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- [00:00]
A
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 today's episode, you'll be able to confidently know whether cash or equity compensation is right for you. My name is Austin Hankowitz. I'm joined by my co host Robert Croak. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million. And I'm a multi millionaire in my late twenties with a background in finance and economics. As the show name might suggest, every single episode we talk about rich habits as they relate to business, finance and mindset. So Robert, what are we going to be talking about in today's episode?
- [00:41]
B
In today's episode of the Rich Habits podcast, we're demystifying employer stock options versus cash compensation to figure out which one actually builds more wealth over your lifetime. Today we're breaking down when each one makes sense what the data actually shows and giving you the framework so you can apply it the next time compensation comes up and in your jobs negotiation. Most professionals are forced to make this decision without nearly enough information. And here's what deserves a lot more scrutiny. $100,000 raise in salary might actually be worth less than $100,000 in stock options. Most startups hand out equity like confetti, but most employees have no idea how to value what they're holding. And in my opinion, cash is king. Until it isn't.
- [01:26]
A
And Robert, I think this conversation is more relevant than ever to tech companies distributed over half a trillion dollars in equity compensation to their employees since the pandemic, making it one of the largest components of total work and compensation in the United States. Equity is no longer this startup fringe perk anymore. A huge portion of the professional workforce. It's a core part of how they are receiving their compensation and the decisions that they make around it have long term consequences. And as AI continues to grow, many of you might be worri working at an AI first company, considering joining one or even renegotiating now your total compensation package to include equity. Because you know where things might be headed. This episode is for everybody, no matter your current situation. So Robert, let's start the episode by defining some key terms, starting with what are stock options?
- [02:23]
B
Austin, There are three main types of equity compensation you're likely to encounter in your working career. The first is incentive stock options known as ISOs. And these are are typically offered to full time employees and they come with favorable tax treatment. If you hold them long enough, your gains can be taxed at a long term capital gains rate rather than ordinary income rates. The catch is that exercising these incentive stock options can trigger what is known as the alternative minimum tax or amt, which is a parallel tax system that catches a lot of people off guard and we'll get back to that, but definitely cover it.
- [03:00]
A
Now. The second main type of equity compensation is non qualified qualified stock options. These are sometimes called NSOS or NQSOs. Guys, a lot of acronyms. What's going on? Stay with us here. You're going to understand this very simply. Non qualified stock options are more flexible. They can be granted to employees, maybe contractors, or even advisors of companies. But the tax treatment is far less favorable. When you exercise a non qualified stock option, the spread between your strike price and the current fair market value is taxed as ordinary income right away, whether you sell the shares or not. That can create a real cash flow problem if the company is still privately held and you just can't sell the stock that you've got to pay taxes on.
- [03:51]
B
And the third main type of equity compensation, and increasingly the most common at larger companies and later stage startups, is restricted stock units, otherwise known as RSUs. And RSUs are simpler in some ways and you don't buy anything. Shares are simply granted to you invest over time, and when they vest, they're taxed at ordinary income at their fair market value on the vesting date, which means at a public company where you can immediately sell to cover the tax bill, RSUs are relatively straightforward. At a private company, you can owe taxes on shares you have no way to sell just yet. So to summarize, there are incentive stock options that are taxed favorably. There are non qualified stock options that are more flexible as to who can earn them. But cashing in on them can lead to cash flow problems if you can't yet sell the shares. And finally, the most popular restricted stock units, which are shares the company gives you and you can sell once vested.
- [04:50]
A
Okay, so we've laid the groundwork here. What are stock options? You've got three different types. Robert just did a great job summarizing that. Let's now define three terms that matter for every type of equity compensation. Because you know, there's different types of equity compensation, but all three of those different types, these terms apply to each one. So the first term is the strike price. This is the price at which you have the right to buy shares in the company at. And it is set when the options are granted to you. And ideally it's well below the fair market value of this company. Oh, I get the option to buy some Amazon at 10 bucks a share, but it's trading at 200. Sounds cool to me. That is the strike price. The second term that applies to all three of these different types of stock options is the term vesting. Vesting is the schedule over which your equity in the company becomes yours to use and do whatever you want with. The most common vesting schedule is four years with a one year cliff, which means you get nothing for the first year, but then after that one year cliff, you go over the cliff. Then for the remaining three years, your equity is given to you every month or every quarter. And finally, the third term, as it relates to these three different types of stock options is, is a liquidity event. Liquidity event. Make sure you keep that one in your back pocket. This is the moment where all of your equity actually becomes real money in your brokerage account through an IPO and all cash acquisition, or in some cases a secondary market sale. Until that liquidity event happens, your options are only a number on your computer screen and you can't do anything about it but drool at the hypothetical numbers you might have one day.
