How to Invest Your First $10K

Transcript:

On this episode of the Personal Finance Podcast, What's up everybody?

And welcome to the Personal Finance podcast. I'm your host, Andrew, founder of mastermoney.co. And today on the Personal Finance podcast, we're gonna be diving into how to invest your first $10,000. If you guys have any questions, make sure you join the Mastermoney newsletter by going to mastermoney.co/newsletter.

And don't forget to follow us on Apple Podcasts, Spotify, YouTube, or whatever podcast player you love listening to this podcast on. And if you wanna help out the show, consider leaving a five star rating and review on Apple podcast, Spotify or your favorite podcast player.

Now, you know what separates people who build real wealth from people who just talk about it? It's one decision and one decision only. It's the decision to stop letting your money just sit there in a savings account and actually decide to get your dollars working for you and get those dollars invested.

And there's a news flash. And I'm going to give you a news flash right now. If you do not invest your money and if you do not get the ball rolling when it comes to investing, you will never be able to retire in 2026 and beyond. Retirement is not an option unless you invest your money.

Why? Because it is actually your responsibility to make sure that you are taking care of your retirement. Now, a lot of things when it comes to money and building wealth is focusing on the things that you can control. And one of the most important things that you can control is putting more dollars towards your freedom.

You can take your extra dollars, the difference between your income and expenses, and you can start to buy back your freedom. And that's what we're going to be talking about today is learning how to invest our first $10,000 because that is the first money milestone that I want you to focus on if you are not there yet because your first 10K can absolutely change your life, but it is up to you to get the ball rolling on that.

Now you may be someone who is just getting started investing because you just started your first job or you're early on in your career. You may be someone who is late to the game and you have just been putting some cash aside maybe, or you've been living paycheck to paycheck for a long time and you finally realize the importance of investing.

Or you may be someone who is in their 40s or 50s and just getting started and you feel like, hey, it feels like it's too late. Is it too late? Absolutely not. And so today I'm gonna be real with you and I'm gonna show you exactly how to invest your first $10,000. And no, we're not gonna be looking at real estate.

We're not gonna be looking at options trading. We're not gonna be looking at day trading or dividend stocks. We are gonna go through an exact system that shows you step by step exactly what to do. And I'm going to show you when you're ready to get started investing and then when you should maybe pump the brakes 1st and build up your financial foundation.

So today I'm cutting through all the noise. TikTok, Instagram, YouTube, they all have static, they all have noise that are sounding the alarm for all these different crazy investments. But today I'm going to walk you step by step through this. Whether you're 22 or you're 52, this is going to be valuable information.

If you don't have your first $10,000 invested yet and if your money's been sitting in a savings account forever, or if you hide money under a mattress or you keep money in a safe, this is going to absolutely change your life. Because once you start investing, your money starts to work so much harder than you ever can, and you can start putting more dollars towards building generational wealth for you and your family.

And I think that's what every single person listening to this podcast wants. They want the ability to buy back their time and buy back their freedom. Money gives you the option to do that. And you can get started today. I don't care where you started from. I don't care where you're coming from because today is the day that you take control of your money.

So without further ado, that's something you're into. Let's get into it. So how do you get to your first $10,000? How do we accelerate our path to get to our first 10K as fast as we possibly can? Well, there are steps that you need to take and make sure that you are going in the right order first because before a single dollar even goes into the market, you need to confirm a few different things and make sure that you are ready to invest.

Now the first thing we want to look at is making sure a that we do not have high interest debt. So any debt above a 6% interest rate that is consumer debt, we want to make sure that we are getting rid of that first before we get started investing. What is high interest debt? Well, this can be something like a credit card for example.

Most credit cards right now charge you anywhere from 15 to 30% interest, and some of them, when they are store cards or something else, can charge even more than that on a monthly basis. And so you need to get rid of those as fast as you possibly can. This is a Pants on Fire emergency, no questions asked.

That high interest debt needs to go away. Maybe it's a personal loan. Maybe you have a high interest car loan. You need to pay those down first before you get started investing. Why? Because if that interest rate is higher than 6%, let's say it's 7 percent, 8%, nine percent, 10%, well, on average, the S&P 500 OR gets a 10% rate of return.

If you adjust that down for inflation, you're looking at around 7% per year. And when we look at this, we know that we can get a Guaranteed Rate of return if we actually pay down our debt. And so we want to make sure we prioritize that first because this is the optimal place to put our dollars.

Then we can get started investing so our money can work way harder than we ever can right now. If you're in debt, you are working backwards. You're building wealth in the wrong direction. You need to make sure that first that debt gets gone, then you can move on from there. Secondly, though, is we need to make sure we have some cash on hand.

Most investors stop investing or they pull from their accounts too early because they don't have an emergency fund or they don't have cash on hand. You need to make sure that you have an emergency fund in place. Why this insurance is that you do not interrupt compound interest unnecessarily.

Compound interest is going to be the most amazing thing that you ever experienced. And once you see this start to work, it is going to absolutely change your life. But first you need to make sure that you can protect compound interest against its number one enemy, which is you. Because most people, they start a four O 1K or they start a Roth IRA or they start their brokerage account and then all of the sudden life happens to them.

