The Personal Finance Podcast - How to Build a Vacation Fund That Pays You For Life + (Money Q&A)

Starting point is 00:00:00 On this episode of the Personal Finance Podcast, how to build a vacation fund that pays you for life plus money Q&A. That'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 diving into how to build a vacation fund that pays you for life plus money Q&A. Now, if you guys have any questions, maybe. sure you join the Master Money newsletter by going to mastermoney.com slash newsletter.

Starting point is 00:00:40 And don't forget to follow us on Apple Podcasts, Spotify, YouTube, 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. I cannot thank you guys enough for leaving those five-star ratings and reviews. Now, today, we are going to be diving into how to build a vacation fund that, pays you for life. And in this episode, we're also going to dive into a bunch of your questions in this episode of Money Q&A. But I want to kind of put on my mad scientist outfit on today because I love

Starting point is 00:01:16 thinking through unique ways for you to save and invest your dollars. And we recently did this on an episode talking about paying cash for cars and people loved it. We had so many different people sending us an email saying, I never thought about it this way before. This is a really cool. Can you do more episodes just like this? And so I wanted to talk through ways that you can pay for specific things by building up a portfolio and then utilizing that portfolio to actually pay for your liabilities or things that really are just going to be paid for in cash otherwise. And so I'm really, really excited to think through exactly how you can do this because this is a really, really powerful methodology that is going to allow you to pay cash for all of

Starting point is 00:01:59 your vacations. But the goal here is to build a portfolio where you can draw on that portfolio for vacations for life. And this is specifically earmarked for vacations. Now you can do this for all kinds of different things, but in this episode, we're going to be talking about how to utilize it for vacations because this is something that I am going to be doing. This is something I'm going to be building up is a vacation portfolio so I can utilize it for experiences and things that I want to do throughout life. Now, the first thing I want you to do is I want you to figure out how much you spend on vacations per year or how much you want to spend on vacations per year. You got to figure out what your target number is first.

Starting point is 00:02:35 And what we want to do is once we figure out what that number is, then we can decide, okay, well, how much extra do we normally put aside for vacations? And how can we take those dollars and put them towards investments instead? So let's say, for example, that you put $500 per month towards vacations. Well, instead of putting it in your high yield savings account for your vacation fund, we are going to think about and consider putting this into a brokerage account. We're going to try to grow this over time so that we can grow this into a portfolio that will actually make sense for our vacations. So this is part of the whole plan. This is part of the whole

Starting point is 00:03:10 idea. I just want you to understand the direction that we are going in with this so that we can look at how we can take these vacations. Now, a good time to do this for a lot of you out there is if you are young, maybe you're in college, maybe you're in your 20s, maybe you're in your 30s and you have young kids. A good time to do this is when you don't plan on taking these massive lavish vacations over time. Whereas you know, hey, I'm going to be working right now. I'm focused on my career or I have young kids and a young family, I'm not going to be going to on a bunch of flights or trips, or I am going to be, you know, in a season of life right now, or I probably will not be traveling all over the place. Instead, I plan on traveling a lot, maybe in my late 30s, late 40s, somewhere

Starting point is 00:03:49 around there. And I want to be able to start to take some of these vacations. This would be a good time to do this. Also, if you are in your 40s or 50s and you're thinking about taking a lot more vacations when you're retired, just developing an earmarked vacation fund as part of your investments, can be a really cool way for you to build a portfolio that is just for vacations that you don't feel guilty about spending those dollars and spending that money. Now, sure, I would not sacrifice, you know, putting money in a retirement account that you're marking for that. But what I would do is if you do have extra dollars that you're putting towards vacations, you can think about doing something like this. So we want to pick the monthly number. How much extra do we have available to

Starting point is 00:04:25 actually put towards this? Now, I want to be real here. Not everyone has extra money to put aside towards vacations. And so if you don't, don't worry about it. As time goes on, I just want you to think about this and understand this concept. When I didn't have enough money to put it set aside for vacations, I used to dream about stuff like this. But those dreams turned into motivation and that motivation turned into reality once I was ready to get after it. So I don't want you to just turn this off because you don't have extra dollars on hand and said, I want you to think about how can I do this? How can I actually make this happen? All right? Next, we want to open a taxable brokerage account. Now, in the taxable brokerage account, you could do this in a number of different places. I will link my favorites down below in the show notes.

Starting point is 00:05:04 Vanguard Fidelity, so far, there's so many out there, public. There's so many out there that you can do this with. I will link my favorites up down below in the show notes so that you can check that out. But you can just use a regular brokerage account, not your 401k because you can't access those funds, not your Roth IRA because you can only withdraw the money that you contributed. We want to make sure that we can also reap the benefits of this early and often. So we want to have additional flexibility. So a taxable brokerage is what I like to use. an earmark for this because I think it's something that you can really get some cool stuff going with. All right. Three, I want you to do something simple with each contribution. So once you have the brokerage account open, we want to auto invest the set amount that we started with in step one into this account. So if it's $500 per month, we want to send $500 per month automatically into this brokerage account. If you already have a taxable brokerage account open, that is a okay. What I like to do with stuff like this is I just earmark it with a specific fund. So if you're like, hey, I don't want to open another brokerage account just to do this. No, you don't have to. What you can do is, let's say, for example,

Starting point is 00:06:06 you invest in VO is your core holding inside of a taxable brokerage account. And you just want to invest in another S&P 500 index fund. Well, you can do something like an SPY or whatever other S&P 500 index fund you like to invest in as an earmarked differentiator. That way, you can have this ETF and you know all the money going towards that ETF is just going to be the ETF for your vacation fund. Because in reality, if you are buying the ETFs and, you know, if you're buying ETFs right, they're just mirroring the index. So that's all you're really looking for is one that mirrors the index that has low cost, that doesn't have a high turnover ratio, those types of things. And so when we think about what we are going to be investing in, that is the way I look at it.

