The Personal Finance Podcast - Can You Achieve FIRE with Only Stocks? (Money Q&A)

Starting point is 00:00:00 On this episode of the Personal Finance Podcast, can you achieve financial independence with only stocks on this episode of Money Q&A? What's up, everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew from MasterMoney.com. And today on the Personal Finance Podcast, we're going to dive into your questions on this episode of Money Q&A. If you have any questions, make sure you join the Master Money Newsletter by going to Mastermoney.com.

Starting point is 00:00:46 newsletter and don't forget to follow us on Apple Podcasts, Spotify, YouTube, or whatever your favorite podcast player is. And if you're getting value out of the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. And if you want to follow along on YouTube, it's just my name, Ander Jen Cola. And if you search that, you will see all of the episodes pop up on YouTube there. And you can follow along with our outlines and some of the stuff that we are talking about on YouTube. So highly, highly recommend you check it out there too as well. Now, today we're going to be diving in. into can you achieve financial independence with only stocks and a bunch more of your questions.

Starting point is 00:01:21 Like can you discuss life insurance options and what to get? How to get a leadership job without internship experience? What is the best way to navigate and pay off student loans? Should I sell my rental to pay off my 6.5% primary mortgage? That's a big one. Can you achieve financial independence with only stocks or do you need real estate? One person is getting a $220,000 inheritance and wondering what to do with it, how to have conversations with your partner about finances and the best of the business.

Starting point is 00:01:45 and the best points credit card for a wedding and travel hacking. So this is an action-packed money Q&A. It's more so a rapid-fire money Q&A. So we're going to dive into each of these questions. Without further ado, let's get into it. All right, so the first question is, I am a contract worker and I don't know what to do. My salary is not deducted for retirement.

Starting point is 00:02:05 What should I do when it comes to retirement accounts? So if you are someone out there who is a contracted worker and you don't get access to traditional 401K, If you don't get access to a traditional 401K, still want to build for retirement. You have a number of different options. First is you can start with an IRA. So if you want to get something where it's a pre-tax deduction, then you can look at something like an IRA or a Roth IRA. Both of those are great places to start.

Starting point is 00:02:29 Roth or traditional is depending on your income in tax bracket. But those are a great place where anybody can open an IRA or a Roth IRA, it depends on your income limits, those types of things. But if you are looking for option one, that is the first place I'd look. Secondly, if you are self-employed, let's say, for example, they pay you into an LLC. And you are a contract worker, you have an LLC where all of your clients pay you into that one location. Then you can look at something like a solo 401K. In fact, the solo 401K for solopreneurs or people who work by themselves is one of the most powerful accounts out there. Because you can contribute as the employee and the employer.

Starting point is 00:03:07 So you can get a lot more money into your solo 401K. So in 2025 alone, if you are under the age of 50, the total combined limit for those under the age of 50 is $70,000 that you can get in this account, and $77,500 for those between ages 50 to 59. And if you're between the ages of 60 and 63, you can contribute up to $81,250 into the solo 401k. So this is a very powerful account because you can be the employee and the employer. And this can drastically increase the amount that you get into some of these accounts. very, very powerful account to get started with. So if you are someone who has an LLC and you're a contractor and they're paying you into that LLC, I would highly recommend at least looking into that and doing your research on that so that you can see if that would be a good fit for you.

Starting point is 00:03:55 Then I would automate all my contributions monthly, making sure those are automatically going into those accounts, and then keeping track of expenses too, because you're going to deduct the business costs to lower your taxable income if you utilize something like this. So because you're flying solo, if you are flying solo, you have more flexibility. but you're also just going to have more responsibility. So you want to treat your retirement like a business expense. And so it's really, really important to do that. So those are some of the options you have. You can look at an IRA, you can look at a solo 401K. Those are some of the easy ones to get started with. Can you discuss life insurance options and what to get? Yes. So this is

Starting point is 00:04:29 something where we have a couple of episodes on this, but I'm going to talk through some of the options that are available and what you can do based on those options. So life insurance is actually pretty simple. There are a lot of complicated life insurance products out there. You may hear things like infinite banking. You may hear an IUL, which a lot of people on TikTok try to peddle IULs. You may hear someone say something like whole life. And all of these different policies may fit certain criteria, but for most of them, including an IUL or universal life, those are ones that I would avoid at all costs. The fees are way too high. And typically you're lining someone else's pocket by investing in those. What do I mean by that? When you invest in some of these policies,

