The Waterfall Strategy: Which Financial Buckets to Fill First on Your FI Journey (Ep.07)

[00:00:11] Welcome to CoastFI Couple, a podcast where love meets financial independence. I'm Matt.

[00:00:16] And I'm Yana. Join us every other week as we dive into the world of CoastFI and share smart money tips for couples.

[00:00:21] We're going to be talking all about how to strengthen your bond and your relationship and bringing closer to financial independence.

[00:00:26] One episode at a time.

[00:00:28] All right. Welcome back to CoastFI Couple.

[00:00:30] Welcome.

[00:00:31] Another episode.

[00:00:32] Yes.

[00:00:32] Yeah. So last week's episode was a doozy. And this week's episode is going to be more fun. Hopefully.

[00:00:40] You know, it was really funny when we recorded that episode. I don't think we realized it was going to drop on Halloween. Today is Halloween. And it dropped today.

[00:00:49] It was spooky.

[00:00:50] It's kind of a spooky episode.

[00:00:51] It was spooky episode.

[00:00:52] Yeah. So that was all about the journey through burnout and trying to figure out how to get out of that situation. And today we're gonna talk about the order of operations.

[00:01:04] Yes.

[00:01:04] We kind of dubbed the waterfall concept of what we fill first. So there's going to be kind of a step by step explanation of all the retirement accounts that are available to you and how to use them.

[00:01:18] And so, yeah. You want to kick it off?

[00:01:21] Yeah. I'm excited about this episode. We've had some people reach out and ask some questions.

[00:01:24] Yeah.

[00:01:24] And, you know, there's always going to be a little bit of a variance between how people do it and what people prioritize. So, you know, what we're going to talk about today is sort of a snapshot of what we've done. Obviously, there's a lot of different voices in the five space that do it a little differently or maybe prioritizing slightly in a different order. And we can talk about that as well.

[00:01:46] But to kick us off, I definitely want to start from the top. And in my opinion, the top beyond getting your budget in order is making sure that you have a healthy emergency fund.

[00:02:00] So if you are just getting started and trying to figure out what do I say for first, where do I start saving first? If you don't already have an emergency fund that covers at least three to six months of your expenses, definitely want to start putting money away for that.

[00:02:18] Yeah. So I made the error back when we were first starting that it was essentially three, six months of income. And that's not what you need. You need to just identify what it is you're spending.

[00:02:30] And so, you know, if it's, you know, X thousand dollars a month, you want to have enough of that saved away to account for three to six months. So if something goes awry, you know, you lose your job or you need to make a change or something happens. You're not instantly reaching for a credit card to get yourself back into debt.

[00:02:50] Exactly. You've got a safety net.

[00:02:51] Yeah. So the first bucket that you're going to fill up with any excess cash is an emergency fund in a high yield savings account.

[00:02:59] High yield savings account. Exactly. Yeah. So go to a bank or credit union that has at least a competitive rates. I think right now we're looking at between four and five percent.

[00:03:08] And that's purely just a park of cash. So put money in a savings account and then move on.

[00:03:12] And to your point, like the first step is you need cash accessible. Yes. In case your car breaks down and you can't get to work or the kid breaks a bone.

[00:03:21] You need to be able to have money in a pot. That's not going to be a credit card. Got it. Yeah. Yeah.

[00:03:27] All right. All right. Number two. Number two.

[00:03:29] Okay. So I'm envisioning these buckets like essentially a stack. Remember those like weddings that have the champagne towers and you essentially pour the champagne on top.

[00:03:42] And then just trickle down.

[00:03:43] And it trickles down.

[00:03:43] Okay.

[00:03:44] Yeah. So I'm kind of hoping that that is a good visual representation of what we're trying to do here because you only have so much money.

[00:03:50] You're only earning so much money a month. And so where are you putting it?

[00:03:52] So starting at the very top is that emergency fund. The next one is the employer match in your 401k or your 403b.

[00:04:01] Yes.

[00:04:02] Yeah. So what is that?

[00:04:03] So your employer match, oftentimes employers will offer either a 401k or a 403b.

[00:04:11] And the difference between a 401k and a 403b, it's really just about what kind of organization you're working for.

[00:04:16] So nonprofit and government organizations will offer a 403b and then for-profit companies will offer a 401k.

[00:04:27] Oftentimes, you know, they're very comparable.

[00:04:31] Yeah.

[00:04:31] That's right.

[00:04:32] Lots of companies will offer a match.

[00:04:36] So if you invest a certain amount of money into your 401k or your 403b, your company will match a certain percentage.

[00:04:44] It's basically free money.

[00:04:45] It's free money.

[00:04:46] Yeah.

[00:04:46] Yeah.

[00:04:47] Yeah.

[00:04:47] And I think that the average company in the U.S. does between 4% and 6% match.

[00:04:55] Okay.

[00:04:56] There's different ways they might do that.