Something happens and they have to dip into their four O 1K. You ever heard anybody ever say that before? I had to dip into my 4-O1K for a kitchen remodeler. I had to dip into my 4-O1K to take care of my car that broke down, or I had to dip into my 4-O1K because my house needed a new roof. I don't ever, ever, ever want to hear you dipping into your investment accounts because we're going to build this in the right order first.

And so when you start with having cash on hand, this protects you against life. This makes sure that anytime an emergency pops up, you have the cash available to you. So how much cash on hand do you need to have before you get started investing? Well, we have this thing called the 136 method.

So first you save up one month of expenses, then you move on to high interest debt, just like we talked about #1 and make sure you get that paid off. And then you move on to three months of expenses. Three months of expenses is going to ensure that you are protected against life where then you can get started investing.

OK, so at three months of expenses, you're saying to yourself, well, how do I figure out what that is? You figure out how much you spend every single month. So let's say you spend $5000 per month. Well, if you spend $5000 per month, 5000 * 3 is $15,000 is what needs to be in your emergency fund.

OK, so you have that $15,000 set aside. And once that's set aside, then you can start investing. Now one big question, question that we get a lot from people is, well, how much of this extra money do I begin investing with? Well, I'd like to start with the 5050 rule where you think of this as I'm going to save 50% towards my emergency fund and I am going to invest 50% towards my financial future.

If you feel pretty comfortable with your three months emergency fund and you want to slowly build it up to six months, you can absolutely do that. But when you do that, just know that the ultimate goal is that we want to get to a six month emergency fund, especially in 2026.

This is, I'm not going to sure code it for you. All of you who are worried about AI taking your job, you must, and I mean must have a six month emergency fund. It is imperative that you have a six month emergency fund because it is going to be detrimental to you and your finances if you lose a job and it takes you some time to go find that job.

So you want to have a six month runway to make sure that you have enough cash on hand. Now, one big thing that we talk about with your emergency fund is something called the swan number. It's your or sleep well at night number and your swan number is going to be something that is different for every single person.

So some people may feel more comfortable having a nine month emergency fund. Some people may feel more comfortable having a 12 month emergency fund. It doesn't matter what it is, whatever helps you sleep well at night, that is going to end up being your long term target. But it takes us some time to get there and we don't want to lose out on valuable years of investing and valuable years of compound interest just because we want to shove cash into this account.

So This is why when you get to three months, I want you to start investing. I really want you to get to 3 months as fast as you possibly can. If you can get rid of that high interest debt and get to three months in your emergency fund, take extra jobs if you have to drive for Uber Eats. But you got to figure out a way to get there as fast as possible because this is the only way to build wealth.

And any one of you can do this if you really want it enough. But this is the only way to build wealth is to get your dollars going. All right, Step 3 is next. We need to figure out, OK, now we can get started investing. We have our our three month emergency fund at least set up in a high yield savings account.

Now we need to think through, well, what do I need to do next? Well, you need to open up your accounts. And so when it comes to your accounts, there's a number of different ones that are out there that you probably heard of. The first place that I want you to look is your employer's four O 1K. And a lot of times your employer offers something called a four O 1K match.

Now, if you're in a different industry, you could have a 457 or A-403-B. These are all one in the same in terms of how they operate. But when we look at a 401K, we want to say, OK, if my employer offers a match, then I want to make sure I capture that match.

Why? Because it is free money. Here's the way that it works. Your employer says, hey, if you put 3% into your 4-O1K, we'll match it, and we'll also put 3% into your 4-O1K. Well, that is absolutely incredible. Let's say every paycheck you put in $150.00, which is 3%, and then your employer puts in $150.00 every paycheck.

That is literally like getting $150.00 bonus for free every single time you get paid. I like free money. Do you like free money? Because that is the number one thing that you need to go out and get first. You cannot get a 100% rate of return or a 50% rate of return anywhere out there right now.

And so we want to make sure that we are first getting our four O 1K match because it's free money. Number 2 is if you have a high deductible health plan. I want you to look into an HSA. What is an HSA? It stands for health savings account. Well, Andrew, why are you telling me about a health savings account when I'm trying to invest for my retirement?

Because the health savings account is a super retirement account. This is a secret a lot of people don't know, but the health savings account has triple tax advantages so listen to how this works. Money goes in tax free, it grows tax free and you can pull the money out tax free as long as you have a qualified medical expense.

What's a qualified medical expense? There is now a laundry list of what you can use for your HSAI. Was just on the Peloton website the other day and saw you can use your HSA to buy a Peloton. I was on the 8 Sleep website the other day, which is a mattress cooling pad, and it says you can buy a mattress cooling pad with your HSA.

Amazon has this cool section now that you can go to for HSA eligible items, and you'd be amazed at how many people fall under that category and how many things fall under that category. You just save your receipts, make sure you have them in a Google Drive somewhere, store those receipts in that spot. And if you keep track of this, you can start to pull money out early, even if you retire early.

This is the power of having an HSA where you're not going to pay taxes on those dollars. And then if you don't use all the money in the HSA, by the time you turn age 65, it basically turns into a Traditional IRA if you want to use it that way that way. But guess what? By the time you turn age 65, you're going to have a lot of healthcare expenses popping up.

The average amount that people spend in healthcare for a couple is $300,000 throughout their entire retirement. You're going to use this money. And so the HSA is just a powerful way a, to help you bridge if you reach early retirement. But secondly, it is going to help you take care of healthcare expenses when you need it most.

