Episode 20: Becoming a Millionaire With Six Figures of Student Debt (And the Course to Get You There)

Have you ever thought about being a millionaire — even if you have student loan debt? Then this episode will be powerful for you. Most people want to earn enough to retire comfortably and to live their dreams, but they aren’t sure how they can do it.

If you’re wondering how to prepare for the future when you’re dealing with a ton of student loan debt, here’s how you can hit a seven-figure level net worth.

In today’s episode, you'll find out:

• Is it possible to become a millionaire with student loan debt?
• How can a couple with $100k of combined income have a seven-figure net worth?
• Why it’s so important to max your retirement accounts
• How long does it take to become a millionaire?
• Why is it a good idea to contribute to brokerage accounts?
• How would becoming millionaire work for a couple earning a combined $200k? Or $600k?
• Should you invest in savings or brokerage accounts?
• How much do you need to save to be able to retire?
• What’s the difference between maxing and matching your retirement contributions?
• How Student Loan Planner®’s upcoming investing course can help you

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Episode 20 Transcript

Travis Hornsby [00:00:04] Hello, and welcome to an extremely powerful episode of the Student Loan Planner® podcast. By the end of this podcast, you are going to know how to be a millionaire. That's pretty cool, right? This is something that is really anxiety inducing because one thing that I hear from student loan borrowers over and over and over again is, ‘How can I prepare for the future? How do I invest? How can I prepare for putting money away for 20, 30, 40 years from now when I'm dealing with a six-figure amount of student loan debt that's staring back at me and it's crushing me and just freaking me out?'

Travis [00:00:38] So that is what we're going to talk about today is how can you hit a seven-figure level net worth. For some of you, that's going to take longer than others because obviously people's incomes vary by profession. Now a seven-figure net worth: that's just something that is kind of a nice to have. You don't necessarily need that to fulfill your financial goals. I picked a million dollars because there's a lot of mythology surrounding a million dollars, right? Like, if you have a million dollars, everybody kind of feels like you've got a lot of money. And a million dollars ain't what it used to be. You know, back in the day, a million dollars — A hundred years ago, you were levels wealthier than you would be if you have a million dollars today.

Travis [00:01:16] But what can a million dollars get you? It can get you — if you use the 4% rule, you can get $40,000 a year for the rest of your life withdrawn from that portfolio and have probably 90 to 95 percent chance that million dollars is going to grow with inflation. You'll be able to withdraw that 4% that's going to grow with inflation as well. So a million dollars represents substantial financial security. Doesn't maybe represent what you would need to live on the rest of your life. You couldn't necessarily quit your job if you had a million dollars of net worth. But I like the idea of talking about how someone with a ton of student loan debt can get to the point where they have a six-figure, seven-figure or even eight-figure net worth.

Travis [00:01:58] So I think that for this kind of thing, examples are very powerful. So I wanted to start off with a couple. And these are all based off of real examples of people, actual people that we've talked to, and they're just sort of amalgamations of folks to keep identities secure.

How can a couple with a combined income of $100k become millionaires?

Travis [00:02:13] So we've got a social worker with $50k of income married to a teacher with $50k of income, and they live in Florida. Let's call this couple Jane and Tim, right? So Jane and Tim have about $100,000 of income combined. And we'll say that Jane's the one with the MSW degree — Master's of Social Work. So we'll say that she has a substantial amount of student loan debt. Let's just say she's got about $100,000 of student loan debt. So you might think, okay, well they have $100,000 of income. And if they wanted to pay back their debt in 10 years, they could pay $1,000 a month, and then they would be good because they'd have no debt.

Travis [00:02:51] But that would be a huge mistake for a couple reasons. One, Jane is probably going to be eligible for Public Service Loan Forgiveness (PSLF) because most social workers happen to work for government or not-for-profit organizations. So we'll assume that she's got Direct loans, and she's paying her stuff back with, say, Pay As You Earn, for example. Now the reason why that could be helpful is Tim doesn't have any student loan debt. He's got $50,000 of salary but no student loan debt. That's awesome. That's wonderful. Now they've got $100,000 of combined income.

Travis [00:03:23] What would happen if they filed separately for taxes? I punched this into the estimator for married filing separately, and what I found was that the only thing they'd really lose would be the student loan interest deduction. Because you lose the student loan interest deduction if you file separately. So that's only about $500 bucks. So really, that's not that big of a deal to file separately. And the upside of that is Jane would get to exclude Tim's income from her student loan payment calculation. So instead of paying about $700, $800 a month, or $600 a month, she'd have to pay only about $265 a month if she's only filing based on her income alone. So that's pretty awesome. You got a hundred thousand of income. You're living in Florida, which has no state income taxes. Which of course, that's a wonderful thing, right? And how much would you have leftover for other things after covering your student loan debt?

