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A
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B
So good, so good, so good.
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B
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B
Hey everyone, and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify brought to you by public.com by the end of this episode, you'll know exactly how to build wealth without tracking every transaction or feeling guilty about your spending. My name is Austin Hankwitz. I'm joined by my co host, Robert Kroke. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million. And I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode we talk about rich habits as they relate to business, finance and mindset. So Robert, what are we talking about in today's episode?
- [01:39]
D
In this episode of the Rich Habits podcast, we're talking about why traditional budgeting doesn't work for most people and what to do instead. We're breaking down how to build wealth without spreadsheets, without tracking every transaction, and without the psychological burden of of traditional budgeting. We're talking about automation, reverse budgeting and designing a system that works on autopilot. According to a study by U.S. bank, only 41% of Americans use a budget. And of those people that do budget, 73% say they failed at it within the first year. And that's a massive failure rate. The reason being is traditional budgeting is exhausting. The average person who budgets spends five to ten hours per month tracking and categorizing their transactions. And this can be problematic because everyday people are spending more time tracking their spending versus learning ways to make more money. By the end of the week, most people describe themselves as mentally exhausted from managing and tracking their money, which leads to worse decision making. And eventually abandoning the habit itself.
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B
Most people don't need to track every dollar. They need a protocol that automates the important stuff and lets them allocate the rest without detailed day to day monitoring. They need we call an anti budget. So, Robert, let's talk about the anti budget framework. We're going to lay out specific steps on how to build one of these. But before we do that, we think we should set the table as to what the anti budget is and what it is not. The anti budget is based on one simple principle. Automate your savings and investments first, then spend the rest guilt free. Traditional budgeting says you should track everything. You should optimize everything and control everything. We think traditional budgeting is cool. I do traditional budgeting. Robert does traditional budgeting. But we know that that doesn't work for everyone. And so if it hasn't worked for you in the past and you're still struggling with budgeting, maybe today's episode is for you. The anti budget says automate the important stuff and ignore the rest. Here's how it works. Every time you get paid, money automatically flows to the right places before you can even touch it. Savings, investments, retirement debt payments, things like that. It's all automatic. Then what's left over in your checking account is your spending money. You can spend this however you want. There's tracking. There's no guilt in what you spend it on. There's no spreadsheets. You just you spend the money that's left over. This is called reverse budgeting or pay yourself first budgeting. So Robert, let's walk our listeners through how to set up an anti budget in four simple steps.
- [04:10]
D
Yeah. Step one is calculate your savings rate. The first step in building an anti budget is deciding on a savings rate. This is the percentage of income that automatically gets saved and invested. The average American only saves 4% of their income and that's nowhere near enough to build wealth. We recommend here at the Rich Habits Network and Rich Habits podcast to save 15 to 20% of your take home pay if you ever plan to retire with dignity in the future. And the earlier you start doing that, the better. And here's the kicker. Fidelity conducted a study and found that millionaires in their 60s and 70s had average savings rates of 23% throughout their careers. Not the 4% like average Americans, but 23%. So aim to be like them. Higher savings rates directly correlate with faster wealth accumulation and earlier financial freedom. Remember, we don't want to see anyone on our watch becoming Walmart greeters at 70 years old. We're just not here for that. So this episode is all about getting you to understand your options. And studies show that people who increase their Savings rate by 1% per year don't even notice the lifestyle impact. But the compounding effect is massive. A 1% increase on a $70,000 yearly salary is $700 a year. And over 30 years at an 8% return, that single 1% increase becomes $87,000 more towards retirement for you. The key is starting where your income and expenses currently allow the than systematically increasing it as you earn more money throughout your career.