Starting point is 00:05:06 you are paying sometimes 10 times more than what you would pay for for just traditional term life insurance, which is what I have personally, and which is what everyone that I talk to who is in my circle, who asks me, what should I do about life insurance? Term life insurance is always the thing that I look for. So term life insurance is something that you can go out and get in the way that it works, is let's say, for example, that you're 30 years old. Well, if you're 30 years old and you want to have life insurance up till the age of 60 for the next 30 years, you can buy term life insurance for that term for 30 years, and you will have coverage throughout that time frame. Now, the idea behind this is that during that time frame, you're also going to be building

Starting point is 00:05:44 up wealth, so you're not going to need life insurance after the age of 60 because you're going to have retirement accounts that are fully funded that can cover your lifestyle and take care of your family at the same time. And so term insurance, because it has this caveat where it terms when most people don't die before the age of 60. And so it terms because of that, this makes this type of insurance much cheaper. So it covers you when you need it. But then when you don't need coverage anymore, you don't have to make massive payments throughout the rest of your life to make sure somebody gets your life insurance benefit. And so this is why I love term insurance because it's so much cheaper. So for example, sometimes life is going to change and you're

Starting point is 00:06:23 going to reevaluate your insurance situation. So my wife and I were just looking at our estate plan, for example, and we wanted to make sure that whoever inherited our kids, like if my wife and I went on vacation, we got a plane accident and we both didn't make it. Well, if we both didn't make it, at the same time, who is going to take our kids? So we identified who is going to take our kids. And then from there, we tried to identify, okay, well, how are they going to take care of our kids and deal with the financial responsibility of that? Well, we're going to have some finances obviously in place for them. But in addition, if we're going to have some finances obviously in place for them. But in addition, if we get the right term life insurance policies, we can ensure that whoever takes

Starting point is 00:06:57 care of our kids is covered by that term insurance. It's going to cover all the expenses. And then our money that we worked hard to build and grow over time can then go to our kids when they come of age in in addition to some other things that I'll be in the trust. And so we reevaluated how we looked at this and increased the amount of term coverage that we had. And we went with PolicyGenius, which I highly recommend PolicyGenius. They are who I've gotten all my term insurance from. They just make it super, super easy when you do this. And so usually you're going to go out there and you're going to just fill out some forms. And usually people will ask me, well, how much term insurance do I need? Typically, my rule is anywhere from eight to 12 times your income. For me, I'm like right in the middle.

Starting point is 00:07:35 I always get 10 times the income typically. And that usually is enough to be a okay. If you have a super high income and you're like, well, they're not going to need as much income if I didn't make it, then that could be something where you reduce it a little bit or just figure out how much coverage is needed in order for them to get through the situation that arises. And so overall, term coverage is a great, great place to get that started. So highly recommend policy genius. I would check them out, LinkedIn. They're also a sponsor of this podcast, but they're a sponsor this podcast because I use them. And so really, really great place to protect your loved ones. And again, insurance is not an investment. If somebody is pitching you life insurance as an investment,

Starting point is 00:08:14 run. That is not the direction that you want to be going in, in my opinion. The next question is, how do I get a leadership job without internship experience? This is a good question. I think that there is a lot of things that you need to be doing in college outside of just going to class, making sure you get good grades. In fact, your grades matter a lot less than what I'm about to tell you matters in the long run when it comes to the real world. And so the biggest thing that you need to do is as you start going through college and as you get to the end of college is A, you need to make sure that you are networking. Now, one big way to network is obviously those internships. If you don't have internship experience, you're going to have to start networking at a bunch of different events, meaning that what career path do you want to take

Starting point is 00:08:52 and what are some events surrounding that career path? Maybe there are career fairs out there. We'll definitely need to go to those, even if it has a bunch of different careers there and start having conversations with people. But secondarily, you need to start networking at different events within the industry that you are targeting. So if you want to become an engineer,

Starting point is 00:09:11 then what are some events that a bunch of engineers go to in order to learn more about their craft? are there events out there that you can go to conferences or whatever else where you can start to meet people, shake hands, start chatting with people and starting conversations? This is a very important thing that you need to be doing because conferences, I cannot tell you, at first, I was anti-conference and I was the person that was like, oh, what's the point of that? But every time I go to a conference, I meet really valuable connections that become lifelong friends, but also lifelong contacts that we provide value to each other. And so this can be something where you can go and meet

Starting point is 00:09:44 really cool people that are going to help you find a job. They're going to help you with entry level roles. They're going to help you land at different firms if you're continuing on the engineering example and they're going to help you do a bunch of different things. Also, are there events where people in your industry go to volunteer? If there are, go out there and see if you can help and volunteer. Join clubs, join local nonprofits. Look for side projects for some of those engineering firms. Are there things that they hire out just contract labor? Can you work with contract labor? Now, networking is, I cannot stress how important networking is. 70% of jobs now are landed via networking.

