Technology
Financial Advisors React to GOOFY Financial Advice
In this episode, financial advisors dissect unconventional financial advice circulating online, particularly around down payments on mortgages and investment strategies. They share insights on the pot...
Financial Advisors React to GOOFY Financial Advice
Technology •
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Interactive Transcript
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Can't wait to see what the team has put together.
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All they've told us in preparation is,
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Hey, we think you guys might think this is some bad advice.
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And, Brent, I am so excited about this because if we know one thing to be certain,
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it's that if it's on the internet, it must be true.
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Let's check it out.
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Don't make the mistake of putting 10, 12, or 15% down,
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thinking it'll lower your monthly payment.
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Instead, putting the minimum down to secure a lower interest rate,
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and then make a lump sum payment to your mortgage.
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Whenever you put less than 20% down on your loan,
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typically it comes with what's called mortgage insurance or PMI.
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But here's the counterintuitive trick.
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Most people don't know.
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The less you put down up front,
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the lower your interest rate tends to be.
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But you still want a lower payment, right?
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Here's how you do both.
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Get the best rate in the lower payment.
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Step one, put the minimum down payment,
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typically 5% or 3% for your first time home buyer.
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Step two, take the extra cash you would have put down
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and apply it as a lump sum payment to your mortgage
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within the first 90 days after closing.
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Let's break that down.
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You're buying a $500,000 home and you plan to put 15% down.
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That's $75,000.
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Instead, put 3% down, just $15,000,
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and hold on to that extra $60,000.
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After closing, take that $60,000 and pay it directly
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to your mortgage principal.
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At that point, your lender can recast the loan.
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This means they'll lower your balance and lower your monthly payment.
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So you should use all of that?
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You secure the best interest rate available,
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and you end up with a lower payment
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than if you had just put 50% down from the start.
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This isn't something your average lender tells you
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because they don't get paid extra for giving you smarter options.
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Bo, for my understanding, every time I've bought a house,
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the more I put down because it's less risk to the bank,
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the lower my interest rate has been.
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So what is he talking about?
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I have.
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Put down the least amount and you get better rates.
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Yeah, that doesn't make any sense.
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Every time I've ever done this,
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they've asked, what do you want your down payment to be?
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Whether I was putting down 50%, 20% or 3%
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it's always been the same interest rate.
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I've never been able to influence the interest rate
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on buying a home.
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Now, there was one little redemptive piece that he had in there
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because I was like, no, no, this is horrible advice
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because if you put down the small amount
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and you take out the mortgage,
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you got this higher mortgage payment.
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Just dumping that principal doesn't change the payment
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unless you do the recast and recasting is great,
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but it's not free.
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And I don't think that's going to change the circumstances at all.
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And that every lender will recast.
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Just like most lenders won't rate modify either.
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That advice seems somewhat disconnected
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from the reality I've lived in because we have,
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now look, we have done commercial loans.
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Sure.
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We're definitely the amount of our down payment
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had a direct impact on what the mortgage rate
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that they were going to charge us.
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So that's why that whole thing seemed like
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getting busy doing nothing
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and not even getting a lot of fruit for all of your labor.
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What?
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What?
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He's trying to like smooth out the wall,
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but there's still a hole there.
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And he goes to smooth it out and there's still a hole there.
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He needs another hole.
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I pay off my credit card and then I still have a balance
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and I pay off my credit card and I still have a balance
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and I pay off my credit card.
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I'm so happy I haven't heard it correctly.
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And so, oh man, feel over here can actually get
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some understanding of what the heck that meant.
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I, that must be part of this whole meme culture
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that just has passed me by.
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I low in sale high is a terrible investing strategy.
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What you need to do is buy low, borrow high and sell never.
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So what wealthy people like myself do
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is we buy assets at a low cost.
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Then we wait for those assets to appreciate.
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Once those assets appreciate,
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we borrow against the value of those assets
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because loans are not taxable.
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And then we use that money that we borrow to buy other assets.
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Then we use the cash flow from those other assets
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to pay off the loan that we just borrow.
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And here's the thing, we never sell.
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We never sell our investments.
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Instead, we buy life insurance equally good.
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That owe on our investments so that when we die,
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the tax-free life insurance proceeds can pay off all the loans.
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And then our kids can receive our assets tax-free and debt-free.
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This is what the wealthy people do.
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And this is what you need to do for you and your family.
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So, all right, he had me up until the life insurance part
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because it is true.
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You can do that.
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You can buy an asset.
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The asset can appreciate and value.
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You can borrow against that asset.
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And then you can take that capital
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and go do something else with it.
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While that works, it only works if the assets are going up
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and value and it only works.
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If you have enough cash flow to be able to satisfy
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the debt that you have on that asset.
