Ep 20: 5 Major Money Mistakes High Earners Make in their 30s and 40s — and How to Avoid Them

Episode Description

In episode #20 of The Big Bo $how, Big Bo (a.k.a. Jason Blumstein, CFAⓇ) shares ways to avoid 5 common money mistakes high earners make in their 30's and 40's.

A recent Wall Street Journal article suggested the best age for financial decisions comes in your 50's. But today, you’ll hear why that might be wrong.

You’ll also get a front-row seat to:

  • The mindset trap high earners have that can damage their wealth potential
  • A huge misunderstanding many people have about “lifestyle creep”
  • A simple breakdown of the daunting topic of estate planning
  • Why real estate investing might not be all that it’s cracked up to be 

Hope you enjoy the $how! 

Episode 20 Key Takeaways:

  • 00:00 Big Bo’s recent trip to Israel and an episode overview
  • 02:52 How much you have to invest to hit $1M by 65 starting in your 30s, 40s or 50s
  • 06:58 Why so many people misunderstand and get caught by “lifestyle creep”
  • 13:57 Estate planning: Why it matters sooner than you think
  • 19:24 An honest look at the potential pitfalls of real estate investing
  • 24:01 Why advisors matter — even if you know how to invest
  • 28:26 A 2023 NFL preview — and a bold Super Bowl prediction

Episode Transcript

Welcome to Episode 20 of The Big Bo $how. Excited for the $how. I just got back from a trip to Israel with my family. First time I went there in my life. I like to joke around and tell people that it took my ancestors 40 years to find Israel and it took me 41. I was able to take a two week trip to Israel with my family, because of the steps that I took in my 20s. And this trip was very special to me. Because growing up, I wasn't able to take many or any really family trips with my family growing up. So spending two weeks with my wife and my kids in a special place was really meaningful. Now the steps I took in my 20s that allowed me to take my net worth from negative to over seven figures and start my own business and create the flexibility to travel with my wife and kids. Not many people do this. Luckily for me, I learned a lot of these lessons from my grandfather, Julius, who had named my firm after in Julius Wealth Advisors, and reading books about Warren Buffett. But most people what happens is they wake up in their 50s. And they think now's the time I need to take care of my finances. Well, the truth of the matter is, once you get into your 50s, your mid 50s gets kind of late. 30s to 40s is typically the sweet spot. In your 30s and 40s. You still have time on your side. And you have the ability to create that discipline structure that can create tailwinds at your beck. So in Episode 20 of The Big Bo $how, I'm going to review five major money mistakes high earners make in their 30s and 40s. And how to avoid them. So sit back, relax, and welcome to episode 20 of The Big Bo $how.


All right, let's get after it in Episode 20 of The Big Bo $how five major money mistakes high earners make in their 30s and 40s and how to avoid them. So let's get after number one. The number one thing that I always see is people not starting today. Now one common thought I hear from people in their 30s and 40s. They feel like they're behind in creating wealth. And not only do I hear this, you see that statistically, and they feel getting started is too daunting, they get themselves in what's called a mindset trap. And your mindset is one of the most important things in my opinion in life in general. And especially when it comes to creating wealth, your mind is extremely powerful. Instead of taking that first step, they get into sort of this analysis by paralysis. And in my opinion, a lot of that has to do with a total lack of financial literacy in this country, which we've talked about in the past. But let's move on from that for a second. Because instead of taking that first step, they remain stagnant. It's always important to keep the proper perspective. Because if you didn't start in your 20s, like I did, you have to keep that perspective. Because there's a saying that goes, “The best time to plant a tree was 20 years ago. The second best time is now.” So let's start now. And I'm going to give you an example of the importance of starting. Now I'm going to give you three different examples of someone starting at 30, someone that starts in their 40s and someone that starts in their 50s. So you're 30 years old. We have a goal of getting up to a million dollars in real terms. If you look at the S&P 500 I'm going to use this as a proxy for a return from 1957 through 2021. The S&P 500 returned about 12%. So if we take away inflation, let's just call that 2.5% percent. And then you have to have taxes which also erode your returns, that's about 1% to 2%. So let's use 1.5% we get a real return of about 7.4%. So if you start at the age of 30, and you want to hit that million dollar goal, in real terms, by the age of 65, you have 35 years of compounding at your back, you would need to invest about $505 per month to hit this goal. $505 per month. Now, let's look at the age of 40. Waiting 10 years, this number now jumps to $1,160 per month, more than two times higher. Now, if you wait until your 50s, which is unfortunately, a lot of what I see from people, they wait to 50 years old and 50s. To get things together, this number now jumps to $3,050. $3,050 per month, you would have to put away to hit $1 million in real terms by the age of 65 if you started at 50. And remember that number at 30 years old was $505 a month, you would have to put away more than six times the number per month, if you would have just started at the age of 30. Odds are you have some money already invested. But maybe you don't have a plan of attack, get that plan of attack, you have to plan your goals, you have to start now. And it's not too late, you still have time on your side. But making that first step is very important. And it makes it far easier as we showed in our example, to achieve your goals.


