Grant Sabatier

Grant Sabatier is the author of Financial Freedom and the creator of Millennial Money, which has reached over 10 million readers. Dubbed "The Millennial Millionaire" by CNBC, Sabatier went from $2.26 to $1 million in 5 years through side hustling and investing. He has provided consultation in the publishing, media, and higher education industries. His clients have included The [...]


Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Published On
October 2, 2017
Podcast 134 - Millennial Money - Twitter

Make a Million With Millennial

Millennial Money founder Grant Sabatier on how extreme saving and the art of the side hustle took him from $2.26 in the bank to a net worth of $1 million in just 5 years. Plus, 7 things YOU should do to become a millionaire, what Trump’s tax plan means for the middle class, whether you should pay off the mortgage or save for retirement, and a whole bunch of Star Wars nonsense. 

Show Notes


So I’m a huge believer in taking the small steps but doing them relatively rapidly. Like 1%. You save 1% a month over a three-year period, you’ll get to saving 40% of your income in no time. And you really won’t notice that much of a difference, especially at the same time if you’re trying to make more money. – Grant Sabatier, founder, MillennialMoney.com

That’s millennial millionaire Grant Sabatier, founder of Millennial Money. Today on Your Money, Your Wealth, he’ll explain how extreme saving and the art of the side hustle, from cat sitting to VW camper van flipping, took him from $2.26 in the bank to a net worth of $1 million in just five years. Plus, 7 things YOU should do to become a millionaire. Joe and Big Al also discuss what President  Trump’s tax plan means for the middle class, whether you should pay off the mortgage or save for retirement, and a whole bunch of Star Wars nonsense. And finally, why in the world would anyone call Big Al Clopine a douchebag?! Keep listening to find out! Now, here are Darth Vader Joe Anderson, CFP, and Big Al definitely not a d-bag Clopine, CPA.

1:00 – YouTube, Star Wars, and Big Al the d-bag?!

JA: You and I just met a celebrity.

AC: We did. Yeah. And every now and again, people think we’re celebrities.

JA: No, you always think yourself is a celebrity. I’ve never once called myself anything close to that. (laughs)

AC: No, let me repeat what I said because you’re not listening. I said “every now and again people think we are celebrities.” But we actually just met a real one.

JA: Yes. EvanNova95, folks, write that down. He’s a Star Wars guru. So he’s got 89,000, 89 million followers or something.

AC: Yeah, and he’s been doing this for four years. We’ve been doing ours for 10 or 20 years. We got 6 subscribers on YouTube.

JA: 6 subscribers on YouTube, this kid’s got 89,000.

AC: Every time we get up to 10, three or four drop off.

JA: We talked about my worst purchase in the world was my Darth Vader mask, that I spent like $700 for.

AC: Do you ever use it?

JA: Yes, sometimes I throw it on, have a couple of cocktails, people are over, throw it on for about 30 seconds.

AC: I’ve never seen you wear it.

JA: It’s heavy. It’s really heavy. Super uncomfortable. You can’t breathe in it. (laughs)

AC: (laughs) Can you drink your cocktails through it?

JA: No. No. That’s why it’s only on for about 30 seconds. But yeah. So I start quizzing the kid.

AC: Yeah. He knows everything about Star Wars.

JA: Yeah, what the heck is going on? I was like, “yeah what are those things called on those bike things?” “Oh, you mean scout troopers. We got scout troopers, we got snow troopers, and stormtroopers, bike troopers.” So we’re going to start a podcast together. EvanNova95 and myself, we’re going to do Star Wars finance. (laughs)

AC: And you’re going to talk about your bad purchase? (laughs) Now in retrospect, would you have bought that again?

JA: Oh, without question.

AC: So then it’s not a bad purchase.

JA: It’s right in my living room. Everyone walks into my house, and I got a Bruce Lee doll. (laughs)

AC: (laughs) Got it. And you’re single. Now it’s starting to come together.

JA: Yes. Imagine that. Isn’t it all coming together? Yeah. Evan, you know anything about Bruce Lee? We could do that too. We can throw that in the mix. (laughs)

AC: Yeah. Bruce Lee versus Star Wars Chewbacca. (laughs)

JA: So for those of you that are new to our show, Al and I, we’re financial advisors. Al’s a CPA. I’m a Certified Financial Planner. But we broadcast out of Sound Studio in San Diego. And so we mean all sorts of characters in this place. (laughs) We got American Idol tryouts are here…

AC: A lot of times they’ll be musicians, these really cool guys, and then they see us walking up in suits. They don’t really give us eye contact. (laughs)

JA: Yeah. And there’s like three different studios here. There’s a small little box that you could go into. We call that the hot box. And then there’s this giant one, where they can set up bands, and we were usually in this other one. And so one day, we got confused on what studio that we have to go into. (laughs)

AC: You can say I got confused. (laughs)

JA: Big Al got a little confused. (laughs) So he keeps opening up the door, and they’re recording! Then all of a sudden they put up a sign that says, “douchebag much?” That was for Big Al. (laughs)

AC: That was for me. I still didn’t know what that meant. (laughs) I guess that means don’t go in.

JA: (laughs) They could’ve said: “Please do not come in.” “Please keep the door shut.”

AC: I would’ve totally understood that.

JA: Nope. Douchebag much. (laughs)

AC: It was too complicated. (laughs) I don’t know if that’s the only time we’ve done that but that’s the most memorable time. Right in the middle of the song. (laughs)

JA: (laughs) The guy’s a solo. He’s got one earphone on, he’s just blaring.

AC: (laughs) And then I walk in. “Do you need a backup singer?”

JA: (laughs) Yeah right. “I play the ukulele.” Anyway.

AC: So you’re a big Star Wars fan.

JA: Yeah, EvanNova95, folks, that’s what you got to do. That’s a YouTube channel. He does, I guess, he was taping voiceovers. And then I guess he plays videos and lights and stuff, and I guess there’s a big debate about who could beat Yoda versus Katarn? Is that right? Something like that? I don’t even know who Katarn is. I was like, “What, Yoda’s playing the guitar?” (laughs)

AC: That’s where my mind went. (laughs)

JA: So if you’re into that, that’s where you got to go. He’s a good kid.

AC: And then along with that, go to Your Money, Your Wealth.

JA: Oh sure. Yeah. Because he’s got 89,000 subscribers, we got four.

AC: We need some help. (laughs)

JA: We got 7,000 videos on ours. (laughs)

AC: (laughs) We keep trying. And they rank them by most popular.

JA: I’m going to wear my Star Wars mask, and I’m going to talk about a Roth IRA. Guaranteed, I will get 89,000 subscribers. (laughs)

AC: Maybe that’ll work. That’s our problem. We’re wearing suits. (laughs) We already learned a lot today in a short period of time. How to market ourselves and to appeal to the masses.

JA: Well, that’s how you monetize.

AC: Wear Star Wars costumes and talk finance. (laughs) We’d be the only ones doing that.

JA: Yes, that’s a niche. Or niche. I hate it when people say niche too. I just heard that just drives me nuts.

