The Personal Finance Podcast - How to Stop Overspending WIth the Reverse Budget (Money Q&A)

Episode Date: March 11, 2024

In this episode of the Personal Finance Podcast, we are going to do a Money Q&A about how to stop overspending wIth the reverse budget. Today we are going to answer these questions!  Question 1: How do I make sure I avoid fund overlap?  Question 2: How to Save Money For A Wedding?  Question 3: How to Stop Overspending With the Reverse Budget.  Question 4: Why I hate most life insurance products.  How Andrew Can Help You:  Don't let another year pass by without making significant strides toward your dreams. "Master Your Money Goals" is your pathway to a future where your aspirations are not just wishes but realities. Enroll now and make this year count! Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Monarch Money: Get an extended 30 day free trial at monarchmoney/pfp Thanks to Fundrise for Sponsoring the show! Invest in real estate going to fundrise.com/pfp Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance Thanks to Policy Genius for Sponsoring the show! Go to policygenius.com to get your free life insurance quote. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Delete Me: Use Promo Code PFP20 for 20% off!  Links Mentioned in This Episode:  Fund Overlap Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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on this episode of the personal finance podcast, how to stop overspending with the reverse budget. What 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 doing another money Q&A. If you guys have any questions, make sure to hit us up on Instagram, TikTok, Twitter, at MasterMoney Co, and follow us on Spotify, Apple Podcasts or whatever podcast player you love listening to this podcast on it. If you want to help out the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player.

Cannot thank you guys enough for leaving those five-star ratings and reviews. Now, today, we're going to be diving into another money Q&A, and we have four great questions today that we're going to be going through. And the first one is, how do I make sure I avoid fund overlap when I'm investing in index funds? We're going to dive into that a little bit more. We've talked about this in the past, and I actually get a lot. lot of questions about this. And so we'll dive back into that today. The second one is how do I save money for a wedding? We actually are going to do an entire wedding episode eventually here. But today we're going to dive into some of the basics on how to save money and manage your budget

for a wedding. The third one is how do I stop overspending with the reverse budget? And so this is a question that's coming in where there's a lot of things that are creeping up. And so making sure that you stop overspending on the reverse budget is going to be really, really helpful. And part of this is just a quick little tweak that we can help and make sure that we don't overspin on the reverse budget. And then question four is on a new life insurance product that I absolutely hate that someone is asking about. And so we're going to go through that as well and why I hate most life insurance products outside of things like term life insurance. So we're going to dive into those four questions. So without further ado, let's get into it. All right. So the first question is about fund

overlap. So it says, good morning, Andrew. Happy to be here. I'm new to investing in index funds. And I'm struggling with how much to buy without overlapping. I'm currently 26 and my goal is long-term investment. I just got a Fidelity account a couple of days ago. And I'm not sure if I should go to a two-fund portfolio or a three-fund portfolio. It seems overwhelming, but I'm learning a lot. Well, first of all, congratulations for even getting started investing. That is the number one thing that most people need to be doing. Most Americans out there don't even invest their dollars. So making sure that you get your dollars invested is one of the most powerful things that you could do. It is the only to be able to actually have freedom with your life when it comes to your money is investing your

dollar. So most people don't even take that step. Now, if you don't know what fund overlap is and what we're talking about here, what fund overlap is, is when you buy something like an index fund, maybe you buy an S&P 500 index fund, and then you buy a total stock market index fund, well, a large portion of those two funds are going to have companies that overlap. And so they're going to have industries and companies that are exactly the same within those funds. So you can take a look at some of these companies, for example. Let's look at the difference between VOO and VTI. So VOO is Vanguard's S&P 500 ETF. And VOO is a fantastic ETF. It is one I own in a lot of different places. And then we can also look at VTI, which is Vanguard's total stock market ETF. And both of these are going to have

top 10 holdings that are going to be very similar overall. And so what you want to do is when you start to construct your portfolio, a lot of people don't want to have just overlap of some of these holdings because you're just buying the same thing and it really doesn't make sense to own two different funds when you can just own one of them. So here's a great example of this. The top 10 holdings inside of any index fund are going to be the top 10 companies in that fund and they're going to hold the largest weight when it comes to what you're investing in inside of these funds. So let's look at VOO for example. So VO has Microsoft, Apple, Nvidia, Amazon, meta, which is Facebook, Facebook, Alphabet, which is Google, Berkshire Hathaway, which is Warren Buffett's company, Tesla, and