Now let's move on to number two. The second major money mistake high earners make in their 30s and 40s that I see is giving into lifestyle creep, it sounds backwards, the more money you make often becomes a financial disaster, it doesn't necessarily make it better. People think, oh, I get that new job, I make more money, things are going to get better. That typically doesn't happen from what I see. Because people fall into what's called lifestyle creep. They increase their spending, as their incomes increase. And this is why their studies have shown and we talked about many times in the past in The Big Bo $how, and 40% of Americans that make over $100,000 are living paycheck to paycheck. And one of these reasons is called people given to lifestyle creep. Now, lifestyle creep isn't necessarily saying oh, I'm going to buy that Rolex, or, Oh, I'm going to buy that Mercedes. Those are big ticket items. And people typically feel that right away. The lifestyle creep that people typically give into, and then I see is a bunch of little things. Little things, I always tell people, little things lead to big things. And this example leads to negative big things. Because now you're going out for dinner. And instead of ordering a burger, you're ordering a juicy steak, a big steak, instead of watching your local games on your television, you're buying NFL redzone, these smaller things typically add up leading into lifestyle creep, then we get addicted to it. And here's the ramifications of these decisions. Now you can get the NFL red zone, if you want, you can get that stake if you want. We have to understand the ramifications of our decisions because every action has an equal or opposite reaction. So when I work with people at Julius Wealth Advisors, I always try to get them to what's called a 3% sustainable spend rate. And when you're working with someone in their early 30s, and 40s, it's typically a lot easier to get them there because they have so much time on their hands, and they have high earners. Here's an example. Let's just say once you get to retire, you're going to need to live off your assets, right? That's a known thing. You're not either because you don't want to work or you can't work, you're going to need to kind of replicate your income. And if you need $100,000 to survive per year, to get to that 3% sustainable spend rate, you're going to need $3.3 million. Now, if you need $150,000 or $50,000 more, you're going to need $5 million. And if you need $50,000 more than that, or $200,000 per year, you're going to need to get to $6.7 million. You increase the amount of money you're going to need per year by $100,000, or starting $100,000 to $200,000, in an example, and you double the amount of money that you're going to need, this is a huge double, because I want to put in $3.3 million to $6.7 million. Again, understanding the cause and reaction and ramifications over decisions is important.


So I'm going to give a little life hack here, something that I implemented for myself, and something that I always look to implement for high earners in their 30s and 40s at Julius Wealth Advisors. It is making sure that you're saving for your future self is a known expense. And this is something that Warren Buffett talks about, he says, “Do not save what is left after spending, but spend what is left after saving.” And this is what I did for myself is what I always see is people typically know what they make. And most times people have kind of no clue what they spent, you know, your mortgage payment they have to make, or your rent payment, you kind of know, other fixed items, maybe your utility bills typically use in a certain range every single month. But what you truly spend, most people don't know. And what I typically see people do is they say, All right, once I have money in the bank, I'll wait and then I'll save it. And that is typically a recipe for disaster. Because most people, most Americans, when they have money left in the bank, they say, Okay, well, now we can afford this or now we're going to afford that or now I can buy this. And then they inevitably don't ever save for their future selves. However, if you look to automate your habit and say, Great, I made a plan, this is how much I need to put away per month and need to grow it by X, I need to save X amount per month, and you make that dollar amount, whatever the dollar amount is, you make that a mandatory expense, like your mortgage, you want to pay your mortgage every single month, or you need to pay your mortgage every single month, you need to pay your future self every single month. And if you make this a mandatory expense, you're not going to wake up and say Oh, I'm going to, well I'm going to wait till I have what I have in the bank No, because the money is already working for your future self. Well now I'm going to take a quick break. We went through the first two major money mistakes high earners making in their 30s and 40s and how to avoid them. The first being not starting today, and the second being giving in to lifestyle creep. After we get back, I'm going to go through three through five, we'll be right back.