Travis [00:04:15] Now in Jane and Tim's case, they don't have to worry about the tax bomb because their loans are going to be forgiven tax-free, right, with PSLF. So she only has to worry about paying this $265 a month payment, and that's it. And maybe she has to deal with a little bit of tax preparation costs for filing separately. Maybe some — you know, the deduction losses that I mentioned. So you know, if you, if you said that she lost $4,000 a year from her loans, you know, that would probably be a little bit too much. But that's-that's reasonable.

Travis [00:04:45] Now let's say that you've got about $100,000 of total income, like I said. We need Jane and Tim to maximize their retirement accounts. So if there's any chance for Jane and tend to be millionaires one day, they need to maximize their pretax retirement account — 401(k), 43b, something along those lines. Now they will probably have access to one of these plans, and that means they could put aside about $19,000 per year in each one of them. So in other words, Jane could put in $19,000 a year, and Tim could put in $19,000 a year.

Travis [00:05:21] Now some of the folks who listen to the podcast might consider themselves very technical, kind of financial people. Ok. And I know there are some financial advisers that listen this podcast, and you might be saying, “Oh my gosh, you are a terrible, terrible person, Travis. You're suggesting that somebody put aside money in a pretax account when some of this contribution could be in a 12% marginal tax bracket, so why would you do that? Why would you put it into Roth?” And the simple answer there is just, you know, pretax retirement accounts. I just — I think they're just the best thing out there for people who have a lot of student loan debt just because you get to pay less than your student loans. You get the money saved today when you really need a lot of the savings. And hey, you know what? If you're in a really high tax bracket in retirement, you know, you're going to have a lot of options. So I'm not too concerned about the Roth accounts. If you want to put money into a Roth IRA or do a backdoor Roth IRA, what that just means is you can contribute with after-tax dollars. And then when you retire, you get to pull that money out tax-free. Versus traditional pretax retirement accounts, you contribute with pretax dollars, and then you pull the money out, which you have to pay taxes on at the end of it.

Travis [00:06:30] So if you're going to be in a lower tax bracket in working years, people say we'll do the Roth because you'll pay less taxes later. In reality, I think almost everybody is going to be in a lower tax bracket in retirement just because of the way that our tax system is set up. So it is very unlikely that you would be in a position where the Roth would really help you if you're a citizen borrower because you're probably paying a percentage of your income in student loans. So I just think that most people just need to focus on that pretax traditional contributions, even if they're a low-income couple. And I say low income with a grain of salt, right?

Travis [00:07:01] So Jane and Tim, the social worker-teacher combo we're talking about, $100k income is not that low of an income. That puts them probably in the top quarter of all households in America. Would you say that somebody in the top quarter of households in America is lower income? Certainly not. But I know that from our surveys that we've done of our Student Loan Planner® readership, you are in a much higher income level than the average American, period. You just make a lot of money, and you're frankly super blessed because not only are you probably in the top half or top quarter of the income distribution, if you're listening to this, that puts you in probably an even higher level worldwide. You might be in the top 5% or top 1% of folks worldwide if you're in the top quarter in the United States.

Travis [00:07:45] So it's all a matter of perspective, right? A lot of people like to compare themselves against others with a similar level of education. There's nothing wrong with that, but I think that's a recipe for unhappiness. You should really look to compare yourself with the vast majority of experiences in human history and realize that even the nobles in Scotland that had their own castles and everything that they could want in the world at that time, you know, they were still not using indoor toilets, right? So it's all a matter of perspectives.

Travis [00:08:12] So, $100k income. Now if this couple Jane and Tim put aside $19,000 a year each, they'd be putting aside $38,000 total. And that would save the money on taxes. So in fact, on $100k of income, Jane and Tim would only pay about $4,600 in federal taxes. That's a 4.6% tax rate. That is dirt cheap for a couple that makes a six-figure income. Now they lose about $6,200 in FICA taxes, which is like your Social Security or disability, all that stuff that comes out of your paycheck. They lose about $1,450 to Medicare tax, so they're losing about $12k total in taxes. So they've got, you know, their retirement contributions, and then they've got their taxes. After you deduct that, you're left with about $50k.

Travis [00:08:57] So let's say you've got $50k left, and you're maxing your retirement accounts. The question we're trying to answer here is ‘how long is it going to take you to be a millionaire?' So if you take housing plus utilities, that's maybe about $1,000, $1,200, $1,500 a month, something like that. Go with $1,200 a month because we're talking about Florida. So we're assuming they're in, you know, a Jacksonville or some lower-cost kind of place. And then we'll assume that they have some kids. Maybe they have kid expenses of say $500 a month because the kids are already in school. They go to public school. So maybe there's some piano lessons in there.

