The Personal Finance Podcast - How to Manage Every Paycheck (By Age!)

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Starting point is 00:01:00 we're going to talk about how to manage every single paycheck by age. You're your host, Andrew, founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about how to manage every single paycheck you get by age. If you have any questions, hit me up on TikTok or Instagram at Master Money Co. And follow us on Spotify, Apple Podcast, or whatever podcast player, you love listening to this podcast. tune. If you want to help out the show, leave a five-star rating and review on Apple Podcasts and Spotify. And don't forget to check us out on YouTube at Master Money on YouTube.

Starting point is 00:02:03 So today, we are going to be talking about how to manage every single paycheck by age. This is so that you can see as you progress in life, how should you handle each and every paycheck? And what do I mean by paycheck? Because a lot of times when I talk about this type of stuff, people are like, do you mean gross? Do you mean net? What I mean is your actual paycheck, the amount of money that hits your bank account. So I mean your net income that hits your bank account every single month. This is literally the money that you take and you have to figure out what do I do with each and every single one of these dollars?

Starting point is 00:02:35 Because this is the most important decision you have to make as you earn an income. What do I do with these dollars next? And a lot of times, this is what budgets help you do. They say, what do these dollars need to do in order for me to start to build well? You have to make the decision every single time that you get paid. And so what I want to do is I want to make that process easier for you. So what we're going to talk about in this episode is I'm actually going to give you the account system, the specific system that I use, which accounts my money goes into, how I allocate those

Starting point is 00:03:06 funds. A lot of this hint, hint, is going to be from the stairway to wealth. If you haven't heard that episode, I will link that up down below as well. But that's the order to put your money in. That is the order we suggest that you allocate your dollars every single month. We have a free download for that as well that we'll link up in the show notes below as well. And we're going to go through that account system exactly what I do when I receive money. In addition, we're going to talk about what you should do in your 20s and how you should manage your paycheck in your 20s.

Starting point is 00:03:33 We're going to talk about your 30s as well, which is a much more difficult time for a lot of people and how to manage that paycheck in your 30s. And then we're going to talk about your 40s and 50s as well. And as you enter your 40s and 50s, you're going to see a drastic difference on some things that you need to adjust. And then lastly, at the end of this episode, we're going to talk about, well, what do you do with your paycheck if you want to become fire? And what does fire mean? Fire is financial independence, retire early. And if you want to become fire, you have to manage your paycheck significantly different than someone who is just trying to build wealth over time. Because fire, you're trying to retire as fast as you possibly can.

Starting point is 00:04:11 You have a very different system than what we're going to talk about on the front end. And we're going to talk about exactly what to do if you want to become fire. as well on how I would manage every single check that came in to play. So if this is something you're into, let's get into it. All right. So first, we are going to go through the account system that I utilize and what a lot of people want to know is, hey, what do I do with each dollar that comes in? Just give me this step by step on exactly how I should manage every single dollar that comes in. Well, your boys got your back here. I'm going to show you how to do that. We're going to walk through this together so that you can make this seamless. So here, here. Here's what you're

Starting point is 00:04:48 Here's the account system that I utilize. The first thing that happens is your money is going to hit your checking account via direct deposit. Now, if you don't get direct deposit, I suggest you go out and do that. If your company is still operating from 1954 and they don't give you direct deposit, then you're going to get a physical check. But if they have the capability, I would get direct deposit. The reason why is the way that we manage money and the way that we teach it here is you

Starting point is 00:05:13 need to automate your money because it takes the thinking and the willpower out of you having to manage every single one of those dollars. And the less you have to rely on your own willpower, the more power you have in play, because you won't see that money and it's just going to go into the accounts that you want it to so that you can build generational wealth for you and your family. That is the entire goal of automating your money is to take away your willpower and allow it to just happen. Because how many times have you failed when it comes to your willpower?

Starting point is 00:05:41 Maybe you want to get a budget every single month and you just don't want to do it anymore eventually. Maybe you want to invest your dollars, but the Amazon delivery person came to your door 10 times too many this month. There's so many different obstacles that come into your way with your willpower, so you need to automate your money when you do this. So the first thing you want to do is once it hits your checking account, you're going to figure out where does this money need to go?

