Ep 234. Maxed Out, Cashed Out, Burned Out: The Wealth Mistakes I Keep Seeing

On today's episode of the weekly Wealth Podcast, I want to take a few moments and talk about some things I've been seeing my clients do, some things I've been seeing some prospects do.

Some of these are great ideas, some of these maybe are areas where they have some improvement and just give some real world examples of what I am seeing in my private wealth management practice.

Hope that you enjoy this episode.

And here we go.

Welcome to the weekly Wealth Podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Well, hey everybody and welcome to the show.

Before we get started, let's do all of the things.

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We're doing the best that we can to put out as much incredible content as we can because like I say every episode, I believe that how we handle our money should positively impact our lives and the lives of those around us.

And this podcast and this content should be a little piece of that puzzle.

All right, so let's talk about the meat of today's episode.

We're talking today about some things that I've been seeing while I'm working in my private wealth management practice.

Now remember, I am a financial advisor.

So I work with clients, I work with individuals, I work with business owners, and I work with them to help them to make the right financial decisions for them for the reasons that are important to them.

So I don't just put out a podcast.

The podcast is actually a marketing tool just to get my word out.

But my living is made as a financial advisor.

And some of the things that I see from prospects, from clients, I like to talk about here on the show every once in a while.

Just so you can know, maybe if you have some of the positive attributes of what I'm seeing or maybe if you're making some of the mistakes that I'm seeing some people make.

So the first mistake, or maybe we can just call it a scenario that I've been seeing, is for people who are over contributing to their 401k plans.

Now let's look at a profile here.

This is somebody who maybe has a good living.

Maybe they're late for 40s, 50s, 60s.

They're past the point where a lot of their income is going towards supporting their children.

And maybe they're even trying to make up for some lost time.

Maybe they are in a scenario where they're 10 years, 15 years from retirement and they're thinking, man, like I'm doing okay, but I don't know that I have enough money saved for retirement.

So why don't I max out my 401k?

So first let's look at what it means currently in 2025 to max out a 401k.

And we're not talking about the match here, we're just talking about the employee contribution.

So if you're under 50, you can put $23,500 into your 401k.

If you're between 50 and 59, you can currently put your base deferral of 23,500.

And then there is a $7,500 catch up limit giving you $31,000 you can put into your 401k if you're between age 50 and 69.

And now after the big beautiful bill passed, your, if you're between 60 and 63, your total contribution with catch up is 34,750.

And age 64 and older, you can put $31,000 into your 401k.

So, so those are some really big numbers.

And why would a financial advisor possibly say that maybe you shouldn't?

And this is not blanket advice, you know, make sure that you're looking at your personal situation.

Make sure you're working with your advisor or just making the right decisions for you.

But let me give you some reasons why you might consider not maxing out your 401k.

Well, the first one is that you, you lose a little bit of control and a lot of liquidity if you are putting that money in the 401k.

Right?

So let's say I'm between age 50 and 59 and I'm putting $31,000 into my 401k each year.

And let's say, I don't know, I have a million and a half dollars saved up in my 401k.

I'm still working for my employer and I find an opportunity for me to buy a house in my neighborhood for a substantial discount because there's a distressed owner.

And then potentially I could rent it for income or I could sell it.

So basically there's an opportunity that I have found and it requires some money this money that's in my 401k is not really very easily accessible.

So it's difficult to get money out of my 401k.

So it's very illiquid and I may miss out on this opportunity, this hypothetical opportunity to invest in the real estate.

Part of how much money I should be Investing in my 401k depends on a lot of other factors.

Do I have other buckets of money, okay, Do I have liquid money available somewhere to act as an emergency fund if maybe I lose my job or have an emergency?

Do I have other investments where I have access to monies for things other than retirement?

And of course we have to look at how our 401ks are taxed.

So most 401ks, they have a pre tax option and a post tax option, which is called a Roth.

