Why Most AMERICANS Are Poor (And How to Change That)

Transcript:

On this episode of the personal finance podcast, why Americans are poor and how to fix it.

Ooh, what's up everybody. And welcome to the personal finance podcast. I'm your host, Andrew founder of master money. co and today on the personal finance podcast, we're going to be talking through. Why Americans are poor and how you can fix it. If you guys have any questions, make sure to hit us up on Instagram, tick tock Twitter at master money co and follow us on Spotify, Apple podcasts or whatever podcast player you love listening to this podcast on.

And if you want to help out the show, consider leaving a five star. And review on Apple podcast, Spotify, or your favorite podcast player. Now, today we're going to be talking about some of the reasons why Americans are poor, and I'm going to talk through each one of these 10 different reasons that we have today.

And I'm going to tell you how to fix that problem. If you're going through that problem. And a lot of Americans are struggling through some of these issues, but there are some mindsets. Shifts that you can make when it comes to your money, that if you make those mindset shifts and then you make the adjustment in practicality, you will make a massive difference when it comes to your wealth because wealth building all comes down to a it's 90 percent mental.

Then it's changing up your habits just slightly so that. You can make those adjustments and then go forward towards building wealth. And the United States is one of those countries where we rank really, really high on the income scale. Meaning we make a very high income in this country. And a lot of people still are not saving a majority of their money.

And even though it doesn't feel like it, Americans have more disposable income than most other countries, but they save way less than other countries who have less disposable income and their savings rates are significantly lower. So this is something that I think is really, really important for us to understand.

In fact, in 2024, families in the United States saved just under 7 percent of their household income placing the U S 12th in the ranking by countries. By savings rate, even though we are much, much higher when it comes to income, right? We are in the fifth when it comes to how much income we are making, but our savings rate in the U.

S. Is 12. So this is really, really important to understand. And here's another example is that Luxembourg, for example, tops the list of families saving approximately 18 percent of their income followed closely by Switzerland, which saves 17. 5%. In Sweden, where families save 17%, and we're saving just under 7%, and so that's what the top level of saving is right around that 20 percent range that we want you to be at, and we are saving so much less, and people may say, well, it costs less, but we have way more disposable income, meaning income after your baseline expenses, we have way more of that than most countries.

Except we're not saving a large portion of that. So this is really important. I think to dive into, uh, we're going to go through these 10 different reasons. And then we're going to tell you how to fix some of this, because some people just may not have the financial education to understand that some of this is going on.

And so I think it's really, really important to make sure that you focus, especially on the big ticket items that we're going to be talking about today. So if that's something you're into, let's get into it. So number one, in my opinion, is just an easy one. Epidemic in this country, and it comes down to credit card dependence.

Now, a lot of people out there are using credit cards for emergency expenses, which creates this massive cycle of debt and interest accrual that we really do not want to do if we want to become wealth builders. And one big thing to note when it comes to utilizing credit cards as your emergency expense vehicle.

Is it puts you further and further behind financially? What we want to be able to do is when, when emergencies pop up, we want to have an emergency fund in place that we can pay for everything in cash. Now, the thing about emergency funds is they take time to build up. There is no question whatsoever that emergency funds take time to build up, but it is shown and studies have shown that.

People with cash on hand can take advantage of more opportunities. And this doesn't have to be a lot of cash on hand. This is when we talk about just having a cash buffer up front, where you can have 5, 000 saved up, and that will actually help you get through the majority of emergencies that can pop up because most people depend on credit cards.

In fact, nearly half of Americans need credit cards to cover essential living expenses. A survey found recently from bankrate. The survey found that 48 percent of Americans depend on credit cards to cover essential living expenses. And this is the most common among younger generations where 59 percent of millennials use credit cards for living expenses.

And only 29 percent of boomers rely on credit cards to cover essential expenses. And 28 percent of Americans believe it will take five years to pay off their credit card debt. And over half of Americans have reached their credit card limit at some point. And 29 percent admit they max out their credit card every single.

These numbers are very, very high. And the thing I want everybody listening to understand is if that is you, I want you to understand the financial impact of this. Hey, I understand if you are just trying to get by times are tough out there. I understand how difficult it can be. If you're not making enough money to make ends meet, that can be one of the most difficult things that you have to go through over time.

And sometimes you have no idea where to turn except for your credit card. But if you can find a way. To reduce this expense so that you do not have to rely on your credit card. Let me explain to you what happens when you use your credit card and when you fall further and further into credit card debt.

