---
title: 'The Truth About Retirement Planning in Your 20s'
source: 'https://youtube.com/watch?v=d2_eTzwgmGs'
video_id: 'd2_eTzwgmGs'
date: 2026-06-30
duration_sec: 3169
---

# The Truth About Retirement Planning in Your 20s

> Source: [The Truth About Retirement Planning in Your 20s](https://youtube.com/watch?v=d2_eTzwgmGs)

## Summary



## Transcript

So, we purchased a home thinking that we
would probably stay in Pennsylvania for
the long term, but job changes, life
throws curveballs. You got married, you
bought a house, change jobs, and you
moved to another part of the country.
All inside of a 12 years
a thing that we're not struggling with
is age 65. We're struggling with a
near-term. As you guys think about this,
how do you want the next 5 years to
look?
[Music]
My name is Daniel. My name's Lindsay.
We're 25 years old and we live in
Boston. Welcome to Making a Millionaire.
We're originally from Pennsylvania. We
both grew up about an hour outside
Philly. Then met in college in
Philadelphia, got married a year later,
bought a house in PA, and then I got a
new job and Daniel had to ride along
with me up to Boston. Tell us what each
of you do for a living. Brag a little
bit about yourself. I'm an apparel
designer doing active wear. Yeah. And
I'm a structural engineer. Aren't those
cool jobs? You know, when I hear like
apparel, athletic wear, athleisure, that
gets me super excited. I love it. That's
awesome. And so, it sounds like it was
you had a job change and that job
changed. What took you from Pennsylvania
to Boston? How how long had you guys
been married before that happened? About
a year when that happened. So, you got
married, uh, you bought a house, you
changed jobs, and you moved to another
part of the country, all inside of a 12.
Starting to notice a trend here. Wow.
You guys might be on the achievement
track. Do y'all feel like are y'all
running mental checklist of all the
things that you're trying to to check
off? Feel like we try not to. We we we
might both have that tendency a little
bit uh to lean that way, but um but
don't want to be completely governed by
that. Okay. Well, you guys have done a
fantastic job because you you've already
mentioned that you're 25 years old and
you were so kind that you shared with us
a net worth statement of where you guys
are today and we thought it'd be helpful
to kind of look at that to level set to
kind of give people an idea of where you
are presently today and then we're going
to talk about okay well if we know where
are today where do we want to go what
are some of the things you guys are
thinking through and you can see here
you guys have done a fantastic job by 25
years old I think a lot of people would
look at this and be pretty envious of
your situation right now in cash and
cash equivalent Once you have about
$64,000 saved up, h how did you guys
come up with that? Cuz look, let's you
have an emergency fund and then there's
another thing called syncing fund. Walk
us through what's the thought process
between those two different buckets.
Yeah, so the emergency fund is the kind
of three months to six months of cash
just to have on hand uh that we would
just kind of keep no matter where we're
at. And then the the syncing funds is a
big combination of things. It's
everything from a fund to buy a car in
the future. Um, to other things we're
saving up for, maintenance on our house,
things like that. Haircuts. Haircuts. No
haircuts.
That's my hair. So that's not in the not
in the budget. Your haircut. Your
haircuts go into the sinking fun. It is
It is a lot of things in there. Um, and
then it's also actually just some other
money that is now kind of in CDs. It's
for a future house purchase. um some
things that we don't have invested right
now just because the time horizon might
be a little shorter but um is above and
beyond even the syncing funds. Now you
say future house purchase you already
own a home correct can you kind of walk
us through that? So, we purchased a home
thinking that we would probably stay in
Pennsylvania for the long term, but you
know, with job changes, life throws
curveballs. So, we're thinking that we
don't know exactly where we want to end
up long term. It could be back near
family in PA. It could be somewhere
else. Even within Pennsylvania, our
families are split between different
towns. And so, we're just not positive
where we might want to end up in the
future. if the home that we bought would
be a place that's big enough for the
family that we want to grow into, things
like that that we just anticipate could
be a purchase in the future. What was
the reasoning behind or how did you guys
decide, okay, we're not going to sell
the house and move, we're going to keep
it. How'd that go down? Many
conversations, many Yeah. lots of advice
from family and friends, realtors,
different people like that. We
ultimately decided that since we had
bought it so recently, we didn't want to
have to go through closing costs and
finding a buyer so quickly. And it just
really worked out that we had friends
who were looking for an apartment to
rent and they were willing to rent from
us. So we heard advice that, you know,
having reliable renters who would be
taking care of our home would help it to
be an asset that could continue to grow.
Are they still interested in staying in
the house or is there a time certain
that they want to move out? I said the
next year they're planning on staying,
but we haven't discussed long-term plans
with them. And I'll just add also part
of the decision to keep the house was
looking into some things like capital
gains tax and knowing that like we would
have had to pay that for owning it for
such a short time and yeah just some of
the other money considerations. We had
just done some renovations pretty much
right when we moved in so we had sunk
some money into it. Again we we really
thought we were probably going to be
there for a while um and life led us a
different way but uh so that was part of
the decision as well. Do you feel like
you have that figured out the are you
still trying to figure out what do we do
with this house like or is it do you
guys have a plan in place like okay I
want to know anything else about that?
We we feel okay with where it's at right
now but we feel like we need some sort
of plan moving into the future. Uh
partially still because of capital gains
taxes. I've looked into rules about like
how long you have to live there in a
certain period of time and some things
like that that might make a difference
of like should we move back for a time
um and live in that house for a little
longer, something like that. It
obviously depends on what what life
brings as well and there's so much
unknown in the next few years. Um but we
do and and we still question sometimes
whether we should have kept it. Uh there
have definitely been times where that's
been like a big question mark. So we we
still go back and forth. We don't feel
totally settled. You both kind of looked
at each other when you said there's been
time. Did something happen? Was there a
thing that made you question whether it
was the right was the right choice? The
day after we moved out of our house and
then our friends moved into it, there
was a big leak in the basement bathroom
and there was like a nine grand
replacement to replace a piece of the
sewage pipe that was going out to the
street. So, we were wondering like where
was this issue when we lived there and
had the right insurance coverage and
everything. So, so literally your
friends move in, you guys move out,
you're out of state now and all of a
sudden this leak happens. The joys of
being a landlord, right? People talk all
the time about like, "Oh, I'm going to
have a rental property. I'm going to
have someone else pay the mortgage. This
beautiful thing, but sometimes like
unknown unknown things happen, right?"
