What is the 3 Bucket Strategy? (And How to Do It Right)
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January 27, 2025
TLDR: Discusses the 3 bucket strategy for diversifying retirement accounts beyond target date funds.

In this insightful episode of the Money Guy Show, hosts Brian Preston and Bo Hanson delve deeply into the 3 Bucket Strategy for retirement, answering listener questions about diversifying retirement accounts and optimizing saving strategies. This guide aims to help individuals navigate their financial journey effectively.
What is the 3 Bucket Strategy?
The 3 Bucket Strategy divides your investments into three categories:
- Tax-Deferred Bucket: This is where your 401(k)s and traditional IRAs reside. These accounts grow tax-free until withdrawal.
- Tax-Free Bucket: Comprising Roth IRAs and HSAs, this bucket allows for tax-free growth and withdrawals, making it ideal for future tax advantages.
- After-Tax Bucket: This includes regular brokerage accounts that use after-tax contributions, resulting in capital gains tax on earnings.
Having these three distinct buckets allows retirees to manage their income withdrawals strategically. By choosing where to withdraw funds based on tax implications, individuals can significantly reduce their tax burden, even with large portfolios.
When to Consider Diversifying Beyond Target Date Funds
The discussion also touches on the appropriate timing for moving away from target date funds. Target date funds adjust risk over time but can limit the effectiveness of investment strategies as your financial situation evolves. Here are some key points:
- Establish a Savings Habit: Initially, it's more important to establish strong saving habits rather than focusing on specific investment placements.
- Understand Your Savings Rate: Aim to save a minimum of 25% of your gross income, allowing you to transition to intermediate strategies like the 3 Bucket Strategy.
- Evaluate Investment Needs: Once you've solidified your saving routine and reached a level of financial stability, it may be time to explore more nuanced investment options beyond standard target date funds.
Key Takeaways from Listener Questions
Financial Order of Operations
An essential theme discussed is the Financial Order of Operations, emphasizing the importance of following a specific saving and investing sequence:
- Max out contributions to tax-advantaged accounts like Roth IRAs and HSAs before diving into 401(k) contributions past the 25% threshold.
- Once you hit that savings rate, you can begin exploring advanced strategies, including the 3 Bucket Strategy and focusing on other future financial goals.
Balancing Debt and Wealth Building
Listeners shared queries about maintaining a balance between leveraging debt for home ownership (such as putting down 35-40%) and continuing wealth building pursuits. Key advice includes:
- Opportunity Costs: Understand that using large down payments can impact your ability to save for other investments, making it crucial to evaluate your financial priorities carefully.
- Long-Term Planning: Assure that high housing costs do not hinder other aspects of financial health, such as retirement savings or emergency funds.
The Importance of Awareness in Financial Behavior
The hosts encourage listeners to regularly assess their net worth, emphasizing how understanding financial progress can motivate positive behavior changes:
- Net Worth Tracking: Consistently track your net worth to observe growth over time and refine your financial strategies accordingly.
- Set Goals: Having clear goals can keep you focused and disciplined in your saving and investing habits.
Conclusion
In summary, the 3 Bucket Strategy offers a robust framework for organizing retirement savings, while understanding the timing of diversifying away from target date funds is critical for long-term financial success. As financial awareness grows and disciplined saving becomes routine, individuals can position themselves effectively for a secure financial future.
For anyone navigating their way through retirement planning, the teachings from this episode provide invaluable insights and practical applications that can lead to a more fulfilling financial journey.
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Alright, this next one is from Skibity. I am 27 and was wondering if I need to max out my 403b when I contribute more than 25% combined with other retirement accounts through the pension, Roth IRA, and brokerage. So if you hit that 25%, do you still need to max out with step six?
So this is a great question. And what we get asked all the time as it relates to the financial order of operations, people will say, hey, at my income level, when I calculate what 25% of my gross income is, and I max out my Roth IRA at $7,000, and then I max out my HSA at, it's not exactly half of the family. It's like 41, 50, 4300, somewhere in that ballpark for a single individual.
Once I do those two things, then I start putting money into my 401k, I hit 25% before I ever get to the $23,000 threshold. So what happens at that point? Do I still have to max out? Do I still have to, in order for me to move from step six, max out retirement accounts, two step seven hyper-accumulation, if I hit 25%, can I then do that or do I have to max it out first?