AC: Well so we should, you know Comic-Con? We’ll have a booth there. (laughs) How is your savings for retirement?

JA: Well you know, I’ve done that for like two or three years. The man on the street for our TV show? So we would go out, and I would interview all these different characters. Oh, what a nightmare that was. These people would be dressed up in costume, and then they would be in character.

AC: Yeah. But you’d ask them, “Have you saved enough for retirement?”

JA: Yeah. “Well I don’t need to save for retirement, I saved the world.” (laughs) It’s like oh my god. Do I really have to do this for another hour?

AC: Well at least you didn’t do it last year, you got tired of it. (laughs) You’re a tall guy, you could be Chewbacca.

JA: Yeah I could be.

AC: You could be Darth Vader.

JA: Sure. Yeah.

AC: I’ll be Luke, I’m about the right size for Luke.

JA: Oh, I knew you were going to pick Luke. (laughs)

AC: Gotta be the good guy (laughs) The good boy. You are Darth Vader. Then you’re my father. (laughs) This is getting weird.

JA: Oh god, this show, the wheels have come off significantly.

AC: When this happens at the very start of this show, you might as well just pick another station (laughs)

JA: We’ve got nothing. We got our TV show, we just wrapped up season four.

AC: Yeah we sure did. I was just computing our shows, and this last show we just did was show 101.

JA: Wow. We hit the 100 mark.

AC: And we didn’t even know it. We hit our 100th show.

JA: We should have had a party or something.

AC: Should’ve, yeah. I wasn’t paying attention.

JA: Well the first few probably didn’t count. (laughs)

AC: (laughs) Yeah, you could throw out the first two seasons as practice. That’s why no one subscribed to our channel. They saw one of those old shows and said: “these guys are terrible.”

So it would appear Joe sits around playing with expensive toys all night, Al’s a douchebag, these guys got nothin’, and a few extra subscribers would totally make their day. But that’s not true! Al’s not a douchebag at all! The rest of that stuff, well… Seriously though, if you check out Your Money, Your Wealth and Pure Financial Advisors on YouTube, you’ll find that there is some actually useful stuff there – unlike this first segment. That latest episode of the TV show? It’s on surviving retirement without a pension. They’ve also talked asset location, understanding Medicare, banking on your house as an income stream in retirement, and yes, if you want, you can search the channel for Comic-Con like I did and watch this: (drop). For full episodes of the Your Money, Your Wealth TV show and video clips both ridiculous and sublime, just search YouTube for Pure Financial Advisors and Your Money, Your Wealth. Check back regularly, we’re always adding new videos.

9:15 – How Millennial Millionaire Grant Sabatier, founder of MillennialMoney.com, Got Started

AC: Today, Joe, we’re going to focus on millennials with our guest.

JA: We got Grant Sabatier. Millennial Money. This guy went from $2.26 to $1 million in five years.

AC: Yeah that was better than I did. Took me a little bit longer.

JA: Oh, whatever you’re still going, you’re like 45 years in, brother, you’re still trying to get $50,000! (laughs)

AC: (laughs) I’m almost halfway.

JA: Well Grant, welcome to the show, my friend. Really appreciate you taking some time.

GS: Yeah thanks for having me guys stoked to be on.

JA: Tell us your story.

AC: Yeah, I want to hear from $2 to a million in five years.

GS: Yeah totally. So I was like a lot of middle-class kids, I went to college and studied something that’s pretty inapplicable to the real world and a lot of cases, philosophy. And then I got out and bounced around for about three years through a bunch of jobs, and I was like any young 20 something, I was just spending everything I was making, just going out partying on the weekends, and just living life like anyone in their early 20s should. But, I really didn’t value money at all, and the Great Recession hit, and I found myself at 24, back living at home with my parents. A pretty common scenario for me and my friends at the time, and just really didn’t see a clear path forward. I was a pretty decent writer and was pretty good at math, but the jobs I’d had were kind of so diverse I didn’t really see a career path forward. So I was broke, I was 24, living at home, and really was like, “Man, I just blew through everything that I made. How can I not make that mistake again?” And around this time I started to read a little bit about money, obviously, because I didn’t have any, and I was like, “OK, how am I going to do things differently?” And to be honest, I became pretty obsessed with the prospect of trying to make as much money as quickly as possible, because I realized that $1 saved when you’re 24 is worth at least $2-3 saved when you’re 34. So just obviously, the sort of quintessential compound interest benefit of being young, and so I was like, “Hey, if I can fast-track this, if I can just make a bunch of money and save it now, that can open up so many possibilities for me later.” And I really took it to the extreme, but I needed a new skill set.

So this is a time when digital marketing was starting to get a little popular, but not really. I taught myself Google advertising on YouTube in about 60 days and basically went from knowing hardly anything about digital marketing to landing a job at a digital marketing agency making $50K. And by the end of that first year, I was making $50K at my full-time job, but I had started side hustling, and building websites, and running ad campaigns for law firms in Chicago, and I made $400,000 that year. So I was basically able to significantly fast-track my moneymaking, and the crazy thing, during that entire period, I was saving about 80% of my full-time income, and 100% of my side hustle income. So interestingly, every dollar that I saved back in 2010 is worth $3.50 today. So that was really kind of my strategy. And I didn’t sleep a lot during the five-year period that this happened, but I was making a lot of sacrifices, because I knew that if I could invest, I knew that the market was down, then I’d have a pretty decent shot of at least being able to retire by the time I was 35. I didn’t know when I started, really kind of what early retirement even was. I set the arbitrary goal to hit $1 million, and I hit that in five years and three months from the day that I set that goal.

AC: Wow. So you were laser focused.

JA: How do you save 80% of those $50,000 and 100% of $400,000? Did you still live in the basement at Moms?

GS: You live like a bum, that’s how.

JA: Were you sleeping on the street and begging?

GS: I actually didn’t even live at home in that period. My parents only let me crash there for three months, so I had to get out once I got the job. But I found a crappy apartment with a roommate. And then I moved into a crappy apartment by myself. And my apartment was in Chicago, I was paying about $700 a month. So it was a deal, but it was pretty bad. My girlfriend, who’s now my wife, at the time wouldn’t even come over to my place. (laughs) She was just like, “what are you doing?” And I just didn’t spend any money. I did like crazy stuff too. I was like a number of like places that I would sublet and then re-sublet. I was doing all this crazy stuff.

JA: Did you lose a lot of friends? Were they like, “oh, here we go, Grant. This guy’s not going to spend a dime on beers,” or what? (laughs)

AC: Right, we’ve got to buy him a beer. (laughs)

GS: No, I actually just stopped kind of going out.

JA: So you became a hermit.

GS: Not a hermit, no, I just started prioritizing making money. So I tended to, like I got really into moped flipping, and like Volkswagen camper flipping. You can make tons of money flipping Volkswagen campers. So I started doing that, and I started getting acquainted with some mechanics in Chicago. So I started making, actually, a much more diverse set of friends during that period. But no, my normal friends, I’ve had the same best friends since I was five. They stuck with me. (laughs)

AC: I’m looking at your bio, and it says you started that about 15% savings, so how long did it take to get up to 80%? How did that happen?