Starting point is 00:06:00 What is each and every single one of these dollars need to do so that I can build wealth over time? So the first thing it should do is you should be getting your 401k match. All the way up to the match, you should be getting that 401k match. Why? This is free money. How do you figure out what that match is? you go ahead and ask your HR department, hey, what is the match? If you don't know, what is the match within my 401K? This is the same for, no, a lot of government employees don't get this match if you do.

Starting point is 00:06:26 Fantastic. If you have a 403B or a 457. So you can skip this step if you don't have a 401k or don't get that 401k match. The next step, and a lot of this goes line in line with the stairway to wealth, is you want to make sure that you're setting up these auto transfers. So your auto transfer should be going to things like your Roth IRA, your HSA, or your HSA, or or your brokerage account because you want to pay yourself first. So every investment dollar, let's say, for example, you're saving 20% of your net income and you want to invest 20% of your income. Well, that 20% needs to come out automatically each time you get paid.

Starting point is 00:06:59 So the way to do that is you can set up automatic transfers into your brokerage account or into your Roth IRA or into your HSA or whatever other account you're utilizing and making sure that money hits when you get paid. That way you don't see the money you can't spend those dollars. and instead you can build wealth. Nobody has ever regretted investing their money after it's invested. Unless, of course, you're investing in some risky asset. But if you're investing the way we talk about on this podcast all the time,

Starting point is 00:07:28 you're buying diversified index funds or target date retirement funds or any of those types of things, then you are going to not regret investing those dollars over the long haul. In addition to your money going to your brokerage account, along those same lines, the investment in savings goals, you also want to make sure it's going into your emergency fund if you're still building that up as well. If you don't have an emergency fund in play, then you want to make sure this is getting built up as well over time. Automatic transfers right into that savings account, that high yield savings account can go right there or your short term savings goals. So what are your short term savings goals? These are things like if you're saving up for a wedding or if you're saving up for a new car or maybe a down payment on a house.

Starting point is 00:08:07 All of these things are short term savings goals, meaning savings goals five years or less within that time frame. So with short-term savings goals, you can do a number of things. If you don't need the money within a year, you can put them in something like an I-bond. But if you do need the money in less than a year, then just go ahead and keep it in something like a high-yield savings account. Because what that's going to allow you to do is keep that money safe, keep that money preserved. You don't want to invest these dollars. The reason why is if the market takes a dip and there's a recession, then you don't want that money cut in half at the time you need it most when you're trying to utilize the money for what you saved it for. So that is exactly what we do with those short-term savings goals.

Starting point is 00:08:45 Now, you can stick it in an eye bond if it's longer than a year, but you have to keep your money in an eye bond for a year. And I bonds at the time I'm recording this are getting over 9% return to keep up with inflation. But if you want to make sure that that money is completely safe, then we just suggest a high-yield savings account. Now, what high-yield savings account do I like? I like a couple of them. But one of my favorites, as of late, has been Ally Bank,

Starting point is 00:09:06 because Ally Bank has this bucket system. So they have this bucket system where you can actually, save and budget your money all in one account. So it's actually compartmentalized inside of your savings account. So for example, I've got an account that's saving up for rental properties, my emergency fund, the next car that I have to buy, it's all in one account. And I can see, hey, I've got 50 grand in my emergency fund. I've got 25 grand saving up for the car. I have 100 grand saving up for the rental properties. Those aren't the real numbers, but that's how it compartmentalizes inside of that account.

Starting point is 00:09:41 So that's the cool thing about having something like that bucket strategy. And that's why I like that. In addition to that, I like Capital One's Online Bank. I like CIT Bank. Chime Bank is another great one.

Starting point is 00:09:50 There's a bunch of great high-yield savings accounts out there. But if you have the additional features that I like, I love that bucket system, then you can't go wrong with any of those. And do not spend more than 10 minutes researching a high-ield savings account.

Starting point is 00:10:02 They're pretty much all the same. So do not spend a ton of time investing those high-yield savings accounts. All right, the next thing. is after you have all those savings goals set up, the rest is going to go to your bills, your mortgage, your treat yourself money, all that other stuff. So that's kind of how you set it up and that money stays in my checking account.

Starting point is 00:10:18 The way I set that up is it stays in the checking account. I bank at Chase. Do I love Chase? No, does Chase pay me to talk about that? No. Would I leave them in a heartbeat for something better? Absolutely. You know, that's not relevant,

Starting point is 00:10:29 but I know I'm going to get a lot of questions on where I actually bank. So that's exactly where my dollars stay within my checking account. Now, let's get into how to manage your money in your 20s. So your 20s are an amazing time. Your 20s are a time where you have the opportunity to build wealth because you have the longest time horizon that you're ever going to have. In time plus consistent investing means that you can build generational wealth.