All right, welcome back to Episode 20 of The Big Bo $how, five money mistakes that I see people in their 30s and 40s high earners make and how to avoid them. We already went through the first two. Let's go through three, four, and five. The third mistake that I often see people make and this one might be a surprise is neglecting estate planning. Many of us when I talk to people in their 30s and 40s or when I talk to people about estate planning, they think estate planning is something only our parents need to do it or only the wealthy need to do it. Well if you're in your 30s and 40s. Believe it or not, it's time and this actually is something that is more neglected. Then savings. Because if you look at a carings.com In 2023 study, they said that six in 10 Americans have a retirement account. But only one in three Americans have an estate plan. Many people see estate planning as daunting, and a complex task. They expected it to be expensive and emotional when in reality, it could be relatively simple and cost effective. And I'm talking from experience here. I did this two years ago, me and my wife, we set up an estate plan, and it can be an emotional process, I'm not going to lie to you. It was very emotional, you have to think about things that you don't necessarily want to think about. But you need to in my opinion, you have to think about if you have kids, what happens to your kids, if you have assets, what happens to these assets, if you and or your wife or your loved one, your spouse suddenly passes, not something simple that we want to think about, but in my opinion, we need to. And there's a few items that are within an estate plan that we all should be knowledgeable about.


And before I go into this, I want to just make sure everyone knows I am not an estate lawyer. And it's best to consult someone in this area, a lawyer in this area for your individual needs. I'm just going to advise you and give general advice on an estate strategy in your 30s and 40s. And here are a few key areas to focus on. The first is a will. A will goes beyond who you're leaving your stuff and your money to. High earners should also consider things like guardianship for your kids, how to handle any debts or liabilities and who the executor of your will should be. So the first area is having a will. The second is trusts. Now with not getting into the weeds too much, keep in mind that trust can help you control your assets and how they're distributed. They can help protect you from creditors and potentially reduce estate taxes. Trusts also become increasingly important if you have young kids. It can allow your kids to properly get your assets, especially if they're minors, and when and how these assets are directed. So number two is a trust.

Number three is power of attorney. Now starting in your 30s and as you age, you start to accumulate a complicated web of financial and legal responsibilities to take care of. We pay our bills and we manage our bank accounts signed documents. Should we come on able to perform these tasks due to an illness, injury, death, whatever a power of attorney can help you describe who has the power to help you manage these finances and allows you to name a trusted individual to handle your financial and legal affairs should you become unable to manage them yourself, whether temporarily or permanently.


The fourth area of an estate plan is a healthcare proxy or healthcare power of attorney. Like a durable power of attorney, a medical power of attorney, sometimes called a healthcare power of attorney, allows you to authorize a trusted individual to make decisions about your medical care if you're unable to make those decisions yourself, and sometimes who your power of attorney is for your finances could be different than the healthcare person. Like say for example, like for me, fortunately, I have a sister that's a doctor. Well, that would probably make sense that she's the healthcare power of attorney. Putting together an estate plan to give you the peace of mind, while it's emotional is that it is an emotional process. But in the end, they can give you the peace of mind knowing your loved ones will be taken care of should anything ever happen to you. And you'd be surprised how easily this can be done.


Now let's move on to number four. The fourth thing I see people in their 30s and 40s, high earners, some money mistakes that they make, and this one could also be a little controversial here is over investing in real estate today. Especially and I've heard this for many, many years my entire life that you have to invest in real estate and real estate can be a very good investment. But there are also drawbacks, and you have to understand what the risks are and that it's not always a no brainer and a surefire way to get wealthy and create passive income. Again, just like any other investment, comes with risk and real estate gurus don't like to talk about those risks. So here are some of the potential pitfalls of over investing in real estate. Now, the first is liquidity concerns. When you invest in real estate, you lack liquidity. And what do I mean by that? Your real estate asset, if you ever needed money in a pinch, you can't really sell your real estate tomorrow. Now, if you need money in a bank account, you can get it tomorrow. If you have investments in equities or bonds, you can press a button to sell and probably get your money in two to three days. When you own real estate, that asset is illiquid, you might have trouble getting quick access to that cash when you need it.