[00:04:58] They might do dollar for dollar up to a certain amount or maybe they'll only match 30% of your income or whatever.

[00:05:03] So the important thing for those listening who are trying to figure out where to put their money, just if your company offers a match, because not all of them do,

[00:05:12] your company offers a match, take it.

[00:05:14] Take it.

[00:05:15] It's free money.

[00:05:15] It's part of your compensation plan.

[00:05:18] So fill it to the match first.

[00:05:20] Yes.

[00:05:21] Yeah.

[00:05:21] At the very least.

[00:05:22] And if you have questions about what the match means or what your company specifically offers, definitely go to your HR and your benefits person and ask them for details.

[00:05:32] Usually they can go over the numbers with you and kind of give you an idea of what that match would look like.

[00:05:38] Yeah.

[00:05:38] Should we talk about what you're investing in those accounts in this episode?

[00:05:44] Yes.

[00:05:45] So it is very important not just to contribute to the 401k account or the 403b account.

[00:05:50] You actually have to go into that account, whether it's with Fidelity or Vanguard, every company is different, and make sure that you are actually investing those funds.

[00:05:59] And when you are looking at investing those funds, and again, I don't want to give people a whole lot of investment advice, but we always invest in low-cost index funds, the S&P 500 for the most part.

[00:06:13] We want to make sure that the expense ratio for any fund that we are investing in is well under 1%.

[00:06:21] Yeah.

[00:06:22] So we had some friends reach out to us after we launched the first couple episodes asking, because these are terms, expense ratios, are things that we typically don't look at unless you're a nerd.

[00:06:32] And so what we do and what we kind of recommend is find the lowest expense.

[00:06:39] And so you can go into your Fidelity or even if you have a list of funds that your employer is offering for you, there's a ticker symbol.

[00:06:47] And it's like, you know, VTSAX or whatever.

[00:06:52] And so you can type that into Google and just look for the expense ratio.

[00:06:56] And ideally, you're looking for something that's 0.04 or less, right?

[00:07:03] Because that means that you're not going to be bleeding cash.

[00:07:06] There's a lot of funds out there.

[00:07:08] And you want the cheapest one available that will span the greatest number of funds in the market.

[00:07:15] And so we subscribe to a, you know, total stock market index fund that covers the S&P 500 or more.

[00:07:24] And you want less than, you know, 0.05 or 0.04% expense ratio.

[00:07:29] And think about your expense ratio just to simplify it.

[00:07:32] Your expense ratio is basically the amount of your return that is actually going back to the bank.

[00:07:42] So it's what you're paying back to the fund or the bank when you're getting your investment returns.

[00:07:50] So you want that number to be low.

[00:07:52] So that way it's as little drag as possible on your returns.

[00:07:55] That's right.

[00:07:56] Okay.

[00:07:57] All right.

[00:07:57] What's next?

[00:07:58] All right.

[00:07:59] So now that you are filling that bucket, you're up to the match.

[00:08:02] The next thing that you want to put some money to is going to be all credit cards.

[00:08:08] So we're going to pay off all of our credit cards.

[00:08:10] Yes.

[00:08:11] All, all the high interest debt.

[00:08:14] Yeah.

[00:08:14] And we're a little bit unique because we, we got rid of our credit card debt really early in the journey because we hated it.

[00:08:21] I hate paying for stuff that, you know, we should be able to cash flow.

[00:08:26] So yeah.

[00:08:27] Pay off all your credit card debt.

[00:08:28] Yep.

[00:08:29] You know, when Matt and I first got together and got married, as he said, we didn't have a whole lot of debt.

[00:08:36] I had a little bit of student loan debt, not a whole lot.

[00:08:39] And during that time we were doing the Dave Ramsey program, the baby step.

[00:08:44] And one of the baby steps in the Dave Ramsey program is to pay off all debt as quickly as possible.

[00:08:49] We didn't have a whole lot.

[00:08:50] So it didn't take us too, too long to do that.

[00:08:52] But I was, we were preparing for this episode last night and it reminded me of that time when we did finally pay off all of our debt beyond just the mortgage.

[00:09:03] And one of the things that Dave Ramsey encourages people who do Financial Peace University to do is the, the debt scream.

[00:09:11] The debt free scream.

[00:09:12] Debt free scream.

[00:09:13] It's a great concept because it gets you excited about doing the journey together.

[00:09:17] Right.

[00:09:17] So if you, if you have any debt and it takes you a long time, it's exhausting to pay off.

[00:09:23] Yes.

[00:09:23] And you want to be able to take a moment and celebrate it.

[00:09:26] And I thought that was a really great concept.

[00:09:29] And we did, we were totally in it.

[00:09:31] And I remember it was late at night.

[00:09:32] We went out in the backyard and we did our, we're debt free scream in the backyard.

[00:09:38] And I was so, so excited.

[00:09:41] I actually went onto Facebook and I was like, we're debt free, but I spelled debt wrong.