- [06:42]
B
Yeah, and the last point is definitely critical because you can have equity worth millions on paper and $0 in your account if the company never reaches that liquidity event Austin was talking about. And this is a very common outcome. About 70% of equity given to employees at startups never turn into cash because the company doesn't IPO or get acquired. Let's now assume you do have an ipo, but in most cases those come with a six month lockup period. Imagine being one of the employees at figma when they IPO'd, thinking you're now worth 10, $15 million, only to watch your equity decline in value by 80% by the time you could actually sell that equity. So you always have to remember, don't count your chickens before they hatch. I've seen this over and over. It's happened to me for decades now. You get this equity, you're super excited, you see some company, it's getting some momentum, some traction, and you think you're going to cash out and get all this money only for the company to run out of gas, they don't have more money for Runway, or something happens within the company and you don't have that liquidity event or the ipo. I've seen it happen over and over. So please don't count on this money until it's reality and it's actually hitting your bank account. Because too many people Think they're rich now, live beyond their means, and then the money doesn't come through and they find themselves in financial trouble. So Austin, give us the deep dive on the side by side comparison between equity and cash so people can understand what the best option for them is.
- [08:13]
A
100%. So we've talked about the three different type of stock options. We've talked about the three terms that are most common as it relates to those stock options. And now what we're going to do is do a little side by side comparison. When is cash compensation the right form and when is equity compensation the right form? So the case for cash compensation is very straightforward. It's liquid the day you receive it. Congrats, you got cash in your checking account right now. The taxes are very predictable. You are now taxed at ordinary income income. You can deploy that cash immediately to go do things like pay off debt or build an emergency fund or invest into the index funds and ETFs we always talk about. Maybe you want to put that money toward a down payment on a future home. There's no vesting cliff. There's no liquidity event you need. There's no strike price. A dollar is a dollar. We all get that. Now. The case against cash is that cash itself has no upside. $150,000 salary is $150,000 salary. The company you work for, let's give Nvidia a great example, can 10x in value. But if you don't have any equity in that company when it 10x'd in value, well, you're SOL. You just opted for cash instead of cash plus equity or a ton of equity or whatever it might have been. The people who captured the growth of that 10x of Nvidia over the last call it five years now, were the ones that held equity in the company. That's the asymmetry that comes with owning equity, in that you work for beyond just your cash compensation. It's exactly why equity became such a central part of compensation in high growth industries like artificial intelligence, technology, and sometimes even health care.
- [09:57]
B
And the case for equity is that asymmetry. If you think about early Google employees, they turn some small amounts of equity into tens of millions of dollars. Early Apple, early Netflix, early Meta. The pattern repeats again and again. And now we're seeing the same thing with OpenAI, anthropic and space. The people who are in those rooms holding equity at the right time build generational wealth on a timeline that no salary could have dreamed of matching. The case against equity compensation is everything that has to go right for that outcome to materialize for you. The company has to grow. It has to reach a liquidity event. Your vesting schedule has to be far enough along to capitalize on your options. The strike price has to be meaningfully below that exit price. Each of those variables is out of your control. And all of them have to break the right way for you to experience those outsized gains. Most of the time they don't break your way, which is why 70% of options go unexercised and are considered worthless equity. It has happened to me many times, like I alluded to before, so make sure you understand. So, Austin, walk us throughout a specific scenario where someone would want to receive cash compensation versus equity.