Broadcom. So those are the top 10 inside of the S&P 500 ETF. You heard me list nine because Google has two different share types and both of those are in the top 10. Let's look at VTI. It is going to be Microsoft, Apple, Nvidia, Amazon, Facebook, both Alphabet classes, Berkshire, Eli Lilly, and Broadcom. So there's only one differential between those two, which is Eli Lilly.

and Eli Lilly is probably within the next 20 when it comes to VOO. So the holdings are very, very similar between these two funds, and the weight of those holdings are going to be very, very similar, especially at the top 10. And so there's different philosophies on why you would invest in each of these index funds or these ETFs. If you're interested in more broad exposure where you can also have small cap and you can have mid cap and a bunch of these other companies inside that fund,

then maybe you go to the total stock market index because it owns every company within the stock market. or if you just want the heavy hitters, the 500 largest companies in the U.S., maybe you go to the S&P 500. Both have had very similar returns, but the one thing that you would be concerned about is fund overlap, meaning it's just kind of repetitive. You're just investing in the same companies by investing in both. And so one thing I like to do when it comes to fund overlap is, first of all, I like to think through, hey, am I having way too much overlap here?

And if that's something that I am worried about and I am having too much overlap, maybe I want to manage this overlap a little bit more. So first of all, if you want to research how much fund overlap is going on, the ETF Research Center has a very cool tool called the Fund Overlap Tool. And this tool, you can Google it, just say ETF Research Center, Fund Overlap Tool. We'll also try to link it up down in the show notes below. But this is a great tool that shows you, hey, you can look at the difference between something like VOO and VTI. So what it does is it has two sections in there. It says fund one and fund two. And then what you do is you put those funds. in and then you click find overlap and it's going to tell you how much of an overlap these two funds

actually have and so when I do this for example on VO and VTI it says number of overlapping holdings 502 because VTI is going to hold every single holding in the S&P 500 the S&P 500 actually has slightly more than 500 companies it has 502 companies and the percentage of VO's holdings that are also in VTI is 99.4 and then in VTI's holdings is 14.9% But what you really want to look at here when you're looking at this is overlap by weight. And what overlap by weight is going to tell you is how much is this fund actually overlapping overall? And so, for example, between VOO and VTI, they are overlapping about 86%. And so really, you're buying a lot of the same stuff when you buy both of these funds.

Now, if you want to be extremely diversified, known both of them, there is nothing wrong with owning both of those. Absolutely nothing wrong whatsoever. But if you want to keep that asset allocation, both of those funds would need to be part of your stock asset allocation. And if you want an international exposure or something else, then you'd have to buy a different international fund to ensure that you have that international exposure. So the overlap by weight is 86% there. And it's got the top 10 holdings back in there as the major overlaps overall. And so when you look at this, this is a great tool to use to say, hey, does it make sense for me to have this much overlap? A lot of times, if you have over 50% overlap, it could.

possibly be overkill if you care about overlap. Now for me, for example, I have my index funds where I own VTI and I have my portfolios where I own VTI. I have portfolios where I own VOO. The overall encompassing asset allocation that I have is going to be very, very similar because these funds have overlap. But for example, my wife's Roth IRA, we have more VO and my Roth IRA. I have more VTI. and to me, those are just the core holdings that I have specifically when it comes to my U.S. based stock asset allocation. That is what I want is VOL or VTI. For me personally, those are the ones that I love or any other variation of that.