[00:09:46] I spelled it.

[00:09:49] Honestly, I still forget how to spell.

[00:09:51] Is it a B or a T?

[00:09:54] We hate debt so much.

[00:09:55] We don't even know how to spell it.

[00:09:57] It's been a long time.

[00:09:59] Anyway.

[00:09:59] It's a stupid way to spell it.

[00:10:00] Actually.

[00:10:01] Think about it.

[00:10:02] Is it a B T?

[00:10:02] It is a B.

[00:10:03] It's with a B.

[00:10:04] Okay.

[00:10:04] Thank you.

[00:10:05] Anyway, moving on.

[00:10:06] I'm an English major.

[00:10:07] Yeah.

[00:10:07] So we paid off our debt pretty quickly.

[00:10:09] So we, you know, we don't have a whole lot of experience with having to pay off debt

[00:10:13] in real time because it's been such a long time.

[00:10:16] But if you are in that position and you have funded your emergency fund and you are

[00:10:22] contributing to the company match and you have some credit card debt or, you know, car

[00:10:27] loan debt, anything like that, any high interest debt, you definitely want to be paying that

[00:10:31] off as quickly as possible.

[00:10:33] And I do think that at some point we should share some resources on how best to attack

[00:10:38] debt for people who maybe have multiple different kinds.

[00:10:42] Yeah.

[00:10:43] Well, real quickly on that, there's typically the snowball method where you pay your lowest

[00:10:47] interest or your lowest amount first and you work your way up because you're looking

[00:10:52] for small wins or there's the inverse of that, the avalanche method, which is you pay

[00:10:56] the highest interest rate first and work your way down.

[00:11:00] It's up to you.

[00:11:01] Uh, we would want, we would recommend you stop there and, and don't move forward on

[00:11:07] these next steps in the waterfall until all of your credit card debt is gone because you

[00:11:12] want to be free of that.

[00:11:13] You don't want to be paying monthly for something that you bought, you know, three years ago.

[00:11:17] I didn't even know about the avalanche method.

[00:11:19] Yeah.

[00:11:19] I'm a nerd.

[00:11:20] Oh, okay.

[00:11:20] So look at you.

[00:11:21] Let me go.

[00:11:22] All right.

[00:11:23] Next is the fun one.

[00:11:25] Oh, I love this one.

[00:11:26] The HSA.

[00:11:27] Yes.

[00:11:27] Okay.

[00:11:28] So the HSA, it, it's, uh, basically a health savings account that you can contribute to.

[00:11:36] And what's special about the HSA is that it is triple tax advantaged.

[00:11:41] Yes.

[00:11:42] So the HSA is the single greatest retirement account that's available today.

[00:11:48] And it's almost like hidden because when your employers are talking about it, it's designed

[00:11:54] to help you pay off medical expenses, but because you can contribute to it through your payroll,

[00:12:02] that means it's not taxed going into the account and it can grow tax free while sitting

[00:12:10] in there.

[00:12:11] And when you withdraw it, as long as you're spending it on healthcare expenses, which we

[00:12:16] all have, you can spend it tax free.

[00:12:18] So again, triple tax advantaged account.

[00:12:21] It's the best retirement account out there.

[00:12:23] If you can find a way to cashflow your, uh, healthcare expenses, um, just, you know, pay

[00:12:30] out of pocket for them and leave that amount growing.

[00:12:34] It will be the best account and can, can grow the fastest on any of these other ones that

[00:12:39] we'll talk about.

[00:12:39] So it's my favorite account.

[00:12:41] And at some point we will definitely do an episode just on the HSA because there are some strategies

[00:12:46] for you to really take advantage of the HSA that I know I can see you just like vibrating

[00:12:52] with excitement.

[00:12:52] I'm so getting into that.

[00:12:53] Yeah, yeah, yeah.

[00:12:54] Um, but, uh, let's talk about the limits for the HSA.

[00:12:58] So for a family, the, the contribution max is 8,300.

[00:13:03] Is that right?

[00:13:04] That's right.

[00:13:04] So in 2024, the family contribution limit is 8,300, but there's some nuance here.

[00:13:11] You have to have a high deductible healthcare plan in order to contribute.

[00:13:17] And so make sure you pick the right one.

[00:13:20] It might not work for you if you have a lot of healthcare expenses today, because you typically

[00:13:25] want to have the ability to, you know, cover those if you're really sick or you have some

[00:13:31] sort of medical event.

[00:13:33] But if you're relatively healthy and your family's relatively healthy and your employer

[00:13:37] offers an HSA, take it, take it and contribute because it's going to help grow your portfolio

[00:13:42] faster than anything else.

[00:13:43] So again, the family contribution max is 8,300.

[00:13:47] The individual contribution max is 4,000 or 4,150.

[00:13:52] Yeah.

[00:13:53] As of this recording.

[00:13:54] Yes.