When you fall further into credit card debt, you are paying an extremely high interest rate. In fact, the Average credit card interest rate is well above 20 percent the last time I looked. And so what that means is that you have compounded just working against you at an extremely fast rate. In fact, you are going to take forever to be able to pay that off.

You've seen people paying off student loans for 30 years before. The reason for that is because their balance is not really going down very quickly because they're paying so much money in interest, the same thing will happen with credit card debt. But if you do not get rid of that credit card debt, you will be paying off.

That for an extremely long period of time, and you will just be sinking thousands, if not hundreds of thousands of dollars into that credit card bill. If you do not take care of this right away, this is a pants on fire, financial emergency. You need to take care of that credit card debt as fast as you possibly can.

And if you have problems with credit card debts, do not keep a credit card on hand. What would happen if you actually didn't have that credit card available for those emergencies? You cut those things up and instead you had to find a way. Would you be able to find a way? And most people have the resourcefulness to be able to find a way.

So this is something I would definitely recommend up front is if you keep falling further and further into credit card debt because you cannot make ends meet, one big thing you need to do is get rid of them. And it is something that Dave Ramsey has talked about for a really long time. And if you struggle with credit card debt, I agree with him on this.

You need to get rid of those credit cards. Instead, you can only use a debit card or a secured card. If you need to build your credit back up, if you have poor credit, you can use something like a secured card, which works like a debit card where you prepay a certain amount on that secured card, then. You can utilize however much is on that credit card, but you can also, it'll help you build up your credit score over time.

The chime secured card is a great one. They're a sponsor of this podcast. Um, and so that is something where you can definitely look into this and make sure that you stay out of credit card debt. This is why it is one of the first things I want you to do when you're trying to figure out what to do with your money.

First, one of the first things you need to do is. Get rid of that high interest debt because it will destroy your ability to build wealth. If you're just spending all of your extra dollars paying off credit card debt, it is going to destroy your ability to take those extra dollars and instead be able to invest them.

Your credit card debt is robbing you of your financial freedom. Your credit card debt is robbing you of being able to have freedom with your time. So you could spend more time with your family. So you can be able to spend more time with your kids, to be able to provide your kids with generational wealth.

This is what credit cards are robbing you from. And I want you to be able to do that. To get out of this cycle. And I want you to be able to move forward with wealth building and credit card debt is holding you back. So how do you do this? How do you get out of credit card debt? Well, the first thing is if you have multiple cards, look for which one has the highest interest rate, because this is mathematically the fastest way to pay it down.

Now, if you have two credit cards and say one has 500 bucks on it, and one has 20, 000 on it, maybe it'll just psychologically help if you get rid of that 500 first, this was made popular by Dave Ramsey to kind of get rid of those small debts first and then move on to the larger ones. I have no issues with that.

And that is one thing that you can definitely do also though. Is if you're struggling with credit card debt, we have a free debt course, and we don't talk about this enough, but we made this course free because I would never want to charge somebody who is in credit card debt. And so in that debt course, we actually walk you through step by step on how you can get out of credit card debt.

And so it's going to walk you through that. So if you go to mastermoney. co and you go up to courses there up at the top, you'll see that free debt course, and that will help you actually get out of debt. It'll take you less than an hour to go through and it is something that can help you step by step.

Um, so that is one big thing is if you're looking for a way to get out of this, that is extremely, extremely important. All right, number two is decreased financial preparedness. The majority of Americans are not financially prepared. And so what that means is that they don't even have cash on hand to be able to handle things as they come up.

In fact, there's a huge drop in the percentage of Americans able to cover a 400 emergency in this country right now. This is something where a large portion of Americans cannot even cover a 400 emergency. And I see all these videos on social media, for example, that just break my heart where people will walk up to them on the street and say, Hey, how much money is in your bank account?

And it's a way to kind of get engagement and clicks, things like that. And so people will answer them. And a lot of times people will answer them something like, Oh, I have 100 in my bank account or I have 300 in my bank account. I have enough to get by for the next day or so. And this just absolutely breaks my heart because with a little bit of financial preparedness, you can be able to start to build up cash on hand.

Now, one big difficult thing that a lot of people have to struggle through is that when you do this, when you were trying to build up your emergency fund, especially if you're living paycheck to paycheck, or if you're living in a way where you're just spending too much money, is you start to build up that emergency fund.

