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- Welcome back, Hogan.
- Thank you.
It's good to be with you. - Thank you.
Seriously, last time you were on,
everyone raved.
They loved you.
- Aww, they're so nice. - So I was like,
gotta get him back, gotta get him back.
- You're nice.
- You all are very nice. (laughs)
- Okay, so now we're in the process of the Baby Steps
where you are completely debt-free.
You have a fully funded emergency fund.
So Baby Steps 1, 2 and 3,
you do individually.
Now Baby Steps 4, 5 and 6,
you do all together.
Isn't it right?
- Rachel, thank you for pointing that out
because a lot of people get confused there.
So it is important.
You're doing 4, 5 and 6 at the same time.
- But in this order.
So Baby Step 4 is . . .
- Yes, this is where you're investing 15%
of your household income into retirement types of accounts.
Rachel, that can be 401(k)s, 403(b)s, IRAs or Roth IRAs.
It's very important to set that money aside
each and every month.
So you want to sign up to where it's done automatically.
- Okay. - It's not anything
you have to think of.
You can do that in your HR department
as you enroll in your 401(k).
But listen, make sure you get
with an investment professional to guide you.
- Yes. - There are a lot of options
of things that you can invest in,
but you want to make sure you're picking the right things.
But as you do this 15% of household income,
over time what'll happen is,
you'll start to build wealth.
This is not money for a down payment on a home,
this is not money for a wedding,
and Rachel, it's not money for a vacation.
- Uh-uh. - So let that money sit there
and grow for you.
I promise you, it'll put you on the path
to becoming an everyday millionaire.
- Because if someone cashes out that money early,
what happens?
- Well, there's a lot of penalties.
- Yup. - I mean, I tell people
you could lose 40% or more of that money
in taxes and penalties. - Yup.
- So you don't want to do that.
You want to leave that money alone,
and if there's something you're wanting to save up for,
get an extra job, work overtime, get some cash.
But this is a dream fund.
A lot of people don't understand,
with the 401(k) and 403(b)— what you're trying to do
is save up enough money to replace your paycheck later.
So the money you're putting in
will become your paycheck later in life.
- Yup. - But we need
to let it sit there. - Yup.
- Rachel, money has two best friends.
- Ooh, BFFs. - Time and compound interest.
So when you put money in your 401K(k) and let it sit—
- Yup. - It'll grow.
- So good.
So that kind of reminded me that, you guys,
if you're on Baby Steps 1, 2 or 3,
that means you are not funding retirement.
You are stopping retirement.
Now that's going to freak some people out
because, especially people
that have been doing it for a while,
- It is. - The fact
that they have to stop.
They're going to be okay, right? - Right.
Oh, you're going to be okay.
And what I've told people,
because a lot of people have said that.
- Yup. - Chris, I don't want to stop.
I said, okay, don't think of it as stopping.
- Yup. - Let's pause.
- Yeah. - We're going to pause the 401(k)
so you can give all your effort and attention
to attacking the debt. - Yup.
- And so it helps them to be able to see it.
And someone said,
"Well, Chris, I feel bad."
I go, yes,
feel bad about the debt. (laughs)
So move focus forward faster, - Yeah, it's good.
- So you can start investing again.
- That's good.
So Baby Step 4—
you're taking care of yourself with retirement.
- Yes. - And then you go
on to Baby Step 5,
which is funding your kids' college.
So, there's a couple of ways you can do this.
You can do it through an ESA,
which is an Educational Savings Account.
And with this is great because it grows tax-free.
Now there is a limit of how much you can put in per year
and an income limit.
So if you make too much money,
you may not quality for an ESA.
- Mmm hmm. - But if you do, it's great.
You look at it and you say—
let's just say you have a newborn baby—
and you start putting $2,000 in every year.
By the time they're 18 years old,
they're going to have $120,000 to be able to go to college.
I mean, it's phenomenal.
So starting early.
Now, some people, you're like,
okay, that's great if I had a newborn,
but I have, like, a 10 year old.
So if you do the math that way,
if you fund it for just 10 years
let's say, maybe eight years,
it's going to be around $38,000,
which is still a great head start into college savings.
But if you can't do the ESA,
again because you want to put more money
in your college accounts, your kids' college account,
or you make too much money to qualify,
then you can look into 529 plans.
And a 529 plan, I would say, like your retirement,
you're going to want to go and talk to someone
who's a professional in this,
because there are some bad plans out there.
- There are.
I don't like the state-directed ones.
- Yup. - State-directed means
they're picking out what you can invest in.
I want people to have freedom and options
to be able to pick what works for them.
- Yes, so talk to a SmartVester Pro,
for all the things
- Yes. - With retirement
and when you're starting to fund your kids' college.
- Yes. - But,
the beautiful thing about college, too,
is that if you are at the point, you're like,
Wow, I have a junior in high school,
or a senior in high school.
We aren't even on Baby Step —
you know, we're doing Baby Step 4
and we're just now starting Baby Step 5,
you can still help your kids go to college debt-free.
Because people can still go to college debt-free today.
- Oh, they really can. - It is true.
- And Rachel, guess what?
I tell people all the time—
they go, well, my kid, I don't want them to work
while they're going to school.
(laughs) Well, listen to me.
Yes, they can.
They can work and go to school at night.
Or they can work at night and go to school during the day.