- [05:49]
B
I love this 1% example, Robert, because if I was a listener right now and someone's telling me to go save 15 to 20% of my monthly take home pay, I'd be like, y' all are crazy, get out of here. I'm not doing that. But if you had the mentality of okay, 1%, I can save 1% more. Just 1% more, right? Just that 1% more. Every single, if it's maybe every quarter, you try and save 1% more every, you know, six months or even every year if you got to go that slow. But get up to that 15, 20, 25% savings rate, that's what's going to allow you to retire with dignity. Now let's move on to step two, which is building your automation system. Step one was figuring out what your savings rate is. Now we got to actually figure out what to do with that savings. You need to have money automatically flow to the right places the day after you get paid. Not a week later, not two weeks later, not seven days, one day after money's gone. Here's the setup. First, open separate accounts for different purposes. The existing checking account that you have that your employer just paid into, this can be for what's spending after everything's said and done, right? That's like your little spending account. But you need to open a high yield savings account for your emergency fund. Just boom, automated away. A brokerage account for your investments on public. Boom, automated that away. Have that 401k at your employer so you can have that taken out of your paycheck before you even see it. Don't keep everything in one checking account. You will not be able to tell what's for spending, what's for saving. It's going to get messy. You're going to spend stuff on accident. You're going to over save and get discouraged. Separate accounts create clarity. I've got a bunch of separate accounts, Robert does as well. Now you need to set up Those transfers for the day after your payday. So if you get paid on the 15th and the 1st, on the 16th and the 2nd you send it off to that account. I personally do this myself, I get paid on the 15th and the 1st, more specifically in the beginning of the month is where I get paid the most of my money. And right after it hits my account I automatically take 33% and I put it in a high yield savings account for taxes and then I take a percentage and I automatically put it toward my bridge account on public. Like that is just automations that happen already for me and I do it every single time without fail. Now here's what that could look like for you. Your 401k contribution is already going to be taken out of your paycheck assuming you're contributing up to the match. So that's cool and taken care of. Now also assuming maybe you've already built your emergency fund of three to six months of expenses, you're now going to transfer maybe that monthly, you know, 575, 600 bucks, whatever it is, to your Roth IRA. So you're maxing that out every year, right? That's an automated transfer. Then maybe another 5% goes to a brokerage account on public, your bridge account. And you're now investing to retire early. After these automations have been done, the transfers are complete. What's left in your checking account is your guilt free spending money for that.
- [08:30]
D
Month and automate your bills, please, please, please. Rent, utilities, insurance, subscriptions, all on Autopay. You never have to think about them, they just happen. And you track them on a spending calendar. You know exactly how much is coming out and on what day. This takes all the stress out of your monthly bills and ensures you don't make late payments because remember, want to keep that credit going in the right direction as well. So here's what you're left with. All your wealth building is automated, all your bills are automated. And the money you see in your checking account is money you can spend guilt free. No stress, no anxiety. So if you want that $14 avocado toast, go for it. Because you've set everything else and you're in the right place for your wealth building strategies.
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B
That's what's so important too is people. And again I think we talked about this on a recent episode and I suffer from this. I've got friends that suffer from this which is like I need to save and invest every single dollar I can find in my budget, right? But if you are following this anti budget of A savings rate of 15, 20, 25%. Like you're good, you don't have to go save every single dime. You can go enjoy a little bit of your life, right? And so that's what's so cool about the anti budget is because you kind of pay yourself first, everything's set in stone, you're good to go. And then with what's left over you can say yeah, I'm going to get the new pair of shoes, I want to go to that concert, I want to go out with the buddies. Like I've got X amount of hundreds or thousands of dollars left over my budget to go spend on that. Now Robert, speaking of investing, right, if you're making these transfers on a bi weekly basis, you need to be making them to an investing platform for those who take investing seriously, which is public.com on public you can build a multi asset portfolio of stocks, bonds, crypto options and now generated assets which allow you to turn any idea into an investable index using AI.
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D
And it all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and let the AI do the work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500, all with just a few clicks.
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B
Generated assets can be thought of as ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's. So go to public.com rich habits and earn an uncapped 1% bonus when you transfer over your portfolio. That's public.com rich habits paid for by Public Investing.