You know, the Fidelity has them in the index funds. I buy a lot of Vanguard Admiral shares when it comes to these as well for index funds. And so these are my primary anchors in a lot of my portfolios. And when I do that, I know that these funds do overlap. But for example, if I have in different portfolios, I don't really care. I would never most likely hold them in the same account because it's just too much overlap for me personally. But I really don't care overall because they have the same weight holding. What I care about is the dollar amount in those two.

And so that overall is going to be the biggest thing that you want to make sure that you are checking. So fund overlap does matter. If you're thinking you're extra diversified by owning both, it may just be repetitive. And that's how you research it in that ETF research center. Now, if you are way overlapped and you're worried about it, overlap and you think this is a big deal, then what you can do is add some exposure to some other areas. So what a lot of people do is they add international exposure, for example. So there's like the Vanguard Total International Fund, which is VXUS is the Vanguard Total International Stock

ETF, for example. So let's look at VTI versus VXUS just so you can see the differential between those two, because there's going to be a big differential between those two when you look at this. And so when you look at overlap between these two, there's actually a zero. percent overlap. And so that shows you, hey, you're really well diversified if you owned VTI and VXUS because there's no companies overlapping whatsoever. There's not a single overlap whatsoever. And so the top 10 holdings inside of VXUS are things like Toyota, Nestle, Samsung, Shell, Taiwan Semiconductor. So there's a bunch of different new companies that are in the top 10 holdings there as are in VTI. And so you can look at those two and see in this ETF tool, this tool is absolutely free. So it's

a fantastic tool to use if you're worried about overlap. And it is one that I really, really like to look at from time to time when I am looking at new funds. So that is a great way to research that. So you can add bond exposure as well. That's going to have a 0% overlap because bonds and stocks are completely different. And so bond exposure will help you stay more diversified if you want less volatility. But overall, especially if you're young, I like to have a large stock asset allocation because it is higher growth long term. Historically, that's what it's been at least. And so that is what I usually will look for when I dive into there. So that's how you look and research into fund overlap.

That's why it matters. And overall, it is one of those things that I don't pay a ton of attention to you, but I really wouldn't put two funds in the same portfolio together if there's a ton of overlap. Anything about a 50% overlap, I would really consider how I'm setting up that asset allocation. Let's dive in to the next question. All right. The next one is actually how to budget and save money on, weddings. And this is one that I have, I just celebrated my 10 year anniversary. I cannot believe it's

already been 10 years married to my wife. So 10 years ago, I went through this entire process and trying to figure out where we could save money. And so there's a lot of little things that I learned along the way now. Things have changed a lot within the last 10 years. But at the same time, there are some things that you can do that are pretty much timeless overall. And so I'll talk through some of that as well. So, hey, Andrew, I've been listening to your podcast for three years and there's no way I would be this far in my financial journey without your help. Thank you. Well, thank you so much for adding that and I love it. My fiance and I are getting married next year and I was wondering if you have any money saving hacks for weddings. I have some money saved up, but I have no idea

how expensive weddings can get. And you are so right about that. Well, first of all, congratulations to you and your fiance for getting engaged. That is absolutely amazing. And it is really cool that you're thinking through this now because weddings are really, really expensive. And I think this is something we really need to make sure that we keep at bay. Now, I, a long time ago on dollar after dollar, which is my old, old blog, wrote a blog post. This was probably, I don't know, 2016, somewhere around there. Kind of saying, you know, your wedding is your dream day. If you really want to spend your dollars on your wedding, just make a plan and you can spend your dollars on your wedding. There's not really anything wrong with that. If you really

value your wedding and you want to spend a lot of money on your wedding, I honestly don't have a problem with that as long as you plan it out. What I don't want you to do is go deep into debt or high interest debt to pay for a wedding. But if you plan out your wedding, there was nothing wrong with spending money on your wedding whatsoever. Now, some people may say, well, I wish I never spent money on my wedding. It's only a four hour party, yada, yada, yada, but it is something that you will remember for the rest of your life. It is something you will have with you for the rest of your life. So honestly, I have no problem as long as you plan it out and you could pay cash from the majority of these things. So the first thing I would say is just like if you're looking at

your personal finances. Figure out what you value most. Sit down with your fiance, figure out the list of exactly what you guys value most. What are the things that you absolutely must have and what are the things that would just be nice to have but you can live without? And I would prioritize this list in order of greatest to least. So the things you must have greatest to least. And then underneath there, prioritize this list, greatest to least are the things that would be nice to have, but you don't absolutely need to have. So that is number one. And, and And we're going to kind of come together and kind of build out this budget together as you have this list. So you can put this list on a spreadsheet or something else.

