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Rich Habits Podcast
Q&A: 10-Years in Prison, $3.4M Mortgage, & Becoming a Millionaire Firefighter
00:44:25
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- [00:01]
A
This episode is brought to you by Amazon. Sometimes the most painful part of getting sick is the getting better part. Waiting on hold for an appointment, sitting in crowded waiting rooms, standing in line at the pharmacy. That's painful. Amazon One Medical and Amazon Pharmacy remove those painful parts of getting better with things like 24. 7 virtual visits and prescriptions delivered to your door. Thanks to Amazon Pharmacy and Amazon One Medical Healthcare just got less painful.
- [00:28]
B
Hey, everyone, and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify. This episode is our question and answer edition, which means you're asking us questions via email@richhabitspodcastmail.com or maybe on Instagram dms@rich habits Podcast. Or you're inside of the Rich Habits Network and you're asking us questions in there. Link in the show notes below for more information about that. These episodes, Robert, are one of my favorites because we get to just spit off the dome, answer some real questions in real time and have some fun along the way. I mean, these are some of my favorite episodes.
- [01:04]
A
Well, I like it because I feel like it gets us in the trenches and closer to our audience. We already have the school community with the Rich Habits Network, and that's all awesome. The dms, they're great. Instagram is great. But this is, like you said, off the dome, nitty gritty. We don't rehearse, we don't practice. We just read these in real time and knock it out. And I think it's the the best way to provide a ton of value because for our listeners, it's just awesome because they don't know what's coming in the episode either. So it's not like a topic where they can just turn off the episode and say, well, I'm not interested in that, or it doesn't affect me. These episodes affect everyone because it's all about anything that's thrown at us. And that's why I love it so much.
- [01:48]
B
Well, these episodes too, Robert, I mean, sometimes, like, we try and take some notes in the beginning if it's like a question that we maybe need some more clarification on. But you know, 99 of the time, this is us in real time digesting a question and talking about it out loud and trying to figure it out with each other here. So I think it gives people sort of like a sneak peek into the brains of us and sort of how we approach problem solving as it relates to money problems and personal finance and investing and everything in between. Now, speaking of investing, if you're serious about investing like Robert and I are, you need to know about public.com. this is where you can invest in everything. Stocks, options, bonds and cryptocurrency. They even offer some of the highest yields in the industry, like a bond account that pays 7% or higher and that yield remains locked even if the Federal Reserve cuts interest rates. Now what sets Public apart is how they give you tools to make informed investment decisions. Their built in AI tool called Alpha doesn't just tell you if a stock or asset in your portfolio is moving, it tells you why it's moving so you can actually understand what's driving your portfolio's performance on a daily, weekly and monthly basis.
- [02:55]
A
Yeah, Public is a FINRA registered SIPC insured US based company with a customer support team that actually cares. And this is so important to me because I lose my mind when I try to reach out to somebody about my money and I can't figure out what's going on. So that's one of the many reasons why I love Public. So the bottom line is your investments deserve a platform that takes them as seriously as you do. So you can fund your account in under five minutes or less at public.com rich habits and get up to $10,000 when you transfer your old portfolio. That's public.com rich habits paid for by Public Investing. Full Disclosures in Podcast Description so if.
