Okay, maybe. So. Now what I tell people to do is I no longer tell them to max out their roths, because I tell them to. Dollar cost average. Hey, if you're going to put 6000 in a Roth, or 7000 this year, divide that by twelve and start doing that on a monthly basis, because we know that, what, eight out of every ten years market is up just about right, you have two downturns.

Well, odds are if the market's mostly going up and you can be dollar cost averaging, you're going to see some growth in your account, which will hopefully light the fire to allow you to keep doing it. What I worry about is someone who just happens to put their money in at the wrong time, and the market falls for the rest of the year, falls over the next twelve months, and they lose their fervor for investing. That's why I like dollar cost averaging. It's less about mathematics and less about like the ad, the optimal investment strategy. And I think it's more about the behavioral.

Brian Preston
Yeah, you just kind of the part, I was going to say, to make this really simplified mathematically, it's always better to lump sum. However, in this instance, I think behavior is greater than the math. And what I mean by that is, is that I want you. Creating automated wealth is inevitable wealth, because I think the hardest part for people is just to stay disciplined, to be consistent, and just keep buying, no matter what's going on in this crazy world that we live in. And that's what dollar cost averaging will do for you.

So I. Cause you just once you set up your monthly amount or quarterly amount, whatever period that you're using, it's just you don't have to use your brainpower anymore. It's all set up. You won't even miss the money after you get used to it and it kind of gets processed through. And as you get pay raises, I'd encourage you to increase your savings and investments.

But it's just done. Whereas I know if you have to actually take the action of starting the investment, funding the investment, and putting in there lot of behavioral traps that you could fall into, that you do it once and then you don't do it every year. And that's the part I don't like. Now look, there's a. Let me put the asterisk disclaimer.

So I think we're all agreeing. Behavior trumps the math of this. So do dollar cost averaging with the asterisk that if you start making enough money that you can't, you might be phasing out on the income threshold for making roth contributions. Then I'd prefer you to be doing lump sum. Unfortunately, taxes do cause you to complicate your life because it's kind of hard to unwind these contributions.

If you put the money in and then you make too much money, you have to bring it back out. It just adds a level of complexity that you'll be like, man, I just wish I would have waited until looked at my income numbers and then funded it. Because remember, you always have, from January to April 15, to actually fund that Roth for the previous year. It's better to wait and see the numbers to get it. Measure twice, cut once on it.

It's another one of those examples that the more successful you get, the more complicated and things that come into your life. But in the beginning, the behavior is what's important. So do the dollar cost averaging, so you can not waste any more time and create that inevitable wealth through automation. Love it. Awesome, Connor, thanks for being here.

Reby Hardy
And we appreciate your question. I saw a comment come through, like, man, I can't believe Brian is able to write on that pad. I can't believe that his hand is still working. Seems like some folks have been, like, dialed into our. What you've been working on these past few days.

Brian Preston
We had a meeting yesterday where it was. It was the. All the people in the hiring team. And I told. I just apologized to him.

I said, look, I'm listening to everything you say, but during this entire meeting, I will be signing these cards because I have. I think I have. What are those four, though? Brian? What are those cards for, Brian?

So everybody who took advantage was of our February promotion of pre ordering millionaire mission. Or. Or mission. It's everywhere. Yeah.

I mean, we have tried to. Or millionaire mission. You know, it's. It literally is everywhere right now. I've got.

I've. So we sold thousands of copies, and I am super thankful. So you don't. You don't hear me complaining. I'm very excited.

And I even found myself, as I'm doing, you know, doing the signatures, it's. It's kind of an act of love, and I'm actually doing it. You know, that's another thing. I think a lot of people, because there's automated signature things, there's even services where I could submit it, stamps it. I could have done.

I'm literally. And that's why if you see a smudge or something on there, it's me. If you look at this little pinky right now, there's blue on it right now. So, I mean, it is 100% me. My fingerprints are probably on every one of these things because I'm holding it as I sign it so it doesn't slide around.