[00:13:54] Yeah.

[00:13:55] All right.

[00:13:55] Yeah.

[00:13:55] And so again, if you have the money, we're slowly working our way down there.

[00:13:59] Now we've got an emergency fund, three, six months expenses.

[00:14:01] We've got our, our employer match, uh, taken care of and our 401k.

[00:14:06] You've paid off all your credit card debt and now you fully funded, if you can, your

[00:14:11] HSA, the next step, you're essentially filling those buckets or clawing your way up the hill.

[00:14:17] Yeah.

[00:14:17] Yeah.

[00:14:18] Just, you just use those fingernails to work your way down this list.

[00:14:22] All right.

[00:14:23] And then the next tier in the waterfall or in the, the champagne tower.

[00:14:29] The Roth IRA.

[00:14:30] The Roth IRA.

[00:14:31] Yeah.

[00:14:32] So some people will maybe debate this.

[00:14:35] Some could go back to the 401k.

[00:14:38] I like doing the Roth IRA at this step.

[00:14:40] And so this is our, our fifth step right now, because what's special about the Roth IRA is

[00:14:45] you have, you own it and you can contribute to whatever account or whatever funds you want.

[00:14:52] And some of the retirement funds in the employer, uh, plans only have a short list.

[00:14:59] And so if you're looking for low cost and something that spans the entirety of the market,

[00:15:04] uh, you own the Roth IRA, you can choose which provider you want to use.

[00:15:09] We personally use Vanguard, uh, they're cheap and they really do a good job of taking care

[00:15:14] of, you know, the user.

[00:15:16] So it affords you a little bit more control over what you are investing in, which we found

[00:15:20] really important.

[00:15:21] And the one important thing about the Roth IRA as well is the contribution max per individual,

[00:15:29] whether or not you're a family or married is $7,000 as of 2024.

[00:15:34] If you're over 50, it's $8,000 and they do that.

[00:15:37] So that way people have a chance to catch up.

[00:15:40] And just so you are also aware of the Roth IRA is after tax dollars.

[00:15:45] So you, you get your income and that's after you've already contributed.

[00:15:50] You're a 401k match.

[00:15:52] Yeah.

[00:15:53] And you've paid out your, you know, any bills for any, uh, high interest debt.

[00:15:59] And then that's done.

[00:16:01] And then you can start contributing to our Roth IRA.

[00:16:04] Yeah.

[00:16:04] Typically what we have done, and I know we've done it a couple of different ways when we're

[00:16:07] contributing to our Roth.

[00:16:09] We've done it at the top of the year, if, and when we can.

[00:16:12] Right.

[00:16:12] So we're getting that, the growth for the entirety of the year, but some, sometimes it's been at

[00:16:18] the end of the year, just because we've had to save up throughout the year to, to get to

[00:16:21] that point where we were contributing.

[00:16:23] Yeah.

[00:16:23] It's a really good point.

[00:16:24] Let's, let's take a second to explain that.

[00:16:25] So the Roth IRA, the IRA first off stands for an individual retirement account and anyone

[00:16:32] can open it up as long as you have taxable income.

[00:16:35] So if you have kids out there who are earning some kind of income, uh, you can open up them

[00:16:41] a Roth IRA as well.

[00:16:43] And the contribution limit for, again, this year is $7,000 each.

[00:16:48] So you have to make that amount of money to contribute that amount of money.

[00:16:52] So you have to make at least, so say you only make $3,000 taxable, $3,000.

[00:16:59] You would only be able to contribute $3,000 in that year.

[00:17:02] Yeah.

[00:17:02] But again, as you're building your career and as you're working your way up, ideally you

[00:17:08] will learn to max out this account because the beauty of the Roth, the Roth IRA, the

[00:17:13] is that it grows tax-free.

[00:17:15] So you spend your tax dollars upfront and it will grow tax-free for the entirety of

[00:17:22] the account.

[00:17:23] And then at 59 and a half, you can pull that money out tax-free, which is beautiful because

[00:17:28] we expect it to grow if you're investing it wisely.

[00:17:31] And some quick caveat, I made a mistake when I first opened up my Roth IRA.

[00:17:36] I assumed that I could simply call Fidelity, put money in the account and it would be good

[00:17:42] to go.

[00:17:43] I actually didn't do it correctly because I waited.

[00:17:46] I didn't know how it worked, right?

[00:17:47] So I waited like a year or two, I forget how long, before I realized that I was just putting

[00:17:52] it into what they call-

[00:17:53] The holding account.

[00:17:54] The holding account or the custodial account, which is just sitting in cash.

[00:17:58] What you need to do, and not everyone will tell you this, is once you invest or once you

[00:18:03] put money in the Roth IRA, you have to log into the account and then choose what to do

[00:18:07] with the money that you put in there.

[00:18:09] Where you want to invest it.

[00:18:10] You have to go in and say, I want to take this money and I want to put it in this fund.