And then a big emergency comes up because something happens every single month. We all know something's going to happen every single month and then boom, wipes it out. And you're trying to build this thing up, but it seems like you can never get ahead. You can't even get a couple hundred dollars saved up and that's not your fault.

That is. Most likely, uh, one or two problems. Either you're spending too much money or you don't make enough income. And I'm sure you don't want to hear that you're not making enough income, but let me tell you something about income here. It is the propeller to allow you to build more wealth. And so learning how to build up some of these skills are going to be really, really important so that you can earn a little more income to give yourself that additional wiggle room so that you can save that cash.

And that cash is going to allow you protection going forward. Forward and allow you to protect your wealth. Cash is protection so that you can invest your dollars and those dollars are going to grow over time. So you can have financial freedom, but cash is protecting you so that you can actually invest your money.

Cash is protecting you so you can actually go out and take the vacation. Cash is protecting you so that you can accomplish any financial goal that you want in life. Maybe you want to go out and buy a house. Well, cash is protecting you so that one life gets in your way. The cash is just there. The money is just there and there's power in having the money just there, but you have to work to build that money up.

Any of your financial goals are achievable. I want everybody listening to this podcast and know this, any financial goal that you want to achieve, you can absolutely achieve. And it starts with having cash on hand to protect you from life. I can't tell you how many surprises happen in my house. Every single week.

Let me just give you the last four weeks. My dog had to go to the vet and we spent 800 on medicines and all these other things. She's 13 years old. Uh, it seems like every single week there is a surprise with my dog. I have two kids that we had to take two separate times to the doctor. There's surprise medical bills there.

We have a high deductible health plan with our family plan. And one of my sons had to go to the emergency room a couple of months back. We just got a surprise bill out of nowhere in the mail and I got to go look at it. That's 4, 000 for that emergency room visit. Okay. That's just this month alone, and this is something where stuff pops up all the time.

Oh, I forgot our water shutoff valve on the outside of our house started to leak really, really bad. And so we had to have a plumber come out 600 later. Now that is fixed. I'm talking about thousands and thousands of dollars that we had and surprises this month come up. And guess what happened? We just relied on the old emergency fund.

This is why I like to have it cushioned. I like to have extra months in the emergency fund because stuff happens every single month. And if you're in that messy thirties range world, just life's happening. You're having kids. There's a lot of things going on. You're always busy. You know, how many surprises pop up.

They come up left and right and having this financial preparedness, having this emergency fund allows you to be stress free and to reduce your anxiety because the money is just there. And this is what I want for each and every one of you. I want you to be stress free with your money. I want you to be anxiety free with your money.

And the only way to do that is to start preparing now. So what we're going to do is we're going to start focusing on how can we get extra cash on hand? If you have 0 saved up, how can you get cash on hand? I want you to open up a high yield savings account. Okay. One, that's going to help you get a little more ahead than it would otherwise.

And here's a great example of this is if you just have 20 grand at a high yield savings account, I'm saying just 20 grand. I know that's a lot of money. If you had 20 grand, a high yield savings account, you're going to make a couple hundred dollars per month off of your own money, just sitting in that high yield savings account right now at current interest rates.

That's going to help you with your contributions. That's going to help your money grow over time. And that emergency fund, maybe that'll take care of your monthly emergencies where your interest is taking care of those emergencies. The rest of the cash on hand is just there in case you lose your job.

And so there's a lot of things that really can happen here. So first I want you to open that high yield savings account. Then I want you to go in there and start contributing every single month and automating your money into that emergency fund, every month, automation into that emergency fund. 300, 400, 50.

I don't care what it is. You need to start now. And even if it gets sucked away every month, at least it's there. At least you're starting that emergency fund. And I want you to start to work up to having a goal of getting that emergency fund to your first 5, 000. Okay. And. To some of you that may sound like it's easy to some of you that may sound like a very daunting task, but 5, 000 will be there to be able to cover really any big emergency event.

If you have a medical issue, if your car has some major issue, if your house has some major issue, if you have to move for a job, all of that will likely be covered under that 5, 000 number. From there, what I want you to do is start to work towards building that emergency fund to three months of your monthly expenses, then to six months of your monthly expenses.

And six months is where you can max out if you want, and you can keep going. Or six months is the minimum that I like to have. So this is what I want you to think through as you do this. You can do it slowly over time. You can start to build out a plan, but I want you to have that emergency fund fully funded.