Starting point is 00:10:54 And that's why I get so excited for people in their 20s because you have the ultimate opportunity and you are what we call a time millionaire, meaning that you have so much time to allow your wealth to compound and to build that you can take very small amounts of money and turn them into very large amounts of money. What I mean by that is you can take $100 a month and turn it into a million dollars because you waited 35 to 40 years by investing those dollars. So what we want to do here is invest as much as we possibly can in our 20s because every single dollar you invest is so incredibly valuable in your 20s. So the first thing we're going to do with our paycheck is as it hits, as it comes in, you want to say,

Starting point is 00:11:34 at least 15% of your income, if not more. 15% is the bare minimum that we want you to be saving in your 20s. Now, the reason for that is that you're trying to figure out your money. If you're in your early 20s, maybe 15%, if you're later on, you've had your career for a couple of years, you need to bump that up to 20 and even more than that if you want to retire earlier. Because if you save 10% of your income, we talk about this all the time. If you save 10% of your income, it'll take you 51 years before you can retire.

Starting point is 00:12:00 and the conventional wisdom and all these finance gurus telling you to save 10% of your income, that's a great starting point. If you want to work your entire life, then you can save 10% of your income, but we don't want you to do that. We don't want you to have to work your entire life. And that's why it's so important to understand this stuff. So we have an episode talking about this, and it's all about your savings rate. We'll link it up down below so that you can check that out because it's so incredibly important

Starting point is 00:12:22 and powerful. And I don't want you guys working in that cubicle forever. I want you to be able to retire early so you can have your freedom. But you have to start early on. You have to start in your 20s. And in fact, the majority of people, if you look at the average net worth of someone in their 20s, it's negative all throughout the 20s.

Starting point is 00:12:38 And the median net worth is about $18,000 for someone in their 20s. So knowing this stuff, how do you become above average? It's by managing your money properly and managing every single check that comes in properly. So we're going to teach you, and that's what this podcast is all about, is teaching you how to become above average and building way more wealth than the rest of your peers.

Starting point is 00:12:56 I mean, way above average. I mean, well, I want you in the top 10 to 5% just by listening to this podcast. That's my goal. So making sure that you're managing this money properly is incredibly important. So making sure that 15% goes towards your savings and your investment. And in addition, if you have a bunch of student loan debt or something, you can also put it into this number, but you just want to creep up and make sure that you're investing. Now, should you pay down debt or should you invest?

Starting point is 00:13:19 If your interest rate is 6% or more on your debt, then we would want you to pay down that debt with this investment percentage. If it's less than 6%, you'd be better off mathematically just making the minimum payments and then going ahead and investing your extra dollars over time. So making sure you're investing while you're still paying down debt is something that's very important. There's a lot of people out there who are going to tell you to just pay down your debt and do not invest your dollars. If you have like a 3% interest rate on a student loan or something like that, it would not be in your best interest to just pay down the debt and not invest your dollars.

Starting point is 00:13:52 The next one is you want 30% or less going towards your house. housing costs. Now, going towards your housing cost is every housing cost that you have. Electricity, your utilities, your garbage, everything in addition to your rent and your mortgage, 30% or less should be going towards your housing costs. Now, if you live in a big city, you may be able to adjust some of these numbers. Maybe your transportation budget is lower, and so you can adjust some of these numbers up. But if you spend more than 30% on your housing, you are going to be house poor. There's a reason why landlords don't let you rent a property unless you make at least 33% of the rent.

Starting point is 00:14:26 The next one is you want 20% or less going towards transportation. Now, transportation is highest in your 20s because a lot of people are buying vehicles at that time. And we have an episode coming up teaching you some of the new rules that we have on car buying and how to optimize your car buying as well. We also have another episode that I will link up down below that tells you how to buy a car as well. But you want to make sure that 20% or less goes towards transportation. Then 20% or less towards food. So this is eating out.