[00:18:14] Yes.

[00:18:14] And if you don't do that, it won't grow.

[00:18:16] And that really is a shot to your opportunity for compound growth.

[00:18:20] So make sure you invest the money within the Roth IRA.

[00:18:23] Don't be an idiot like I was learning from our mistakes.

[00:18:25] I've heard people say that though on Facebook groups and stuff that I'm a part of when they're

[00:18:30] like, oh, I've had this Roth for five years and I've been contributing to it.

[00:18:34] I just didn't realize that it wasn't invested.

[00:18:36] And it's like, oh, that's devastating.

[00:18:38] So painful.

[00:18:39] So definitely make sure that if you are putting money into an account, whether it's your 401k,

[00:18:43] your 403b, your Roth IRA, it's not just enough to put it away into that account.

[00:18:47] You actually have to go into that bank and make sure that it is invested appropriately.

[00:18:52] That's right.

[00:18:53] Low cost and net expense.

[00:18:53] That's right.

[00:18:54] Okay.

[00:18:54] So we're throwing a lot at the audience here.

[00:18:57] So quick summary again, number one, step one, build an emergency fund.

[00:19:00] Step two, employer match.

[00:19:02] So contribute to at least your employer match.

[00:19:04] Three, pay off all credit card debt.

[00:19:06] Four, HSA.

[00:19:08] Five, Roth IRA.

[00:19:10] If you still have money after that, after contributing to those accounts,

[00:19:13] the next one that we recommend is maxing out the 401k account.

[00:19:18] Yes.

[00:19:18] Yeah.

[00:19:18] So I believe most 401k accounts, the max is 23,000.

[00:19:23] In 2024, it's 23,000.

[00:19:25] Okay.

[00:19:26] Yes.

[00:19:26] Which sounds like a lot, but when you spread it out over the course of an entire year,

[00:19:30] yeah, it could be a big chunk of your paycheck.

[00:19:32] But these are the factors that play into your savings rate, which is really exciting.

[00:19:36] So, and you do it over time, you build it over time.

[00:19:39] So don't expect yourself to be at a position in six months where you can, you know, be contributing

[00:19:44] to all of these accounts and be maxing out all these accounts.

[00:19:46] Some people who are high earners can't.

[00:19:48] You know, they can make some changes to their expenses for the year or be a little bit more

[00:19:54] conscientious of their budget and really start putting money away into some of these accounts.

[00:19:58] But most people have to really dedicate themselves to building this plan and doing it over time

[00:20:04] and be sure to celebrate the wins.

[00:20:07] When you get to a point where you have funded your high yield savings account for three to six

[00:20:13] months, that is a huge win.

[00:20:14] That's a big thing to celebrate.

[00:20:16] Take a breath.

[00:20:16] You know, and when you get to the point where you're like, Hey, today I set my contribution

[00:20:21] to my 401k to the 6% match or whatever it was, celebrate that.

[00:20:25] Whether you're doing that on your own or with your person, that's a big deal.

[00:20:29] That's a big step.

[00:20:30] So definitely make sure that you are recognizing that effort.

[00:20:34] Yeah.

[00:20:35] Yeah.

[00:20:35] It took us a long time to get to a point where we could max out our Roth IRAs and our 401ks.

[00:20:42] And to your point, it's a lot easier to do that when you have a lot of money

[00:20:46] to play with.

[00:20:47] But we didn't.

[00:20:49] We just had to kind of prioritize it.

[00:20:52] Yes.

[00:20:52] At some point, it took us a long time to get there.

[00:20:55] But the more that you can put in now, the easier your road will be later on.

[00:21:01] And the sooner you'll be able to actually fire or, in this case, get to coastify.

[00:21:07] Because the more you have in there, the faster you'll compound.

[00:21:10] Yep.

[00:21:10] The bigger the snowball gets.

[00:21:11] So I got a fun five fact at this point.

[00:21:14] Is it fun?

[00:21:16] Well, yes.

[00:21:18] Okay.

[00:21:19] So today's fun five fact.

[00:21:22] About 65% of eligible employees participate in 401k plans today.

[00:21:29] Okay.

[00:21:29] So it's a good number, like 65%.

[00:21:32] If your employer offers a 401k plan, most of us are contributing, which is great.

[00:21:39] However, and this is the fun five fact, only about 12% of working age Americans were on

[00:21:45] track to max out their contributions in 2023.

[00:21:48] Oh.

[00:21:50] So this comes down to two things, right?

[00:21:52] Like, do you have enough money to be able to do that?

[00:21:54] Are you prioritizing the contributions?

[00:21:57] Because again, every dollar you put in those accounts will compound for the rest of your

[00:22:01] life having it in there.

[00:22:02] So prioritize it.

[00:22:03] And if you can work those side hustles, get the money you need to.

[00:22:07] So that way you can live off of maybe a side hustle while you front load those accounts.