So the HSA is such a powerful account because you can use it for retirement, but you can also use it for healthcare expenses, and you can save that triple tax advantage. OK #3 A lot of you need to listen up on this one. This is a very important account that most people should be looking at opening. If you don't already have one open.

This is called a Roth IRA. Now, the Roth IRA is an account that you could put $7500 per year into the Roth IRA. Now, if you have a Roth 4-O1K at your job, this can be used interchangeably in the Roth 4-O1K. You can get $24,500 per year in that Roth 4-O1K.

This, my friends, is a super powerful account because money goes in that's already been taxed. It's already been tax on your paycheck, but you can put money in the this account and it can grow tax free and you can pull the money out tax free. So you pay taxes now so that you don't have to worry about taxes ever again in your lifetime on those dollars and you can invest those dollars.

And the cool part about this is the long term growth is going to be the majority inside of this account and so you can make a tremendous dent on your retirement and pay $0.00 in taxes. I know people who have millions and millions of dollars in their Roth IRA and they paid $0.00 in taxes on multi million of dollars.

There is nowhere else that you can do that. And This is why these accounts are so powerful because they help you save hundreds of thousands if not millions of dollars in taxes depending on how much money you can get into these accounts. And so I want you to try to get as much as you possibly can into these accounts because we have options when it comes to withdrawing on these early later on down the line.

So the Roth IRA is a phenomenal account. Now, one thing to note when it comes to these retirement accounts, like a Roth IRA, is that you cannot pull the money out until age 59 and half and except for your contributions. So you can pull your contributions out at any time, but after the age of 59, 1/2 is when you can pull out the growth of your money.

And so that's what the majority is going to be. And so when it comes to retirement accounts, you just need to note that because if you plan on retiring early, there are some other accounts that we can talk about too. The last one is to go back to your 4-O1K. So your 4-O1K is a wonderful account, especially if you're a high earner. This is a great account for folks who want to get a tax break in this specific given year.

So for example, let's say you made a lot of money in this given year and you needed to get some tax breaks in that specific year. Well, the four O 1K is absolutely fantastic for that because you can get $24,500 this year into your 4-O1K. And so that is going to help reduce your overall tax liability by that amount.

But, and here's the big but is that it grows. But when you pull the money out, then you get taxed when the pull, when you pull the money out, Uncle Sam always wants his money. He's going to get it some way or another. And so you want to make sure that when you are pulling that money out, you understand that you will be taxed on that. Now, the 401K also has something called RMDS.

These are required minimum distributions. And at some point in time down the line, right now it's at age 73, Uncle Sam says you got to start pulling money out of this account so I can actually get my tax dollars. And so RMDS in a 401K are ways that they have you pull this money out so that you start to pay taxes and you're required to pull this money out.

Now it's later on down the line, but it is something that you need to know is part of this account because it is a big tax strategy overall. Now, the last one we'll talk about is a brokerage account. So if you plan on retiring early, if your goal is to retire before age 55, then a brokerage account is a great account to have on hand to help bridge you until you get to retirement age where you can pull from the Roth IRA or the 4-O1K and be able to have that full flexibility.

And so let's say for example, you want to retire at age 52. Well, you want to make sure you have enough to get from age 52 to age 59 1/2. Now there are some things like the rule of 55 that we can can do to pull money out of four O 1 KS early or other retirement accounts early, but we want to make sure that we're looking at this in a way that helps us plan this out if you want to retire early.

So any of my early retirees looking at a taxable brokerage account is also very helpful. And there's a lot of tax benefits to a taxable brokerage account. This is just a regular old brokerage account that you can open anywhere. That is traditionally something that most people think, oh, I got to pay a lot of the money in taxes on this. Well, you really don't. And if you look at long term capital gains tax, they are it's significantly less than someone who pays traditional income tax.

And so you want to make sure that we are looking at this as a very valuable account. I think a lot of people write off the taxable brokerage account and don't realize how powerful it actually is. It's one of the best accounts out there and should be considered by every single person listening to this episode.

All right, we're going to jump to the break and then we're going to talk about how to choose your investments. Now, when it comes to your first $10,000, I want you to make sure that you are making the right decisions when it comes to your investment choices. And you need to make sure that you are doing your research.

If you don't know how to do your research, we have multiple episodes talking about how to research funds, index funds, ETFs, stocks, all those different types of things. Now on the next episode, I want to make sure that you're following this podcast because on the next episode, we're actually going to be talking through exactly how to build out your portfolio properly.

And so I want you to make sure that you are following or subscribe to this podcast to make sure that you don't miss that episode because it is going to be really, really important that you understand how the investment portfolio is built and how to build that out. And so in that episode, we're going to be talking through what I call the portfolio pyramid.

Now, the portfolio pyramid is a way to kind of build out your nest egg and figure out exactly where your portfolio needs to be. But if you are under $100,000 invested, I want you to 1st build out the foundation of your portfolio. And so since we are trying to invest our first $10,000, you need to be invested really in very safe assets.

What does that mean? Index funds and ETFs are a great option. Target date retirement funds are a great option. I like target date. Index funds are the, the option that I would look at. That's a great way if you really don't know what you're doing. It puts together a portfolio for you and it adjusts overtime to your exact age.