- [11:11]
A
So this is when cash wins. You want to accept all cash compensation when your financial foundation is not yet solid. You have the high interest credit card debt. You do not have an emergency fund. You're trying to save a down payment on a house. Right. Your immediate financial stability is worth more than some speculative upside in a company that may or may not have a liquidity event in seven years from now. You cannot pay your mortgage with underwater equity in a company. Let me say that again. You cannot pay your mortgage. You can't eat this stuff, right? You, you need cash. And that is the perfect scenario to describe when cash actually wins. The financial foundation has to come first in sometimes more. Cash versus equity is how you build it faster.
- [11:58]
B
Yeah, cash also wins when your opportunity cost is high. Every dollar tied up in equity at one company is a dollar you can't invest into a diversified portfolio. Compounding at market rates, the S P500 has averaged roughly 10% annual returns over the last few decades. Your unvested equity is returning you 0 until they best and 0 more until there is that liquidity event. And if the company's actual trajectory does not dramatically outperform that benchmark, you might have been better off with the cash in the first place.
- [12:30]
A
And cash also wins for people who just happen to be risk averse by nature. And that's okay. If the uncertainty of equity compensation creates genuine stress in your life, it might might impact impact your decision making or makes you feel financially unstable. The psychological cost of holding equity is real and it matters. Personal finance is personal. We say this all the time. And that's okay. A compensation package you can live confidently inside of is worth something that doesn't show up in a spreadsheet. So, Robert, let's now talk about when equity compensation is the right way to go.
- [13:04]
B
Yes, equity wins when you have a genuine conviction in the company, not just optimism like you might have because your nephew graduated from Yale and is building the hot new app. Or you're considering working for a company because you golf with one of the managers and he talks about how great it is. Conviction needs to be grounded in real understanding of the market they're operating in, the team behind the mission and the product they're building and the trajectory. The people who made life changing money on early stage equity weren't just lucky. Most of them had real reasons to believe in what they were building, the team behind it, the total addressable market and where this company could actually go. Not built on a pipe dream over beers.
- [13:44]
A
And equity also wins when you have a solid financial base. We talk about building the base all the time, getting out of that high interest credit card debt, having the emergency fund, getting your first hundred thousand dollars invested in the markets. You've got those things upright. That is when equity could begin to come into play. When you have those boxes checked, the equity actually becomes true upside for your financial future. Money that you can afford to have locked up and potentially lose because your financial destiny doesn't entirely depend on it materializing. You are already going to retire wealthy, not because you roll the dice. And hopefully this tech startup is your financial freedom, right? That's not when it wins. Equity wins. When you've got that figured out before you take the compensation. That's the position where equity becomes a wealth accelerator rather than a source of stress.
- [14:38]
B
I think also equity wins when you have time horizon flexibility. Like we mentioned earlier. A lot of times these vesting schedul schedules might take you four, five, seven years to be able to get any access to those funds through the equity that you own. So the realistic timeline for joining an early stage company to a liquidity event can generally last that long. Seven, eight, 10 years and sometimes longer. So make sure you have that timeline flexibility to be able to wait it out to get that additional cash if it's going to come. And equity really wins at companies where the equity is actually structured well, not all equity packages are created equal. Trust me on this. The strike price matters, the liquidation preferences in the cap table matter, the dilution history matters. And before you consider taking a ton of equity as compensation in any company, you need to understand exactly what you're getting yourself into. You need to understand the numbers. How do you win here? What is the upside so you can make a solid decision?
- [15:40]
A
And the last thing you need to understand before you make that decision is the taxes. We cannot have this conversation with at least flag the tax side of things because the tax treatment of equity compensation can dramatically change which you actually net in your checking account or your brokerage account. And a lot of people learn this the hard way. So please make sure that you are consulting with a tax professional before accepting a major percentage of total compensation at a new job in the form of equity. Because as we alluded to earlier, they're all taxed just a little bit differently. And if you're not careful, you can find yourself owing taxes on stock that you can't sell for cash. It's actually a great example. My fiance, Ireland worked at a fintech startup back in the day, which is a great company that will likely ipo, which is really exciting. But when she left that company to go onto her next adventure, she had to make the decision of do I want to exercise my options to buy stock in this company? And if yes, I have to now pay taxes on that despite not having the ability to sell the stock yet because they're not publicly traded. Like, you got to make some weird decisions and like it. It kind of puts you in a, in a weird corner if you don't have that tax consulting along the way. And the last thing you want to do is have a bunch of equity but you can't afford it or whatever's going on with the tax stuff. So again, talk to a tax professional
- [17:05]
B
and make sure you understand everything we're talking about in this episode. Because you have to remember that person on the other side of the table that is negotiating this strategy with you of equity versus cash. They are there for the best interest of the company, not necessarily you. There is so much trickeration and so many different tax implications that you need to understand before you sign on the dotted line.
