How to do a Mega Backdoor Roth

Many retirement savers only know about the standard salary deferral limit for 401(k) plans, which is $23,000 in 2024 for those under 50. Most don’t need to know how to contribute more, as only 15% of employees max out their workplace retirement plan. For some super savers, maybe Financial Mutants even, they max out their salary deferrals and look for additional places to invest. The salary deferral limit of $23,000, or $30,500 for those 50 and older, does not apply to after-tax 401(k) contributions. The annual additions limit applies to salary deferrals, employer matches, and after-tax contributions, and is $69,000 in 2024 (or $76,500 for the 50+ crowd).

What does this mean? Well, for someone under 50 that doesn’t get an employer match, it means they may be able t0 make $46,000 in after-tax contributions to their employer-sponsored plan. There is a big catch: not all employers allow after-tax contributions. Even if your employer allows after-tax contributions, they must allow in-plan Roth conversions in order for you to convert those after-tax contributions to Roth. If you have those magical ingredients, you may be able to build an enormous amount of Roth dollars for retirement.

Should I do a Mega Backdoor Roth?

I know what you’re thinking: forget about paying off high-interest debt, building an emergency fund, or contributing to a regular Roth IRA. I need to try out this Mega Backdoor Roth strategy now. Even if you do have the ability to build Roth dollars using the Mega Backdoor Roth strategy, it may not make sense to use it. For starters, there’s no reason to use this strategy if you can still contribute more money to a Roth IRA the old fashioned way or still have room left in your 401(k) salary deferral limit. There’s no advantage to building Mega Backdoor Roth dollars over Roth IRA or normal Roth 401(k) dollars, and executing the strategy is more complex. The Mega Backdoor Roth is part of Step 7 of the Financial Order of Operations for a reason. It is a maximization strategy and something to think about after your other financial ducks are in a row.

Even if you have the ability to use the Mega Backdoor Roth strategy and find yourself in Step 7 of the FOO, it still may not make sense for you. The average salary in the US is just over $60,000, which means if you max-out a Roth IRA, HSA, and 401(k), you would be contributing over half of your gross income into retirement accounts. That is a lot to ask for most Americans, to put it mildly, but also means it may not be necessary for most to maximize a 401(k), much less worry about advanced strategies like the Mega Backdoor Roth. If you have questions about how much you may need to invest for retirement, and what your retirement “number” is, check out our Know Your Number course.

The short answer to whether or not you should use the Mega Backdoor Roth strategy is “maybe.” If you aren’t sure, use the flowchart below to help you determine whether or not this strategy is right for you.

Can I do a Mega Backdoor Roth on my own?

So you’ve decided it makes sense for you to use the Mega Backdoor Roth strategy. Is this something you should attempt on your own or does it require the help of a professional? It is possible to attempt this strategy by yourself, but that doesn’t necessarily mean it is a great idea. The Mega Backdoor Roth is a complex strategy and, like the “normal” Backdoor Roth, there is a potential for unexpected tax consequences if something is not done correctly. Common pitfalls include not making sure your employer plan is set up correctly, not rolling your rollover balance quickly, or not knowing documentation requirements. If you have any doubts about your ability to effectively implement this strategy, or would feel better getting the help of a professional who has done it many times before, it may be worth reaching out to an experienced tax professional and/or a fee-only financial advisor.

For retirement savers that have already maximized their Roth IRA, HSA, 401(k), and other tax-advantaged retirement vehicles, the Mega Backdoor Roth strategy offers an incredible avenue to build even more tax-free dollars for retirement. However, this is a strategy that is best suited for high-income earners and Financial Mutants. Most Americans will never need to think about using the Mega Backdoor Roth strategy, and that’s fine! It is complex and not for the faint of heart, but the rewards can be tremendous.

Have questions about Roth IRAs and how Backdoor Roths work? Check out our Roth IRA Guide.

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Do you have high-interest debt?

That may seem like a silly question. Shouldn’t you already know whether or not you have high-interest debt? In some cases you absolutely know whether or not you have high-interest debt, but in other situations it isn’t as clear-cut. What if you are a college student and just graduated with student loans at 6.8% interest? Or what if you just bought your first home and closed at a 6.75% interest rate?

Before we discuss more nuanced situations, let’s define what counts as high-interest debt for everyone. Any unsecured consumer debt that you do not pay off in full every month counts as high-interest debt. This is commonly a credit card balance, as almost half of all credit card users carry a balance on at least one of their cards. Unsecured consumer debt isn’t just credit cards. Lines of credit at stores, loans to purchase electronics, furniture, and other home goods, personal loans, and more all count as unsecured debt that should be prioritized as high-interest debt.

A few types of debt work a little differently and may or may not count as high-interest debt for you. Student loans are often a necessary evil to obtain a college degree, and whether or not you count them as high-interest debt depends on your age and interest rate of your student loans. In your 20s, student loans with interest rates greater than 6% can be considered high-interest, and in your 30s anything over 5%, in your 40s over 4%, and all student loans should be prioritized after 50.

It’s important to note that the stated interest rate on your student loans may not be your effective interest rate. If you are on a SAVE income-driven repayment plan, any interest in excess of your monthly loan payment is not charged as long as you make the required monthly payment. This means some of the interest you owe may be forgiven each month and thus lower your effective interest rate (and possibly the priority of paying off your student loans).

Auto loans are unique and don’t fit neatly into high-interest debt or low-interest debt. Unlike mortgage debt, which we will get to next, auto loans are on assets that typically depreciate (or go down in value over time). This makes car loans more of a liability, which is why we recommend avoiding taking out a vehicle loan if possible and paying for a car in cash if you have the ability. We recognize reliable transportation is usually a need and not a want, which is why it does make sense to take out a loan to get a reliable car if necessary.

If you are taking out an auto loan, you should put at least 20% down, pay off your car in 3 years or less, and keep the monthly payment (or payments, if you have more than one car loan in your household) to 8% or less of your gross income. If your car loan falls outside of these guidelines, you should consider it a higher priority or high-interest debt (Step 3 of the Financial Order of Operations). We created an interactive tool to help you determine how much car you can buy, which you can use here.

Mortgage debt is another unique type of debt. Unlike every other type of debt we’ve mentioned so far, this debt is on an asset that typically appreciates in value. Not only that, if you itemize on your taxes, you may be able to claim a mortgage interest deduction that could be thought of as lowering your effective mortgage rate. For most individuals and families, mortgage debt does not count as high-interest debt, even at 2024 interest rates. However, you should still make sure you follow our rules for buying a home to ensure you are living within your means and buying a home you can afford.

How do you pay off high-interest debt?

Now that you know exactly what counts as high-interest debt, how do you pay it all off? There are two main schools of thought when it comes to the best way to pay down your high-interest debt. We don’t believe that either is right or wrong, but depending on how you are wired, one may make more sense than the other.

Debt Avalanche vs. Debt Snowball: Which Is Better?

If you are mathematically minded and have the discipline and desire to pay off your debt as quickly as possible, the debt avalanche method may be for you. With the avalanche method, you prioritize debts based on the interest rate without regard to the balance of the debts. This ensures you pay off the most harmful debts first and minimize the amount of interest paid on your debt. This method will save you the most money in the long run if you have the discipline to pay as much as you can towards your high-interest debt.

The debt snowball method may be better if you are more affected by the emotional and mental burden of being in debt and need small “wins” to give you motivation to get out of debt. With the debt snowball method, you pay off the debt with the lowest balance first without regard to the interest rate. This means when you start paying off your high-interest debt you will get the “wins” of eliminating balances, but overall you might pay more interest and be in debt longer than if you had used the debt avalanche method.

No matter what types of high-interest debt you have or what your balances look like, it is possible for you to get rid of all of your most harmful debt and build a brighter and more beautiful tomorrow for you and your family. The steps you must take to get rid of your debt may be as simple as reducing frivolous spending and building more financial discipline. If you have a larger amount of debt, it may be smart to look for different ways to increase your income. It’s normal for high-interest debt to make you feel anxious, financially insecure, and afraid of the future. Instead of focusing on those negative emotions, try to imagine how you will feel once you eliminate high-interest debt for good and never look back - and use that as motivation to work towards paying off high-interest debt.

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Online banks vs. brick-and-mortar

I am (barely) old enough to remember when the general public was skeptical of banking online and preferred face-to-face banking rather than using a website or app. Now, only 29% of Americans prefer banking in-person. Almost all brick-and-mortar banks offer online services to their customers, but they still lag behind in many key areas. Online-only banks offer APYs 10x higher than traditional banks. It’s not all the fault of the brick-and-mortar bank; the cost to maintain physical locations certainly means they can’t compete as well on savings account interest rates.

We don’t necessarily advocate for dumping your brick-and-mortar bank, but we do think everyone should at least investigate whether or not an online bank might be a better solution for your savings account due to the difference in interest rates. If you don’t mind having more than one bank in your life, you could keep some money at your local bank and the rest in an online, high-yield savings account. There are valid reasons to utilize the services of a brick-and-mortar bank. If you are a server or in another industry where you handle a lot of cash, it is much easier to deposit that cash if you have a physical bank to go to. Sometimes it’s just easier to go down to your local bank and talk to someone rather than dealing with online customer support. An online bank may be able to meet all of your banking needs, but some still need, or want, the services offered by a brick-and-mortar bank.

How to choose the right online bank

Online banks attract consumers because of their convenience and higher interest rates than brick-and-mortar competitors. For those worried about safety, online banks typically have the same FDIC coverage as traditional banks. For most consumers, your money is just as safe at an online bank and you get the convenience of banking online and are typically rewarded with higher interest rates.

There are more online banks now than there were in the past, but a large number of them aren’t actually banks. Many of the most popular and fastest-growing banks aren’t actually banks at all, but financial technology companies backed by real banks, or neobanks. This isn’t necessarily a problem, as your money is still technically held at a real bank that is almost always FDIC-insured, but it can cause some issues you wouldn’t experience if you were using a real online bank.

