The Personal Finance Podcast - 8 Steps to Budget With Variable Income (And How to See if Your Raise Is A Pay Cut!)- Money Q&A

Episode Date: December 6, 2023

In this episode of the Personal Finance Podcast, we're going to be talking through the 8 steps to budget with a variable income and how you can see if your raise is actually a pay cut.  Today we are going to answer these questions!  Question 1:How Do You Budget on a Variable Income?  Question 2: Should I pay down Low Interest Debt or Invest more at Age 50?  Question 3: When Getting a Raise How Do I look up to see if it actually a pay cut due to inflation?  How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe. Listen to Planet Money wherever you get your podcasts.  Relevant Episode:  How to Generate a Second Income Source with a Youtube Channel with Graham Cochrane How to Use Niche Sites to Build Multiple Streams of Income With Doug Cunnington How Much Income Do You Need to Be Considered Rich? (By Age!) Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Countertop wipes and fly traps Hey fruit flies Your baby boom ends here Save the Everyday with Amazon on this episode of the personal finance podcast, eight steps to budget with variable income and how you can see if your raise is actually a pay cut. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com.

And today on the personal finance podcast, we're going to be talking through eight steps to budget with a variable income and how you can see. see if your raise is actually a pay cut. If you guys have any questions, make sure you hit us up on Instagram, TikTok, Twitter, at MasterMoney Co, and follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast on it.

If you want to help out the show, consider leaving a five-star rating and review on Apple Podcast, Spotify, or your favorite podcast player. Now, today we are going to be doing a money Q&A, and we're going to be going through a few questions today. So really excited to dive into this episode. The first one is a big one. And it is how do you budget on a variable income?

This is really important to understand for a lot of people. We'll talk through exactly how you do that. The second one is, should I pay down a low interest debt or invest more at age 50? And this is a really important question because when you get to age 50, you're trying to figure out, hey, do I want to be mortgage-free? Do I want to make sure I have zero debt so that I have a debt-free retirement? And or should I start to consider maybe investing more so I can increase the amount in retirement? We're going to talk through that question as well.

And then lastly, when getting a raise, how do I look up to see if it's actually a pay cut due to inflation? So this is a great question. I'm going to go through, hey, how do you figure this out with the math? And then I'm going to show you a bunch of different considerations when it comes to that question. Also, we will do a bonus of health corner at the end as well. So if you guys are interested in that part, then make sure you stick around to the end. And we're going to talk about some of the health stuff I want to talk through today. So this is going to be an action-packed episodes without further ado.

Let's get into it. All right. So how do you budget on variable income? This is a fantastic question. I love talking through this because this is something that I have to do. I own businesses. And so variable income is a big part of my life. But it's also a big part for a lot of different people.

A, if you are someone who is a business owner, then you know how variable income works. This means that you're going to get paid different amounts every single month based on your profit and loss statement and or based on what your distributions will be. every single month. So that is one option that I want you to think through as we'll go through this. Also, for people who are in sales or who earn a commission, you also have variable income. Maybe you work at a car dealership or real estate or you work in corporate sales or you work for a big company. You make a lot of money in sales. All of those different things are going to matter when it comes to variable income because you're going to have months where you are up and you're going to have months when you are down. So how do you make sure that you manage your

money properly? Then there's teachers out there who may not have summer pay. Maybe you elect to have all your pay throughout the year. And so you have variable income throughout that year, but then you have three months that you have to prep for and or have a side hustle available, something along those lines. Or for people who have holiday jobs or jobs where your business only runs for a short period of time, that is another group who may have variable income. And then folks who get bonuses. If you get bonuses, this is also for you. Because if you rely on those bonuses in order to make financial decisions and you rely on that forced savings is what it essentially is, and this is another great option for you to think through this variable income. So we're

going to go through this and try to make this as simple as possible. And I'm going to give you eight different steps to follow in order to budget with variable income. And a lot of this takes a little bit of time to get down. But once you get it down and you're prepared and you have a cushion in place, which we'll talk through how to build out that cushion, then this is going to be one of the best things that you ever, ever do to protect yourself. Because that is the key when it comes to variable income. We want to find different ways to protect our finances. Because we are going to have down times, we're going to have times where we are not making as much money. So, we're you need more protection in the average person.

You need more protection in place so that you can make sure that you can prepare for some of this stuff. Now, I want to make this clear up front. The goal when it comes to budgeting is you want to manage your money on autopilot. So you want to automate as much of this process as you possibly can. Automation means that you don't have to do as much work. And so when you can take that away and actually go out and live your life instead of spending time in the spreadsheet, automation is going to allow you to do that.