Starting point is 00:10:20 And so you need to make sure that you are networking, networking, networking. I personally know for a fact, I don't network enough. This is something I'm continuously trying to work on. I need to network more. Everybody listening to this podcast needs to network more. The more people you know, the better off you will be in the long run, especially if you actually have valuable relationships with those folks. And then tailor your resume with leadership skills.

Starting point is 00:10:42 is not just titles. So talk through problem solving, team coordination, and all that kind of stuff. I know there's a lot of AI generated resume stuff out there. You can tailor it towards some of the specific things that you're thinking through. But it's really, really important to make sure that you are kind of thinking through this networking, networking, networking, networking. You're going to have to meet more people. That is the only way to really get a leadership role without that internship experience. Now, entry-level jobs, if you get into one the correct way, if you can't get a leadership role, is going to help you, as long as there's room for growth. It's going to help you tremendously in the long run too, especially if you take a job where you can learn a ton from somebody in the

Starting point is 00:11:15 industry. So let's say, for example, that you wanted to get into social media marketing. Well, if you wanted to get into social media marketing and Gary Vee was out there looking for an assistant to help him with something. Maybe it's not exactly what you want to be doing, but if you become Gary Vee's assistant, you're going to learn social media marketing and marketing very, very quickly because you went and were the assistant of someone who was some of the best in the game at this thing. So that is something I think you need to make sure that you understand is that it's not always just about the titles. It's also just making sure that you find an avenue where you can learn a ton and then grow from there. Number four, what is the best way to navigate paying off student loans?

Starting point is 00:11:54 All right. So first thing we're going to do is we'll have an entire episode coming out on this topic because it's changed a lot since the last time I've done an episode. Last time I did an episode on this was probably two or three years ago. So we are probably due for a new student loan episode because a lot of rules, a lot of regulations have changed from administration to administration. And so a lot of things are shifting. A lot of Americans are struggling with this. And so it's very, very important that we talk through this. I'm going to give you a bird's eye view of kind of some of the things I would think through. But at the same time, again, know that we will be doing a full-blown episode on this in the coming months. First, I want you to start with clarity. So I want you to log into

Starting point is 00:12:27 student 8.gov and understand your loan types. I want you to understand your interest rates. I want you to write this down and I want you to understand your loan servicer. You need to know what the heck you're dealing with here. If you don't know what you're dealing with, you are blind to which actions you need to be taking. Because if you have a high interest loan, for example, if it's above a 6% interest rate, then I think you're dealing with something that you really need to make sure that you're taking care of. If you have a lower interest rate, then you can make the minimum payments and kind of carry on going forward for a little while until you decide exactly what you want to do with those student loans.

Starting point is 00:12:57 Now, if you are struggling or you have low income to pay off that student loan, you can look at something like an income-driven repayment plan, meaning you can get your payments reduced if your income is low. So you can look into that. When you log in a student a dot gov, there's going to be some information on how to do that. If you work in public service, you can look into PSLF, which can help you get your loans forgiven after 10 years. If you are not eligible for forgiveness, you can look into one of two options. You can do the debt snowball or the debt wrecking ball, which is the dead avalanche. Same thing. The debt snowball means you order your student loans in order of balance, not interest rate, but a balance. And so lowest balance first,

Starting point is 00:13:37 the way to highest balance. And you pay off the lowest balance first, then you go to the next one, then you go to the next one. The debt avalanche is the reversed order, which is the mathematically fastest way to pay it off. But psychologically, the debt snowball is proven by tons of studies to be the way that most people actually stick with it and pay their debt off. And so with the debt avalanche, what you're doing is you're going highest interest rate to lowest interest rate and paying it off in that order. So that is the two options that you have for me. I'd probably do the debt snowball just for motivation. You know, you get the smallest balance. Boom, that one's paid off one after another. Now, if you only have one big giant student loan, then you're just going to