Yotta is a popular financial technology company, or neobank, that has gamified saving money on their platform. They may have taken it a little too far, leaning too heavily into the gamifying aspect of their services, and ultimately, turning into a form of gambling. Now customers are unable to get their money out of the financial technology company. Perhaps the largest bank-that-isn’t-actually-a-bank, Chime, has its own share of unique issues. I am a former customer of Chime and was a little unsettled reading horror story after horror story of other customers having their account closed for no reason and often unable to get their money back. ProPublica covered the issue in-depth and made sure to emphasize that Chime was not, in fact, a bank.

The worst-case scenario of your account being closed or being unable to access your money might not happen to you, but I have found financial technology companies that offer banking services prioritize the technology over the banking services. With my former neobank, the website was seriously barebones, and you could only do most things from the app. This isn’t always a problem, but sometimes I only had access to my computer. The final straw was being unable to order checks. Yes, I know hardly anyone uses checks anymore, and I use them so infrequently that it hadn’t been an issue, but my neobank was unable to provide me with checks even though I was willing to pay for them.

Online banks are great, but it may be worth sticking with an actual online bank instead of a financial technology company that isn’t a true bank. Myself and some others at The Money Guy Show use Ally Bank. They offer competitive savings account rates and they have been in business for over 100 years now. No matter what bank you end up choosing, look for a bank that is actually a bank, is FDIC insured, offers competitive rates, and didn’t just pop up overnight.

A checking account at a bank isn’t as sexy as a Roth IRA or 401(k), but having a great bank is foundational to your financial life. It can mean the difference between your money being there when you need it or your money not being there. A higher yield on your savings account might mean achieving financial goals, like saving for your first home, just a little bit sooner. Don’t overlook your decision of who to bank with, and while switching banks is never easy, it could put extra money in your pocket or even save you from a nightmare scenario of losing access to your money.

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Want to know what increasing your savings rate can do for you? Check out our free resource, “How Much Should You Save?”

All ideas in this article are broadly applicable and don’t require you to have a certain level of expertise or knowledge to start making money. However, it is worth noting that the most lucrative ways to make extra money may be those more specialized side hustles. For example, if you are a web developer, using your web development skills to take on your own clients or teach classes has much greater earning potential than driving for DoorDash. If you don’t have in-demand skills you can easily monetize, here are some side jobs that most people can earn good money doing.

1. Pet-sitting

Many pet owners would rather leave their pets in their own home where they are most comfortable instead of boarding them at a facility with other pets. Our cat Cleo was miserable when we boarded her and she always smelled weird when we got back from vacation. We started using Rover, which was about the same price for us, and our cats are happier and we get updates and pictures of them while we are away. If you love animals, taking care of other people’s dogs, cats, and other pets could be a great way to earn extra money. We are truly appreciative of the great pet-sitters we’ve found and you have the chance to not only earn extra money, but make lives easier for both the pets and their owners.

2. Gardening

If being outdoors is something you enjoy and you are good with plants, gardening can actually be a unique way to earn extra money. Several of my neighbors grow native plants and fruit trees and have plant sales every few months and make great money doing something they love. Gardening has so many more benefits other than earning extra money, like making your yard or neighborhood more beautiful, being outside and getting exercise, and the fulfillment of taking care of something and watching it grow and thrive. In addition to gardening, more traditional side hustles like landscaping and mowing lawns can generate extra income if you like yard work and don’t mind being outdoors.

3. Delivering food or driving for a ridesharing service

This is a side job with a lower barrier to entry as you only really need a car and a decent driving record to deliver food or drive for a ridesharing service. It is often not worth it if you don’t properly account for the mileage and wear and tear on your vehicle. However, it can be worth driving at peak times when rates are higher and users are tipping more often. If you don’t mind sharing your car with others and being on the road a lot, delivering food (or people) can be a great way to earn extra money.

4. Sell stuff online

One of the easiest ways to make extra money quickly is by selling stuff online that you no longer use. Facebook Marketplace is very easy to use and you can turn things that are just taking up space in your home into cash. Selling stuff online also has a high earning potential if you find a niche you enjoy and start sourcing goods specifically to resell online. Try to find a category with not as much competition; this is easier said than done, but something like antique postcards will be much easier to make money in than used clothing or video games. The online reselling world is very saturated, but it is still possible to make great money selling stuff on the internet.

5. Freelancing

Freelancing does require you to have some skill, but chances are you have a skill you can monetize by freelancing. What exactly can you make money doing freelancing? Almost anything. If you are a teacher, you could tutor students; if you are a skilled writer, you could write articles or copy in your spare time; if you have experience growing a brand’s social media presence, there are no shortage of companies looking to grow their brand online. No matter what you are good at, chances are you can offer your services to others and make money in the process.

Increasing your income is possible for most people, but it usually isn’t easy. You may have to commit to working more hours and spend some of your free time doing side work. Only you can decide if the extra work is worth it. If you are using the extra income for very significant and important financial goals, it very well may be. It’s not uncommon for those in the FIRE movement to work extra hours or side jobs in order to have the ability to retire early. Know your “why” before you start working extra jobs; is the additional money you earn worth the time you are giving up? Money is a limited resource for all of us, but time is the only resource that we can never get back.

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Home-buying rules

Our Money Guy home-buying rules can be difficult to follow for those in high cost of living areas or first-time homebuyers. However, we have some flexibility built-in to the rules. First-time homebuyers can put down just 3% to 5% on their home, provided they are planning to be in the home at least 5-7 years and are keeping their monthly payment below 25% of their gross income. The rule for everyone else is to put down 20%, spend no more than 25% of your monthly gross income on housing, and plan to live in the home for at least 5-7 years.

These guidelines are meant to provide a framework for you to find an affordable home that gives you plenty of margin to pay for all of life’s other expenses and invest for retirement and the future. It does not mean that someone who spends 25% or less on housing is automatically doing great financially and someone who spends greater than 25% is in a bad spot. However, it can be said that your overall financial risk increases the more of your income you spend on a home.

If you do find yourself in a situation where you are faced with the potential of breaking our 25% rule, you will have to create margin or cutback in other areas to make up for the excess spent on housing. It is very possible for someone who lives in a high cost of living city to spend 30% on housing, invest 25% for retirement, and have enough leftover for all other expenses. But you may have to make some tough decisions. Maybe using public transportation instead of purchasing and maintaining a vehicle allows you to spend more on housing, or if you become a DIYer and constantly repair and fix things up around the house instead of hiring contractors, you can spend a little more on the mortgage. The bottom line is the housing rule can be bent, but may require sacrifices in other areas to do so. As a general guideline, if you are going to spend more than 25% on housing, you should also be investing 25% or more for retirement.

Car-buying rules

Our Money Guy 20/3/8 car-buying rule says you should put down 20% or more on any car you purchase, pay it off in 3 years or less, and ensure the combined monthly cost of all car payments is no more than 8% of your monthly gross income. While other financial influencers believe you should only ever purchase cars in cash, our car-buying rule gives flexibility for those struggling to buy reliable transportation in cash. This rule should not be used by everyone, and if you have the ability to pay for a car in cash, do so. Cars are quickly depreciating assets and car loans are liabilities that should be approached with caution.

We don’t believe in breaking the 20/3/8 rule to spend more on a car, but there are ways you can bend the 20/3/8 rule to buy more reliable transportation. If you put down more than 20% on the car you are planning to purchase, you are effectively able to buy a more expensive car. This should not be used as a loophole to buy a luxury car, but can be great for families looking to step up to a more reliable vehicle.

Student loan rules

When it comes to taking out student loans for college, you should keep your total student loans below your expected first year salary out of school. Student loans are especially dangerous because your dollars are so powerful when you are young - just check out our Wealth Multiplier Calculator if you don’t believe me. Those going into high-paying professions like doctors or lawyers have the flexibility to take out more in student loans, if required, but you should aim to take out as little student loans as possible. 

Student loans may not feel like a big burden while you are in school and payments are deferred, but once you graduate, those monthly payments eat into how much you can save and invest for the future. You should always aim to keep your total student loans below your expected first year salary and take out as little in student loans as possible. There are many creative ways to pay for college and you don’t necessarily need to work full-time while in college to avoid a ton of student loan debt. In addition to scholarships and grants, many employers offer tuition reimbursement programs and schools offer work-study programs.

Investing rules

How much should you be investing for retirement? While that is a bit of a loaded question, as a general guideline, we believe you should strive to invest 25% of your gross income for retirement. If you started investing later in life, you may need to invest even more. Unlike some of our other rules, our retirement investing rule is a bit more flexible. In your 20s, it is phenomenal if you are able to invest 25% of your income for retirement, but not expected. Start investing whatever you can as soon as you can, even if it’s as little as $20 per month. Gradually increase your investing over time as your income grows and expenses change, aiming to invest 25% no later than 30.

There may also be years where you reduce your retirement investing from 25% to a much lower number. If you are in the messy middle in your 30s and happen to buy a home and have a child in one year, you may not be able to invest 25% for retirement that year - and that’s okay! While we would love for everyone to get the benefit of investing 25% every single year of their working lives, we realize that life happens and nobody’s path to financial success is a straight line. Your own financial success is not determined by whether or not your savings rate ever deviates, but by how quickly you are able to get back on-track and recover after unexpected financial events. Check out our resource “How Much Should You Save?” for a breakdown of what percentage of income your savings rate can replace in retirement. Our Know Your Number course can help you take it to the next level and determine what savings rate is appropriate for you based on your own goals, assumptions, and desired retirement age. 

Our Money Guy rules are meant to be the financial guardrails that keep your life on-track. Rules don’t have tos feel restrictive and suffocating. We hope our rules give you the freedom and flexibility to make big financial purchases, like buying a home, car, or attending college, without feeling like your financial life is on a bad track.

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1. Get your employer match.

If you have an employer match, contributing enough to your retirement plan to get the full match should be your first priority when it comes to investing for retirement. 

What if I don’t have an employer match?

If you don’t have an employer match, skip to the next retirement savings bucket (which is contributing to your Roth IRA and HSA).

What if I don’t need to contribute to get my employer match?