So some of this is upfront work, and then once you do the upfront work, you can automate it on the back end and then it's much, much easier. So step one is I want you to start tracking your income and expenses. Now, I don't mean you have to go into a spreadsheet and build out this whole model in order to start tracking your income expenses. What I mean by this is I want you to go and look at your statements, your income and expense statements. And you can kind of think through, hey, maybe you could just do this in a simple spreadsheet if you wanted to, but I'm not saying to build out a whole model. I'm saying do this in a simple way so that you can figure out, hey, what is my income, what is my expenses that I've come through for the last six months or 12 months? And what you're going to notice is a trend where your income may go up during certain months

and it may come down during certain months, then back up during certain months, and then down during certain months. And you can look at this over a long period of time. Now, if you're already tracking your expenses or your income in some sort of app, maybe you utilize personal capital. Maybe you used to use Mint over the last couple of years. Now, Mint is going away. or maybe use some other app to kind of track your income, go look at those reports and go through

there and say, hey, how much income did I bring in over this time frame? Now, you can also go through your bank statements, which is a really easy way to do this. You can pull up your checking account, wherever you get those direct deposits deposited into or those checks deposited into. And you can go look through there and say, hey, what was the income that came in over the course of the last 12 months? Now, if you don't utilize a tool yet to do this, I like to always have one on hand just kind of tracking my income and expenses of the time. So I use a bunch of different ones, but Rocket Money is a great one. And I use that also to kind of cancel subscriptions. This is not sponsored or anything like that. And then Monarch Money is one that actually sponsors the show right now.

And Monarch Money is fantastic. And they have a full budgeting suite. They're just like Mint is. And so they have some stuff available for you to track your income. So they do really, really good reporting. Like if you're interested in reporting, they do reporting. But it's a paid tool that you utilize when it comes to Monarch money. Or like I said, you can use a spreadsheet. But spreadsheets are clunkier and then you have to do all this extra work when it comes to a spreadsheet. So it's up to you. Now, a lot of times, banks will also let you download that CSV file where you can go through that as well.

Now, step two, I want you to list out all your monthly expenses. This is really important because you've got to figure out what your baseline is. That's what we're trying to get to here. So I don't want you looking back when we start to move forward with this, but during this time frame, during this upfront work, you're going to have to look back for a short period of time. And then people who are good with money don't look backwards. They start to look forward at to what they need to do with their money and how to utilize their money. So we're going to look back at your monthly expenses, figure out what your baseline is.

So another great way to do this is to download those bank statements and or if you've had that tool for a long period of time. We want to figure out what your baseline expenses is. And this doesn't have to be an exact number, but it can be something that's very, very close to what you think it is. So for example, for the last six months, if you spent, you know, $10,000 in one month, $11,000 in the next couple of months, then $12,000 over the course of the next couple of months, I would go on the high end and say, hey, my baseline is $12,000 per month. That is what our family spends every single month. And that's going to give you that baseline.

I would take the high end and then those extra dollars you can kind of figure out as you go through this. Now, if you want to nail it down to be super, super accurate, which I do think is important, then you can go in there and just figure out, hey, for the last couple of months, average it out, put it all together in a spreadsheet, something like that. So there's a simple way. and there's a more complicated way, but the more complicated way is much more accurate. And as you start to do this, then it's going to get much, much easier over time. We're going to kind of see, hey, this is my baseline spending.

This is what I need to have in place. Now, as you have all these expenses down, you put them in order, then I want you to categorize needs and wants. This is step three, is categorizing what your needs are and what your wants are. And the reason why we are doing this is because I want you to think through in the worst of times, what are my necessities that I absolutely always need? And then what are the things that I can do without? Because this is your bare minimum baseline budget

that you need to have in place, the amount of expenses that you're going to have there. So say, for example, you are in a non-recession-proof industry. Well, if you're a non-recession-proof industry, you really need to do this exercise because it's very important for you to know that essentials list, that baseline list. So this is going to be your food.

This is going to be your shelter. This is going to be your utilities. What do you need to operate your family or your household? And what is that bare minimum, bare bones number? And then you're going to have a little cushion in place. So just categorize those needs and those wants that you have in that place. Now, making sure, step four, that you are including your savings goal is going to be really, really important. Because obviously, savings goals are the number one thing that we have to have in place when it comes to building wealth over time.

If you want to be a wealth builder, you got to have those savings goals in place. So I want you to say this with me. save first, then spend what is left over. That is always the key when it comes to budgeting. That is always the key when it comes to managing your money is you want to save first, then spend what is left over. So we're going to automate these savings. And this is kind of the key goal here is to automate this stuff. So if you have a 401k, or maybe you have a Roth IRA, or you have an HSA, or a taxable account, or an emergency fund, we're going to take our dollars. And when our dollars hit our check-in account, we're going to automate our money into those