Yeah, this is, you know, I've heard me tell the story, but a lot of you are brand new. So you don't, you haven't heard us tell these stories. So it's important for me to make sure I share it. We were doing a speech to these engineers.
about the financial order of operations. I'll never forget we had a young female engineer raise her hand and she goes, this seems cruel that I don't get to get to the goals, financial goals, like fund my kids college and other things until I max out my 401k here at the employer, which at the time was like 21, 22,000. Now it's 23,000.
And we're like, yeah, you're exactly spot on. The financial order of operations is an all-weather, all-terrain vehicle because we have designed it to where to get from step six down to step seven and then move on to step eight, you just have to reach 25% of your gross income. Because we do realize some people are just going to be
Their income's not going to be huge, but they're going to be very disciplined, and they're going to be very efficient at saving money. But their income just isn't high enough. At the time, I think it was somewhere in the 80,000 to 80 to 90,000 dollars. You're not going to reach the point.
to where you're going to hit the annual funding threshold of the 401k. That's okay. You've still been so successful at saving. You can move on to step seven, hyper accumulation. That's where you're going to start thinking about your three bucket strategy, how you're going to use the money in retirement, and then even move on to step eight, which are those
prepaid future expenses or abundance goals. That's where you start thinking about the kid's college. You've done the hard work. And also, I want to give another big combination. Congratulations for somebody who makes under six figures. Hits 25%. Huge. Do you realize that the discipline and effectiveness of that savings rate is incredible? And it's so incredible. Also, you're going to be closer to the social safety net. So even this probably gets even
frothier in the future because you get social security and other things. I get more nervous about people who prescribed it. They think that they're financial mutants, but they make two $300,000 a year and they're just not realizing just because you maxed out your $23,000 401k. $23,000 this year. $23,000 this year. That's not enough.
You need to be thinking about 25%. And the other way on that one is to go beyond just your 401k or your 403b, you need to be saving more. But for skippity, boppity, boo, this is definitely your on the right path.
What's so funny is after you read the question, I thought you were going to pause in the name. You're like, Brian, are you okay? Are you okay? After you went through that? You got lost in the name on that one too. I love it. You guys, y'all have to be careful. I really am a squirrel. And when I see names, that's why I had to thank you, content team, for leaving the question up, because all I can sit there is like.
That's a Disney reference, I think. It has to be a Disney, because immediately when I see it, all I see is Skippity Boppity Boo. But it's not Skippity, is it? It's Bippity Boppity Boo. Because it's a Bippity Boppity boutique. You know what? Don't mess up. Don't mess up my good time. You know, I was honestly a little disappointed that there wasn't a reaction, but that was perfect. He would say that. He'd like to say that. Here's what I'm like. Poor guy's here.
Everybody here who works they know that I'm gonna put some weird thing in there just because my brain is just Why my but don't screw up the video Brian? Just keep it in check be disciplined on this part too. So that's what was going on. No, I love it You know what I also love tell me that almost 70% of the live stream audience has done their net worth statement Yeah, it's like Christmas morning. What's so funny is we have some folks here who said hey, you know what?
Hey, I found the money guys show. I've started working at the firm and we did our first net worth statement this year and we're like, that is awesome. Let me tell you the really exciting part. Five years from now, after you've done this for a number of years, when you get to look back and see the progress and see how it's changed and see how much ground you can cover just by
solid consistent decisions, making in small tweaks, you will be blown away. I've been doing mine for, we're getting close to 20 years now, right? Like it's rapidly approaching the 20 year mark and it is so fun to look back and just see how that has changed.
over time. And so if you've not done it, we have a great free resource you can use, you can go to moneyguy.com slash resources, or you can go check out our net worth tool that has a full dashboard that puts front and center all of those things that we tell you about. Okay, how are my tax buckets built up? What's my money guy multiplier score? How is my journey to abundance look? And you can actually track those things. So if you don't have a tool that you're using, I'd encourage you go to learn.moneyguy.com, check out your tool for those 30% of you that have not done it yet.
So, Sunday, I was like, you know what, I have to show everybody, we eat our own cooking here. So, I'm, we're, we're, because I get back in town on Thursday, and then Friday, I had to spend the whole day taking down Christmas decorations. You know how sad it is when you come back in town, and then, you know, it's so fun putting up Christmas decorations outside, but it took me a day and a half to take down all the stuff in the front yard. You get set that sad in you though?