[00:22:11] There's a lot of really cool strategies that we'll get into.

[00:22:14] Because the more that you have the money in the account for more time, the chance it has

[00:22:20] it compound.

[00:22:20] So yeah.

[00:22:21] And the other lever that you can pull is really being conscientious about decreasing your expenses

[00:22:27] so you can up your savings rate.

[00:22:30] Yeah, exactly.

[00:22:31] So cool.

[00:22:32] All right.

[00:22:32] What is after that?

[00:22:35] So step six was the 401k.

[00:22:38] Yes.

[00:22:38] Completely max that sucker out.

[00:22:39] Step seven, we didn't have to do this, but I think it's important to mention.

[00:22:44] Medium interest debt, right?

[00:22:45] So student loans, key locks.

[00:22:48] Personal loans.

[00:22:49] Personal loans.

[00:22:50] Pay them off.

[00:22:51] Get them out of your sight because you don't need them at this stage in your journey, right?

[00:22:55] You don't want to be beholden to the bank trying to call your note or whatever.

[00:23:00] So get it paid off and move on.

[00:23:02] The more that Jan and I simplify and automate our finances, the happier we became.

[00:23:07] And this is the single greatest finance budgeting tool that's come out in recent times.

[00:23:14] It's called Cube Money, and it's changing the way couples implement financial health.

[00:23:20] We're investors in this company.

[00:23:22] We have exclusively been using Cube Money to do our own personal budgets since 2020.

[00:23:27] And it's so simple that even our kids are now using it.

[00:23:32] Cube has developed and patented a technology they call Default Zero.

[00:23:36] And it requires a category to be opened from your personal budget before you can spend with the card.

[00:23:44] And then once you spend, it deducts it all in real time.

[00:23:48] This single feature has made Cube the safest card in the world to use.

[00:23:54] If you drop it, it always has a zero balance on it unless you open the budgeting app.

[00:23:59] It's been extremely handy for us, and it saved us actually several instances of fraud.

[00:24:04] And we're never going to go back.

[00:24:06] Cube is perfect for families, too, because they've got shared spending categories

[00:24:10] that allow you to spend in real time from them.

[00:24:14] And everyone else in the family can see the updated balance.

[00:24:17] It's essentially making it 100% foolproof to always stick to our budget.

[00:24:22] And that has actually been the case.

[00:24:24] We have not overspent from our budget since we started Cube.

[00:24:28] And it's amazing.

[00:24:29] This is the tool that helped us get a handle on our family spending

[00:24:33] and made our journey to Coastify so much easier.

[00:24:37] So if you're ready to take your budget to the next level where you truly can automate it,

[00:24:42] you truly set it and forget it, then you're in luck.

[00:24:45] Because Cube Money is offering an exclusive deal just for our listeners.

[00:24:49] Go to cubemoney.com.

[00:24:51] That's Q-U-B-E money.com.

[00:24:53] And at checkout, use the code COAST.

[00:24:56] You can try the premium or the family membership for free.

[00:25:00] And again, we highly recommend it.

[00:25:03] It's a personal endorsement.

[00:25:04] We know that if you use the program, it'll work for you.

[00:25:08] Enjoy.

[00:25:09] All right.

[00:25:09] So at this stage, and I want to do a quick summary.

[00:25:13] So we have for individuals, if you're maxing out those accounts, your HSA, your Roth IRA,

[00:25:19] and your 401k, that's a total of $34,150 a year that you can contribute to retirement vehicles,

[00:25:27] like tax-advantaged accounts, they call that.

[00:25:30] If you're a family, that's $68,300 a year that you can put away to these retirement accounts.

[00:25:39] And $68,000, that's a lot of money that you're marking for retirement.

[00:25:44] But the earlier you can work towards that, the faster you get there.

[00:25:48] The longer you can be consistent, the more that that grows.

[00:25:52] So definitely want to keep in mind, you know, some people don't make that kind of an income.

[00:25:58] They're not able to hit those numbers.

[00:26:00] So it just takes time to sort of build it over time.

[00:26:03] Contribute what you can.

[00:26:04] Yeah.

[00:26:05] All right.

[00:26:06] And the last one, step eight, we're calling it here, is once you're fully maxing out those accounts,

[00:26:12] then you have, if you have any extra cash, we recommend putting it into a taxable brokerage account.

[00:26:18] Because the taxable brokerage account is the one that you will live off of when you're doing Coastify.

[00:26:24] And for any of you Brandon Sanderson fans out there, we call our taxable brokerage account our Bridge4 account.

[00:26:32] Bridge4.

[00:26:33] Because it's just that last final push.

[00:26:36] It's a slog.

[00:26:37] It's a slog getting there.

[00:26:39] Because, you know, unless you have, unless you're making hundreds of thousands of dollars every year

[00:26:43] and you have a lot of excess, doing, maxing out all those tax advantage accounts

[00:26:47] and having extra cash to put to a taxable brokerage account for later, that's a lot.