Some employers make contributions to your retirement plan no matter if you contribute or not. If your employer match does not require a contribution from you, skip to the next retirement buckets, Roth IRA and HSA.

What if my employer match is very generous?

Some employers offer very generous employer matches. Some are so generous that you may not be able to fully maximize the match right now. What do you do in this situation? Will you be stuck on maximizing your employer match forever?

Employer matching contributions are so powerful that you should prioritize getting every potential dollar you can, even if that means being “stuck” trying to maximize your employer match for a little while. Being “stuck” getting your employer match should be viewed as a blessing. Go give your employer a big sloppy bear hug!

What if my employer offers a discount on company stock?

Employee stock purchase plans, or ESPPs, may include a discount on company stock of up to 15%. Does this count as part of your employer match? The short answer is yes. Even though an ESPP discount typically isn’t as lucrative as a traditional employer match, it is still free money from your employer. Take full advantage of any discount on company stock you get before moving on to other retirement accounts.

2. Maximize your Roth IRA and/or HSA

Maximizing both your Roth IRA and HSA, if you are able to contribute to both, is the next step on your retirement investing journey.

Should I contribute to my Roth IRA or HSA first?

If you have access and are able to contribute to both, you may be wondering which you should prioritize. This is an often debated question on the show, and they are both amazing retirement savings vehicles, but the HSA may have a slight edge on the Roth IRA. Both are considered tax-free accounts, since qualified distributions for both are not taxed, but only the HSA allows contributions to enter pre-tax and qualified distributions to be taken tax-free. We are of the belief that most of us will spend a generous amount on medical expenses throughout our lives, which will allow you to use the HSA without ever being taxed on that money.

It is worth noting that HSAs aren’t as flexible as Roth IRAs. You can’t take out your contributions at any time, and to qualify for all tax advantages money can only be used for qualified medical expenses. However, after age 65, HSA dollars can be distributed for any reason (but will be taxed).

What if my income is too high to contribute to a Roth IRA?

If your income is too high to contribute to a Roth IRA, should you just skip it? No! Many high-income earners are able to still contribute to Roth IRAs using what are called backdoor Roth contributions. If you are able to use this strategy to contribute to a Roth IRA, do it. Check out the linked article for details about this strategy and how to implement it.

Should I really contribute to my Roth IRA before my Roth 401(k)? Aren’t they the same thing?

Depending on the quality of your 401(k) plan, your Roth 401(k) may be very similar to your Roth IRA. However, no matter if you have a great 401(k) plan, we still give Roth IRAs the slight edge. You can choose your Roth IRA provider, which means you can get access to a wider range of investments that may be less expensive. Roth IRA contributions can be withdrawn at any time, which gives you flexibility in very tough situations (although we believe you should avoid touching Roth dollars unless absolutely necessary). 401(k) plans do have some additional legal protections that Roth IRAs do not have. This may not be relevant for some, but read up on ERISA protections if they may come into play for you.

3. Maximize your employer-sponsored plan.

Maxing out your employer retirement plan, such as a 401(k), comes next. This means contributing the maximum you are able to, but does not include strategies like mega backdoor Roth contributions (that comes next).

What if I don’t have an employer-sponsored retirement plan?

Not all employers offer retirement plans, and if your employer is one that doesn’t, you may skip to the next retirement savings bucket (taxable brokerage account). However, you may have other options. If you work for a small employer, lobbying for a retirement plan could give your employer the extra nudge they need to add one. Chances are they have been considering it already, and if they know employees are interested, that might be the extra push they need.

If your employer won’t add a workplace retirement plan, there may be other options. Any self-employment income you have can be used to open and contribute to a self-employed retirement plan such as a solo 401(k). If you don’t work a traditional W-2 job or have side income, it can be a great opportunity to start your own retirement plan.

What if I don’t have the income to max out my employer-sponsored plan?

Maximizing your employer plan takes a lot of income. The overall goal is to invest 25% of your income for retirement; if you start early, less may be required, and if you are a late bloomer, you may need to contribute more. If you are contributing what you need to contribute for retirement, you may never need to maximize your employer plan, and that’s perfectly fine! In fact, getting your employer match and maximizing your Roth IRA and HSA may put you over the 25% investing benchmark. Check out our Know Your Number course for a deep-dive into how much you should invest to meet your retirement goals.

4. Hyperaccumulate for retirement.

If you reach this stage of saving for retirement, it’s likely your employer doesn’t offer a retirement plan or you have a high income. Most folks will be able to invest what they need for retirement without ever thinking about going above and beyond, and that is totally fine. For those who do need to invest more after going through the above steps, the next place you’ll turn will be mega backdoor Roth contributions, if your employer plan offers them, or taxable brokerage contributions.

Check out this video for more information about the mega backdoor Roth and how it works. If your employer plan is compatible, you may be able to build even more tax-free retirement assets. If you are unable to use this strategy or still need to invest more for retirement, consider utilizing a taxable brokerage account.

Brokerage accounts have no contribution limits and no restrictions on when money can be withdrawn or used. They have no special tax advantages like other retirement accounts and gains are taxed at long-term or short-term capital gains rates depending on the holding period of your assets.

Knowing exactly where to invest for retirement can be challenging since there are so many different types of plans and not everyone has the ability to contribute to every type of retirement plan. I hope this guide makes it a little more clear exactly where your next retirement dollar should go. Let me know in the comments if you have any questions or think there’s something I left out!

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How the expectation for rate cuts have changed this year

In January, prediction markets expected 5 or 6 interest rate cuts this year, which would significantly reduce the Federal Reserve target interest rate. Now, the consensus has dropped to between 1 or 2 interest rate cuts this year.

It is still very possible the Federal Reserve does not cut interest rates at all this year. Chair Jerome Powell has long said the central bank needs to see more evidence that inflation is on its way down to the long-term target of 2%, and in recent months inflation has been moving in the wrong direction. Data for March shows the overall Consumer Price Index (CPI) coming in at 3.5% year-over-year, hotter than expected and well above the 2% target.

This change in expectations may be very frustrating to consumers and businesses looking for interest rates to drop so they can make large purchases, like a home, or expand their business. For anyone that understands how inflation works, the dramatic change in expectations shouldn’t be surprising at all. Here’s why forecasting inflation, and interest rates, is so difficult.

Why forecasting inflation is so difficult

The last period of high inflation our country experienced, before 2020, began in about 1972 and lasted until 1983. As you can see from the chart below, inflation did not rise and then subside. Inflation seemingly peaked in late 1974, then came back and actually peaked in 1980.

The federal funds rate also had several peaks, and topped 19% before declining (if you think mortgage rates in the 6% or 7% range are bad, try 19% or 20%).

I am not predicting we will see a resurgence in inflation like we did in the 1970s and 1980s. I am saying that the future of inflation is very difficult to predict, and it may have a lot to do with consumer expectations.

Inflation expectations can influence reality

Consumer expectations for inflation remain elevated. Consumers aren’t expecting high inflation, but they expect inflation to remain higher than the Federal Reserve target of 2% in the short-term (one year) and medium-term (five years). Just like actual inflation, expected inflation has stalled out around 3% and doesn’t appear to be budging. It should be no surprise that actual inflation and consumer expectations seem to mirror one another. If you expect prices to keep increasing, you may spend more now while prices are lower. 

Consumer spending is still increasing very sharply month over month, which creates sort of an inflation loop. Consumers expect inflation to remain elevated, although not as high as several years ago, and keep spending money like there’s no tomorrow. Consumer spending fuels inflation, which in turn fuels the belief that inflation will remain elevated. See now why it isn’t so easy to predict the future of inflation?

How you can win financially regardless of inflation

Persistently high inflation and interest rates can be very frustrating for those trying to borrow money, but it is still very possible to build wealth and make smart financial decisions no matter what inflation or interest rates do. If you want to help protect your wealth from inflation, owning assets like stocks and real estate are some of the best ways to hedge against inflation. If you are looking to borrow a large amount of money and want interest rates to drop, consider only borrowing what you can afford now or waiting for rates to drop. Do not borrow money at a rate you can’t afford in the hopes that interest rates will drop in the near future and allow you to refinance.

We created several awesome tools on our website to help you think through some of these big life decisions. Check out our home-buying calculator to determine how much house you can afford based on your income and current interest rates. If you are looking to buy a car, give our car-buying calculator a go.

Nobody likes high inflation, and anyone taking out a mortgage now probably feels sick to their stomach that they are getting a rate in the 6s or 7s instead of the 2s or 3s of a few years ago. At The Money Guy Show, we strongly believe that you can build wealth and make smart financial decisions even in less than ideal periods of high inflation, and we are committed to giving you the tools to help you along the way.

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1. I would definitely use a mortgage broker again.

A good mortgage broker may be able to get you much better rates than you would otherwise qualify for. The broker we used was phenomenal and scored us an interest rate about 0.50% lower than typical rates at the time (looking at rates, we essentially got the rate of a 15-year mortgage but for a 30-year mortgage). With mortgage rates higher than they’ve been in decades, it’s especially important to save money where you can and get as low of a rate as possible. 

Working with our broker was a breeze; he is local and works for a small family-run business and I knew I could always pick up the phone and ask him any questions I had about the process. By using a broker, we essentially got the super-competitive rate of a large national bank, or even better, and the service of a local family-run business.  

2. I’m glad we didn’t cut corners on the inspection.

I’ve heard before of home buyers purchasing homes and waiving the inspection (primarily during the housing frenzy that occurred between 2021-2023), but I never realized how crazy that was until we purchased our home. Our real estate agent recommended an awesome inspector who went above and beyond inspecting the property and alerting us to issues we didn’t know about. The inspection was so cheap compared to all the other costs associated with buying a home that I can’t imagine why someone would want to save money and skip the inspection (unless they are buying a new construction, potentially). 

For reference, our home is 20 years old so it is definitely not ancient and falling apart. The inspector uncovered some minor and moderate issues with the house that helped us negotiate with the seller and, by being made aware of and fixing these issues now, so they did not become big headaches in the future..