The pre tax option, you're generally saving money on your taxes and you're getting a tax break on the way in.

But on the way out, when you take your money out, you're going to pay taxes on it.

So you, if you save up a 2 or 3 or $4,000,000 401k as you take those monies out, if they were contributed using the pre tax method, you're gonna pay taxes on all that money on the way out.

Now, if it was Roth on the way in, you're not gonna pay taxes on the way out, but you didn't get a tax break on the way in.

So a lot to consider there.

So again, work with your advisor.

If you have any questions, let's do a vision call.

Let's talk about it for a few minutes.

Www.weeklywealthpodcast.com Vision.

But don't automatically assume that it makes sense to max out your 401k plan.

Oftentimes it does make sense to have some other buckets of money in some outside accounts that are a little bit more liquid or might even have some different or more appropriate investment options for you.

Don't forget, most of your 401 plans, they may have 10 or 20 or 30 or 40 different mutual funds.

And I would assume most of them would be pretty good and would have suitable options for you.

But if you're investing Outside of your 401k, there could be more options.

So just food for thought here.

Don't assume that maxing out your 401k is the best option.

It may not be and it's just never that simple.

We don't really make blanket recommendations, but we are asking you just to consider should you put Less Money in your 401k and allocate some other monies to other areas.

All right, what do you think about this one?

So here's something else that I hear oftentimes from prospects, and it has to do with risk and rate of return.

So we'll hear both ends of the spectrum.

Oftentimes I'll hear from people, and these might be people that are a little bit older, maybe mid-60s, 70s, 80s, and they'll say, well, I don't want any risk.

So I just put my money in cash.

I put it in a savings account or a cd.

And because they're FDIC insured, because I can't lose any money, I don't want to lose any money.

First of all, let's talk about some different types of risk.

Yes, in any investment, there always is some sort of a risk of losing value, but there's also other risks, and one of them is losing purchasing power of your money.

So we all know that inflation is going up and up and up and up, and we hear the statistics that I don't necessarily believe.

I see how much things cost more than they used to, and I know that my money needs to grow at a faster rate just for me to keep up.

So if my money is just sitting in a savings account getting even 2 or 3 or even 4%, it's probably not keeping up.

That's a mistake that I see people making is taking a large portion of their money and saying that they can't stomach any risk.

That's kind of maybe an emotional and irrational fear of losing, quote, all of their money.

Because very infrequently in the history of the world do people, for long periods of time, lose lots of their money for decades or more.

Now, that's not to say that we shouldn't have some money in a safe, liquid account.

Of course we should.

And make sure you're working with your advisor to decide how much money you should have in cash.

But being that person who's afraid of any risk at all maybe is not the wisest.

Now, on the other end of the spectrum, I see people say, well, how much can you get my money to earn?

Can you double it or triple it?

I want to make a lot of money.

And what can you do to get me the highest possible rate of return?

Now, in my practice, I don't know about your financial advisor.

I don't know what you're doing, but my goal is to help my clients to meet their goals.

Now, my stated goal is not, I will try to get you the highest possible rate of return because sometimes that's not an appropriate goal for you.

So we look at what rate of return is it going to take to help you to reach your goals.

And we look to take the right amount of risk for each individual client.

Alright, so if you're someone with very little assets and you're 70 years old and you don't have an income, your money probably should not be invested where it can get a very high rate of return because that may be too risky for you.

So let's change our mindset, let's shift our mindset and let's not ask ourselves how do we eliminate risk or how do we get the highest rate of return?

Let's ask what does our specific financial situation dictate that we need to do?

How much risk is appropriate for us specifically?

Not for your neighbor, not for your sister, not for your coworker.

And don't forget, it's just kind of like gambling.

Every time one of your buddies comes and tells you that they quadrupled their money in crypto, they're probably, probably not telling you about the money that they lost.

Just like when your buddy comes back from Vegas, they're only telling you about the times that they win.