Travis [00:09:31] You know, a lot of people will say, “Oh my gosh, that's a joke. $500 a month? That's way, way too little.” And you know, you might be right, but we're just kind of having fun with numbers here. Food: $500 a month. We'll assume they mostly cook at home. This is very doable for a family if you actually plan your meals and you read a lot of the Pinterest lists on how to have low meal costs. We're doing Hello Fresh right now. They're not a sponsor of the podcast, but I thought we'd just try it out for my wife and I. And wow. I'm looking at these ingredient lists, and you could really get the same ingredient lists together for probably one-tenth of the cost if you just visited your local Aldi's and just shopped a bunch of, you know, really cheap places to get a lot of lump purchases of groceries together. So $500 a month should be good for groceries.

Travis [00:10:14] Miscellaneous: $500 a month. You know, insurance: $300 a month. So that's about $36,000 a year of living expenses. Which gives Jane and Tim about $14,000 leftover. So we'll say $10,000 of that goes into a brokerage account every year. And then $4,000 of that goes into just random other expenses or savings or just whatever that they need that I forgot. Or maybe if I was a complete idiot for what I said for how much they would spend on the kid, we can increase that amount of that budget with that $4,000.

Travis [00:10:42] So just to recap, $100k a year social worker-teacher couple. $100k of student loans. They're doing married filing separately Pay As You Earn. Gonna go for PSLF. They're maxing their retirement accounts. They're putting $10,000 a year away into their brokerage account. If you do this, then they would pass a million of net worth. Specifically they would pass $1.2 million in net worth in 2031, which is about 11 years or 12 years actually. Twelve years past the current date.

Travis [00:11:16] Think for a moment about a teacher and social worker couple being worth over a million dollars. Right? Sounds kind of funny thinking about it. Seriously, think about it for a moment. All they did was max their retirement accounts and contribute $10,000 a year to a brokerage. So that's like an automatic deduction from your bank account of about $800 a month where you're just not touching that, and then you're contributing the maximum to your 401(k) or 43B. How much is the maximum? We'll say they get paid 26 paychecks a year. $19,000 divided by 26. It's about $730 dollars a paycheck. So they have $730 a paycheck each set up for themselves to contribute to their retirement. And that amount, if you get a 5% return in the markets on your investments, then you'd pass that level of net worth.

Travis [00:12:10] Now what's cool is, remember in 2029, their loans will be forgiven tax-free with PSLF. You'd have the loan balance grow a little bit because of accrued interest. So they'd do about $130k that would be discharged tax-free in 2029. And so then in 2031, this is the point where they pass that million-dollar net worth threshold. So their net worth is relatively low at the beginning, but once that debt finally gets forgiven, the net worth takes this big jump. And then our social worker-teacher couple, Jane and Tim, they've got a net worth that actually puts a lot of freewheeling, free-spending physicians and dentists and attorneys kind of to shame. Because not a lot of folks have seven-figure net worths.

Travis [00:12:52] You know, a million dollars, like I said, is a ton of money. Yes, there's a lot of millionaires in America, but the relative percentage of us that are millionaires is not all that great. Ok, so that is really amazing that a low-income couple, relatively low-income couple can pass a million dollars of net worth in barely more than a decade. And the way they did it was max their retirement accounts and contribute some money to brokerage.

What if you're a couple with graduate or professional degrees?

Travis [00:13:19] So let's do a different example because maybe you're like, “Well, I'm — That doesn't describe me. What if I'm not going for PSLF? What if I'm just trying to get my loans forgiven in the private sector? And maybe I'm in a different field where I have a higher income, but I have to pay more on my student loan payments too?” So let's say we've got a couple with kids. We'll say they're a dual pharmacist couple. And for you veterinarians out there, if you're a veterinarian, you could also be a couple of veterinarians. Or if you're a lawyer, it could be a couple lawyers. Basically we're assuming a couple that makes $200,000 of income together. So $100k each. This would very easily be, I think, a lot of the folks listening to this podcast because to $200k household income is a very common level of income. Because you get the graduate degree, you know, you're making probably $60k to $150k. Generally people who have grad degrees marry people with graduate degrees or high incomes in general. So $200k combined income, pretty common for clients and readers and listeners of Student Loan Planner®.

Travis [00:14:17] And the combined debt amount that we're going to assume for this, we'll say just dual pharmacist couple, is gonna be $400,000. And they've got two kids. So we'll say this is Bobby and Randy. Ok, so Bobby and Randy: they've got about $120,000 of net income. If they max their retirement accounts and when they lose money to taxes — So we're going to assume that Bobby and Randy, this pharmacist couple, love California. They can't leave, just psychologically would be too traumatic because then they would only get a modestly lower amount of sunshine compared to the beautiful golden state. So I'm just joking around. California is a beautiful place, but it's obviously high cost and high taxes. So California is their home, and they are paying $42,000 in federal state and FICA taxes on their $200k of income after their contributions to retirement.