Starting point is 00:14:10 have one to attack. And so that changes everything. Also, if you have a really high interest rate, consider and see if you can refinance in some way, shape, or form, but only if you have stable income and don't need forgiveness options. Because once you refinance these, you can lose your forgiveness options down the line if you need some forgiveness options. So just making sure that you think through that. But the plan depends on your goals. In that episode, I'm going to kind of dive into all these different avenues and how to approach each of these avenues. because it's a bigger question overall, but I wanted to give you just some quick tips before that episode comes out. All right, question number five is should I sell my rental to pay off my

Starting point is 00:14:48 6.5% primary mortgage? Now, with this, it depends on a couple of different factors. Now, number one is, for the most part, I would not sell my rental to pay off my 6.5% primary mortgage. That rental, if it's an asset and if it's cash flowing, then it's probably not something I would sell. When it comes to your mortgage, if your mortgage is slightly in that high interest debt range, it's not something that I am really quick to pay off because eventually you'll be able to probably refinance the mortgage long term. So when it comes to high interest debt, yes, your mortgage can fall into that high interest debt category. But at the same time, this is the only caveat to that because it is not one that I would just race to pay off as fast as possible. Your mortgage is the only outlier that I would say that

Starting point is 00:15:27 with. The reason is because it would take you years and years and years and years and years to pay that off. You would not reap the benefits of compound interest when it comes to investing your dollars long term. But in addition, again, you could refinance your mortgage down the line, get a lower interest rate once those rates drop. And so that's the way I would kind of think about this. Now, if you don't want to be in real estate anymore, and you're like, I'm going to sell this house and this rental property and I want to allocate those dollars somewhere else, there's a couple of things that you can do. Again, you still don't have to go, you know, all in on your mortgage. What you could do is either take those dollars and invest them and or, you know, index funds, ETFs, put them in retirement accounts,

Starting point is 00:15:59 that type of stuff, but I probably would not pay off the mortgage. I would just try to refinance it when rates drop. Now, we don't know when rates are going to drop. That's the risk that you have to take. We have no idea when that's going to happen. But for me, I would kind of wait to those rates drop, refinance if I can get in the four range, somewhere in the around there, four and a half maybe and hope that, you know, this will make an impact. Honestly, you can also continue to refinance a few times if the numbers make sense. So if you get good at running the numbers on refinancing and what those closing costs are going to be, then you can refinance, you know, percentage point or so and just looking at the basis points and saying to yourself,

Starting point is 00:16:33 okay, well, I can look and I can refinance and it will still be, I'll still be better off than what the closing costs are currently costing me. So a couple of things to do there, but the point is run the numbers and look at it. I would not probably sell a rental to pay off a 6.5% primary mortgage if it's cash flowing. So if it's a cash flowing asset, that's probably not something I would personally do if I were in your situation. Number six is can you achieve financial independence with only stocks or do you need real estate? Well, this is a really, really good question. And there are countless examples of folks who have achieved financial independence only with stocks and not with real estate. I'm going to give you some examples and some things that

Starting point is 00:17:14 you can actually use as motivation. And then I'll explain it all after. So some examples are if you read the book, The Simple Path to Wealth, that is J.L. Collins, he goes through exactly how he did it with only stocks and he actually bought just one index fund and that was it. Mr. Money Mustache is another great example of somebody who has done it, who lives a very frugal lifestyle, but it is a very interesting way to think about it. You can read the book like Your Money or Your Life. There's a ton of books out there that talk about this, but you can definitely achieve financial independence. You don't need to be a real estate investor in order to do that. So index and fund investors are going to follow the 4% rule. So with real estate, what you do is you figure out how much

Starting point is 00:17:49 cash flow you need to replace how much money you need to make every single month. With index, X funds and ETFs, we utilize something called the 4% rule, meaning that you build a portfolio up where you can draw down 4% of that portfolio every single year and then you adjust for inflation thereafter. And so say, for example, you want to spend $80,000 per year? Well, what do you need to draw down 4% up to get $80,000 per year? It's going to be $2 million. So you can divide $2 million by that 4% or you can look at $2 million and you can say, hey, I need to draw down 4% every single year and that's $80,000 per year. And so you can do the math that way or you can just use the 25x rule, which I always talk about, which is the simple way to get there in the reverse order,

Starting point is 00:18:25 meaning that if you want to spend 100,000 bucks a year, and you multiply that by 25, that's $2.5 million need to be invested in order to draw down every single year. And so you'll need to build up 25 times your annual expenses, whatever that number is. You identify how much you want to spend in retirement. You need to build up 25 times those annual expenses and then go from there. Now, real estate isn't required, but also offers cash flow and diversification. So if you wanted to add real estate, you could, but it just is not something that is required. whatsoever. You can just do it with one. You can do it with the other. And it just depends on running the numbers and making sure the math works. If you don't want to manage tenants, if you don't want to manage