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D
Full disclosure in the podcast description.
- [11:05]
B
All right Robert, so now that we've talked about finding and calculating what that savings rate is and then building the automation system, let's now walk through step three which is creating those spending guardrails. So with that guilt free spending you're doing, it's not getting out of control. Traditional budgets set very strict limits. They say hey, you can spend $252 at the restaurants this month or you can only spend $400 this on groceries or 800 on transportation, whatever it might be, right? The anti budget uses guardrails, not strict limits. We say guardrails. You can think as simple rules that keep you from going off the rails without really micromanaging every single dollar. So the first example is the 24 hour rule for purchases over a hundred dollars. So maybe you're like listen Austin. Robert, I found this awesome coffee maker. It's 212 bucks and I love it. I can't wait to use it. Perfect. You probably will like it. But give yourself 24 hours of just some some downtime here to really come to terms with that decision. Right? Sleep on the decision before you go make it. And sometimes, depending on what that initial exciting item or a thing you were trying to buy is, you might not want it after even just 24 hours. So give yourself a 24 hour shot clock before you make a big purchase. Another one is the subscription audit rule. Every quarter, review your subscriptions and then cancel what you're not using. This happens four times a year, not every month. So hey, springtime, gonna go through my subscriptions. Oh, I haven't used that one in a while. I haven't watched Disney plus in two months. Why do I still have that? I don't check in on my ESPN app as much as I thought I would. Let me get rid of that, right? Audit your subscriptions often enough. Would they an impact, but not so often where you feel like you're micromanaging your life.
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D
I like the 24 hour rule and a lot of people don't know this. On these higher ticket purchases or impulse purchases, if you do let it sit, put it in the cart, think about it, but put it in the website's cart. Because most of these websites are going to have a drip campaign within 24 to 48 hours. They're going to send you a discount code to get you back to buy that item. So if you do decide, make sure you wait that 24 to 48 hours, get the discount. Then at least the impulse purchase is much more affordable. So a couple that I like is every time you go shopping, have a real and clean list of what you plan to purchase. Whether it's groceries or your Target Run or whatever it is. And this will prevent impulse buying and also prevent you from forgetting important things. Then you go back without a list and buy seven more items you don't really need. So I hope you like this list of our ideas. Maybe you can add some to your own list of what to do. Because these aren't restrictive budgets. These are simple rules that prevent stupid spending decisions without requiring constant monitoring. So Austin, let's get into step number four, the guilt free spending account. One of the most powerful aspects of the anti budget is guilt free spending. Once savings and investments are automated, whatever remains is available for spending without the psychological burden and all the stress of it. When people feel guilty about purchases, they're actually more likely to engage in binge spending later on. And for example, we found a study that dieters who broke their diet were 47% more likely to completely abandon it and start binge eating, which is a huge number. And the same psychology applies to budgets. One failure often triggers a complete breakdown of the budget and actually following through. So the anti budget eliminates this. Once high priority financial goals are automated, the remaining money has psychological clearance for spending and no stress.