So yes, we are looking to grow our clients money.

Yes, we do have great investment processes.

Yes, we want money to the growth of our investments to outpace inflation.

But very important, crucially important, your advisor or you, if you're working on your own, need to come up with a plan to take the right amount of risk for, for you, not too much, not too little.

And don't forget, your risk tolerance probably changes over the course of your lifetime.

Right when you're 40 years old and you're still working and you have 20, 25, 30 years until you retire.

Yes, you can afford to have your retirement accounts fluctuate a little bit because you have the power of time on your side.

When you are right about to retire and you no longer will have an income you might not be able to stomach.

If we do happen to have one of those, negative 20, negative 30.

So taking the right amount of risk for you is crucial.

What do you think?

Have you determined how much risk you should be taking?

Does your advisor talk to you about your risk tolerance and how much risk is appropriate for you?

When's the last time you stopped to ask where is my money actually taking me?

If you're a business owner or high earner who's too busy to figure out if you're on the right path, we have created something just for you.

It's called the 10 Minute Wealth Vision Call a quick, no pressure zoom where we'll talk about your biggest financial question and help you get one step closer to your ideal future.

No pitches, no fluff, just clarity, confidence and direction.

Grab your spot now@weeklywealthpodcast.com vision.

That's weeklywealthpodcast.com vision.

Your vision deserves 10 minutes.

Okay, so far we have talked about about some things that I've seen lately that some clients and prospects and just people I've been talking to maybe have not been doing quite right or maybe they're just some different strategies they should consider.

So the first one is like don't automatically assume that maxing out your 401k is a good idea.

Maybe you should have some more money liquid available in other accounts.

Maybe you should have some other monies in other accounts for different purposes like college savings and things like that.

And then the other one is just not really understanding risk, not understanding that we need to take some risk in order to have some growth and outpace inflation.

But we're not necessarily looking to have all of our clients have all of their money grow by as much as possible.

We should have different buckets of money with different amounts of risk.

I wonder if you feel like any of those apply to you or if you have any questions, make sure to email me david@parallelfinancial.com now the last one, and I see this all of the time and this is a hard one and this one has even gotten me at times in my career.

And that's business owners not separating their business and personal monies.

It's a big deal.

But you got to remember, just because you just got some revenue in for your business does not mean that you can take all of that money out and put it into your personal account for personal expenses.

So I'll see it all the time.

Maybe there's a self employed person and they just got paid for a big job.

They got a 5 or a 10 or a $20,000 commission check.

And like in their mind they have 5 or 10 or $15,000.

Maybe they don't withhold taxes.

Maybe they're not putting monies aside to pay some expenses that may have been associated with that income.

And maybe they are not putting any monies aside to pay for business expense.

Not everybody's in a business where income and revenue is spread out evenly.

We do have to prepare for times when revenue is not strong.

So a lot of business owners, they just, they don't have time, they don't have the ability.

And sometimes it can be almost depressing to really deal with the business finances.

But I think it's really important to deal with your business finances.

It's important in many cases to put yourself on a salary, not only for IRS compliance reasons, you are a S corp election, but also just so you're basing your personal bills, not directly on the business income.

So it's nice if you can pay yourself $1,000 a week, $2,000 a week, whatever that is, regardless of how much money is in the business bank account, and then maybe come up with some formula that at the end of every quarter, every six months or annually, you being the business can give yourself some sort of a bonus.

But oftentimes it just makes sense to leave money in the business account.

So dealing with the business account money appropriately and not mentally considering it your money I think is really important.

And that's when a like a self employed person becomes a true business owner is when they can manage or get the help from someone to manage their business finances, to know how much they can afford to pay themselves, to make sure that they're withholding the right amount of taxes, to make sure that they're putting monies away for equipment maintenance, for times when revenue might be slow, and all of those times where the show must just keep going on.