Starting point is 00:18:59 toilets, if you don't want to deal with replacing a bunch of roofs or any of that kind of stuff, then I would go with investing in stocks. It's a much easier route to go. But if you do like that stuff and you enjoy having a tangible asset that you can see and feel and go to and go to and you like managing the business of real estate, then that might be something where you can have a hybrid method. I go hybrid. I like to have both. But some people, are not made for real estate. I can tell you that right now. It's not fun for some people to have to get calls on tenants and toilets and all that kind of stuff, replacing tenants, those types of things. So the key point is to choose the vehicle that kind of fits your personality that you enjoy more.

Starting point is 00:19:34 For most people, that's going to be stocks, bonds, real estate, you have to have more knowledge and you have to have an understanding of how to run the numbers. And so, by the way, if you want to invest in real estate, we have a rental property calculator that we offer. I think it's 19 bucks. That's how I run all my numbers. We have an entire episode on it. But if you're interested in that, you can check that out. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be.

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Starting point is 00:20:50 So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy, clothes don't fit anymore, and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building. And that's where PolicyGenius comes in.

Starting point is 00:21:14 PolicyGenius isn't an insurance company. They're an online marketplace that helps you compare life insurance quotes from some of the top insurers in America, all in one place for free. And their licensed team works for you, not the insurance companies. So they help you find the right coverage for your situation without all the guesswork. And they walk you through everything. Answer your questions, handle the paperwork, and help you get the coverage that actually fits your life today and where it's going. So protect your family with a policy that grows with your life. With policy genius, you can see if you can find 20-year life.

Starting point is 00:21:46 insurance policies starting at just $276 a year for $1 million of coverage. Head to policygenius.com to compare life insurance quotes from top companies and see how much you can save. That's policygenius.com. Local news is in decline across Canada, and this is bad news for all of us. With less local news, noise, rumors, and misinformation fill the void, and it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada. Reporting on the ground from where you live, telling the stories that matter to all of us. Because local news is big news. Choose news, not noise. CBC News. Okay, when I sell my business, I want the best tax and investment advice. I want to help my kids,

Starting point is 00:22:35 and I want to give back to the community. Ooh, then it's the vacation of a lifetime. I wonder if my out of office has a forever setting. Private Wealth Advisor creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IGPrivatewealth.com. All right, so the next thing I want to talk about before we jump into the next question is there was a massive data breach that exposed 184 million plain text passwords for Google,

Starting point is 00:23:10 Microsoft, Facebook, and more. So if you haven't heard this story, we actually reported this story originally on our other podcast called The Business Show, which is like daily market and finance news. And on that show, we talked about this major cybersecurity incident that exposed more than 184 user credentials, including passwords and emails from platforms like Google, Microsoft, Facebook, Apple, Instagram, Snapchat, and even financial and government services. Now, this is a really important one because so many people were impacted, 184 million user credentials, means that it could be up to half the entire country was impacted by this one.

Starting point is 00:23:45 So this was discovered by a cybersecurity researcher, and he found the data sitting on an unprotected file online, entirely uncrypted without password protection or anything like that, and stored in a single plain text file. Now, it included usernames, it included addresses, login URLs, passwords for both mainstream tech platforms, and critical services such as banking and healthcare portals. So he also went in and he verified the identity of the breach, and he started to call a couple of people that were on that list, and they said, yeah, these are my credentials. and he went through and kind of randomly was calling a bunch of different people there.

Starting point is 00:24:18 And it suggests a file is reasonable and actionable. So this is a big deal. We report on these all the time because you need to know. But this is a really big deal for a number of different reasons. A, if you have passwords that you are using like, hey, it's my dog Fido, 2, 3, 4, 7, like a very easy to identify password. And you have it for multiple different websites. You need to change that plan.

Starting point is 00:24:38 That needs to completely change right now because this is happening more and more and more. And you're going to have to use those really unique passwords. like if you use Google passwords or if you use one password or whatever else, you need to make sure you're using a very unique password for each website now individually. I know it's annoying to have to keep track of, but that's why you use tools to help you keep track of it. Secondly, because they got this information. So they got this information, username, email addresses, log in URLs and passwords from all these different platforms. So if you think about Google, like if you have a Gmail account, you could be compromised.