GS: Yeah, probably about six months. So this is a really messy period. It’s one of those things where I just was was trying to figure it out as I went. And it was one of the things I was like, “Whoa, OK, 15%, great. OK. 30%. Wow, OK, you can do this.” And finally, it’s just like, I became obsessed with it. So it’s one of those things where you’re trying to spend as little as possible, and try to maximize that savings rate. So I analyzed my savings rate literally weekly, so it’d fluctuate, It’s not like you’re maintaining an 85% savings rate for the entire year, for example. It’d fluctuate a little bit. But it was a messy process, and it was one of those things where I started to look at money and see the future value of money, instead of the present value. And it was kind of revolutionary for me. I was like, “oh, well do I really want to buy that for 100 bucks, when I can save and invest that money?” It’s like any hobby, it actually became my hobby, I read over 300 personal finance books, and I think I’m destined to be a finance writer, just given all of this, interestingly.

But yeah, I became pretty into it. I’m one of those people who get really laser focused on it. And once I started seeing the money accumulate, and once they sold my first #100,000 project, it was like game over. I literally got a law firm – the biggest website I sold before was $5,000, so I got to pay me $5,000. It took me three weeks to build the website, and then I got another law firm to pay me $100,000 for basically the same template of the website that I developed, and I built it in like a weekend. My mind just completely blew. It was one of these things, lawyers don’t know. They just want a really nice looking website. And I figured out that at the heart of making money, it’s really even not about the value you create. It’s the perception of that value. And I started to realize that bigger law firms, who had bigger budgets, had a higher perceived value of that website. They thought that because they had 200 lawyers, that the website would be harder to build. But that’s not actually the case. So I was able to really just focus on client service, and maximize the perceived value, and really focus on just getting paid as much as possible to do the work.

JA: I love this. I got so many questions. Just some of the things that you said, it makes so much sense. It’s like instead of spending…. Do you like Star Wars, by the way, Grant?

GS: Yeah! Yeah sure. I didn’t have time to watch it, but yes I’ve seen Star Wars. I’ve only seen the first Star Wars.

AC: He’s gonna tell you his woeful story. (laughs)

JA: So, I bought this Darth Vader Star Wars mask, for like $700, and now I’m thinking, I’m like, the future value of Darth Vader’s mask is like, $100,000, in thirty years from now. That stupid mask cost me – right? If you think of it that way, it’s craziness. Because people see things, those impulse buys. But if you can look at it with a different lens, and say, “instead of buying this, this money can turn into something completely different in a more powerful way, if I’m just a little bit more patient, then I do I really need a stupid Darth Vader mask?” Actually, I do. I really do. (laughs)

AC: It’s the main piece in your living room. (laughs)

JA: It is my main piece. Oh God, it’s great, I come home from work and just put that thing on.  (laughs)

GS: (laughs) Money is worth more. It really is worth more in the future.

JA: Yeah, that three or four multiple is key. I don’t care how old you are. If you are 50 if you’re 60, just certain things.

When you finish listening to today’s podcast, visit YourMoneyYourWealth.com to read the show notes on our interviews with Grant Sabatier and all other guests, plus, access white papers, articles, webinars and hundreds of video clips on tax planning, investing, retirement planning, Social Security, estate planning, small business strategies and  just about every personal finance topic you can imagine. It’s a veritable treasure-trove of information just waiting for you at YourMoneyYourWealth.com.

19:19 – Extreme Side-Hustling and Saving with Millennial Millionaire Grant Sabatier, founder of MillennialMoney.com

JA: Welcome back to the show, show’s called Your Money, Your Wealth. Joe Anderson here, Certified Financial Planner, Big Al Clopine. We’re talking to Grant Sabatier. So let me ask you this now. So you’ve got the blog, you’ve got the podcast. Are you completely retired or are you working? Are you still getting a paycheck? Or are you living off now your investments? Tell me a little bit about now what’s going on.

GS: Yeah. Now I’m actually making more money than I’ve ever made before.

JA: Well rub it in there Grant, jeez! (laughs) “So I made a million dollars when I was 14, Doogie Howser on the websites of lawyers….”

AC: “I make a million a year!” (laughs)

GS: Hey that website makes at least 30 grand a month! I signed a book deal with Penguin Random House, my book’s coming out next year. I do speaking engagements, I do consulting engagements. I still own part of a digital marketing agency so I’m involved in that. But yeah, it’s pretty funny because I call it the compounding interest of life. It’s one of those things where, oddly, one of the aftereffects of investing so hard in so many things during that five-year period, they continue to bear fruit and multiply. So the connections that I made and, not only the money, but the connections that I made, and the clients that I had, and it’s pretty funny how if you kind of set yourself up early, it really took me a long time to learn how to say no, honestly. I got so much stuff going on, and I had to really try to cut back.

JA: Are you still saving 80% of that income?

GS: No, I’m probably saving more in like the 60% range? So I’m definitely banking big. Dude, I spend less than like $300 a year on new clothes. I’m still carrying on a lot of these frugal habits. But  I’ll stay in some of the nicest hotels in the world when I travel. So at the end of the day, it comes down to spending on what I value. And it’s crazy, I haven’t paid for a flight in over three years. I just use my credit card rewards. I do all these things, and I’m still able to save a ton of money. It’s just the way – now it’s like so ingrained in me that I can’t not do it. But yeah, at some point I could walk away from work forever today. But I’m having a lot of fun. I’ve been writing about money now since 2015, and just over the last year, it’s just blown up. It’s just massive. I’ve got about 250, 300,000 visitors a month on the website, and then the book’s going to come out next year, and it’s pretty funny, for the first time yesterday I was in a CNBC article with Mark Cuban, Suze Orman, David Bach and me, and I was like, “all right, I’ve arrived.” It was awesome (laughs)

JA: Yeah. I got a quote the Annandale Gazette. A town in Minnesota about 200 people. (laughs)

AC: Hey I got a question because we just saw a study by GoBankingRates. In 2017 – and this is older millennials, from age 25 to 34. 41% have nothing saved, and another 20% have less than $1,000 saved, and I know your podcast is geared towards millennials. So what are you telling them right now? What should they do differently than what they’re currently doing?

GS: Yeah that’s a good question. I think that’s probably a little more pessimistic than some of the data that I’ve seen. Older millennials are starting to save a little bit more. But at the end of the day, it all comes down to how much money you’re making. And when you look at the actual data, most millennials make less money than our parents did – like a third less money than our parents did, adjusted for inflation at our age. Millennials just aren’t making that much money. So when you’re not making that much money, you can’t save that much money. At the end of the day, if you’re making $30K you can’t really frugal your way to wealth. Literally, if you’re making $30K and you’re saving 10% of your income, you’ll never be able to retire. And that’s when it gets really, really scary.