- [14:44]
B
Now, Robert, we just spent a whole episode talking about an anti budget, which is like it's similar to a budget in the sense that you're doing all the right things, but you've got a little bit more fluidity, some flexibility on this spending account with what's left over. Before we wrap it up, I think we need to address and answer the question as to when people actually need a real budget, right, not just this anti budget fluid kind of, you know, Strategy. Unfortunately, about 65% of Americans live paycheck to paycheck. And for people in this situation, there might not be positive cash flow to automate away to, you know, your investing account, your emergency fund, your brokerage on public when 100% of your income is going towards survival. Automation is not the solution yet. But you listen to the Rich Habits podcast. So our goal is to obviously help empower you to take control of your money and stop living paycheck to paycheck. A study in the Journal of Financial Planning found that people who track their expenses extensively for two to three months Identify an average of 400 to $600 per month in spending leaks that they were not aware of. So if you are living paycheck to paycheck, join me in the new year here in January for no spend. January. I'm going to do it. I'm so excited. It is going to be an awesome time for all of us. And we'll do these little weekly check ins if you all want, but it's going to be an awesome opportunity to audit your spending down to the the bare bones, figure out what you really need to spend money on every single. No eating out there, no buying things for fun. There's like literally try to spend as little money as you can in January. I do this every year. It helps reset my spending habits and it helps me understand how little I can live off of if something bad happened. Right? So just understanding what that, that baseline is, how, how, how low it can go really, really helps people move in the right direction, especially if they're living paycheck to paycheck. And by the end of it, you're like, whoa, I, I did find 500 bucks. How fun is this? But if you're not living paycheck to paycheck, consider graduating to the anti bud work we just talked about in this episode.
- [16:46]
D
I love how tactical this episode was, but also it brings in mindset because I think a lot of this, when you think about finding 4, 5, 6, $700 a month, I always hear so many people think that wealthy people don't budget because they have all this money and they just spend frivolously. And I think it's actually the opposite in society. The people that I come across and I meet and I work with all have budgets of different styles. And that's why this episode to me is very important. Because I want to get everyone out that might be struggling a little bit, living paycheck to paycheck, or taking on a side hustle to make ends meet. To understand that if you do budget and you figure this all out, even if it's the anti budget, you will find extra money and help you get back on track financially. Because traditional budgeting works for some people. If you love spreadsheets, it's tracking every dollar makes you feel in control, keep doing that. But for most people, it's miserable and it's unsustainable. That's why I'm a little loose with my budgeting as well. I have it all dialed in, but I don't track every little dollar. But for people that might be in a tighter situation, I think it's important to do that and look at both strategies, the anti budget and the honest budget. Because the anti budget is different. It automates what matters and ignores the rest. It focuses your energy on high impact decisions like your savings rate, your income growth, and your investment strategy. So automate your savings, automate your investments, automate your bills, set simple guardrails to prevent impulse decisions, then spend the rest guilt free and focus on increasing your income.
- [18:24]
B
I love this episode. I really, really appreciate this because at the end of the day, you're either someone that's a money nerd that likes to track all this stuff, or you're someone that's a little bit more fluid. And not everyone is happy being a money nerd. But if you are more on that fluid side, right, the anti budget, as long as you are doing what Robert said here, by focusing your energy on impact decisions, right, that savings rate you're investing, you're sa like all the stuff, they're paying off high interest at those high impact decisions, you are going to trend in the right direction regardless. Now of course you can optimize for every dollar like we of course encourage people to do here, but we know it's not for everyone. But maybe the anti budget is for you.
- [19:02]
D
Yeah, we talked about this last night in the Rich Habits Network that sometimes people spend so much time tracking every dollar that they lose track of the fact that they need to be growing their income and their revenue sources as well as and I really think it's important for people to understand both sides. Yes, we want you budgeting. Yes, we want you tracking your money and automating, but we also want to make sure you're focusing on learning in financial education and growing your income streams as well along the way because it makes it all a lot easier.
- [19:31]
B
Now Robert, before we jump into the Q and A section of this episode, which of course if you have a question to ask us, email us@rich habitspodcastmail.com or DM us on Instagram at Rich Habits Podcast. Or you could join The Rich Habits Network 7 day free trial link in the show notes below and always get your questions answered via our two hour weekly live streams we host over there. But before we jump into that, gotta give a shout out to this episode's sponsor, NEOS Investments NEOs offers ETFs that seek high levels of monthly income with a keen focus on tax efficiency while also providing core portfolio exposure across equities, fixed income, real estate, cryptocurrency and cash alternatives like treasury bills. Their ETFs may be especially interesting for investors looking to generate tax efficient monthly income inside of their existing investment portfolios. Their funds may serve as a compelling income focused alternative or complement to many of the investments already inside of these portfolios.