Travis [00:15:15] So you're putting $38,000 a year away, and you have $120,000 left after that plus your taxes. So what would you need to hit a million dollars? In this case, if they could carve out $4,000 a month into a brokerage account that's automatically contributed into, say, VTSAX, for example. VTSAX is an index fund. It's called the total stock market index fund. It's got rock-bottom fees, and then gets only 0.04%. I can't say specific securities names for clients on consults because we don't pay for those investment adviser licensing fees, which are super expensive, and the compliance is really terrible. So instead I can say I'm not your financial adviser, but this is a fund that a lot of people in the financial independent space like to use. VTSAX: it's a Vanguard index fund, and you can set up automatic contributions to this at Vanguard.com every month. And one of the key parts of using this successfully is never panic and don't sell ever, which is a lot of — very difficult for people to do. But that is an example of what they could put their $4,000 a month into — in a brokerage account, just a total stock market index fund. If they want to go a little bit broader, they could put it into two index funds. They could put it into the total U.S. stock market index fund and the Total International Stock Market Index Fund, if they wanted to put it in two. And if they didn't feel comfortable putting all their money in stocks, they could add a third index fund called the Total Bond Market Index Fund, and they could put maybe 10%, 20%, 30% into that if they're too afraid to have all of their net worth tied up in stocks.

Travis [00:16:55] But if they put aside that $4,000 a month into the brokerage account, and they're maxing their retirement accounts. So this is two separate accounts, right? Your 401(k) and your brokerage accounts: two separate places. The retirement account your employer does for you. You just have to decide what you're gonna do with it while you're working for them. The brokerage account is something you set up on your own, and you manage it on your own. Or you hire a professional to do it for you. So they're putting aside a lot of money a year — about $86,000 on their $200k of income. So that's pretty good. But let's see what happens there. If you looked at their growth of their portfolio, if they're contributing this much money, Bob and Randy would hit about a million dollars of assets in 2027. That's amazing. That's eight years.

Travis [00:17:42] Now we're going to assume that this couple, they work for CVS or Walgreens or something like that. So they're in the private sector. In this case, you know, they were gonna go for loan forgiveness anyway, but they're gonna go for the taxable version of loan forgiveness. They're going to have a tax bomb to pay at the end of the 20 years. Then they're going to have to have a big six-figure amount of money come out of their portfolio to pay that tax bomb. So it's a little bit different scenario than the folks that were getting forgiveness through the tax-free PSLF option. Now this couple would have to say, “Well, ok. Well, if you have a seven-figure net worth, you really only have that seven-figure net worth once you have a million dollars plus what you need in that account for the tax bomb.” So that would actually happen the next year in 2028.

Travis [00:18:29] So Bob and Randy would hit $1.2 million of assets at that point with their savings amount. And you could say that the $200k would easily cover their future tax bomb in 20 years, which actually happens to be about $200k with a $400k amount of debt combined. So they would basically have that covered. They would be millionaires at age — well, at that point where they were in the year 2028 because they would have the million plus the amount they would need for the tax bomb. By the time they hit Pay As You Earn forgiveness, once loans are forgiven? They'd have $3.8 million dollars.

Travis [00:19:09] Can you imagine? That's the stuff that folks dream of financially when you go into some of these professional fields, right? You are hoping one day that you could have financial security. You don't really know what that's defined as. Most people just kind of throw out a random number, right? You probably have thought about retirement at least once in your life, and you probably thought that wasn't really a thing that you can ever do. Or maybe you thought it was, you just didn't know exactly what you would need. Or maybe you thought, well, ok, I just got to save, and eventually it'll all work out, which is most people's plans. It's not a very good one. Is this realistic? Could good Bob and Randy be able to put away that much money, $4,000 a month and maxing their retirement accounts in a place like California, one of the most expensive places in the country? I only left $6,000 a month for their expenses, so they'd be like, $2,000 a month for a house. You know, $2,000 a month for child care, if they have kids. $2,000 a month for everything else. Is that possible? I mean, it's going to be pretty difficult, honestly. You could do it, but it would be pretty hard.

Travis [00:20:14] So let's say that they did $1,000 a month in their brokerage account instead of $4,000 a month just to give themselves some more breathing room for how expensive California is. In that case, they would hit a million of assets in 2031, and they would hit a million plus about $200K for the tax bomb in 2032. So the brokerage account does help. It does speed up your point to get to financial independence, and that's why the first step is to do the max retirement account. But the second step gotta be to open a brokerage account and put whatever you can afford to on top of that in there, especially if you're at a higher income. Because if you're at a higher income, you're very limited in the amount of places that you can put money into for your pretax retirement accounts. Right? You only get $19,000. You might get more if you can work with very high-level tax professional or investing pro. You figure out maybe some loopholes for a solo 401(k) or a pension plan or something like that. But that's just the general rule of thumb.

How about a dentist-physician couple?