Starting point is 00:25:07 If you have an Instagram account, you could be compromised, all these different places. If that's the case, and they just get a piece of your information, all they have to do, is find the rest of your information online in order for you to be dramatically compromised, meaning they can go to a different data broker and they could say to them, hey, do you know any more information about this person? Can I buy it off of you? And these data brokers can sell your personal information to folks on the internet who get access to stuff like this. And what happens is once they get the rest of your information, now they can open bank accounts in your name, now they can open credit cards in your name, now they can open student loans

Starting point is 00:25:38 in your name. And this causes a massive problem. And so when that happens, I highly recommend that you utilize a service called Delete Me. So Delete Me is a service that removes your personal information online from all of these data brokers so that you are way less likely to get compromised if something like this happens to you. 184 million different usernames is not a joke here. The likelihood of your name being in there is much higher than some other data breaches out there. So making sure you button this up. Use unique passwords. Use a service like Delete Me. If you go to join DeleteMe.com slash PFP20, you get 20% off their plans there. Ivan. You use and delete me for years, and they removed my personal information from thousands of different

Starting point is 00:26:18 websites. If you don't use Delete Me, it's going to take you hours and hours and hours to get that information removed. So I highly recommend them. They save you time. It is not expensive at all, in my opinion. And so I would highly recommend you use Delete Me. It is one of the best services out there. Also, when this kind of stuff happens, you need to make sure that you're informed and you need to make sure, A, do I have the right plan in place if this was going to happen again? If you don't, make some changes, make some shifts. Sometimes your protection plan online is just a gradual shift over time. And so making sure you make some of these changes and making some of the shifts can be very, very powerful. We have episodes talking about how to have a protection plan online,

Starting point is 00:26:52 but I just wanted to keep bringing that up as these come up. The next one is my girlfriend is getting $220,000 up front at age 23. She is debt-free, lives at home. What should she do? Well, first of all, this is a huge opportunity to make sure you do the right thing. When you are that young, $220,000 can go really, really far. Okay? Let's just have a fun little game of how far can these dollars go. Let's say, for example, that she took this $220,000 and put it into an investment with a 8% rate of return. We're going to, eh, let's go 10 because it makes all the haters mad. Google the S&P 500 historic returns. That's what you're going to get. Let's just do a 10% rate of return. Then I'll do an 8% rate of return for the haters. All right. And so what we're going to do is she's 23. If she

Starting point is 00:27:37 invested this money for 37 years. So she wanted to keep. keep it until she's age of 60. She wanted to invest those dollars over time. 37 years. And she didn't contribute another dollar to it. Okay. If she had that money invested, compenditures is so cool. She would have $7,480,8,000, $8,000. Almost $7.5 million. Okay, that's at a 10% rate of return. Let's drop it to 8%. This is why that number is really important. $3.7 million at an 8% rate of return. That's the difference between those two. when your retirement planning, always be conservative with your rate of return. Really, really important.

Starting point is 00:28:12 But I do look at the historic rate of return. I'm like, well, let's see what the 10% is always because I want to know, because that's what the S&P 500 has done for the last few decades. And so it's really important to at least look at what's the possibility of this. Now, if she started to add $400 every single month, all of a sudden, it goes to $9.1 million at a 10% rate of return. And at an 8% rate of return, it goes to $4.8 million. A big difference on that 8% rate of return.

Starting point is 00:28:36 It's almost a million dollar difference. It's obviously a drastic difference on 10 too, but it's going to be a big difference on how you can retire. So this is a huge windfall for a lot of folks. Now, let's just look at, let's just say she got a good job and she's really good with her finances and decided, okay, I'm going to start investing $1,000 a month in the same account. Well, over 37 years, at that 8% rate of return, she'd get $6.3 million. And at a 10% rate of return, she'd get $11.6 million, just from investing an additional $1,000. Now, let's say, for example, she's like, I don't retire yet.

Starting point is 00:29:05 I like my job. I'm going to go 45 years. Well, that would, this is the crazy part if you just increase the time horizon. $1,000 a month with a 10% rate of return over the course of 45 years is $25 million. So that's where you're on the precipice of just making a drastic difference with just a couple more years if you invest these dollars. I'm saying all this to say, first, I love doing the numbers and just running the math on some of that stuff because I'm a nerd about that. But I'm saying all this to say, this is a huge opportunity. And this is why it's a huge opportunity.