Uh, out of curiosity, how did you how'd
you pay for the how'd you pay for the
league, the 9,000 because you were able
to do that? Did you have to go into debt
or did you guys Yeah, we had plenty of
cash at that point um in our emergency
fund and and honestly, it some like
finance was shuffling a little bit. So,
it was kind of like even after we paid
that nine grand, we still had our full
emergency fund and just kind of then got
things set from there. Something you
keep saying I just wanted to get a
little clarification on is the capital
gains. Now, if y'all lived in this house
for a period of time, even if you moved
for another job and and y'all definitely
moved far enough away that that there's
a proration of the the the tax-free
gain, did y'all look into that rule at
all to see how that would apply apply to
you? Uh, no. I guess it was my
understanding. I I didn't look a ton
into this, but I I thought that it was
something about like two you have to
live there for two of the last five
years in order to not pay capital gains,
but I didn't know anything about it. But
there is there is a little asterric,
okay, that if something because the
government's somewhat reasonable that if
you have to move for a job and they and
you they have a distance test, they have
these things you have to go through the
checklist on. But for a lot of times,
you can then take the for a married
couple, it's $500,000 and depending upon
how many months you lived in it, you
could prrate the gain. And more than
likely, y'all wouldn't have had that
much of a gain if you had any after all
the transaction costs. I only bring this
up is because you said something that
intrigued me is because when I was doing
the research for the show, I was like, I
wonder if they'd be willing to go move
back into the place for a month or two
because your biggest hangup is going to
be you have to live in it two of the
last five years. And I don't know, y'all
only been moved away for a year, so
you're still within the the 5year
window. But you could you could
definitely do some planning and work
with your tax professional. We're not
giving t professional tax advice, but I
just know that there's a some some
avenues or um some angles that you might
actually qualify for more if you just
needed another way to even think about
the decision. Now, we're not saying sell
it though because if you have great
tenants and the place is appreciating, I
mean, that might not be the perfect
answer, but I just wanted you to know
all the variables so you knew exactly
what you were dealing with. And it
sounds like there's some question
around. Okay, how should we think about
the house? But before we dive into that,
I want to keep going through the net
worth statement because that was I think
we just stopped at cash. I think that's
all we got. Uh when we look at your
investments, you guys have done a great
job of building up liquid investments at
such an early age. You both have health
savings accounts. Uh Daniel, yours has
about $4,700 in it. Lindsay, yours has a
little over 3,000. You both have Roth
IAS. Daniel, yours is at almost 24,000.
Lindsay, yours is at almost 14,000. And
you both have 401ks. Daniel, yours is at
a little over 6,000 and Lindsay, yours
is almost 15,000. So when I see, okay,
I've got HSAs, I've got Roth IAS, I've
got 401ks, I've got cash. Where are you
in the financial order of operation?
First of all, are you familiar with the
financial order of operations? This the
thing that you've heard of, right? It's
this ninestep process of what to do with
your next dollar. We've literally
written the book. If we were to ask you
the question, where do you guys think
you are in the financial order of
operations? What answer would you give
us? Uh, I would say that we're probably
on step five. We we got very close to
maxing out our our Roth IAS and HSAs
this past year, but not not quite there.
Um, although and I'm sure this will come
up, we we've also jumped ahead a little
bit and are doing some of step eight and
some of step nine. Okay, at the same
time, we're just kind of like bingo card
in financial order, right? Well, this is
the thing. I mean, I I I was when I
looked at y'all's net worth, I was like,
I'm so I'm just curious. So, when I look
at the financial order of operations and
then I look at your net worth statement
and I ask you guys, did you max out your
Roth IAS last year? Not quite. Not
quite. Okay. So, first you're like,
Brian, why are you being hard on them?
And then I find out that there is a 529.
If you look in the upper right hand
corner on on there, how many children do
y'all have? How old they are? How old
are your kids? We have no zero. No kids.
What are we doing? I mean, seriously,
what are we doing? I mean this my
favorite investment account is taxfree.
Y'all are 25 years old. Every dollar you
put to work is going to be
multiplied 40 plus 40 times over. How in
the world do we not max out the the Roth
IRA? And then somebody I don't know
y'all can tell on each other. One of you
said, you know, I got a great idea. We
don't have any kids yet, but why don't
we go ahead and set up a 529. How did
this even come to be? Well, we
affectionately have a future child that
we call Timmy. And Timmy is
representative of just our future
children that we want to support in
college. And so Timmy, you already
started kind of exist. Okay. Awesome.
That's that's uh that's a that's a
thing. That's an idea. Okay. We're we're
obviously going to want to come back to
this and really p hone in on how do you
avoid the Roth
maximization for Timmy when what do you
do when the first child's actually a
daughter? Is it still Timmy? No. No. No.
No. Uh okay. So, we're gonna we'll come
back to that. So, you've kind of bounced
around. You have your primary home. Uh
you said you just bought it a couple
years ago. It's worth about $350,000
presently. You have the 529 for Timmy
that we just uncovered. And then you do
have a mortgage on the home. Do the air
quot sorry for it's not actually it's
not it's not a real Timmy just yet. Uh
and then you have the mortgage you owe
about 240,000. The rate on that is about
5875%. So when we add all this up at 25
years old you guys have a net worth of
almost
$241,000. I mean that that is reason.
I mean, that's pretty impressive. I
mean, you you have to feel pretty good
about that. And do you guys recognize
how unique that is? I mean, a lot of 25
year olds are nowhere near. So,
obviously, you're doing something right.
You're making some decisions very very
well. And you obviously have a really
healthy income. Total household income
for you guys is about
$175,000. So, that's amazing. So, it's
not like, uhoh, you guys are are not on
the right course. It's okay. When you
think about the course that you're on,
are you on the best course? Are you on
the course that you ultimately want to
be moving on? So, can I just add
something real quick? I just want to say
like part of that how we've gotten to
this point is we've been very lucky and
like very blessed by family members who
have helped us out along the way with
everything from college to wedding to
house purchase. So, really, we've we've
been very blessed in order to be at the
place we're at now. One of the things
that kind of gives us concern and pause
is what about the short-term goals? What
about the things that happen between now
and retirement? I'd love to just hear
from you guys. You mentioned some of
them. You mentioned going down to one
income potentially. Uh we've
exhaustively talked about Timmy thus
far. What are some of the other like
short-term goals that you have or what
are some of the things that give you
guys pause or anxiety or things you
think might be difficult for you to
achieve in the short to intermediate
term? I think the biggest things are the
uh college for kids that not that's not
super short term obviously um and still
theoretical but at least 18 years at
least 18 years from where we have to ask
did either one of y'all go to get any
scholarships when you went to
college I imagine your children just
with the way y'all are wired as parents
and stuff I bet they're going to do all
right too the the other part of it that
I think is more shorter term is the
going down to one income so it just to
have that flexibility when we have kids.