Travis [00:21:13] So let's look at a higher-income person. We're going to take a look at a dentist-physician couple. We will call this couple Evita and Raj. So Evita is our dentist, and she makes $250,000 a year. Raj is a physician, makes $350,000 in private practice. And Evita is a dentist, makes $250,000 and owns her own practice. So they make $600,000 income together. I'm sure, you know, you might listen to this and be like, oh my gosh, that's ridiculous. I can just turn off the podcast episode now because that's just not me. Well, if that's not you, I think it'll be interesting to hear this at least because you never know what might happen in your future. And then, you know, if you are this high-income couple, definitely pay attention. So this couple would have $600,000 income. We're going to assume they have $600,000 of student loan debt. And so clearly, they're going to need to refinance their student loans because they have a 1-to-1 debt-to-income ratio. So they could go to StudentLoanPlanner.com forward slash refi, r-e-f-i. They could find a list of a bunch of different cashback bonuses. Try to find the best one. Find the best combination of low interest rate with good cashback bonus. Then they can go with that one, so they'll pay about $6,000 month to loans. It's quite a bit assuming, you know, they max retirement.

Travis [00:22:32] Let's also assume that they've got $8,000 dollars a month going into the brokerage account that they've got maybe at Vanguard, where they're automatically contributing $8,000 a month into some combination VTSAX, the Total Stock Market Index Fund and maybe some other index funds at Vanguard. So they're putting money in there no matter what. We'll assume that, you know, the stock market goes up and down, up and down. Maybe it drops sometimes 30%, but they just keep doing that $8,000 a month going in there, and long term, they're getting a 5% annual return. Ok. After paying taxes and their retirement contributions, they have about $377,000 left over. after you deduct the $8,000 a month they're putting into brokerage, Evita and Raj have about $280,000 left over. That's still a ton of income left over after taxes and retirement contributions and brokerage account contributions. If you can't live on $280,000 a year, then you have some very interesting problems that this podcast probably isn't relevant for.

Travis [00:23:35] But it's very common to spend more than that because it's just very easy to spend a lot of money. It just very much is, you know, especially in a higher cost of living area. I mean, if you're in a place like Michigan where this is where we're going to assume that they're living here. Assuming that Evita and Roger are in Michigan, let's say that they're in one of the higher-cost areas in Michigan. You know, it would be pretty difficult to spend $280,000 honestly. But if that same couple was like in New York City or something, then it'd be really easy to blow through that, you know, because you're dealing with public schools. And you're worried about sending your kid to the best ones so you put them in a private school, and then you have maybe other kinds of child care expenses. You have super high expense for mortgage, maybe $4,000, $5,000, $6,000 a month for a housing payment. You can really accelerate your costs in a hurry as a high-income couple because you get marketed to a lot more aggressively by financial institutions and advertisers that look at you as a dollar sign and find that you have a very high lifetime customer values. They want to convince you to buy more stuff. Right?

Travis [00:24:37] But we're talking about if they did all this stuff. So if they had this $280k living standard, and they put the $8k a month into their brokerage. Max their retirement accounts. How fast would they hit a net worth of a million dollars? So they would hit it in seven years. They would pass a million dollars net worth in 2026, and their loan is not completely paid down yet. Their loan would be about $218,000. So in this case, we're assuming that the physician couple and dentist couple could pay the debt off a lot faster than what we talked about, but they're choosing to do a little bit of both. And this is what I usually recommend to folks, is to do a little bit of both when you're paying down your debt. You know, it feels good to pay down your debt in a year. You know, you can do that, but at the minimum, you want to max your retirement accounts. Like, if you want to max your retirement accounts and pay off your debt with everything you've got left over, that's ok. Frankly, we did that. We were paying down our student loans. So I can't say that you did something or you're doing something not smart if you do that. I think it feels great to get out of debt if that's the right thing for you.

Travis [00:25:37] So this dentist — we'll assume that Evita owns her own practice, so she also has debt from her practice. And so a lot of you out there might be interested in entrepreneurship or owning a business, you know, in the health care space. A lot of people have to buy practices or finance practices because you have to buy a building. You have to pay salaries, and you have to buy equipment. Right? You have to buy software to run all of your patient records through, and all of those things cost money. And banks know that the way our health care space is right now, that if you build it, you will very likely succeed. It's a very low default rate that exists for health care folks. So you take out a loan, what happens is a portion of your profits go to paying down that practice loan. When that practice loan is done and paid off, you own a business, and it has a positive value, right? It's got a six-figure value that Evita could sell at some point down the line for some six-figure sum, maybe even higher than that. The revenues grow over time. In addition to having a million dollars in net worth just from investing, they would also have significant six figures of net worth from her practice. And that's pretty cool.

Travis [00:26:44] So this couple could really hit a level of substantial financial security pretty quickly. But what I wanted to show you is in these different scenarios that we ran — so we ran the social worker-teacher couple. We ran the dual pharmacist or lawyer or veterinarian couple that's making kind of like that middle level of income in our audience. And then we ran the dentist-physician couple making the big bucks. No matter what scenario that we ran, these individuals had a million dollars of net worth at some point, within a little bit more than a decade at worst. So how do you do this? What are some things that you need to know about to be able to achieve this?

How much do you need to save to retire?