Starting point is 00:06:44 As I just earmark specific funds for specific goals. And that's basically like having savings buckets when it comes to a tax brokerage account. It's very simple because there's seven or so S&P 500 ETFs, for example, that are pretty comparable across the board. Now, there's some bad S&P 500 ETF, so you want to watch out for those, but there's a ton of comparable ones. Now, if you want our index fund and ETF cheat sheet, by the way, we will also link that up down below in the show notes. So make sure that you check that out if you were looking for that. So that's the thing that we want to do is we want to make this simple with every deposit. We want it to be automatically invested with every deposit to make this easy. Now, this is where the key comes in. For the first 10 years,

Starting point is 00:07:22 we want to make sure that we are really getting this money compounding. And if you can do this on top of your regular vacation saving, that's great. But we really want to try to not touch this for a little while. And so many of you out there are like, well, this is my vacation money. How am I going to take a vacation? Well, this is where the travel hacking comes in. And I think for many of you out there, if you're in a seasonal life or you're not going to take a ton of vacations while you're thinking about this, you can do travel hacking that

Starting point is 00:07:45 will cover the majority of your costs for any vacations that you take coming up. So how does travel hacking work? You put all of your bills that can go on a credit card on a specific card that is for travel rewards. I'll link my favorites up down below as well. So we got a lot of links to the show notes today. But we will link our favorites up down below so that you can check it out. But there's a bunch of them out there from a Chase Sapphire Reserve. The MX Platinum is what I'm using right now.

Starting point is 00:08:08 There's the Capital One Venture X. There's tons of different cards out there that are absolutely wonderful. The Chase Sapphire is my favorite or the Capital One Venture or my two favorites to start with as travel cards because they have flexible points. You can move them to travel partners. But essentially, what you're trying to do is you're trying to invest your dollars that would go towards vacation, and you're trying to travel hack with the rest. And so once you start to travel hack and you put every single bill on this credit card, then you pay it off in full every single month. I personally like to pay it off in full every single week.

Starting point is 00:08:38 It keeps me on top of my money. And it allows me to make sure that I am not just getting out of whack when it comes to my credit card. So I'm very particular about this. I want them paid off every single week so that I am just on top of every single week. so that I am just on top of everything. I cannot stand having a credit card balance. It drives me up a wall. And in fact, if I spend a lot on a credit card in a given week,

Starting point is 00:08:57 like for example, we had to host a party for my daughter this last week. So we put about $1,000 on a credit card, actually $1,500 or so on a credit card. And it just drives me crazy that that balance is even on there. I want to pay it off. And that's probably just a psychological thing and probably something I need to work on. But in reality, that is something I love to pay them off every single week

Starting point is 00:09:16 because I do not like when they get out of whack. Then you can use the points in miles for hotels. You can use them for airlines. You can even use them for rental cars, although I don't think your dollars go as far on rental cars. And this, we just had a masterclass inside Master Money Academy going through exactly how to travel hack. Travel Hacking 101, we had a full one hour masterclass teaching people how to do this

Starting point is 00:09:36 because I think it's a really, really important thing that you need to understand and you need to note when it comes to being able to build out this portfolio, okay? If you've been listening to this show for a while, you know it's not just me anymore. It takes a great team behind the scenes to make everything happen. And if I had to hire someone tomorrow, I'd want someone who could jump right in and make an impact. That's why I'd use Indeed Sponsored Jobs. When Workplace Chaos hits, Indeed Sponsor Jobs helps you reach qualified candidates faster. Your job gets boosted in search results, so you're spending less time searching and more time interviewing the right people. Plus, you only pay for results, which I absolutely love.

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Starting point is 00:11:05 If you've watched the video version of this podcast lately, you've probably noticed the wood slat wall behind me here. Now that's actually one of my favorite upgrades we've made, and we got it from Wayfair. I wanted something that looked clean, professional, without spending a fortune or making the project overly complicated. And the Slat Wall completely changed the look of the studio, and it's now the backdrop for every single episode we record. You're probably looking at it right now if you're watching on video. And one thing I appreciated was how easy Wayfair made it to compare options.

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Starting point is 00:12:12 So what's going to happen here is over the course of the next 10 years, you will see that this will start to grow. You start to put these dollars in, your portfolio begins to grow, and then you can decide, okay, once I am here, let's say you put $500 per month over the course of a decade. Well, if it grew at an 8% rate of return,

Starting point is 00:12:29 you are sitting at nearly $92,000 by year 10. And if you put $250 per month in there, you're sitting with about $46,000. And with $1,000 a month, you already have $183,000. A thousand dollars a month can actually get you a really nice vacation portfolio. But obviously, this is a huge luxury. Not everybody can do this. I'm going to say this over and over again, don't get upset, don't get mad.

Starting point is 00:12:51 I know everybody can't do this. I'm just showing you different examples so you can see the power of compound interest. Now, what you want to do is you want to keep the balance growing while it pays you. So if you get to the point in time where you realize, okay, I've got $100,000 over the course of a decade in this account. and I only spend $4,000 per year in vacations, guess what? You can start drawing on that thing at $4,000 per year and trying to preserve that capital. But let's say you need $8,000 per year

Starting point is 00:13:16 where you're going to need to continue to allow that portfolio to grow because we're using the 4% rule on figuring out how much we can withdraw here, okay? So when we think about this, the 4% rule is actually somewhat conservative. It is a somewhat conservative way to figure out how much you can spend every single year.