We we look at that season and think that
kind of the biggest factor that will
allow or not allow us to do that is the
cost of housing and like what our
mortgage payment would be or what our
rent is. Um so kind of doing whatever we
can right now to be reducing that amount
in order to give us that flexibility
when we get there. So that's part of the
reason that um we're like we're putting
some extra money towards our mortgage
payment right now, which the idea for
that
is uh Oh, no. It's totally fine.
Everything's fine. Everything's fine. I
know why Bo is breathing in deep is cuz
how hard if you needed that money that
you're putting prepaying on this
mortgage in an out ofstate rental
property. How hard is it do you think to
get that money back out? Very pretty
hard. Yeah. So if you're if you're
thinking this is going to be your margin
or cushion to get you into one income, I
think it I guess the idea was that that
money would then be used to if we were
moving into a new house would be used as
a down payment for a future house which
would then reduce the monthly cost on
that house. But what if you couldn't
sell that house and you still needed to
buy the house? I'm I don't know that we
we
probably but you see the point. But I'm
just saying is that because margin is
going to be your friend with these big
life decisions and there might be a a
better way to to kind of structure that.
And what we want to do is we want to
create a plan where you guys have the
maximum amount of flexibility to be able
to do the things that you ultimately
want to do. And some of the decisions
you make when you put funds into a
specific thing like I'm going to prepay
the mortgage or I'm going to put money
into the 529 for the not yet established
Timmy then those dollars become
captivated there. And what we want to
say is okay is there a better way for us
to think about this? Is there a better
way for us to kind of look at this? So
let's talk a little bit about housing
because we see we kind of keep coming
back to that one uh for our audience so
that they can kind of understand. walk
us through right now when we think about
your current mortgage payment, how much
is your current mortgage payment and
then how much rent do you have coming
in? Uh, and then how much you're having
to pay for rent in the place that you're
renting now. So, we can kind of have
those those numbers to level set. Those
numbers are all pretty even. Our
mortgage with the interest in taxes is
about 2,300. Um, our the rent we're
bringing in is 2150. Okay. And the rent
we're paying is 2200. Awesome. So, yeah,
they're all kind of in the same
ballpark. Right around there. So, we are
very close, it sounds like, on the
Pennsylvania home to being cash flow
neutral, right? It's a little little
Now, are for these friends that are in
there now, if they're listening, I'm
sorry, friends, but I'm going to ask the
question. Are they paying at market rent
or is this a sweetheart deal? How how is
that deal structured? It's it's at
market. At market. Great. Okay. So,
whenever I think about someone who has
an out ofstate property, and it's an out
ofstate property that they're not
necessarily doing as an investment, per
se, but they want it to be this thing
that's sort of a contingency plan, if
I'm if I'm describing that right. One of
the things that we would love to see is,
okay, is there a way to make it cash
flow neutral so that it kind of is
compartmentalized and sitting over here
by itself rather than pulling from
present- day consumption? Because right
now when I think about your housing, it
you're paying $2,200 in rent plus an
outflow to cover the shortfall that the
Pennsylvania house is generating. Would
you agree with that assessment? Yes.
Yeah. Y'all are reserving what is it
400? How much a month are you putting
into repairs? Yeah, it's at least 300
350 maybe into that syncing fund. How
many months have you had 350 $400 worth
of repairs on the No, not zero. Right.
That one single event. And that's why I
think it is recency bias because I mean
the houses look houses are great but
they're also scary outside of your
heating and air system, the sewer, and
then your roof. A lot of I mean that's
that's really your core systems. Y'all
covered the sewer, it sounds like. How
old is the the HVAC system on on on the
on the house? Uh it doesn't have AC, but
the heating system is on the older side.
We know we're going to have to replace
the boiler probably sometime in the next
What does that cost? Do you know? Uh not
really. No. Okay. Yeah. Several thousand
is the number I have in my head, but
that's rough. That's a pretty easy thing
to figure out. Uh some quick quick AI or
Google research or even just calling a
local technician to ask them, hey, what
would it cost to replace a boiler? And
that way you at least know the number
you're shooting for cuz it it seems to
us we looked at because you were so it
was so helpful that you sent us your
scing fund breakdown. When it comes to
cash management, we like for you to have
an emergency fund that where you keep 3
to six months of living expenses
compartmentalized. And then some people
like to use a syncing fund because they
know they have short to intermediate
term goals coming up. Hey, I know I'm
going to have to replace the car or I
know I'm going to have to have this
vacation or I know I'm going to But it's
interesting when we look at your syncing
fund. There are a lot of different
buckets here. Kind of walk us through
these and how you guys are thinking
about this excess cash. I get the
haircut comment now.
Yeah. So essentially this was a
catch-all for all the expenses that
aren't monthly expenses. Um so that's
why something like haircut or clothing
ended up its way on there. That's not
sewing. Yeah. The sewing money. Um uh
that that that's not something we can
predictably uh allocate every month. So
it just ends up in a scing fund where
it's like a smaller amount that goes in
there every month and we have it to like
spend down. And then there's the bigger
categories of um a future car down the
road wanting to have money to for that.
Um the car maintenance, same thing.
just, you know, we get you get hit with
several hundred dollars here and there,
but not every month. Um, and then the
house maintenance as well. Just thinking
to have that for big expenses. Um, the
the escrow is actually because we pay
the taxes and insurance out of our
pocket now. It's not part of our
mortgage. So, that's why that's there.
Um, but then yeah, the the smaller
things are just kind of miscellaneous
things sprinkled in there, I guess,
allowing us to spend freely and I
imagine this is sort of guilt relief,
right? Hey, if we have this, so I don't
feel guilty when we spend. Well, let me
ask you a question. If I were to ask you
what your monthly burn rate is based on
your current because budgets are so
unique to every every person every
couple does it a little bit differently.