Travis [00:27:25] There's a couple of common threads that I'm going to cover. Your savings plus your loan payments as a percent of your income needs to be at least 20% or there's a good chance you will never retire. One thing that I find with student loan borrowers: you know, at this point, golly, we've had over 2,000 clients at this point. We've made a ton of plans for people we've talked to, all these people one on one. This wasn't like we give presentations to schools, and I'm counting the 50 people that were in the audience, like some folks might. I don't know. So this is like one-on-one conversations that we've had with people, so we've really learned about people's very personal details, about their life. And what we've found is that if you're not putting away at least 20% for your future, then you're going to not be able to retire comfortably. Parents, grandparents, great grandparents, they used to get away with less than that. But if you think about it, you know, maybe your great grandparents really didn't know what retirement was, right? And then your grandparents probably had pensions or retired and some combination of Social Security and pensions. Your parents probably have a little bit of 401(k) money but also maybe a little bit of pension money, a little bit of Social Security they're probably relying on heavily.

Travis [00:28:38] We are going to be relying mostly on our own efforts because Social Security is not going to be as generous as it is now for us. It's just mathematical reality. So that means if you want to retire, especially if you have a professional level income where your spending desires are going to be substantial compared to other people, then you're going to need to put a lot of money away for investing. So 20% is the minimum. I tell people a third is, like, financial security. I would say a third if you're putting away is really solid. If you want to have work be optional at some point, then I tell people you need to put away half of your income. Half of your income is a lot. But if you put away half of your income, you're also reducing what you actually need to live on. So if you ever did decide to cut your hours or somebody changes jobs or somebody lost their job, you're adaptable, and you're flexible. If you live on 80%, 90% of what you're making, then you're not that adaptable and flexible, and you'd have to make some painful cuts if something unexpected happened in your life. And if you're paycheck to paycheck, then obviously you have no room for error. And the typical American only saves, I think it's like 6% a year. That's ridiculous; 6% a year. That's nothing. You actually have more than that going your student loans because of income-driven repayment plans: 10%. On top of that 10%, you need to save an additional amount over and above that, or you're never going to be able to retire.

Becoming a master of the brokerage account

Travis [00:30:06] Now with forgiveness, you have to be a master of the brokerage account. A brokerage account is something that you open at any financial institution that offers investing, which is basically all of them, right? And it can lose value. Brokerage accounts, like, say you put money into VTSAX, which is the Total Stock Market Index Fund. There is a very, very, very high likelihood that 20, 30 years from now you will have substantially more money than what you initially invested as long as you don't sell because of inflation. Things go up in price over time, right? So if you put that same amount of money into a bank account, there is a very, very strong likelihood that bank account will be worth less in purchasing power terms because banks pay, you know, a pretty pitiful amount of interest. And you also have to pay taxes on that interest. So you're getting less than inflation. So say inflation is 3%, and you put money into a bank that gives you 1% after fees and taxes. So you're losing 2% relative to inflation every year. So if you put money into a bank account, 20 years from now you'll have substantially less money in there in terms of purchasing power. Now you will not lose money ever. You will not actually see your income. You will not see your dollar amount rather go down. But that's a problem is it's a trick. You know, nominal dollars, which is the dollars listed on the page, don't really mean anything. It's all about your purchasing power. So that's why to put money away for the tax bomb, you have to put money away for forgiveness. You have to put money away for the long term for forgiveness. So you've got to put money away into stocks, which have the strong potential to return greater than inflation returns over the long period of time, especially after fees and taxes.

Travis [00:31:49] So another common thread. If you want to be a millionaire with six figures of student loan debt, you need to max your retirement account. Most people do not. Guess how many Americans maximize their retirement accounts? Maybe we should say a the third? Half? What do you think? It's actually 13%, according to a study from Vanguard. 13%. That's really pretty low. And in fact, to be honest, the people who have Vanguard retirement accounts tend to be more sophisticated than the average person. You know, your unsophisticated employee typically gets paired up with some higher-fee fund account. that's just kind of ridiculous just because that's just how things work, unfortunately. So it's probably even less than 10% of people who max their retirement account. So, very few people do this. Very few people max their retirement accounts. That's why we have so few millionaires. It's because people don't know that they need to max their retirement account.