Starting point is 00:13:32 And if you continue to contribute to your vacation fund every single year with your $200, $300, $500, $1,000 per month and let it grow. And then you pull and draw down in that portfolio. You're going to see that this thing is going to pretty much grow over time and have a big, big difference for you long term where then all of a sudden you don't have to contribute it to it anymore once you hit your goal and you can start to draw on this portfolio. Because at a certain point in time here, you're going to reach a point where this is going to cover your entire trip and it's going to cover a yearly trip.

Starting point is 00:14:04 Now, if you want to start to take bigger and bigger vacations, continuing those contributions while drawing on it can be something that you do. If you want to take smaller vacations until your kids get to, like being teenagers, for example, then you can start to slowly begin to draw on it once they get older, or pay cash and let it compound for a little longer, and then you can take even bigger trips later on down the line. The cool thing is there's so many different parameters around here. Now, one thing you can also do is add guardrails.

Starting point is 00:14:34 And so guardrails are just, you know, if the market's up, you can actually spend more and you can actually pull more money out when it comes to taking your vacation. When the market's down, you just don't take as big a vacation vacation that year. Maybe you take a smaller vacation or go local or whatever else. But this is going to allow you to also spend more in this portfolio. So I want to give you a couple different examples of how this can happen because I think there's some cool things that you can do here. Okay. So we're going to do a monthly contribution of $500 a month. Okay.

Starting point is 00:15:01 That's $6,000 per year that you're putting in this account. So over the course of 10 years, you're going to have $92,000 in that portfolio. And by year 11, you can start to draw down $4,000 per year from this portfolio if you wanted to. So here's the cool thing, okay? I want to show you how this works. So let's say, for example, that you decide you're going to continually keep investing. You're going to continue to keep putting money into that account. Okay.

Starting point is 00:15:25 So by year 11, you can start to draw down about $3,600 in year 11. By year 15, you're going to be able to draw down about $4,300 per year. year. Okay. By year 25, now you're drawing $6,300 per year. By year 35, you're now drawing down $9,300 per year. And by year 40, you're drawing down about $11,300 per year. Now, this is a simple example of if you're withdrawing earlier, that's what's going to happen. But let's say, for example, you wanted to wait a little longer because I just want to show you this example. Again, I'm just mad scientisting here. You don't have to do this if you don't want to. I am doing this for fun because I think this stuff is really cool to do. But let's say, for example, you wait 15 years

Starting point is 00:16:08 before you start to grab any contributions. Well, if you waited 15 years, by year 16, you can already draw $7,000 per year for vacations. Like, imagine if we thought about this for a second, and all of a sudden, you're drawing $7,000 a year for vacations. By year 25, in that example, you could draw $10,000 for vacations. And you're going to actually hit your $12,000 goal by year 31. and then by year 40, you can draw $17,000 per year for vacations. That's pretty cool, I think. And I think in reality, you know, there's a lot of different examples of how you can do this. Like if you bumped up contributions, for example, and you changed the contributions to,

Starting point is 00:16:46 let's do $1,000 per month, just to show you what is capable here. And you waited 15 years before you started to withdraw on this. You could withdraw $13,000 per year by year 16. By year 25, let's say. you could withdraw $20,000 per year if you put $1,000 per month in there. Wild stuff. It really is wild stuff.

Starting point is 00:17:07 And I think this is kind of the cool thing about what is happening here is that you can do some really cool stuff with this. Now let's say you're a really high earner and you're like, I love travel. And in fact, I am really good at points in miles. We have a lot of people listening who are good at points in miles.

Starting point is 00:17:21 And I want to bump this up to $2,000. I'm just going to show you maximum. Let's go maximum level to see what happens here. Well, if you do that and you bumped it up to $2,000, by year 16, you would already be able to withdraw $27,000 per year, which is absolutely wild if you waited for 15 years before you actually withdraw. What if you waited only 10 years, but you put $2,000 per year in there? You'd be able to withdraw $14,000 by year 11 every single year.

Starting point is 00:17:51 And then by year 25, you'd be able to withdraw $25,000 per year for a vacation. Now, again, I get it. It's a lot of money to be putting in the vacation fund every single year. I know most people cannot do that. And so if we go down to $100 per month, let's see some cool stuff happens here. So by $100 per month, and let's say the points in miles phase just lasted while you had, you know, before you had kids maybe,

Starting point is 00:18:15 and then by the time your kids, you know, were starting to get a little older, then you started to take some vacations. Well, if you waited 18 years, you could start to withdraw $2,000 per year for vacations if you put $100 per month alone. So just $100 per month, you can still build out a vacation fund that allows you to take a $2,000 vacation per year over the course of the next two decades. And I just think that's a really cool thing.

Starting point is 00:18:37 I think it's a really cool thing to show that, hey, maybe I start my vacation fund with a small amount of money. Maybe it's $50 a month. Maybe it's $100 per month. And as I start to make more money, I can start to add more to this fund. And then all of the sudden, this fund is going to be growing over time. And I'm going to be able to take some pretty cool trips just by building out this portfolio and drawing it down.

Starting point is 00:18:56 The cool thing is you'll be able to draw on it for and preserve it long term once you're ready to stop. Once the amount that you can pull down every single year is enough for you, you can stop. You don't have to keep contributing to that account. You can then stop and start to draw on that portfolio and it'll continue to preserve over time and then you're done. You're done at that point in time where you don't have to worry about it anymore. Again, this is a luxury. This is something that not everybody can do. But I wanted to put on my mad scientist hat today to show you exactly some of the cool things that you can do with some of the

Starting point is 00:19:26 these funds so that you can see just the power of being creative with your finances. There's a power in having a creative mind when it comes to setting up some of these things. And even if you have small amounts of money, you're young and you want to travel later on to the line. It's just a cool idea to do this. Now, if you were going to use the money within the next three to five years, I would not invest money for a vacation. All we're talking about here is long term, if you're going 10 plus years and you want to build out this portfolio, I think it's a really cool thing. Or the other thing you could do with this is let's say you have a big dream vacation. You want to take your whole family. You want to take your whole family to Ireland because that's where your family roots are. You want to take your whole family