So I have a lot of tips on the blog. One of my favorite ones is just the escalation of your savings rate. So I recommend that, say people start at a 10% savings rate. I recommend that they try to escalate that 1% every 30 days. So I found that to be a really good threshold. You really don’t feel it. And by the end of the first year, you’ve gone from saving 10% to 22% of your income, which is a massive difference. That’s like retiring 10 years earlier stuff if you can keep up and sustain that. So I’m a huge believer in taking the small steps but doing them relatively rapidly. Like 1%. You save 1% a month over a three-year period, you’ll get to saving 40% of your income in no time. And you really won’t notice that much of a difference, especially at the same time, if you’re trying to make more money.

I think a lot of people they just don’t really have that money-making orientation. They tend to think that the 9 to 5 is the only way. I was one of the OG side-hustlers, so like at one point I had seven different income streams that I was just banking. I have a great example. There’s this one week where I sold a $35,000 project, I sold $300 worth of concert tickets, and I flipped a moped for about $500. And then it wasn’t above me when my neighbor asked me to watch his cat, to take the $50 to watch for the weekend. (laughs) You know what I mean? There’s money out there, man. People think money is finite, man, money is infinite. It is. Governments are printing it all the time. It’s totally infinite. And that’s one of the things, with a lot of people it’s like, fine, if it’s above you can go out and hustle for that 20 bucks, fine, that’s fine with you, but I’m going to take that 20 bucks and I’m going to invest it at a 10% investment rate, it’s going to double in 7.2 years. The rule of 72. It’s like anything you want in life: you can’t sit back and go out with your buddies every night, and get hammered, and go to games on the weekends, and expect to make a lot of money.

JA: Well that’s like, fun, Grant, that is not fun. Tell me more about is Volkswagen camper flipping. (laughs)

AC: That intrigued you, didn’t it.

GS: Dude, there’s so much money in VW campers. So I’ve been buying VW campers now, gosh….

JA: What the hell is a VW- I don’t even know what a Volkswagen camper looks like.

GS: It looks like a hippie pop-up van. You know the ones where it pops up and you can sleep on the top?

AC: Yeah, think the 60s, 70s.

GS: Yeah the camper van.

JA: It’s not the bus? Is it not the Volkswagen bus?

GS: No the bus. The bus, but they pop up. It’s converted by a company called Westfalia. They’re called Westies. But anyway, their vans are super popular. They’ve just got more and more popular because Volkswagen basically stopped making the ones that you want to buy in 1992. So all of them are made from 1955 to 1992. And there are all these different generations of them, but they’re super popular. It’s like a car. it’s like a little two-stroke engine, and basically, you can take it anywhere. It’s got a kitchen, propane-fueled refrigerator, and sink and stove. They’re amazing little vehicles. And they appreciate like a beast. Like I bought a Volkswagen camper, gosh, like in 2010. Probably for around $11,000, and I sold it for over $30,000 five years later.

AC: Because they’re not making them anymore.

GS: Yeah, they’re not making any more. Like Tom Hanks collects them, all the kids want them, and everyone’s trying to live the minimalist lifestyle now, so everyone’s buying campers. like Airstream sales are through the roof.

AC: How did you get into that in the first place?

GS: I actually had a neighbor that I grew up near, who was super into Volkswagen campers. So I was camping in them when I was a little kid. I just got really kind of fascinated with them from an early age. I’ve owned a bunch. I actually currently don’t own one, because in Chicago now, my garage that I have, it doesn’t fit. They’re like 7 feet tall. They’re super big vehicles. So yeah I got into it at an early age. I got my first one when I was 19. That was the second car that I had. I sold my Ford Explorer to buy a Volkswagen camper van. I was actually pretty popular with it in college. The guy with the hippie van, you know.

JA: My neighbor has, I think, 14 Volkswagen Bugs. So I got a side hustle for you, Grant, get over to San Diego, and steal these damn Bugs. It’s like I’m infested. My yard is infested with Volkswagen Bugs. (laughs)

AC: If you could make a camper out of a Bug, then you’d really have something. (laughs)

JA: It’s like I’m pulling into my driveway, he’s parking them on his yard, they’re everywhere. (laughs) Every week there’s a damn new Bug in the driveway. In the street! He parks them in the street, the whole street is filled with Bugs, you’d think it’s a stupid carnival. (laughs)

AC: Well you should buy six or seven yourself just to fit in. (laughs)

JA: No, I wanna blow those things up. I need an exterminator! (laughs)

GS: Those things are actually pretty dangerous. Those engines, the old ones catch fire pretty easily, they’ve got some issues.

JA: So what, you’re saying I just gotta tweak some, a little spark…. (laughs)

GS: (laughs) Or you could just the super easy, Google “how to remove the oxygen sensor” and go in and remove the oxygen sensor on all of them, and then none of them will start. (laughs)

AC: But then they’ll be there forever. (laughs)

JA: They’ll be forever and I’ll have a graveyard of Bugs! Grant, tell our listeners where they can find you.

GS: Yeah, MillennialMoney.com or @millennialmoney on Twitter are the two best places to find me. If you want to e-mail me hit me up Grant@MillenniumMoney.com. And yeah, hey man, this has been a lot of fun.

JA: That’s Grant Sabatier. $2.26 to a million bucks, in 5 years and three months and four days. We’ve got to take a break. Show’s called Your Money, Your Wealth.

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Time now for Big Al’s List: Every week, Big Al Clopine scours the media to find the best tips, do’s and don’ts, mistakes, myths and advice to improve your overall financial picture – in handy bullet-point format. This week, 7 Things You Should Immediately Do If You Want To Be A Millionaire

30:25 – Big Al’s List: 7 Things You Should Immediately Do If You Want To Be A Millionaire

AC: We just talked to Grant Sabatier as you mentioned, and he has a lot of great information for millennials, and I thought it would sort of continue on that theme. And I actually liked what Grant said a lot, which is, whatever you start at saving – let’s say it’s 10% of your salary – then next month make it 11, and the month after that, make it 12. A lot of times the guidance is every year add a percent. What about every month?

JA: I’m going to do that.

AC: Yeah me too.

JA: Starting next month, maybe.

AC: (laughs) Next month, maybe next year.

JA: (laughs) That’s going to be the financial summit for 2018.

AC: But that’s the mechanics of it. But there’s a lot that you sort of have to get your mind right, so a lot of these are kind of getting your mind right. And the first one is: attain the abundance mindset. Carol Dweck (laughs), a professor at Stanford, spent over three decades studying what separates top performers from everyone else. And she found it came down to mindset. And it’s true, I truly believe that people that adopt an abundance mindset, then they keep thinking there’s plenty of opportunities, and they look for it. And people that don’t have that mindset, they are oblivious to the opportunities, and they just assume that there’s not much that’s out there for them. And so Grant was talking about, he babysits a cat. Whatever it takes.