So it's. You're getting a moment in time that I'm signing these because these book plates are important. I know that I appreciate every one of you that bought the book, but don't also realize that was a February promotion. We're still doing promotions every month. There are things you could get so you haven't missed out on the opportunity to get additional benefits.

If you go to moneyguy.com millionaire mission, I'd love for you to sign up for getting the pre order of the book because here's the thing. We don't have a big corporation behind us, and I'm trying to change the world my own little way, and this book is going to do it. If we can get enough of you guys to buy the book, I think we'll make a statement. And I think that. And that gets me excited because it also, this book is going to change some people's lives.

This is. I'm hoping that just like when I got the millionaire next door, the wealthy barber when I was in the mid nineties, that this book just lights your mind on fire of excitement. And also, for the person that's maybe already worth or well on their way to becoming worth seven figures, you're going to find some nerdiness in here that I think, the way I process the world, that you're going to find affirming and also motivate you to keep the journey going as well. But I'm super excited. I mean, you guys know, Megan and I are working on some other things that we'll be announcing next week with Reb working on the logistics on that.

And it's some cool stuff. It's really cool. And I hope you guys will go on this journey with us. If you're out there, like, man, what are they. What are they talking about with this?

Bo Hanson
If you have not, first of all, you're not subscribed on YouTube right now. Make sure you subscribe so that way you can stay in touch. And then if you're not following us on socials, all of these pictures, all this stuff, it's out on Instagram and on X and on Facebook. So make sure you connect with us on our social so you can see all the behind the scenes stuff we're doing other than just Tuesdays at 10:00 a.m.. Central.

Reby Hardy
Yeah. So just know when we say, hey, if you order in February, Brian's gonna sign these things and it's a limited time thing. We were serious. He's signing every single one. And we had to put it limited time because obviously you can't.

You're signing a lot. Why are you not outsourcing that or automating that? But I think that there is something to signing stuff yourself. Dude, it's just, like, I wrote this book, I'm signing this stuff. I mean, yes, they're a way to cut the corner off, but that's not.

Brian Preston
That's not the way we do things around here. We try to do it. And I want you to feel like that. I appreciate every one of you who took a little bit of your money to buy this book and go on this with me. Means a ton to me.

It really does. Yeah. And we do have some fun stuff around the book coming up and some more stuff to just, you know, let you know about. So definitely subscribe and stay tuned. All right.

Reby Hardy
Are you ready for the next question? Yes, ma'am. Hockey halod has a question. It says, we have a third on the way, due in October. Congrats.

Congrats. That's exciting. Would you recommend dropping the 25% savings rate to get cash for a minivan in October? Or save the rate and take out a smallish loan? Yay.

Messy middle. Lay out the variables one more time. So they got a third coming in October. So they're probably going to need a minivan. They need a larger car.

Bo Hanson
Not uncommon. When you go from man to man is on coverage, that's what happens. Their question is, in order to pay for the minivan, should we drop our savings rate from 25% down? Right? Or should we leave our savings rate at 25% and go out and borrow a small sum of money to be able to buy with the minivan?

So it sounds like, should we save between now and then, cash flow, to be able to pay cash? Or should we keep saving, keep putting the money in the market, keep investing, and when it's time for us to buy the minivan, we're going to take out a small loan, following 23. Eight, of course, to buy it. What's the most advantageous strategy? Yeah, I mean, look, this is one of those things, and this is why I love the financial order of operations, is that life happens.

Brian Preston
I mean, we talk about this because hockey's in the messy middle. I mean, when you got three kids, I've watched Bo. You're in the same life that Bo is in right now, and you're making these decisions. But the minivan's gotta happen now. Um.

Cause, I mean, you need it. Um. I don't know that I want you going to no saving and investment during that period. It sounds like you said, drop it down. I don't know that we're going to zero, but sounds like drop it down a little bit.

I do. But I just want to remind people what the whole purpose of 23 eight is. 23 eight is the car buying rule that we have is because there are moments in my life I'd be a hypocrite if I told you I paid cash for all of my cars in that first ten to 15 years. Once I was on my wealth building journey, because I didn't. I had to go finance, like, my first car out of college.