More experienced homeowners, what do I need to watch out for or be aware of as a new, first-time homeowner? Please let me know in the comments!

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3. I would never buy a home without an agent.

I will not judge you if you are experienced in buying houses and don’t want to use an agent, but as someone that had never been a part of a real estate transaction before, I am so glad we used an agent. Our agent was intimately familiar with the local market and was able to use that knowledge to help us get into an amazing home at an amazing price. I know for a fact we would be spending substantially more on a home if we had not found a great agent to help us along the way.

4. If I could do it differently, I wouldn’t get so attached to the first home I fell in love with.

When you find a home you really love, it can be difficult to move on if you don’t get the home. The home I first fell in love with sold to someone else, but we ended up finding an even better home, in the same neighborhood, for a better price. I would caution potential buyers about becoming laser-focused on one home. Your offer might not get accepted or issues could come up during the inspection that cause you to back out. It’s easy to imagine yourself in homes you really like, but always keep your options open until you are under contract on a house. Like most big issues in finance, our emotions can betray us so it is important to keep an open mind and to be well grounded in knowing what you are looking for based on a solid list of must and nice to haves.

5. No home is perfect, and you will have to make sacrifices.

Unless you can build the home of your dreams from the ground up, you will probably have to make sacrifices when buying your home. Our home? The roof is old, there are rats in the crawlspace (working on it), the HVAC will need to be replaced soon, the yard is very sloped and has drainage issues, and I could go on. But our home is in a great neighborhood, we love the layout and the amount of space, we have hardwood floors (this was mostly a big deal for me and not my wife; I just hate fake hardwood floors), the landscaping is beautiful, I have room for a vegetable garden, the appliances are modern and updated, and it’s setup to a great place to create blossoming memories for my family.

When you buy a home, you need to figure out what is most important to you and what you are willing to sacrifice on. Chances are you will have to make sacrifices, but that’s okay.

6. Interest rates may not go back to 2020 levels anytime soon (and home prices may never return to 2020 levels).

We are fortunate to have found a home we can afford, but this was still a tough pill to swallow. At interest rates four years ago, or at home prices four years ago, we could buy so much more home. It hurts to think about what could have been if we had bought a house back in 2020 - until I think about how unprepared we were to buy a house back then. We were both at different points in our careers, we didn’t have much saved for a house or retirement, and weren’t ready to buy a home by any measure.

We bought a home that fit in our budget at current rates. We could have stretched and bought more home, but we want a home we can afford now, not a home we can theoretically afford if interest rates drop by a certain amount.

7. I’m glad we didn’t wait until we were able to put 20% down.

Who are these people buying their first home with 20% down and what is their secret? With prices rising like they have, we would have had to make tremendous sacrifices even to consider purchasing a home if we had to put 20% down. If we wanted to buy anytime soon, saving for retirement would not be happening. If we wanted to save for retirement and put 20% down on a house, it could be years or longer before we could buy.

Putting less than 20% down on a home is riskier since you start with less equity and more expensive since you pay PMI. The alternative, though, is much worse for many first-time buyers. Prices could continue to climb and run away from you or you may only have margin to save for a home and nothing else.

Buying your first home is never easy, especially right now. If you are looking to buy soon or in the future, I hope my personal experience can make it a little bit easier when it’s time to buy. For those of you who are current homeowners, what would you add about buying a home? And what pitfalls of homeownership do I need to be aware of over the next few years? Let me know in the comments!

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History of credit card interest rates

Credit card debt is unsecured debt, which means you are not required to “secure” the debt with an asset. Mortgages and car loans are two common types of secured debt, or debt backed by collateral. If you fail to pay your mortgage or car loan, the bank has collateral (your house or car) it can repossess. Interest rates on mortgages and cars are naturally lower than credit card interest rates because the debt is secured.

Comparing credit card interest rates to mortgage and car loan rates isn’t a fair comparison, but we can compare credit card interest rates today to historical rates. Credit card APRs are currently at an all-time high since the Federal Reserve began tracking data back in 1994, but the federal funds effective rate has also risen significantly over the past few years. Instead of comparing credit card rates now to credit card rates a few years ago, I want to compare credit card rates now to a time when overall interest rates were similar.

The Federal Funds effective rate is currently 5.33%. From October of 1994 through December of 2000, the average federal funds rate was 5.51%. All else being equal, I would expect credit card rates to be about the same in that period as they are today - if not a little higher back then since federal rates were higher. But that is not what we’re seeing. From the 4th quarter of 1994, when the Federal Reserve began tracking credit card APRs, to the end of 2000, the average credit card interest rate on accounts being charged interest was 15.39%. Today, the average credit card interest rate on accounts being charged interest is 22.75%. This chart from the Consumer Financial Protection Bureau shows how credit card rates have risen much faster than prime rate.

Why is there such a large discrepancy? Is it more expensive to lend now or is something else going on?

Why credit card interest rates have gone up

To give credit card companies the benefit of the doubt, if more Americans are not paying off their debts, raising credit card interest rates would be a natural way to maintain your profit margin and protect your company from losses. Fortunately all of this data is tracked so we can see if this is why credit card rates are so much higher these days. This chart, also from the Consumer Financial Protection Bureau, shows the APR margin of credit card companies and the charge-off rate. The charge-off rate is the percentage of defaulted balances compared to the total amount of credit outstanding.

This chart is insane to me. 1995 to 2011 are what I would expect the chart to look like, and then we see a huge divergence after 2011. The APR margin for credit card companies keeps rising while the charge-off rate remains low and steady. What does this mean? Credit card companies are making more money than ever off of Americans. But there is a way you can win and beat the credit card companies at their own game.

How to beat the credit card companies

Credit card companies will likely continue increasing their profit margins over time, which means consumers with credit card debt will pay more and more interest to credit card companies. However, you can beat the credit card companies at their own game. We believe it is possible to responsibly use credit cards and not carry a balance from month-to-month. If you are able to do this, you will receive all of the benefits of using credit cards (rewards, better protection, extended warranties, travel benefits, and more) with none of the penalties (high interest rates and fees).

Not all Americans are able to use credit cards responsibly. The data shows that only 35% of cardholders always pay their balance in full every month. If you are part of the majority of Americans that does not use credit cards responsibly, credit cards might not be for you - and that’s okay. It is much better to use debit cards and have a little less protection and fewer rewards than to rack up debt on a credit card and pay an exorbitant amount in interest and fees to credit card companies.

The interest rate on credit cards has changed significantly since the 1990s, but the trap you need to avoid has not changed. Don’t let credit card companies win and make money off of your hard-earned dollars. Put that money to work for you and start investing today. Check out our new Wealth Multiplier tool to see exactly what each dollar you save in credit card interest could turn into by retirement.

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Before I tried YNAB, I tried many different expense-tracking apps like Mint but had never truly budgeted. I initially tried YNAB because they offered one year free to college students, and still do. I had no plans of paying for YNAB after my free year. The idea of paying for an app to effectively help me save money made no sense to me. How is spending money going to help me actually save money? Can’t I save more money by not paying for a budgeting app?

After actually using YNAB for a year, I was sold. I was not making much money at all, working part-time and being in college, but YNAB helped me live below my means and build an emergency fund.

Why YNAB works

YNAB is not a passive budgeting app. It requires a significant amount of involvement from the user, especially at the beginning (once you get your budget up and running it isn’t as much work). YNAB worked for me because it uses zero-based budgeting, which means as soon as you get paid or receive income you put those dollars to work. Before I started using YNAB in college, I would always have enough to pay for all my necessary expenses like rent, gas, and groceries, but all my extra cash flow would be eaten up by unnecessary purchases. By assigning every dollar to a category right when you get paid, you no longer feel like you can spend money on frivolous purchases even though you technically have money in the bank. That’s the beauty of YNAB: it makes you feel like you have less money than you do, which makes it much easier to save.

How to use YNAB

You have to put in work to have success using YNAB. This means actually creating a budget that you can stick to, adding transactions as soon as you spend money, and adjusting your budget proactively instead of reactively. YNAB integrates with most major banks and credit card companies, so you don’t need to manually enter transactions, but I highly recommend doing so. Manually entering transactions not only means your budget is always as up-to-date as possible, doing the work yourself discourages impulse purchases and spending money you don’t have.

Almost everyone has major expenses and purchases throughout the year that sneak up on them, and YNAB handles these beautifully. Setting up sinking funds allows you to budget for any recurring expenses or unexpected expenses on a monthly basis. Have to pay $120 every March for a subscription service? You can easily set a goal to save $10/month to make it a bit easier. Have an older car that you’ll need to replace in the next few years? You can set a goal to put away $200/month for a car down payment.

YNAB has a YouTube channel with hundreds of helpful videos from getting started with YNAB, maintaining your budget, and learning about more advanced features. No matter which budgeting app you use, you’ll get as much out of it as you put into it. There’s no magical app that can make you spend less or create more margin in your budget. However, budgeting apps can be an extremely useful tool to build financial discipline and create more slack to save and invest for retirement.

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Different types of debt should be prioritized differently and paid down differently. Here’s how to think about each of these unique types of debt and when to prioritize them in the Financial Order of Operations.

How to pay off mortgage debt

We believe that mortgage debt is different from any other type of debt because homes are assets that typically appreciate in value, unlike cars, college degrees, or consumer goods you put on a credit card. 59% of Americans currently have mortgage rates below 4%, which means there is little incentive to pay it off early with high-yield savings accounts currently paying over 5%.

Paying off a low-interest mortgage fits squarely into Step 9 of the Financial Order of Operations. But what if your mortgage rate is higher? Average rates now are currently over 7%. Does that still qualify as low-interest debt? Normally it would not, but in addition to homes appreciating in value, mortgage interest is tax deductible if you itemize. While mortgages are longer term debt, typically for 15 years or 30 years, if you have a rate over 7% now there will likely be an opportunity to refinance your mortgage in the future. We can’t predict exactly when that will happen, but the effective lifetime rate on your mortgage may end up being much lower than 7%.