account. So say, for example, you want to start saving up for a car. You think in the next five years, you're going to have to go out and buy a car. Well, what I want you to do is whenever you know you're going to pay yourself or your paycheck hits your account, you're going to automate a small amount of money into that car savings goal over time, whatever savings account that is. If you use a company like Ally, they have savings buckets where you can just make a bucket that says car purchase or whatever you want to call it. And it automates directly into that savings bucket for you. It literally automatically manages it for you. So it's a really cool tool. tool to actually utilize. And I really recommend that for most people is when you're going through

your budgets, you can have a line by line on a budget. Some of you love that stuff and you love to be in spreadsheets. And that's fantastic for a lot of people. But also, if you just want to fully automate this process, you can automate it and it's already categorized in these savings goals. So your savings goals need to go automatically over. It's automatically going to go from your paycheck to your 401k if you have a W2 job or if you're an entrepreneur, then that money is going to go from your business checking into your 401k every single month. So that's already going to be automatic. And then if you have something like a Roth IRA, then you're going to have to set up those automations with that company. So you'd go into Vanguard or you'd go into Fidelity, set up those

automations so that you can save that money. Because once you have that bare bones baseline, you know how much cushion and how much cash you have available. And what you do with that cash is where wealth is built. You have those bare bones expenses and taking that cash and putting it towards things that you value is incredibly important. So this is something where automating this removes your willpower from this equation. You don't have your willpower involved, so you don't have to remember, hey, oh, I got to move this over to this brokerage account.

I got to move this over to my savings account. Instead, it's automatically moving that way for you. Now, when you have all this and stuff in place, you have this kind of mapped out and you've thought through this. And I think a really cool way to do this is making sure that you money map this stuff. And money mapping is something where it's easier to show you visually, but money mapping is something where you kind of figure out, hey, if money hits my checking account, where is this money need to go? Where is it going to go

after it goes in my checking account? Well, A, a portion is going to go to savings. A portion's going to go to my bills. A portion's going to go to my retirement accounts. And that's how you really think through this stuff is if you are a visual person, map it out. Take out a piece of paper, draw some bubbles and put a bubble right in the middle that says check in account. And every time money hits my checking account, where's it going to go? And that's kind of how it's very simple to kind of think through this stuff when you can see it visually. Now you're going to create your budget. Now, when it comes to your budget,

I am very pro either zero-based budget or reverse budget. So the reverse budget is exactly what we're talking about here. You're saving off the top and then you're automating everything else and spending what is left over. But when it comes to a zero-based budget, what I mean by that is that every time you get paid, every dollar that comes in, you need to, in the words of Wynab, for example,

give that dollar a job, meaning that every dollar that comes in needs to have a purpose. It needs to go somewhere. It doesn't just sit there and commingle in your checking account. You tell it what to do in your budget. So that means that when a dollar comes in, you're saying, hey, this money is going to be for the mortgage coming up. Or when money comes in, you're saying, hey, this money is going to be for the mortgage next

month as you start to get ahead, which you will see, you will start to get ahead if you start to systematize this stuff. And then when money comes in, you'll say, hey, this money is for the electric bill. This money is for my kids' daycare. This money is for my kids' extracurricular activities. This money is for date night. This money is for vacation. And you're just going to start to move that money.

Every time it comes in, every dollar has a purpose. It goes somewhere. It doesn't just sit there and commingle. It has a purpose of exactly where you want it to go. This is how you can create freedom with your money. Where people think budgeting is restrictive, but actually budgeting is very freeing, even if you're doing it on the spreadsheet with a zero-based budget

because you're telling your money where to go. And telling your money where to go is where you gain your power back with your money. And so this is the power. powerful thing that you can do as you go through this process. Now, one huge factor of this is automate as much as you can, like I keep talking about. I will say that till I'm blue in the face. Automate, automate, automate because I truly believe most people don't know how to automate. And so the more you automate, the better off you'll be.

But in addition, after you go through this process, you're going to have to make adjustments. So step six is realize you're going to have to make adjustments and make adjustments every single month. nobody is perfect with their money month to month. I make mistakes every single month. Every single person that you listen to or talk to about money, they also make mistakes every single month. Nobody is perfect. Nobody has ever had a perfect month.

I've heard Jesse Meacham, the founder of Wynab, one of the biggest budgeting companies out there say he's never had a perfect month budgeting ever. I've never had a perfect month budgeting ever. Nobody I've ever talked to has ever had a perfect month budgeting ever. So what's going to happen here is that what a lot of people do, do is they mess up in their budget. Maybe you overspend in a category or you don't just allocate enough money to a category. And then they quit. They say budgeting doesn't work. I quit. I quit is the worst thing that you could do. Instead, what you want to do is make sure that you

just make an adjustment and then you move on. Adjust and move on. That is part of budgeting. And that's part of how it works is making those adjustments. So never, ever, ever beat yourself up. Everybody makes mistakes. I want you to be empowered by that. I want you to be empowered by that. I want you to be empowered by the fact that everybody makes mistakes, it is a okay to make mistakes. You just got to fix them the next month. And guess what? Maybe a year down the line, you're going to make a mistake and you're going to make that same mistake again. It's going to happen again. No big deal. You move on and you get to the next step. Okay. So I want you to remember that. Always, always remember it is okay to make mistakes. You just make adjustments going forward. Step seven is I want

