Hi everyone, and welcome to another wise money tools video. Glad you could join me today. Well, on August 28th on Wednesday, I was driving back from the hospital, where I got to go check out my newest grandson had makes an even dozen. And in a few weeks, we're gonna get number 13. So it's been pretty exciting. So we're excited to welcome Jeremiah to the family. Anyway, on the way home, I was listening to traditional financial planner on the radio, pretty much pushing the same old ways that I don't think work. And you might ask, How do I know they don't work? Well, it's pretty simple. And I've been doing for almost 35 years now. And the fact is, if traditional financial planning worked, more people would be retiring in comfort, peace of mind and have the wealth they need.

But they're not just about every day, you can talk to someone who did the traditional methods, they deferred all the money they could into their 401k thought that would that by buying mutual funds and just investing forever. That they were gonna be in great shape that if they paid cash for stuff, that they had a reasonable mortgage and they worked off paying off their house and be debt free. Well, that by the time they finally got to retirement, they would be in great shape. problem is that's not really happening. They still don't have enough money to give them a predictable, worry free retirement, you know, having all the money and income they need to at least last as long as they do. Well, this guy was going on the same old tired things basically went like this, there's kind of the six little things, and I want to talk about the six.

The first one was get out of debt. Okay, I can agree with that. We could talk about how to do that. And maybe some different ways, there's a lot of different strategies for doing that. Number two was to defer all the taxes you can and maximize your 401k if you have one, or at least an IRA, maybe a Roth. The third one was if you have more than 10 years to invest by mutual funds and don't care where the market is or where it's going to be. Number four was, don't buy individual stocks. And number five was by term insurance, because that's all you're ever gonna need. Number six was. And of course, since he was a securities broker, number six was basically the absence of talking about real estate as an option.

Alright, so now I think it's critical to dive a little deeper and get a better understanding if each one of these items on the list. You see some make sense, some are misunderstood, some aren't applied properly. And some are simply illusions and do not work and should be avoided. I want to keep these videos short enough so that you can digest it quickly and not be too overwhelming. So let's see how far we get. First, get out of debt, well, you don't have to be a brain surgeon to realize debt kills most financial plans. What's really sad is that you probably know that debt and financial problems are the cause of the majority of marital arguments. So you'll be happier if you can eliminate debt in your married life. Until you're out of debt, your investments are also gonna suffer as returns are always offset by the debt.

For instance, if you're carrying debt at 12 and 18%, on credit cards, there aren't very many investments that can offset that cost. Even a debt at 5 or 8% is hard to offset every single year without fail within your investments. Now, what am i mean by that? So let's suppose you have a debt of 10% interest. And you have a choice, you've got some money over here? Should you invest? Or should you pay off the debt? Well, if you don't think you can do better than 10%, every single year with no losses, then you're gonna be better off using that money to pay off your debt. For that investment to pay off, you're gonna have to do better than the 10% that you're paying in interest. In other words you kind of get a 10% return, just getting rid of your debt, then once you get rid of the debt, you want to stay out of debt. The main thing is most people will get a better return on their money by knocking out their debt first, rather than trying to find investments at double digits.

Well, for now, let's not include your home mortgage in this because we're gonna talk about that more later. But let's get rid of all your other debt, pronto. Did you know that nearly 35% of the average American families income goes toward debt 35%, that's 35 cents out of every dollar. So think about how much money that's going to the bank and the finance companies rather than your pocket. However, few advisors want even talk about this to you. And because in order for you to work with them, you've got to invest, they've got to charge their fees. So even though debt might be the best thing you can do, oftentimes advisors don't talk about it. So getting out of debt huge. And in most cases, the best way to begin building your wealth. What I would love to see more people do and I wish we taught this in high school in grade school even. Let's just not even get into debt, let's figure out ways to avoid debt, teach kids to stay out of debt, they're gonna be able to build their wealth so much faster.