- [20:30]
D
So if you're looking to add passive income focused ETFs to your portfolio, consider learning more about NEOs ETFs@neosfunds.com and as with all investments, investors should carefully consider their investment objectives, risks, charges and expenses of NEOS exchange traded funds before investing. To obtain a prospectus containing this and other important information, please visit neosfunds.com Please read the prospectus carefully before you invest. An investment with NEOS funds involves risk, including possible loss of principal. There is no guarantee that NEOs ETFs will make monthly distributions and the amounts may fluctuate from month to month. Cryptocurrency is relatively new as well, and the market has its own specific risks. NEO CTFs are distributed by Foreside Fund Services LLC.
- [21:17]
B
And speaking of NEOs, got to give a quick shout out to NE H I their new Ethereum High Income ETF just came out which is exciting. Major shout out on that one. And their new ETF MLPI is the Neos MLP and Energy infrastructure high income ETF. So they're coming out with these new ETFs all the time that again serve as complements to an existing, well diversified portfolio. I love they've got going on over there. We're going to have to have Garrett and Troy back on the show here very soon. All right Robert, let's now jump to our first question. This one was emailed to us at rich habits podcastmail.com by Rustom G. Rustom says hello Austin and Robert, I love the podcast. I've been listening since the beginning and I really appreciate the practical, no nonsense advice you two share. Quick background on me. We're an immigrant family from Uzbekistan, ages 41 and 36 with four kids under 18. We rent in Austin, Texas and both work remotely and it as W2 employees. Our household income just crossed $200,000 this year. We've invested roughly $55,000 in ETFs and a few individual stocks. 25,000 in a private multifamily deal projected to return 19% annually between now and 2027. We currently have 20,000 in savings earmarked toward a future home purchase. This though does include our emergency fund. We also have 13,000 in a car loan at 9% interest that we're aggressively paying down. Small $3,000 student loan at 0% so here's my question. If you are a financially disciplined immigrant family with strong credit, stable income, four kids and a 20 year time horizon, what would you stop doing immediately to help accelerate wealth building as a follow up? Do you think that we should prioritize buying a primary residence or an investment property in this stage? Thank you Robert. What a really cool question from Rustem.
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D
Yeah, I would say this is a great question and I like how he phrased it. It because of the fact of what would I stop doing? How do we fix this? And it starts with again building your base at 41 and 36 years old with four kids. You need to get that base built up. You have a family, you have all of these responsibilities and right now you just don't have enough base and I don't want to see you all over the place in real estate and here and there and everything else. I would stockpile as much money as I could every single month into the ETFs you talk about and get that built up First, I wouldn't be doing any other real estate deals or investing deals. And then secondarily, the only thing I would do is take that money that you said you have 20k in savings. I would make sure that's in high yield savings and I would separate that money if you're going to buy the primary home in the next two, three years from your emergency fund. Because the emergency fund fund should not be blended with investing dollars. So that's what I would do. Increase the ETFs, get that built up to 100k first. Get your savings built up in your high yield savings so you have three, four, five months of your bills because you have a family set aside in a high yield savings account and then have a separate account for the savings for the house coming in the future. I don't think you're in a situation yet to be looking at additional real estate investing just yet. I would get the base built, do the separation between the emergency and the home funds and move on from there.