you to start working towards getting a month ahead in your budget. What this means is that as you start to either automate your money towards things and or as you start to budget, zero-based budget your money towards things, what's going to happen is you're going to start to see maybe your account builds up a little bit because you're doing a really good job of doing some of this stuff. And so once that happens, I want you to try to get a month ahead, meaning that the money that you make in June is going to be paying for your bills in July. And then eventually you'll get two months ahead where the money you're making in June is going to be paying for your bills in all. August, this, my friends, especially when you have variable income, is an extremely powerful place to be

because you're creating a buffer for yourself for when times get a little more rough than they are right now. And this is how you can really, really get ahead. So this adjustment means that you're now starting to budget three months out and four months out and five months out. And you're going to see that, A, you have an emergency fund in place, which we can talk more about here in a second. But B, now you're creating this cash cushion that's allowing you over time to just get months ahead. And you may be saying to yourself, well, I don't know how I'm ever going to do that. I'm just getting by. But once you start to actually tell your dollars what to do and put them towards the things that you actually value, you'll notice like maybe in year one you get a month ahead. Okay. Then maybe in year two, you're getting two months ahead.

And what I noticed is even when I didn't make a lot of money, when I started to do this, and every year I would get two, three months ahead. Then all of a sudden, you're six months ahead and year two. And then all of a sudden, you're nine months ahead in year three. And this is an amazing place to be because now the money that you're making in January is going to be paying your bills in September. How amazing would that feel if you could do that? How amazing would it feel if the money you made in January of 2024 would be paying for your bills in September of 2024? Because you have so much cash cushion in place. This is what's powerful when you do this stuff. And so, I love talking through some of these pieces.

Now, step eight, step eight's a big one because, hey, us variable income folks, we've got to have more of a cash cushion than most people. So you guys have noticed probably that over time I have morphed into an emergency fund needs to be six months. And I don't really care what you do. It needs to be six months for most people. And now some people will argue with me, hey, it needs to be two months, three months, four months.

Six months is my bare minimum here. And I am fairly convinced that that's what it should be. If you have variable income, though, I think it should be even higher. And the reason for this is because you know if you're a business owner or you're somebody else, you can have some really, really bad months. And if those stretch out longer than they should, you really need more of a cash cushion. So when times are good, maybe you're listening to this episode right now, times are fantastic. Create that cash position now.

That cast position now is so incredibly powerful. That is your security. That's what keeps your lights on when things go bad. And so making sure that you increase that emergency. on, hey, maybe it's nine months, maybe it's 12 months, but I want you to increase it to a point where then all of a sudden you're slightly uncomfortable with how much cash that you have. This is the new thing that I'm going to be talking about here, because this is kind of where I'm getting to now is I want to get to the point where I'm just slightly uncomfortable with how much

cash I have. I don't really love how much cash I have on hand. It's kind of just sitting there. And at the time I'm recording this, interest rates are really, really high. So it's kind of hard to get slightly uncomfortable with how much cash you have on hand when you got a 5% rate of return on your high yield savings account. So this is something where really, really think through how much cash do I want on hand and what would make me slightly uncomfortable. And you may not know that answer until you get there.

So keep saving until you get to that point. Cash is really, really powerful. I heard a story about this guy who was a drywall contractor. And this drywall contractor did all sorts of different jobs. He did industrial jobs. He did residential jobs. And he was all over the place, always working and had a really, really successful business. And then as he started his career, he realized during obviously the recessionary periods that he would, have no clients on hand or you have to work really hard or you have to really slash his prices in order to keep working day in and day out. So then one day, when times were good, he decided, you know what, I'm going to develop a very large cash position and I'm going to save this

cash position. So when times are bad, I have this available. And he saved in month one and he saved in month two. And he continued to save a large amount of cash so that when times were bad, he was able to, A, maintain his business and B, make sure that he is actually doing work that is meaningful and it actually has a high earning potential. And so when he started to do this, over time, the Great Recession hit in 2008 and 2009. And he had other recessions hit along those times. And instead of going out there and doing work and making a very small amount of money for doing the same exact work, guess what he went out and did? He bought a boat and he went fishing. Because he had cash on hand, he decided, this shit.