Starting point is 00:29:35 So here's what I would do in your shoes. A, you're going to do your own research. None of this is advice. I'm just telling you what I would do in your shoes. If I had $0 and I was starting from the beginning, A, I would follow the 136 method, which you can go to all the way up to six, and I would make sure I have an emergency fund in place for life.

Starting point is 00:29:50 Life matters to have protection there. And so I'd make sure I have six months of expenses there. Now, she doesn't have that many expenses, so you can set aside 15 to 20,000 bucks in a high-yield savings account because you don't pay rent currently. So that's one. Two, the Roth IRA is a very powerful place to put dollars when you're young. especially if you don't make a lot of money. Now, maybe you do make a lot of money. But if you don't make a lot of money, it's a very powerful place to watch your dollars grow completely tax-free. Because your time horizon is so long, the majority of your growth is going to be tax-free dollars. In fact, if you look at the numbers I was just running, let's see if I still have it here. If you were looking at the numbers I was just running, if you got to that $25 million balance over the course of $45 million, you would have contributed $540,000 and $24 million would be completely tax-free if that was in a Roth IRA, for example. Yeah, you can't get $200,000.

Starting point is 00:30:36 $20,000 in a Roth IRA all at once. But in that example, over time, you'd have a massive amount of money is what I'm saying, invested into something like a Roth IRA and a massive amount of it could be completely tax-free. So just thinking through that over time, obviously you can't get that much in a Roth IRA. For that scenario, you'd have to do some other things, which we talked about in past episodes. But that's just an example. If you put them, let's say your Roth IRA grew up a million dollars. Typically over the course of 30 years, we've used this example a number of times, about 880,000 of that is going to be completely tax-free. So it's really cool what you can do with a Roth IRA. Also, I would look at opening, if you have a 401k at your work,

Starting point is 00:31:11 you could do that, or if you run a business or something else, you can look at a traditional IRA. If you don't, you can open a traditional brokerage account and start investing the rest of the money there and growing that money over time. And then you can also make sure that you have a written out investment plan. So if I were used, since you're so young, you can even talk to like a certified financial planner, but get a written plan, a fee-only planner where you get a written plan where they're not taking a percentage of your assets under management, and they put a plan together for you that's going to help you grow this money based on your risk tolerance and all those different things. And then don't rush into any big purchases doing things like buying a house at this age when you

Starting point is 00:31:46 don't really know what you're going to be doing with your life yet or going out there and spending this money on stuff. That will not matter in the long run is a very expensive mistake when it comes to compound interest. You are so young and these dollars are so valuable that it is incredibly powerful. So if you haven't, check this out yet. So if you go to mastermoney.com resources. We have something called the wealth builders matrix. And in the wealth builders matrix, it's a resource that shows you here is how much your dollars are worth based on how old you are and how long your time horizon is. And it is a really cool resource to show every single dollar that you invest over time how much it's going to be worth. And I love utilizing that resource.

Starting point is 00:32:23 A lot of people like it too. So that's how I would think about this money is I would make sure that you are really careful how you use this. If I were in your shoes, I probably wouldn't spend any of it. And I would keep all of it for future me because it is so, incredibly powerful what you could do with these dollars. So that's how I would think about it, but just let me know if you have any other questions on that. How do you have a conversation with your partner about finances? So this is a really good question. And you are in luck because the episode before this one came out, we did an entire episode on this on like the ultimate guide on how to do this. So if you go to mastermoney.com slash resources, you can get the resource on us talking through that.

Starting point is 00:32:58 But at the same time, what I want you to do is I'm going to give you a quick bird's eye view of some of the stuff we chatted about in that episode so that you can, you know, get a starting point. First is we're not going to open up with this conversation when we start to chat about this with we need a budget. We need to make sure that we are tightening it up. We need to cut back on our expenses. We need, we need, we need. Instead, here's how I want the conversation to go. What do you want our life to look like in the next five years? Start to dream about what you want life to look like. And here's why. Money is a tool. And money is a tool to get what you want out of life. For some people who put their money in retirement accounts, you know what they're

Starting point is 00:33:33 with those dollars, they're saying, I want to be able to have financial freedom. That's what they're saying with their dollars. You vote with your dollars with which what you want to do in life. If you say, I want to put this into a designer handbag, you are sacrificing more hours that you have to work in order to buy that handbag. If you say, I want to go out and buy this brand new car, you're saying, I am willing to sacrifice more time, more energy, and more of my work in order to buy this depreciating asset, which is a car. If you say, I want to take my dollars and invest in real estate, you're saying, I want to accelerate my path to financial freedom, invest in real estate. If you're saying, I want to spend more money on a vacation, you're saying I value the time spent with family and