Now, the second is market volatility, real estate looks sexy. But keep in mind that real estate also experiences downturns, often when people least expect it. And we saw that, obviously, we saw that in the financial crisis 2007 to 2009. And people always think, oh, real estate, all in all, and only could go up. And they also think it's less volatile. And I always joke around with people, which is, in my opinion true that if you saw a piece of real estate, you don't see the volatility that's going on underneath because it's not traded every single second of the day between 9:30 and 4:00 like a stock or like another investment if it was traded on an exchange, which you can see real estate traded on an exchange in what's called REITs Real Estate Investment Trusts, which are publicly traded real estate firms, you would see that volatility. So keep in mind market volatility as one of the risks of over investing in real estate. And what also comes with this is that real estate is also typically a fairly levered asset, meaning that it has a lot of debt. So if you buy a million dollar property, you might have to put 20-30% down, you only have 20-30% equity, the rest is debt. So on the upside, that looks great, but on the downside, that looks much worse.


The third is high upfront costs in your down payment, your closing costs, and people typically don't think about the maintenance, the upkeep, that maintenance and the upkeep. People typically neglect if something breaks, you have to fix it, or is that money coming from you properly thought about these calculations when you're looking to make this investment? Next, you don't think about it in a balanced portfolio? Well, okay, yeah, I own 10 real estate properties. People say, Oh, I own 10 properties, 20 properties, whatever, great. But all these properties, potentially all in one city, well, they're also all in real estate. That's not really diversified. Yeah, you own 10-20 properties, but it's pretty much all the same. Invest investment, you end up having an imbalanced portfolio. Another piece that I always see people make the mistake of is that when you own real estate, while you think the income is passive, there's a lot of work that actually has to go into that. Have you thought about how to manage the portfolio and manage properties? Outsource it? Do it yourself? What happens if you have a problem with a tenant? When something breaks? It's not as passive as many people think, consider what the work will actually look like before diving in. And remember that everything in life typically has pros and cons. And there is no such thing as a free lunch.


Now let's move on to number five. The fifth mistake that I see high earners in their 30s and 40s. Make and the way to avoid them is not getting help. Now this one might seem very self serving, of course, I have my own wealth advisory firm. Of course, I'm going to tell you to get help, but I'm coming to you with all truth sincerity that I see people not getting help. Because there's a conundrum. And this got amplified by a recent Wall Street Journal article that I was reading that came out four days ago. And this article was titled “The exact age when you make your best financial decisions.” And it was based off a 2022 study. And it said that the best age people make their best financial decisions, and they have the best financial literacy was… Drumroll please… Age 54. Age 54. Now at the age of 54, if you look at the average life expectancy of an American, you've already lived 70% of your life. So you went through 70% of your life, making inefficient financial decisions. Well duh. No wonder why Americans are suffering. You live 70% of your life where you've gotten to the optimal time of having financial literacy. But what if you're able to get help? What if you're able to reach out to someone or outsource things that you don't know about to fill in the gap of the things that you don't know? Now the issue is, when you're in the ages of 30s to 40s, something we've talked about previously, also on The Big Bo $how, you suffer from this confidence, this issue called overconfidence bias, meaning you're overconfident in the decisions that you're making. Oh, yeah, I can handle my finances. Oh, yeah, I know how to invest. But that's not what the data says. The data says you can't, the data says you need to get help. The data says that you're not going to make your most optimal financial decision until the age of 54. And then if you're 30 years old, that's 24 years from now and imagine going back to that first example, where I show the power of compound interest, and how much you need to put away at the age of 30. That's 24 years of making nonoptimal decisions. This is the power of a coach and why we stress behavioral coaching at Julius Wealth Advisors and why I always give the example to people of why sometimes I actually hire a trainer to help me work out. I know how to work out. I played Division 1 college football. I benched 365 pounds, squatted over 500 pounds, ran a 4.9 40. I know how to work out, but I don't because I do not have that coach that motivator the person that's keeping me accountable. So get help. And that is the number five thing that I see high earners in their 30s and 40s, the mistake that they make. So let's take another break. And when we get back I'm going to wrap the $how up and go through a Bo Know$ of giving my 2023 NFL preview. Everyone knows I love talking about food, football and finance and we are getting into football season. I want to give my preview of the season and more importantly, my Miami Dolphins. So take a quick break and we'll be back.