It's much more fun to put it up than it is to take it down. But so that was Friday and then half of Saturday was taking down all my yardscape for the neighbors. And every year, I think I'm going to dial it back. My wife is like, the neighbors are kind of counting on it. So I did that. So Sunday, I told my wife, I was like, I have to. After lunch, I'll take my youngest daughter. We've got to go to my office because I've got to get my net worth done. And I felt like it was the most on brand.
We eat our own cooking because here's my Sunday. We're driving to the office. I pull into the UPS store, making Amazon return. I'm like, yes, got some money coming back on the credit card for the Amazon return. Then we pass by the thrift store, the Salvation Army. I have the whole back loaded up. Now, look, it'd have been much more tax efficient if we'd have made this decision in December. Sure. So I could have deducted it for 2024.
But we cleaned out the garage so I could put the Christmas in some of it in the garage. By the way, I got overwhelmed by how bad the garage was that it still made it up in the attic. It didn't make it in the garage like I did. Oh, was your goal to keep the Christmas in the garage? Just the big yardscape stuff, the snowman that has the animation on it. It's just too big and I'm getting too old to carry this thing upstairs every year. Is they going up and down? I'm like, thank goodness I'm in decent shape for my age, but I'm like, you know, and I...
I won't even, I won't even get into the family discussions about why this thing is ridiculous that I'm carrying the attic. But I put, so we clean the garage out for partially, not fully, but partially. So I pull in a salvation army, make a big donation, got the tax thing and like check. And then I drive to the office and I do my net worth statement. I was like, this is the most money God day to good. Ever to do this. And it was just good.
I mean, I should have had a blizzard or something to celebrate, but I did. But you're being healthy right now, right? Yeah, that's right. That New Year's resolution, you usurped that. But it was a good day, and I would encourage everybody do your net worth statement, because I know the first year, especially if those of you who think it's going to be negative or pretty close to zero, you're like, why does it even matter? Do it. I'm just telling you that there is something magical about being able to look back on this 10 years earlier. I started when I was 31.
But I have an associate here who's pretty close to my age. He started when he was in his early 20s. I'm thinking about EB. And I'm jealous because do the behavior. And my wife and I were talking all over social media, there's all this manifesting language.
I don't believe in that stuff, but I will tell you what I do believe in is if you start doing exercises and creating these good habits, there is something affirming. It's not manifesting. It's you just waking up a part of your brain that believes where you want to be and seeing a dashboard of what you have and what you don't have or how much debt you've taken on. And it kind of turning into because you've woken something up, not because you just spoke a spell into existence.
This can work for you too so so go out there and do the net worth and i think you'll be surprised at what it can do for you. Love it love it alright i don't think i ever gave skibity a tumbler so skibity if you would like a tumbler we're gonna win a winner at money i think rusty i think chaos is what people seek but it's.
All right. This next question is from Sam. They say, can you talk? Thank you. Y'all chose an easy name. I can actually hear this question. You know the number one, um, like comment, I keep seeing that you're getting on the jacket. What? Major thriller vibes. It really is. And so here's what I did. I went and looked at Michael Jackson's thriller outfit. It was not actually beat it. Now Michael Jackson just, we'll get back to Sam.
But you guys are, the beaded jacket, I'm old enough that these things were all, and they were at the treasure chest, I think. I'm trying to remember, what was the store at the mall that always had the Michael Jackson gear, and they had the Z-Kaverick pants too. But the beaded jacket had the metal on the shoulders.
I thought that was the coolest thing ever. And then you had the thriller, which was the red with the black V that came down. All those things were at the store. You did not have to look that up. You just pulled that out of the memory banks. Like that's locked in. No, I mean, these are things that when I was a kid walking around the mall is like, man.
If I just had unlimited money, I'd so own that. Now I didn't own, it's just like, I've told you guys, even this, this is actual members only. So I'm sure some private equity company bought this old dead brand and was like, hey, I bet there's some nostalgic,
people that will go buy this because they couldn't afford it when they were a kid. Because my mom was like players club or something else. There's only the kids whose parents really loved them that bottom members only. You know, all the rest of us poor kids had players club or member select or some other.
make up mostly members, not mostly members. When did you buy this jacket? Because I just assume that you've had this forever. Yeah. Oh, this is a vintage back from then. Oh, no, this is new. I went to a fundraiser two years ago at my daughter's school, and it was 80s night, and I decided to go all in on it. So I bought this jacket, and then I bought some Air Jordans.