Even if your mortgage rate is higher now, we believe it may still make sense to treat it as low-interest debt in the Financial Order of Operations.

How to pay off student loan debt

Our rules for paying off student loan debt are partially based on the interest rate on your student loans, but our guidance is a bit more nuanced. We believe it may make sense to prioritize your student loans at Step 3 in the Financial Order of Operations if your interest rate is above 6% in your 20s, 5% in your 30s, 4% in your 40s, or if you have any student loans at age 50+. If your interest rates are below those numbers, consider prioritizing your student loans at Step 9 of the FOO. 

If your loans are on a federal payment plan, your effective interest rate may be lower than your actual interest rate. It may make sense to treat your loans as low-interest debt if you are on a payment plan that will qualify for forgiveness or reduce your effective interest rate. There is nothing you can do if you’ve already taken out loans, but if you are not yet in college or currently in-school, aim to keep your total student loan balance below your expected first year salary after graduating college.

How to pay off car loans

Paying cash for a car is ideal if you have the money, but many Americans need reliable transportation but aren’t able to buy a car in cash. Our country is very spread out and public transportation is not accessible to many people. A car is often not a want, but a necessity to drive to work and earn a living. This is why we created our 20/3/8 Car-Buying Rule to ensure Americans that need to take out a loan to purchase a car do it in a way that does not negatively impact their finances. 

Car loans are not prioritized at a specific step in the FOO, but you should not typically need to use a car loan if you are at Step 7 or later of the Financial Order of Operations. If you do take out a car loan, aim to put 20% down, pay it off in 3 years or less, and make sure you are spending no more than 8% of your gross income on all car payment(s). Even if your car loan is low-interest debt, it should not be paid off in greater than 3 years since cars are quickly depreciating assets and you can end up underwater on your vehicle if you stretch out the term too long.

How to pay off credit cards and other debt

Credit cards and other consumer debt falls into Step 3 of the Financial Order of Operations, High-Interest Debt. If you have multiple credit cards or types of consumer debt, you may be wondering which you should prioritize first. Mathematically it makes sense to prioritize balances with the highest interest rate first, and moving down the ladder to those with lower interest rates. However, if you need the psychological wins and motivation of getting your credit cards paid off, it may make sense for you to pay off small balances first and then start on larger balances.

No matter what the interest rate is on your consumer debt, we believe it should be prioritized at Step 3, even if the interest rate is lower or even 0%. Low interest rates on consumer debt are almost always introductory rates or teaser rates that go away after a specific period of time, which is why you should make these debts a priority even if they aren’t currently at a high interest rate.

Around 77% of Americans have some type of debt. Many debts are manageable and not harmful to your financial life, but too much debt can make you feel overwhelmed and like your finances are out of control. Follow our debt guidelines to ensure your debt load is manageable, and if it isn’t, follow our payoff rules to ease your burden and get your financial life back on track.

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There are so many designations out there for financial advisors, but the designation with the highest ethical and professional standards is the CFP® certification. If you want to become a financial advisor, you’ll first want to complete the CERTIFIED FINANCIAL PLANNER™ certification requirements. 

Education requirements

You are required to complete a bachelor’s degree program to become a CFP® professional, but it doesn’t need to be in a related field. There are additional education requirements to complete unless you graduate with a degree that satisfies those requirements (many universities, including the University of Georgia, offer financial planning degrees that satisfy the education requirements).

I was fortunate enough to graduate with a degree that met all education requirements, but most at our firm completed their financial planning coursework after college. Many education programs are available online. Boston University offers one of the more popular CFP® programs, but there are hundreds of programs available to view on the CFP Board website. Note: we are not affiliated with Boston University in any way, we have just had a lot of advisors choose and enjoy their CFP® program.

Passing the exam

You can take the exam as soon as you complete the education requirements, but that would be unwise. The CFP® exam is difficult, and completing a rigorous 3-4 month study program before the exam is highly recommended. The Brett Danko and Ken Zahn exam prep and live review are two of the more popular options available. These programs in particular have some of the highest success rates in helping advisors pass the exam. I took the Brett Danko prep and couldn’t be happier with how prepared I was for the exam and how thorough his prep and review were. 

Passing the exam is not easy and is a very big accomplishment. It requires sacrifices from not only you, but family members, friends, spouse, or children that are in the picture. It is not uncommon for aspiring CFP® candidates to set aside at least a couple hours every day to study for the 3-4 months leading up to the exam. I remember how miserable I was when studying for the exam and am so glad I am on the other side!

Finding a job

To become a CFP® professional you must meet the experience requirement, which requires either 4,000 hours of experience on an apprenticeship pathway or 6,000 hours of experience related to the financial planning process. These experience requirements are outlined on the CFP Board website. We feel strongly that fiduciary, fee-only financial planning is the least-conflicted compensation method available for financial advisors.

Other advisors that are fee-based or commission-based may receive money from the products they sell to clients instead of being paid by the client for their services directly. This creates an obvious conflict of interest. Would you rather make more money selling an inferior product or recommend what is best for the client? It may be easier to make a living selling products, but if you are getting into financial planning for the right reasons you will likely want to work for a fiduciary, fee-only firm. 

Our firm, Abound Wealth Management, is of course a fiduciary, fee-only firm. You can view currently available positions on our website. Networking is extremely important to landing your first job. Join groups like your local chapter of NAPFA, a group for fee-only financial advisors across the country. There are plenty of conferences and events across the country where advisors are looking to hire the next member of their firm. Independent, fee-only RIAs are growing nationwide, and they are hiring entry-level advisors who have or are working towards becoming a CFP® professional.

Do I need to have experience in finance?

One of the most commonly-asked questions we get is whether or not you need extensive experience in finance to become a financial advisor. The short answer is no, as long as you are willing to put in the work required to get there. We have several career-changers at our firm, including a former engineer, doctor, and several former clients. It is never too late to make a change if you are unhappy with what you do for a living or want to pursue something you have more passion for. It can be a humbling experience for career changers to essentially take a step back in both pay and career status when starting out. It takes years of working in the field and learning to develop mastery. That is not always easy when you have had previous success in another field and your training class includes peers that recently graduated.

Becoming a good financial advisor isn’t easy, but it is a career that can be incredibly rewarding. Expect to help families achieve their lifelong financial goals, like retiring early, paying for their kids’ college, or buying their dream home. You’ll be there for them in good times and bad, and will often feel more like a money therapist than a financial advisor. The need for financial advisors isn’t going anywhere, and is a path you can choose no matter what stage of your career you are currently at.

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No matter where you find yourself in your financial life, the Financial Order of Operations will work for you. Did you just start your first job and aren’t sure how to start investing? Do you have high-interest debt that you aren’t sure how to balance with other financial needs? Or maybe you are maximizing all of your retirement accounts and don’t know where to invest next. 

Nearly 60% of Americans are unable to pay for an unexpected $1,000 expense with savings. We struggle with the basics, like budgeting, credit card debt, and saving for retirement. That’s why the Financial Order of Operations is so powerful - it grants clarity to those seeking order amidst financial chaos.

Before we dive into each step of the Financial Order of Operations, here are five ground rules to the Money Guy philosophy about building wealth.

Ground Rule #1: Generosity is not a single step in the FOO.

Being charitable and giving of your time and resources is a fundamental step 0. There are plenty of ways to be generous even if you can’t give much money, like donating your talent, knowledge, and time. We all should be doing our part to make the world a better place.

Ground Rule #2: The goal is to invest 25% of your gross income. If it were easy, everyone would do it.

We get it, investing 25% for retirement isn’t easy. It’s probably not any fun either, unless you are a true Financial Mutant. We will provide you with the tools and knowledge to get on the path to investing 25%, but it’s important to remember that it may take time to reach this goal and it isn’t easy. But don’t let that discourage you!

Ground Rule #3: Debt is a four-letter word.

Hearing the word “debt” should make the hair on your arms stand up. Always be cautious with your use of debt and learn how to use it in a safe and responsible manner by following our Money Guy debt rules.

Ground Rule #4: Liking what you do makes everything a lot easier.

Not everyone loves their job, and that’s okay. However, if you do have passion for what you do, life will be much easier. Many of us spend more time at work than we do with our family. The people you work with, and the environment you work in, is extremely important. Working in a career that provides you purpose will make time fly.

Ground Rule #5: You only get one life.

Don’t lose the perspective on the importance of enjoying each stage of life. There is a line you can cross that takes you from being awesome with your money to being a miserable miser.

The Financial Order of Operations is so foundational to Money Guy that we created our first course based on it. The FOO course includes video lessons from Brian and Bo, homework for each step in the FOO, private YouTube live streams, and access to an exclusive Facebook group.

Step 1 of FOO - Highest Deductible Covered

The first step of the Financial Order of Operations is to cover your highest insurance deductible. When something goes wrong in life, having your deductible covered is essential to keeping your financial life out of the ditch. You likely have a deductible for your health insurance, car insurance, homeowner’s insurance (if you own a home), and more. 

How do I know I’ve completed Step 1, Deductibles Covered?

If you have enough in a liquid savings account to cover your highest insurance deductible, you can check the box on the first step of the Financial Order of Operations. If you aren’t sure what your deductibles are, check your policy documents for all your insurance policies.

Step 2 of FOO - Employer Match

Getting your employer match is important - so important, in fact, that we prioritize it in the Financial Order of Operations before high-interest debt. High-interest credit card debt may have interest rates of 20% or more, but an employer match can have a rate of return of 50% or 100%.

How do I know I’ve completed Step 2, Employer Match?

To complete step two, you need to be investing enough to your employer-sponsored account, such as a 401(k), to get your full employer match. Some may not need to contribute anything to get their employer’s contribution/free money, while others may need to contribute 5% of their income, 10%, or even more.

Step 3 of FOO - High-Interest Debt

High-interest debt can be extremely harmful to your finances, which is why it is prioritized highly in the Financial Order of Operations. Paying off all of your high-interest debt will allow you to invest more for the future.

How do I know I’ve completed Step 3, High-Interest Debt?