Everybody listening to this podcast. I want you to have that goal. I want you to have that emergency fund fully funded this year alone. I am someone who has a decent size emergency fund. And I just said to myself, Hey, I'm not really comfortable with where this emergency fund is landing right now, because the amount of things that are getting thrown at me all the time, when it comes to my financial preparedness, I'm going to beef this bad boy up.

And so one of my big money goals this year was I went through my exact master, your money goals program early in the year. And one of the big goals was to beef up that emergency fund. We've been doing that and we are exceeding our goals, which is awesome. So I'm really excited about that and how we've kind of put a plan together and it's working.

And so this is something that I think is really, really important. This is why money goals are so important. You got to have those goals in place and you can accomplish anything. If you set up your goals the right way. Next one. Number three is people do not prioritize money flow. What is money flow? You might ask.

Well, money flow is figuring out how much money you have coming in. And where those dollars are going to go, because your money flow is what is going to be the most important thing that you do. So this is spending your dollars in a way that you actually want to spend them instead of letting them just go frivolously to whatever you're doing day in and day out.

And so tracking your money flow is one of the most important things. We're going to put together a little spreadsheet to help you track your money flow in a very simple way. And you can do this a number of ways. You can do the reverse budget is one way we do this, where money comes in, you save what you want to save off the top.

Then you spend what is left over. That is one way to do it. Another way to do this is to track it in a broad way. Um, but you're tracking where your dollars are going every single month. And then you can also do it in a really granular detailed way, which is the most optimized way to do this. You would save the most money by doing that in a tool like Monarch money, for example.

So that's the most optimized way you'll save money. Save the most dollars by doing so. And over time, that's going to be really, really important, but you got to prioritize this money flow and figure out where your dollars are going. Now, most people will be saying, Oh, I got to track my spending. I got to track my expenses.

This sounds like a big old chore. Let me tell you why it's not a chore. Let me tell you why this is the most freeing thing that you can do with your money. Because if you figure out where your dollars are going, then you can take those dollars and put them exactly where you want them to go. This is the key to unlock financial freedom.

Is if you can take your dollars and actually choose where they go instead of just telling them, Hey, you're going to go where you want to go. And on the back end, after I spend you, then I'm going to figure out where you went. No. Instead, you track your money flow and you can tell those dollars. Hey, I want you to go towards my dream vacation.

Nay, I want you to go towards my dream car. Hey, I want you to go towards my investment account so I can actually be free from this job I hate. I can get out of this cubicle that I don't want to work at anymore. I can get out of this blue collar job that I don't want to be working at day in and day out.

Instead, you can take those dollars and you choose where they go. Instead of life choosing where they go. And so this is a really powerful thing that if you unlock this and you do it in the right way, your life will be changed forever. So prioritizing money flow is number three. You need to know where those dollars are going.

Where should you focus first? What I would say is focused on the big ticket items, and we're gonna talk about that here in a second on the number four, but focusing on the big ticket items gonna help you. So first, housing, food, transportation. Where are those dollars going and how much are going out if you're paying a ton of money in car payments, and it's just getting sucked out of your bank account from those car payments.

You have 1000 plus car payments. Then there's one place. You really need to be second guessing. If you have a massive mortgage that is more than 30 percent of your income where you're paying more than 30 percent for all your housing costs, That's another big one that you need to make sure that you address.

And you're probably going to have to make an adjustment there. And then number three is food. Are you spending a ton of money on groceries? And most people don't track how much money they spend on groceries and eating out. Those two things alone. Whenever I've worked with people in the past and they've tracked those two things, all of a sudden, they realize I spend way more money than I thought on food.

Uh, and that is one where it really surprises people most of the time. So those three. If you get those three under control, you can spend a lot more on everything else in life. And it's really important to get those three under control. Number four is people worry about 10 problems instead of million dollar problems.

So this is a really, really big one that I want you all to get this down today. Okay. There are a number of different things that impact your money significantly more than saving money on small little things. Okay. So, you know, the latte factor where people say, Oh, if you stop drinking Starbucks every single day, then you'll save a lot of money.

Sure. That can add up over time. You know, if you say 5 per day, if you get a latte every single day, 5 a day, you invest those dollars that can grow to a large amount of money, but I don't care if you drink your Starbucks every single day or not, what I care about is do you focus on the 1 million money problems?

Because these are the problems that are super. Super important. We have an episode coming out on how to accelerate, uh, your investment returns. And we've got a number of things in here that we're going to talk through. And in that episode, one of the big things we talk about is first investment fees and how big of an impact investment fees have.