So when I ask you guys what's your
monthly burn rate what would your answer
to that question be? 7327.
Uh but who's counting exactly right? So
okay study up. So if our monthly burn is
about 73 $7,500 a month and we would say
okay you're a twoinome household where
you both earn about the same. You don't
have any other dependents counting on
you. You could reasonably argue that
three months would be an appropriate
emergency fund for you guys. In your
minds, instead of thinking through all
of these different like syncing funds
and contingencies for all these
different things, what if we just
increased the monthly cover to four
months or five months? And we know that
what those additional months are going
to do are cover some of these other
costs. Because what it looks like is
happening is you have a bunch of
different contingencies that are likely
not going to all happen at once. I mean,
you've already said right now you have
$8,700 in your rental maintenance
budget. You're adding to that every
month, waiting for the sewer line to
break again, and you just had that
happen, right? Yeah. So, it seems to me
that it might be practical or prudent.
Instead of having three months of living
expenses, you could have five months or
six months of living expenses, then you
know what your true cash exposure is.
Because what I worry about with you
guys, and we see this with clients all
the time, is that we compartmentalize
this cash and what we end up doing is
being way, way, way cash heavy. where
instead of having our money actually
working for us, doing the things to help
us move our financial circumstance
along, we're way overly conservative and
we're way cash heavy. And I think for a
25-year-old couple at your stage, you
probably are a little bit more cash
heavy than you have to be. Especially
when you didn't max out the Roth IRA.
Especially when you did
not I know you said it was only $1,000.
But in in my book, I detailed how I went
back and calculated what every year that
I didn't get like the full maximum Roth.
Mhm. It was only $10,000 total, but I
calculated it out and it turns out to be
the equivalent of close to $400,000 by
the time I'm retired. So those little
decisions of here and there because it's
taxfree. So, I'm going I'm not going to
let that go because I think that y'all
have the cash. It's not like you had to,
you know, you were in the this squeeze
of life to where you had to make this
sacrifice and the wroth was the the
thing that you just out of your shaking
hands, you just couldn't do it. Y'all
actually had it sitting in your sewing
and your hair budget.
Nobody's taking anything away from you.
It's just it's just that that you have
way too much cash when you're not
maximizing some of these investment
goals that that should come be
prioritized earlier. You guys laid out
for us how you currently think about
your saving. Like when we think about
how we're deploying our paychecks every
single month, you put together for us
your saving strategy. And this is what
it looks like. Now, every month you have
about uh $360 going into your HSAs. You
have about almost $1,100 going into your
401ks because you have match and you're
doing enough to get the maximum match
available. You have about $900 a month
going into your Roth IAS. So, not maxing
them out, but you still are contributing
there. But then we have $400 a month
going to the 529 that we've already
established perhaps if we're following
the financial order of operations is a
little out of whack. That's like a step
eight when we haven't even fully done
step five yet. I thought about giving it
a family feud.
I just did not like that. Did not like
it. And then we have the home equity,
which that's part of that is for the
down. You have a down payment fund for a
future house that you said you would
only you said you'd only buy the next
house if you sold the current house. And
if you sold the current house, you have
equity in that house for down payment,
but you're also building another down
payment fund to go on top. And they're
sending extra money like $400 or $500 a
month towards the mortgage. That's built
into the house. And you're putting both
of those. So, this is like an additional
down payment fund, an additional equity
fund, and you know, it's not it's not
like your mortgage is super low
interest, but it ain't exactly high
interest, right? Um, so when we think
about your savings rate where you guys
are, we would call it 16%. Because we
know that, you know, prepaying the
mortgage as well as 529, that's like 8 N
that does not go into my savings rate.
If we were going to improve upon this,
like if we were going to think about
truly letting your dollars maximize
their potential for you with every
decision you make, we put together a
different savings plan that we think
could potentially make sense for you
guys. Rather than on your HSAs, not
maxing out, what if we did $713 every
month to get those to fully max out?
401ks, leave those the same. Get the
employer match that you're getting, but
now get the Roth IAS maxed out. Instead
of $900 every month, have
1,167 going across both of those and
you'll max them out. Let's stop
contributing to Timmy's 529 because
we're going to have plenty of time for
doing that. And instead of having an
additional down payment fund and instead
of having additional morning on the
mortgage, let's cut that out. And so if
we actually look at this and we think
about the cash outflow, what this does
is it frees up an additional
$481 for you guys every month. And the
question then becomes, okay, well, what
do we do with that 481? How do we think
about that? What's the best way for us
to deploy that? We could obviously look
at the financial order of operations and
we could say, okay, we're maxing Roth
and we're maxing HSA. And so, the
natural next step would be, let's just
dump that into our 401k. But you've
already expressed to us, hey, there's
some anxiety we have around being able
to fund some of these short-term goals.
And one of the short-term goals, and I
think you've said it a few times now,
is, hey, what if we wanted to go to one
income? What if we did want to start a
family? What if we want to do that?
What's that look like? Well, one of the
things that we think would likely be
necessary for you to go to one income is
you have to figure out how to
compartmentalize that Pennsylvania house
over on its own, right? So that way it's
not actually pulling away from current
living expenses from current cash flow.
It kind of self- sustaining because you
already let us know that the rent you
have coming in doesn't quite cover the
mortgage, especially when you take in
account the maintenance budget and other
stuff. So, uh, what we thought would be
interesting is to walk you through a few
different ways that we could think about
making that cash flow neutral or maybe
even cash flow positive. And as we were
kind of spitballing this, we think
there's really three ways we could
potentially do this. The first is you
can just increase rent over time. If the
rent that you have coming in has a
natural cost of living adjustment where
it goes up by 3 or 4% annually,
naturally, that's going to move you into
a place where it's going to become cash
flow neutral, cash flow positive. So,
first question, does the lease that you
have with your friends have automatic
rent adjustments built into it? No, we
manually negotiated that with Okay. So,
is that something are they just one year
at a time doing that lease? Okay, great.
Do you guys have any desire to do a
longer term lease where it would be
something where you rent to them for 3
years or 5 years or is that too
uncertain still? Because it's too
uncertain, I think, just with Yeah. what
we want to do. Okay. So, increasing rent
is one solution. The next solution, and
we all love this one, is you could
potentially consider refinancing your
mortgage. Right? We know that your
mortgage right now was what was it?