year, I'm going to go fishing because the margins just aren't there. I'm going to be barely making any money for the work that I do. So I'm going to spend this time by giving back to myself. And so what he did was he had so much cash on hand from the good times. He prepared during the good times that he could go fishing for a year or two until the market recovered again. And once the market recovered, he started working again and working with clients and making the margins that he wanted to make and earning that money and replenishing his cash position. And so he started to do this. And over time, he would take years and years and years off to go fishing because he loved fishing so much. And this is what you can do as a business owner. This is the flexibility that you have by making sure that you save cash on hand

when times are good. When times are good, it feels like you're invincible. It's always going to feel like you know, you're never going to run out of money. Business is never going to go away because you are just crushing it. But let me tell you, friends, there's always, always, always got to be some pessimism on the other side. Now, optimists are the best entrepreneurs. I am an eternal optimist. That's all I do is I am one who I am optimistic about everything. But at the same time, I want you to just make sure you have a large enough cash position. We're just slightly uncomfortable, just slightly uncomfortable because that is what's going to get you through those tough times, get you through those storms and allow you to be safe

with your money and keep your business open. If you're in business or if you're in sales, it allows you to keep that job, if you love that job. And so making sure that you have that cash position is the way to go. So I hope this helps you guys. Now, another thing that you can do, a quick tip on the back end here, is that you can also, and I've talked about this in the past, is you can budget out for two months at a time instead of just one. So if you have variable income and maybe some months are really high,

and some months are really low and you know like every other month you're going to get a much bigger check than you would those months in between, budget out for two months instead of one month. So if your mortgage is $2,500, budget out $5,000 over the course of two months instead of that $2,500 in one month. And that's another great way to stretch that out with your variable income. And so for some situations, that's really, really helpful for some people. Now, make sure as you go through this, cash is king when it comes to this stuff. And then make sure that you're automating as much as you possibly can. So you don't have to do all this work all the time in spreadsheets unless you love spreadsheets. Some of my friends, they love spreadsheets. I'm Mr.

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Find your advice. at IDPrivatewealth.com. Should I pay down low interest debt or invest more at the age of 50? Now, this is a fantastic question, and I want to go through some of the considerations here as we go through this, because personally, I am the person who wants most of you to be completely debt-free by the time you hit retirement. So a lot of times we talk about, hey, I don't want you paying off low-interest debt until later on life.

And this is why. But once you hit that age where maybe you're starting to approach. retirement age, I want you to start knocking off all the debt that you have because it reduces the risk level that you have in retirement. I want you to understand this. I want to say this up front. Any type of debt whatsoever that you have increases your financial risk. It does no matter what, even if it's a low interest rate, it still increases your financial risk. So why take on that additional risk in a time where you just want to be retired, enjoy life, or maybe you want to just earn a side income, something along those lines? Why take on that additional financial risk? That is why when

your income is not going to be around anymore. If you ever plan on your income not being around, that's where I want that low interest debt paid off. So I want you to kind of think through that up front as we talk through some of these considerations because that's really, really important to note. And maybe you're not the same way. Maybe you are okay with having low interest debt in retirement. Maybe you're thinking about, hey, maybe I'm going to have a side job.

I'm going to have some money coming in. And so I'm okay with that. Or I have a large enough portfolio where that portfolio is in place and I'm going to think through this. Now, I want you to kind of go through some of these considerations, though. as we think through this, because number one is interest rates versus investment returns. So if you're looking at something like paying off a house that has a 3% interest rate, or you're thinking about, hey, I need to still catch up for retirement.

I don't have all my retirement savings ready yet, and I don't have enough money where I can start drawing down on that money. And I'm not progressing towards that fast enough. Then you need to think through this stuff, your interest rates versus your investment returns. So if you have a house with 3% on there and you have investment returns where you're investing in like an S&P 500 index fund, and the returns on that are somewhere between 7 and 10%. And you don't have, you're not pacing towards hitting your number yet, then likely it's

going to be much better for you to start putting that money and automating it into your retirement accounts and your investment accounts. Because after the age of 50, you have something called a catch-up contribution, which is a beautiful add-on for folks over the age of 50, meaning that if you're contributing to a Roth IRA or you're contributing to an IRA, you can add an additional $1,000 per year into that account, or if you are contributing to a 401k, a Roth 401k, all of those different accounts, then you can contribute an additional $7,500 per year into those accounts if you're over the age of 50. So it's a powerful tool that you have available to you.

And so you could take that money and start to use those catch up contributions. That's what it's there for to help you catch up for retirement and put those in retirement accounts. Also, if you have no taxable brokerage account, you're trying to diversify your account situation, you can also put some money in a taxable account and have that there as well when you think through these investments. So if you're not on pay for retirement, I would, A, number one, always take care of your retirement, make sure that you are working towards catching up for retirement first and thinking through what is my rate of return on the investments that I'm in on average. And then what is

the consideration of interest rates on your mortgage? Next, though, the second consideration is your risk tolerance. If you are a person who absolutely hates debt, it drives you crazy, it keeps you up at night, there is nothing wrong with paying down that debt, barring that you are on pace for retirement with your investments. There is nothing wrong with doing that whatsoever. So if your investments are in place and maybe you factored in Social Security or maybe you have a pension, something along those lines, and you factored those three in and say, hey, I'm going to be okay if, you know, I continue on this pace by the time I want to retire, I'm going to be a okay. So I'm going to go ahead because this mortgage is keeping me up at night or this car loan is keeping me up at