And if you are just investing a thousand dollars a month over the course of 30 to 40 years, investment fees will have a million dollar impact on your portfolio. So number one. Is understanding that investment fees will impact your portfolio. 1 million saving on lattes will impact your portfolio in some way, shape, or form, but the investment fees will impact your portfolio over 1 million.

That's number one. Number two is mortgage interest. Mortgage interest is something that most people don't think about. This is a six figure money problem. Okay. Because if you have a much higher interest rate on your mortgage and you're paying that interest rate on your mortgage. Okay. Over time, you will be paying a very large sum of money.

If you've ever bought a house before, and you look at the total amount of interest that you pay on that house, it's usually hundreds of thousands of dollars over the course of a 30 year loan. And if you have a really fancy house, if you've got a multi million dollar house, it's going to be even more than that.

And so when you look at these statements now think about what if I invested. The difference in those dollars instead, that is a million dollar portfolio that you were losing out on because of that opportunity costs. So you got to think about the opportunity costs when you go through this. And that's number two is mortgage interest.

Number three is your asset allocation. Asset allocation means the types of stocks and bonds that you have in your portfolio. If you have the wrong asset allocation. Then you will pay for that greatly, meaning that if you don't do your homework and understand what my asset allocation should be, you will pay for that greatly.

If you have a large portion of your assets in bonds and you're in your 20s, instead of having a large portion in higher growth opportunities, you will You will likely lose out on millions of dollars depending on how much you're investing. And that's another big one is just having the right asset allocation of stocks and bonds.

I like to have the majority of my portfolio in stocks. And really I minimize the amount of bonds I have right now because I'm very bullish on the future. And so for me, I'm minimizing bond allocation for the most part when I do this. The next one is negotiating your salary. The skill of negotiation will earn you millions of dollars over the course of your lifetime.

If you build up that skill, I am not kidding about this. If you learn how to build up the skill of negotiation, it'll change your life. How do you do this? First, I'd start with a couple of books. There's books like never split the difference. Uh, there's books like getting to yes, there's a bunch of really good negotiation books out there where you can first wet your whistle on what the heck people are talking about.

Then I would go about and I would start to take courses and kind of working with people and workshop and some of this stuff because this skill is so incredibly valuable. And so learning how to negotiate your salary is going to be one of the most powerful things that you can do. Two other ones. Is transportation costs, transportation costs are absolutely astounding what the numbers come up.

So we have an entire episode on this and we'll link it up down below. And in that episode, we talked through transportation costs. And over the course of your lifetime, your transportation costs, if you factor in opportunity costs are like 5 million. It's absolutely insane what you can spend on some of this stuff.

lastly, student loan interest. That's another one. It goes along the same lines as mortgage interest. Interest will absolutely destroy your wealth building ability if you don't control it. And so making sure your interest rates are below a 6 percent interest rate at, in this economy is a little tougher, but that's what you got to do is make sure they're below 6 percent interest.

Uh, business deals are a little different, but when it comes to, um, some of this stuff on your personal finances, which is the personal finance podcast, it's really important to make sure that you keep those interest rates. Lower, let's jump to a break and we're going to get into number five. All right. The next one is over reliance on buy now pay later services for basic necessities.

Now, some of you may be like, well, I've never been used by now pay later. And that's something where I'm kind of in that camp too. But there's a lot of folks out there who do utilize by now pay later and the numbers don't lie. Um, in fact, the people who use by now pay later, 42 percent of them are between the ages of 18 to 24, 25 to 34 is 50%.

Use by now pay later, 35 to 44, 50 percent use by now pay later, 45 to 54, 33%. And over 54, it goes down to 19%. Now by now pay later did not exist as much back in the day. I mean, you can finance furniture and things like that. Uh, but it did not exist for the most part for most people. And so that's why some of the older generations may not be using by now pay later.

26 percent of Americans who have used Buy Now, Pay Later have made a late payment and 48 percent of Buy Now, Pay Later users use it to make purchases that do not fit their budget. That my friends right there is the kicker. 48 percent of Buy Now, Pay Later users use Use it to make purchases that do not fit their budget.

I am not a fan of buy now, pay later. Hey, I get it. 0 percent interest. You want to save your dollars and some people will argue with me and say, Hey, I'm going to invest those dollars instead. And I'm going to pay this off over time. Guess what? Most people do not do that. Instead they utilize buy now, pay later because those dollars do not fit into their budget and they want to buy the thing.