- [17:28]
A
So, Robert, let's round off the episode, walking our listeners through four questions they should ask themselves when making a decision about cash or equity.
- [17:38]
B
Yeah, they need to take notes here. Number one, do I truly believe this company is on a trajectory to have a meaningful exit? If the honest answer is no or I don't know, weigh the cash option heavily. Number two, do I have a solid financial foundation already in place? Emergency savings, no high interest debt, baseline retirement investing. If the answer to this one is no, cash builds that foundation faster. And number three, can I realistically afford to wait seven to 10 years for this equity payoff? If your life situation makes that timeline unlikely, cash gives you the flexibility that equity can't. And number four, do I understand what I'm actually holding by buying Equity in this business, the strike price, the vesting schedule, the liquidation preferences, the cap table structure. If you haven't done that analysis and don't understand it, the equity number is largely meaningless until you do.
- [18:33]
A
And if all four of those questions for you point toward yes, you believe in the company, you've got that foundation built, time horizons work for your situation, and you understand the structure of the company, then equity becomes one of the most powerful wealth building tools available to you as an employee at a company. The people who built generational wealth on early equity weren't just in the right place at the right time. They understood what they were holding, they had the financial stability to let it ride, and they were working somewhere they genuinely believed in.
- [19:05]
B
Austin, I love this episode and I just want to tell a quick story about waiting it out and having that timeline flexibility. And it always brings me back to Apple and the third founder that you've never heard of, Ronald Wayne, who sold 10% of Apple stock in the company equity in the company for $800 back in 1976. And we looked it up and what is it worth now, Austin? Something like 300 and some billion dollars now.
- [19:33]
A
Yeah, 372 billion dollars as we record this. So what a 372 billion dollar mistake that was. Geez Louise.
- [19:41]
B
That's right. So if you the equity, make sure you have that flexible timeline, neither cash nor equity is objectively better. That's the honest answer. And anyone who tells you different is trying to sell you something. Cash is certainty, equity is a bet. And that bet can pay off spectacularly or it can expire worthless. And both outcomes happen regularly. So just make sure you know what you're doing, make sure you read the fine print and protect yourself by getting a third party cpa, your lawyer, someone that understands and can help you negotiate the deal.
- [20:13]
A
And you know what, if any of y' all listening right now work at one of these cool AI tech companies, I mean, I hope y' all are asking for equity. I hope you got a little RSU action or a little something going on there. Because again, we talk about this all the time. The only way anyone will be able to stop trading time for money in their life is by owning equity and growing businesses. Now the equity that I own is in a ton of different businesses, private and public. Think the stock market. But the easiest way anybody listening right now can own equity in a growing business is just by investing into the S P500. Because that's what it is. It's equity and growing businesses. But if you Work at a company who might be publicly traded, might be on that cool trajectory. Like whatever's going on, hopefully this episode can make it dangerous when it comes to your next compensation negotiation.
- [21:02]
B
And if you're thinking about a career jump from a job you have now to a company that is growing and they are offering equity options, think long and hard about it, that it might be the right move for you having that upside potential if you have the flexibility in that timeline like we discussed.
- [21:18]
A
And Robert, you know, talking about these people who might be making that switch or you know, doing a new job, something like that. There's a guy, I don't want to name names, but I'm sure people can figure this out. It's going all over X right now. It's very viral. He used to be a VP at Google and they're software engineering department. And then he became the CTO of a publicly traded company. Right. So he's a C suite executive now at a publicly traded company and just took a major step back and is now a staff engineer at Anthropic. He went from cto, a publicly traded company to staff engineer at Anthropic. I would imagine because he wanted equity in a growing business. Right now Anthropic makes more money than OpenAI. It's a rocket ship. This is multi trillion dollar company in the making. And if you find yourself in that situation where you're like, wait, I got this really cool job but I might have to take a step back in my career to go jump aboard a rocket ship, maybe it's a good idea assuming you get some equity, who knows?