[00:26:53] It's a lot.

[00:26:53] Yes.

[00:26:54] And it takes a while to grow that.

[00:26:55] Yes.

[00:26:56] And depending on how long you've been investing, what you have currently invested,

[00:27:00] what your long-term projections are for retirement,

[00:27:02] you might not need to continue to contribute to your, I almost called it your Bridge4 account,

[00:27:09] your brokerage account.

[00:27:11] You might have already set aside enough in your regular retirement vehicles

[00:27:18] to then focus on other things with your, any leftover cash that you might have.

[00:27:22] It really just depends on the equation that you were building for yourself of when you want to retire,

[00:27:26] how much you want when you are planning to retire, what your withdrawal rate is going to be.

[00:27:31] And that's going to be a little bit different for everyone.

[00:27:33] It's, it's really just a math equation.

[00:27:35] Once you plug in your numbers, you can kind of have an idea

[00:27:37] and then work backwards and figure out how long it's going to take you there.

[00:27:40] So some people might not necessarily need to save in a brokerage account to feel comfortable getting there.

[00:27:47] I am, am in the school of thought that it's always good to have something in a taxable brokerage account

[00:27:53] because you can tap into that money penalty free.

[00:27:57] Yeah.

[00:27:58] So it's good to have it.

[00:27:59] But, you know.

[00:28:00] One thing that we probably mentioned too,

[00:28:01] a taxable brokerage account can be opened up by yourself.

[00:28:04] Like you don't need that through an employer.

[00:28:05] It's just go to any like Fidelity or Vanguard and just open up a brokerage account

[00:28:10] and then put money into it and then make sure you invest it.

[00:28:13] It's not tax advantaged in any way.

[00:28:16] So you will, you're contributing, you're contributing to it with after tax dollars.

[00:28:21] Any growth is going to be taxed annually.

[00:28:24] Yeah.

[00:28:25] At a specific percentage depending on your adjusted gross income, which is your AGI.

[00:28:30] And when you take it out, are you also taxed on it when you take it out?

[00:28:34] It's taxed on the growth.

[00:28:35] So every year you pay taxes on the growth.

[00:28:36] Wait, it's actually, is it taxed on the growth every year or is it taxed when you take, when you withdraw it?

[00:28:42] It's taxed on the growth.

[00:28:44] Okay.

[00:28:45] I'm going to have to double check.

[00:28:46] We can double check that one.

[00:28:47] We're not, we're not tax experts.

[00:28:48] We're working on this one, but.

[00:28:49] I just, I put money in it.

[00:28:51] I just don't take money out.

[00:28:52] That's kind of my plan.

[00:28:53] That's the goal.

[00:28:54] All right.

[00:28:54] And then I know that there's a little bit of controversy about the next bullet point.

[00:28:59] So I think that that's probably a good place.

[00:29:01] Like those are our eight steps.

[00:29:03] That's what we recommend you do.

[00:29:05] Yes.

[00:29:05] But to your point, people in the background are probably screaming, what about the kids?

[00:29:10] What about the 529?

[00:29:12] Yeah, exactly.

[00:29:13] So what about the kids?

[00:29:16] So it, it really just depends.

[00:29:18] So we in Florida are, are lucky enough to have what we call Florida bright futures.

[00:29:24] Scholarship program.

[00:29:25] Scholarship programs.

[00:29:26] For kids.

[00:29:26] Yes.

[00:29:27] Yeah.

[00:29:27] So as long as our children are making good grades, they have an opportunity to have a deep discount on their college tuition and, and, and, or maybe have it paid for in its entirety, which is awesome.

[00:29:40] Yeah.

[00:29:40] If they're an A student.

[00:29:41] And, and also there is a, there's an opinion within the five community.

[00:29:46] And I also agree that contributing to a 529 account for your children to go to college before you have secured your retirement comfortably.

[00:29:58] Isn't necessarily going to do anyone any favors in the longterm.

[00:30:03] Right?

[00:30:03] So yes, you've sent your kids to college, but what about when you're 65, are you going to be able to work?

[00:30:10] Are your kids just going to have to take care of you then?

[00:30:12] And the reality is our kids can get scholarships and we aren't going to get scholarships for retirement.

[00:30:20] So, so we don't prioritize that before we haven't prioritized that before making sure that we're going to have what we need upon our retirement years.

[00:30:29] Cause we don't want to put our kids in a position to have to take care of us.

[00:30:31] Yeah.

[00:30:32] I think that that is exactly the point.

[00:30:34] Right.

[00:30:34] So the best gift that we can give our kids is to make sure that they don't have to worry about us financially when they're adults.

[00:30:42] Right.

[00:30:42] Right.

[00:30:42] Like we're kind of in this weird situation now where it's called the sandwich generation.

[00:30:48] Right.

[00:30:48] So people our age who have aging adults, aging parents who might not have enough saved in retirement and might need assistance.