5.875. Is that the number? Ideal time to
refinance. Rates likely right now are
not a whole lot lower, but that doesn't
mean that rates might not go lower in
the future. I mean, we know that
historically interest rates kind of go
up and down and we're probably still
sort of more towards the higher range
right now. And we said, okay, well, what
if rates did change? What if something
happened economically that allowed them
to to fall and you had the opportunity
to refinance? Look at what happens to
your payment. We know that right now, if
we just factor in your principal and
interest, uh your current mortgage
payment is
$1,666 a month, and that's at
5.875%. Well, if you were to refinance
now, and let's just say that 5% was the
prevailing rate now. Well, just doing
that and continuing to pay your mortgage
on the same timeline. So, not recasting
it another 30 years would drop your
payment from 1666 down to 1286. Wow.
That's pretty exciting, right? Yeah. But
maybe rates don't fall just yet. Maybe
it takes some time for rates to get down
in there. But in the future, and let's
say 5 years, that's just sort of an
arbitrary number that we're using. What
if even in 5 years, you could
potentially refinance? Well, obviously
your mortgage will have continued to be
paid down, but at that point in time,
you could refinance to 5% and your
mortgage payment goes from
$1,666 to a little under $1,100 a month.
Well, if you have 21,00 coming in, your
mortgage is only $1,100, that's a pretty
great spot to be in. The question you
have to ask yourself, okay, well, when
are we thinking about wanting to start
the family and go to one income and
those sort of things, but here are some
options you have. We also did the math
on how it changes if you were to have a
4 and a.5% refinance option. Now, the
thing that is unfortunate about
refinancing is we don't get to control
when rates change. I mean, I think we're
all hopeful that rates will come down to
provide people who recently bought an
opportunity, but it's not guaranteed.
It's not something you can bank on. So,
we said, "Okay, well, what is something
that you likely could influence? what is
a strategy that you could potentially
deploy to try to get the Pennsylvania
house to be cash flow neutral? Uh, and
one of the things we came in was
potentially looking at some sort of
mortgage recast. Now, do you guys know
what a mortgage recast is? Not really.
Awesome. Great. Perfect. All right. So,
we put together sort of a theoretical
example. You know, we we borrow money
and we pay out a mortgage over like a
30-year time period, right? And they
calculate at the beginning of the
mortgage what that mortgage payment's
going to be in order for us to pay it
off in 30 years. Well, a lot of times
mortgage companies will say, "Hey, if
you are building up and you get to a
place where you want to make a capital
infusion, you have some money on the
side and you just want to pay down the
principal. You can pay down the
principal and keep paying your same
mortgage and you'll just pay it off more
quickly." Or one of the things that some
mortgage companies will let you do is
they will let you recast the mortgage
where you put a big principal payment
down and you ask them to recalculate
what the mortgage payment would be to
pay it over the same timeline. So,
you're not stretching it out. You're not
changing your interest rate. You're just
saying, "Hey, we put a big capital
amount down. Recalculate our payment."
So, you can see sort of graphically you
were paying along the gold line and
let's say that 10 years in this example
on the line, you had $50,000 that you
could just pay on the mortgage. You
asked them to recalculate your payment.
You get a lower payment and pay it off
in the same amount of time. Does that
make sense? Yeah. The margin between the
two lines would be the interest that you
ultimately save because you're paying it
off and you're just asking to
recalculate. So, what we said for you
guys is if we had this five-year
timeline and we had this
$481 excess that you have right now and
you kept saving that towards cash
building towards an amount to recast,
you're looking at a scenario where
potentially 5 years in the future, if
this were to manifest, you could drop
your mortgage payment from
$1,666 down to
$1,666 even if interest rates don't
change. Can you do that at any time when
when you have money to put towards? very
it's dependent upon the mortgage
company. So, one of the pieces of
homework we're going to give you is,
hey, call your mortgage company and say,
"Hey, I would like to think about a
recast. Is this something you allow? Are
there any costs associated? How do I go
about doing it?" This is this is kind of
related. We whenever we talk about
refinance shows, the first thing I
always tell people before you refinance
your mortgage, call your lender and ask
if they'll do what's called a rate
modification. Because realize lenders,
they've already they don't want to pay
the friction cost either of going
through the whole process of going
through underwriting and everything
else. So sometimes it's easier for them
to keep an existing customer, especially
a customer that pays their bill on time.
So like a rate modification, there's
typically a fee associated with that.
And just like with a mortgage recasting,
there likely would be a fee associated,
just a few hundred. Sure. But that's why
you wouldn't want to do it every You
wouldn't want to call them, hey, it's me
again. I just sent you another000 bucks.
So, so it's going to be more of a
deliberate and intentional transaction
to where that's why 50,000 is what we
use in the example is it's it would be
something y'all are making a decision
that you would like to have a little
additional margin because you're living
off one income and you had this excess
cash and but you don't get better rates.
How do we make the best of this
situation? This was just an option that
we thought we'd at least share with you.
I honestly wish we had known about that.
We, now looking back on this, this might
have been a bad decision, but we did put
a pretty big amount of money down on our
our mortgage payment from a gift that we
had gotten. Yeah. Um, probably last
year, we put like $25,000 down on it.
So, not knowing that this was an option
maybe to to recast it when we did that.
Well, so here's a wonderful thing. I
would tell you call your mortgage
company and say, "Hey, just last year we
put a big amount down on this. Would it
be possible to recast our payment?"
Because even though you've already made
the principal, now they may say no or
they may say, "Oh, we would have had to
have done that before you made the
deposit." But there's a good chance they
still could. The fact that you've
already done that, you're already ahead
of schedule. You've already paid that
principal down. So, it's at least worth
asking the conver asking the
conversation. Uh the second best answer
they can give you is no, right? Like
that's the second. So, you might as well
ask. And then what you do is you tell
them, "Hey, mortgage company, rates are
looking pretty good right now." I talked
to another bank and they said that right
now they would let me refi at my current
rate. And I if you are not interested in
the ratecast, I'll just move my mortgage
over to someone else who's willing to
do. Now, you want to make sure you
actually have the leverage and somebody
that's willing to do that. But that is a
way that you can make your mortgage
company fight to keep you as a client or
as a customer instead of just telling
you, "No, tough, we're not going to do
that." Now, I loved that when we asked
what your monthly burn rate was, it was
7,327.