We should probably create a spreadsheet for you guys that has some sort of wedding budgeting tool that you can have available because we actually do get this question a lot. And so maybe, for example, one of you values photography a ton and one of you really wants to have X venue. There's a venue that you really, really want. And that's where you want to put a lot of your dollars in that venue. This is your dream venue. You've been talking about this venue for the last decade. and you've always wanted to have your wedding there. And maybe one of you wants to make sure that you have this great videographer and photographer

on staff that are going to make sure you capture all the moments in your wedding. So maybe that's both of you. Those are your big, big ticket items that you want to make sure that you have is those two things. Then everything else kind of trickles in and falls down the list. But just make sure you know what your highest priority items are. And a lot of people are going to say, well, I want it all. Well, sometimes you can't have it all unless you plan it out. So if you can extend it out a little bit, maybe there are big ticket items that you

absolutely want and you want to extend the date out a little bit so you can save up more cash for that and that is a great option as well now that is the first thing is prioritizing your spending make sure you figure out what your values are value-based spending is what your dollars should be doing and i love it for you if your dollars are spent on what you value in your wedding that is amazing that is absolutely amazing for you to spend your money on your wedding people out there are going to say you know don't spend money on your wedding i think it's amazing so go ahead you do you next one is one way to save money is if you're through this and you're like, this is way too expensive. I cannot believe how expensive this is, is you can limit the guest list. Now, this is something that we ended up having to do where we had a

guest list that was 500 people long and we trimmed it down to, which I think is now a large wedding still, which is like 200, 220 people, I think is what we had at our wedding, which at that time, we thought was small. But we both came from, my wife is Greek, I'm Italian, we came from really large family. So it was actually hard to trim that down to that number. But if you are looking, at a wedding venue, you can trim that number down to a much smaller number and be able to save a lot of money. Every single guest costs money when it comes to drinks, especially if you have an open bar. Every single guest is going to cost a lot of money when it comes to the food. Each plate, for some reason at a wedding is like $75 for each and every plate. It might be way more

at your venue. I don't know what it is. Every single guest is going to cost money when it comes to everything from favors to all that kind of stuff. So you can limit that guest list and be able to ensure that you can reduce your cost significantly. They're not. that is hard to do because the last thing you want to do is leave out friends or you don't leave out family. But sometimes that is the best move and that's going to be the biggest cost cutter immediately is to limit that guess list. The second biggest cost cutter and maybe bigger depending on where you live is the venue. And so thinking through the venue and thinking through where you actually want to get married, maybe you have your dream spot, but then you have a

couple of other places that fall into place. What I don't want you to do is go into debt because of a venue because that is the number one thing that a lot of people do that I think you should not do is going to debt because of a venue. Making sure that you choose the right venue is going to be one of the most important things. Now, one thing you could do with the venue, and this is what a lot of people do, and this is something we did as well, and I'll explain what we did, is you can look at off-peak times. So if there's a venue you really, really want, but there's off-peak times, and some venues, if they're really, really in high demand, there's no off-peak times. But at some venues, they have off-peak times where you can really reduce the cost because of that off-peak time

or the day that you have that venue. So we did it on a long weekend where it was a three-day weekend where everybody in the country had Monday off. And so we actually had it on a Sunday instead of a Saturday, which reduced the cost by like $10,000 or something crazy like that. And so we were able to kind of do it on an off-peak day and do it on a Sunday instead of a Saturday. And everybody still came and everybody stayed late because the next day everybody was off.

