All right guys, I'm gonna be reacting to one of the videos that has had the biggest impact in my life. It only has a few thousand views, but when I was in the process of taking over the bank's investment department, kind of worried inside about knowing nothing about money, this was a video that I stumbled upon. I became friends with Todd Langford. I use Truth Concepts, I've been to multiple of their trainings, and I'm a huge fan. If you're an advisor or an agent in the space wanting to do the right thing for your clients, I highly recommend you use software and calculators, and I think Truth Concepts are one of the best ones out there.
In this reactionary series on the BetterWealth channel, I wanted to start with a video for which I have a ton of gratitude. It really has helped me build the foundation of understanding money — understanding opportunity costs and realizing that every time you lose a dollar, you don't just lose that dollar, but you lose what that dollar could have earned you for the rest of your life. So, lots of good things can be learned here, and I just want to highlight Truth Concepts and their channel. If you want to learn more about money, go binge watch their videos. It can be dry at points because it's not super graphically pleasing, but the underlying math and lessons learned are unbelievable.
Without further ado, I'm going to be reacting to the video. I'm going to do my very best to not talk too much, but overall, it'll be a great video that I haven't seen in multiple years. I probably watched it five to ten times when I first got into the business because it's been so fundamental for me, but it's been a while. So without further ado, I'm going to pull this up. If you want to learn more about Truth Concepts, I'll link all their info. If you are an advisor who's watching this video and wants to learn about how to potentially use Truth Concepts or go to one of their workshops, I would highly recommend it.
Here's a disclaimer: I normally watch videos at like two and a half times speed, which sounds crazy. It's hard for me to watch a video at regular speed. So I'm going to do my very best, and I would love if you could share in the comments: am I the only one? Do you guys listen to me on a podcast or YouTube sped up, or do you listen to me at regular speed? If you've never listened to a video fast, I would encourage you to start. Life is really short, and I've found that you can consume a lot of information. Our brains are pretty gifted and well-designed for that. Now, let's jump into max potential, a fundamental calculator that's going to be good.
Let's go out 35 years. We won't use any current assets. Let's use $90,000 of combined income. If we've got a family making a combined income of $90,000 a year over 35 years, that's about $3.1 million. It's wild and hard to realize $90,000 compounded at zero interest. So it's just $90,000 multiplied by 35, which gets you that number over $3.1 million. That's the amount of money that would pass through this family's hands over this 35-year timeframe.
Would we be happy if everything was going up by 4% a year, and we have gotten to a point where we were spending every bit of what this is? Everything else is going up, making it hard to continue to eat. So we would expect that our income has to go up at least by 4% a year, correct? If we do that at 4%, just to keep up with inflation, that's $6.5 million. We often take for granted our ability to work, which is one of our greatest and best assets. Over this timeframe, that's $6.6 million, where the last year's income is $341,000. That's what's so amazing about inflation.
We can look back and see that this has happened to families for a long time. Looking towards the future, if $90,000 of income equals $341,000 after 35 years, is $341,000 going to be any more than $90,000 is, if inflation's 4%? I want to highlight what Todd is saying: if you start with $90,000 today, assuming inflation and you're making a 4% raise, you would have to spend $341,000 in the final year to have the same buying power as $90,000 today. However, remember this is just a tool for analysis, and is only as good as the inputs we provide.
It's wild to think that maintaining a $90,000 buying power over 35 years would eventually result in such a high number of $341,000 required annually. Even more importantly, due to tax brackets' structure, would $341,000 after-tax buy as much as $90,000 does today?
Letting everything else stay the same but adjusting total taxes to 35%, including federal income tax, state tax, local tax, sales tax, cell phone tax, hotel tax, gasoline tax, and even potential future taxes, you pay out $2.3 million in taxes. This impacts long-term wealth by taking away over $5 million worth of future assets. Why?
Dollars that are taxed early on quit earning for the rest of the time period. Every dollar that comes out stops earning for the rest of the timeframe, leading to an actual loss of $5 million despite only paying $2.3 million in taxes.
Every unnecessary tax or expense stops contributing to your long-term wealth. That’s why, though you only paid $2.3 million, the actual loss to your maximum potential is much higher. This illustrates the point that it's not just about the dollars you lose today but the compounded effect on your max potential—or what those dollars could have earned you.
Statistics show that 34.5% of average American income goes toward servicing debt. Using that 34.5% number reflects another $2.3 million going out in debt service, taking another $5.1 million away from future assets. Finally, lifestyle expenses set at 28.5% result in 1.8 million dollars in expenses and 4.2 million dollars lost in future potential, leaving barely over 3 quarters of one year's income in savings.
Despite traditional advice to take on risk for better returns, risk means increased likelihood of loss. Simply put, if you earn 100% on zero input, you still have nothing. Necessary lifestyle adjustments aside, if you can save on taxes, paying less by moving assets into tax-advantaged areas, you can reduce debt and take real steps towards fixing long-term financial issues.
While investment returns are vital, significant impacts on wealth come from better saving and spending decisions. Understanding how money works by saving money over taxes and reducing debt while maintaining a lifestyle conducive to saving can make a tremendous difference.
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