What did we say the dual income goes
down to one income looks like? because
I' i'd like to have some discussion on
that too. Yes. So, we built you uh sort
of two separate budgets. Well, we know
that if you were to go down to one
income after we factor in taxes, we
think that your gross income take-home
goes from 10,200 down to about
$7,800. There are some changes we've
already said we're going to make. If
we're able to like recast the mortgage
and get the mortgage a little bit
cheaper, it goes from666 down
to,66. We've already argued that $400
maintenance on the rental may be a
little aggressive. So, what if we were
to cut that down to like 200? So, what
we're calculating is if you were to go
to one income right now, present day,
you'd have about $7,800 of income, about
$8,000 of outflow, you have negative
cash flow, about 250 bucks. And so then,
if you were to continue saving 10%,
because remember, you said, I feel like
it's not hard to think about saving for
the future and saving for retirement. We
wouldn't want you to cut that down
completely. But if you were to still
save 10% of the single income, you would
be at about $1,000 deficit per month as
it stands today. So the question we have
for you is, okay, if you were going to
go to one income today, is there a
$1,000 that you could either cut out of
your budget or is there a way to create
$1,000 of additional income right now?
Probably. And that's something we've
talked about that if we do go down to
one income, someone working part-time a
little bit or there are probably some
areas of our budget we can tighten up a
little bit too and some combination of
those things. That that sounds a lot
more realistic than I would have
thought. Well, here's where I want to
get into the coaching part is because
right now I I still feel like you're a
little divided in in your attention.
It's just like we know that you're
prepaying the mortgage. It sounds like
you got a gift and you you sent more to
that mortgage. you're kind of being
you're playing the part of a debt
crusader and and it feels good to pay
down that that mortgage debt. But I will
tell you what I see coming up is this
whole life decision on you guys doing
the family planning figuring out y'all
are both successful. That's going to be
a lot of discussion to figure out which
one of you or is it going to be a hybrid
where one of you works from home but you
still have to hire somebody to come help
out on some services. So there's going
to be a discussion and that's why
whenever we have big life decisions I
tell everybody to put on their 3D
glasses. And what I'm when I say that is
that I want you to essentially and you
I've seen your spreadsheets. You'll have
no problem. I was like, is this
legitimately their spreadsheet? So,
you're gonna have no problem putting on
your 3D glasses is because I do want you
to write out kind of a fiveyear or
whatever period of time y'all want to do
your family planning with and and and
create the dream plan. This is where
everything works out beautifully. You
all get payraises. You know, you keep
getting promoted. You're getting these
huge bonuses. you know, you tell them
you want to work from home and you're
going to have screaming kids in the
background. They go, "Great, no problem.
That's the that's the dream plan." But I
also want you to do the down to earth.
Meaning that maybe when you go talk to
your employers or one of your careers is
doing something that the other one's
not, and you start making real
determinations on what you think will
happen for you from a cash flow. And
then don't skip the doodoo plan. That's
where you actually do another tab on
your spreadsheet says, "Oh my gosh, what
if things don't go like we plan?" And
and here's why I want you to do do the
doodoo plan. I don't how many dues can I
put in there? Um is that you right now
you're allocating so much cash to like
debt and all these other things. If you
did this exercise, you'd probably
quickly realize, man, maybe what we need
to do in this transition, not only save
for the Roth, do the 401k and these
things because that's already getting us
close to 20%. But maybe we could start
building up an aftert tax account. And
then you could figure out is that cash
or should it be slightly invested? You
know, you you'd have you would know
because you've done the three plans to
kind of know when you would need cash
flow. And then you get to control the
access to it. Whereas right now, you
have a lot of variables. You you're very
disciplined, but you don't control the
access because that mortgage that that
$25,000 you sent to the mortgage
company, if you called them and said,
"Hey, just kidding. we've decided we're
going to have a baby next year. Can um
can I get the 25 grand back? They're
just not they're going to make it very
hard. It's hard to you have to
refinance. It's not like they just send
you the money back. And that's why I I
want to caution you, build it into the
plan so that you have maximum
flexibility and you get to address this
stuff headon and also control the access
to it because that also allows you if
you have lean months. Do you know what
gets you through lean months? having
extra cash and extra capital that you
control. And that's that's what's going
to get you through this. Y'all y'all are
so successful, but it's just these
little nitpick things that I think would
really improve your plan and also take
down the stress level. Kids are already
going to be stressful. This is going to
give you all just maximum flexibility so
that you you you hit that and you don't
even feel it doesn't even feel like a
speed bump to you. You know, it's
interesting. One of the things a lot of
times we'll show people a projection.
Hey, if you do the things that we're
recommending, this is what age 65 will
look like for you. This is what
financial independence. You guys have
already said, hey, we're not the thing
that we're not struggling with is age
65. We're struggling with a near-term.
So, we thought, man, wouldn't it be
helpful if instead of showing them
something, you know, 30 years, 40 years
in the future, what if we showed them
just 5 years in the future? If we think
about where they are today and they were
to implement some of these changes, if
they were to make some of these
adjustments, how might their situation
look at the time when they're seriously
considering going to one income or
starting a family or making some of
those changes? And so we actually did
project that out for you. So we said,
what if we assume that your investments
over the next 5 years can grow at 8%
annualized? That seems reasonable for a
couple that's 25 years old. Let's assume
that the house that you currently own
appreciates in value at the rate of
inflation about 3%. Let's assume that
cash does the same about 3%. And then
we're going to assume that your
emergency reserve actually doesn't grow
at all. We're just going to have it be
finite. Same number. Pick a number.
Stick to it. Well, when we look at where
you are today and we lay it side by side
with where you'll be, it's pretty
exciting. You can see that just
contributing the same amount to your
401ks that you're doing right now, your
401k, Daniel, goes from 6,300 to almost
36,000. Lindsay, your 401k goes from
15,000 to almost 76,000. Again, this is
just five years in the future. Daniel,
your Roth goes from 23,000 to 78,000.
Lindsay, your Roth goes from 14,000 to
63,000. Your HSAs go from about 8,000 to
64,000. So now your liquid portfolio,
without necessarily putting tons of
focus on that, without really throwing
the kitchen sink at it, still over the
next 5 years, you're able to grow it
from
$66,000 up to
$317,000 by the time that you guys get
to 30 years of age. And do y'all know
when we do our net worth by age, we
always say you should have an
aspirational goal of having your net
worth beet one times your income annual
salary. Yeah. But and
and we haven't gotten into net worth
yet. I mean, if you look at all the
assets, I mean, y'all are you will be
three to four times what you're amazing.