Starting point is 00:34:15 friends, and I want to spend more time and more money and energy on that. Do you see how you're spending decisions are going to dictate what you're really voting for? You're voting in life with your dollars. And so where your dollars flow and where your dollars go means that you are voting for a very specific thing. And so at the same time, as you start to think about this, you say to your partner, where do we want to be in five years from now? Because this is going to allow you both to dream together. This is going to allow you both to have a conversation. Maybe it's, I want to buy a house. I want to have roots down, and I want to go out and buy a house, and I want to be able to buy a nicer house and the one that we're in right now. Or maybe it's like,

Starting point is 00:34:49 hey, I want to have a little more time to spend with the kids. And I want to have the flexibility to be able to reduce my workload so I could spend more time with the kids. Or maybe you want to go on more vacations or you want to make sure that you're getting more in retirement accounts. You want to be debt-free. Whatever that is, where do you want to be in five years? Think about that first. What does your dream life look like? Okay? That's where you're starting. Then you want to start to talk through your income, your debts, your spending habits. In the episode we just had before this one, we talk through all the questions to ask with your partner. I highly encourage if you're just starting off with this to use a money date, meaning, you know,

Starting point is 00:35:21 a 30-minute date every month to kind of talk through money and finances, but always start it with dreaming about stuff. Always start it with the end goal in mind because this is going to help you get on the same page. There's no pointing fingers. There's no saying you did this or you did that. This is coming from a place that you both are on the same team and the same page. I truly believe that money talk should be about dreams and not spreadsheets. And so making sure that it's a team effort is the most important thing. So congrats, I don't even thinking about that. That's awesome. Let me know if you have any other questions, though. What is the best points credit card for wedding plus travel hacking? Ooh, this is a good one. So if you guys don't know already, if you go to the

Starting point is 00:35:57 personal financepodcast.com, we We have a little icon at the top that says best credit cards. That is my credit card icon that will help you with all my favorite credit cards. It's affiliate link, yes, but it is all my favorite credit cards are out there. But we're going to talk through some of these that I think are pretty good. So my daily driver, which is in my wallet right now, is the Chase Sapphire Preferred. I've had it for a long time. And it is one that has given me tremendous amount of benefits.

Starting point is 00:36:21 I have a lot of Chase business cards. And so having the preferred helps me kind of combine all those points into one so that I can utilize those four trips and Chase's travel portal is absolutely fantastic. So that is a great one to look at. Another really, really good one is the MX gold. So the AMX gold card gets you 4X on restaurants and has some great transfer partners as well. Having the flexibility is really powerful. And so AMX has some great transfer partners. Chase has the best transfer partners in my opinion. Capital One is pretty good too because they're flexible points. So you can look at the venture, something like that. We have all those on our sites and you can kind of read through the differences that compare them.

Starting point is 00:36:55 But those are some of the ones that I would start with. The Chase Sapphire is a great starting point. The AmX Gold is a great starting point. The Capital One Venture is another great starting point. And then obviously, never carry a balance, always paid off in full. We actually have an episode that we did recently about all of our credit card rules. And that's a really good place to go there as well. But I would stack bonuses during major life events.

Starting point is 00:37:14 And you can travel for free on your honeymoon if you do that. So really, really good stuff there if you are looking for some of the big opportunities. And then looking at which one has the best signup bonus currently can also help you a lot. in terms of how far you can stretch those points and those dollars. So we'll have an updated travel hacking episode. Chris Hutchins from All the Hacks is going to come back on here too. We're going to chat about some more optimized credit card stuff. He goes deep in the weeds. So get ready for that one. It's going to be a fun one. So without further ado, that is the last question that we have for today. If you guys have any questions, make sure you join the Mastermoney Newsletter by going to mastermoney.com slash

Starting point is 00:37:49 newsletter. And don't forget to follow us on Apple Podcast, Spotify, YouTube, Andergen Kola on YouTube, whatever your favorite podcast player is. And share this episode with a family member, friend, coworker, whoever you think would get value out of this episode. Can I thank you guys enough for being here? I truly appreciate each and every single one of you. And we will see you on the next episode. Rosen lasagna, medium power, 15 minutes.

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The Personal Finance Podcast - Can You Achieve FIRE with Only Stocks? (Money Q&A)

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