night. And I'm going to pay this note off and make sure that I have this paid off. So that's number two. Number three is your retirement savings. Like I said, you've got to make sure that you are on pace for those retirement savings. That is your third consideration. If you're not up there, make sure you are. Number four is tax considerations. So interest on some types of debts, like your mortgage, can be tax deductible. So you want to make sure with your tax situation that you're not just paying off your mortgage and then taking away some of your tax deductions that are actually helping you. So make sure you talk to your CPA about that as you go through this. Now, also another consideration is if you have no emergency fund or you have no cash on hand or no cash flow,

then putting that money towards cash flow may be the best option for you when it comes to investing because maybe you have an investment account. You have a ton of investments in there. But remember, when you start to approach retirement age, I want you to have a large cash position in retirement. And there's a number of reasons why, but cash protects you. And cash is something where you definitely want at least a year or more of expenses in cash when you approach retirement age. So you need to start contributing towards that as well if you're over the age of 50. So making sure that you have that in place, that may be more important for a lot of folks, especially right now when interest rates are very high on a high yield savings count.

If you have a 3% interest rate in a mortgage and you can get 5% interest on a high yield savings count as you start to put this cash in there, then maybe that's another consideration that you're thinking about because if you don't have the emergency fund, really, really important to have that. Now, for me personally, I want to have, you know, two, three, four, five years of cash on hand just to protect me from downtown. for whenever something may happen. And lastly, number six is consider your diversification. Maybe all of your money is in stocks, and you have all your money sitting there in stocks

and you're not really, really super diversified. Maybe starting to add some of that money to reduce down your debt would be a wise move. It depends on where you are in life and how much you have in that brokerage account. So let me sum all of this up for you and make this super, super simple. If you are on pace to invest enough money

and you're okay with your job that you have right now and you're on pace to invest enough money by your retirement age, and you have an emergency fund that is pacing to be fully funded for however much cash you're comfortable with in retirement, then it's okay to pay down that low interest debt. But if you don't have those first two considerations and that low interest debt doesn't really bother you that much, meaning it doesn't keep you up at night, then I would make sure that you take advantage of those first two considerations, your investment account and your emergency fund, then you come back and you can pay down that low interest debt. But if the low interest debt

is keeping you up at night, it's really stressing you out, then there's nothing wrong with starting to pay down that low interest debt, considering you already have your investments in place. You always have to have those investments in place first. Otherwise, you'll never be able to retire. So you've got to make sure that you have those first. And then you can go from there. But I love this question. I love how you're thinking along these lines. And this is a fantastic approach that everybody should be thinking through this stuff, especially when you approach the age of 50. You need to think through this stuff is really, really important that you actually are considering and weighing these options out to figure out,

what the right thing to do is. So love that you are doing this and really, really excited to see what you do here. When getting a raise, how do I look up to see if it is actually a pay cut due to inflation? Now, if you've never heard me talk about this before, this is really, really important stuff here because what's going to happen is a lot of times during these high inflationary times like we're in right now, what's going to happen is your boss is going to come in and say, hey, got your raise, and they're going to give you a raise. That's 2%. Well, well, guess what? If gave you a raise, that's 2%. And inflation was 3.5%. You just took a 1.5% pay cut. And so it's really, really important to have these conversations with some of your superior. Sometimes it doesn't

work. I've had people kind of go through this process and they'll say, you know, the boss is like tough luck. We are also dealing with this inflationary period. And we just don't have the funds to give you more money. Sometimes that's a pushback. But you got to start making this happen and having this conversation because it's really, really important. So thinking about this for a second, you want to make sure that you know if you are actually getting a pay cut so that you can have this conversation. And so the first thing that you want to do

is you want to find out the exact amount of your raise. Sometimes they're going to give you a number. Sometimes they're going to give you a percentage. If they give you the percentage, you already know what the percentage is. If they don't, then all you need to do is just do the quick math. And it is the raise amount divided by your original salary

times 100. So if you make $50,000 a year, and they gave you a $2,000, then you take $2,000, divided by $50,000, multiply that by 100, and it's going to be 4%. And so that's the math on how to figure out what your actual raise amount is. Now, if they already say, hey, I'm going to give you a 3% raise, make sure you double-check that calculation.

It could be 2.79%. So just making sure you're double checking that as you go through this. Then you're going to find out what the current inflation rate is. This is super easy to do. You can Google it. You can type it into chat GPT. You can type it into whatever else you want to do. But figuring out what the current inflation rate is and then try to figure out what your

local inflation rate is. Now, these are two different numbers that are going to come up. The national inflation rate is going to come up usually at a number that is going to be different than your local inflation rate. So I like to type in maybe the large surrounding city in your area and then saying, hey, what is the inflation rate here? So for me, I live in Tampa, Tampa, Florida. So I would type in, hey, Tampa local inflation rate.