And so this is something that you can look deeper into, but choosing your investments is a very important part of this process. And so once you think through, well, how am I going to invest? I am a big proponent personally of index funds and ETFs and I think building out a portfolio of index funds and ETFs, especially as part of your foundation before you have your first 100,200 thousand $300,000 invested is imperative for most people.

Now Step 5 is you want to make sure that you are picking in out your brokerage account. There's tons of great brokerages out there now. A lot of them have some great options. So some of my favorites are Vanguard and Fidelity. Those are two great places to start investing your dollars. Charles Schwab is another great place to look.

But there's some great brokerages out there if you're opening an IRA or you're opening a Roth IRA that are now doing 1% matches. And so if if you find some of those and they make sense for your overall portfolio, you can absolutely utilize some of those brokerages and take advantage of those 1% matches.

Because a 1% match can dramatically change your portfolio long term, especially if you do this for a long period of time and you're getting a lot of dollars invested. And so I want you to make sure that you are choosing the right brokerage for you. You want to make sure that they have great index fund or ETF options.

Most of them do. You can still get Vanguard ETFs inside most brokerages. And so that's a fantastic option. They make sure they have no account minimums because that's a big deal for a lot of folks and they have solid platforms. Don't just choose some random brokerage that you've never heard of before. Make sure it is a solid company that's been around a long time.

If you don't know who to choose, Vanguard and Fidelity are two great ones to get started with. OK, Step 6 is once you have your brokerage open and you know what investments you want to start investing in, now it's time to start contributing money to those accounts and let's automate this process so every single time you get paid, I want you to take a.

Percentage of your paycheck and I want you to automatically send it to these brokerage accounts and have them auto invest the money for you. If you do not know how to do this, I am going to put a link down below in the show notes where you can check out our investing for beginners Masterclass that shows you step by step exactly how to do this.

It's about an hour long master class shows you exactly how to do this inside Fidelity so that you can set up your muddy automation. Really, really important stuff. If you have never done this before, I walk you through it step by step. We do classes on Tuesdays and Thursdays right now in that master class. And so if you want to check that out, I encourage every single one of you to do so.

But automation is the number one thing you need to do because it removes the number one component that most people have issues with, which is their willpower. A lot of times you forget to move your investments over or, or maybe you bought something on a whim and you decided to use that money instead of investing your dollars.

No automation. Make sure that the money automatically goes into your brokerage account, gets out of your hands and gets invested. For a lot of people out there, I use this example. Have you ever logged into your 4-O1K before and been like, wow, there's a lot more money in my 4 O 1K than I once thought? That's the power of automation.

That's the power of automatically contributing money to these investment accounts is seeing that happen, seeing your money grow over time. That's what automation is going to do for you. And you can build wealth on autopilot. And then step 7, and this is something that has to be said, especially if you're a new investor is don't touch it.

Once you get your dollars invested and continuously investing every single month, I want you to just keep buying. Buy every single month consistently over time, but then don't touch it. Too many new investors are like, well, actually, you know what, I'm going to go start buying some Bitcoin or actually I'm going to buy the newest new NFT or I'm going to start buying gold now, 'cause everybody's buying gold or I'm going to buy silver.

Don't touch it. Stick to your investment plan, especially when you are looking at this with your first 100K, you want to make sure that you are building up a strong financial foundation. And the last thing I want for you is to jump from investment to an investment or try to pull this money out because you want to buy something.

No, instead you keep these dollars invested because if you interrupt compound interest unnecessarily, it is going to be the most detrimental thing that you ever do to your finances. You have no idea how much opportunity this money has long term if you keep these dollars invested.

OK, So I want to make sure that every single person here listening understands that you do not need to touch these dollars. Now I'm going to give you a couple of common mistakes that a lot of new investors make. And then after we get through those common mistakes, we're going to jump into the Q&A. So common mistake number one, especially if you don't have your first $10,000 invested yet, it's waiting for the perfect time to invest.

I see this happen way too often where people say to me, hey Andrew, what do you think about the market? It feels like it's way too high right now. Should I actually be investing? You should absolutely be investing and you should consistently be investing every single month. I hear this way too often where people think they can time the market or they, I think it's too high, so I'm going to wait until it comes back down again.

You're going to be waiting forever if you do that. Because if you look at the long term chart of a stock market, go look at the S&P 500, or go look at the total stock market, or go look at the NASDAQ and pull it out to the longest time horizon you can. And it is up and to the right. And so you need to make sure that you get a piece of that.

You get your dollars invested. And waiting for the perfect time is the wrong thing to do #2 is I see way too many people say I'm not going to get started investing because the amount feels too small. I only have $50, or I only have $100, or I only have $150.00. I only have 20 bucks a month that I can invest.

Let me tell you friend, this is the most powerful seed that you can plant right now because it doesn't matter how small the amount of money is that you have to invest. Small amounts of money over time can grow to very large amounts of money. And let me prove it to you. I'm gonna pull out our old trusty compound interest calculator.

So we just built a compound interest calculator. If you go to mastermoney.co/resources, I want you to check this out because this takes you step by step to figure out how much money can actually grow. So here's the amazing thing is $100 per month over the course of 30 years at a 10% rate of return is $226,049.

That's absolutely incredible. So if you say to yourself, I don't want to invest because the amount is too small at $100 per month or at $50.00 per month or at $25 per month, no, this is absolutely amazing what can happen once you get your dollars invested. Let's say you had a longer time horizon though with that $100 per month.

