I'm not really sure how long my readers have been with me but I've been publishing on and off on my blog for almost a decade, and I've posted on various sites for even longer. I got to thinking that new AI enabled tools were generating a serious bit of content, and I wondered if the most easily accessible version of Chat GPT, which is built into the Bing search engine, would give better advice than the uncertified and over credentialed author of this blog.
I queried Chat GPT about setting financial priorities for a person with savings, debt, and a six figure income, and this is what I got back :
---Beginning of quote from Chat GPT---
Here's what I generated for you
Here is a list of financial priorities for a person with some savings, some debt, and a six-figure income in a top ten format:
Pay off high-interest debt. If you have any credit card debt, personal loans, or other high-interest debt, you should focus on paying them off as soon as possible. High-interest debt can quickly eat away at your savings and limit your ability to invest for the future1.
Build an emergency fund. An emergency fund is a stash of cash that you can use to cover unexpected expenses or income loss. Ideally, you should have at least three to six months’ worth of living expenses in your emergency fund2. Having an emergency fund can help you avoid going into debt or tapping into your retirement accounts when life throws you a curveball.
Max out tax-advantaged retirement accounts. As a high-income earner, you may have the ability to save the maximum allowed within workplace retirement plans such as 401 (k)s. The limit for 2023 is $20,500; if you are age 50 or older, you can put aside $6,500 more in catch-up contributions3. You may also consider contributing to an IRA, either traditional or Roth, depending on your income and eligibility. IRAs have lower contribution limits than 401 (k)s ($6,000 for 2023, plus $1,000 catch-up), but they offer more flexibility and investment choices4.
Consider a backdoor Roth IRA. A backdoor Roth IRA is a strategy that allows you to enjoy the tax benefits of a Roth IRA, even if you earn too much to contribute directly. A Roth IRA allows for tax-free withdrawals in retirement, which can be very valuable for high-income earners who expect to be in a high tax bracket later on. A backdoor Roth IRA involves contributing to a traditional IRA and then converting it to a Roth IRA, paying taxes on the amount converted. You can do this every year, as long as you have the cash to pay the taxes5.
Invest outside of your retirement accounts. If you still have money left to invest after maxing out your tax-advantaged retirement accounts, you can open a taxable brokerage account and invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs), or other securities. A taxable brokerage account does not offer any tax benefits, but it gives you more flexibility and control over your investments. You can access your money at any time, without paying any penalties or taxes (except for capital gains taxes when you sell). You can also use a taxable brokerage account to save for other goals besides retirement, such as buying a home, starting a business, or funding your children’s education6.
Lower your taxable income. As a high-income earner, you may face a higher tax bill than most people. One way to reduce your taxes is to lower your taxable income by taking advantage of various deductions and credits that are available to you. For example, you may be able to deduct mortgage interest, property taxes, charitable donations, medical expenses, student loan interest, or business expenses from your income. You may also qualify for credits such as the child tax credit, the earned income credit, the American opportunity credit, or the lifetime learning credit.
Optimize your asset allocation and diversification. Asset allocation is how you divide your portfolio among different types of investments, such as stocks, bonds, cash, real estate, or commodities. Diversification is how you spread your investments within each type of asset class, such as investing in different sectors, industries, countries, or companies. Both asset allocation and diversification are important for managing risk and maximizing returns in your portfolio. As a high-income earner, you may have more money to invest and more options to choose from than the average investor. You should review your asset allocation and diversification regularly and make adjustments based on your goals, risk tolerance, time horizon, and market conditions.
Hire a financial professional. Managing your finances can be complex and time-consuming when you earn a high income. You may benefit from hiring a financial professional who can help you with various aspects of your financial life, such as creating a budget, planning for retirement, investing wisely, minimizing taxes, protecting your assets with insurance, estate planning, and more. A financial professional can also help you avoid common mistakes that high-income earners make, such as overspending, under-saving, taking too much or too little risk, neglecting tax planning, or falling prey to scams.
Give back to causes you care about. As a high-income earner, you have the opportunity and responsibility to make a positive impact on the world with your money. You can donate to charities that support causes you care about, such as education, healthcare, environment, human rights, or animal welfare. You can also volunteer your time, skills, or expertise to help others in need. Giving back can not only benefit the recipients of your generosity, but also yourself. Studies have shown that giving can improve your happiness, health, and sense of purpose.
Enjoy your money. Last but not least, you should enjoy your money and the fruits of your hard work. You have earned the right to treat yourself and your loved ones to some of the finer things in life, such as traveling, dining out, shopping, or pursuing your hobbies and passions. Of course, you should do this within reason and moderation, and not at the expense of your financial goals or security. But you should also not feel guilty or ashamed of spending money on things that bring you joy and fulfillment. After all, money is a tool to enhance your life, not a goal in itself.
Learn more:
1. ramseysolutions.com
2. smartasset.com
3. bing.com
4. cnbc.com
5. kitces.com
6. financialdynamicsrva.com
-End of quote from Chat GPT
Overall, the advice was decent but imperfect.
There was a heavy reliance on popular opinions, and direct quotes from outdated sites leading to factual errors on the actual amount that could be contributed to a 401k or an IRA, part of which may have been related to the limitations of the programming used to build the library for the chat engine as that dataset is pre 2020, and part of which could be simply wrone base information from a site that hasn't been updated being used as a reference.
I general there's a lot to agree with. Paying down high interest debt like credit card balances, payday loans and personal notes is usually jot a controversial piece of advice, as is setting up an emergency fund, and investing in a tax advantaged fashion.
Minimizing expenses and boosting income in order to maximize saving potential is more of my focus, but overall I think that CHATGPT wrote a pretty good article and used the viral top ten format. I would give a C for effort but, considering that the retirement account values were factually incorrect, no more than that. I usually give myself a B plus for my own writing, so I am going to take the W over the heartless, mindless engine of artificial intelligence today.