So if you're a business owner and if you want to talk about your business finances, if you want to talk about how you should be handling your monies, how to know what you can afford to pay, how to know which of your expenses are reaping a return for you, this might be an opportunity for us to have a chat.

Email me davidparallelfinancial.com and we can set a time and we can talk about some ways that we can help you to make financial decisions for your business based on your financial statements, based on your, your cash flow, based on your P and L. So I hope that that makes sense for you.

That's one that resonates for me and this is a hard one because as business owners we put so much blood and sweat and tears into our business.

But we need to draw that mental line between our business finances and our personal finances.

Now I truly believe with 100% certainty that one of the main purposes of my business is to help my family to have a good life.

So yes, part of that is a financial component and yes, that does include having my personal income grow, having my business pay me more.

But we have to do it purposefully and we have to do it in a way that is sustainable.

All right everybody, that's about going to wrap up this episode.

But before we finish up, let me remind you about some of our free tools.

So for your 10 minute vision call if you want to spend about 10 minutes with me over Zoom and just talk through a financial issue, go to www.weeklywealthpodcast.com vision if you're in some debt and if you would like a link to a debt Snowball calculator, go to www.weeklywealthpodcast.com debtsnowball.

And of course we have to talk to the business owner.

So the business owner should all be looking at their value builder score.

Www.weeklywealthpodcast.com valuebuilderscore.

You can get a general estimate of a rang that your business might sell for.

And also you'll learn about some of the areas of your business that you can improve in order to make it more sellable or sell for a higher multiple.

And then if you are considering selling your business in 1, 5, 10 years from now, I have two really cool tools for you.

We have the Prescore, which is the Personal Readiness to Exit score.

It'll talk to you about some qualitative and quantitative questions about leaving your business.

So www.weeklyweal prescore.

And yes, we'll have all of these links in the show notes and then the Freedom Score.

This will give you some general numbers of what you might need to sell your business for in order to have the lifestyle that you want.

So that's www.weeklywealthpodcast.com freedomscore.

So check all these out.

They're all free.

There's no charge.

Most of them take just a few minutes and they can be very valuable to you.

It's a privilege for me to bring you this.

I love working on the Weekly Wealth Podcast.

I love putting this content out for you.

And please let me know what you might want me to cover on the Weekly Wealth Podcast.

Please don't forget to tell your friends, tell your family, tell your colleagues and your co workers about the show.

And yeah, until next episode, I wish everybody a blessed week.

Thanks everybody.

The information contained herein included but not limited to research, market valuations, calculations, estimates and other materials obtained from Parallel Financial and other sources are believed to be reliable.

However, Parallel Financial does not warrant its accuracy or completeness.

These materials are provided for informational purposes only and should not be used for or construed as an offer to sell or a solicitation of an offer to buy any security.

Past performance is not indicative of any future results, and here is your bonus content for this week's episode Last week at my Friday morning men's Bible study, we talked about being isolated and how most of us don't make great decisions when we're isolated.

When we're alone, we tend to fall into whatever our struggles are and what are whatever our negative tendencies are.

So with regards to your money, don't go it alone.

Use either a financial advisor or work with the people in your life to come up with some goals and just to run things by them.

Oftentimes we can give into temptations and we can make spontaneous decisions when it's only up to us.

But if we have the support, if we have the accountability from others, we can at least avoid very major mistakes.

And trust me when I tell you, you I've seen some high earners, I've seen some very wealthy people make some decisions that they come back and say, yeah, I don't know why I did that.

That just didn't make sense.

And oftentimes they did it because they just didn't have the support of others.

They didn't have wise counsel.

And maybe it was spontaneous.

So food for thought this week, don't do it on your own.

Work with an advisor, work with friends, work with colleagues.

Colleagues.

Work with accountability partners.

But make sure that you have somebody helping you.

All right, everybody.

Until next episode, I wish everybody a blessed week.

Thanks, everybody.