I had to go finance a used Mazda 626 with the oscillating vents in it and everything. And it was like, $10,300. I put down, like, a $2,000, and then I had to finance the rest because that's what I could do at that moment in time. I think hockey. I'm okay with you.

Minivan definitely qualifies for 23 eight. That's not a luxury vehicle. Now, here's the word of caution. There's a big difference between, like. Cause I think about some of my relatives and friends I've seen going and buying, like, a used caravan or some of these other car, because you can get a.

Minivans are so considered so uncool by the market that they. They haven't gone up like an suv, are now in the hundreds of thousands of dollars, or even trucks have gone that way. But minivans, they humbly have not had these huge run ups in prices. But I'd still encourage you, if you're having trouble and can't pay cash for this thing without even taking away from your saving investments, nothing wrong with buying a used one, putting 20% down, financing no longer than three years, and making sure those payments don't exceed 8% of your gross income. And, of course, your investments have to exceed your monthly car payment.

Those things, they're set up there to keep you in a good place. Just don't go load up. This is not the time to go flex. If you can consider flexing with a minivan and buy something that is pretty fancy. Look, you had this whole thing where y'all got a minivan.

I mean, I'll let you. Hanson family's a minivan. Let's do. Let's do some expansion. What do want you to experience, share here on what you and your spouse did.

Bo Hanson
It's necessary. I love it. My wife, you know, she's a big fan of the show. She's probably listening right now. She doesn't love it as much.

Right. She liked the big suv better. But it's amazing. I think when you think about this messy middle decisions, in my opinion, there's a lot of opportunity cost constructs you have to work through. I mean, r1 easy one, right?

If you just want to think about like purely mathematics. Okay, if I'm going to take a small loan, what are interest rates on that loan going to be? If I go out and buy an auto loan, am I going to be paying like seven, eight, 9% to borrow money on this or am I going to pay in like four, five, 6%? Because that would come into my thought process on whether I'm going to decrease savings and build up cash and pay cash or go with a little bit of loan. Here's the other thing that I think you ought to think about as I'm following the financial order of operations.

Probably hold the thing up for me as I'm following. And by the way, if you want your copy, go to moneyguide.com resources. As I'm following through it, I want to think about the opportunity cost of the dollars that I'm sacrificing, meaning if I have to drop down my 25%, but what that means is, okay, I'm saving a little bit less to my taxable account, or maybe I'm not putting quite as much in my 401k for a small season. That's different than if I have to drop down my 25%. And now I'm starting to sacrifice Roth and HSA dollars.

Yeah, because those are dollars are going to be hard to make up time on after tax account, you can make up the time on that. Even in your 401K with savings limits at 23, you can make up the time on that. But if you start saying, hey, I'm not going to do the Roth, ooh, that one starts to get me a little bit more nervous. So I think you have to do the math on those two things and marry that. And realistically, what it'll probably be is some combination of both.

How can I make sure that I'm putting my dollars to work, I'm following the food, I'm making it work for me, but I'm also not getting into bad debt that I don't absolutely have to get into. Here's what I love, love, love that you're doing. Third is due in October. Do you know what month it is right now? Yeah, it's April.

You are thinking about this way ahead of time. That's what a financial mutant does. We know when we have large financial decisions coming, we get out in front of them and start the planning now. And when it comes time to buy the car and do the thing, it's not going to catch you off guard. It's much better than you saying, hey, you know what?

We drive a Honda Accord. Surely a family of five is going to fit in there easily, not going to be the same as a minivan. But you're figuring that out now, which hockey, I think is awesome and a great thing. I do want to clarify one quick thing, though, because without a doubt, step number three, we have the credit card on high interest debt. That's a no brainer, because credit cards are now 2020 plus percent.