- [24:42]
B
I think that's a great breakdown. I would stop my and Robert kind of alluded to this, my excitement of new opportunities. Oh, I've got this cool multifamily deal. Oh, I want to go buy a house. Or like, if I were you, I would lock in in 2026 on getting as much money after tax dollars invested into the stock market across a Roth IRA, maybe your 401k, but especially that bridge account. Right? Because here's the deal, you're 41 years old and I know you guys haven't been making that much money for a long time. 200k last year or so, you've been starting to make this much money, which is great. We're talking about 13 to $14,000 hitting your checking account every single month. You got four kids, so you're a family of six. I'd imagine you could probably live in Austin, Texas on about 10,000amonth, right? That sounds pretty reasonable. So you now have three to $4,000 every single month that you and your wife need to lock in on PIL into these accounts. So what would I stop doing is I'd stop looking around at all these different opportunities and I would lock in on getting hundreds of thousands of dollars invested into the markets between my wife and myself before the age of 45. Give yourself a couple years to accomplish this, right? You're at 55,000 right now. What's it going to take to get to 250? Figure out what that number is. That's going to really make you feel Good, because let's talk about that for a second. Robert. Let's assume our friend here has $250,000 invested into the markets at 45 and they contribute nothing more. More, right. From 45 to 67 when they're ready to retire. We're talking about $1.8 million. Assuming you don't give any more money to the markets. It's just that 250 and it grows for you for this 22 year period of time. $1.8 million is what you would have in retirement. Of course you're going to contribute over time more. You're going to be multi, multi millionaire if you play your cards right. But the, the big thing I'm trying to have you understand is it seems like you're all over the place on what you're excited about and you kind of have all these different financial goals. And it's good to have goals, but it's more impactful. If you have one thing, you focus on it for a prolonged period of time and then you move on to the next thing. This one thing that you need to focus on now, in my opinion, is getting hundreds of thousands invested. Once that's the case, pause on that. And now let's focus on a down payment for a house. We got the new house. Cool. What's next? Right, like that's how you really begin to accelerate your wealth building over a long period of time.
- [27:01]
D
I love this insight, Austin, because so many people, I feel like when they first start making a lot of money, they all of a sudden everyone knows they're making money and they get all over the place. The shiny ball syndrome gets ahold of them. And I think this is great because we want to see everyone build that base of at least a hundred, but preferably a couple hundred, two, three, $400,000 before you diversify too widely. Because we want to make sure you're always making money while you sleep in investments that we talk about that are compound annually over time and give you that financial freedom later on. So I really like that insight.
- [27:35]
B
So our next question comes from Dovid on Instagram. Dovid says hi. My wife and I love the show and have been binging episodes since discovering it. We've heard your opinions on whole life insurance. I've been paying into a whole life insurance policy for the last 14 years. I also have a term life insurance policy, but if I dare bring up canceling the whole life insurance policy to my broker, he sends me tons of data tables and makes me feel like an idiot for wanting to Cancel. Am I getting played here, here? Should I simply walk away from this policy? Other than being 37 years old, we're in perfect health and can probably take out another term policy if need be. Thanks so much David Robert. I'll let you kick this one off.
- [28:13]
D
Dovid. Yes, you're getting played, sadly, because you have to look at it this way. We love term life insurance. We think it's great. We do not agree with whole life insurance and Iuls as a form of investing. Can a whole life insurance policy be good for high net worth people? Yes, there is a time and a place for it, but in your wealth building journey and at your age, I think it's a mistake and I think you are getting played. You have to look at it this way. A whole life policy has high premiums, high fees, very low returns. The average whole life policy gains around 1 to 3% a year when you can put the same amount of money in Voo in the S&P 500 and generally make 8, 10, 12% a year. And then also you have to understand they never tell you how high the commissions or fees are for them. That is one of the things that bothers me the most because all these people selling these whole life policies brag about how more millionaires are made selling insurance than any other industry. And to me that's a problem. I don't think people should be making millions and millions of dollars off of the cash and the backs of other people to sell them something. It should be nominal fees and it should be fair for both parties. Whole life policies and Iuls do not do that. And then lastly for me, and then I'll give it over to Austin is these grow very slowly. So before you see any of this real growth that they talk about in the policies, understand it takes years for that to happen. So that's my take. I'm not a fan. I would probably walk away from the policies and go into another term life policy or invest that same money into a brokerage account and be able to just ride it out and let it compound for the next 30 years until you reach retirement.