You can move on to the next step in the Financial Order of Operations if you have no high-interest debt. High-interest debt includes consumer debt such as credit cards, car loans outside of our 20/3/8 rule, and student loans depending on your age and the interest rate.

Step 4 of FOO - Emergency Fund

Building a full 3-6 month (or greater) emergency fund is step four of the Financial Order of Operations. An emergency fund is vital to staying on-track financially and paying for unexpected emergency expenses.

How do I know I’ve completed Step 4, Emergency Fund?

The typical rule of thumb is to save three to six months’ worth of expenses for an emergency fund, but depending on your situation, you may need more. If you only have one income in your household or are in a very specialized field where it may take you longer to find a new job, you should consider having a larger emergency fund.

Step 5 of FOO - Max Roth IRA/HSA

Maximizing your Roth IRA and HSA, if you can contribute to both, is step five of the Financial Order of Operations. These powerful tax-free accounts can supercharge your retirement and help pay for healthcare which is why they are prioritized before maximizing your employer-sponsored account or contributing to a taxable brokerage account.

How do I know I’ve completed Step 5, Max Roth IRA/HSA?

If you are maximizing your Roth IRA and HSA, you can check the box on step five and move on to the next step in the Financial Order of Operations. If you don’t have a high-deductible health plan and can’t contribute to an HSA, or are unable to contribute to a Roth IRA, you can skip step five of the FOO.

Step 6 of FOO - Max Employer Accounts

Maximizing all of your employer-sponsored retirement accounts is step 6 of the Financial Order of Operations. This includes 401(k)s, 403(b)s, 457 plans, and more. This is a very difficult step of the FOO to accomplish because of how much money it takes to maximize your accounts.

How do I know I’ve completed Step 6, Max Employer Accounts?

Obviously if you’ve maximized your employer accounts you can move on to the next step in the Financial Order of Operations, but you may be able to complete step 6 without maxing out your accounts. If you don’t have a high-income and can hit an investing rate of 25% before maxing out your employer accounts, move on to the next step of the FOO.

Step 7 of FOO - Hyperaccumulation (Invest 25%+)

Hyperaccumulation occurs when you are investing 25% or more of your income for retirement. Depending on your income, hyperaccumulation may happen inside of your employer-sponsored accounts, using the mega backdoor Roth strategy, or in a taxable brokerage account. This step also helps you vision-plan what financial independence will look like and how it will be funded.

How do I know I’ve completed Step 7, Hyperaccumulation?

Completing step seven means you are investing 25% or more of your income and you know you’re investing what you need to be for retirement. Why the caveat? If you started investing later or want to retire early, hyperaccumulation for you could mean investing more than 25% of your income for retirement.

Step 8 of FOO - Prepay Future Expenses & Abundance Goals

It’s finally time to save for your kids’ college education! Step 8 of the Financial Order of Operations is, among other things, where you start investing for your children. This could mean saving in a 529 plan, UGMA/UTMA, custodial account, or if they have earned income, custodial Roth IRA. Step 8 is also for any other long-term financial goals you have. Maybe you want a vacation home in Florida. Maybe you want to take a month-long trip of your dreams to Europe. Or maybe you want to start investing in real estate.

How do I know I’ve completed Step 8, Prepay Future Expenses?

Unlike other steps of the Financial Order of Operations, where your goals are clearly defined, completing step 8 will be different for everyone. You may not need to save anything on step 8, or you may need to save a lot, depending on your financial goals. The aspiration for this step is for you to know that your hard work and discipline of earlier steps is now generating enough that you can do more for others (the kids) or expand your lifestyle without regret.

Step 9 of FOO - Prepay Low-Interest Debt

It’s difficult to say you are truly financially independent as long as you have debt, and step 9 of the Financial Order of Operations is where you finally get rid of those pesky low-interest debts. This typically includes mortgage debt, but may include student loan debt depending on your age (as it may be a priority at earlier steps if you are older).

How do I know I’ve completed Step 9, Prepay Low-Interest Debt?

It’s easy to know when you’ve completed step 9 of the FOO - you no longer have any debt! We want everyone to be debt-free by retirement, so aim to have all of your debts paid off, and step 9 completed, by the time you retire.

The Financial Order of Operations is designed to work no matter your age, stage in life, or financial goals. Brian’s book, Millionaire Mission, will cover each step in detail along with Brian’s personal journey through the Financial Order of Operations. Make sure to sign up for updates to get an exclusive chapter preview and free bonus content!

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Is college worth it?

Ignoring all of the potential non-financial benefits of going to college, what does it take for college to be a smart financial decision? This is far from an easy question to answer, but we can at least do a financial spot check with a simple math equation that accounts for the opportunity cost of the dollars you would spend on education.  The estimated opportunity cost of a typical degree comes in at a whopping $10 million if you were to instead invest the average annual college cost from ages 18 to 21 until you retire at 65.

$10 million is a LOT of money by retirement, but it isn’t crazy to think you could make up that difference with a college degree. If you went to college and were able to earn an extra $14,640 per year compared to someone not attending college, and invested that amount each year, you would end up with the same $10,452,794 by age 65. College graduates earn an extra $32,112 per year on average, although they are also more likely to live in high cost of living areas and may not be able to invest the full difference in earnings each year, even if they wanted to.

This is a very simplified example. Some students will be paying much less for college and some will be paying much more. Your experience at college has value too, and your expected career earnings are not the only benefit of attending college. College graduates are 72% more likely to have a retirement plan at work, 2.2x less likely to lose their job, 44% more likely to report their health as good or excellent, participate more in their community, are happier, and live for seven years longer than those who have never gone to college. I think it’s obvious that not all of this is causation and some is correlation, but it’s clear that college does have non-financial benefits.

Your future career aspirations are significantly more important than whether or not you attend college. There are plenty of high-paying jobs available to those who do not attend college, and plenty of college degrees have low starting wages. The bottom line is that you can be successful, in life and financially, whether or not you attend college. 

If you are exploring what paths are available to you without attending college, check out our list of the top-paying jobs without a degree. Since the decision to attend college can be costlier and riskier, I’ll focus on the best and top-paying college degrees in this article.

Best college degrees in 2024

The Federal Reserve compiles data on outcomes by major, which looks not only at early career wages but mid-career wages, unemployment rate, and underemployment rate. This list will consider all of these factors.

1. Engineering

Looking at the numbers, it’s hard not to consider engineering the best college major out there. The top five highest-earning jobs for mid-career workers are all engineering: chemical engineering, computer engineering, aerospace engineering, electrical engineering, and mechanical engineering (in order from highest salary mid-career, $120,000, to mechanical engineering, with $105,000). If you look at early career wages, engineering majors still hold four of the top five spots. Unemployment rates are low, coming in around 3% to 6%.

2. Computer Science

It’s no surprise that computer science is one of the best college majors out there. Early career graduates earn about $73,000, with those further along in their career making $105,000. The unemployment rate among computer science is 4.8%, so they don’t have much trouble finding a job.

3. Pharmacy

Pharmacy graduates don’t make as much money starting out in their career as some other majors, at $55,000, but earn six figures when they reach the midpoint of their career. Job prospects are good for pharmacy majors too, with an average unemployment rate of 4.8%.

4. Finance

Hey it’s us! Jobs in finance are very well-paying, with a median early career salary of $60,000 and mid-career wages of $100,000. They have an easy time finding jobs as well, with an unemployment rate of just 4.1%.

5. Nursing

Nursing isn’t as lucrative as some other fields, with early career wages of $55,000 and mid-career of $75,000, but they are in HIGH demand. Only 1.3% of those with a nursing degree are unemployed. If you are concerned about your job prospects after graduation, nursing could be a great field to investigate.

Worst college majors in 2024

The “worst” college majors aren’t always worth avoiding, but it’s important to be aware of the downsides before you go into debt to get a degree that may not have the return on investment you were expecting. It is interesting and ironic that some of the worst majors also have higher advanced degrees as a percentage. Making you wonder if employment is the objective or nudging struggling graduates into more advanced degrees and potentially even more student loan debt.

1. Fine Arts

Those with fine arts degrees unfortunately have a high unemployment rate, at 12.1%, and median early career wages of $40,000. The share of those with a graduate degree is 23.2%, which means many attend college for longer than four years and may be more likely to take on student loan debt.

2. Family and Consumer Sciences

The unemployment rate for family and consumer sciences graduates is also higher, at 8.9%, and early career wages are $37,000. 32.9% of FACS graduates have graduate degrees, which again means more time spent in school and potentially more money spent on school.

3. Social Services

Those in social services don’t have a hard time finding a job, with an unemployment rate of 3%, but early career wages are $37,000 and mid-career wages are $52,000. The majority, 52.4%, also hold a graduate degree.

4. Early Childhood Education

Early childhood education majors have jobs, with 3.1% unemployed, but salaries start lower and don’t have much room for growth. The early career salary is $40,000 and mid-career salaries are just $43,000.

5. Philosophy

On average, philosophy majors have a more difficult time finding a job, with a 9.1% unemployment rate. Early career salaries start at $42,000 and reach $68,000 by mid-career. However, a whopping 56.5% of philosophy majors have graduate degrees.

What are good majors that will be in-demand in the future?

Your college major won’t determine just what you are doing for the next few years, it can determine your career path for the next 40 years. With that in mind, it’s important to pick a future-proof major that will continue to be in high demand later in your career. The Bureau of Labor Statistics projects the growth rate of different career fields over the next 10 years, and predicts careers in software development and computer science to continue to grow very quickly. With our aging population, other fields expect to see a surge in growth, including actuaries, nurse practitioners, home health aides, and physical therapist assistants.

Choosing whether or not to attend college, and which college and degree program to choose, is a decision that should not be taken lightly. You can be happy and successful without attending college, but if your path leads you there, you must do it right. Choosing one of the best majors can help you ensure you have a job after graduation and earn a higher salary than your peers. The biggest takeaway is to be purposeful in your higher education decision. Around 70% of college graduates work in fields outside of their college major. As with most big decisions in life, make sure you begin with the end in mind and measure twice and cut once to ensure you are happy with the outcome and set yourself up for success.