And I tried to make the Air Jordans work, but my feet are just too wide. I got big old duck feet. And those Air Jordans, Nike doesn't do Air Jordans. And it's hard to get a wide. So I even bought a wide shoe extender. And I mean, they're just cranking that thing, trying to make this shoe comfortable. And it just, it doesn't work. They're cool looking shoes though. Just not wide enough. No, I mean, they're just cranking on it. And it just, my old duck feet don't work.
So Sam, thank you for your question about, was it beaded or was it thrill? Is that a question? Well, this gets on the side. I always thought if I didn't grow up in a small southern town that couldn't afford to do school pools and stuff, I think I would have beaten my, I think I would have been the precursor to Michael Phelps.
Really? Well, think about my body. I have big old duck feet. I mean, huge wide. I have to do the double wide feet. I have a long torso, not long legs. I have long torso. You're always for swimmers. That's an actual good thing. That's a great view. So if I wasn't just, and I was always in backyard, I was undefeated. Like all my buddies, I could swim faster than all of them. I think in another day, another time, Olympic swimmer.
Did you do swim team? Were you a swim team? Did you not hear where I grew up? Swim team didn't exist back then. It was backyard. It was my buddy's swimming, you know, in the backyard. I was the fastest of them, but I have no idea if it is actually organized because of South Atlanta back in the 80s, you know, swim teams, swim teams.
All right, so Sam's question. Sorry. He says, can you talk about what the bucket strategy is and when we should start considering diversifying our retirement account to more than just target date funds? Oh, he's mixed up. There's a few things in there. It's pretty cool. Those are two kind of questions. Let me talk about the bucket strategy, Brian. You talk about when it makes sense to graduate from target dates.
So when we talk about building towards financial independence, we like for you to do it in three distinct buckets. We want you to have your tax deferred bucket. That's like your 401ks or your regular IRAs roll IRA rollovers. We like for you to have your tax free bucket. That's your Roth IRAs and your HSAs and Roth 401ks.
And then once you have your after-tax bucket, that's just like your regular brokerage account that goes, has after-tax money and then you pay taxes as the money grows and as you invest those dollars. Well, if you can build up these three distinct tax buckets, when you get to financial independence, you get to pick and choose where you pull your money from. So you, if you're in a high interest rate environment, you might pull up to a certain threshold from your pre-tax assets to trigger ordinary income and then
For the rest of your need, you might pull from the Roth assets or from the after tax assets and you can literally manipulate the tax code to pay the tax that you want to pay. So we have a ton of clients who have large seven figure portfolios that have six figure retirement needs and incomes and yet they pay the lowest tax bracket. They might be paying the 12% or
22% federal tax brackets because they built up their three buckets. And that's how we actually built the financial order of operations. If you follow it through, you will likely build up those three buckets so that when you get to financial independence, you can pick and choose what taxes you pay. That's what we talk about. We talk about the bucket strategy. Now, the second part of the question that Sam had was, well, how do I know when to move away from Target? It's because the bucket strategy even plays into that a little bit in terms of not just
The way I'd phrase it, I would have flipped this question a little differently because bucket straight, that is sexy stuff. I mean, if you think about that you're sticking it to the man on an illegal way to minimize your taxes, that sounds so good. And it's the same way the sexy sizzle is also in, Hey man, you realize that you can make so much money if you just invest in this one thing and it can be
crypto, it can be. Whatever the popular thing is of the moment. But the reality is, is in the beginning, your savings rate and the habit of actually starting to save and invest is more important than even where you put the money. You've got to get the make wealth behaviors.
Going in the habits going first before you get into maintaining and maximizing those things So that's why we we total people and people get upset about this I'm like no you need to listen actually sit down listen to kind of what we're sharing because this will make a lot more sense what I like about index Target retirement funds is they first of all are taking advantage of index funds which are low cost They're super efficient and they capture what's going on with this
awesome economy that is innovating and growing just naturally upon itself. Instead of you trying to choose the winners, you just choose yes. I want to be part of this excitement that's going on. The target retirement part of it is that it's helping you while you're young be super aggressive. And then as you get a little bit older and your risk profile is changing, it's getting more and more conservative. It's handling the asset allocation for you. So really when you can marry those two together, it's really you have to answer two questions.
how much can I save and when do I need the money? Then the rest, you don't have to get distracted. You don't have to focus or waste any mental horsepower on anything, but how do I save more into my investments and then get into the financial order of operations and getting to step seven, hyper-accumulation, which is where the bucket strategy really kind of comes into play. And that's kind of a great segue into taking on the rest of what Bo was talking about. I think that's when
I think people kind of graduate out of index retirement funds because now you have to start thinking about, hey, I have a lot of bond funds that I don't like bonds. Even my mother-in-law, who's in her 80s over Christmas break, was like, why do I have bonds? And I was like, oh my gosh.