- [29:59]
B
I think it's a great breakdown. David, here's what I want you to do. I want you to go to ChatGPT or Google Gemini or your favorite, you know, generative AI chatbot here and I want you to type in the following. I want you to say hi there there. I've been paying X amount of dollars, whatever that number is to you per month into a whole life insurance policy for the last 14 years. Assuming that I was instead investing this money every month into the S&P 500 and reinvesting dividends back into this portfolio, how much money would I have today? I don't know what that number is because you didn't tell us what you're paying per month, or I would just do it for you here. But that is how much money you could have had today. But you don't, because now you're going to have to go cancel this policy. You're going to get a surrender value on it, which is going to be a FR Fraction of what you actually would have had if you just invested this money. And if you wanted this money in your whole life insurance policy anyway, you'd have to go borrow it, go into debt, where if it's in your portfolio, it's your money anyway. It's on your balance sheet. It adds to your net worth, right? Who wants to go into debt to have money that they've been paying into? Like, it just doesn't make any sense. At the end of the day here, what you need to do is cancel the policy. You need to take those monthly payments that you've been, you know, putting in for last 14 years, go put them into a online brokerage account, we prefer public, and put them in the S&P 500 and close your rise and do it for another 14 years. Because that's how you're going to be able to build wealth. Still, despite having done this over the last, you know, couple decades here, you mentioned the term life insurance policy. I've got a term life insurance policy. I think it's the best way that people can ensure that if something happens to them, their family can, you know, still take care of themselves and have income that comes in from this lump sum payment. So go get a term life insurance policy. I use suriance. I'm insured at $2 million. My policy is like 20, 30, 40, 60 bucks a month. It's super cheap. I also just got a umbrel policy, Robert, for $5 million and it's only $1,050 a year. A thousand bucks a year? That's crazy. So, like, if you are someone who is building wealth and you've got these things you're working on, like have the right insurances in place. And news flash, whole life insurance is not one of the right insurances to have. No matter how many cool brokers with their little suits on take you out to lunch and show you some tables that make you seem like an idiot. Like also screw your broker for making you seem stupid for wanting to cancel like that just doesn't make any sense.
- [32:15]
D
Yeah, I can't stand it. And there are so many core sellers and so many fake gurus out there always pushing these life insurance policies that have these massive, massive fees for them. To me, that's just shady and I just don't recommend it. But let's move on. You've all heard us talk about the importance of diversifying your investments for years now. And there could be a major opportunity today in private market real estate estate. Especially with the market timing right now.
- [32:42]
B
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- [33:01]
D
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- [33:11]
B
And as always, carefully consider the Fundrise Flagship funds investment material before investing, including objectives, risks, charges and expenses, as this and other information can be found in the Flagship funds prospectus@fundrise.com Flagship all right, Robert, let's now round off the episode with our final question coming from Kev on Instagram. Instagram. Kev says hi, Austin and Robert, thank you for your time sharing your experience and knowledge about building rich habits. I currently have $400,000 invested in a single stock. I've experienced a 10x return and I'd like to take out a large portion to put into some diversification over the long term. What red flags should I consider if I were to sell a large portion at once? Appreciate your tips of how to go about this with lessening the tax burden all at once months currently in the 24 tax bracket. Thank you. All right, Kev, What a awesome situation to be in. Congrats on making 10x on your investment. That's so freaking cool, man. I. I'm so jealous. That's awesome. I feel like everyone deserves to have a 10x in their portfolio at least once in their life. So how cool is that? So let's talk about taxes because I think that is the most important thing to address here. First, you mentioned you're in the 24 tax bracket as of 2025, which tells me that you're making more than a hundred and four thousand a year. Year, but less than 197,000 a year. Right. So you fall within that tax bracket. Now, what's important to remember here is that long term capital gains, which is what I'm