Starting point is 00:14:53 your groceries, all those different things, anything associated with food would be 20% and then 15% at the back end to treat yourself and to have some fun and spend your dollars on things that bring you value. Now let me say this caveat right off the bat here. You can adjust any of these numbers except for your savings and investment rate unless you're going to chuck that up a little bit. You can adjust any of these numbers to balance it out however you want. It doesn't really matter as long as your savings and investment rate goes up over time. Everything else can be adjusted. in any which way you want. This is the baseline for most people to understand

Starting point is 00:15:26 that if you fall into these parameters, then you have a great opportunity to build a lot of wealth by doing so. Now, mistakes to avoid in your 20s. There's a bunch of them to avoid. The first one is waiting to invest. Do not wait to invest when you're in your 30s or 40s because your dollars are so incredibly valuable in your 20s. And on average, for a lot of people,

Starting point is 00:15:46 every single dollar that you invest if you're in your mid-20s is worth about $80 by the time you retire. So it's so incredibly powerful to make sure that you're investing every single dollar. The next one, you want to avoid comparing your life to others. There is a lot of people on Instagram, TikTok, social media, YouTube, all of these different places that are showing their best life. They're living their best life on social media.

Starting point is 00:16:09 But in fact, a lot of people who live their best life in their 20s who don't make a lot of money are in fact completely broke if not in debt. And that is not where you want to be if you want to build wealth. So making sure you don't compare yourself. to others is an incredibly powerful thing. And in fact, if you can figure out how to do this psychologically, you will be less stress. You will have less anxiety.

Starting point is 00:16:30 All of these different things will be into play. Your journey is not the same as somebody else's financial journey. Don't compare your start to someone else's financial middle. You want to make sure that over time, you understand that you're just getting started, but as long as you're investing your dollars and putting them towards your emergency fund and creating those safety nets, then you're going to be able to build that generational wealth. The next thing you don't want to do is most people graduate with student loan debt now. You don't want to add on to that debt.

Starting point is 00:16:56 Don't add on to credit card debt or personal loans or anything along those lines. Try as hard as you can specifically not to add on high interest debt. Now, if you go out and buy a house and get a mortgage, obviously I don't want you to pay cash for a house. I'd rather you go get a mortgage and invest the difference. But making sure you don't add on any high interest debt is incredibly important. The last one we already talked about is don't pay off low interest debt and avoid investing instead. If you have a three or four percent interest loan, don't focus all of your extra dollars

Starting point is 00:17:24 on paying off that loan and avoid investing because you will not come out mathematically on top if you do that. You want to invest your dollars every single month consistently over time. Now, let's jump into the 30s. 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

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Starting point is 00:20:35 your family, and your dreams. Get financial advice that puts you at the center. Find your advice. at IG Private Wealth.com. Now, if you're in your 30s, here's how to manage every single paycheck. Because your 30s are a crazy, hectic time. You may be getting married,

Starting point is 00:20:52 you may be having kids, you may be having elderly parents move back in with you. There's a lot of things happening. And in addition to that, a lot of people's careers accelerate in their 30s. In fact, studies have shown that people make the biggest salary jumps within their 30s and early 40s.

Starting point is 00:21:06 So making sure that you understand that this all is going to be a little bit crazy, it's going to be a little bit hectic, but you got to manage it, and the way to manage it is just understanding how you can handle each and every paycheck. A lot of expenses are going to be flying around. So in your 30s, it is more important than ever to increase the amount that you're investing. So over time in your 20s, you should be ticking up your investment amount by 1% to 2% every single year so that you can get to the point where you were investing a significant

Starting point is 00:21:34 portion of your income every single month and getting used to that. And as your income increases, you can manage your. lifestyle and make sure your lifestyle doesn't creep up too far. It's going to go up some. If you have kids or you get married, there's going to be more expenses in life. But you want to make sure that it is in line with your income increases so that you don't get in trouble and let that lifestyle creep up too far. And we have an episode talking about lifestyle creep. If you want to check that out, we have a whole deep dive on how to avoid lifestyle creep. I'll link it up down below as well so that you can check that one out. So 20 to 25% should be going towards investment

Starting point is 00:22:08 and savings. If you can do more, amazing. But if you can't, keep it in that 20 to 25% range. And then 30% goes towards housing again, 30% or less. The reason why we're saying that is a lot of people will start to buy houses in their 30s. And if that is you, your housing costs may rise a little bit. Specifically, if you have kids and you need those extra bedrooms or you get married and you need a little more space, then you got to make sure that you have that money allocated

Starting point is 00:22:34 and it's still 30% or less of your net income. So when you're buying a house, make sure you just run those numbers so you understand that. So you don't become house poor. And then we want to do 15% on transportation and 15 to 20% on food and 15% to treat yourself. Now, here's a couple of mistakes that I want to tell you to avoid during this time because these will come up for transportation. These will come up when it comes to housing costs. The first one is you do not want to spend too much money on cars.