And let's say you invested for 40 years, just 10 years longer, it would grow to $632,000 inside of this account. And This is why I want to show you that small amounts of money over time can grow to very large amounts of money. If you've made it $200 per month and did it for 40 years, it'd be $1.264 million.

Let me tell you, friends, if you have small amounts of money, just get started now. Start planting those seeds and you can increase it over time as your income increases, but you just need to get started now. We want you to get to 20% of your income. That's the minimum amount that we want you to get to, to get started investing.

But at the very beginning, I don't care if you have 20 bucks, I want you to get started investing #3 is panic selling during market downturns. Now, as an investor and as a new investor, you're going to see pretty quickly that the market goes up and the market goes down sometimes. And when the market goes down, a lot of times you're going to see new investors panic.

But I want you to realize this is a very normal occurrence. It is normal for the market go to go down. In fact, it is healthy for the market to go down. You do not want to panic sell or make a rash decision when there is a 20% pullback in the market.

Instead, when you have a financial education, you realize, oh, this is a very normal part of a market cycle. And in fact, I am much better off buying more during this time frame because I'm getting my investments on sale. Whether it's socks or stocks, you want to buy things on sale. And so when a market has a pullback, I want you to think of it in a way and train your mindset to say, oh, I should be buying more right now because the market is going down.

Buy low, sell high. You may have heard people say that before in the past, but most people do the opposite. Most people sell when an investment is at its lowest because they panic and they have fear and they don't know what to do. And then they start to buy again when investments go up because everybody else is getting in there.

This is very common right now with commodities, things like gold and silver. People are buying all the way up instead of buying it when it was beat down or buying it when it was low. These are things that I want you to remember as time goes on. Another big one is to ignore fees. So when you're looking at your investment options, make sure you're not buying index funds or ETFs with high fees.

Anything with an expense ratio above 30 basis points or .3% is something that you want to avoid. If there's an index fund or ETF that has .7%, for example, unless it is really outperforming some of its other predecessors, I want you to make sure that you are avoiding funds like that.

Fees will absolutely eat in to your portfolio value, and so you want to make sure that you are avoiding funds with high fees. That is not something you want to get into whatsoever. The next one is to pick individual stocks before building that foundation. You want to make sure that first you build that foundation of good solid index funds and ETFs and see that foundation grow before you start picking individual stocks.

I see way too many people jumping into individual stocks or Bitcoin or they jump into dividend stocks or all these other things just because they are a trend or a fad. You need to avoid that stuff and start first. Just build up your foundation and have an understanding of how the market works. Then as you start to approach your first 100K200K300K, then you can start to make the choice that you will then start to invest in some other things that you're interested in, but it's going to be a smaller percentage of your portfolio.

It's not going to be the big foundation that we were talking about here. This is going to be the core of your portfolio. This is going to be the big foundation that helps you move forward. The next one is checking your portfolio every day. I do not want you checking your portfolio on a daily basis and becoming obsessed with the balance.

That is an unhealthy relationship with your investments, especially as you are getting started. Most people who do that are overly emotional, notional when it comes to their investments, and they are going to make a poor decision when the market takes a dip. So I want you to make sure that you're checking it less frequently. You can check it on a monthly basis.

You can check it on a quarterly basis every half year or every year, and that's completely fine. But checking it every single day is not something you should be doing. And the last thing I will say is to make sure you have your plan in place, make sure you write your investment plan down, make sure you have the plan in place, and then you begin investing.

Because if you don't have that plan written down or in place, you're not going to know your why and you're going to make investment mistakes instead of ensuring that you have that plan in place and you know why you're doing what you're doing. And so all of those are really, really important. Now, if you don't know how to develop an investment plan, Master Money Academy can help you do that step by step.

And you can look down below and get a 7 day free trial inside Master Money Academy. We help people with investment plans all the time inside Master Money Academy. I think it's a really, really important place for you to be if you don't know how to come up with your own investment plan. And so that's a really, really powerful place where you can meet other community members who are like minded who are also working on the same plan.

So check out Master Money Academy down below if you have not done so already. All right, perfect. We're going to jump to a break and then we're going to get into a bunch of listener questions. All right, so this is going to be our Q&A section of the podcast. If you guys have any questions, you can join the Master Money newsletter and respond to any of those issues that come out every single Friday and you'll have the opportunity to get your question answered on the show.

Now that is the easiest way to make sure that your question gets answered on the show. You can also shoot us a question over at the Personal Finance podcast on Instagram. If you shoot us Adm, there is a place where we are getting a lot more DMS over there and would love to, I gather your questions there as well. So you can shoot us a question by joining the Masterminding newsletter where we give you a 5 minute tip every single week to learn how to better your money.

Or you can send over a question on Instagram. So the first question is from Christian. Now Christian said when should you use a raw 4 O1 K through your employer versus a traditional 4-O1K? So first I want to break this down. This is a great question, Christian and a lot of people ask this.

And so I want to break this down. The difference between a Roth 4-O1K and a traditional 4-O1K. So with a traditional 4-O1K, contributions are pre tax. So they lower your taxable income today, but you pay taxes on the withdrawals and retirement.