- [22:19]
B
Yeah, I love that takeaway. Speaking of rocket ships, let's give a
- [22:22]
A
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- [22:43]
B
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- [23:04]
A
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- [23:26]
B
Full disclosure in the podcast description.
- [23:28]
A
All right, Robert, let's now jump to the Q and A section of this episode. As a reminder, if you have a question, you can ask us questions on Instagram at Rich Habits Podcast. Or you can email us at rich habits podcastmail.com with your question. I think we've got a couple emails in one Instagram. We'll see. But anyway, we check both. Send it to both. We're all over there all the time. Don't get discouraged. We get like 30,000 questions every single week. Just be patient with us or join the Rich Habits Network, our community for our biggest fans. We answer questions all the time in there. This first question comes from James on Instagram. James says, hey Austin and Robert, my name is James and I've been listening to the podcast since the new year and it has lit my investing fire. Nice. Let's go James. Congrats. Welcome to the show. James says, I'm 40 years old and I've got 90,000 in a Roth IRA, 83,000 in my bridge account, and $154,000 in a high Yield Savings account. I've slowly started investing cash out of my High Yield savings into my brokerage account and I've been getting into the habit of making monthly contributions. Love to see that. That's great. James says, I'm also a business owner. I own a restaurant along with real estate for a little over two years. Now I'm looking to start a 401k safe harbor match of 3 to 4% for a tax weapon. I've gathered some information on providers including an advisor driven model from American funds at a 0.98% advisory fee and online based models which have lower fees, anywhere between 0.125% and 0.5% to 5%. Considering that I will be the largest contributor, I'm leaning toward the lower advisory fee model. Should I be concerned at all with having to do any of these administrative duties? Should you be concerned? I mean, sure, first off, I would go consult a tax professional, right? I'm not a cpa. Robert's not a cpa. Go talk to a tax professional. That's going to help you navigate this professionally. But at the end of the day, assuming you get through most of the admin setup, I would imagine it's a lot of just set it and forget it Once it's kind of running here, we agree that low fee provider is probably going to be the best way to do it. Find yourself a couple index funds, perhaps some mutual funds that make sense. Make sure they're low cost because we talk about low cost index funds and ETFs all the time here. And then let the platform handle all the compliance paperwork. Just contribute, get the match, do what you got to do and ride the wave.
- [25:56]
B
Yeah, I would definitely click back on that. You have to get somebody that knows what they're doing because we just unwound a plan that was a safe harbor plan for one of my clients, great friend of mine and she has like 25 employees and it was a nightmare. But also the thing they don't tell you, the total fees in some of these plans can be upwards of a point and a half, one and a half percent against your money. And when you have smaller businesses you might want to look at like Fidelity, they have a low cost version. Charles Schwab has a low cost version called 401k go. So take a look around and find a low cost version because honestly I think you can self manage. Let them handle all the back end, all the administrative. You pick three or four of the ETFs we talk about, you're up and running and you're not paying out all these fees. But just make sure you understand what you're getting yourself into. I love what you're trying to accomplish for your employees, but you also don't want to put yourself in harm's way from a taxable perspective. But also if you went through a tough period, period, let's say you have a down season but you still have to make those minimum required payments to it. You don't want to put yourself in a cash flow crunch either. So do your research, love the question and love what you're trying to do for your employees. But make sure you understand because my experience with these safe harbor plans, they're very sticky to get rid of and they're very expensive to hold.
