This Mistake Could Cost You 40% Of Your Wealth

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[The following is a partial transcript of this episode of The Scott Alan Turner Show. Listen to the full episode to hear this story, listener questions, money hacks, and inspiring stories of people that are changing their financial lives. Subscribe to the free podcast on iTunes or Google Play]

In This Episode / Listener Questions

  • Not only do have to put your money in the right stuff, it has to be in the right place too, and spent at the right time.
  • How to budget on an irregular income (Zoe, Toledo, OH)
  • Are secured credit cards good to rebuild credit (Sophia, Florida)
  • My husband is investing with a margin account and I’m worried about what could happen (Chloe)
  • I met with a financial advisor that’s pushing commission based investments. What should I look out for (Erin, Plano, TX)
  • How can my 18-year-old build her credit score (Charlotte)
  • Warning for travel hackers on getting points from new credit cards (Logan, Australia)
  • How to rebalance a 401(k) if you have company stock in it (Arthur, Tuscon, AZ)
  • Should you tithe on gross income or your take home paycheck (Carter)
  • Remember to shop for insurance, even if you have an escrow account (Dustin)
  • Ways to appear wealthy even without being wealthy.

Resources/links:

Some decisions can result in as much as a 40% difference in your wealth. Or not if someone messes it up.

You already know about the food pyramid. The food circle. The food whatever it is they call it now. For my awesome international listeners, it may be something different.

It’s, dairy, meat, grains, vegetables, fruit, and Butterfinger candy bars, in some combination.

I like keeping things simple, because I come from a simple background. So, can we do the protein, fat, carb thing here, instead?

If you could only survive on one thing for the rest of your life, which would you pick – protein, fats, or carbs. Think about what would be in each group. Ok, got it in your head?

Maddie – your pick?

I would pick carbs. Because fats would be just Crisco. It wouldn’t even be peanut butter, because that has protein. If it didn’t, I would go with peanut butter. Fats – people would die of clogged arteries. Or get quadruple bypass like my dad had.

Protein would be chicken, tuna, protein powder, pea powder. And your kidneys would rot out.

Which leaves – carbs. Which could work, because it include fruit, potatoes, cupcakes, tomatoes and pasta – yummy spaghetti. Cauliflower rice which is amazing! Said no-one ever.

And even celery, which has negative calories. It takes more energy to eat celery than it has. Weird, right? Nobody dies from carbs, except for those people that do.

But what’s best for the heart, mind, and soul, is a little balance.

Michael Kitces shared the following story at the financial planning conference last week. Some potential clients walked into his office. Hey! We’ve done it! All of our retirement income is tax-free. We did these conversions, paid the taxes. No more taxes to the imperial federal government ever again!

100% tax free money, sounds amazing right? Someone could go start their little compound in Montana. Install Gatling guns to keep out space invaders and never worry about getting arrested for tax evasion.

It turns out, the potential clients, while they had a large nest egg, made a huge mistake, that I don’t want you to make, no matter your stage or your age.

They did the equivalent of eating all fats and had a financial heart attack when Michael gave them the bad news.

These new clients paid hundreds of thousands of dollars in taxes that they didn’t have to.

These are the buckets we talk about all the time. Michael called it asset location.

What you decide to invest in is the #1 most important thing to growing your money when it comes to investing.

Where you invest – the location of the investments. is the 2nd most important thing. It can impact your wealth by as much as 40% in the example he was using. But it’s not just WHERE someone invests. It’s in what ORDER someone pulls the money out later on. This is huge within the FIRE community because people who start living off their investments in their 30’s, 40’s, and 50’s can really mess this up.

Instead of $100,000, someone would end up with $140,000 of buying power.
Instead of $1,000,000, someone would end up with $1,400,000 of buying power.

The difference is huge.

The proteins, fats, and carbs, that’s all it is. Listen to what I mean.

There is sometime of guaranteed/maybe guaranteed/who knows bucket of Social Insecurity. Maybe a pension. Maybe some rental homes. We’ll call them the fats.

There is a tax-free bucket everyone should have. We’ll call that the carbs. We love carbs. Your Roth IRA. Your Roth 401(k). Your HSA.

There is a tax-deferred bucket most people have or will have. 401(k) type thing. We’ll call that the proteins.

Just like with a diet. One year you might go paleo for 3 months. Take the holidays off and go all carb, all pumpkin pie and Christmas cookies. My favorite time of year.

But like eating, you switch it up for your optimum health, right? Imagine if you were 40% healthier, how would you feel? Pretty great, right?

We saw a couple charts during this presentation. Boring! Charts. I can’t do charts in audio format. But it goes like this. If you ate protein for 2 years straight and then switched to only fats for a few years. You’d die. You’d blow up your money. Not in a good way.

But if you do some planning, follow the food pyramid, you have a much better chance of living as long as a vampire. Or what you’re really after – having more money.

I know some listeners are thinking, Scott, I’m in debt. This stuff doesn’t matter to me. I’m just paying off my student loans. Well would it matter to your parents? Grandparents? Your friend’s parents? Because if you’re friend gets 40% more inheritance, maybe they will take you out to dinner at Ruth’s Chris and pay for it. Who can say?

If retirements is decades away, like it is for me. Are you filling up each of those buckets so you can have choices later on? Your Roths. Your HSAs. Your 401(k)s.

Are your elders doing the right thing? Here’s your in, to have a conversation with them. How easy is that going to be? Dad, I heard you could have 40% more money when you retire?

Is mom or dad going to be interested?

Who wouldn’t be interested in 40% more money? a 40% bigger nest egg. 40% more money to give away. Forget the family cruise on the Disney Boat. Let’s buy a yacht. We’ll have Micky Mouse flown in and picked up at the airport in a limo.

If taxes don’t excite you. If taxes don’t cause you to geek out. If taxes don’t cause you to put down a Harry Potter book, you are as normal as they come my friend.

That’s why you have me to guide you. You don’t need to know how to do the math. You only need to be aware of this thingy, that’s the technical term. This thingy that I invest a little over here in this bucket. A little over here in that bucket, and then someday someone, some robot dog, some fancy piece of software, will tell me what to do later on. And all you have to do is spend the money that gets transferred into your bank account.

First of the month. Money. In the bank account. More of it. Great.

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This Mistake Could Cost You 40% Of Your Wealth This Mistake Could Cost You 40% Of Your Wealth

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