- [03:36]
B
You want to make a couple hundred bucks, couple thousand, it's all free. Just go move your money into Public and it's the exact same experience with better tools and resources. So we cannot be bigger proponents and believers in what Public is doing. Major shout out to public.com forward/rich habits so our first question is coming from Jared H. Jared says Greetings from Georgia. First things first. I appreciate all the amazing insights you both provide on the show and I'm looking forward to listening and learning throughout the upcoming year and beyond. I'm 26 years old, newly engaged and I'm a mortgage lender. I switched to the mortgage side after two full time years in real estate sales in which I averaged about 60,000 in commissions. We also began a real estate photography company that earned us $30,000 in 2024. I'm hopeful about my earning potential in my new role and I have my sights set on beginning my investment journey this year. I have about $600 in monthly deb auto loan, my student loans and my credit card monthly payments, and a 2455 per month mortgage that is currently being evenly split between myself and my fiance. For someone in my position whose income can fluctuate dramatically month to month, depending on my production in my businesses. How would you approach the balance of investing and paying off debt? Which one would you choose? Is there a middle ground? How do I think about this? I'll take a first stab at this one, Robert. We get this question all the time from people that are on more of like, the commission side of the equation for their compensation, right? Some months they make $3,400. Other months they make $34,000. It's all over the place. How I like to think about budgeting, paying off debt and investing when I'm someone making variable commission or variable, you know, compensation on a monthly basis is by working backwards. Here's what I mean. Go open up your honest budget, right? You all know what that is by now, and it shows you everything that you're spending every single month. What I want you to do is work backwards. I want you to look and see, okay, during the month of January, I'm supposed to spend $4,700, because that is what I've budgeted. So what I want you to do is focus on earning that 4700. And once you've earned that, now it's time to take everything above that and say, okay, here's what I now have left to begin paying off debt or invest. So I guess what I'm trying to say is like, by knowing what you need to have to live will allow you to figure out what you have extra to pay off debt and invest. So the other way around is like, people say, okay, I know I make this much money. Let's call it 6,000amonth is what I get paid every month. And now you got to figure out how to divvy all that up. By flipping that on its head, you know exactly how much you spend, therefore, how much you need to earn that month to cover your basic living expenses and all the stuff that comes with that before you can now say, okay, everything above that, I now have the flexibility to pay off debt and begin investing. Now, again, we always want to encourage everyone, build the base. Assuming it's low interest debt, keep it around. Build your base. You did mention credit card debt, so that is absolutely what you should be focused on paying off. You cannot out invest a 30% interest rate.
- [06:42]
A
Yeah. And I would say one other piece of the puzzle I would add to this is you're in your 20s. You have a lot of time horizon for your investment strategies and your future and your retirement. But right now, you need to focus on getting out of high interest debt and making sure that under no circumstances you let that grow again. You need to be putting away that 10, 15, 20% of your net income every single month. And until you can do that, it's really hard to grow your wealth and be financially free. So in my opinion, you've got the main job, you've got the side hustle. Guess what? I would look for a third source of income. Even if it's only $1,000 a month, and you have to do it every Sunday during the month or every Saturday afternoon, I would find a way to knock that out as soon as possible. Because the longer you delay putting money aside for retirement, the less time you have for it to compound on itself. And that is the most important thing when you are young, is to invest early and often.
- [07:43]
B
I also want to call out, you know, you made $30,000 in 2024 with your real estate photography side hustle. That's huge. That's amazing. Now the question is, how do you double that in 2025? Right. How do you go from 30,024 to 60,025? Maybe it's time to start running some ads. Maybe it's time to, you know, reconnect with some old real estate agents like that. To me, Robert is the biggest upside potential that Jared has with his income is really getting that real estate photograph the ground and running super smoothly throughout this year.
- [08:16]
A
Yeah, he could try digital ads. They could try adding new services. Maybe they offer drone services or something else to be another a la carte item to add on top of their photography. There's a lot you can do with real estate photography, especially right now, because everyone needs help selling properties. And so many real estate agents are still running behind in the technology part of real estate sales, and they're just not doing a good job. And you educating them maybe through content or a YouTube channel, would also help you get further clients.
- [08:49]
B
Ooh, I didn't think about that. Some content. That's a good idea. So our next question comes from Brian T. Brian says hello, Austin and Robert. My name is Brian T. And I've been listening to your podcast since 2023. Thank you both so much for your incredible information. I really appreciate it. Last week I started a public.com account and I'm depositing 100 every two weeks. I also started a Roth IRA and I have deposited a hundred dollars into it so far. I'm 37 years old and I'm a disabled veteran, so I receive a monthly stipend each month. I don't have any money in my savings and I'm working on my honest budget here in January to start the year. Now. Currently my job does not offer a 401k so I need help with my investing. I know on the podcast you say I should be diversifying between the S&P 500, some cool ETFs, some cryptocurrency and other things like that. And I know they offer fractional shares on public. But I'm stuck as to where I should really first start investing. Do I really just diversify my hundred dollars depos deposit into four or five different options every time, or do I take the whole $100 and invest it into a single thing and try to remember the different weightings of everything that I've invested my money into? My goal is to build and grow my wealth as I've been struggling to have a solid plan that works for me, but I'm ready for real change. Thank you all so much for your assistance. It's really appreciated. Heck yeah. Brian, thank you so much for your service, my friend. That is awesome. Robert, you want to take this one?