assuming this $400,000 is, falls within three tax brackets. The first one is 0% capital gains. That doesn't apply to you. The second one is a 15% capital gain tax on your profits. And the third one There is a 20% capital gain tax on your profits. Now, when I say capital gains tax, the capital gains depends on your total income profile for the year. So here's what you don't do. You don't go sell your $400,000 position, realizing a $360,000 gain that is now added to your total 2025 income. Right. Taxable income, which then on top of, you know, you very well could be at the 190, 197,000, you know, income range here, which would then push you over to the next tax bracket for Capital gains at 20% when it's over 518,000 a year of total, you know, income as, as a unit. So I guess I'm trying to say here is your best case scenario is no matter how you take these profits, is to ensure that your annual income as kev does not exceed $518,000. Because if it exceeds $518,000, your capital gains goes from a 15% tax to a 20% tax. And we don't want to do that. So if I were you, I would sell over a couple of years if I could, depending on what this stock is. Or maybe I sell in, you know, a tranche here in 2025, I sell a little bit of it, then I sell again here in 2026 so I can get out of it faster, depending on how, how, you know, volatile the single stock is without really impacting too much of a capital gain tax there. At the end of the day, though, we're talking about a 5% difference. 5% difference on $360,000 is only about 15, 17,000, which, depending on what this stock is, can move up or down by 15 or 17,000 as an entire position pretty quickly. So don't over complicate things, right. Get out if you need to get out. But if you can kind of break it up between a 2025 sale and a 2026 sale, or maybe you sell the majority of it to keep you under the 518 threshold, that's how I would approach it.
- [36:57]
D
I agree with this tactic perfectly and the only thing I would add is you definitely want to diversify out over time in this position. It's way too outsized for your net worth. And so I agree with you 100%. Austin. I think that was a great breakdown. And Kev, good luck. Break it down over time, listen to what Austin said, said, and you'll do just fine.
- [37:16]
B
100. And again, this goes for anybody and I think we should talk about this. I think a lot of people put too much weight into oh, but it's not a long term capital gain yet. I can't sell it. I gotta wait till long term cap gains. You know, it's gonna be taxed as ordinary income. If you are invested into a company and it was speculative and you made a bunch of money and your speculation has, you know, expired and you're like, I gotta get out. You get out. You don't care about tax that, you know, 25 or whatever your effective tax rate is because it can go down by more than that by staying in it. Right? Kev, just make sure that you're approaching this from a perspective of if you play your cards right and you do fall into that 15%, you'll save about 15 to 17,000 in taxes. But if this position moves down by more than that $17,000 you did all this for, not. So just make sure you're keeping all that in perspective. As always, everyone, thank you so much for joining us on this week's episode of the Rich Habits podcast where we got to break down the anti budget. For those of you who are not living paycheck to paycheck, but you're also not a money nerd and you don't enjoy tracking every transaction.
- [38:17]
D
Yeah. What a great episod. I like it because it's tactical, it's mindset, but it helps people understand you can achieve the same goals whether you're a money nerd or you're a little more fluid like I am with your budget. So what a great episode. And don't forget, for any of you that are new around here and haven't joined the Rich Habits network, we are running a seven day free trial right now. You can come in, kick the tires, join alive, see what it's all about. Get in the school community and see all the awesome people, people, all of the different threads, all for free for seven days. So make sure you check it out. There's a link in the show notes below.
- [38:53]
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And if you're someone who's ready to start taking your investing to the next level, be sure to join the Rich Habits Network because you get to invest alongside us into some of the coolest companies. We just did a SPV for SpaceX. We've all seen the rumors about that IPO next year, so really cool to be investing in that one again. We also are doing an investment alongside the co founder of Poppy, the beverage company that sold to pepsi for about $2 billion. He recently invested invested into a consumer packaged goods brand that we are now invested into as well. So lots of really cool things are happening in the Rich Habits Network. So if you've not yet joined, be sure to check it out. Thanks everyone and we'll see you on Thursday. Sam.