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So what happens is the more you do this
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and the bigger that gets,
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the more fragile your debt, your house of cards becomes.
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I worry that people who try to just rinse and repeat
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and rinse and repeat and rinse repeat do this.
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It's all great until the tide comes out.
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But Brian, you don't have as much as the tide goes out.
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You get caught swimming naked.
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You get caught swimming naked.
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Owning stuff is a very valuable thing
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because it protects you from inflation.
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It protects you from just a lot of things that are going on.
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But I will tell you in my own journey,
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we have created, even though we know we're using leverage
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as a tool as a successful person.
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We've got a plan to what we're going to do
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to extinguish that debt within 10 years.
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Because I understand the risk that levered property has.
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And as I get older, I want more risk to come out of my life.
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I'm not trying to take more and more chances.
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And that's where sometimes when these guys start talking about using leverage
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and then they start talking about using high commissioned life insurance.
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Look, there's no doubt wealthy people do use life insurance.
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But for the majority of people out there who are watching this content,
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your first stop on the train station of wealth building
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should not be levered products and whole life insurance.
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That's just that's that's full gold that somebody's trying to sell you something
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because they tell you that's what rich people do.
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One thing that I realized over time is that big down payments are low key
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not even worth it. I've had a few somewhat expensive cars
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and on each and every one of them I put a significant down payment down.
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For example, I'm going to Corvette that I bought.
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I'll put $26,000 down.
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Using hindsight, I probably would not do it again.
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100% of it. You have to keep in mind in a car deal,
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every thousand is about $20 off of your monthly payment.
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Therefore, if you're buying an expensive car and you decide to put $10,000 down
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is really only lowering your payment 200 bucks.
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$20,000 down is low in your payment 400 bucks.
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Well, about depreciation.
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At that point you have to keep in mind, would I rather have $20,000 in my bank account
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or would I rather be saving $400 on a monthly payment?
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Now, it took me a while to realize this, but now moving forward,
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I'm keeping that money in my bank account.
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There's so many things that you can do with that $20 to make you $400 a month.
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Therefore, it literally just doesn't make sense to give up that much liquid cash at one time.
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What I will say though, if you plan on purchasing your next car with no money at a pocket,
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make sure you get gap insurance.
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No money down automatically equals negative equity.
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If to think about it, whatever car you buy plus tax tags and fees,
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you're already way upside down.
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Or, or hear me out on this, if you have no car payment at all,
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think about what you can do with the cash flow then, because what I really want to show this guy,
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is if I could show him an amortization schedule and show him, hey, if you borrow 100% on that car
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and you finance it over 60 months or 72 months, let me show you what you are actually paying for
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that car and it's going to blow your mind.
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And then you got a factor in the depreciation and all the other pieces that go into automobile
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ownership. I completely disagree. I think there's a better way to buy automobiles.
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Look, let he was talking about with Corvettes and so forth. He should be paying 100% cash on those,
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because those are use assets. There's the consumption decisions.
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And I get the feeling that this is trying to fake it until you make it.
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Let me tell you, it's better to be rich than to look rich.
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And the other part that bothers me about this whole thing is what about Roth IRAs?
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What about loading up your employer 401k or even your solo 401k if you're that, you know,
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growing entrepreneur? I just don't like that this is all showy assets, because cars are
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nape home for your financial life. There's a lot of wealthy people that will rent these bad decisions.
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They'll actually do leases and other things, but that is so far beyond that's like steps 8 and
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9 of the financial order of operations. Whereas when I see influencers doing this, they'd be much
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better served thinking Corolla than they would land cruiser. Don't drive around your wealth.
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Actually, start building it on your net worth statement so your money can work harder than you can.
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So you can actually own your time that much sooner. The 401k is not a retirement plan.
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At least not a very good one. But what about the company match?
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Is this a life insurance? Well, according to the center of retirement research,
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for every $1 your employer offers you a 401k match, they pay you 99 cents less than fair
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market value. But literally are paying for your own match in the form of lower compensation.
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False. And that's not even the bad part.
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At any excessive fees, early access penalties risk of the market and the pathetic 4% income
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rule, the 401k might not be your best option. I have a jersey. Oh, I was waiting for it.
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I was waiting for it because he was about to go into a sales play. No, that's factually untrue.