Starting point is 00:23:02 A lot of people start to make more money and they say, hey, I can afford that car I always wanted. Well, you absolutely can, but you have to make sure that it falls within the specific price range of how to buy a car. So when we look at these things, you want to make sure those transportation costs are at least 15% of your income. So if you make 100 grand per year, then 15,000 or less should be spent on transportation costs that year. Now, that means gas, that means insurance, that means car payments, all of those different things come into play on that 15% transportation car. Because what happens a lot of times to people in their 30s is they get the fancy car and they spend too much.

Starting point is 00:23:36 The average car payment in the U.S. now is $700, and I can tell you the majority of people cannot afford that $700 a month payment. So making sure that you have this under control is incredibly powerful for your wealth-building ability because cars are depreciating assets. And the same thing goes for the house because a lot of people buy more house than they can afford and they do not know how to run these numbers because in play, you got to think about it. How much is my electric bill going to be?

Starting point is 00:24:01 How much is my insurance going to be? How much are my property tax is going to be? how much a repair cost is going to be. Those all have to fall within this 30% number. Now, this gets harder and harder to recommend as the rising price of rent and housing comes up. Now, we have an episode that just came out talking about how to negotiate your rent and how to handle that situation. But when it comes to your mortgage, you will have complete control over that.

Starting point is 00:24:25 You have complete control on how much house that you buy so that you can control this number. So that is one of the positives of owning a home is that you control how much. you're paying every single month by making the right decision up front. So making sure that you know this up front is going to help you build a tremendous amount of wealth. And then the last mistake to avoid is making sure that you invest enough. Because like we said, if you only invest 10% of your income like all the gurus tell you to, then you're going to be working for 50 plus years. And you do not want to be doing that whatsoever. So making sure you invest enough 20 to 25% of your income is

Starting point is 00:25:00 incredibly powerful during this decade. Now let's take a look at the 40s. So if you're in your 40s, here is how to manage every single paycheck. So 25% plus needs to go to a savings investment plus cash. Now, why do I say plus cash? This is an addition to the last time. So as you start to approach retirement, and if you're in your 30s and you're reaching financial independence, listen up to this too. As you start to approach retirement, it is my personal belief that you should start

Starting point is 00:25:28 to add a cash position within your life. What do I mean by that? What I mean by that is during your retirement, years, it's great to have a couple of years worth of cash. And so you want to start building up that cash position when you're five to ten years out from retirement. Why? The reason why is because if there's a major recession that happens, you can utilize that cash when you're living off your portfolio. You can utilize that cash so you don't have to draw down on your portfolio during down times. And the reason for this is then you'd be drawing down and selling your portfolio when it's low

Starting point is 00:26:04 instead of selling one it's high. So you'd be preserving your wealth so much more if you have that cash position in place. So that is why we like to have a couple of years of cash as you approach retirement age. So making sure that you invest 25% plus towards your investments so you can continue to accelerate your investment path.

Starting point is 00:26:21 In addition to saving up some cash is going to help you tremendously. Now, if you're saving up cash for that, I would definitely keep it in something like I bonds because it's a longer-term savings horizon. That way you can get that interest rate and make sure that you're actually getting somewhat of a return, and then you can sell that I bond at point in time when you're ready to retire,

Starting point is 00:26:41 or when you're ready to utilize that money. The next one is we're going to drop housing costs a little bit because we want you to start paying down those mortgage notes and starting to reduce the amount that you're doing. So we're going to do 30% or less on housing costs because you probably still have family or kids in the house. But over time, we want you to make sure that that number is starting to tick down. And once you get closer to retirement, you've got to figure out,

Starting point is 00:27:02 do I want to retire with a mortgage, or do I want to not retire with a mortgage? So if you have a 30-year mortgage, for example, you can start paying down that mortgage like a 15-year mortgage or you can refi into a 15-year mortgage so that you can get rid of that note faster. Now, what I like to do is just have a 30-year mortgage, and then I like to pay it down like a 15-year mortgage

Starting point is 00:27:20 so that you have that flexibility in case something happens or you lose a job or something like that. You're not tied into that 15-year mortgage and having that mega-payment. Instead, you can just pay it down like a 15-year mortgage, but you have the 30-year mortgage just for more flexibility. Then, transportation costs need to come down to 15% as well. So same thing as the 30s.