Now they want that instant gratification. They want to do this right now. In fact, 48 percent say, you know, they use those purchases. Purchases that would not fit their budget. 33 percent said they do it to avoid credit card interest. You could lay an argument to me on that one to borrow money without a credit check is 24 percent because I can't get approved for a credit card is 15 percent terrible reason because I don't like to use credit cards 15 percent and because my credit cards are all maxed out 14 percent that one right there is probably the worst one.

And then 3 percent is other. So these are all almost all not good reasons to use this. Now, a lot of buy now, pay later programs. Have a 0 percent interest rate, which is why people are trying to avoid credit card interest. Uh, but also just don't buy things that aren't in your budget. That's the huge key right here.

And you may be saying, well, it is something that needs to be in my budget. It's something that is a necessity that I need. And I'm doing this. Well, the numbers don't lie here. 46 percent of people use buy now pay later for electronics. I can't think of a single electronic. That is an absolute necessity unless you need like a laptop for your job so you can actually earn money.

Okay? Clothing and fashion accessories, 46%. Clothing and fashion accessories, 46 percent are using buy now pay later. If you gotta go to Hot Topic and get yourself a checkered t shirt and use buy now pay later to purchase it, my friends, let's not be doing that, okay? Furniture and appliances, 31%. You know, it's just the key to buying stuff like that is you got to pay for cash.

You got to pay for it in cash, getting it on buy now pay later because it's 0 percent interest and you can pay it off over time is not the way to do it. Instead, reverse that, save up for it, and then go ahead and go and buy it. Now, some people may be saying, well, I didn't have the cash on hand in my emergency fund to buy a new washing machine and I need a new washing machine.

I see the logic there. I'm not going to kill you on that because I understand how that works, but at the same time, let's focus on building up that emergency fund like we talked about at the top of the show so that we can get that done. Household essentials, 22 percent. Personal care and cosmetics, 22 percent.

Groceries, 19 percent. Books, movies, music, or games, 13 percent. Fitness equipment, 11 percent and other is 8%. So the numbers on buying out pay later just aren't great. And here's why I absolutely hate buying out pay later. Cause I do not like it whatsoever. Number one is it increases your debt volume. And the last thing we want to do is increase the amount of debt we have.

It reduces our net worth when we increase our debt. And so we want to make sure that we are avoiding that at all possible. Even if it's a 0 percent interest rate, your net worth goes down because you're taking on more debt. Number two is late. Fees and financial penalties. So a lot of buy now pay later programs have 0 percent interest for a certain amount of time.

Then kicking in is if you don't make that payment on time, you get a late fee. But in addition, that interest rate is going to kick in and it's going to kick in with a beefy interest rate. And so you want to make sure that you avoid this because a lot of people fall prey to this and then they fall into the interest rate timeframe.

And then all of a sudden they owe all this interest on this money. Make sure that you avoided it at all possible. Number three is it impacts your credit score. They got to run a credit check to see if you actually are able to even borrow this money. And so it impacts your credit score because they go through that number four is there's a lack of consumer protection.

So credit cards offer this robust consumer protection. That's one reason why I like using them. Uh, but outside of that, Buy now, pay later does not have as much consumer protection. And then obviously most people are using it to extend beyond their budget. Number five. And I absolutely hate that. So that is one big thing and why I hate buy now, pay later, please, please, please, if at all possible, just make it one of your personal finance rules to never use buy now, pay later.

Number six is lifestyle inflation and mismanagement of raises or bonuses. So one of the biggest things that happened to people is they become less wealthy because their lifestyle inflates over time. Now, some lifestyle inflation is really, really important. And I think it's very healthy to have lifestyle inflation.

As time progresses, you're in your twenties, you're barely getting by. You're living like a college student. Then you get married. Now there's two people in the house. And so there's more things that you want to go do together. You want to spend time together. You want to have nicer. Furnishings in the house.

You want to be able to buy more stuff. You want to start to go on vacations. Hey, all of those are good reasons to inflate your lifestyle, not to inflate it drastically, but all of those are good reasons for your expenses to creep up and likely your income should be creeping up as well. So if you're going to increase your lifestyle, your income also needs to be much higher than the increase that you are increasing your lifestyle.

Does that make sense? So this is another give and take on a scale. If your income increases, then you can increase your lifestyle a little bit. Income increases more. You can increase your lifestyle a little bit, but you still have to have a gap between your income and expenses so that you can take that gap and put this towards the things that you actually value, things like being able to invest your money so you can retire.