- [27:18]
A
Yeah, I mean just thinking about the numbers here, Robert, 0.25% from a betterment for example, or a 0.125%. Right. So like 12, 12, 25 or 98. Right. 0.98% or 150. Right. Like it's a very different approach and it gets very expensive. And as you think about compounding wealth over a long period of time, 1% compounded over 25 years is tens of thousands hundred plus thousand dollars that you're just giving to people to put your money and stuff. Like, come on, you got this. James. You listen to the show, I think the administrative work. Yes. Go hire an attorney, hire a tax consultant. Work with the people. So you're following the right guidelines, but I don't think you need to go Pay a fund 0.98% to go tell you what indices to to put your retirement in 100%. Next question comes from Nye. Nye says, I met you guys in person a few months ago while you were in front of the Spotify building. I listen to your podcast every week and I'm trying to figure out how I should navigate my finances. Shout out to you. Yes, I do remember you. That was awesome. And I even think we took a picture with them. That's pretty fun. All right, so nice says I make one $15,000 a year. I have $10,000 in my high yield savings. I made one recently after listening to your podcast and I've already made it up to this 10,000 but hoping to continue to grow it. I have 7,000 in e trade stocks, 4,000 in credit card debt, 25,000 in my 401k and 50,000 in student loans. I also have $10,000 for a car note that I still have to pay off. My monthly bills are about 5,000amonth. Month. I know lifestyle creep with a frowny face. However, I'm 38 and a little nervous on where this puts me for the long term. I work in tech and the tech industry is getting scary. I'm trying to figure out if I should pay off my credit card debt and then just start saving from there. My fear is with all these tech layoffs happening, I want to make sure I have some liquidity and a nice fully funded emergency fund. What do you recommend in my situation? If I were in your situation, I would recommend taking some of the money in that E Trade account, that bridge account you've got on e trade, the $7,000 stocks. Cash out 4,000 of that and use that to pay off the credit card debt and then even take the rest, the 3,000. Throw that in your high yield savings and get your high yield savings account up to four, five, maybe six months of spending, right? $30,000. Five times six is 30,000 versus right now it's at two months. If you're really scared and you really feel I can't sleep at night, I got the jitters. I got this anxiety because of what's going on with tech. I don't know if I'm going to be employed tomorrow. Then Treat it like a crisis, beef up that emergency to six months and then start investing from there. What do you think, Robert?
- [30:05]
B
Yeah, I like that a lot because so many people, and we see it every day, they try to save their way to a profit and it just doesn't work. We say it all the time in the Rich Habits Network and on the podcast. You can't out invest high interest debt. And right now I feel like you're trying to hold on to what you have in E trade in your high yield savings. But the problem is this 4k in credit card debt is going to eat you alive because you also have the 50k in student loans. We have to get the credit cards knocked out. I like your plan, Austin. Take it from the E trade and worry about beefing up that emergency fund because here's what happens. If you were to get laid off and it took you 3, 4, 5 months to find another comparable job, I know exactly what would happen. You would exhaust what you have in high yield savings, which right now is only two months, then you would resort to the credit cards and you'd run them right back up. So we want to get the credit cards paid off, build up the high yield savings because right now it's not as much about you, you investing because you're trying to invest while you still have all this debt. It's about you having a protective barrier in case something happens with your job. Now in the meantime, I would look at every bill you have subscriptions, everything you do. What are your weekend? Do you have an honest budget? What do you do on weekends? How much are you spending every weekend? And I would cut it all out until you get yourself back on track and you get more money going towards investing. Investing once you clear out the high interest debt.
- [31:30]
A
I love that, Robert. I mean they mentioned this lifestyle creep at 5,000amonth. Maybe if they. And again, I don't have a budget in front of me. I'm just speculating here. But maybe if you cut out maybe two subscriptions, three subscriptions, maybe you get rid of the every Friday night doordash, maybe you stop, you know, going out once per month to this specific bar with your friends that you always end up spending 180 at like, I don't know your situation, but I feel like that 5000 could get much closer to 4500 or 4200 if you just started to tighten up the budget a little bit. And then as we think about, you know, you're making 115,000 a year, assuming you're effectively taking home 70% of that. So call it $80,000 a year. After taxes, insurance, 401k contributions, stuff like that, you're looking at about $1,500 a month between what you're spending now at 5,000 and what you're receiving. So call it 6,500 bucks a month in, 5,000amonth going out. But I just gave up a couple scenarios on how maybe that 5,000 turns into 4,500. So now we're receiving 65 and 45 is going out. So that $2,000 a month is our margin. And maybe that's where that high yield savings, you know, sort of accelerant can come from. Now fast forward a year or two and you've got a fully funded emergency fund. Now you're looking around, you're like, okay, let's go up to the match with the 401k. So I get the free money. Now I'm going to try and start contributing to my Roth IRA. IRA rocking and rolling with that. Now we've got 40, 50, 80, $100,000 invested to get the base built. Now we can get aggressive about these student loans, right? So let's say you're 38. Now fast forward to 43. You're rich because you got all this money now, and now you're ready to go pay off these student loans in a very aggressive fashion. Maybe you got a raise, who knows? And now you're 45, 46 years old. Call it a five year plan. Like, like that's. We talk about this phrase all the time, Robert. Wealthy people forecast broke people react. And forecasting is not week to week, month to month. It's years of forecasting. It's half a decade of forecasting. Because by seeing an end goal and having a clear path to get there, staying motivated is a lot easier than saying, oh, but like, I think if I do this and I try to do this thing and if I don't do it right, like I see no progress, I'm not making any clear progress toward my goals.