Bonds are not bad. They actually, let me show you what they've actually made you over the last few years. Just because you hear equity, equity, equity, and I love equities too. And they've done really well over the past couple months. But I was like, you have to understand that everything has a place in your portfolio. And you're going to, when you get to a point where you're trying to maintain your wealth and even multiply your wealth, you will want to, because it's not just risk tolerance, it's risk capacity and the ability to recover if markets came down,
you're going to appreciate that you have some conservative holdings, but you want to make sure you put those conservative holdings in the right bucket to maximize the tax plan as well. And that's why step seven of the financial order of operations, all those things really kind of intersect nicely and will help you maximize your journey. But don't get the steps out of order. So many people are so drawn to the sexy sizzle that they skip steps and they never, they don't even get the make well.
and then reach the maintain, they just skipped it. They're already jumping into the risk aversion side of things without actually doing the make-wealth phase. That's great.
So, Josh's question was, what's the difference between financial assistance and financial enablement? Also, I picked up my linear mission for Christmas and I have been loving it. P.S. love the jacket. Oh, please. Don't, don't stop. Let's just go ahead. I mean, thank God it's a tumbler day. I'd feel really pressured to only give one tumbler out to Josh and Josh and Josh.
So, okay, so what's the difference in financial assistance and financial enablement? We know, you know, one of the formative books in our life was The Millionaire Next Door, and it talks about, you know, traits of millionaires, and one of the traits of millionaires
is that not only did they not receive economic outpatient care from their parents, meaning their parents not subsidize their lifestyle, they also raised kids who they did not have to provide economic outpatient care to. And for the quick, like Webster definition of economic outpatient care, it is a parent
subsidizing the lifestyle decisions and choices of their child, meaning their child is able to live a lifestyle at a higher means than they would be able to otherwise on their own. That is different than parents who have had some success, had some wealth.
done things right, creating an environment where their children can then also continue to benefit from those wise choices. We actually love seeing scenarios where financial assistance takes place. I'll give you a great example. We have some wonderful clients we work with and their kids did great in college. They graduated with impressive degrees. They got great grades.
They were working through college, saved up money for a down payment, and they had done everything right. But when they came out of school, was right after real estate prices had just gone through the roof. And also interest rates were at like seven and a half, eight percent. And so the kids were like, man, I really want to buy a house, but
I want to make a wise decision. I want to make sure that I keep it inside the realm of affordability. And I know that I need to at least put three to 5% down and I can't have my mortgage payment exceed 25% of my monthly gross income. And if I try to go buy house right now, I can't do that because of where interest rates are. Well, their parents said, hey, look, you've done everything right. You've done everything you're supposed to. And we are in the position. We're in the place where, hey, we're not going to just go buy a house for you. We're not going to do that. But what we will do is we'll hold the mortgage for you.
we will be your mortgage holders and we're going to charge a reasonable mortgage rate four percent five percent something that's historical average that you're still going to have to do the hard work of going out and earning living and paying your mortgage and satisfying this and we're going to provide some assistance to
to utilize the resources that we have, but it's not going to be something where you don't also have to do hard work. I think that's a great example of financial assistance, not financial enablement. What would you add to that? Look, I immediately wrote this down and I think it works because we have assistance enablement. I think enablement is give only. And let me give you an example.
We live in a very affluent area here and it drives me crazy when I see people give their 16, 17 year old kids really nice cars. That is enablement to me. Compare and contrast that to assistance.
which is like my oldest daughter, her first car, she paid for half of it. A lot of people said, they didn't have all the safety features that brand new cars, and I guess you have to balance that. It was teach with incentive, meaning that I said, whatever you save up, I will match dollar for dollar to put in. It's the same thing with buying stuff for your kids, enabling things versus
giving and teaching with an incentive like Roth IRA's when your kids start working when they're 14, 15, 16 years of age and they get those first earned income dollars coming in their life. If you offer them a dollar for dollar match into a custodial Roth IRA,
What do you think that's doing? That's priming the pump of good behaviors. And that's why Teach with Incentive is a very valuable thing. That's assistance versus you just giving somebody something. And I think that can breed entitlement. It can breed where you are. And we've talked about this as a hazard while I think kids who grow up in wealth.