And so that was something that we did. is consider the day of the week. Now, a lot of people are like, well, that's weird. They're having a wedding on a Friday or they're having a wedding on, who cares? It's one of those things where it's your day to actually spend time together. And if you can reduce the cost significantly based on the day of the week you have, everybody wants to have their wedding on Saturday. That's when everybody wants to have it.

But if you can change that day, that is another great way to do it. And the best way to hack that is on a long weekend. Maybe it's like Memorial Day weekend. You could do something like where everybody's just off on that Monday following up. Now, another thing you could do is DIY where possible. Now, I am not a DIY person whatsoever, but if you are and you have those skills, then DIYing as much as you possibly can is a great thing to do. When both of my sisters got married, I know my family DIYed a bunch of different projects

and saved a ton of money when it came to some of the things that they did, like the arrangements, those types of things. Another thing you can do is hire local and small business vendors. So that is one where these national companies are going to charge a lot more. But local and small business vendors may have better prices, and you may find they have better prices depending on where you live. Now, sometimes if you're in somewhere like LA, for example, maybe those small business vendors are more boutique, and so they actually might be charging more. But a lot of times you can hire local and small business vendors for less and or close to the same price and be able to save a little bit of money there.

Now, another thing to do is rent or buy used. Instead of buying all the stuff that you need for your wedding and all the equipment and all that different stuff, instead, you can rent everything or you can buy it used. And you can look online in marketplace. People will be selling stuff after their weddings left and right throughout the year. whenever you're planning this wedding out. And so that's another great way that you can kind of find things cheaper instead of buying new. Another thing is my wife would shoot me if I said this because she's really into invitations for some reason. But you could also do things like digital invitations. Now, most people don't like that. But that is another option if you're really trying to save money.

Invitations are expensive. And that's something where you could be spending a ton of money if you're not careful on that. So just make sure that you think through the invitations, but a lot of times you could do it a different way. And then flowers. So flowers are something that a lot of people get carried away with. And flowers can get really, really expensive when it comes to a wedding. So this is an area where you can offer flowers that are in season or locally available. I've seen people put together their arrangements a number of different times. You can put together your own arrangements. You can go get the flowers or buy them in bulk online. And then you can put together your own arrangements the day up. Have some friends come together and they could put their arrangements together because

I've seen people spend anywhere from six to $30,000 in their flowers. That is one where it's almost harder for me to stomach unless you're really into the flower thing. It's almost harder for me to because they're not even going to last but a couple of days and it's only for one day. So that's one, maybe it's just because I'm a guy, I don't know, but that's one that I am not super, super interested in. And I think that is one where people can get really, really crazy on also. So look at the floral arrangements and kind of make sure that you budget out for that if you're going to do floral stuff. And then lastly, it's just making sure you have this budget in place and you're tracking this stuff, tracking where you land because if you don't track this stuff, it'll get

out of hand really, really quick. All of a sudden, all these surprises get thrown in constantly when it comes to weddings. And so making sure that you track every single dollar you spend when it comes to this wedding is really, really important. Now, Monarch money or all these tools, you can actually make a separate category for wedding stuff and be able to kind of track this and make sure that you're on track or you can keep it in a spreadsheet or whatever else. But there's a lot of cool things that you can do there. And this is just some of my quick tips that I can give you on how to save money for a wedding. We're actually going to do an entire episode. We have some wedding experts that are going to come on at some point. And so that is another one that we'll kind of be talking through to see ways that

you can save money on weddings. But I think this is something where congratulations. It is absolutely amazing that you guys are engaged now. And I'm really excited for you and can't wait to see how the wedding turns out. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster. Your post jumps up to the top of the page, making sure it reaches the right candidates. And it makes a huge difference. Sponsored jobs on Indeed get 45% more applications than

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advisor at IG PrivateWealth.com. All right. The next one is, hey, Andrew, love your podcast. I've shared it with a ton of people. Thank you so much for shared it. That means the world to be when people share the podcast with other people. That is one of my favorite things to hear. I am a minimal and I follow a zero-based budget, but once in a while I notice that purchases start to creep up again, and it's the didero effect where I just keep buying unconsciously. I'm interested in learning more from people who stay the course and truly manage their own behaviors when it comes to spending.