And so when you withdraw money in a traditional 4-O1K, you're going to be paying taxes on whatever the future taxes are going to be. Now what is the downside to that when you think through this? And we don't really know where taxes are going to land when we retire. And so it is much easier to pay taxes now because you know what the tax rate is going to be.

Now let's look at the Roth 4-O1K. This is where you contribute money that goes in after tax. So no upfront tax break whatsoever. But all the growth in withdrawals in retirement are tax free. Now, this is very powerful because if you put money into a Roth 4-O1K, over time you're going to see that the growth of your money is going to be the majority.

And if the growth of your money is the majority, it is a very, very powerful account because you're not paying taxes on that growth. In fact, let's pull out the investment calculator that we have where you can check this out. Again, if you go to mastermoney.co/resources, you can use this investment calculator.

But let's put this in right now and see exactly what this comes out. So if our contribution every single year is going to be $24,500 per year, then we want to figure out what the monthly contribution is going to be. So it's going to be $2041.66. All right?

So we're going to put $2041.66 because that's the Max you can put in to a four O 1K every single year. And we'll put $2041.66 into this investment calculator over the course of 30 years at a 10% rate of return. And this is absolutely incredible.

You would have $4.2 million. Now when it comes to this, the amazing part about this is the total amount that you would contribute. And this is the cool thing about this calculator is it shows you is $734,998. OK? That's how much money that you put into this and the amount of money that you're money earned, the interest earned is $3,476,627.00.

So you will not pay a dime in taxes on almost $3.5 million, which is why I love the raw 401K so much. But it is not for every single situation and we're going to talk about why right now. OK. So that's the difference between the two is there's no upfront tax break for the Roth 4-O1K, but you get this long term upside of never having to pay taxes again until you get this tax free growth on that money.

Now if you expect to be in a higher tax bracket later on down the line or you expect being a higher tax bracket in retirement, then you want to make sure that the Roth is your number one priority. So if you're early in your career, you expect your income to grow, this is a great time to have the Roth.

Secondly, if you're in a lower tax bracket now and you anticipate being and a higher one later, then the Roth is also a great option. And if you want tax free income in retirement and you don't want to have to worry about RMDS, you don't want to have to worry about anything else out there, then the Roth is a wonderful place to look at this because Roth 4 O1 KS reduce your overall RMD stress.

And I think that's very, very important for a lot of people. Now if you're having a really high income year, if you're having a year Christian where you're just sitting there and you're saying, man, I am making tons of money right now. I am paying out the wazoo in taxes within a traditional four O 1 could be a better option for you because you get that tax deduction in this given year.

Or if you expect being a lower tax bracket later on in the line, then maybe the traditional 4-O1K could also be a great option. Or if you're closer to retirement and you less have less time for this money to grow, then that is another difference there. Now when in doubt, if you don't really know, you could split the difference between the two if you wanted to, to diversify your tax bucket some.

And this also gives you flexibility on some of these accounts and when to pull them later on down the line. But if you're young and you expect your income to grow over time, I would absolutely consider the Roth 4-O1K. It is one of my favorite accounts that are out there, one of the most powerful accounts available to us because you can get so much money into the Roth off and really you can get that tax free growth, which is what we want as much as we possibly can.

There is nothing better than kicking the tax can down the line and making sure that you get some of that tax free growth. So this is the way that I would look at this and really, really great question and Congrats on looking at your 4-O1K options. All right. The next question is from Carly. So in the 5030 twenty rule, does the 20% savings category include my Roth IRA contributions?

My Roth IRA contributions alone already make up 20% of my monthly income. Does that account or is the 20% supposed to be separate savings on top of that? So this is a wonderful question. And overall, for those who don't know what the 5030 Twenty rule is, this is a rule that was developed years ago by actually, it was actually developed by Elizabeth Warren, Senator Elizabeth Warren.

And within this rule, it's 50% go to your essential spending, 30% go towards fund spending and things that you want to do with your money, and then 20% goes towards wealth building, debt payoff, those types of things. Now the key thing here when it comes to the 5030 twenty rule is I don't love it for every single scenario because the debt payoff thing, if you have high interest debt or you have a big chunk of debt, it doesn't really compensate or cover some of those areas.

But it is a great rule of thumb for a lot of people to start with. So do your Roth IRA contributions count towards the 20%? They absolutely we do. So the 20%, your savings rate at 20% is really to make sure that this goes towards your investments.

And so any investment account will count. And this is the starting point. I want you to increase this amount over time if you can. But if you start at 20%, try to get to 25 or to 30% at some point in time. But this 100% counts towards the 20% bucket. So there is no rule that says 20% must be extra savings outside of your retirement account.

That's just not a rule at all. But you just want to make sure that you have this on hand and you want to make sure that this is going towards your investments overall. Now, if your Roth IRA is hitting 20% of your income, that is an absolute great sign in something where you are crushing your investment goals.

And what I would do is I would consider looking at this and saying to myself, OK, well, how can I now increase my income so that over time I can get more dollars invested? Because if you're starting at that 20%, that is absolutely fantastic. And again, the reason why we say 20% for most people out there as the minimum amount that you want to invest is because if you look at some of our savings savings rate charts, for example, you'll see that if you save 20% of your income, that means you can work less than 30 years of your life and be able to retire.