JA: He brings the cat back, he brings the garbage cans in from the street and gets another $5. (laughs)

AC: (laughs) So I truly believe that. Stop thinking about scarcity, there’s abundance out here, it’s wide open, and that’s the cool thing about living in the United States. I’ll put a little plug for the US of A. And that’s not necessarily true in every country. So number two is set the right goals. Because it’s like what goal are you pursuing, or do you even have goals? And something like 70% of the wealthy actually has at least one major goal that they’ve written down and they monitor. And something like only 3% of those struggling to make ends meet has goals. We’ve talked about that before.

JA: Yeah. Harvard did several studies on that, and they tracked them like 10 years later, 20 years later, the people actually that had a written type of thesis of what their life would look like, written goals and action steps on how to achieve those goals. Even though a lot of them didn’t necessarily accomplish that specific goal, but they were significantly ahead of most people that didn’t write anything down.

AC: Exactly, and the thing about goals is it needs to be reviewed and updated constantly, because of opportunities, life changes. But if you’ve got goals in front of you, you kind of know what you’re shooting towards. The third one: start investing, even if it’s a small amount. And the author here says she started with $200 and here’s another. She reached millionaire status basically by, you start small but then you just keep adding to it, like we just talked about. That’s super important. Number four is surrounded yourself with successful people. So you and I need new friends. (laughs)

JA: Yes, exactly. Have you ever – I forgot his name, but he just wrote a book called “The Memo.” And it’s coming out soon. He was on a book tour and I listened to one of his interviews. Phenomenal. And he was kind of talking about, like, inner city. And he speaks to inner cities and he’s like, “if you’re hanging out with your cousin that keeps asking to borrow money from you, he might be a nice guy. But if you want to make something, you gotta look at who you surround yourself with. And you are definitely a product of your five friends.”

AC: Moods and motivation are highly contagious, and I truly believe that. If you’re around successful people all the time, you have a better attitude, and you’ll follow in their footsteps and vice versa. You actually help each other out.

JA: Right. So people listening to the show right now are just in a happy mood.

AC: Yeah, well they are. And they’ve already found a better show. (laughs) They want a show that talks about success more. Number five: read a lot. I’ve got a recommendation for our listeners. It’s called The Better Angels of Our Nature. Steven Pinker. The problem is it’s 832 pages.

JA: The Better Angels Of Our Nature? I would never even come close to looking at that. How did that pop into your lap?

AC: (laughs) Because Bill Gates said to read it.

JA: Oh. Well if Bill Gates says it…

AC: He was talking to graduates, he said, “if I could give each of you a graduation present, it would be this. Read this book. It’s the most inspiring book I’ve ever read.” And so I thought, “well, if Bill Gates thinks so, then I want to read it.” And interestingly enough, it’s a scientist, if you will, that basically studies the history of crime, violence, war, terrorism, from the beginning of history to now. And what he found in excruciating detail – so if you don’t like the detail, skim it – but what he found out was that we are living in the safest time in the history of mankind. But the media, when you listen to the media, it seems like just the opposite. And the reason why I bring it up, and why he thought it was such a good book, and I do too, is that I think a lot of millennials think the world’s coming to an end, but yet, we’re in much better shape than we’ve ever been, in terms of human rights, racism, women’s rights, all these things are much, much better than they used to be. But since we haven’t lived 5,000 years or 10,000 years, it’s hard to get a perspective. What did you say? You read four books at a time? Each night you pick another book?

JA: I do, yeah.

AC: That doesn’t get confusing?

JA: No because it’s all the same topic, Al. It’s finance. I’ll read the collapse of Lehman Brothers one night and then the other’s like some advisor’s cheesy personal finance book, and then the other one was a book on Jamie Dimon, CEO of JP Morgan. So it’s similar topics. It’s not like I’m reading the Arc Angels of Our Existence. (laughs)

AC: (laughs) Better Angels of Our Nature?

JA: Yes I’m not reading that then turning to Harry Potter.

AC: Well I guess I’m reading three at the same time. None of them are finance.

JA: You’re listening to them.

AC: One of them I’m listening to, I’m reading. I’m reading Stephen Hawking’s A Brief History Of Time. That’s actually really interesting, it’s like the history of the universe. But he writes it in such a way you can almost understand it. So now I’m smarter than I was last week. (laughs)

JA: How long is it going to last? (laughs)

AC: (laughs) Well it’s already forgotten. I’ll read it again. And then on trails and exploration, that one is really fun because I like hiking. And then the Rosie Project. That’s actually super fun. But it’s like we’re just talking about the first hour. I used to always only read finance and investing and leadership type books, and I still read those, and I kind of find nowadays, instead of the how-to of being a leader, because I’ve read so many of those, it’s more biographies. I enjoy hearing how other people have done it. Like I read Shoe Dogs recently. That’s film night and Nike, that’s a really good book. I read Let My People Go Surfing, which is the Patagonia story. Steve Jobs book – it’s called Jobs, is what it was. Anyway, so read a lot. Yep. Number six, Joseph, is learn to say no. And the idea here is that it might appear that wealthy individuals are extreme opportunists, just like Grant Sabatier. But as he sort of alluded to, those that leap into every opportunity, they end up kind of spreading themselves thin. And so those that succeed actually understand better than anyone that success depends upon defending their most valuable and nonrenewable asset, which is time. Knowing how to spend your time.

JA: That’s key. It’s taken me so long to figure that out. I’m still working so hard to figure that out.

AC: Yeah. You’ve made huge strides in the last year.

JA: I’m trying because I want to be happy. I want to be productive, and the more happy and productive I am, the more successful I think we’ll all be. But I couldn’t say no to anything. This event’s going on. All right, I’ll speak. This guy needs help with this. All right, I’ll do it. I’m your guy. It’s like I can’t-do that.

AC: Yeah. I can remember when I was your age. Going way back. (laughs) Delegating. That was my single hardest thing to do. And I know you struggle with that too. But you’re getting a lot better, which is great. Here’s what Richard Branson says. “Opportunities are like buses, there’s always another one coming.” So he says avoid FOMO: fear of missing out. It shouldn’t be the driving force behind you. Only say yes to opportunities and invitations that excite you, because if one comes along and it’s not that exciting, there will be another one.

JA: You know in college, I would go to like 18 parties a night. Have you ever seen the movie Swingers?

AC: No.

JA: You’ve never…. Oh my God, Alan!! Enough of this already!!

AC: Why would I watch a movie about swingers? (laughs)

JA: It’s based on…. anyway. You’ve never seen that movie? I’m going to buy a bunch of DVDs. Do you even have a DVD player?

AC: Of course.

JA: We were talking about… you’ve never seen Tombstone. I was going to text you the other day but because it was on TNT.

AC: But here’s the thing is, you how bad I am with names? I probably have seen most these movies. I just don’t remember. (laughs)

JA: Anyway, I would go to all these different parties and you would spend 10 minutes at each party, because, “oh, this one’s lame anyway.” So then you would go to another one. And then it was like, “this one’s a little bit better,” and then all of a sudden, “Nah, the other one was a little bit better. Do we got a back?” “No, no. So and so is having a party.” So then you go to that one and then it’s like the whole night sucked. (laughs)

AC: (laughs) I can imagine. OK. Well, that’s good. I got to do the seventh one, which is networking. And that’s kind of obvious. People that network, they end up making contacts. About 85% of jobs are found through networking. Only 15% come from classified ads or something like that.