And so this is why it's so important to understand how lifestyle inflation works. So what do you do if your lifestyle starts to inflate over time? You get a raise and here's our rule. The 50 50 rule. Ready? Every time you get a raise, you take 50 percent and you can increase your lifestyle. And then you take the other 50 percent and you start to put that towards investments.

What this is going to do is it's going to really accelerate your path to wealth. And you're going to be able to invest so much more money over time because you did this. And then in addition, what it's going to do is also allow you to enjoy life. And so having this balance is so incredibly powerful when it comes to getting raises.

So every single time you get a raise, make sure you think about this 50, 50 rule. Okay. Because what most people do is they don't do this whatsoever. They don't even think about 50 percent this 50 percent that instead of what they do is they just make more money than they spend more money all the way up to what they make or more than they make, then they make more money and then they spend all that money up to what they make or what they're going to make.

They buy the brand new fancy car because they want to ball out in front of the homies. They buy the brand new giant house. That's way more than they can afford. They go out and buy a bunch of different designer clothes or a bunch of different shoes. All of that stuff's great. In fact, I love that stuff.

That stuff's pretty sick. But at the same time, you gotta be able to afford that stuff and be able to invest at the same time. So, I want you to enjoy that stuff, but I want you to progressively enjoy it as time goes on, when you can afford it. And that is what's really, really important. Now, if you're the type of person, who right now, is living paycheck to paycheck, And you get a raise.

Why don't we take some of those extra dollars, put them towards the emergency fund, take those some of those extra dollars and put them towards our investments. That's going to be something that can really, really help your financial future and make you comfortable with money and reduce your stress and anxiety.

Wouldn't it be great to not have any stress or anxiety around money? That is a beautiful place to be. And I remember the first time I finally felt that the first time I finally felt no stress or anxiety around money. And it was like everything else just became easier. I could breathe. I was able to breathe and not have to worry about where the next dollar is going to go.

There's nothing worse than that feeling. And that is why this podcast exists is to help you get to this feeling as well. To just be able to be calm about money. And so that's what I want you to be able to do as we go through this. And investing some of those raises and bonuses. Really, really important.

Number seven is lack of financial education and planning. So we have an episode talking about how to develop a financial education plan, and we have an episode talking about how to put together your financial plan. And so some of this stuff is really, really important. But the reason why this is so powerful is a then you can develop a freedom of choice, being able to.

You know, pursue financial independence is a really simple math problem, but you have to have the financial education and you have to put the plan in place to be able to do this. You get to reduce your stress around money, which we talked about throughout this entire episode, you get increased security for you and your family that you don't have to just uproot and move somewhere because you have no security and no backing there.

You also get opportunity for that early retirement, being able to retire earlier than you thought you would. You have opportunity for legacy building, meaning building a legacy for you and your family. You have empowerment in life, meaning you're empowered with your money. So you can go do things that you want and you're more confident in your decisions.

And in addition, you have the ability to help and invest in others who wouldn't want that stuff. I know I do. And so I think all of us really want to be there. And so putting together a financial plan is really, really important. Now, how do you do that? One of the ways that you can do this is a, you can pay an upfront fee to someone like a certified financial planner who can put together a plan for you and they'll charge you an hourly rate or they'll charge you just a, a one time fee for the entire plan.

So a lot of times it comes out to maybe a couple thousand bucks. Okay. Uh, that's one option and you got to find the right one and vet them and make sure they have the same type of goals that you have and those types of things. That's a great option. I think a lot of people should be doing that. Another option, uh, is to, you know, do your research and put your plan together yourself.

And there are ways that you can do this, um, where you can put together a retirement plan, and you could put together some other types of plans that are really, really going to help you. So I think this is a very powerful way to put together these plans. And it's something that you can really, really make a big, big difference.

Number eight is a low national savings rate. So at the top of the show, we talked about how there is a low savings rate. In fact, most Americans are saving less than 7 percent of their income. And so the personal savings rate in early. 2024. So far as we were looking at this for the very early part of this year is approximately around 3.

6%. And this rate represents a percentage of disposable income that American safe. And so the highest we ever had, it was during COVID where American safe 33. 8%, which is absolutely insane. And now it dropped all the way down to 3. 6%. And so It's really important to understand that your savings rate is going to propel you to financial independence.

In fact, there's a chart that we talk about a lot that talks about, you know, what your savings rate would be. So if you had to get an 8 percent rate of return and you planned on getting the 4 percent safe withdrawal rate, what's your savings rate would actually lead to in terms of how fast you can retire.