And so 20% is the starting point for us. And then if you want to retire earlier and earlier, then I want you to bump it up 2530%. Some people go to 4050%. We have a lot of listeners who say 50% of their income, which is incredible. And because they're pursuing financial independence and they want to retire early, that is why they increase those savings rates.

So we have a couple of episodes talking about savings rate. If you have not heard those episodes, we will link them up down below in the show notes as well. But if you drastically increase your savings rate, you can change your financial life going forward. So yes, this counts towards the 20% inside of your Roth IRA.

And congratulations on putting 20% in your Roth because that is absolutely fantastic. All right, so question 3 comes from Caroline. Can you talk about what to do when your company matches your 4-O1K comes in the form of company stock? What should you do with this? So this is a really, really good question.

And for those of you out there that don't know this, some companies will offer your employer match as company stock instead of it being something that is linked directly to just dollars. And so when they do this, a lot of times the amount or the concentration of that specific stock position can grow more and more and more over time.

And so you need to decide exactly what to do with this. Now number one, the first thing I wanna consider is, is this a company I believe in? You know better than anybody else on how well the company is doing. And so when you look at your company and if you have access to the financials and things like that, you can actually take a look at some of this stuff and make sure that you understand how well the company is doing.

For example, I know there are people out there who work for companies and they've looked at the company before in the past and they said, hey, I don't really want to own this company long term. And there's too much of my net worth tied up in a company I don't believe in. Whereas some people work for Google or Amazon or Netflix or some of these huge companies and they are OK getting this company stock match and it helps them overall with their wealth building.

So if it's a Big Blue chip company, a lot of times I'd be willing to keep dollars invested in their longer term or at least a decent chunk of money. But the second thing consider is what percentage of your portfolio does this company stock take up? Because if it starts to balloon and it starts to take up over 1020% of your overall portfolio or your overall asset allocation, well, that's a pretty heavy concentration into one single company or one single stock, which you also rely on your income for.

And so way too many people out there, I see this with high earners all the time. They get company stock or they'll get it as bonus or compensation. And when they get that company stock, a lot of times they keep too much of their net worth in the company stock. And if it's not vested yet or if it's not guaranteed, that's an even bigger deal overall.

So you want to make sure that when company stock comes in, you keep it as a lower percentage of your asset allocation. Unless it's part of your strategy where you're going out there and trying to find companies that you think have high growth potential, that is a OK, that is a different thing. But if you are working at a company that's been around a long time and you feel as though there's not a ton of growth potential and you're just getting this company stock over time, you don't want to have too many eggs in one basket.

So what you can do is a number of different things. One is you can either sell those shares and then reinvest them into things that you believe in, like index funds and ETFs. That's option 1 #2 is you can keep a portion of it. You can keep a percentage of it based on what your asset allocation is. So if you think through this and you say to yourself, OK, well I'm OK having 10% of my asset allocation in this company's stock, well, that's a OK.

I think that's something that you could look into and decide if it makes sense for you. But if you are allowed to diversify out of this company stock, I would definitely consider it if it is not a company that you believe in. So to sum this up, if your company match has pushed your balance above that 5 to 10% range of of having your money in one single individual stock.

I would look and see if you can reallocate some of these funds into a different portion of your portfolio or reallocate these funds to somewhere else and diversify them into either an index fund, an ETF, or whatever else you have within that four O 1K plan. That is going to be the best bet for most people if your concentration is getting too large.

Now, again, if you are someone who is working for one of those growth companies, that's a different story. But if your concentration is getting too large in a company that you feel as though is not part of your overall plan and just move on to the next thing if you are allowed to do that. So that's the best way to handle this stuff. And if you have any other questions on that, please shoot them over to me and I'd be happy to answer them.

All right. The next question is from Noah. Noah says I'm in my early 20s with low expenses, no debt, a new Roth IRA and planning to open a high yield savings account. Well, congratulations to you, Noah. That is absolutely fantastic. Should I follow the 136 method and build my emergency fund before investing or can I do both at the same time?

And should my emergency fund target my current low expenses or what they will be once I move out? So this is a really good question now for Noah. What I would say is your emergency fund really just needs to be kind of what your expenses currently are. So if you have minimal expenses currently and you want to just start slowly building up that emergency fund for when you have more expenses or when you move out, that is going to be the starting point.

And so the way I would think about this is figure out, OK, well, what is one month, three month and six months of expenses of what I currently do? So let's say for example, you spend $1000 per month. Well, if you spend $1000 per month, having a six month emergency fund right now will be a fully funded emergency fund. Now, if you know at some point in time that you're going to move out of that house or you're going to move out and you're going to get your own place, figure out what rent costs in some of those areas and try to calculate exactly what it would be.

And then it's very slowly start to send money over to your emergency fund. You can do this a couple 100 bucks per month if if you have that delta available, then the rest of the money I want you to get those dollars invested. You're young and these dollars are so incredibly powerful and when your expenses are low, this is the time to take advantage of this.

This is the time to get as much as you possibly can shoved into these accounts so that you can watch that money grow because when you are younger, you have the greatest opportunity of all that most of us don't have any more. You have the opportunity of time and time is your most valuable asset. And so when you have time available, getting dollars invested when you're living under your parents roof or when you're in a situation where you have low overhead is going to be life changing for you.

So I would try to at least get some cash on hand in an emergency fund. But outside of that, then you can slowly build it up over time when it's time to move out. Then once you get closer and closer to the date where you think you could be moving out or moving into a situation where you are going to be living on your own and you have higher expenses, that's when you start to accelerate the amount that you're sending to your emergency fund.