Starting point is 00:20:00 to Africa. You want to take your whole family to China. Well, if you wanted to do that, and it's going to cost you $50,000, but you want to do it in the next decade or so before your aging parents, you know, pass away or something along those lines, this is exactly how you do it. You build out a portfolio, start to invest in there and you watch it grow and let compound interest help you get there. Let it help you get there. Now, again, there's risks having money in the market. If the market tanks at any point in time, you know, you got sequence of returns risks. You got all these different things in play. So don't think the market just goes up and to the right forever. But this is one of those things that you just want to weigh out the risks, the pros, the cons. There's a lot of things here. But it is really,

Starting point is 00:20:37 really cool what you can do with a vacation fund like this. All right. Perfect. Now let's jump in to some of your questions. All right. The first question is from Daniel. Daniel says, thank you for all you do. I make 100 to 120k a year. I'm 44. I have $135,000 in my Roth 401k. No debt other than my mortgage. And $32,000 in a high yield savings account. I'm working 60 plus hours a week to make ends meet. And I want to invest in real estate, but I feel like I need to get rid of my mortgage first.

Starting point is 00:21:07 Should I pull $80,000 from my 401k and use the rest of my savings to pay it off? Or is there a better path. All right, step one, Daniel, is first of all, thank you so much for the kind words. And you are doing great right now. I think I want you to hear you clearly before anything else that you were in a really strong position. You're 44. You have zero consumer debt.

Starting point is 00:21:26 you have $135,000 in a Roth 401k and $32,000 in cash. A lot of people would love to trade places with you and where you are right now. The first thing I would say, though, is I want to protect you from pulling money from your 401k. Charlie Munger, who is Warren Buffett's business partner, has this quote. And this quote is a very powerful quote to understand and to think through when it comes to every single decision that you have. Never interrupt compound interest unnecessarily. the last thing that you want to do is pull money out of your 401k to pay off something like a mortgage a mortgage in my opinion is one of those debts that i am okay with you having it's one of

Starting point is 00:22:05 the only debts that i'm really okay with you having in terms of of having this a place why it's backed by something that most people value and they know what the value is at least you know the range of what that value is but in addition usually mortgages have low enough interest rates where it is an high interest debt if it becomes high interest debt then at some point you know at some point in time, you can refinance down the line. Now, sure, rates can go up and rates can go down. And so we want to make sure that we are cautious about this. But in reality, you can refinance at some point in time when rates drop. Okay? That's the black and white version of this. I want you to understand this. This 401k is going to be a big portion of how you want to think about retirement.

Starting point is 00:22:45 It's going to be what helps you in retirement. And typically for most people, we want to make sure that we are keeping those dollars invested. Because even if it doubles every 10 years, Let's say you got a 7% rate of return and you double this about every 10 years. You could have a really good portfolio of around $500,000 by the time you turned age 65. So I really think I wouldn't worry about that. Now, you said that you need to get rid of your mortgage before you can invest in real estate. You don't need to get rid of your mortgage before you invest in real estate. You can also invest in real estate and have a mortgage on hand.

Starting point is 00:23:13 And in fact, you can utilize the cash flow from those mortgages or those homes that you are purchasing and you can either buy more houses and or you can utilize it to pay off your mortgage if it bothers you. To me, though, it sounds like the mortgage bothers you. And if it does bother you, you can have a paydown plan that you put into a place, but you want to make sure that you're hitting those retirement goals first. You want to make sure that you were on track with your retirement number before you just throw extra dollars at a mortgage because you can't live off a mortgage. A mortgage doesn't produce cash flow for you. And so in reality, you got to make sure you get your portfolio up as well.

Starting point is 00:23:45 So all your assets are not in one specific thing, which is your home. And that's a big key, I think, for a lot of people out there is understanding that if you put too much of your net worth in your home, it's going to be very difficult to retire when it's time. Sure, your net worth may even be high. You may have a million dollar net worth and you can consider yourself as a millionaire. But if you don't have that money invested into a cash producing asset, things like stocks, ETFs, index funds, real estate, those are the types of things that actually help you retire because they produce enough income to allow you to retire. So there's two separate things that we're talking about here. And this is why I talk about

Starting point is 00:24:20 home is truly a lifestyle choice. It is a lifestyle choice that allows you to do some cool things, and it is going to help you build your net worth up, but it's not something you can draw on in retirement. I just want to make sure everybody hears me on this because it's really, really important to note that we live in a country that believes that real estate is king. You've made it in the USA if you own a home. You got a home, you got a yard, you got a family, you got a dog in the backyard, and that's when you've made it in the USA. No, you need to run the buy-verse rent calculation. And you need to understand that more important on this list is going to be investing for retirement and making sure you're taking care of your freedom number. That's the key for many folks out there.

Starting point is 00:24:59 So really good question here. So Daniel, if I was in your shoes, I would not pull from the 401k whatsoever. I would do what I did. When I first started real estate, there's a couple options you have. One is you can partner with someone who has cash and you can be the sweat equity partner and you are 50-50 partners or maybe they're 60-40 to get them to use their cash or even 70-30 to wet your whistle in real estate. This is going to be your education. This first deal is going to be your education. And so you want to learn, okay, how do I buy a home? How do I go out there and renovate this house? How do I get tenants in this home?

Starting point is 00:25:30 How do I make sure I'm doing the right things when it comes to this? This is how I started. I didn't put any money into the deal that I got a cash partner to come in so that I could then be able to learn how to invest in real estate. And I did my first couple deals this way. And I recommend anybody out there if you can find a sweat equity or cash partner to do it. If you go to real estate meetups, you can find people who have cash, who are just looking for hungry folks that are willing to work hard so that they can get their cash to work.