- [10:12]
A
I like it. I think your head's in the right place. I don't think you can have a bad strategy of either breaking up the $125 apiece into four different ETFs that we talk about. I don't mind the fact of investing the hundred dollars every two weeks into an individual ETF that we talk about and then flip flopping them every two weeks. I think either way is good. It's all about consistency and getting yourself in the market. Like I've said many, many times, you can still become a multimillionaire if you're younger, if you do it $100 a month, $200 a month, and as you grow over time and let it compound, you can still get there. So I love the strategy and I think either way works for me.
- [10:51]
B
Yeah, I think the only piece of advice I would give Brian is to make sure that you're not making the mistake of putting a hundred dollars a month in the Roth IRA and $100 a month in your Bridge account. Right. Those are two separate accounts. If you only have $200 a month to invest, that is less than the 588 per month on average you'd need to max out your roth IRA at 7,000 a year. So in my opinion, Brian, you should put all $200 into that Roth IRA because we want to make sure we max out the Roth IRA every single year. It's the most tax advantaged way to retire a tax free millionaire is how I like to describe it. It is a wonderful account that allows that and public has that in their platform as well. So if you have 200 bucks a month and you're doing 100 in the Roth IRA and 100 in a separate account like a trading account or something, don't do that. Sell everything that's in the account that you have a, you know, bridge account, trading account, whatever, move all of that cash into your Roth IRA and to Robert's point, you can be buying $25 into Voo, $100 into Voo, it doesn't matter. But as long as you're in these tried and true ETFs and index funds like Voo, QQQ, Spyi, VTI, Moat, things like that, you're going to be just fine. But to Robert's point, consistency is the key here. Don't just get excited because it' the year you're putting some money aside and then summertime comes along and you want to go on the vacation or you want to go out with the buddies or no, find that $200 every month and stay consistent with it.
- [12:20]
A
So real quick, I want to put something back on you. Austin, what do you recommend for our listeners when you're starting out small with that couple hundred dollars a month to invest in putting it into all of it into the Roth ira, since you're not going to be able to max it out anyway at $200 a month each year, where do you recommend to before they start to build that bridge account? So they do have some money that is pre tax and still liquid if they were to need it down the road, versus the Roth IRA.
- [12:52]
B
Yeah, that's a good question. So first off this $200 a month assuming from 37 to 67. So 30 good years of investing ahead of you is $700,000. So you would have contributed 72,000 into your Roth IRA and it would have grown to $700,000 of tax free money for your retirement. So like 200 bucks doesn't sound like a lot, but we're talking about nearly a million dollars in your retirement here. So the question is back to this idea of like do you go all in on the Roth ira? Do you split it up with a bridge account? Like how do you approach that? In my opinion you should have enough money to do both and that means you have an income problem. If you don't have enough money to do both, I think you have an income problem. You need to either get your income up Right. How do you raise your, your household income by 15, 25, 50% over the next three, five, seven years? Have a plan for your. We talked about side hustles. We had a whole episode on that. OR two. Do you have a spending problem that's taking away from your investing? I'm a really big believer in having these different accounts and being able to have the autonomy over a Roth IRA and a bridge account and a crypto and a 401k and all that stuff. But having that autonomy only happens if you have the income for it. And if you don't have the income for it, you need to have a plan in place that allows you to get the certificate. You need to get the extra $7 an hour or get the new, you know, certificate to go lateral into a different job or whatever's going on to grow your income. Maybe not in the next 12 to 24 months, but definitely the next 36, 48, 72 months.