Okay, so the second one was to defer all the taxes you can into retirement plans. Now, this is promoted by more than just this guy, it's really pushed by pretty much all the financial entertainers on the radio. It's pushed by CPA is just about anybody you talk to about money is gonna push that you need to put as much as you can and defer as much tax as you can. This one needs some understanding of what's really happening here. Understand that there is no way to get out of the taxes in a retirement plan. Let me say that again, there's no way to get out of the taxes in a retirement plan, someone sometime is gonna pay the taxes. This could be you, your spouse, your kids, your dog I don't care who someone's gonna pay those taxes. When you defer taxes, all you're doing is betting that your tax rat bracket will be lower in the future than it is now. It's as simple as that most people have saved in a retirement account for their own use.

In other words, they save to eventually use this money for themselves during retirement. And again, there's only one way to win in a retirement plan. Just one simple way. If you're in a 30% tax bracket currently. The only way to win is to be in a lower tax bracket, such as 20 or 25%. When you eventually take that money out, pretty simple, right? If you're in an equal or higher tax bracket, when you take the money out, you lose. One other thing to note is that when you defer a tax, all you are doing is investing the IRS is money along with yours. Now let me give you an example. Suppose you save $1,000 a month into a retirement plan. And you're in a 25% tax bracket. That means you're deferring the payment of $250 in taxes. Essentially, what happens inside of that retirement account is there's two sets of books going on.

Okay, you have $750 and the IRS has $250. It's the same account, you get to choose how it's invested. However, this $250 is the IRS is money. It always has been and always will be, the IRS gets all the growth over the years to the only way you get some of that money is to prove later in life that you're in a lower tax bracket. When you take that money out. Now, let's say you invest this $250 each month for the IRS and you get a 10% rate of return because you're just this wonderful manager. And you're gonna do this for the next 25 years. What that means is the IRS is money's gonna grow to $331,000. Now again, that's the IRS is money, you're gonna see it in your account, you're gonna see that your thousand dollars per month actually grew to $1.3 million. However, when you retire, if you retire at a 25% tax bracket, it's a breakeven, the IRS is going to take their $331,000. They're gonna be happy that you manage it really well for them. Now, if you're in a 20% tax bracket, well, then you win.

Because now you only have to give the IRS $260,000, you saved an additional $75,000. Or I should say you got $75,000 more over the years, by only having to pay them out $260,000. The IRS is still pretty happy by the way, you paid them 340% more in taxes. Now, let's add one more issue to the mix here. In a 401k, you're gonna be very limited on what you can actually do with your funds. You're gonna be forced to buy into the mutual funds that were chosen for you. And that might be okay. But oftentimes the fees and costs and even the lower returns make it so that it's not all that attractive. Okay, so what's the answer here? Well, for some, it may be wise to do a three bucket approach, when it comes to your taxes, you may think about this, you may be in the lowest tax bracket you're ever gonna be in. Because I know you hear the same thing I do these politicians want more and more of your money.

So what does that hold for future taxes, if I was looking at 20 or 30 years. I would be thinking man, there's a good chance, it's going to be a higher tax bracket for me than it is right now. If you don't know for certain that you're gonna be in a lower tax bracket. You may want some of your money in what's called an already taxed bucket. And then put it in a location where you can control and access it managing yourself. This is what we use our banking system for it gives you access to capital. Once that money's in there, it should matter. It's never taxed again, if you manage it properly and you'll have access to it to take advantage of opportunities. Now, you may also want to do a Roth IRA for some of that. That means you've got to pay the tax, but then you'll never pay tax on the growth of that over the years. And just because your employer gives you a match doesn't mean that's always a great deal.

Again, costs, fees, performance and your tax bracket, it's gonna have a lot to do with the overall results. Okay, so I went a little long here, I don't want to go this long every time. So we're gonna have to pick this up on the next video, we're gonna pick up those next few items. But I want you to see this list. One more time of the things that we want to talk about in these next couple of videos. I want this to get you thinking, I hope you realize that traditional financial planning and CPA advice may not be the best after all. Again, I say if it was working, why aren't more people retiring wealthy? Well, there's a lot more to this story a lot more we need to understand. We're gonna dive in a little bit deeper. A man I can't tell you how important it is to stay informed. Be educated. Empower yourself to make your own financial decisions.

In the meantime, if you have any questions, shoot them to questions at wise money tools.com. I answer just as quick as I can. Don't forget to subscribe. If you want to have a strategy session with me take a few minutes talk about your situation. Feel free to click on the time trade later. Hello, and until next time. Hope you have a great week. Take care.