First of all, thank you so much for the question, and I truly, truly appreciate you sending this question, and this is a very common issue for people with the zero-based budget. And sometimes this is why the line-by-line on a budget is probably more efficient, but the zero-based budget, If you get a hold of this whole thing, it'll be very, very easy for you overall. And so what a lot of people do is when it comes to the zero base budget, the didero effect is where you acquire one item, then you start to spend more and more and more.

And it's more so on the money psychology. This is why money psychology is so incredibly important is because everybody does this. And so you buy one thing and then all of a sudden you kind of get comfortable with spending and then you start to spend more and more and you have to reel it back in to get back on track. I know exactly how this is. I do it all the time. I know other people do it all the time. And so this is one where I have the same personality that you do when it comes to this,

especially in the psychology side. And so sometimes I have to reel it back in. So what you really need to do is if you've heard me talk about my wants and my wish lists and those things that I have, what I do is before I purchase things, I kind of list it out on a big list. This helps me combat this because I go through the same exact thing that you're doing. And so I list out this entire list of the things that I want. And so depending on the price point of each of these items, I will wait a certain amount of time for each of these items.

So for example, if it's $100 or less, it is one where I'll wait maybe 24 hours, something like that. Now, I do have lists of things like if it's a book or if it's a course, and I think I'm going to learn one thing out of that or if it's a fitness related item and I think it's going to make me healthier or it's going to help me live longer or those types of things, then I won't think twice about buying it. But if it's something that is, say, for example, I want a new shirt or I want to buy something, like a brand new pickleball paddle or something like that, then I'll put it on this list. And this list will tell me, hey, I need a cooling off period, meaning depending on the price, if it's $100 to $200, I wait a couple of days. And if it's over $200, then I wait usually a week. And so when this happens, that means I have a cooling off period, which is time to allow myself

to think through, do I really want this item? Because what a lot of people do is they will just buy and trigger that thing. instantly. And so sometimes you have to implement some of these little hacks if you're going to go with the zero-based budget because you got to make sure that you manage the cash flow that's coming in. So you save off the top, and then you spend what is left over. And that's how the zero-based budget works. So if you've never heard of it, when money comes in, you save that money off the top, meaning that you save your percentage, whatever percentage you're targeting, maybe it's 20%, for example, and you send that to investments or your emergency fund or whatever else. And then you spend whatever is left over. And it eliminates the need to be able to budget. But when you spike,

out of control like this, you got to have controlled ways of making sure that you reflect on your values. So think through that list, and this is a value-based list. And so I order it the same way I would, anything else, based on what my values are. What do I value? What do I want most? What do I want lease? And I have this list in order based on that. And so when you have this waiting period, that cooling off period can really, really, really help. Now, another thing that you can do when this happens is kind of periodically look at your possessions and look at your belongings around your house, do you have a lot of clutter coming in or just things that you really don't value and you just keep making these purchasing decisions? If that keeps happening over and over again,

first of all, I would remove those items that you don't value and I would try to sell them on marketplace or offer up or wherever else. And you could sell those items. I've done this before, like last time before we moved from our last house, I sold a bunch of stuff that I didn't want anymore just to get rid of it. And I made well over $2,000 to $3,000. And so there's a lot of stuff that you'll accumulate over time where if you're spilering out of control like this, maybe you have stuff in the house that you don't really value and you can start selling that stuff off, taking that extra cash and then utilizing that cash for whatever else you want to do with it, that actually brings you value. So that's another great way to think through this. And then just

kind of being mindful about this. So just being mindful every day about your spending and making sure that you don't make instant purchase decisions. We are in a world where it is so easy just to buy anything you see day in and day out. That's my biggest problem is I will see something online and I want to buy it instantly. I know how it is. I do it all the time still. even when I try to implement some of this stuff. And so making sure that you have this system into place that allows you to just wait a day or two is really important when it comes to the reverse budget. Because the reverse budget by nature is so that you don't really have to monitor everything all the time. And so this is going to be something that helps you just stay a little more disciplined when it comes to purchasing decisions.