Brian Preston
I have heard in the last month, two people have told me about auto loans that are, I've heard, 15% on one, I've heard 11% on another. So when I hear numbers like that, without a doubt, if you're looking at the financial order of operations, auto loans can, in this day and time, where interest rates are, can definitely fall into high interest debt. If you need some guidelines, we've done a lot of stuff. It's more like the way you look at student loans. If you're in your twenties, I consider anything above and beyond, like in the six ish range, in your twenties is high.

So when Bo said, if you get a 7% car loan, that does probably you need go back to the financial order of operations and consider that 7% as a high interest. So look and figure out what you're going to do with your next dollar. If you're in your thirties, the number goes down a little bit. Maybe now it's in the five ish range. On what's high interest?

Forties, 4%. You can see, because it's based upon what you think those dollars actually had the opportunity of becoming. And that's what will protect you. Because when Bo's talking about the Roth and so forth, you can imagine somebody who's in their twenties, Roth IRa money, with the wealth multiplier, and that compounding growth is just so powerful. It's okay to probably look at the arbitrage there.

But. But for some, if you're paying, if the interest rates on these things are greater than 10%, it's like, oh, yeah, pay, save up cash and pay that off, because it's just not worth dealing with that. If your interest rates are that high. I'm just gonna throw one more free piece out there. This has nothing to do with personal finance.

Bo Hanson
Just experience here. You know, we had the big suv. We did that for a while, but, man, every time my kids got in it, and there were, like, french fries and chicken nuggets, and that's the. It just drove me crazy when I see that kind of stuff in the minivan and I'm hockey. I'm sure your kids are perfect.

Don't drop stuff. Totally cool. When I see the minivan kind of driving. Ah, that's what it's built for. That's what it was made for, right?

Like, I just. Me personally, as a consumer, I have less anxiety seeing a dirty minivan here versus, like, the super nice. And by the way, we have tons of friends. We have a bunch of friends who all have the big suv's. Oh, I just.

That's a lot of money for little kids. I can tell you, as a person who doesn't have little kids anymore, but I try to park next to minivans because I know that nobody's opening the car doors. The kids aren't. Cause that's who dings your cars. It's true.

Brian Preston
Bless their heart. It's the kids that pile out of the car and beat the heck out of the car next to them minivans. You don't have to worry about that. Cause those doors, you know, just do that nice slide back and then. I mean, that's pretty sweet.

Reby Hardy
I was a real fan. You did not know that you were getting parking hacks here on the money guy shop. Yeah. Park next to minivans. Unless the parents are jerks, you're probably not getting dinged.

Good to know. Well, hockey. Congrats on the third baby, and I hope that really helps. Good luck on the car search. All right, Justin has a question.

Next. He says, my wife and I moved recently into our new home. We are renting out our old one to a military family for the next four years, but then plan to sell. We currently have about 200k in equity in that home. So when we sell, should we roll over that equity into our new home or plan to invest that money?

How should they think about that? But I just can't, because this is where the CPA and me just. And I'll let you know. I know. Of course.

Brian Preston
I saw it, too, Justin. I just want to make sure. Cause, look, you do have. There is a fork in the road moment that happens when you have your primary residence and you decide to rent it out, especially after we just came through that post 2020 period where housing went up 40% to 60%. Depending upon where you live, there's a lot of appreciation that happened in primary residences and in housing in general, is that the fork in the road moment is sell it and take.

And here's the deal the government offers you. If you've lived in this house two of the last five years for a married couple, there is a $500,000 tax free gain waiting for you. Up to $500,000 of gains are completely tax free. Now notice I said two out of the last five years. So there's potential you could actually rent this house out for the next two to three years and still be right within that window because you will have lived in it for two of the last five years.

Or you decide, you know what? I'm just going to be, this is going to be the start of my rental empire and I'm just going to rent it, rent it out, and then I'm going to forego that $500,000 of tax free gain exclusion that the government has set up for me. By the way, it's 250,000 for single individuals, if you're curious. So to hear you say that you're going to sell this thing in four years, I'm like, whoo. Oh, it just, you're a year outside of that $500,000 potential gain exclusion.