What I mean by savings rate is you save the money and you invest those dollars. It has to be invested. And so years until retirement, if you say 5 percent of your income, 47 years until you retire, that's why you never want to say 5 or 10 percent is 38 years. 15 percent is 32 years before you can retire.

And 20 percent is 28 years before you can retire, which is why I always say, save at least 20 percent of your income so that you can be able to retire. And a 25 percent is 25 years. And so you can jump it up to 50 percent savings rate, which a lot of people in the financial independence community do. And that will drop the amount of time before you can retire to 14 years.

And then the higher you go, the lower, the amount of years it's going to take. And so really important to have that savings rate locked down and really track it, track where it is and on that money flow thing that we're going to put together for you on a spreadsheet, that's going to actually have a way to track your savings rate as well.

I'm excited about that one. So we'll, we'll talk through some of our team and we'll put that together for you. Number nine is a big one. And this is one that I want you to make sure that you are not doing. Okay. Number nine is people are trying to access their retirement funds and they're doing it too often.

You spend all this time and energy earning this money and you put this money in the right place into your retirement accounts. Okay. And it's a tax efficient way to invest your dollars and you're building up this wealth in your retirement accounts. And then all of a sudden something comes up and you say, Hey, actually, you know what, I want to go out and buy a house.

I'm not going to save up for the house. I want that house right now. So what I'm going to do is I'm going to tap into my retirement accounts and I'm going to go ahead and pay the penalty because it's only 10%. What's the big deal there. And I'm going to pull this money out and I'm going to go and I'm going to put that money on for a down payment on a house.

I'm going to say this in the easiest way possible. Don't do that. Please don't do that. Instead. What I want you to say to yourself is let's not interrupt compound interest unnecessarily, because what that tells me is that you don't understand how compound interest works. And if you do that, if you interrupt compound interest unnecessarily, you are losing out on just massive, massive potential of what your dollars can do without you having to lift another finger.

And so the main thing I want you to understand is that Americans actually this year. We'll pay 6. 1 billion in penalties for early 401k withdrawals. 6. 1 billion dollars. In fact, this has already increased 27 percent since the beginning of the year. This makes me want to pull my hair out sometimes. Please, for the love of all things stack and bundles, do not access your retirement accounts early unless you absolutely have to.

If it's an absolute emergency you're going to face in bankruptcy or whatever else you have going on, fine. Outside of that, please do not do this. At all. A 2023 study showed that 41 percent of 401k holders withdraw at least some funds from their accounts when changing jobs instead of completing a rollover to an IRA or 401k plan.

So this is one big thing a lot of people do is they think they have to withdraw the money when they move jobs. Instead, what you could do is just roll it over into a rollover IRA. We did an entire episode on how to do this and there are services out there that are absolutely free that will help you do this.

I capitalize and I think for most people. If we can just try to do whatever we can to not access these accounts and continue to invest in them instead, it will be amazing what you can do with your money as you start to build wealth. Ramsey Solutions did a study. 80 percent of millionaires they studied in a survey of 10, 000 millionaires, 80 percent of them became millionaires in their 401k.

Do you think they accessed their 401k early? No. Instead, they let that money grow. They let that money compound over time. They did not interrupt compound interest unnecessarily. And I want that for every single one of you as well. I want everybody to listen to this podcast. We're all going to have million dollar investment accounts.

All right, everybody hands in the middle, one, two, three million dollar investment accounts. That's what we're going to be doing as we move forward. Now let's get to number 10. Number 10 is that people just don't understand compound interest. And all of these things up front that we've been talking about the first nine show that most people just don't understand how compounders works.

Because if they did. They would try to be shoving as much money as possible into some of these accounts so that it can grow over time. And compound interest is the most important thing that you need to understand. We're going to be talking a lot more about it on this podcast. We always do. Some of you are probably second hearing me talk about compound interest.

I don't care. I'm going to say it till I'm blue in my face because you need to be reminded and motivated. To continue to invest. And so I cannot thank you guys enough for listening to this podcast episode. I hope this episode was helpful to you in some way, shape, or form. If it was consider sharing it with a friend, consider following this podcast.

That's going to help us grow over time and consider leaving that five star rating review as well. I cannot thank you guys enough for investing in yourself because it's exactly what you're doing when you listen to this podcast is you are investing in yourself. Thank you again for listening and we will see you on the next episode.