It really is. You can see that the
Pennsylvania home goes from 350 to
400,000. the 529 we're gonna stop
contributing to it but it's still gonna
grow for little Timmy it's going to be
at almost 7,000 where your cash if we're
going to do the recasting scenario and
we're going to focus on that goal you
could grow that from 10,000 up to 43,000
and then we still have your emergency
fund that 54,000 stays intact and your
mortgage just paying it on the normal
pace is still going to go from 240,000
out of 24. your net worth in a fiveyear
span just by redirecting how you're
pointing your dollars and optimizing
your situation. You could go from
$240,000 today to
616,000 five years from now and be
primed and positioned to go to one
income to move back to Pennsylvania to
start. And you don't have to wait five
years. I always No, this is the old man.
My kids, my oldest. Everybody buckle up.
But it is my my oldest is, you know, a
junior in college. I wish we'd had more
and I wish we'd had them sooner cuz my
wife and I were married close to six
years before we had our first child.
Money is good making the planning for
it. But y'all already kind of laid it
out in your interview with us. You don't
want it's just a tool. It's not what
it's not the center of your life. As you
guys think about this, how do you want
the next five years to look? I think the
biggest thing is I I like hear a lot
about retirement and retirement planning
and that's always kind of a big thing in
the financial world as it should be like
for for good reasons, but um to kind of
see these numbers laid out of looking at
it and analyzing it for the short term
is super helpful. I it's not something
that we've done a ton. It's not
something I would have even known how to
go about exactly, but it's it's
comforting to see that like this is
possible and having some different
strategies to do that with the house
like recognizing that that that payment
is going to be one of the most critical
things for us. But there are other ways
to kind of figure that out rather than
just how much money can we throw at it.
So that's I think that really helps and
it it seems like a simpler way to look
at it. And what I love is this is not uh
it's not still putting emphasis and
power into the long term. You'll notice
your assets are still building towards
retirement. Your retirement portfolio is
still growing. It is one of those things
though that as life happens, it is a
journey and you are on a path and money
is nothing more than a tool that allows
us to accomplish the goals that we have.
And if some of those goals are
short-term or intermediate term, then we
ought to use our money accordingly. And
so in this season of life, if that's the
way that you guys need to prioritize,
that's totally okay. You're you're not
going to have a 25% savings rate going
towards financial independence and
building towards retirement, but you
still have something going there. You're
still using the financial order of
operations. you're still maxing your
Roth, maxing your HSA, so that even
though you're not doing it necessarily
by the book, you're still moving towards
that common goal, and you're not
sacrificing these years, they're going
to be so so valuable in your long-term
wealth buildinging journey. What about
you? What do you think? I think I just
get a little bit deflated when I see the
529 amount and I'm just wondering kind
of your thoughts about how we would go
about getting that up to where it would
need to be when our kids are old enough
to go to college. So you would be a So
we we tend to um overestimate what we
can do in the short term and
underestimate what we can do in the long
term. In 18 years you can do a
remarkable amount of saving in 18 years.
You can do something crazy when it comes
to saving kids college. And you've
actually lived this. Yeah. I mean like I
said my my oldest is a junior in
college. Soon as she was born I started
setting up doing quarterly 529
contributions. And it wasn't a ton and
it I was just trying to maximize the tax
savings in the state of Georgia at the
time because they they they actually
gave you 6% off your taxes. Um and it's
paid all the way through her junior
year. Now she got some scholarships just
like your kids will. She got a
scholarship that covered 60% of her
tuition through achievement. Um so um
but we've covered the rest of it. And
then yes, the four her senior year I'm
going to have to come out of cash flow.
But I think that's okay, you know,
because realize y'all are looking at
life through the eyes of 25 year olds.
When your kids are this level of
success, that tuition is going to be
like you're just paying it forward to to
children that you love. You're going to
have plenty of resources to make that
and you'll still feel well rewarded for
for the starting that fund when they're
born. Not not now. Look, you might
already have the gap covered just
because Timmy's already got a fund set
up before Timmy's even on the planet
yet. But it's um but I I just tell you
that's that's one of those worries that
I think is going to fix itself. You
know, be deliberate and active, but also
know that your children will probably
qualify for some scholarships. You're
going to set up these automatic
investment plans and the money will be
there because that same discipline
that's built you guys up to a quarter of
a million dollars at 25 is going to be
the same discipline that's going to have
college waiting for them and any other
financial goals that y'all desire to
conquer. We definitely need the
perspective. So, appreciate that. So,
before I give you the homework, what
questions do you have for us? What else
can we answer that might be valuable for
you guys? This is a bit of a
miscellaneous question about budgeting,
but it but it ties in with as we're
setting that up for the future. We've
had some tension about um how to budget
in terms of not between the two of us, I
mean, but just between two. I was like,
"Oh, this is about to be good. We've
had news to her." Um between the idea of
budgeting for what we see in a normal
month, and that's kind of how we have
our budget set up right now. It's for
two paychecks, which is we each get we
get paid by weekly, so that's normally
what we see, but that actually leaves
two paychecks a year out of the budget.