They need scarcity. I know that sounds mean to say that. When you're poor, when you're poor, you get scarcity all you want. It's an all you need buffet of scarcity. So it creates some things inside of you that is disciplined. It wakes up some things and that adversity is good for you. If you grow up in a where abundance is everywhere, sometimes that can we've had people come in our life where they say, my best years were the years I lived with my parents.
That is horrible. It's a great smart. If you're buying your kids a BMW when they're 17 years of age, where do they go from? That's right. I think about my cruddy car. I almost said a different word. My cruddy car when I was 16, that barely cranked, and then I got that first Mazda. And then I think after I got married, and we bought that Ford Explorer that was still used, but it was just nice. It had leather seats.
Now look, it hit 100,000 miles and the rear view mirror fell off and there was all kind of other issues with it. But I remember the joy that buying and then my first real new car after I had built up enough assets in my 30s.
that I bought a brand new car that had all the chemical smells that I got to breathe in and probably take a few years off my life, but I loved it. That's this type of stuff I'm talking about is teach with assistance versus if you give them everything, I think you have to be careful that it becomes entitled or you're giving them the best years while they're younger. And maybe people are gonna be bothered by this because I know a lot of my neighbors, they know what I do for a living, they don't listen to a word I say because they all buy their kids brand new cars.
Here's the exception to the rule. Because you're like, how does this fit in? You got enablement, you got assistance, and I got enrichment. I do think memories over stuff. I think if you can take, if you are living in abundance, take your kids on trips, do things like that. Because I think that stuff is forever, and it's actually enriching to do some memories over stuff. Those are the kind of balancing act I would give. But don't sleep on the fact that scarcity, if you grow up in abundance, is an important thing. I love it.
I love it. Josh, if you would like a Money Guy Tumblr, you can email winner at moneyguy.com. All right. We've got a question from Music80s. They came up with that. I wonder why. Very on theme for today. What are your thoughts on using a 35% to 40% down payment on a home to keep the mortgage affordable versus investing and continuing to rent? Homes are near $500,000 on average in my area.
Unfortunately, it may be necessary. We tell people that all the time, but we get this ask this all the time, hey, I live in a high cost of living area. And if I do the three to 5% that you guys suggest when it comes to first-time home purchases, and I calculate what my mortgage payment and housing costs will be based on that three to 5% down payment, where interest rates are now, it's way more than 25% of my gross income. And unfortunately, a lot of times I'll go to say, well,
There's a few things that you might have to do, either you might have to have a larger down payment, you might have to figure out how you increase your income to be able to afford that mortgage, or you might have to be able to find a less expensive house. Well, one of the things, especially depending on the area you live, the only real lever that you can move is that down payment. So we see this all the time. Someone says, hey, three to five won't get it done, or even 10, 20, in this case, it sounds like maybe even
20% won't get it done. You might have to go to 35% or 40% to get it affordable. That may be what you have to do if homeownership is one of your top goals. Now the thing that I would caution you on and the thing that I want to make sure you measure is what would be the opportunity cost of that decision. So this is what we have to do like some deep soul searching, say, okay, when I line up my financial priorities.
How would I prioritize them? Is financial independence a top priority? Is home ownership a top priority? Is staying in this location a top priority? Is the school district a top priority? Whatever the thing may be and you have to recognize that the ability to save up a 35 to 40 percent down payment to be able to get into a home to afford the home.
is a noble goal, but there's going to be a cost of you not building and saving dollars for the future that might be helping you move towards financial independence. And you need to recognize that if I make the decision to do this, I may be sacrificing something on this side. And that's neither good nor bad. It's neither right nor wrong because money is nothing more than a tool that allows you to achieve your financial goals, but you just need to be very clear on what those ultimate financial goals are.
I would encourage you, you need to go check out one of our resources, go to money.com slash resources and we have a home buying checklist because there's really a push pull system here. We came up with a three to five percent down payment just because we have a no hypocrite policy here. And I think about my first home purchase, I put down three, five percent bow put down three to five percent.