JA: Yeah but networking, there’s two different things of networking versus building relationships. Those stupid networking deals? I’d never go to those. Because you’re hanging out, some of the people who are there just to get a little buzzed, some other people, they’re broke and it’s like no way.

AC: So I agree with you. Let me explain. So networking to get clients at these stupid events, that hardly ever works. But networking in the sense of getting to know people, maybe going out to lunch one on one or whatever, and building relationships with successful people, I think, to me, that’s where there’s real value.

JA: Yeah, that’s relationship building. So let’s call it what it is. It’s not networking. Networking reminds me of like the Rotary. No offense to all you Rotary.

AC: Did you ever do it? Rotary?

JA: No. Once.

AC: You went once? Did you have to get up in front of the group and say, “Hi, I’m Joe, and…”

JA: Like an AA meeting or something? No.

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42:15 – How Tax Reform Could Squeeze The Middle-Class

JA: Hey, I read this article and I’m just going to summarize here. This is by Suzanne Woolley and Ben Steverman. And this is from Financial Advisor Magazine. This was September 18th. It goes, “How Tax Reform Could Squeeze the Middle Class” was the headline, so what do you do? You print it.

AC: Really? I thought it was supposed to help the middle class.

JA: So it just starts out with, “Here’s what we know about the details of the tax reform plan: almost nothing. But powerful lawmakers are promising at least a framework for the overall by the end of the month. The broad goals are lower rates for corporations and individuals, a simpler tax code with fewer brackets, and the elimination of the estate tax and alt-min, or alternative minimum tax. Sounds pretty good, right? Beware. So, if you save for retirement or itemize your tax deductions, you could end up paying thousands of dollars more after-tax reform than you do now. To help pay for the promised cuts, Donald Trump and the Republicans in Congress are trying to raise revenue elsewhere.” So they say upper-middle-class taxpayers, in particular, could face a triple whammy. On the table are limits on, or even elimination of, three of the favorite tax perks: deductions for mortgage interest, state and local taxes, and the ability to make pretax 401(k) retirement contributions.

AC: Yeah, those are three that get brought up a lot. The mortgage interest one, by the way,  wouldn’t necessarily eliminate mortgage interest, but what I’ve heard most commonly talked about, Joe is: make it to where you can only to direct interest payments on the first $500,000 of borrowing. Right now there is such a rule. It’s a million of borrowing, plus home equity debt for another $100,000. So it’s $1.1 million is the number right now. If you borrow more than that on your home, then you have an allocation, some of the interest is deductible, some isn’t. So they’re thinking about changing that to $500,000, which clearly affects the wealthier individuals. The loss of the state and local taxes as a deduction, that’s a gigantic one for people that live in California, because California has up to a 13.3% tax. And then if you take the federal tax against that, your actual savings is somewhere about 5% in income, in actual money that you get to keep in your pocket because of that deduction. So in some cases, well, we don’t exactly know what’s going to happen, but it’s possible that the federal rate is lowered, but without the state tax deduction, wealthy individuals in California would actually pay a higher tax in the tax bill.

JA: Right. More money is going out of the pocket of taxes even though the rates are lower. We’ve been talking about this political rhetoric for years. It doesn’t matter what aisle that you sit on either. Hey, let’s have lower tax rates, yeah that sounds good but guess what? They get rid of deductions. So who is it really benefiting? But what they’re saying is, “These perks are popular with other taxpayers, except for the very poor. Americans of all income levels can use 401(k) style plans to lower their tax bills and save for retirement. The mortgage and local tax deductions are useful to 30% of filers who itemize their returns. That includes 39% of filers earning $50,000 to $75,000, 56% of those making $75,000 to $100,000, and 77% earning $100,000 to $200,000, and 90% of those making more than $200,000. So they’re saying 90% of people that are making $200,000 plus is really reaping the benefits of those three things. So there could be some changes.

AC: Now the 401(k), that’s an interesting one. There have been all kinds of proposals there, from ideas to say you get to a certain balance in your 401(k) and you can’t make anymore. And then there are other plans that are more radical, which is, you can’t take any deductions, it just becomes a Roth contribution, which, in some ways would be great for folks, because then they could get all this money growing tax-free. Which, I can’t imagine the government would do that, it would be an absolute nightmare when people retire, and all this money comes out tax-free.

JA: Right. There’s what, $24 trillion today, something like that, in retirement accounts. So that’s including all retirement accounts, IRAs 401(k)s, DBs and things like that. Right now it’s like OK, finally, the baby boomers are getting to a certain age where they can start taking distributions. These plans aren’t that old, they’re 40 years old. And it takes a while to accumulate some wealth. And we talked earlier in the show about most people haven’t had any money saved But there’s $24 trillion in these accounts, so the people that have saved, there’s a ton in there.

AC: Yes. Which will all be taxable when it’s withdrawn. And of course, at 70 and a half, you have to take a required minimum distribution, whether you want to or not. So the money is going to be coming out, and it’s going to be taxed.

JA: Right. So it’s this whole thing of, let’s have everything after tax and grow tax-free. Sounds great. But, buyer beware with that. They’re going to have a basis in there and then it’s going to be pro-rata coming out. Because right now, if you make an after-tax contribution – this is very important for those of you that have after-tax contributions in any type of retirement account, IRAs or 401(k)s – we see mistakes all the time. With a 401(k) plan, if you have after-tax contributions, it’s really easy to blow this thing up. What I mean by after tax is that, right now you can defer $18,000 into a 401(k) pretax, so you get the tax deduction, and if you’re over 50 you get a catch-up, where you could put up to $24,000. So you put $24,000 in, you get a $24,000 tax deduction. That money grows tax-deferred. Then when you pull the money out, then that’s when the income taxes are owed. Some plans allow you to continue to contribute more than the $24,000 or $18,000, and you can put dollars into the 401(k) plan but you don’t get a tax deduction for those dollars. And I think it’s up to about $52,000, Al? 52 or $54,000 is the maximum defined contribution limit?

AC: Yeah I think it’s maybe 53, maybe,  this year, and if you’re over 50, that’s an extra $6,000 on top of that.

JA: It’s a little over $50,000. So what that means is that in some plans if you wanted to continue to save in the 401(k) plan, you can do so, but you don’t get a tax deduction. But the money grows tax-deferred. But the powerful thing of those after-tax contributions is that you could take those after-tax contributions and directly convert those into a Roth IRA. So some people in the industry or the media, they call it the Super Roth. So I can put in another $20,000 let’s say into my 401(k) plan, it’s an after-tax contribution, and then I can take that $20,000 and convert it into a Roth IRA. So that was a $20,000 Roth IRA contribution. So it’s a very good technique if you are looking at tax diversification within your overall retirement strategy. But let’s say I don’t know that rule, and I take distributions from that 401(k) plan. Then everything comes out pro-rata. And what I mean by that is, let’s say you have $100,000 balance inside the account. $90,000 of it is pretax $10,000 is after tax, so 10% of the overall balance of the account is an after-tax contribution. And if I take a dollar out of that 401(k) plan, then 10 cents of it would be tax-free. 90% of it would be taxable.