Starting point is 00:25:57 That's the key that I would look for first. If you don't have that option, then saving for a down payment in a separate high yield savings account is really, really helpful. That's what I did. I would put cash away every single month and I would put it in a high yield savings account. And I would just earmark this for real estate until I had enough for a down payment. And then you put that money towards your down payment. You go get a loan in the real estate and make sure it cash flows. You got to run the numbers. It's got a cash flow. But if you run the numbers and it's got to cash flow. But if you run the numbers and it's, cash flows, then you're in a good spot. You're in a good situation. And I think that is something where once you get that rolling, you have enough for the down payment, then you can buy your first property. And then you do it again. And then you do it again. In the first 10 years, it feels like you're grinding and maybe you have a couple of properties. But if you're doing it right and you run the numbers right and they start to cash flow, well, then you can cash out refinance. And if you look into the Burr method, it's called buy rent, rehab, refinance, repeat. That method allows you to buy real estate,

Starting point is 00:26:50 with one set of capital, and you are able to buy a large number of houses as long as you don't make a mistake when you run the numbers. So master during this time frame running the numbers on rental properties and running the numbers on local real estate, don't pull the money from your 401k and continue to save towards your first real estate deal if that's your goal. That's your big goal. Continue to save towards that. I am more of an index funding ETF guy over real estate now. I just don't think there's a lot of deals like there used to be in the current market, at least at the time I'm recording this. But some. people love real estate. And if you love it, go for it because I think it's, it's something that

Starting point is 00:27:24 can build a tremendous amount of wealth. And we have had plenty of guests on this show who have built tons of wealth. A Brandon Turner, for example, was just on the podcast about last year and was an episode that I absolutely loved. And so yeah, definitely check that out if you haven't already. And it's going to be one that I think can be really helpful for a lot of people. Next question is actually from Spotify comments. So it's the last Def Star. You talked about the system to pay cash for cars and how strong not having payments can be for investing. But where do you recommend buying cars for cash? I'm young and plan on buying a car for cash soon.

Starting point is 00:27:57 Listen, I love this question and I love that you're young and thinking about this. So when I first started thinking about cash for cars, and for most people listening right now, if you haven't heard our episode on paying cash for cars, it is one that we just recently did. You can go back and check it out. We'll have the team link it up down below in the show notes so that you can check it out.

Starting point is 00:28:13 But in that episode, we kind of dive deep into some of the pros and the cons of paying cash for cars. And then we go into if you've got to finance a car, here's how you finance a car. So make sure you check it out if you haven't. But I'm going to dive into here, like some of the places where you can go and find the best deals for cash for cars. One is you can buy from private parties.

Starting point is 00:28:32 There was a website back in the day, and I don't think they do it anymore. It might have been off the internet now, but it was called the cash car convert. And this guy would pay cash for cars, and he was all about talking about cash for cars. I think he just ran out of topics to talk about, to be honest. But he would talk about paying cash for cars. And his favorite way to find a deal was, from individual buyers where he would go and find, you know, one owner owned vehicles and try to find really well-maintained vehicles. And he would go around there and he had all these tips and

Starting point is 00:29:02 tricks for finding a cash car. So the best way is to find, find it from the actual owner. So you can search Facebook marketplace or places like that or even see if you can find, you know, websites that list some of these individual owners. And what you want to look for is a couple of different things. One, if you pull up to a car that someone has listed and it is all messy and dirty and you can tell that they are just not taken care of whatsoever. That is red flag number one. Now, sometimes you can find deals like that. I'm not saying you can't.

Starting point is 00:29:30 But in reality, if it's well maintained, you know they've most likely well maintained the vehicle or at least there's a chance they have. It's not 100% every time. You could get a lemon. You've got to make sure you're careful. Two is when you're looking at these vehicles, you know, you can go through a checklist of different things to look at

Starting point is 00:29:45 and you can find those online. But I would also take it to the mechanic. And if you feel as though you're going to buy the car, take it to your local mechanic that you trust and say, hey, I'm going to bring in a couple of cars to you. I just want you to tell me if this is okay to buy and if everything looks okay. Because then you're getting a second opinion from a professional and you can feel confident and you can have them produce a report for you. And then you can go to the owner and say, hey, here are some of the things that are wrong with this. Either negotiate the price down and or say, can you fix these things before we make this deal. So those are two things that you can do when you are working with some of those owners.

Starting point is 00:30:19 Now for convenience, you can also go to like these no haggle lots. So like if you can look at a Carfax or some of those places like that, those no haggle lots will show you the price. And it's not like you're going to be going back and forth. You know what that price is and you can start to save up in that way. Another thing that you can do is credit unions have member only channels where they will have folks sell their vehicles or all sorts of different things. And so those credit union member only channels, you can ask if you do have bank at a local credit union, but just making sure you do the homework. So a couple of of things that you should do is you should run the VIN through a history to see how many accidents it's been in, all those different types of things. If you can get a Carfax on it, that's good too. I mean, sometimes Carfax misses things, but you can definitely do that. And then making sure you pay that mechanic the $100 or $150 bucks, that's the third thing I would definitely do to make sure that you catch those problems. Because if they cannot catch those problems and you look through the car and realize there's a $4,000 problem with the car, well, that's going to cost you a lot more. But then also just looking at the right types of cars is a big deal.

Starting point is 00:31:18 So Toyota's like the older Toyotas are really long lasting. The old Honda's are really long lasting. Every time I talk about cars, there's all the car experts come out and start yelling at me. But, you know, it is what it is. Some of the old reliable cars out there are just kind of look for some of those too. I think those are great to look further into. And then honestly, make sure you know what your budget is before you dive in.