So there's this extra chunk of money and
and like this past year we used that to
honestly most of it to put into um our
like end of the year HSA and 401ks to
like or Roth IAS to get them closer to
the max. Um so but it's just a question
of should we be budgeting on the actual
amount that we see like our annual
income divided by 12 or what we see in a
normal month just those two paychecks. I
think the safest way is you budget on
the base. Like you budget on what you
actually see. So, if you know you're
going to have x amount coming in this
two weeks, you budget based on how much
is going to flow out in that two weeks,
right? Do it over a month because it's a
little bit easier to think about 12. But
I would base it on that. And then what
happens is is as you have those
additional paychecks that weren't
accounted for come in. That is where you
can do some of the other miscellaneous
stuff. Hey, I didn't quite get the Roth
maxed out. I'll do that. Or hey, now
instead of having a scing fund that I
built every month, I've got this one
extra paycheck that's going to be what
we're going to go on our trip with or
that's going to be how I'm going to fund
this goal. Because if you can make life
work on the base, when that additional
income comes in, it's just gravy. And
you don't have to have any guilt about
using that for the things you actually
want to use it for. I look at your
expenses as like monthly things. And
then of course you've got your one-offs
like the property taxes, but you're
already putting that in a sync fund. But
then when you think about saving for
your retirement, you know, you're
getting 26 pay periods. you you think
about that in the terms of the
percentage okay and then what that turns
out to be on an annual basis so you can
do both believe me I've seen your
spreadsheets you are multiaceted
talented is so you can look at your
expenses more on the you know what do we
need to do monthly or quarterly
depending upon how these things hit but
then on the income meaning ver saving
side of it it's okay to think about it
in those 26 pay periods and then plan
accordingly as a percentage okay is that
how do you do do you do everything on we
noticed you did everything on a spread
spreadsheet. Any reason why you don't
use some sort of software or some sort
of tracking app? Biggest thing is I
don't want to pay we don't want to pay
for anything. We're frugal. Frugal. I
also enjoy doing it every month and then
it's something like we can talk about
after I run through everything like how
do we do this month where where should
we adjust and and do you find that you
guys actually adjust like if you go over
in a category budgeting do you actually
switch your behavior moving forward or
you just say oh we went over and then
you move on? It's a good question. More
mentally noted I think. Yeah, we not
Yeah, I think that's a good point. We
don't do anything super concrete. more
tracking than fully budgeting probably.
Yeah, that's fair. Yeah. Well, it seems
like you're doing okay. I mean, I'm not
I'm not going to pick on you. I I
wouldn't even encourage I think down the
road you guys could graduate to what we
call money management plan. The cash
management plan is is is when because I
don't like to budget anymore. I mean,
once your income gets to a level and you
can automatically set up where you I
call it force scarcity where all the
money is going in the places it's
supposed to so that you know you've
checked the box. Then what's left over
you can spend with reckless abandonment
and not feel guilty about it. Seriously,
because you you've that's what the whole
force scarcity is is if you ever feel
like you've like you get a pay raise or
something or you get a bonus, you can
always allocate more towards the
automatic bucket. But then what you know
what's left is for for expanding
lifestyle or going on trips and making
memories and doing all the cool stuff.
So you don't have regrets when you get
to be older. As we're thinking about how
our money is invested in those
retirement accounts, um right now we
have most of it in target retirement
funds or like index funds. I'm wondering
is that what you'd recommend? Is there a
different way you'd allocate that and
how would that change moving forward?
Yeah, I mean I noticed like you're in
the vanguard. I mean way out there in
the and that's probably it's done really
well. So I mean I I think in the
beginning for sure because what I we
like about index target retirement funds
and that's the key thing is are they
index meaning super low cost? yours is
in Vanguard and all you have to do is
think about how much can I save and when
do I need it because your savings rate
is so much more powerful than really
anything else if I got into the minutia
of the asset allocation and they're
doing all that for you automatically now
look once y'all y'all are going to get
there really quick probably about the
time you're 30 sure you guys are going
to be getting close to
that six to seven figure mark well then
yeah asset allocation starts making a
lot more sense but but since these are
retirement accounts. You can change
asset allocations without tax impact,
without any problem whatsoever in those
retirement accounts. And we'd rather you
focus on the things that have the
largest impact on your financial life.
And that's going to be budgeting and
where your dollars are going and how
much you're saving and what buckets
you're saving to efficiently. It's going
to be way more valuable than trying to
tweak the assets. The target retirement
funds are going to be good enough to get
you from where you are now to the next
stage you ultimately want to be at.
Okay. All right. Here's your homework.
You ready? Yes. All right. First thing I
wrote down is we got to fix the foo. You
guys were kind of like going along and
then you kind of like went scatter
foolish foolish. You know, we want you
to be in straight foo. So, what fixing
the food is going to mean is going to be
maxing out your Roth IRA. It's going to
be maxing out your HSA. It's going to
probably mean cutting off the 529 and
it's probably going to mean cutting off
the prepaying on the mortgage and
thinking about, okay, we're building
those dollars towards some other common
goal. Another thing that we want you to
do is we want you to call your mortgage
company and ask them, "Hey, what options
are available to us if we want to recast
our payment? Is it something we can
already do since we've made a large
capital infusion or is it something we
can do in the future if we want to make
an additional capital infusion? And what
would that look like? What are the
costs?" The other thing I want you to do
is we want you to talk about your
timeline. All right, we got this plan.
We know what five years could look like.
When do we actually think we want to do
that? When do we want to go to one
income? When do we want to potentially
move back to Pennsylvania? When do we
want to start a family? What's that look
like? And we want you to look at that
through the 3D glasses. What's the dream
plan? What's the down to earth plan? And
then what's the doodoo plan? And then
plan and then plan accordingly. And then
the last thing I have on here is get
excited that you are and are going to be
able to continue building your great big
beautiful tomorrow. You guys are in
thankfully an amazing spot and I think
it's only going to keep getting sweeter
and sweeter and sweeter and sweeter.
Y'all are doing awesome. Thank you. This
was a lot of fun because I saw so much
potential. You're already crushing it. I
just want to make sure you're taking in
deep breaths. Enjoy each phase of your
life, which it sounds like you are. So,
but just don't put so much pressure on
yourself because a lot of this stuff is
just going to build itself based upon
your good discipline and your good
decision-m. Awesome. Thank you. Thank
you, Bo. If others wanted to find out
how they could also come on making a
millionaire, what should they do? That's
right. If you would like to be on Making
a Millionaire, you can go to
moneyguide.com/apply. Or if you want to
check out all of our free resources, you
can go to
moneyguide.com/resources. Guys, I'm your
host Brian Preston. Mr. Bo Hansen, Money
Got Team out. Making a Millionaire is
hosted by Brian Preston and Bo Hansen.
Brian and Bo are partners at Abound
Wealth Management. A bound wealth
management is a registered investment
advisory firm regulated by the
Securities and Exchange Commission in
accordance in compliance with the
securities laws and regulations. A bound
wealth management does not render or
offer to render personalized investment
or tax advice through making a
millionaire. The information provided is
forformational purposes only. May not be
suitable for all investors and does not
constitute financial tax investment or
legal advice. All investments involve a
degree of risk including the risk of
loss. The guests featured on Making a
Millionaire are not clients of Abound
Wealth Management at the time of
recording. Their participation should
not be considered a testimonial or
endorsement of Abound wealth management.