But get your dollars invested right now is one of the most powerful thing that you could do. And I really commend you for even thinking through this because it's really, really important to make sure you have that there. So my systematics take would be, hey, what 6 months expenses right now, Make sure it's at least, you know, a few $1000 that you have in that high yield savings account.

Then from there, go ahead and start investing. Start investing in the order that you need to be investing in. And then once you have those dollars moving and those dollars invested, just take a small percentage of the amount that you're investing and keep funding that emergency fund. Just send automatic contributions to your high yield savings account every single time you get paid.

And that's going to to help that fund build up so that by the time you get to the point where you are live having higher living expenses, then you'll have, you know, a head start on your emergency fund. Then you can build up the rest. Once you see what those expenses are, a lot of times it's hard to predict exactly what they're going to be. And so just building up slowly while you have low overhead is going to be very, very helpful.

So Congrats to you for getting started. Congrats to you for getting started so early. You are taking the most valuable step that most people don't have the opportunity or know how to take. And so that is absolutely fantastic. Last one, and this is a great one, this actually came from our Spotify comments. So feel free to leave a comment on Spotify.

We may get your question answered there as well. But this is 1 where someone sent this in. So getting married in a year and wanted to ask how soon after the wedding should things start getting combined for fully combined financials? Should we combine it little by little or do it all in one afternoon?

So this is a great question. If you are planning on combining your finances, if that's overall what you guys had a conversation about and you've decided, OK, we're going to combine our finances. The goal is going to be not to drag this out very long. So if you drag it out over the course of the next couple of months after you get married, it's just gonna create confusion and it's gonna make it even more difficult to start to combine everything.

And so for the most part, what I would recommend, and this is what my wife and I did, is right before we got married, we opened up a joint checking account. So we went over to Chase. We opened up a joint checking account. It was about a month before we got married and had that opened together. Once we had that account open.

And you can change the, the names later on in the line if you need to for last names and things like that. But once we had that account open, then it was very easy. Let's say for example, you get married and you know, you have wedding guests that come and you get money for your wedding. Well, now you have an account where you can put those dollars into that account and you don't have to worry about, you know, whose account does this go into?

And so that's the starting point that helps you get started. Then I would also open a savings account, a joint savings account that you both have, whether it's a high yield savings account somewhere. That is one of the best things that you can do together so that you have a place to put your emergency funds. If you have a place to put your down payment fund or whatever else you want to buy going forward, all of that can go into that high yield savings account.

But in addition, this is going to help you automate your finances. Couples who do not have at least one combined account have a very hard time automating your finances. These are the couples that are Venmoing each other back and forth and doing these ridiculously complicated things that they do not need to be doing. At the very least, most couples need to have a combined joint checking account they pay bills out of.

So you can automate your finances that way. You can send money to your bills automatically. You can send money from your accounts automatically to investments in all these other areas. So I would recommend just doing it pretty quickly. It does not take long whatsoever. You can absolutely do it in the one afternoon approach that you mentioned where it'll be done pretty quickly and you don't even have to think about it anymore.

And so I would start with that joint checking account, getting that high yield savings account, starting to, you know, transfer and get your direct deposits sent over there is going to be very important. Changing the beneficiary names on your investment accounts to if you want to change it to each other, that's the way you have that set up.

And any insurance you can change over as well. And then if you have individual accounts, you can keep those open temporarily. You can keep them open as something that you utilize going forward. And then eventually you're going to realize that, you know, once your money is combined, you don't really need to have those additional accounts unless you really want to. Maybe there's specific reasons that you have, but for the most part, you don't really need those anymore.

But it's the conversation that matters most. Sitting down, having the conversation and just getting after this is one of the most important things. So Congrats to you for starting that conversation and already thinking about this before you get married. Way too many people I know will get 2-3 years down the line when the after they get married and then they try to combine finances and it gets a little bit more difficult.

It's just a little bit more money when you try to do it that way. So if you are going to combine your money, I would highly recommend doing it, you know, right before you get married, having that account open ready to go so that when money comes in, you know, maybe from the wedding or maybe you get money, you know, you know that from some other things. Then you can just have the money already in that joint account and you can start your system right away on the right foot day one.

So that is the best way to do it in my opinion. Listen, thank you guys so much for listening to this episode. What a fantastic episode. I'm so excited for each and every single one of you to get started investing and getting to your first 10K 'cause I know each and every single one of you can absolutely do this and it is a life changing thing for most people to get started.

Man, I had fun creating this episode. I hope you guys enjoyed listening to this episode. Fantastic questions as always. I truly appreciate each and every single one of you and again I would love to meet each and every single one of you inside Master Money Academy. We have a link down below where you get a free seven day trial to join Master Money Academy.

Would love to see every single one of you join in there. Now if you go behind the curtain, you go see and check out Master Money Academy for yourself. Go through the wealth builders journey, learn the exact steps you need to get your money right. Join a group coaching call so that you can have a conversation with me inside Master Money Academy and see if it's right for you because that is the way to make sure.

That's why we do that. Free trials to see if it's right for you. If it's not right for you, no hard feelings, but would love to have each and every single one of you try it. All right, thank you so much for being here and we will see you on the next episode.