- [14:22]
A
I love the coverage there. And what it really illustrates for me is we don't want people continuously borrowing from their future for the present. And that's why I like your philosophy of getting it all into the Roth as much as possible when you have that small of an amount. But I also want to make sure that people understand whether it is the Roth or the Bridge account, the goal is, is to not put it in, grow it, and continually take it back out. Because then that's lifestyle creep. That's the shiny ball syndrome. And you're not integrating delayed gratification, which is very, very important. I see it all the time. People build up to 100 grand, they get their base going, it's looking good, then they spend 60 on a new car, then they build it up again, and then they spend 60 or 40 or 50 of it on a boat or whatever. The goal is, put it away, forget it exists, keep growing it so you are set up for the future.
- [15:12]
B
Couldn't agree more, Robert. Now our next question comes from Conrad. Conrad says, I love the podcast. My name's Conrad and I'm a 49 year old fireman. And I have a question regarding my retirement accounts. I own my home, which is valued at $825,000, and my wife and I own our vehicles and we have zero debt all around. I have a 457 through my employer, which has about $320,000 in it. I invest 16,600 dol a year into my 457. And each year I try to add a little bit more based on annual raises. That we get. I also have a 401k from an old part time job that I no longer work at. It's worth about $14,000 and I recently moved it into an IRA and it's evenly distributed into the funds that you guys talk about. Voo, vgt, VTI and qqq. So here's my question. Should I start putting a small amount of money every month into this IRA as well, or should I just concentrate on continuing to put more and more money each to my 457? This is a really good question. So a couple quick call outs. The first one is you didn't tell us what this 457B is invested into, which makes me nervous. Right. Maybe this is invested into some target date funds or some international stocks or bonds or some stuff that you don't need exposure to. So the idea of like just funneling more and more and more money into this could be an underperforming strategy. So if you have full Autonomy over your 457B and you can invest it into the S&P 500 or some mega cap or large cap stock blend or something where like you actually own American capitalism at its core, I think that's totally cool. Shovel some money into that. But you should also, in tandem want to max out that Roth IRA or that traditional IRA, whatever that 14,000 is in. You should want to max that out every single year because that is again, this like tax advantaged way to have a big retirement nest egg that you don't owe any taxes on once it's grown into hundreds of thousands of dollars. Right. So again, you have autonomy over that IRA. It's super easy to do. You can go to public.com and transfer this existing 14,000 into that. You'll get a couple hundred bucks as a bonus, which is cool. But again, you'll have the autonomy and it will grow tax free over time.
- [17:26]
A
Yeah. And I also want to go back and touch on the house. $825,000 and it's paid off. Man, at your age, I would really look at a couple things. What is the house appreciating a year? What is the average rate of capital appreciation on that property every single year? Is it 4%? Is it 3%? Is 5% is at 8%. If it's under 6%, I would consider downsizing the house. Go from an $825,000 house, maybe down to a 425 or $525,000 house. Take the additional three, $400,000, get that into the Markets. Because assuming we can make 10, 12, 15% in the markets over the next 10 or 15 years, you really, really then help your chances of getting financially free sooner for retirement. Because that is a lot of money to be sitting eking out a small living. Now I realize you don't have a house payment, but you have to consider the differences of what you could do with that much cash flow in the markets, in equities making you more money.
- [18:27]
B
Yeah, you could definitely find yourself a 400, $500,000 house somewhere in the southeast region. Right. Call it South Carolina, Georgia, Tennessee, Alabama. Right. That's a beautiful home. You know, to Robert's point, you sell it for 825 cash, let's call it 800,000. After commissions you take 400. So half of that you buy a house in cash. And now you have this additional $400,000 that you can go invest aggressively for the next, call it six, seven, eight years, which over the course of seven years will double because that's what the stock market does. And now you have $800,000 invested in your bridge account. You've got 300 something thousand will actually be 600 now because seven years would have gone by. So you now have one and a half million DOL dollars between your bridge account and your retirement account in a paid off house. And you're in your mid-50s. Like that is a cool place to be. All because you're a fireman. Shout out to our fireman. I got a friend named Jonathan's fireman.