- Or part time.
I mean, yeah. - Yes.
- It's like it's insane, I know.
And actually students that work 20 hours a week
graduate with higher GPAs than students that don't work.
Isn't that fascinating? - Well, and Rachel, they learn
time management. - Yeah.
- They learn life skills
that they're going to have to apply when they graduate.
And oh, by the way,
there are scholarships and grants out there, too, Rachel.
- Yes, yes. - I've heard you tell people
about that for years. - Yes.
That's free money.
And then also parents out there—
number one piece of advice: Through all of this
if you have a student going to school soon,
is school choice.
- Mmm. - Picking a school
you can afford.
Private colleges on average are costing $26,000
a year in tuition
versus an in-state school which is around $14,000.
Community college are sometimes free depending on your state,
- Mmm hmm. - and even as low as $5,000.
So check out those options.
Don't just assume, okay,
my kids have to go to a private college.
- No. - Or this great college
to succeed. - Right.
- That's a lie.
That's not true.
So, you're funding, again, retirement with Baby Step 4,
and then the extra money you have,
you're putting toward your kids' college
in an ESA or a 529 plan,
and then you're going to put any other extra money you have
toward the house which is Baby Step 6.
- Yes.
Baby Step 6 is about attacking and paying off the house.
You know a lot of people say,
Chris, the American dream is to buy a home.
No, the American dream is to own a home.
There's a difference between buying and owning.
- Mmm. - Buying is where
you've signed the paperwork, right?
I'm a former banker, I know that.
But owning it, is where you've attacked it and paid it off.
So a couple of things I want to tell people.
As you're doing Baby Steps 4 and 5,
you're saving for your future,
you're saving for college,
I want you to throw any extra money toward the house.
An extra $200–300 a month will make a big difference
- Yes. - in you attacking
and paying off the home.
And a lot of people, Rachel,
have never envisioned them owning their home.
- Yes. - Right?
And this is where you have it.
They'll send you the deed in the mail.
And that means you don't owe on it anymore.
- So good. - So how do you get there?
You have to do it intentionally.
So that's looking at it,
be aware—and budgeting is absolutely crucial.
- Yup. - And so if you're out there
right now and you've got a 30-year fixed-rate mortgage,
I want you to go get a quote
on refinancing to a 15-year fixed.
- It's good. - The payment's
going to go up $400–500.
But we're talking about a difference of 15 years, Rachel.
- Yup. - This is a big deal.
So for the people that are intentional,
attacking and paying off the house is a big step.
But imagine this.
Let's say you're behind saving for retirement a little bit.
Imagine your mortgage payment not leaving you.
- Mmm hmm. - Right.
Imagine whatever it is you're paying right now
to the mortgage payment not leaving you,
but you're able to save more toward college.
And then invest more.
- Yup, yup. - Right, for your future.
It would allow you to catch up exponentially.
So attacking and paying off the house is a huge step.
Don't listen to the people out there
that say hold onto the mortgage for the tax reduction.
- For the taxes.
Okay, that's a big lie. - Okay.
- So explain that. - Yeah, it makes my hair grow.
It makes my hair grow. (laughs)
It gets me riled up.
Because it's not truthful. - Yup.
- And I want people to know the facts.
You wanna pay off that home and own it
and remove the risk out of your life.
If you own it, nobody can ever foreclose on it.
- Yup. - Nobody can take it
away from you.
So I wanna encourage people to stay on the path.
It leads you to progress. - Yes.
And majority of people with the whole tax deduction thing,
mathematically speaking,
you're going to be paying more in interest
than you would it not being written off.
So. - It is.
And you have to fully itemize
- Yup. - to be able to deduct that.
And it's only—
you can only deduct it for a certain number of years.
- Yes. - So anyway.
It's an excuse - That's right, yup.
- to keep a mortgage. - Pay off the house, people.
- Pay off the house. - Pay off the house.
- Free up your money
and be able to save for college,
be able to save for your future
or be able to take a trip and enjoy it.
- Yes. - Right?
I want people to keep more of their own money.
- So good.
So, you guys, if you could imagine
being at the end of that step,
- Hmm. - which means
you have no debt, including your house,
you're funding your retirement
and you're funding your kids' college
and you have an emergency fund—
like all the things are taken care of,
at that point, you might even be self-insured.
Meaning that if something were to happen to you,
you have everything taken care of.
So you may not even need life insurance.
But a lot of you are probably not there yet,
and that's okay.
But while you're working through the Baby Steps
you need to make sure you do have life insurance.
And with the correct amount of coverage that you need.
Isn't that right?
- Oh it is.
Life insurance is absolutely important.
It's a part of making sure that your family is protected.
- Yup. - And I also want to encourage
people to make sure you're getting some quotes.
Look at this and understand—
find out if you can save money
because that saved money creates margin in your budget.
And that allows you to be able to do more in other areas.
- That's right. - Rachel, it boils down
to being more intentional with your money.
- Yeah, it's so good.
And Winston and I use Zander Insurance
because they make it so easy.
And you use Zander, too, don't you?
- I sure do. - Yeah, they're so great.
They will do all the work for you
to make sure that you're getting the best rates possible.
So we recommend getting 10 to 12 times your annual income.
- Mmm hmm. - So make sure
to go to zander.com or click the link below.
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