Starting point is 00:31:39 But with cash, that's a beautiful thing about cash, is that your budget's already set so you don't have to worry as much about it. And so I would definitely go through those steps first and making sure that you just have a checklist of all the things you want to look at or ask the dealer or the individual a bunch of questions. So you know the background of the vehicle. Then make sure you trust but verify. So verify with the VIN number. Go get the car fax. Go have the mechanic look at it. That's the steps you want to take with each one of these. If you start to see red flags, it's not worth it just to buy it. Even if you just like it emotionally, if you see a red flag,

Starting point is 00:32:08 just walk away. And there will always be more cars. There's so many cars for sale out there and move on. So that's one that I think is really, really important. And I appreciate the question. And if you have any other questions on that, though, please let me know. Most of us picked a bank years ago and never really thought about it again. But when you stop and look at what you're actually getting, it makes you wonder if there's a better option. That's where Chime comes in, because Chime is changing the way people bank. They're not like traditional banks that pile on fees or gatekeep the best rewards. Chime offers the most rewarding, fee-free banking with no overdraft fees, no monthly fees, and no minimum balance fees.

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Starting point is 00:34:35 Just mention the show name, Personal Finance Podcast, on your intake form. My relationship with money has changed a lot over the years. Early on, I thought building wealth was about making more money. Now, I know it's really about having clarity. When you know exactly where your money is going and whether you're on track, you make better decisions. That's one of the reasons I love Monarch. It's the personal finance app that tracks everything from your accounts and investments to your savings goals and spending. So you can see your entire financial picture in one place. One habit that's made a huge difference for me is my five minute drill every single morning. I open Monarch, check my spending, investments, cash flow, and net worth. And I'm done in just a few minutes. It gives me confidence that nothing is slipping through the cracks. I also love the AI Weekly Recap because it'll flag spending changes, upcoming expenses, or shifts in my net worth before they become a problem. Instead of reacting after the fact, I can make adjustments early.

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Starting point is 00:36:05 these scams are getting better and better and better. And the one this week, I think, is actually pretty interesting. And this is something that a friend who was in retail was actually telling me about that this is happening in retail a couple of different times. and so I want you guys to be aware of this. So this scam is called card draining. Now, if you never heard of this before, this is where you can go and buy those prepaid Visa gift cards

Starting point is 00:36:24 or those master cards, like a lot of people buy those for people's birthdays or your graduations, where you can kind of fill up some of those prepaid gift cards that are sold at those open rack scores. Now, there's a class action lawsuit actually going on right now against Visa and Incom over their vanilla branded cards, alleging the packaging is too easy to tamper with.

Starting point is 00:36:45 So here's how the scam works so that you can understand what happens here because sometimes you can buy these cards and people can steal all the money off those cards before you can even gift it to someone. Here's what they do it. So criminals will take unactivated gift cards right off the store shelf. So they'll go and buy, you know, you can grab that stack. A lot of times like when I go to the store, for example, with my son, my five-year-old wants to grab the whole stack of gift cards and said, can I have these? I'm like, no, man, put them back. So each time he's like trying to take him with him because he thinks they're like a free, free toy that he can bring with him. What they do, though, is they take a stack. of these and they carefully go and open the packaging and they often use something like a heat gun where they can kind of get the packaging to come off and then they make sure they reseal it so it doesn't look disturbed but what they do is they record the card number they record the CVV and sometimes lift and replace the scratch off security code on there so that you can't tell that they did this then they resell it with package with fresh stickers and they put the card back on the rack but the interesting thing is they put monitoring software inside of each of these cards so they can tell when you load the card and then they get all of your card information. So when that card is loaded,

Starting point is 00:37:49 they have the information that's loaded and then they drain the full balance online within minutes. So they have these things that will alert them. They drain the full balance. And then boom, all of your money is gone. So then you give it to someone. Someone goes and swipes the card and they say, man, they gave me a card with no balance on there, but I don't want to tell them. I feel like that's awkward. You know, if you gift it to someone, I've had this happen to me before where I've gotten a gift card for, for example, for my birthday or something, you know, when I was younger. It had no money on it. And I was like, I'm not going to tell them. I feel bad about that.

Starting point is 00:38:17 They probably, with good intent, either loaded it, but this could have been what happened in reality, and I think that's a crazy thing. So how do you protect yourselves from this? Okay? Well, one is you inspect the packaging before buying, obviously, but look closely at it. Like, don't just buy the first one that you see,

Starting point is 00:38:34 especially when it's like wrapped in that wrapping. If it's misaligned or stuck or it looks like it's open whatsoever, don't buy that one. Buy gift cards from behind the counter instead is number two. because if they are behind the counter, then you don't have to do the ones where it's in the aisle, like at Walmart or Target or wherever else you shop or you see all those different cards in the aisle there.

Starting point is 00:38:54 That's another one. And make sure you're always keeping the receipts on these and the packaging. That's the two things I think that are really important because if you keep the receipt and you keep the packaging and then you file disputes with everyone, then you can try to get the money back. But this is the one thing.

Starting point is 00:39:06 This is happening more and more and more now. It's becoming easier for the scammers to detect this. So if a gift card is hanging in the open rack, assume the numbers can only be stolen. The other thing you can do is just make sure you do digital cards. Digital cards also are going to have some fingerprints on there. But if you do a digital gift card, that's going to help a lot more than the physical one. I know you want them to open it.