AC: Right, which is true over the whole life of that plan.

JA: So each dollar that I pull out, I get a 10% kicker of tax-free, 90% I pay the tax on it because I had those after-tax contributions, I already paid tax on it. They don’t want to double tax us. When they could easily just took that $10,000 of after-tax contributions, put it into a Roth IRA, and then any dollar that comes out of the Roth IRA is 100% tax-free. And then of course, the IRA everything that’s pulled out of there is taxed at ordinary income rates. You can separate the two. But if I roll that now into an IRA, now I got after tax in the IRA, and then trying to separate it from an IRA versus a 401(k) is a completely different game. It’s a totally, completely different game. Because when was this, 2012 is when they signed that bill? To allow after-tax contributions from a 401(k) into a Roth IRA. But that doesn’t necessarily apply to your IRA.

AC: Yeah it absolutely does not apply to an IRA.

JA: Right. You have to do a whole slew of crazy stuff, potentially, to try to get that basis out.

AC: Yeah the only way to do that is to have a new employer, a new 401(k), you roll your old IRA into the 401(k). They only take pretax money, you’re left with post-tax money in your IRA, and then you can convert that. But then you have to be careful, Joe, because if you do it too close together, it’s considered a step-transaction, the whole thing gets unraveled.

JA: Right. It’s like, well no, you did that just to do this.

AC: Right. So we’re not going to allow it, we’re going to pretend we did this all at the same time, and it’s not allowed.

JA: Right. Or it’s a complete, full distribution, 100% taxable. And if you’ve got a large balance there, blow-up city. Forget about it. And with the amount of money that is in these retirement accounts, the IRS is not messing around. They want their tax money. So if we’re looking at this tax reform, saying let’s get rid of the pre-tax contribution. They mess with this. This would drive me absolutely nuts because this is craziness.

AC: Well no one would be able to keep track of this. And they’re trying to simplify taxes, this would make it so much more complicated.

JA: The point is that people need to save money. The people that are not saving money, Alan, a lot of it is that they can’t afford it, but there’s the other part of it that they’re just misinformed. It’s like here, I don’t have a 401(k) plan. I make $150,000. I just met someone this week. They make $150,000 a year. They don’t have a 401(k) plan. You know how much money they’ve saved? Almost nothing. But you make 150 grand, what are you doing? “I don’t have a 401(k) plan, and it’s tough because I get my paycheck and I spend it.” Which is what most people do. So here’s what’s going to happen is that now it’s after tax, oh, it’s not that good of a deal.  People are like, if it’s not that good of a deal, I’m not going to do it. Well no, it’s a great deal. But there’s misinformation.

AC: And I think where you’re also going to go, if we had more time is, we actually need more incentives to save, not less. They’re trying to take them away.

JA: Exactly. And so yeah, I understand that if someone is making $200,000, they utilize the 401(k) plan, I get it. And they take a pretax contribution, but we need to save for retirement. If the money’s not there in their retirement accounts, they’re broke. What’s going to happen? Were they going to go they’re going to go? They’re going to go to the government… You’ve got all these broke old people. Here’s another thing too, and then Alan, you and I, I think we know we agree. And I don’t want to get you all fired up on college stuff because that was a nightmare. (laughs) You didn’t talk to me for two weeks.

AC: (laughs) I don’t even remember what we disagreed on.

JA: You were all fired up because we talked about how much money that you had to pay for college, and the master’s degrees and everything else.

AC: Yeah, jeez, I got on my high horse.

JA: Yes. I was listening to this interview with this individual. She was saying, “hey I get it. We all love our kids. We want to help our kids, and we want to help them enrich their lives and everything else. And because I don’t want a 40-year-old in my basement, let’s get this person out in the world, and get them educated, so they can make something of themselves.” But what she said is, “I think what these people are forgetting is it’s going to be the other way around. It’s going to be a 75-year-old in the basement of a 40-year-old, because you’re broke, because you put all your money to help your kids through school, or you spent or whatever.”

AC: That is true. I don’t disagree with that.

JA: It’s going to have a reverse effect because people are jeopardizing their overall retirement savings. And they’re saying, “I’m going to fund college.” Yes. Put your kid through school. But be strategic about it. You can take loans for school, you can’t take a loan for retirement. Now you’re 65, you’re 70 years old. And where’s the money? It’s compounding. The earlier that you can save, the more that you can save earlier on, the better off you’re going to be. And now they’re going to take away some benefits for people that save for retirement? Al and I live this every single day, and there’s got to be more incentives.

AC: Well there do, Joe. And we see many people each week, and probably the majority of the people that we see have done a pretty good job saving, but not all. But then there’s a lot of people that don’t come to see us, because they’re embarrassed, or they don’t want to admit that they have a problem, or whatever the reason may be, and we see these studies. We just read this, 57% of the people out there have less than $1,000 saved. And so are you going to go to a financial planner? It’s like the last place you want to go is see a doctor when you’re sick because he might tell you something like, really bad. No, I can get over this. And the same thing with saving, It’s like, “well I don’t want to go see the financial planner because they’re going to tell me to save more.”

President Trump and the Big Six Republican tax negotiators just released the details of their tax reform plan, and they’re hoping to complete the overhaul of the tax code before the end of the year. How might income tax, estate tax, and business tax change? Visit the White Papers section of the Learning Center at YourMoneyYourWealth.com and download the Tax Reform white paper to find out. Are your tax strategies at risk? Get year-end tax-planning tips that can help you stay on track in the midst of all this uncertainty. Download the Tax Reform white paper to find out more. Visit the White Papers section of the Learning Center at YourMoneyYourWealth.com

If you have a burning money question, just call 888-994-6257 for your chance to talk to Joe and Big Al and have your question answered live during Your Money Your Wealth. That number again is 888-994-6257. 888-994-6257. Of course, you can always put your question in an email to info@purefinancial.com, just like these folks did:

56:51 – Is a Makeup Contribution to My 401(K) Tax Deductible for That Year?

AC: Got one from Rod. His question is, “Is a makeup contribution to my 401(k) tax-deductible for that year?” So I guess first of all what is a makeup contribution, Joe? On the 401(k)?

JA: Well, I’m not sure what he’s really referring to, but there’s a catch-up.

AC: I think that’s what he means.

JA: I’m not sure what the makeup is.

AC: That’s what I’m assuming he means. There’s a catch-up provision, which means if you’re 50 and older, you can put $6,000 more into your 401(k) than people that are under 50.

JA: Yeah. Any contribution that you put into a retirement account, in an employer-sponsored plan, if you take the pre-tax route, yeah, you get a tax deduction.