- [33:53]
B
I.
- [33:53]
A
You don't even know where you're going yet. You have to make those goals and make them crystal clear for you financially. So we're hoping that this is a little bit of kind kick in the butt because we know you can do this. It's very clear. You make a ton of money. You're not that bad. I mean, geez Louise, you got a great savings account. Like you got some 401k, rock and roll. But now you've got a plan for five years from now to get your base built and start aggressively tackling those student loans. And who knows, maybe 45, you got 100, 200, $400,000 by the time you're fit. 50 early 50s invested in these retirement accounts because of the choices you made at 38.
- [34:30]
B
Yeah, I love that takeaway. And I just did some quick math of what the average night out is in New York City for a person on a Friday or Saturday night. And it's ironic that it said 78. So if you take $78 for a night out, let's say you go out Once a week, $78 times 52 weeks is $4,056, which is exactly what your credit card debt is, is. So I wanted to share that math because you are crushing it. You are making six figures and yet you're still in this situation. So making these few tweaks, these couple tweaks is going to get you on path to being financially free and not feeling stuck or worse, left behind.
- [35:12]
A
Now, before we answer our final question, we've officially entered the second quarter of 2026 and with what's going on in the Middle East, I feel like uncertainty has never felt so high. And the major indices haven't experienced durable uptrends in months. The has completely flip flopped on their rate cut assumptions from what they were just in January. And inflation has now with the price of oil going up, become incredibly sticky.
- [35:36]
B
Which is why it's never been more important to have a plan and stick to it. And if you're a long term investor like us, that plan has never been easier to come up with and implement dollar cost average and ride the wave.
- [35:47]
A
We've been talking about how important dollar cost averaging is for years now. And when the market feels shaky, it's hard to see your progress. This is why we recommend recommend becoming a part of the social platform Blossom Social. On Blossom you are able to see your entire portfolio in a very clean and simple way. Your holdings, performance, dividend, all that stuff, all on Blossom.
- [36:09]
B
You're also able to follow other long term investors on the platform, helping you stay motivated during uncertain times. Not to mention the portfolios on Blossom are all verified. So if you're seeing someone buy and sell a name, it's because they actually did it in their own brokerage account. And it's not this trust me bro stuff or screenshot from somewhere else.
- [36:28]
A
We are both on Blossom. Our portfolios are over there. So if you want to join us, just search up Blossom Social in the app store, head over to blossomsocial.com on your phone or your desktop. There's a link in the show notes as well. Major shout out Blossom. They are an incredible platform for long term investors, especially during this shakiness in the markets. Now our final question comes from Susie. Susie says, hey guys, I've been enjoying your podcast for a few months now. I used to listen to to music. Now I binge listen to your podcast. That's cool Susie. Thank you. Susie says, they are 43 and other than a 401k, I am new to investing. I finally bought my first ETFs thanks to you guys. Let's go. Susie Sundays, I've got two questions. I'm looking for a new job and I have about 70,000 in an ESOP plan with my current employer. The employer is doing well, it's growing, has been in financial business for 40 years now. But once I get a new job, is this an opportunity for me to roll my esop or do I leave it where it's at since the company's doing so well? And my second question is, when you guys say dollar cost average into the index funds and ETFs we talk about, can you just explain a little bit more about what that means? Again, I'm new to this so I'm still learning. Thank you so much for all you do. Robert, you want to kick this one off?