Starting point is 00:39:24 I get it. But that is one other thing that you could be doing when we are looking at some of this stuff. So in reality, that is the scam of the week, which is in reality making sure that you have a financial protection plan. Now, the number one thing I do to protect my finances is I make sure I have a service that removes my information from the internet. and that service is called Delete Me. Now what Delete Me does is delete me goes to these data brokers that are out there. If you Google your name, you Google your address in quotations or you Google even your phone number in quotations, all of a sudden, you're going to see all these different websites with your information out there. And what happens is if people get a piece of your information,

Starting point is 00:40:03 these bad guys, these scammers out there, if they get a piece of your information and they try to open a bank account in your name or they try to open a credit card in your name or a student loan in your name and they don't have the rest of your information, they can't do it. But if they Google your name or some of your information, all of a sudden they can buy it from these data brokers. And so to protect your finances, you need to get that information removed. I just got my report from Delete me and they removed my information from a ton of different websites. And now I have it on none of the data broker sites that I do not want it on. And I love, they give me these reports pretty frequently and I love to look through them and see them. And my wife has it as well. And we go through her report every

Starting point is 00:40:37 single time as well. And you can see all the places where you're getting your information remove and they continuously keep checking to make sure your information is removed. So this has saved me dozens and dozens of hours. And even on their report, they tell you how many hours you've saved. And so it's one of the best ways I spend my money every single year because I know it is really inexpensive for their plans, but they are removing that information and saving me tons and tons of hours. So if you go to join delete me.com slash pfp20, you will get 20% off delete me, just by utilizing that code. So I highly recommend it. A financial protection plan is so important in the age of AI and in 2026. So make sure you remove your personal information. I've been using Delete Me

Starting point is 00:41:18 Forever. Long time listeners know, delete me. They've been a sponsor of this show for a very long time. So thank you guys and make sure you protect your finances online. All right, the next question is great. So what is the best type of account that my wife and I can give our children when they're ready to buy their first home? Would it be a custodial account or just? a standard high yield savings account. The goal would be to give it to them in their late 20s. So what an amazing gift this is, and this is from an anonymous person, but what an amazing gift this is to set your kids up in their adult life. Now, there is something that I believe that a lot of people should consider when it comes to their kids where if you are going to give your kids an inheritance

Starting point is 00:41:56 and you're going to hand them money down, one consideration to get to have is should you give it to them at the end of your life or should you give it to them even earlier when they can actually use it. Look at the millennial generation right now and even look at the older Gen Z generation right now. They're struggling. The cost of living is rising. Wages are not rising at the same pace as the cost of living. And if they got something that would allow them to buy a home, or if they got something that will allow them to buy a vehicle to get them from point A to point B if they don't have the money to do so or they're taking on big car payments, that could be really beneficial for them during this time frame. Now, many people argue, okay, well, let's wait it out and let's go

Starting point is 00:42:35 ahead and give it to them later because that money will compound to more. Sure, that's completely fine. But in reality, this is a great consideration because if you do this now or you think about this now, that's a really wonderful gift to give your children and their family and give them the ability to be able to do some really cool stuff. So I love this question. And I think that this is something that many people should think through when they are starting to build out these creative ways with your finances. And we talked about something creative at the top of the show. This is another creative thing that you can do. So first, you want to start with your time horizon. So for you specifically, if your kids are younger right now, you have 15, 20, maybe even 25 years before you actually

Starting point is 00:43:10 want to give them this money if it's their late 20s. And so you want to understand a couple of different rules. If you do a custodial account, which is like a UGMA or a UTMA, depending on what state you live in, that money goes to your children when they turn age 18 or age 21. So it becomes their money when they turn that age. And so because it doesn't have the flexibility for you to be able to say, no, no, no, don't spend it. I want you to keep it. And they go, they can go out and spend it on a brand new car, they can go out and spend it on, you know, a lavish vacation. They can go and spend it on a trip to a visa if they want to. And so you want to make sure that you have it in an account that you can control until it's

Starting point is 00:43:46 time to give it to them. And so a high yield savings account is an option. And it's an option that you can use, but you have a long time horizon. And because the time horizon is long, you can do something like invest those dollars and it will grow even more. And if you invest those dollars, you could do something like a taxable brokerage account. This is what I do for my kids, is mine are all in a taxable brokerage account currently. and this allows your money to grow,

Starting point is 00:44:08 but it also gives flexibility. So what you do is you put it in your name and then you put your children as a beneficiary. If you have a trust, you can have the account of the trust name and have your children as the beneficiary inside the trust. And so when you do this, that allows you to own the account

Starting point is 00:44:25 and you can give it to them whenever you want. You don't have to worry about, you know, timeframes or when they turn 18 or 21 or all those different things. The taxable brokerage account allows you to give it to them. And so that's a really, really, really, cool thing that I think for many folks they can consider this. And then when it's time for them to get the money, you got things like gift tax exclusions and all sorts of different ways that you can do this in a very unique and structured way. And that could be something that that could be a really

Starting point is 00:44:50 good rate way to do this as well. But I would just simplify it, taxable brokerage account, invest it over time. When they are a couple years out, you can always just put this into a high yield savings account if you're worried about the market dipping or whatever else. But if you have a long time horizon, 10 plus years, that's the way I would go with this. And that's the way I would consider it. So great question. And thank you so much for sending it in. So the next question comes from Tyler.

Starting point is 00:45:13 Tyler says, I currently have about $64,500 in my IRA. Do you think I'll become a millionaire? I'm averaging around a 16% rate of return and I'm maxing it out every single year. I'm currently 29.5 years old. Well, first of all, Tyler, awesome job being 29.5 in having $64,500 in your IRA. Let me give you the good news first. The good news is at $64,500. So let's pull up a compound interest.

Starting point is 00:45:36 calculator and we'll do this for kicks and giggles. If you go to mastermoney.com slash resources, we have one there that you can check out. And so what we're looking at here is you are 29. A half years old. Let's just put in 30 year. We'll put till 65. So let's just do till the age of 65. You have $64,500 in this account. And let's say you contributed $0 for the rest of the way. All right. If you contributed $0 the rest of the way and you got a 10,000, $1,000, the rest of the way, and you got a 10% rate of return, you'd have $1.8 million inside this Roth IRA. If you got a 9% rate of return,

Starting point is 00:46:14 you would have 1.3. This is contributing $0, by the way, a coastfire. And if you got an 8% rate of return, that is where you'd get down to 953. So depending on how much you contribute every month, let's say you put $500 per month in there. And you did this over the course of that time frame.