Starting point is 00:27:38 Transportation costs should be around 15% or less. And what you want to start doing is driving cars as long as you possibly can. We talk about driving cars for 10 years here because the longer you drive those cars, the more value you're going to get out of those vehicles. And in addition, it's going to allow you to be able to take those extra dollars that you would be putting towards car payments and investing those dollars or putting towards your cash position as well. then we have 20% towards food and then 10 to 15% towards treating yourself.

Starting point is 00:28:06 Now here's some of the mistakes to avoid. The first one is the midlife crisis. So a lot of people, as they reach their 40s, they start to have, in their late 30s, they start to have midlife crisis, meaning they start to spend a bunch of extra money thinking that they've wasted their life on a bunch of different things. Do not do this. There's a bunch of psychology behind this based on anxiety and stress and a bunch of other different things.

Starting point is 00:28:29 if you start to feel like you want to spend more money on things and you're missing out on stuff, that you'll learn about the psychology of a midlife crisis. Or if you can, go talk to someone about it and try to figure out what is going on inside, what's going on with you there, because you do not want to be spending a bunch of extra dollars and making mistakes in your 40s as you're approaching that retirement age, or you could be retiring in the next couple of years depending on how you set up your 20s and 30s. The second mistake we just talked about is not having enough cash. So five to 10 years out, you want to start building up that cash position so that you can have a couple of years

Starting point is 00:28:59 worth of cash on hand when you hit retirement. And then the other mistake you want to avoid is putting all of your eggs in risky assets, meaning you do not want to be putting your entire portfolio in crypto, for example, or putting your entire portfolio into gold, for example. You want to make sure that your assets have intrinsic value. So things like real estate, things like index funds and ETFs, things like dividend stocks, all of these different things have intrinsic value. You want to avoid the things with no intrinsic value, meaning that supply and demand

Starting point is 00:29:29 to dictate what the price is, and you want to have things that are backed by cash flow or backed by balance sheets or backed by income statements, a bunch of different things in play there. So your investments should be in any of those categories, in addition to bonds and whatever other assets you want to own. But do not start buying only risky assets in 100% of your portfolio. It's completely fine to have crypto in 5, 10% of your portfolio. But if you have it in your entire portfolio, that is going to cause issues later on if something happens and you're ready to retire. Now, let's jump into the 50s. So if you're working in your 50s, here's how to manage every single paycheck. So the first one is

Starting point is 00:30:08 25% plus to your savings and investment and your cash position as well. Because remember, we want to build that cash position five to 10 years before retirement. In addition, we want to start seeing that housing cost drop as you start to pay off your house. Even if you have a completely paid off house, you still have to pay home insurance, you still have to fix it up, you still have to pay property taxes. There's a bunch of expenses into play. So that number is never going to go away if you own a house. And if you rent a house, that number is never going to go away either.

Starting point is 00:30:34 So there's always going to be housing costs in play. But we want to see that number going down over time as you start to pay off that house over time. Now, if you choose to rent, then that number may stay steady across the lifetime, but then you just got to make adjustments in other areas of your budget. In addition, we want to devote 10% to transportation. So you should be looking at paid off cars and things like that as you get into your 50s. Unless you really love cars, if you're a car person, then bowl out with cars.

Starting point is 00:31:00 Get yourself the fanciest car you want, but making sure you're adjusting in other areas is where this would all make sense or increasing your income. And then we have 15 to 20% on food and 10 to 15% on treating yourself and making sure that you're ready for retirement. And then the mistakes to avoid. The first one is not adjusting to your risk tolerance. So if you freak out when the market takes a dip, for example, you need to adjust your investment portfolio to your risk tolerance.

Starting point is 00:31:26 Maybe you need to add some bonds to your portfolio. Maybe you need to add some additional less risky assets to your portfolio so that over time, you don't have as much volatility. In addition, you want to avoid the things that are in the 40s, the midlife crisis, the risky assets, and not having enough cash on hand. All of these things are extremely important as you approach your 50s because you need to have your entire financial life protected so that you can move on to the next stage of your life.