And so that's how I would think about it. That's how I reduce the spiraling when it comes to the reverse budget and how I make sure that, a lot of times I'm keeping this within my parameter. So that's a really, really cool way to do it. And so I hope that helps. And if you have any other questions, just let me know. All right. The last one is about a life insurance product.

And if you have been listening to this podcast for any amount of time, you know what I think about life insurance products, especially some specific ones. And so I want to kind of go through this. And a lot of times I talk about these because I want people to be aware of how these are being positioned. So this is a great question. And I absolutely am so excited to kind of answer this one.

So, hey, Andrew, hope you're having a wonderful day so far and good start to the week. I have been listening to your podcast for about two months now and I fell in love with the wealth of information. Ha, I see what you did there, wealth of information. Well, thank you so much for listening. I truly, truly appreciate you. And that is amazing that you're enjoying this show. So I have been working on budgeting and paying off our debts. Also, learning a bit about 401Ks from work and really just learning as much as I can.

I came across an interesting tidbit of information that seems to be pretty hush, hush, and wanted to pick your brain a little about it. It's a 7702 plan. I believe you have talked about Whole Life Insurance before, and I know that you emphasize more towards term life. The 7702 plan sounds way too good to be true, but very inviting. It also builds wealth slowly. Can you share your opinion and your knowledge about this? Maybe even an episode on it. I don't think I've seen you do an episode on this.

So here's what we're going to do. I'm going to dive into the 7702 plan slightly, and then what we're going to do is I'm going to tell you why I don't like it. And so that's the quick answer is I don't like it at all. And so what the 7702 plan is, it actually refers to a section of the U.S. Internal Revenue Code, which it defines how cash value life insurance policies are taxed. Now, anybody who's listened to this podcast knows I do not like cash value life insurance whatsoever. Here's why. Cash value life insurance will charge you 10 times the amount that term life insurance will for the same exact product. Now, people will say, y'all, you can build a bank, you can do infinite banking, all these different things are inside.

IULs, yada, yada, yada, they're going to try to position this as an investment. Any person in your life that tries to sell you any sort of life insurance vehicle as an investment is a salesperson. They are not a financial advisor. So if a financial advisor is trying to sell you life insurance as an investment, they are trying to sell you something so that they can make a massive commission. And so you're going to hear it in my voice that I get real passionate about this because people are getting scammed left and right. And that's what life insurance is becoming. It's becoming one big massive scam where they are charging massive fees and you're paying those fees in order to be able to pay for their Lamborghini.

And so this is a huge, huge problem for me. This is something that I will fight to the death on this thing with anybody who wants to fight about cash value life insurance because I'm so passionate about this. So this is a great question. I'm so glad you're bringing this up because you're going to see people on TikTok. You're going to see people on Instagram saying, oh, this is an amazing place to put your money. It can grow.

You can borrow against it. There's so many cool things that you can do with this. Now listen to me. Everybody listening to this podcast. We're going to do an entire episode on this because I have to at this point in time on the issues with cash value life insurance, the issues with IULs, the issues with all this stuff. And I'm going to have to keep saying this over and over because I don't want anybody listening to this show to get scammed.