Starting point is 00:46:30 At an 8% rate of return, you'd have $2 million if you put an extra $500 per month. At a 10% rate of return, you would have $3.5 million. So you're in a good spot, my friend, and I think this is something where the likelihood of you hitting a million dollars is great.

Starting point is 00:46:44 Now, you said you're averaging a 16% rate of return. We've been in a really, really hot bull market over the course of the last couple of decades, which is awesome. It's fantastic for us, and I hope it keeps going for the next 30 years, but in reality, we can't use that as a rate of return long term in terms of how we want to think about this.

Starting point is 00:47:02 And we want to make sure we're conservative with our number. and if you want to be really conservative, you can get down to 6 to 7%. If you want to be a little more aggressive, you can get the 10%. If you're planning your retirement, though, always use something like 7% to be conservative and be safe with it, okay? But yes, I believe you will be. I think there is a good chance that you will be unless the market really has some bad,

Starting point is 00:47:22 bad years over the course in the next couple of decades. And if you're continuously contributing to this account, I think that you would cross the million mark in the 40s, 50s, somewhere in that range, depending on how much you're putting in. So really, really good stuff here. I'm excited for you. I'm excited that you are doing this and you're in a really good spot. For anybody out there who's in their early 20s or in your 20s, this should motivate you because it shows that getting those dollars invested, even if you're not with your first 100K

Starting point is 00:47:47 in the IRA yet, you know that you got a really, really good path going forward. So I love it. And thank you so much for sending in the question. All right, the next question is from Ben. And Ben has a wonderful one. It says, hi, Andrew. I just started listening to your show recently and I've loved every second of it. I'm 18 and I'm about to start college paying less than $2,000 semester thanks to extensive scholarships. I'm majoring in accounting or finance and have already have a Roth IRA with about two grand in it. I would love to retire at 30. What steps and actions can I take over the next few years to reach that goal? Well, Ben, I've got good news for you. Because first of all, I want to direct you to an episode we did with my friend Cody Berman,

Starting point is 00:48:26 who wrote the book, Retire by 30. And in that episode, we go through the steps and some of the things that he did in that episode. So I highly recommend that you check that out. We will link it up down below in the show notes if you have not checked it out yet so that you can check it out. But I would recognize two things. There's two battles here that you're going to be taken on. Number one is you're going to have to have to have a really aggressive savings rate. You're going to have to be saving anywhere from 50 to 70% over the court when you start your career. And if you want to retire by 30, that is just the reality. Now, people have done it over and over again. You can look at people like Mr. Money Mustache. You can look at people like Jacob Lungfisker.

Starting point is 00:49:00 You can look at all the early retirement blogs out there that talk about retirement. at 30. There's a ton of them out there. So that's one is you got to consider, you know, how much you need to be saving and your savings rate definitely is going to need to be above 50% and could be even higher. And the math really matters here. When you want to retire at 30, you're likely not going to be retiring with a lot of money on hand in terms of how much you can spend every single year. And if you're okay with that, that's fine. But if you're not okay with that, you just want to make sure that you're thinking through that, especially if you want a family and things like that, you just want to be cautious about thinking about that. But you can definitely do it. Another path to

Starting point is 00:49:33 do this is with business, getting a really high income through business and or through your career and just socking a bunch of that away over the course of the next decade. And you can get there pretty quickly if you have the discipline to live on little or less. But understand it, again, your biggest wealth lever in that kind of a time frame is not investing. It's going to be your income. It's going to be your income and then shoveling that income into investments over time. It's going to do the heavy work early. And then if you pair that high income with a high savings rate and you decide to live on way less than you make, you can really get there pretty quickly. So those are, it's actually very simple. It's living on less than you make, investing the difference,

Starting point is 00:50:10 and making sure you understand kind of the amount that you should be saving every single month. So those are just some of the considerations that I would have when I was thinking about this. And I truly appreciate the question. But if you have any other questions on that, let me know. But check out our episode with Cody because he really maps this out. And he's got a great book on it too called Retire by 30. Well, thank you so much, everyone, for sending in your question. If you have a question, make sure you join the Master Money Lusletter and send it in. Or if you want to ask me questions just like this live every single week, join Master Money Academy. Master Money Academy is the community that we built that will take you step by step over the course of the next 12 months to completely transforming your finances.

Starting point is 00:50:51 We do weekly coaching calls every single week. We have all of our courses in there. We have master classes in there. We have a community of people who are all working towards building wealth together. These are the people that you can talk to about this stuff with. And so I'm really, really excited to have, and I want to invite you to join Master Money Academy. We get the seven-day free trial down below. It's linked up down below in the show notes if you want to check it out.

Starting point is 00:51:11 And it is something where come to a live event, come check out a bunch of our courses. Come talk to me live if you want to. And we can get your questions answered. If it's not for you, no worries whatsoever. But if it is, would love to have you inside of Master Money Academy. So can't wait to see you inside of there if you have not already joined. I truly appreciate every single one of you being. here and I truly appreciate every single one of you listening to this podcast. If you're getting true

Starting point is 00:51:34 value out of here, share this with a family member or friend. Would love for them to learn more about how to build wealth because that's why we create this free content is for you guys to give you as much value as possible. This free content is for you so you can really, really master your finances. Thank you so much again. I truly appreciate each and every single one of you and we will see you on the next episode.

The Personal Finance Podcast - How to Build a Vacation Fund That Pays You For Life + (Money Q&A)

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