All right, let's get after the final segment. Bo Know$. I'm extremely excited about this because the NFL season is right around the corner. I just had my fantasy football draft on Monday night. I am pumped up for the season. Love this time of year you have football, you have fall, getting into one of the better times of the year, in my opinion. So let's draw some parallels to the NFL and football and finance. And there are a lot of parallels, especially when we talk about high earners in their 30s and 40s. And avoiding mistakes. Because in the NFL you have veterans already like Patrick Mahomes or Aaron Rodgers. These are people that have put in the work in their early times to get to where they are today. However, when you're in your 30s and 40s you're more like an NFL rookie. You're still young, you have a long career ahead of you. And you have to put in the work today just like you have to do at a point of investing in creating wealth. It's not always about getting 200 yards in the game and two touchdowns. But what about the next game we get three fumbles? Slow and steady typically wins the race. Putting in the work every single day. You don't want to be a penny stock that does not have a plan i.e. Jonathan Taylor. Jonathan Taylor, guy had one good year honestly had one good year. And now he's making this big fuss that he demands all his money. Sorry, Jonathan Taylor, kind of see the Colts point in this. You don't want to be like a penny stock like that. You got to put in the work, put in the grind, think about the long term. And remember that your 30s and 40s are the times to make sure your approach to investing and creating wealth is built on rock solid foundations. The best quarterbacks and the best players are the ones that typically do not throw the interceptions. And do not make the mistakes avoiding the big mistakes.


So now with all this said of this parallel the NFL and high earners in their 30s and 40s and avoiding the mistakes, let's talk about my “favorite,” I put that in quotes because I have a love hate relationship as I talked about many times on the $how with my Miami Dolphins. Now, I don't want to brag, but if you go back and listen to episode eight, Homeostasis, I gave an NFL preview about my Miami Dolphins on that $how about a year ago and I correctly predicted pretty much exactly how the season was going to unfold. And now I'm back. Now I'm back making a prediction about my Miami Dolphins. And if you know me, I'm typically very very bitter about my Miami Dolphins. Everyone always jumps on the bandwagon. Oh, Dan Marino is going to do this. This running back’s going to do that, we have a great defense Zach Thomas, Jason Taylor, Tyreke Hill. Now, this everyone's always hyping and I'm always like eh it's the Dolphins. Let's Let's settle down now. Not this year. This year looking at their schedule. Looking at this team. I am getting behind probably the first time in my life my Miami Dolphins. This year we have a very tough schedule. Always New England and our division and the Bills and our division and are going to be tough. Jets. Sorry. They're still the Jets, whatever. Not going to go into that. We play the Kansas City Chiefs, we play the Eagles. But I'm telling you this year my prediction for my Miami Dolphins is where going to finish 12 and 5 12 wins, 5 losses. And I'm telling you right now we're going to the Super Bowl. You heard it here first. The Miami Dolphins the first time in my life, we will be going to the Super Bowl. Why? Obviously we have great wide receivers, wide receivers that put in the work. We upgraded our offensive line. We are going to keep Tua healthy, we're going to keep Tua healthy. He's put on some weight in the offseason make himself more durable. Our offense is stellar. But the reason why I think we're going to go to the Super Bowl is because of Vic Fangio and our defense. We made a very key hire on defense last year in my opinion was a reason why we weren't good outside of getting hurt. Our defense drastically underperformed our defense. It's good. And now that we have another good defensive minded coordinator in Vic Fangio I think our defense is going to be relentless and the thing that people overlook about our Miami Dolphins and as I've said before, offense wins games, but defense wins championships. The Dolphins will finish 12 and 5 and we're going to the Super Bowl this year.


So let's wrap up episode 20 of The Big Bo $how, five major money mistakes high earners make in their 30s and 40s and how to avoid them.


These five are:

  •   Not starting today
  •   Giving into lifestyle creep
  •   Neglecting estate planning
  •   Overinvesting in real estate
  •   Not getting help


So if you have anyone, yourself, your loved one who's curious about building swagger in their wealth creation journey and helping to avoid these mistakes that we've talked about, reach out to us at Julius Wealth Advisors, www.julius wealthadvisors.com, info@juliuswealthadvisors.com. Give us a call at 201-289-9181 and let's wrap this up the way that we wrap up all of our episodes by saying, always live a life of integrity. Live a life of knowledge of obtaining as much knowledge as you can and always live a life that you're passionate about.


Until next time, all the best


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