- [37:44]
B
Yeah, I mean definitely. We always want to see you keep it simple in ETFs. Do you get that first hundred thousand, $200,000 built in, making you money while you sleep? That's why we always talk about four or five of these ETFs that we really like and we think everyone should own as it relates to the ESOP plan. Like we talked about earlier in the episode, if you have conviction around the company and you believe that they're going to keep growing and it's going to benefit you long term, then I would say keep it. You could keep it or you could take a partial payment of your ESOP plan. Depending on the plan. Sometimes you can sell off a portion of it and get some more money into these ETFs we talk about. But just read the print so you understand the tax implications before selling it. That would be my take. Great job. Just make sure you understand the fine print so you know what to do with the money. And if you should let it roll, take a portion off. But always be keeping it simple.
- [38:39]
A
In these ETFs we talk about totally agreeing the ETFs. I'm probably dumping the ESOP so ESOP is employer stock Ownership Plan. And it's a retirement plan that invests primarily into the employer stock, which tells me you've got 70,000 dol in a financial business that's been involved in financials, whatever, for last 40 years. Now that's cool. But you also just said you're 43 and other than your 401k, you don't have any other investments, which tells me Maybe you've got 20, 30, 40% of your net worth invested into a single company. That's great to hear that they're doing well, but past performance is not indicative of future returns. And so if I were in your shoes, Susie, I would sell half, if not all, all of this esop, get out of it, and then redeploy those proceeds into The S&P 500, the NASDAQ, the Dow Jones Industrial Average, the total world stock market, whatever you want to do to feel diversified. But I don't think I would want to have so much of my net worth invested into a single stock like this. It's not that the company is bad. It's not that ESOPs are bad. It's not none of that. It's just without full information, I can't make this decision a hundred percent. But I'm leaning toward getting out of it because the context clues you've given me tells me this makes up 25, 30, 40% of your net worth. And having 40% of your net worth into a company that, oh no, the CEO got caught on only fans or this happened over here, like, who knows, right? But like, congrats, you're 40% just vaporized. Like, you are putting a lot of your net worth into the decision making of a specific company and like, what they're doing and things like that, which, hey, you know, you put your whole net worth into Apple in day one. Like, it would have been a good bet. Maybe this is the same good bet. Like, I genuinely don't know because I don't have full context here, but having 30, 40% of my net worth into a single company sounds kind of scary.
- [40:37]
B
Yeah, I like that. Take Austin, because our general rule is you don't want to have, in a traditional sense, more than 5% of any of your money in one stock. And if it was 10%, maybe that'd be okay with me, even 12, 13%, but not 40%. So I would say definitely agree. I said sell some off. You said sell half somewhere in there. Half or maybe even more, based on Austin's take, I think is probably the smart move because then you're protecting yourself from the downside so you don't have all your eggs in one basket.
- [41:07]
A
Everybody. Thanks so much for tuning in to this week's episode of the Rich Habits podcast. We hope now you have a little bit better understanding of cash compensation versus equity compens, the different types of stock options, the different terms that go into understanding these types of stock options, and what your financial foundation has to look like before you should consider receiving equity in different types of companies in the form of compensation. Don't Forget, check out wallstreetfavorites.com to see what Wall street thinks about your own portfolio. Consider subscribing to the Rich Habits newsletter. Every single Thursday morning we share our market insights and join us inside the Rich Hab where you can hop on a live stream with us on a Tuesday night. It's a seven day free trial. No money out of pocket. You can cancel if you don't like it. There's no hard feelings. It is literally a seven day free trial. We've have over 900 people in there now, Robert, and we are hosting these live streams with hundreds of them every Tuesday and it's so much fun.
- [42:08]
B
Yeah, I want to be clear about this. Every Tuesday night, if you're in the Rich Habits Network, there's all these other cool things happening in the Rich Habits Network. But every Tuesday night we go go live for two hours. We answer hundreds of questions. We tell you what we're doing with our own portfolios. We talk about the markets to help keep everybody calm. It is what I think is the coolest thing I've ever been part of in my career. And if you are serious about leveling up, learning more, gaining more knowledge of what to do for your personal finances, I think it is an incredible community and I'm very, very proud of what we've built.
- [42:43]
A
Thanks everyone and we'll see you on Thursday. Thursday.