Just be, I want to make sure, Justin, you're aware of that part of the tax code because you're like, you hear the tagline, day late, dollar short. You're going to be a year late on taking advantage of this $500,000 opportunity. So just, just be aware of that. I'll let you answer the rest of it. But I couldn't help my CPA self couldn't help you.

That's huge. So then the question becomes, all right, well, when we sell it, whenever we sell it, we have $200,000 of equity. What do we do with it? Well, we're good financial advisors, so our answer is going to be, it depends. It depends on, it depends how old you are and where you are in your wealth building journey.

Bo Hanson
It really comes down to, like, opportunity cost that $200,000, where will it be best utilized? Based on where I am in my financial journey, perhaps I'm someone who maybe I didn't save in my twenties and thirties quite the way that I should have. And I know I'm a little bit behind and I've done the know your number course and I know what I need to get to and I know where I'm at, but, man, there's a big shortfall and I don't know if I'm able to save there. This might be a great opportunity for you to take that $200,000 and put it to work for you, especially if the house you moved into, is it, like, a low mortgage rate? Maybe it's at a really attractive mortgage rate.

Or let's flip the script. Maybe you bought the house, and the interest rate's not incredibly attractive right now. It's something like 7%. But you've been a really diligent saver, and when you look at your portfolio, it's pretty robust. You've been saving and doing the stuff you're supposed to be doing, following the financial order of operations, and maybe you're getting a little bit older.

Maybe you were around that 45 ish year age mark, and you say, man, one of my goals is, I really want to be debt free as I get closer to retirement, as I enter into retirement, and, boy, wouldn't it be nice to take that $200,000 of equity that I already built on the home. When I sell that home, I'm going to roll that into this house, and I'm going to be that much closer to being debt free. You have to do the analysis based on what is the interest rate I'm paying on the debt, and what is the rate of return that I could receive based on where I am in my financial journey if I were to invest these dollars. And you're going to have to make a decision on that. But that decision will be different for different people, even in the same circumstance.

It really depends on what your goals are, what you've been doing thus far, and what you want the long term picture to look like. Now, I'm going to throw two caveats on there. Let's say that interest rates are at, like, 7% right now, or that's where the rates are on your mortgage. Just because they're at 7% does not mean that they're going to be at 7% forever. So I do think they're likely, at some point, will be an opportunity to refinance.

Now, you might not go back down to two and a half percent, but you might go down to, like, 5%. So that's something that you want to be aware of. If you do decide that it makes the most sense to dump $200,000 on the current mortgage, one of the things I might think through is, okay, even if I do that, it's not gonna. It's not gonna change my. I don't want to do that and allow my payment like I don't want to do a refinance or drop my payment.

I want to make sure that doing that allows me not to stretch the debt out over a longer amount of time. But actually I stay on the same exact payment schedule so that I get debt free on the same timeline. Make sure you use it as, not as a crutch to limit your wealth building, but as an accelerator to accelerate. Your future wealth building always get because it is true. A good financial planner, a lot of times when people ask us questions, we'll say it depends.

Brian Preston
And it's such a cop out. You're like, oh, I wanted specifics. Look, we've got the backdrop for you. This is why we give it completely away for free. Moneyguy.com resources it depends on where you are in the financial order of operations.

And that's why Bo was because I was sitting there thinking everything Bo is saying ties right into this. Because if your interest rate that's offered, you know, on the mortgage is going to be considered higher interest rate. Or, you know, that's why he said the whole refinance part, because maybe mortgage gets an asterisk next to it. But it's also going to let you say, because if you have two houses, now you have your primary, then now you've got a rental, so you got these two homes. Maybe you didn't do everything you were supposed to because you were focused on becoming an investor in real estate.

You never got those Roth contributions. You weren't getting up to 2020, 5% in savings and investments. This is the time when you get that $200,000 to triage yourself and be honest about where you are in the financial order of operations. Because that's going to tell you what to do with all those army of dollars, to be the most efficient and effective way with every dollar that you manage. The money guy show is hosted by Brian Preston.

Reby Hardy
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.

What Should I Do If My 401(k) Sucks?

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