Pay Yourself First!
pay yourself first. These three words This is true like this is what should have been taught to you by eighth grade. These three words are the number one secret habit, and it's not really a secret anymore. Is the number one have it that ordinary people use to build real wealth? There are six routes toe wealth. Let's talk about the number one approach to wealth in America today. Guess what it is. No, it should be paid yourself for a sea view. All such good students. The number one approach is to win it so, uh, 70 to $80 billion. Roughly. I think last year was spent on lottery tickets here in the United States. It's not. We're live here in the You've seen people do this before, right? So how many Nos. Amis won the lottery one early, every room out to people like three people. Did they give you any money? No. Okay, so, guys, it's really not a real approach toe to build wealth. Now, the amazing thing is that intelligent, educated people some of you are watching are putting more mind the lo...
ttery tickets than a pay yourself first account. Just sad. It's you know, it's it's a tax. On what silliness. So don't do that Second approaches to marry it, Um, as the great Dr Phil once said, How's that working for you so far, you know, marrying for money. Sometimes you pay for the rest of your life. So third approaches to inherit it. Now this is actually true. There's a lot of inheritance coming our way. Depends on whose numbers you look out. But somewhere between 20 to $30 trillion in wealth is gonna transfer from one generation. In theory, I say in theory, to the next generation here in next 20 years, you can sue for it. This is just a sad, sick, disgusting way that people try to build wealth in this country. That's not the answer you can budget for it. Do I like budgeting? Yes or no? No water. I like budget because it budgeting doesn't stick. People go on budgets. They fight about budgets, they get off of budgets. Budgeting is harder than even dieting. And I don't really think the dieting works either. Typically, um, it is a lifestyle. It is not a lifestyle sustainable plant The lifestyle sustainable plan When it comes your money is pay yourself first, and it is a decision that is a philosophy. And you really have to just believe in your core that the first person who should pay on your paycheck is you. And you need to be almost pissed off if you're not. Just that's how you need to be rooted. So what does this really look like when you earn a dollar in the real world who gets paid first? The government, Uncle Sam. And on average, federally they take about 25 to 30%. So I just put 28 in the middle. And depending on the state like California, we got like, 9% here. For the average state tax, you're losing 1/3 of your paycheck to taxes. And again the money is taken from you automatically. I want you to think about your money now on a clock. So I'm gonna show you this clock right now. And I want you to look at this web when you earn money. Right now, most of you are going to work, have you? By the way, if you weren't here, go to work some of you at home like that you've got jobs, right? Like so? So he brought most everybody here in the audience studios working, right? So most people come to work. Although they had these guys had to be heard. Seven today. But most people gonna work at night had most Americans. You'd home of you have a job. You are working from 9 to 12 oclock on average for taxes. The 1st 3 hours of your day are going to taxes. Which makes you kind of want to come to work after lunch time, right? Like like I mean, if I could just skip those 1st 3 hours. But this is real world. Three hours, 2.5 to 3 hours of your day, we're gonna go taxes. Then you're gonna work from 1 to 2 o'clock on average for your rent. Mortgage your housing overhead, then you've got transportation costs. I'm putting two hours here for rent in overhead on average Americans, and our day of their income is going to transportation costs. That's your car. Your car ensures your gas. Unless today you're using something else to get to work. That's pretty common then, From 3 to 5, oclock is everything else Like food health care, credit cards, entertainment, all the stuff that you do in your life. That's the rest the day. Now, the idea behind budgeting is that you will somehow come up with a way. At the end of the day, you're gonna have this little sliver over here to save money. And I'm here to tell you that that will never work. And if you tried it, you know it doesn't work. You get to the end of the year. There's no money. You get to the end of the paycheck. There's no money. This approach to wealth doesn't work. What works is a pay yourself first approached Well, so here's what needs to happen. You need to come in here and I talked about this in an earlier lesson, and you need to pay yourself first. One hour, one our today, now in your 41 K plan at work. Create a live help for one K plan good, and you're 41 K plan and work and create alive and everybody else. It's one hour day of your income that percentage wise happens to be 12.5%. Now I'm not against you, saving more than 12.5%. Like if you said to me, David, what about 15% fantastic. What about 10? That's good, but it's not in our day of your income. 