- [19:21]
A
Yeah, that's a dreamy situation and something to consider because you know you can hold the house forever and maybe it keeps appreciating to a million million too, which still works but you just want to make sure you're accelerating as much as you can with your money. So something to consider.
- [19:35]
B
Now our next question comes from Dakota M. Dakota says hey guys, thank you for everything you have helped me do. It has changed my life. Background about me I spent all of 2024 paying off my debt collectors of old medical bills and I only have one payment left on an old fifteen thousand dollar credit card. Also I've been able to get the match on my 401k all year long and I invested about 3000 in my Roth IRA. 2025 is the year to start the next step and really beef up my emergency fund to six months worth of expenses and max out my Roth ira. Which leads me to my question. After I have a maxed out Roth ira, can I contribute and max out my wife's Roth ira. She doesn't work, so she doesn't earn an income, but she does do all the chores around the house and runs errands while I'm at work and she takes care of the kids. So would I have to like pay her? Do I have to write some cool invoices? How do I get her to show earned income to the IRS allowing her to max out her Roth ira? ROBERT I'll let you answer this one, Dakota.
- [20:37]
A
Dakota, Dakota. If only it were that easy to just pay the wife, max out the Roth ira, have it be taxed deductible and all that. Now there are some things you could do. You could start an llc, you know, a new company, maybe you guys start a side hustle, a work from home side hustle in which your wife runs that. So you could have some of these write offs that you're looking for and be able to have some money going to the Roth ira. Because the goal is of course, to get money into the Roth ira, but you have to have earned income to be able to do that. So just keep that in mind. We don't want you breaking any rules. We don't want you getting in trouble. We want to follow the IRS's lead every step of the way and do things the right way. So maybe consider that side hustle getting an LLC going so she can make some earned income and you can get her Roth maxed out as well.
- [21:25]
B
And when we say earned income, we're talking about income that you paid Medicare and Social Security tax on. I think those are like the two major differentiators that show to the IRS this was actually earned income. They've paid their taxes and of course, you know, income tax and things like that. Let me think through this too, Robert. So if my girlfriend, let's pretend we're married and she wanted to do this, like I'd have to to put her on a salary of like 7, 8, 9, $10,000 a year through my LLC. So she'd be like earning income. And then my LLC would also be paying employer taxes on the salary I'd pay her. So everyone's paying taxes in this situation. And then with the money that she would have already paid taxes on, she could then say, okay, I'm going to go contribute this to my Roth IRA and invest it. Now the easy way to kind of get around this, if you're just like, I want to make sure she's investing, just open up a public account. It doesn't have to be tax, doesn't have to be any of that it's just, it's money that she has and she put the money in the account and she's investing it. It's a bridge account, it's a taxable brokerage account. There's no parameters with the IRS and all the other crazy stuff. You just get money and you invest it. It's super simple. That's what I would do if I were you, Dakota Instructor to open a public account and get her invested that way.
- [22:37]
A
I love it. Well, listen up folks, Time could be running out to lock in a 6% or higher yield at public.com you can lock in a 6% or higher yield with a bond account, but remember, your yield isn't locked in until the time of purchase, so you might want to act fast. Lock in a 6% or higher yield with a diversified portfolio with high yield and investment grade corporate bonds only at public.com forward/rich habits so our next question.