Maxing vs. matching your 401(k)

Travis [00:32:44] Now this is something that's really important to know. There's a huge difference between max and match. Huge difference. Max and match are not the same thing. Match is when you put in 6% of your pay because your employer puts in that, and so you put in 6% because you just figure that's a good amount. Max is when you say, “How much am I allowed to contribute? I'm going to contribute everything that I can, according to the law.” That is totally different from a match. So most workers do match. They've heard the match thing. So they put the money in, 4% of their pay to get the 4% from the employer. They do that. But most workers don't think about the fact that they need to take charge of their own futures by maxing their retirement accounts. So that's very important. Just to give you an example of how most people treat their retirement accounts, I used to work at a large mutual fund company. And I worked for a couple months in this call center. We were taking calls from people that had questions about their 401(k) plans. And we got a call from a FedEx employee, and he only put in the 4% match or whatever. And he had a little bit of an unexpected expense. He had some credit card debt. He needed to come up with money to not get evicted from his house. So he called the only place that he knew where he had money, which was the 401(k). And he said, “Hey, you know, I've got $3,000 bucks in here. I need to cash it out immediately because I need to pay my rent bill and avoid getting kicked out on the street. This is my money. I need it now.”. And what he didn't understand was if he pulled that out, he'd pay penalty taxes, and he'd pay ordinary income taxes. And he'd screw over his retirement future. But that's how your typical American treats a foreign car. It's something that's like an afterthought. Nobody understands what it is. People don't understand like how you use it for the future.

Travis [00:34:33] So your retirement plan is the key element that's going to give you the freedom to retire before 70. Basically is kind of the reality because if you're retiring well after 70, a lot of times, you know, Social Security, Medicaid might take over if you're just indigent. You can't work at all. They'll put you in a nursing home or something like that. But if you wanna retire before that, you have to have a lot of money in that retirement plan. So as a professional with a college or graduate degree, you need to maximize your 401(k). That should be very important.

How social media can affect would-be millionaires

Travis [00:35:03] Now a couple other ways that you can become a millionaire. You need to gain immunity to the massive attack of ads that you're under threat from every single day. So this probably means you need to limit your social media usage. So I tried to actually not be on Instagram. I tried to have folks that work with Student Loan Planner® actually manage our social media accounts so I can spend less time on those platforms. I have actively resisted creating a Facebook group for Student Loan Planner® borrowers, even though I know it would probably help a lot of you, and you had a lot of you would really appreciate that. The reason is because I do not want it hosted on a social media platform because I know that they will have your data. I know they will be able to target ads for you based on that. And I'm just not interested in participating in that. We might create some sort of group, like a Facebook group kind of thing at some point. But if we do, I'd really prefer to have it hosted on our own site so that Facebook doesn't own that, and they're not going to be sending lots of ads to you. Because that's the goal is to — You know, you're going to show up for some cool Facebook group, right? And then you're going to go to their platform, and you're going to get bombarded with ads. And right now, they don't put ads in Facebook groups, but I guarantee you that's what they're going to do at some point, right? And this is true for anything. Instagram Stories, all this stuff that people enjoy about social media, there's just too much money in these things to not monetize them. So they just try to get all of you looking at their stuff, and then they'll throw ads at you.

Travis [00:36:29] And it's really pretty scary because there's these things called tracking cookies that the EU actually tried to — tried to regulate them heavily by like forcing sites to make you agree to have tracking cookies. But what this basically does is if you go visit a web site, right? Like say you go visit a site, like, a fashion site. I can track you and know that you just visited that, and then I can re-target you for ads when you go visit an unrelated site. Say, a new site where I can push relevant advertising to you on that new site to try to entice you to go buy on that fashion site that you just left. So unlike TV ads, which you know, you can totally tune out. You can tune out some advertising, like YouTube ads or something like that. But the problem is the Internet advertisers have a huge advantage over you because they have your data, and they sell your data to third parties so that they can track everything that you do. So that's why all these sites are free is because they're basically buying and hoarding your personal information, and they're selling it to the highest bidder who knows everything about you to try to get you to part with your hard-earned money. So if you want to be a millionaire, spend less time on social media and spend less time online where people can track everything that you do to try to convince you to part with your hard-earned dollars.

Travis [00:37:51] Another thing is, the only way you can save this much money, like a 33%, 40%, 50% savings rate — the only way that's possible is if you have a car payment only one time in your life. So you know, if you have a car payment initially, that's fine. Pay off your car payment, or sell it if it's a super expensive vehicle. And then the next car you buy, use your six-months emergency fund to not have to go into car loan debt again. People are really, really tolerant of car debt. I am not. I think it's terrible debt. If you have it, unless you're deducting it through your CPA or something, some sort of special, you know, lease that your dental practice deducts or something that's saving you a lot of money, and your car person you just love cars — unless that's you, then you shouldn't have a car payment. If you have a car payment, that just shows that you're not at the level of financial stability that I would want for you. For homes, try to keep your house no more than two times your income. If it's a lot more than that where you live because you live in San Francisco or L.A. or New York, then maybe it's the suggestion that you should rent instead of buy. Housing is not an investment. It's not something that will get you a massive above-inflation return in most cases, which means that it's a place to live, and you should buy the least house that makes you feel comfortable and happy.

Travis [00:39:04] Right. So if you want to be a millionaire, takeaway is that you need to have at least a third of your income or higher going to investments and loans. The easiest path to becoming a millionaire rapidly in less than 10 years is to save at least half of your income.