Starting point is 00:31:53 So doing this is going to be so incredibly powerful for you. You won't be stressed out in retirement. You won't have worries. You won't have anxiety. Making sure you have that cash on hand is going to help you out. And having enough investments in play is going to really help you out. Now, if you're behind investing, you need to allocate as many dollars as you possibly can towards investments. That number needs to be sky high on savings and investments.

Starting point is 00:32:13 And you need to reduce transportation and housing costs and all those other things to make that happen. All right. Now, on the next one, let's see what it would look like to manage a paycheck if you want to become financially independent or you want to become part of the fire movement. All right. So if you want to become part of the fire movement, this is going to be drastically different than some of these other decades because this is going to be the same throughout whatever decade you want to go.

Starting point is 00:32:37 If you want to retire in 10, 15 years or less, then you've got to make sure that you are doing this instead of just managing it to work for a little bit longer. So what is the fire movement? It stands for financial independence, retire early, but in addition, it's a group of people who want to retire as fast as they possibly can. So what they do is they increase their savings rate significantly and increase their income with it so that they can save more dollars so that they can buy their freedom back. And that's why we try to build wealth here. That's what we talk about all the time here is we are very pro-fire movement because the more dollars you can save and put towards your investments, the closer you can get to freedom.

Starting point is 00:33:13 And that is the extreme power that you have by building generational wealth. So here's what a fire paycheck would look like. This is going to be drastically different. You ready? For your savings and investment. You would need 50% of your income for your savings investment. Now, can it be less? Absolutely, you could do 40%.

Starting point is 00:33:29 You can do more. 60%. Mr. Money Mustache, I think did 70%. I've heard of people doing 80% of their paycheck, but you had to make enough money to be able to do that. But the ideal spot, the traditional fire movement savings rate, is at least 50% of your income. Now, you can absolutely achieve fire at 40% of your income.

Starting point is 00:33:48 You're not going to be working very long if you're saving 40% of your income. But making sure that you get within this, range is incredibly powerful. Housing, 20% or less on housing. So you want to make sure that you are controlling your expenses or raising your income significantly so that you can control the housing expense. Then everything else, transportation, food, and treat yourself are all three, 10%. A lot of people in the fire movement. If you're doing traditional fire, a lot of people don't even have transportation costs. They bike to work or do a bunch of other things. They move closer to their work so They could walk to work, a bunch of different drastic lifestyle changes they make so that they don't

Starting point is 00:34:22 have to work so long. Or you buy a nice, working, used car, and utilize that as your transportation. Or if you make a lot of money, you buy whatever car you want, and it's within that 10% range. And then in addition, 10% on food, if you can swing that, and then 10% on treating yourself. Now, if you only want to be all in and fire, and a lot of people have done this, then you don't have to have the treat yourself budget, but we like to tell people that money is there to bring them value.

Starting point is 00:34:47 and the reason why I would like to tell people that is I've seen people burn out trying to pursue fire. And it's one of the hardest things for people to go through because they go as hard as they possibly can for three, four, five years. And they completely burn out and then they backtrack and don't do what they want because they don't have that little treat themselves portion. And that treat yourself portion keeps you sane and it keeps you stress free and helps relieve some of the issues that come with traditional fire. The other way to relieve that issue is just to increase your income over time. Now, that's why we talk about increasing our income so much, because it solves a lot of problems for you, especially if you are good at managing your money.

Starting point is 00:35:21 If you follow these rules and then increase your income over time, you're going to be so incredibly powerful how much wealth you can build. So making sure that you're increasing your income over time throughout all of these decades, including the fire movement, is going to make everything easier. Now, we have a number of episodes on how to increase your income, and we'll link a couple down below as well,

Starting point is 00:35:38 so that you can figure out how to increase your income and what the best solution is for you. So listen, I hope you guys enjoyed this episode. If you guys have any questions, make sure you hit me up on TikTok or Instagram at Master Money Co. And if you like this show or you think somebody else is going to benefit from the show, please share this episode with a friend. We want to teach as many people as possible how to build wealth.

Starting point is 00:35:59 And you sharing this episode helps us do that. In addition, if you could leave a five-star rating and review on whatever podcast player you listen to, Spotify, Apple, whatever player you listen to, if you could leave a five-star review that helps out the show tremendously. I can't thank each and every single one of you enough for listening to this episode. Have any questions again? Hit me up and we will see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play.

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The Personal Finance Podcast - How to Manage Every Paycheck (By Age!)

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