I don't want anybody listening to this show to have issues. Now, there are very, very small instances where people may need cash value life insurance. And I'm talking it's less than 1% of the population. Outside of that, everybody else can get term like. insurance. Why is term amazing? Because you can get a half a million dollar policy. Policy Genius is one of the sponsors to this podcast. And the reason why is because they did my term life insurance. Term life insurance is so inexpensive compared to whole life. It is absolutely amazing. So here's a great example of this, is that you can go out and you can get a term

policy for like 30 bucks a month for half a million dollar coverage, depending on your age. So it depends on your age and it depends on how healthy you are. But you can get like a $30 policy with a half million dollar coverage every single month, 30 bucks. And here's how term life insurance works. It works for a term, meaning that you can get a 30 year term, for example, so from age 30 to 60, you have life insurance coverage. And the idea behind this is you're not going to be covered after the age of 60, but the idea behind it is you built up enough wealth to cover your family if anything happens,

because that's all life insurance should be there for is to make sure that your family is taken care of or your dependents are taken care of or your aging parents or your business partners, all of those folks are taken care of if anything were ever to happen to you. That's all it is there to do. And if anybody uses the word life insurance and investment in the same sentence, run. Run as fast as you possibly can. It is way too good to be true. They charge you massive fees.

They just want to fund their lifestyle with your money. And so there is a lot of negatives to this. And we've done an episode talking through the negatives on another money Q&A. But I'm going to do an entire episode on it so it's much easier to find. for a lot of people too. And so the quick gist of this is the 7-702 plan is just another way to position whole life insurance in another way. It is very complex. They try to make it complex on purpose, is my opinion, and it is really, really costly. And what you can do is instead of taking those dollars and putting them into cash value life insurance, you could buy a term policy. And the same amount of

dollars that you would have put in the cash value life insurance, you can invest for yourself. And there's no parameters around that. Nobody can keep that away from you. Nobody can take fees off of that for you, you can invest those dollars yourself. And that is the plan that I utilize. That is a plan I tell people to utilize. Have a conversation with the people in your life who are helping navigate your financial life. But at the same time, if they're trying to sell you life insurance, I would run. If you have a financial advisor right now that has tried to sell you life insurance a couple of times as an investment, you need a new financial advisor. Because this is the major issue that a lot of people are seeing is that they're going to make a massive commission on that.

and for you, it is really not a benefit to you. So it is really, really important if you're going to look at these products to just look at them with caution. And I'm so glad that you asked this because for most people, I would not go this route personally. I would never go this route. And for me, it is one of those things where you're going to be paying a massive amount in fees. You're going to be paying a massive amount to the policy every single month.

Here's another good example. I'm sorry I'm going on a ramble here, but here's another great example. My mother-in-law's best friend is someone who bought into one of these policies. they make $2,200 a month, okay? So they are retired for the most part. They make $2,200 per month. But in order to make sure that this cash value life insurance policy stays alive because they've been paying for it for 30 odd years,

in order to make sure this thing stays alive, they are paying over $800 a month for a cash value life insurance policy. And because of that, it is taking almost half of their retirement income every single month. This is what I don't want for you. I don't want you to have to pay that with the massive fees. I want you to avoid this as much as you possibly can because it is too good to be true. It sounds like it's too good to be true because it absolutely is.

So this is a fantastic question. And it's amazing that you are looking to build wealth here. I think this is so cool how you're working through, you know, you're budgeting, you're paying off debts and you're learning about 401Ks. You're starting to build wealth. And those are the types of folks who are starting their wealth building journey, who are really trying to build up their wealth at the very beginning. Those are the types of folks that a lot of people in cash value life insurance

will try to target. So this is one where I am so glad you asked this question. And so I am so excited to see how much wealth you build as well because you are making all the right moves right now. So congratulations on that. That is absolutely amazing. Listen, thank you guys so much for listening to this episode. If you guys have any questions, please reach out to me and we will put them on a Q&A show. The fastest way to get a response and to get on the show is actually to shoot me an email. So if you're on the master money newsletter, you can just respond to any of those newsletter with a question and I will have the team put it together so we can answer those questions for you. So really, really appreciate you guys listening to this episode and thank you for investing

in yourself because that's exactly what you're doing when you listen to this podcast is you're investing in yourself. And so that is the most valuable place that you can invest your time and your energy. I hope you guys have a wonderful rest of your week and we will see you on the next episode.