And you're going to see it's going to be a little different than national rate. So you can use both of these numbers and kind of talk through, you know, what that inflation rate is. Now you're going to compare the two rates. If your raise is going to be 4%, and the inflation rate is 3.5%, then you're okay. You got a raise. But if it's something where the inflation rate, like the last couple of years, was 7%, for example, and you got no raise or you got a 2% raise, then you just took a 5% pay cut. And so it's really important to understand that because your buying power is not the same.

And because you're buying power is not the same, you have to reduce your lifestyle. You have to make a change in some way, shape, or form of 5%. And if you've never felt 5% before, it is actually a large amount of number. Like, for example, we think your car payments should be 7% or less of your income every month. 5% is like an entire car payment for a lot of people. It is a lot of money. That difference there is a lot of money. This is why it's really, really important.

This is hundreds of dollars, if not thousands of dollars, depending on how much money you make. Some of you ballers out there, it's going to be thousands of dollars. And so because of that, this is a really important conversation to have because it is hundreds and hundreds of dollars per month differential. So when you compare those two rates, making sure that you don't have that pay cut is going to be really, really important. Now, the factors that actually impact your real income are going to be the cost of living in your area. That's why I'm telling you to look at that local inflation. The changes in taxes, for example, and then other benefits that they're adding on are going to be some of the other things.

Now, there are also online calculators out there that you can look at to use these. I haven't found like a really good one yet that I'm willing to recommend. But if you want to check out some of this stuff just to look at some of those online calculators, if you want to print off like a graph or something like that, if you want to show your boss that, that's another option that you have available to you because sometimes they have some graphs and stuff where you can make it look good.

So now, once you have these numbers in place, I want you to go and if it is a reduction in value, make sure you get the numbers, put them in a spreadsheet, put them in a presentable way, and go to your boss and say, hey, I got a 2% raise. The inflation rate over the last 12 months has been 5%, for example. This means I got a 3% pay cut based on what the inflation rate currently is. And you could say, hey, 3% may not sound like a lot.

But at the same time, I want you to think about what 3% is of this income, calculate what that 3% is, tell them the number and say, hey, I've got to adjust my cost of living by this amount of money based on what's happening over the course of the last 12 months. And so this is one of those things where I just kind of want to talk through this with you and say, is there an option for me to be able to at least have a raise that matches the inflation rate? And so if you're going into your yearly review, make sure you have these numbers handy.

And if you haven't gone through the process where we have a process talking about how to actually get a raise. If you haven't done that six months process, you could check this out at mastermoney.com slash resources. And we have a How to Get a Raise ebook that walks you through the six month process on how to get a raise. I've had so many people reach out to me

and tell me that this works. This is what I did every single day. This is what my wife did in the corporate world as well. It works really, really well. I'm telling you, it works really, really well. So once you have this stuff in place, make sure you're having this conversation with your boss because, like I said,

this is hundreds of dollars per month and the opportunity cost, You know your boy loves that opportunity cost. The opportunity costs is millions of dollars. So making sure that you ask for this different percentage is really, really important. Because A, you always want to be adjusting your investments by the inflation rate. That's another thing I want you to consider is once you have this number, make sure you're increasing your investment amount by the inflation rate.

So, for example, if you invest $100 per month to make this math really easy for your boy, and the inflation rate is 3%, then you're going to invest $103 the next year. And that means that you're just investing the same buying power year in, you're out. So that's another quick tip for all you wealth builders out there to make sure that you are making those adjustments each and every single year. So I hope that's helpful. I know these conversations are not fun. I know these conversations are uncomfortable, but it's worth it.

Would you get a little uncomfortable every single year for a million dollar opportunity cost? I know I would. So I think it's really, really worth doing so. Now let's jump into Health Corner. All right. Lastly, we have Health Corner. And Health Corner, if you don't know, is where I just kind of give a tip on what I'm doing

in these money Q&As. a lot of times when it comes to my health. And it's just something I'm super, super interested in. If you're just interested in the money stuff, you don't have to listen to this part. This is just something I like to talk through. And some people have given me feedback. They've enjoyed this.

So we're going to talk through Health Corner at the end of this episode. Just bonus content for you guys, basically, on some things that I'm doing when it comes to the health side. Now, Health Corner is actually sponsored. And with Health Corner, we are sponsored by the Cold Plunge, the Plunge. And if you've never heard of the plunge, it is a cold plunge that actually keeps your water cold 24-7. and it has a water chiller inside of there.