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Well, we have found is that a lot of employers, the reason why they offer a matching program
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or profit sharing is because they want to create a really exciting environment that their employees
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want to be a part of. And employees have said, hey, I want really healthy compensation. I want
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generous benefits. I want 401k matching. I want health. So employers recognize that that's what
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it's going to take to get top tier talent in. So I do not think that for every $1 you get an
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employer match, you're actually taking lower compensation. That's not been my experience with my
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clients at all. Well, the only thing I can think is look without a doubt because we're employers as
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well, we kind of when we know we're going to go higher new employee, we build in the cost of
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compensation includes their 401k. So that's why it is a knuckleheaded decision. You are literally
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leaving free money on the table that yes, is part of your calculated compensation. But that does
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not mean that mathematically you put a dollar in, you get another dollar back from your employer.
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That's a hundred percent dollar for dollar guaranteed rate of return. If it's 50 cents on the dollar,
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it's 50 percent guaranteed rate of return. There's just not many anything out on the marketplace that
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does that. And bo's right, this was incentivized by the government structure. So you build retirement
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assets. Don't fall prey to somebody who's trying to sell you some product telling you how bad 401k's
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win. There's a reason the government restricts how much you can contribute, who can contribute is
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because the get this so good that they just don't let you go to the moon on this stuff. You actually
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have to stay within their parameters because they're giving you so many benefits. Write this down
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right now. I am so happy and grateful. Now that I have multiple sources of income, I had an
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affirmation that I used for years, still use it. I'm so happy and grateful now that money comes
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to me in increasing quantities through multiple sources on a continuous basis. If you write that out
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every day for the next 30, 60 days, you're going to become very, very aware of having multiple
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sources of income. And if you keep doing that, ultimately you're going to attract the money.
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I don't like mantras. I don't like. I feel like it makes an idol out of the money to some degree.
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It's just, you know, the root of evil in a lot of ways is tied to focusing on money in the wrong
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way. And I just, I don't know. I don't, it might be my own personal opinion, but I just don't like
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these mantras and these other magical in-incantations that people throw out there. If you do this,
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magically stuff goes show up. It's a little under-minded though. There's nothing wrong with having
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multiple sources of income. There's nothing wrong with going out there and trying to better your
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financial circumstance. But it actually requires work. You actually have to do something to be able to
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create those sort of opportunities for yourself. It's not writing something down 90 times and all the
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sudden it just magically starts showing up. Building wealth is incredibly simple, but it's not easy.
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It does require something. It requires one of the three ingredients to wealth creation, the very
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first one, which is discipline. If you don't have discipline to live off a little bit less than
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you make today so that you can build it up for tomorrow, you're going to have a very difficult time
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ever building wealth, but it's going to take some work on your part.
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Spin more, oh, oh, I was born on one of those days.
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Wait a minute. I'm so confused. Yeah.
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Oh, you don't have to spend more money. I know you're birthday. I get to spend more money. You don't.
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You should spend more money because if you don't spend money, it's going to block your save.
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No, that's not quite my tempo. It's all good. No worries. Here we go.
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If you want to have more money in the future, you should spend less money today. You should defer
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a little bit of the money. You have the day for the future. That's how you build wealth.
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Look, it ties back to you. I don't think the day, date of your birth, whether it's 28,
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third, whatever it is, that doesn't, that doesn't tie into your success. I don't get that. I'm
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just going to, I'm going to plead old man. Yeah. If I had to start over again today,
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was zero dollars in my bank account. I'd get in my truck. I'd dry around my neighborhood. I look
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for packages that were left on other people's doorsteps. Hello, Mark. I'd get those packages so no
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one else steals it. If they don't collect it within 14 days by law, I'm able to flip whatever's
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in there on eBay. So what happens if you're going to protect the package and someone's walking out
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of the house and they're getting the package? I just say, hey, it's over in my place. But I'm
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right there in front of you. Yeah, I'm walking out. I'm walking out. I'm like, hey, it'll be over in my
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place when you need it. What if they were just like, I'll just take it now. I already have it.
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Possession two tens of law, baby. This is like redneck protection plan. You know, because you
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all the movie plots where you know, you have an action hero who does revenge. There's always like
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some mobster or something that's coming and shaking down the organization. This is just the redneck
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version of that. I don't even know who that guy is. We've covered his content like three or four
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times. I ought to figure out who this Randy Savage of personal finances. And I just don't know who he is
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when it comes to building wealth, there are not shortcuts. And you don't have to take advantage
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of someone else or take something from someone else in order for you to have financial success. So
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anybody who has a system or an idea and a structure where you have to undermine and take advantage of
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someone else is likely not going to be the best path for you to build your long term wealth.
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Now I can think about is Jean-Claude Van Dam or Steven Segal fighting this redneck off the
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front porch. So thank you for that imprint into my brain. But guys, we love creating this type of
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content and this reacting to the zany goofy world of what people are putting out there. If you want
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to know the real way or the clear way, we're always trying to show you there's a better way to do
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money and that's at moneygod.com. I'm your host, Brian. Mr. Bo, moneygod team out.