AC: Yes. So the answer to the question is yes. Because whether it’s that first $18,000 or it’s the next $6,000, they have the same tax treatment. You get a tax deduction either way.

JA: So the full $24,000 would be tax deductible if you went the traditional plan route.

59:00 – Do You Come out Ahead Paying off Your Mortgage or Investing in Your Retirement?

AC: We’ve got another question. Not sure whether this is a listener or a TV viewer, but Ross. I edited this a little bit, Joe. Just for clarity. But I think I kept the essence of it. I didn’t edit the first part: “I enjoy your shows, as I enjoy you two characters.”

JA: Thanks, Ross. Characters.

AC: “You make it fun to learn.” So it’s pretty good. “I have a few questions as I learn more and more. And I want to come out ahead. The general idea is that the more you save, the nest egg hopefully grows over time by compounding. However, when it comes to retiring, at least in California, you will pay about 45% or so in taxes.” Probably that’s a that’s a fairly high rate. You’d have to be in the highest tax brackets.

JA: Did you say email question?

AC: Yes, Joe, just a little side comment.

JA: Why are you reading the e-mail questions by the way? I didn’t even see these.

AC: Because I have them and you didn’t print them. So he is talking about high taxes when he takes money out of his SEP-IRA. “At the same time, we pay a mortgage that is a little more than twice what we borrowed.” So in that case, about 7%, I guess is the mortgage, “and the stock market and real estate have similar returns.” So his question is,

JA: So let’s break it down. Now we can break this thing down, Ross. So a couple of things here. So he’s saving money into a SEP-IRA. It depends on how big his SEP-IRA is. But the 45% tax rate. So let’s go through the tax rates first, they stair step. So this is how the tax system works here in the U.S. It starts at 10, goes to 15, 25, 28, 33, 35, then 39.6. So, some of that money is going to be taxed at 10, then some it’s 15, and 25, and so on and so forth. So depending on what your income level is, that 39.6% or 40% on the federal side, you’re over $400,000 of income. So if you’re over $400,000 of income, yes, you will be in the 39.6% or let’s just call 40%, plus the state of California’s 10, so 50%. So if you’re at that high a level, yes, then when you pull those big dollars out, you would be taxed at that rate. I’m thinking that you might be a little confused on the tax rates. It’s looking at the tables of where you fall, how much income that you have, and then you can kind of determine what tax bracket that you’re in today, and also what tax bracket that you think you’re going to be in retirement. Al and I talk quite a bit about tax diversification, so once those two key components, then it’s looking at, should you do Roth IRAs, because then those dollars were not going to be taxed at all when you start pulling them out. But you do not get a current tax deduction. And so you might want to do a little bit of a combination of multiple things.

AC: And I’ll just add, Joe, for those of you that live in California, as a taxpayer, once you’re making – it’s different for everybody but this is rough – when you’re making about $200,000 to $250,000, something like that, you’re probably subject to alternative minimum taxes in California, maybe 250, let’s just say. And as soon as you’re subject to alternative minimum taxes, when you add up the federal tax rate and the tax expense for phasing out the alt-min exclusion, and the state tax, it actually is about a 45% marginal rate. But it’s not on everything. Like you said, it’s just on those extra dollars that you earn, past that point. Because before that, you get the 10%, 15%, all that sort of thing. But, the first thing we’re getting at is, should you be doing a deductible SEP, or if you’ve got the ability to set up your own Solo 401(k), if you’ve got a business, maybe you should have a Roth option in the 401(k). Maybe some of that should be in the Roth. You don’t get a tax deduction, but it grows tax-free. Maybe some of that you do as a deductible 401(k) so that you do have tax diversification later.

JA: Yeah I would look into a Solo 401(k) with a profit-sharing component, where you can put a lot more money into those plans, potentially, depending on your income than a SEP.

AC: What about this question: should he favor more money going to pay off the mortgage, or more money going into investing it for retirement?

JA: OK so that’s the million dollar question. So it depends. It depends on how big of a mortgage that you have, it depends on what interest rate that you have, it depends on what tax bracket that you’re in, it depends on how much liquid capital that you have. It depends on your age and your health, it depends on your other income sources. Do you have a pension, do you have Social Security, are you married, are you single? So without knowing any of that information, it’s very difficult. If you just ran the numbers financially, you could say, “hey, should I hold onto a mortgage,” let’s say you have a mortgage rate of 4%, and you’re in a 25% tax bracket. “So should I pay off that mortgage, throw more money at the mortgage, or should I have more liquid investments?” Emotionally speaking, it’s going to make more sense to pay off the mortgage, because then you don’t have debt. You have your home, you can live there happily ever after. Not necessarily worried about the bank foreclosing on you. If you want to talk about finances, then it probably makes more sense not to rapidly pay down the mortgage, but to invest that, because you have a low-interest rate. It’s locked in for the rest of your life, let’s say for 30 years. So you’re beating inflation there because inflation is going to continue to go up, but your payment is going to stay stagnant. Flat. And then those other dollars… But it’s called arbitrage. Maybe you get 6% over a 20-30 year time period with that investment, well 6% beats four, plus you get the tax deduction on the four, so you might only be paying three. So then you’re using the bank’s money to enhance your overall wealth. And then at that point, you can take the liquid capital, pay off the mortgage if you want, and you still have additional dollars. That’s on the finance side. But you have to be disciplined. You have to understand how markets work. You have to understand how taxes work. You have to understand your overall financial situation. So it’s a really tough question to answer.

AC: It is. A common mistake we see, Joe, is those that solely focus on paying their mortgages. They retire without a mortgage, but they’ve got no savings. So how do you live? You’ve got a home paid off, I get that. But you got no liquidity.

JA: Right. I met a couple, kept on refinancing, refinancing, taking money out, taking money out, taking money out, their home is upside down, spending that, almost nothing saved. Their grace of God was that, unfortunately, a parent died and they inherited their home. So now they got a home free and clear. And Social Security and a little bit of pension.

AC: But they got no other income.

JA: Right. But now they don’t have a mortgage payment. So that goes a long way. So you have to do more significant planning. Ross, hopefully, that helps keep asking the questions, we’ll keep answering them. Hope you enjoyed the show. For Big Al Clopine, I’m Joe Anderson, show’s called Your Money, Your Wealth.


So, to recap today’s show: President Trump’s overhaul of the tax code may significantly change your tax planning strategies. Check out the tax reform white paper in the learning center at YourMoneyYourWealth.com to learn more. Should you save for retirement or pay off the mortgage? It depends on all the details. Call us at 888-994-6257 to discuss your retirement strategy. And becoming a millionaire requires a number of things: the right mindset, surrounding yourself with the right people, saving as much as humanly possible, not being above the side-hustle, and maybe try busting out that Darth Vader masks while you network. Couldn’t hurt, right?

Special thanks to our Millennial Millionaire guest, cat-sitter extraordinaire Grand Sabatier of Millennial Money. Visit MillennialMoney.com to learn more millionaire tips, and to listen to the Millennial Money podcast.

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