We went and asked all of our CPAs and CFPs on staff. The majority of them only put down three to five percent, too. And we're like, well, why in the world are all the talking heads out there telling people to put down 20 percent? It's just not right. It's hypocritical. If this is not what's really going on in the world, we need to have a rule to explain that most people who are good with money actually are on their first house to get on the home ownership train are putting down smaller than 20 percent down payments. Now, the caveat on that is
This is why the home buying checklist will help. If you bought too big of a house and you're monthly, if you take your mortgage payment plus the expenses on the house and it's blowing up your lifestyle where your house rich, but life poor, you can't save for the future. You can't even go out and enjoy a meal for your anniversary or your birthday. You probably have done things wrong. So that's why you have to have
a system there that says, okay, in addition to the down payment, what is this as a cost to my cash flow? And it's why it's 25%. Now, I know those of you who live in high cost of living areas, I get it. If you don't have car payments, you don't have other debt, maybe that gets pushed up a little bit higher because you're doing public transportation and other things. But for most people, that is a good rule of thumb so that you just don't let your
Eyes get bigger than your wallet and what your wages and your income is actually going on. So that's why I say those two things work in conjunction with each other. There are some people though, when you upgrade, you're realizing, hey, the 25%
of my income is the restriction and that's where I like people probably putting down a bigger down payment as long as once again we come back to what do you do with your next dollar that's more of a step a prepaid future expenses abundance goals because now you're increasing your lifestyle for your benefit
not just to get on the train of homeownership. This is because you're saying, hey, I'm going to buy a house bigger than what my income can justify. So I might need to put down a bigger down payment so that 25% restriction is keeping me in check. But I don't want you to not fund your Roth IRA. I don't want you funding your 401k because you have this house at all cost mentality. So that's why those things have to work in connection with each other. I just, it does break my heart to hear, um,
people who can't get into homes, even starter homes are half a million dollars. That's why the three of five percent. And here's another guidance I would give you. I remember I worked with, or she was a friend, a young attorney who was basing all of her decisions off of another financial person who was saying, don't do this, don't do this. And I was like, you realize in the next three years, your income is going to be up probably 50% more than it is today.
make sure that yes, you need to be conservative in your planning, but also take into account where you are in this journey. That's why we give you these no hypocrite policy rules. So you can actually look at your life in full zoom out scope of where you're going. Now, don't use that as well. I'm going to go buy the $3 million house because I think down the road, I'm going to be making some figure. No.
That is not what I'm talking about, but I'm saying if you're a person, an engineer, if you're an accountant, if you're an attorney, and you're basing all your numbers off of $65,000 a year, but in three years, you're going to be making $110,000 a year. You do need to balance these things, still work within the confines of the financial order of operations, as well as our housing checklist.
but understand how all these things work together. Nobody ever explains the math, and that's why we try to do the Money Guy show so that you can actually see how the mindset intersects with the financial math calculations that you're doing. That's great. Wonderful. All right, thank you so much. Music 80s for your question. If you would like a Money Guy Tumblr, you can get that at winner at moneyguy.com.
And thank you so much to everybody for tuning in today. It was a great first stream back for the year. You can go to moneyguy.com resources slash resources to find any of the resources that we talked about today. If you haven't done your net worth yet, I would definitely go out there for our free net worth template or check out learn.moneyguy.com for our full net worth tool where you can track it from year to year. Yeah.
No, I love it. That's what I was going to tell everybody. Get out there. Make the most of 2025. This is also the great time to clean up 2024. You can still make those funding contributions for your health savings account, your Roth IRAs. Go check into those things because you have until April. This is a great time beginning of the year.
is a hot time of the year for us because we know a lot of New Year's resolutions and a lot of people are focusing on their finances and we're just happy to be here because there is a better way to do money and that's why we love inviting people to come hang out with us every Tuesday at 10 a.m. and then check out all of our new content. We have new content coming out on Wednesdays. We have new content coming out on Fridays. We are loading you up because we are absolutely on fire and there's so many cool announcements that are coming out.
Early February is going to be so exciting for a lot of our money got family. I won't because they'll start hitting me and then tackling me and not letting me say more. But this is going to be the year. If you want to get your financial life in order, we got you covered. I'm your host Brian Preston, Mr. Bo Hansen for the rest of the content team. Money got team.
The Money Guy Show is hosted by Brian Preston and Beau Hanson. Brian and Beau are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational 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.
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