[00:30:57] And then also have kids.

[00:30:59] We're going to school soon.

[00:31:00] We're going to college soon.

[00:31:02] We need assistance.

[00:31:02] And so you're going to feel stretched.

[00:31:05] And what we do and probably recommend is, you know, unfortunately prioritize yourself first.

[00:31:12] Make sure that you're okay because kids don't want to have to worry about you when you're older and can't work.

[00:31:16] And to your point, there are scholarships available.

[00:31:21] Yes.

[00:31:21] You know, the worst case scenario is they take out some student loan debt, which sucks.

[00:31:26] And we try to prevent that through education.

[00:31:29] And if we have extra cash lying around, maybe we can help cash flow some of that for them.

[00:31:34] But that would be our last bucket that we would put money to, you know, if we have met our goal to actually fire.

[00:31:44] Yep.

[00:31:44] You know.

[00:31:46] All right.

[00:31:47] All right.

[00:31:47] Yeah.

[00:31:48] Well, that was pretty good.

[00:31:49] So do you want to do a quick summary again?

[00:31:50] What we got here?

[00:31:51] We got number one.

[00:31:52] Emergency fund.

[00:31:53] Build emergency fund.

[00:31:54] Three to six months of your expenses.

[00:31:56] Not necessarily your income.

[00:31:57] Your expenses.

[00:31:58] Number two.

[00:31:59] Bucket two is 401k up to the employer match.

[00:32:02] Yes.

[00:32:02] If your company offers a 401k or a 403b, contribute up to whatever match they offer.

[00:32:08] Get that free money.

[00:32:09] That's right.

[00:32:09] Get the free money.

[00:32:10] Number three.

[00:32:11] Pay off all credit card debt.

[00:32:12] Yep.

[00:32:13] Number four.

[00:32:14] Max out the HSA.

[00:32:16] Yes.

[00:32:16] Best account.

[00:32:17] Triple tax advantage.

[00:32:18] Tax-free going in.

[00:32:20] Tax-free growth.

[00:32:21] Tax-free going out.

[00:32:22] That's right.

[00:32:22] Number five is maxing out the Roth IRA.

[00:32:25] Number six is maxing out your 401k at your workplace.

[00:32:30] Number seven is paying off all student loans, HELOCs, any personal debt.

[00:32:35] Get that out of the way.

[00:32:37] And then number eight is the taxable brokerage account or bridge four because it's a slog.

[00:32:43] It takes a long time to do.

[00:32:44] But at bridge four, excuse me, at the taxable brokerage account part, that is what we call

[00:32:50] the boring middle.

[00:32:52] Yes.

[00:32:52] And we will talk more about that.

[00:32:54] But the boring middle is the part that takes sometimes the longest.

[00:32:57] So you've set up your accounts, you've automated those contributions, and you just kind of sit

[00:33:03] and wait.

[00:33:04] Yeah.

[00:33:04] You keep working and you just ignore all of it at that point.

[00:33:08] And you just watch it grow.

[00:33:09] And this is where community becomes really important because you've done all the things

[00:33:12] and it becomes less exciting because you're living on a pretty tight budget and you are

[00:33:17] putting probably a pretty hefty amount into some of these long-term accounts.

[00:33:25] And yes, you might be watching these numbers grow, but you're not really feeling any difference

[00:33:31] in your day-to-day life.

[00:33:33] So it's really important.

[00:33:34] It's boring.

[00:33:35] And that's why we call it the bridge four because it's just this long, boring slog.

[00:33:38] But you know what bridge four had?

[00:33:41] They had a team.

[00:33:44] Right.

[00:33:44] So this is a book.

[00:33:46] It's a nerd.

[00:33:47] It's a nerd book.

[00:33:48] Anyway.

[00:33:49] It's a great book.

[00:33:49] But you definitely want to build community when you're in the boring middle, which is

[00:33:55] just this long, the long-term part where it might be 5, 10, 15 years where you have set

[00:34:01] it all up and you're doing it and you're doing it and you're doing it.

[00:34:03] It could take that long.

[00:34:04] It can.

[00:34:05] Yeah.

[00:34:06] All right.

[00:34:06] Well, I think that was probably where we'll stop for today.

[00:34:08] Yes.

[00:34:09] Yeah.

[00:34:09] It was a probably info packed full episode, a lot to cover, but that's what we do.

[00:34:15] And it's worked for us and we hope you guys follow along.

[00:34:18] So let us know if you have questions, please.

[00:34:20] It's been actually really helpful knowing what people have questions about.

[00:34:23] It has.

[00:34:24] It has.

[00:34:24] Yeah.

[00:34:24] Reach out to us at coastifiedcouple.com.

[00:34:26] Yes.

[00:34:27] We have a website.

[00:34:27] We have a website now.

[00:34:29] Until next time.

[00:34:30] Signing off.

[00:34:31] See ya.