And it keeps your water cold inside that cold plunge 24-7. And you've seen all these different people on TikTok and Instagram doing these cold plunges. And you're like, is it actually worth the hype? And honestly, I truly believe it is. They sent me one of these things. I go in it every single afternoon. And I have more energy. I have more focus.

I sleep better. There's a ton of different benefits. And I never thought I would like it as much as I do. But I am in there literally every single day. And I usually go in there for like three minutes. One time I tried 20 minutes and it was pretty cold doing it at 20 minutes. but I usually go in three to five minutes every single day. Really, really cool tool.

So if you're interested in looking at one, we have a discount for you, but you can use promo code PFP when you look at the cold plunge there, and they have some amazing, amazing products. They also have a sauna out now, too, which looks really, really cool. So when it comes to Health Corner, today we're going to be diving into a little bit about zone two cardio, because I have found a Zone 2 cardio hack. But when it comes to Zone 2 cardio, one great thing about Zone 2 cardio is it's a little bit easier to actually have at this pace, but you burn a ton of calories. And really, it can help you

kind of burn fat as well at this pace. But it's almost where you're working out and you can have a conversation while you're working out when you're doing this. So I found a zone two cardio hack. I used to walk a lot. Walking is a fantastic one. If you hate running, walking is a fantastic one, just walking for a long period of time because you can have a conversation and still walk and just walking at a fast pace. Then there's things like the elliptical is another great piece of zone two cardio unless you're going as fast as you possibly can. The elliptical is typically something where you can have a conversation while you're doing that. And one time I found a elliptical on the side of the road that somebody was throwing away.

I threw it in my garage gym. I have a full out garage gym, which I can talk about one other day. And in that garage gym, I used to just sit on the elliptical and watch football or whatever else I wanted to do during that time frame just to get my zone two cardio in. But your boy found a hack. And the hack is, and you may have heard me talk about this a couple of times in the podcast in the past. But the hack is playing pickleball.

And if you've never heard of pickleball, it is like a cross between tennis and ping pong, basically. and pickleball is one of the most fun things I have ever done in my entire life. But it is one of the best zone two cardioes you can have when you play doubles. When you play singles, it's even harder.

But when you're playing doubles, it is one of the best zone two cardio things I have ever found. So I have an Apple Watch. And the Apple Watch, if you didn't know, and if you play pickleball and you didn't know this, a lot of people don't know this, it actually has a pickleball setting

in the Apple Watch. And so what happens is when I go play pickleball, I will check my heart rate and I will have the pickleball setting on. And obviously, Apple Watches aren't perfect when it comes to tracking your aerobic activity and tracking your exercise. But I stay in Zone 2 cardio when I'm playing doubles pickleball. And we usually play for two, sometimes even three hours.

And when we play pickleball, I'm burning per hour about 700 calories per hour, according to the Apple Watch. Now, we play pretty hard. We play pretty fast now. So at the same time, we are moving around a lot. We're trying to scramble for balls and doing this, all these different things. But we are burning 700 calories per hour. I'll get done with a two-hour session, and I'm at 14 to 1,600 calories in that two-hour session, and I don't even notice it because I'm having so much fun.

So this is a really cool way. If you're someone who's, like, looking and interested in finding a fun way to actually get exercise, especially as the New Year comes around, a lot of people are going to be interested in exercising even more. Or if you're interested in exercising during the holidays to keep those extra holiday pounds down, this is a great option for a lot of people. And I truly believe in pickleball is the fastest growing sport in the world. We've actually invested in a pickleball company, and it is one where it is one of the fastest growing sports.

We have a facility that we just bought into as well. And honestly, it is crazy how awesome it is. It's just one of the most fun things out there. So if you're interested in just kind of making sure that you are maintaining your heart rate, kind of getting that heart rate up, staying in that zone two cardio. Pickle ball is a fantastic option. So definitely, definitely check that out. And if you're in the Tampa area, check out Tampa Picaball because that's our place.

And it is one that is pretty, pretty fun to kind of, work through and kind of see some of stuff that we're doing there. So anyways, this is one of my favorite tips here for this week because zone two cardio actually changed my life. You can do this on elliptical. You can do this on a spin bike if you want to. I think even like the Peloton has zone two cardio classes. And so if you're looking for something to kind of keep off those holiday pounds, make sure you check that out as well. Now, thank you guys so much for listening to this episode. I truly appreciate each and every single one of you. If you guys have questions for these money Q&As, make sure you send me an email or reach out in a DM and just let me know that

that you have a question for a money Q&A and we'll put on the show. So if we haven't answered it before, we will put it on the show and kind of talk through some of this stuff. So listen, I truly appreciate each and every single one of you and I hope you have a wonderful week. And I'll see you on the next episode. When a country's productivity cycle is broken, people feel it in their paychecks, their communities, their futures. What does this mean for individuals, communities, and businesses across the country? Join business leaders, policymakers, and influencers. for CGs national series on the Canadian Standard of Living, productivity and innovation.

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