Rich Habits Podcast Episode 96: Building Generational Wealth in Your 40s & 50s

Hosts: Austin Hankwitz and Robert Croak
Release Date: December 23, 2024

In Episode 96 of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Croak delve deep into strategies for building generational wealth during your 40s and 50s. Targeted at individuals who feel they might be falling behind financially, this episode serves as a comprehensive guide to reclaiming financial control and setting up a prosperous future for oneself and one's family.

1. Increasing Household Income

Audit Your Budget (00:46 - 03:15)

Robert kicks off the discussion by emphasizing the importance of either having an income or a spending problem. The first step to addressing an income problem is to audit your household budget. This involves:

• Tracking All Income and Expenses: Understanding exactly how much money is coming in and where it's going each month.
• Allocating 15-25% of Income for Investing: Once expenses are audited, the goal is to identify a portion of income that can be consistently set aside for investments.

Notable Quote:
Austin: "I think just that right there is the solution, right? Finding that margin in your budget. Because that is how we build wealth." [03:15]

Strategies to Increase Income (03:15 - 06:29)

If after auditing, it becomes clear that increasing income is necessary, the hosts suggest several strategies:

• Side Hustles: Exploring additional income streams outside of your primary job.
• Professional Certifications: Acquiring new certifications or skills that can lead to promotions or higher-paying positions.
• Job Hopping: Sometimes, switching employers can result in significant salary increases, often between 15-25%.

Notable Quote:
Robert: "You have to always be aware of that. Like you said, always be moving up, whether it's with your company or moving on to another company..." [06:29]

2. Putting Your Money to Work

Eliminating High-Interest Debt (06:29 - 13:20)

Before investing, it's crucial to eradicate high-interest debt, such as credit card balances or title loans. The hosts warn against the trap of trying to "out-invest" high-interest debt, which can severely impede wealth accumulation.

• Debt Avalanche Method: Prioritize paying off debts with the highest interest rates first to minimize total interest paid over time.

Notable Quote:
Robert: "You will never build wealth by paying 35% interest on credit cards or 60% interest on a title loan debt." [13:20]

Maximizing Investment Returns (13:20 - 16:56)

Once debt is under control, the next step is to ensure your money is working effectively:

• High-Yield Savings Accounts: Ensure your emergency fund is growing rather than stagnating.
• Retirement Accounts: Optimize 401(k) investments by choosing high-performing ETFs and index funds instead of underperforming target-date funds.
• Bridge Accounts (Taxable Brokerage Accounts): Maintain a separate account that allows access to investments before retirement age without penalties.

Notable Quote:
Austin: "Over the long term, there are three places you want to continually be earning your interest... High Yield Savings account, in a retirement account, and in your bridge account." [13:20]

3. Estate Planning

529 Plans and Education Savings (16:56 - 19:16)

Investing in a 529 plan is highlighted as a strategic move for parents aiming to reduce their children's future educational debt. By consistently contributing to a 529 plan, funds can grow significantly over 18 years, providing substantial support for college or other educational endeavors.

Notable Quote:
Austin: "When they turn 18 years old, you can take up to $35,000 of this 95,000, move it into the kid's Roth IRA... Tax free million dollars in retirement." [19:16]

Term Life Insurance (19:16 - 21:21)

Purchasing term life insurance ensures that, in the event of an untimely death, your family is financially protected. The hosts recommend securing a policy worth 10-15 times your annual income to cover expenses and maintain living standards without jeopardizing assets.

Notable Quote:
Robert: "You have to think all of that through when you're going through this phase of your career, because you have to make sure that you're progressing in your financial journey..." [19:50]

Business and Real Estate Structures (21:21 - 25:40)

Properly structuring your business and real estate holdings through LLCs and holding companies provides legal protection and ensures assets are shielded from potential lawsuits or creditor claims. Additionally, establishing a revocable trust can streamline the transfer of assets to heirs without the complications of probate.

Notable Quote:
Robert: "Having that revocable trust for all of your assets, you will not have your heirs suffer by going through probate court..." [24:38]

Highlights from the Q&A Section

Cryptocurrency Consolidation (29:11 - 33:28)

Listener Scott P. inquires about consolidating his diverse cryptocurrency holdings. The hosts advise focusing on a limited number of cryptocurrencies to maximize investment impact and recommend platforms like Coinbase or using ETFs such as BTCI for streamlined management.

Notable Quote:
Austin: "We highly recommend the Ishares Etha Ethereum ETF... You're making passive income with it while also tracking Bitcoin." [32:00]

Structuring LLCs for Rental Properties (33:28 - 37:23)

Key S. asks about the necessity and cost-effectiveness of setting up multiple LLCs for rental properties. Robert underscores the importance of asset protection but suggests shopping around for more affordable services, ensuring that property ownership is segregated to protect against potential lawsuits.

Notable Quote:
Robert: "Protect what you own, otherwise someone will take it. I promise you... make sure you have absolutely protection on your assets." [37:23]

Emergency Fund vs. Roth IRA (38:05 - 42:12)

Ari poses the dilemma of prioritizing between building an emergency fund and contributing to a Roth IRA with limited monthly funds. The hosts advocate for establishing an emergency fund first to provide financial security, followed by investing in a Roth IRA once the fund is adequately stocked.

Notable Quote:
Austin: "It's ensuring that your investments remain. So which one do you want to do first? You want to do the emergency fund." [41:06]

Key Takeaways

• Prioritize Income and Budgeting: Audit your finances to identify and allocate a substantial portion of income towards investments.
• Eliminate High-Interest Debt: Focus on paying off debts that carry high interest rates to free up more money for investing.
• Invest Wisely: Optimize savings and retirement accounts by choosing high-performing investment vehicles.
• Plan for the Future: Utilize estate planning tools like 529 plans, term life insurance, and trusts to safeguard and grow your wealth for future generations.
• Focus and Simplify: Avoid spreading resources too thin across multiple investments or financial goals simultaneously. Concentrate on one objective at a time to ensure effective progress.

Final Quote:
Austin: "If you have that emergency fund of 15, $20,000, you can use that as insurance to say, oh, something popped up... Now I don't have to sell my investments." [41:06]

Conclusion

Episode 96 of the Rich Habits Podcast provides a thorough roadmap for individuals in their 40s and 50s aiming to build and preserve generational wealth. Through practical advice, real-life anecdotes, and actionable strategies, Austin and Robert empower listeners to take control of their financial destinies, ensuring a secure and prosperous future for themselves and their families.

For more insights and financial strategies, listen to the full episode on your preferred podcast platform and join the Rich Habits Network to continue your journey toward financial freedom.