12.5% of your gross income is one hour day of your income. You save one hour day of your income and it's the first hour day and you build financial security for life. Does this make sense? So what is the average American save? The average American is saving about 15 minutes, and that's the ones that are saving. Now here's the you, like probably like you're shaking your head, right? It's unreal. So here's the thing that nobody talks about. You're gonna work an average of 2000 hours this year. Trade 2000 hours of your time. Drink up over your lifetime. You're gonna work somewhere between 70,000 90,000 hours total. And the question you have to ask yourself is, But I'm gonna trade all that time for money, Shouldn't I? Damn will be the first person get paid because you almost have to get pissed off about the way things are to make changes sometimes. So you pay yourself first Here's the rich numbers. 10 to 15% upper middle class. Here is the formula for rich. Pay yourself first 15 to 20%. Here's the rich enough to retire early. 20% and more is better. It's all perspective, right? All perspective. You can do this. You decide. But make a decision. Where do I put it? These are the accounts. Higher account spell Salar it 41 K plan step firing three key plans IRAs 41 K plans and set fire is, by the way, that set fire a number is $54,000. Right now, that is a type of really worth saying here, depending on when you watch this, you got any questions on numbers that are here? Goto I r s dot gov You'll always get a able to get the latest numbers. These numbers change every year. These are the ketchup provision. So if you're over the age of 50 you can put $6500 away. If you're over the age of 50 you can put $23,000 away all tax deductible. Now, one thing you have not heard me talk about yet are Roth IRAs and Roth 41 k plans. The reason I haven't talked about him is there not tax deductible, so you can pay yourself first. But you can't get out of paying taxes using a Roth IRA or a Roth 41 K plan. You're gonna pay taxes first, then you're gonna put it in the raw. Then it's gonna grow tax free. Then you can take it out tax for him. The big difference between these two types of accounts is when you want to pay your taxes. Now the traditional thought processes use a Roth because taxes will be higher. It will be higher later in life when you're older. I don't know about that. Depends on who the president hits. We don't know what's gonna happen later. Here's what I know. I've never used a rock. I like deduct, wiry accounts because I don't want to be taxed. So if I could $10,000 I can put the whole thing into a deductible account in order for me to put $10,000 into a Roth account, Roth four on cable and I had to make does make sense. So you just have decide when you want your tax deduction. I'm not against using these, Ross. You just have to really understand the math. I would rather have all the money in my account. So basics on 41 K plans one. Are you enrolled? Use it, Max it out. Increase it. No, the numbers can. Let's talk about Sepp. I raise self employed retirement accounts. This is the easiest one. If you just set up, where's my camera? For the people at home People at home who are watching who are self employed This is the account for you could so simple. You can set up a set Fire A in 10 minutes. Had any of those firms I just talked about Vanguard TD Ameritrade, TD Vanguard Schwab Well struck him out. Betterment. Wealthfront, you name a financial service company? Private, and you could open up a set Fire A takes you 10 minutes. You're what, 25% of your gross income away? The ironic thing is, the government makes it much easier for self employed people to be rich. You can put way more money away $54,000 this year. So when you look like how do I start late and finish rich. If you're starting late on your self employed, providing you use stuff, you got some distinct advantages that employed people don't have. You're able to save twice as much money you're actually able to save for more than twice your able to save four times as much. I'll show you that in a second, Um, but most self employed people do not use Empire is, and if they do use them, they don't fund him. And the reason they don't fund them is they don't fund them regularly and they get to the end of the year, and they haven't said it's outside. Enough money aside for taxes on their self employed retirement account never gets funded. Here's another great plan with Solo 41 K plan. This plan is actually better than a separate because you can put it's the same amount of money, but you can actually get more money put away with a lower income. They're just a little more complicated to set up solo 41 K plan is a one person for a one K plan unless you're married and you and your spouse or in the business. So for a lot of couples This is a great plan. Uh, $54,000 limit because it has, you can put the 41 K portion in plus a profit sharing. So you basically can put $18, if you're under the age of 50 in the 41 K plan. Plus, you can put 25% of your gross income. So has an example. If you're if you're really a huge saver on a $50,000 income, believe it or not, you could actually put $29,500 away and not paying taxes on. I gave you the firm's before TD Ameritrade Finality, Charles Schwab Vanguard There are other firms. I just wanted to give you four firms, all four of these firms big giant, huge companies. All of these firms you can open these accounts online. You can call somebody, they can walk you through it. I also gave you earlier the Robo Advisor and I want to give that to you again. Robo Advisors Wealthfront Wealthfront dot com and betterment talk on. So I give you six firms not the only firms out there just wanted to give you six choices