Student Loan Planner®'s investing course

Travis [00:39:21] Now because I know that so many of you care so much about investing the right way and not costing yourself tens of thousands of dollars or hundreds of thousands of dollars in lost investment gains or fees, we're coming out with a course, and I'm really excited about it. It's at StudenLoanPlanner.com.com. Or it will be when it's live. And we're only going to keep it open for about a week, and it's going to be focused on ‘how do you invest for the future when you have huge loans.' It's the one thing people ask us, and I am a little frustrated that we're not able to give this to our clients in our consult service. The reason is because it is very expensive to give investment advice because of high levels of regulation. So your financial adviser, the reason why they charge, you know, $4,000 or $5,000 or $6,000, $10,000, 1% of your assets, it's because they have to deal with massive levels of regulation where they have to talk to all these regulators who want all this information from them. And it costs money and time to deal with that hassle, so low-cost advisers can't give very simple advice because of these regulations. Right.

Travis [00:40:27] So what I can do is since I can't give you personalized investment advice that you have to seek out a licensed professional for, I can give general advice that will fit 90 to 95% of you. Ok. So this is what this course is designed to affect. It's going to be very affordable. We think it's only going to be a couple hundred bucks. This could be the best financial investment that you ever make because our goal here is to give you the knowledge that could save you a massive amount of money because most people don't know hidden fees and the investment mistakes they're making. And they don't know what investments they should be using. So we're going to answer a lot of this questions for you. So you're gonna get notified for this if you're on the email list. If you're not on the email list, you can just scroll down to the bottom of StudentLoanPlanner.com. There's a form there that you can enter your name and email, and you'll get on that way. And you'll get notified when the course is live.

Travis [00:41:10] So we're not going to go and advertise the heck out of this on the site as much. We're not going to keep this open for a year. I want this to be really relevant to the conditions today. You know, the stock market conditions today where we have super highly-valued stock market. People are kind of worried there might be a stock market crash. Other people are worried that they've missed out on years-worth of amazing gains. Like, you know, is there any way that they can catch up? There's all these anxieties right now about our present stock market environment. I want to have the course be super relevant for that, which is why I want people to enroll in the course and take it within no more than a month away. So keep an eye out for that.

Travis [00:41:48] I'm really excited about this course. It's going to a big focus of our Q2 here at Student Loan Planner®, and this is a couple of things that it's going to mention. So we're going to cover what investments you should take for the tax bomb specifically and how you're going to manage it long-term. Two, we're going to figure out how bad your investment fees are right now. Three, we're going to figure out if you should invest in front of a massive market crash. Four, we're going to talk about whether or not your home is actually an investment or not. Five, we're going to help you decide if you should fire your financial planner or hire one or keep the one you have. Six, we're going to show you how you can or cannot predict the stock market. Seven, we're going to show you the mistake that cost investors over half their money in lost returns and more.

Travis [00:42:32] So hit us up at Podcast@StudentLoanPlanner.com if you have questions or comments about the course or the show today or anything really. And I just want to encourage you for a moment because you are more capable than you ever thought possible. All you need to do is track your expenses. Be frugal with your house and car, and you're gonna have a lot of money left over to do other things with when you have that money. You need to put a lot of it into retirement accounts. And then after that, you need to learn how to be a brokerage account investor, which is basically just putting money into mutual funds that are indexed to the total economy. If you do that, you're going to be better off than you could possibly imagine. The reason is, if you look at returns from 1975 to 2015 — I just read this book. JL Collins — Jim Collins book, is “The Simple Path to Wealth.” And he cited that the annual returns were 12% during that 40-year period. I don't think they're going to be 12% going forward. I think they're gonna be a lot lower because the stock market's valued way higher now than it was in 1975.

Travis [00:43:31] If you look at how much people pay per dollar of earnings, this is the kind of stuff that we're going to get into in the course if you're interested. It's amazing to me, though, if you think about how much money you can have if you put that money away into investments and brokerage accounts instead of savings accounts and just spending it, which is what most people use their money for. So if you do that, you can be a millionaire. A millionaire basically is — The point of becoming a millionaire is not to just have the title. It's to have an amazing amount of financial security so you can work how you want, spend more time with your family, spend more time with your dreams and pursuing those dreams and your goals and ambitions you have for your life and actually reaching that top need in the self-actualization of the Maslow's hierarchy of needs, right? That's the number one thing that people really, really want, is to live the life that they feel like they were meant to lead and to focus on their calling and pursue that. So that's what we're trying to help you do in learning how to invest. I'm excited about this course. Just reach out if you have any questions. And thank you so much for listening to this episode of the Student Loan Planner® podcast.

Travis [00:44:28] Thanks for listening to today's show. If you're ready to schedule your custom student loan plan, visit StudenLoanPlanner.com forward slash book, and pick a time that works for you. The show notes are available at StudentLoaPlanner.com forward slash the number of today's episode. Finally, if you love your Student Loan Planner® podcast, help us out. Leave us a review or share it with someone who owes more than you.