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Our favorite investing uncle Warren Buffett says “to be greedy only when others are fearful.” What about buying a home when others are fearful? Could now be considered a good time to buy a house?

Should you buy a house now?

I’ll give you the answer now: there’s no way of knowing when it’s a good time to buy a house - if you are trying to time the housing market to buy at the most affordable point. How many buyers thought it was a good time to buy in 2019, 2020, or 2021? The buyers I know thought they were buying a home at the top of the housing market, yet home prices kept rising. 

Home prices could keep rising, or they may not. We created our Money Guy home-buying rules to prepare you for home ownership no matter what direction the market goes in the short-term.

How to buy a home in 2024

A home provides shelter and a place to sleep for you and your family. It’s the single largest investment most families make, but it is much more than an investment. That’s why when you are buying a home, you should consider much more than the financial performance of your asset (home). Are you going to be living in your home for at least 5-7 years? A longer time frame is necessary when making such a large investment. If this is your first home, you can put down 3-5%, but on subsequent homes your down payment should be 20%. Aim to keep the total monthly cost to less than 25% of your gross income. Check out our full home-buying checklist for more questions to ask yourself before buying a home.

Why you should feel good about buying a home

If you can buy a home and follow our guidelines, you shouldn’t be concerned about the financial performance of your home in the short-term. There are many reasons to be optimistic about buying a home right now. Although forecasts can and do change constantly, the Federal Reserve is expected to cut interest rates as early as next year. Buyers who purchased at higher rates may have the opportunity to refinance their home when rates drop, making it more affordable.

Buying a home is a natural protector against inflation. Not only do home prices tend to rise during inflation, your principal and interest payment is likely locked in for 15 or 30 years. If rent and home prices continue to rise, you are protected from a large part of those increases with a fixed mortgage (however, your home costs will still rise when tax and insurance rates increase).

Which risk is greater, buying or not buying?

If you are someone that is on the fence about buying a home right now, the risk of prices dropping shortly after you buy is probably front and center in your mind. What many potential buyers don’t fully consider is the risk of home prices continuing to rise and possibly becoming out of reach. How many wished they would have bought in 2019, 2020, or 2021? Yet those years didn’t feel like great times to buy, either.

Homes generally increase in value over time, and they don’t often decrease in value. That means it rarely feels like a “good” time to buy a home, and if it is a good time to buy, it probably still feels like a bad time to buy a home because it likely means people are losing their jobs and the economy isn’t doing too well.

Our Money Guy rules are designed to work for you no matter what direction home prices go from here. If you are ready to buy a home following our rules and are concerned about the future of the housing market, don’t overlook the risk of not buying a home. If you’ve checked all the boxes on our home-buying checklist, the risk of waiting could be greater than the risk of buying.

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Why is there such a huge disparity between generations? I believe it simply can be explained by the stages of life those at different ages are in. Millennials are right in the thick of buying their first home, which as we all know have skyrocketed in price over the last few years, and are starting to have children or already have young children. If you have children and are trying to buy your first home, you probably feel you need a significant amount of money to be happy! Gen X and Boomers likely aren’t raising young kids or buying their first home, but are thinking more about retirement. Gen Z needs significantly less to be happy because they have significantly less financial needs. If they aren’t thinking about retirement, having kids, or buying houses, it takes a lot less money to be happy.

Money buying happiness is a recent idea

Surprisingly, we have not been wondering how much money we need to be happy for very long. The question first became widespread in the 1960s, and is being asked more than ever today.

Why have we only recently become enamored with the idea of money bringing happiness? I believe it comes down to Maslow’s hierarchy of needs. Our ancestors worried about having food, water, shelter, good health, and employment. We still have some struggles today, obviously, but as a country we have improved dramatically in each of those areas. The majority of Americans today do not have to worry about food, shelter, water, or employment and will likely live longer than their parents and grandparents as life expectancies continue to rise. 

Can money actually make you happy?

Having more money can make someone happier if that money is used to satisfy some of our basic needs. Someone who isn’t able to afford a house or a car will probably become measurably happier if they receive money that enables them to purchase a home and a car. However, there are diminishing returns. Going from a 4-bedroom house to a 6-bedroom house probably doesn’t feel as good as buying your first home. Trading in your 2017 model car for a 2023 model probably won’t make you as happy as your first car did.

While the majority of Americans believe there is an amount of money that will make them happy, that number appears to be a moving target. The median net worth of all Americans is $260,223. On average, the magic number that Americans said they needed to be happy was about $1.2 million. Most Americans believe they need a significantly higher net worth to actually be happy.

We ask our millionaire clients how much net worth they consider to be wealthy. 88% say that you need at least $3 million in net worth to be wealthy, and 75% say that they do not consider themselves wealthy. Almost all of our clients have more net worth than Americans say they need to be happy, yet they don’t say “I’ve made it,” or “I’m finally happy,” but “I’m not there yet.”

What does make us happy?

I do not believe that the accumulation of wealth, by itself, will make anyone happy. Much of what money can buy can increase your happiness, at least temporarily, but happiness tends to move back to where it was prior to life events or experiences (explained by the hedonic treadmill). As your wealth increases, the amount of net worth you believe you need to be happy will probably increase as well. If more money won’t make you happy, what will?

The answer isn’t easy to quantify like money, and may even be harder to achieve than a certain number on your net worth statement. Going back to Maslow’s hierarchy of needs, what actually increases life satisfaction, or happiness, after your basic needs are met include friends, family, achievement, the respect of others, purpose and meaning, creativity, and acceptance. This ties in well with our fifth level of wealth, abundance, where money doesn’t matter anymore and your focus is more on experiences and making the world a better place.

What do all of those factors have in common? Money can be used as a tool to achieve them. It’s a very important distinction: money can be the tool you use to create memories with friends and family, it can be the tool you use to gain the respect of others or accomplish certain goals, and it can be a tool that allows you to be more creative and give yourself purpose and meaning. However, one of our biggest beliefs is that money is a tool, not a goal. Instead of focusing on a dollar amount that you believe will make you happy, focus on what your net worth can be used to create in your own life and for others.

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Changes to retirement accounts

Most retirement account limits are increasing in 2024, and many are increasing greater than the current inflation rate. 401(k) limits also apply to 403(b) plans, most 457 plans, and TSPs.

401(k) limits went up 9.8% last year, more than IRAs and HSAs, so I guess the IRS felt like they needed to pump the brakes a little bit there. IRA limits went up again, but unfortunately $7,000 is not easily divisible by 12 for everyone contributing monthly. Like last year, I will once again be the old man on the front porch yelling about IRA limits. When IRAs were created in 1974, the contribution limit was $1,500. If it had been indexed to inflation since the very beginning, the limit would be over $9,000 today. I think we could take it one step further and increase IRA limits to match 401(k) limits. Not all jobs offer 401(k)s or equivalent retirement plans, and the $7,000 limit runs out very quickly for those who are serious about saving for retirement.

For a 30-year-old who has access to an HSA, Roth IRA, and 401(k), they can contribute a total of $34,150 to tax-advantaged retirement accounts. That means a single person would need an income of $136,600 to complete step 6 of the FOO without investing more than 25% of their gross income. Having a high income is not the only way you can complete step 6. As long as you are investing 25% for retirement, and know you are saving what you should be, you can move on to step 7 of the Financial Order of Operations. 

Account limits aren’t the only thing going up next year; income phaseouts will also be increasing. For most, that just means you may have a little more time before you have to worry about using the backdoor Roth strategy. For the table below, “401(k)” is used as a proxy for all qualified workplace retirement plans.

Standard deduction and marginal tax rates

Standard deductions are raised yearly, and most taxpayers take the advantage of the standard deduction. However, this year we could see a rise in Americans not taking the standard deduction. Mortgage interest is an itemized deduction, and with 30-year mortgage rates currently over 7%, more Americans may now want to see if itemizing could be better for them. It doesn’t take an enormous mortgage for itemizing to start making sense, either: someone with a $400,000 mortgage at today’s rates (7.32% for a 30-year) would pay $26,735 in interest in the first full year of owning their home. Here’s what the standard deduction is this year and what it will look like next year.

Marginal tax rates will once again remain the same next year, but income thresholds will increase for inflation. The table below shows single tax rates this year and next year.

The next table shows marginal tax rate thresholds for married couples this year and next year.

Other IRS tax changes in 2024

Changes to retirement accounts, standard deductions, and marginal tax rates are just scratching the surface of all the IRS changes this year. Check out the IRS rundown of changes going into 2024 for other notable changes and notable items that aren’t changing. One always notable change worth mentioning is the Social Security Cost of Living Adjustment, or COLA, which is 3.2% for 2024.

We update our Money Guy Tax Guide every single year as you are heading into tax season. The current version covers all the numbers you need to know as you file taxes in 2024. This PDF is 12 pages full of tables, numbers, Money Guy tips, and more. If you find it useful, please consider sharing the resource with a friend or family member.

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The average American will spend $708 on pre-holiday shopping this year, such as on Black Friday and Cyber Monday. Holiday shopping can put serious stress on your wallet, but it’s hard to say that spending money on gifts for your family, friends, and children isn’t worth it. How do you balance not going overboard this holiday season and giving meaningful gifts to everyone on your list?

1. Gifts don’t need to be expensive.

It sounds cliché, but gifts don’t need to be expensive to make someone happy. My favorite gifts that I’ve given - and received - have not been the most expensive gifts. Personally, I don’t ever ask my loved ones what they want. If you know someone well enough, you can get them an amazing gift without ever asking what they want. And in my experience, it will be that much more special if you didn’t have to ask.

While that may work well for adults, with kids you probably do need to ask them exactly what they want or have them make a list. I’m still scarred from the Christmas I received four copies of the game “Connect 4” (Santa, my grandparents, and my aunt didn’t do a great job coordinating that year). Kids tend to care more about the actual gift rather than the thought behind it.

They may not be ready to completely grasp the concept, but this is great time to introduce the concept that being generous is rewarding. Over time they will come to learn that it is better to give than to receive. Jumping back into the reality versus the ideal of gift-giving for your kids, it is important to remember that you do not  need to break the bank. Set expectations with your kids so they know what is reasonable to ask for and what is not reasonable to ask for.

2. Black Friday may not be the best time of year to shop.

Shopping for Christmas gifts year-round can help you save money and make holiday shopping less stressful. Check out this month-by-month guide of what items are better to buy at certain times of the year. If you do the majority of your holiday shopping within the span of a month, or even a week, set aside a small amount of money every single month instead of trying to come up with the full amount all at once. A zero-based budgeting software such as YNAB can help you fund annual spending goals like holiday shopping.

3. Gifts come in many different shapes and sizes.

Holiday gifts don’t have to be physical objects wrapped in shiny paper. If you are a young couple, your gift to each other could be saving more money for a house, or traveling home to see each other’s families might be your gift to them. When you are younger and have less money to spend on others during the holidays, giving your time may be a better option. I can almost guarantee that your parents and grandparents would rather spend more time over the holidays with you than get a physical gift. Memories last much longer than any traditional gifts.

4. Don’t give what they don’t need.

If you have the means to do so, it can be tempting to buy loved ones really nice, expensive gifts. However, make sure it’s something they actually want before you spend all that money! My grandmother has no interest in the latest technological advancements, yet almost every year she receives a new gadget that will most likely never come out of the packaging and go straight to her “present closet.” She has a stack of about five different tablets that she will never use (and will probably receive another one this year).

Unfortunately, many Americans get stressed about money around the holidays. 35% end up taking on debt to pay for holiday gifts. By focusing on what really matters - spending time with your family and choosing meaningful gifts over more expensive alternatives - you can make this season a little less stressful and may even end the year with a little extra jingle in your pocket.

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With the sharp rise in mortgage rates, many potential buyers are looking for options other than financing a home at nearly 8%. Adjustable-rate mortgages, or ARMs, haven’t been popular in quite some time. When fixed mortgage rates were extremely low, choosing an adjustable rate did not make sense. In 2020, just 3% of all mortgages were ARMs. That number has now increased to 13% as buyers look for alternatives to locking in a rate near 8%. Are ARMs worth considering or are there potential pitfalls you need to be aware of?

What is an adjustable-rate mortgage (ARM)?

An adjustable-rate mortgage is just what it sounds like, a mortgage where the rate changes periodically. ARMs usually have a lower initial rate than fixed-rate mortgages, so when mortgage rates are high and may drop in the future, choosing an adjustable rate could be worth considering. The initial rate is fixed for a period of time, most commonly five years, seven years, or ten years. After that period, the initial rate may change, or adjust, and likely will continue to adjust on the agreed-upon period of time (as frequently as monthly to annually).

ARMs usually have caps on how much the interest rate or payments can rise over the life of the loan. There are three kinds of caps, an initial adjustment cap, subsequent adjustment cap, and lifetime adjustment cap. The initial cap is typically 2% or 5%. For example, if you choose a 5-year ARM at 7%, after the five years are up, your rate may be capped at 9% or 12%, depending on the terms of your loan. The subsequent adjustment cap is a limit on how much the interest rate can increase in each subsequent adjustment period, and is usually limited to 2%. The lifetime adjustment cap, or total limit on interest rate increases, is usually 5%. That means if you lock in an ARM at 7%, your rate will usually not ever exceed 12%.

When does it make sense to use an ARM?

It may make sense to consider an ARM when interest rates are high and are expected to drop no later than the conclusion of your initial ARM term. There is a problem with this statement. How do you know when interest rates are at their highest? At the beginning of 2022, rates seemed high when they reached 5%. 

Over the last 50 years, average 30-year mortgage rates have been as high as 18%. It’s hard to know if mortgage rates are currently “high” when they could be higher in one year, three years, or even five years. There is a ton of uncertainty about which direction interest rates are headed. If you had surveyed 1,000 real estate experts five years ago, I doubt many, if any, would have predicted fixed 30-year rates to be at 8% by 2023. While many are predicting lower mortgage rates in five years, we have no way of knowing for sure. 

With so much fuzziness in the decision process, you have to take a “measure twice and cut once” approach. First, determine the spread between the fixed and variable options, and make sure to read the fine print to know how much the rate can adjust and how that ties into your life timeline. How confident are you in the direction of where rates are headed in the term of your loan? As you can see, there are quite a few variables that will vary for everyone, which makes this decision very personalized.

What are the downsides of an adjustable-rate mortgage (ARM)?

In a rising interest rate environment, ARMs are very risky. Choosing an adjustable rate when you could lock-in a fixed rate may be a decision with enormous financial consequences later down the road. Let’s look at the upside of an ARM: best case scenario, you get an interest rate that is less than 1% lower than 30-year fixed rates for a short period of time. If rates continue to rise, and are higher when your rate adjusts, you made a poor decision: it would have been much better to lock in a fixed interest rate.

If rates drop, you will have the opportunity to refinance your ARM if it makes sense. However, you would also have the opportunity to refinance if you locked in a fixed 30-year rate. This is why answering the questions above will bear fruit and help you fine-tune your analysis between fixed and adjustable mortgages. If the current discount and the limitations on rate increases works out that it extends your “interest rates will come down” window, you can feel more comfortable choosing the adjustable rate over the safer locked in rate. However, many will not feel comfortable taking on the additional risk and complications of going through this analysis. This is why, for many, the benefit of an ARM is simply not great enough to move away from the comfort, ease, and safety of fixed rate mortgages.

Adjustable-rate mortgages may seem great on paper, especially right now since rates are lower than fixed-rate mortgages. However, the risk of rates continuing to rise cannot be overlooked. If the potential savings from an adjustable rate mortgage are too big to ignore, please make sure you do not skip your homework to understand both the exposure and opportunity. It is worth repeating that buying a home is a big life decision and one that should be a “measure twice and cut once” decision where emotional impulses should be ignored and prudent planning is rewarded.

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The average cost of attending college for one year is $26,027. If someone instead invested that amount each year from ages 18 to 21, for a total of $104,108, they would have $10,452,794 invested by age 65 (assuming a 10% annual rate of return).

The opportunity cost of spending the average annual cost of college attending rather than investing could be over $10 million by retirement. It’s a number that sounds almost incomprehensible and impossible to overcome - but starting at such a young age makes it more attainable than you would think.

To reverse engineer the math we just did, let’s assume someone graduates college at 22 and wants to invest an amount per month to catch up to the person who did not attend college. To reach $10,452,794 by 65, the college attendee would need to invest $1,220 per month every month from age 22 to 65. In other words, their college degree would need to earn them an extra $14,640 per year for it to be “worth it.”

That’s certainly not a small number, but it’s much smaller than $10 million. It’s very possible for a college graduate to earn $14,640 per year more than someone who didn’t attend college, and many DO, which makes college worth it in many situations. Ultimately, college being a smart decision often hinges on choosing your major wisely. Check out the list of the top 5 highest-paying college degrees below.

1. Petroleum Engineering

2. Industrial Engineering

3. Computer Science

4. Interaction Design

5. Public Accounting

The average cost of college may not be representative of what college will cost for you. If you attend private college, the opportunity cost of going to college could be well over $20 million by retirement. There are many ways to lower the cost of college.

How to Do College Right

• Apply for scholarships.

• Work for a company that offers tuition reimbursement.

• Take core classes at more affordable alternatives (like community college).

• Apply for all financial aid you can.

• Keep student loan debt below your expected first year salary.

Some colleges offer scholarships to students when they are accepted, and some take a little more work to apply for. While not every student will receive scholarships, every student should at least see which scholarships they may be eligible for and apply for all they can. I worked for a company that offered tuition reimbursement as an employee perk while I was in college. There may be certain requirements; in my program, you had to be taking classes for a certain major and maintain good grades, but it can be a huge opportunity for college students to get extra money to pay for school.

I enrolled at a major university right out of college and didn’t even consider taking core classes at a community or technical college, but I wish I had. Classes can be a fraction of the cost and they count the same as courses taken at a more expensive university. Outside of scholarships, FAFSA, and tuition reimbursement, there may be even more opportunities for financial aid. Grants, apprenticeships, work-study programs, and other aid may be available.

If you do need to take out student loans to help pay for college, keep your total student loan debt below your expected first year salary. Following this rule will not only keep your student loan debt manageable, but will ensure you do your research about your major and know your earning potential.

Not everyone needs to attend college! There are plenty of good-paying jobs that don’t require a four-year college degree. These jobs still require highly-skilled, trained employees, but can be a less costly path for those that don’t believe college is for them. The list below shows the top 10 highest-paying jobs that do not require a college degree.

Top-Paying Jobs Without a Degree

1. Air Traffic Controller ($122,990)

2. Nuclear Power Reactor Operator ($100,530)

3. Transportation/Storage Manager ($92,460)

4. Police Supervisor ($87,910)

5. Commercial Pilot ($86,080)

6. Power Plant Dispatcher ($85,950)

7. Radiation Therapist ($85,560)

8. Elevator Installer and Repairer ($84,990)

9. Detective/Criminal Investigator ($83,170)

10. Power Plant Operator ($81,990)

When I was in high school, I remember getting the impression that anyone who didn’t go to college was considered a failure and would never have the chance to earn much money. The jobs most commonly associated with not going to college were what we traditionally think of as “dead-end” jobs, such as in fast food, customer service, or other similar industries. 

Fortunately, I think attitudes about college are slowly changing. The rising costs have certainly been a catalyst for change. Just 35% of Americans 25 and older have a four-year college degree or higher, and 3 out of 10 billionaires do not have a college degree. College can be a great tool to increase your earning potential, and makes sense for many, but there’s no shortage of extremely smart and talented individuals that are successful without ever attending college.

Ultimately, the path you choose is up to you - becoming successful and wealthy can be possible if you go to college and take out student loans. It can be possible if you never attend college. Understanding the value of your time and return on your investment can help you build wealth no matter how your journey begins.

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