- [23:03]
B
Comes from Edith D. Edith says hi Austin and Robert. I've been a huge fan of your podcast for six months now and I've never missed an episode. Your insights have been instrumental in helping me build my investment portfolio across my 401k, my Roth IRA, my brokerage account and even my HSA. Now, I've recently been offered the opportunity to purchase the company I currently work for. As the owner is retiring. However, I'm struggling to determine if it's the right fit for me. The deal would not require a down payment and the purchase would happen through a gradual buyout over a 10 year period. For the first five years, the owner would retain the majority of the profits, allowing him to pay himself back, with ownership gradually transferring back to me. By the end of that 10 year period. However, there's a minimum total of 2.5 million he wants to get paid during this 10 year period. The business is a service based company with no physical assets and there are fewer than five employees including the owner. Now, I'm the primary contributor to this company, so my dilemma is whether I should seize this opportunity knowing that it would tie me to this commitment for the next decade with essentially two and a half million dollars of debt. Or I should continue working for a few more years and try to build my own business. Now, for context, I'm 35 years old, I'm married, and we have a $2 million home with a million dollars of equity. Our combined annual income is $400,000, of which I bring 65% of that to the table. We've invested around $300,000 across all of our accounts. We Have a hundred thousand in our emergency fund. And I would like to continue investing with the goal of an early retirement. My main concern though about this opportunity is if I don't take it, the business might close and I won't be able to earn as much at the other companies that I could work for with my set of skills based on industry standards and slow down my retirement planning. What an interesting question, Robert. I'll let you kick this one off.
- [24:55]
A
Yeah, this is a tough one because I always want to see people have ownership in companies if they can, because it's so much better and safer in most instances than just being an earner or a high earner within a company. But here's a few of the wrinkles and things I want you to consider. Number one, buying this on owner financing over a 10 year period. Scar scares me because market share can change, sentiment towards the company could change. There's so many variables that come into play here, but it scares me that he gets to take home a majority of the profit for the next 10 years while you do all the work. So here's my thought process and where my brain goes. If you believe this company could close if you don't buy it, I would want you to call the bluff, go back to him and say, hey Bill, hey Larry, Sally, whatever their name is, say, you know what, this opportunity is just not right for me. Love the company, I've really enjoyed being here, would love to stay, But I think 2.5 million over 10 years is just too rich for my blood and what I believe the situation allows for. So I think I'm going to have to pass. And then over time, let's say you have a 90 day window, 120 day window, then you could revisit the conversation and say, or at the same time say, hey, I would be happier if we could arrange something that's a shorter window of maybe five years and then we have a balloon at the end once all the equity is migrated over to you because then at least you own something. But the other part of this that's scary is being service based. You don't have any equipment, you don't have anything of a secret sauce mechanism that has value that if you're wrong and you fail, you can sell. And I've seen it many, many times over the 30 years of doing this in buying small companies. Selling small companies is people will buy a company like this service based, or they'll buy a law firm, or they'll buy a dentist office and then the owner leaves and he was the one that built this database of customers and a lot of staff and customers leave with them and just start looking elsewhere because you're not their person maybe. And that's where I would really, really look from within and ask yourself, yourself is a lot of the customer base. If you're one of the big proponents of this customer base in the services, would they come with you if you started over? So if you call the bluff, he says he's closing, you go to all the customers, say I'm starting new ABC, NewCo, doing the same exact thing. Would you come with me? Then that is an opportunity where you own it right away. You own all of it and you're not paying $2.5 million over 10 years. Years which you have no idea if that's a good deal or not.
- [27:38]
B
I love this perspective, Robert. I agree, it is frustrating because I feel, I feel really bad because like, you know, Edith D over here is making 260,000 a year. So that's what she's bringing to the table at her family household, right? So 260k a year is what she's making working at this place. And she says, should I continue working for a few more years and then try and build my own business? And then she's worried like, well, if I don't buy this business, then I won't make 260k a year. Well, guess what? What? The only way you're making 260k a year is if the company that you work for is making a whole lot more money than that. Right? So to Robert's point here, if you're able, Edith, to, you know, let's say does close down, you still have all these customers that you're friends with them, you've had meetings with countless numbers of them, like let them know, reach out to them from a different whatever, like, hey, it's Edith, you know me, I started my own company as you know, Larry, Bill, Sally, whatever wound down their company, they're not doing this anymore. So I'm now starting the same service for myself. I guarantee you by starting your own business and owning it outright yourself, you'll make more in profits than that 260,000 that you were making as compensation working for this other business owner. I think that, you know, you really are stuck between a rock and a hard place here. But I would not, I would not do the two and a half million dollar buyout. Maybe if it was, was a million and it was over three years, like, maybe that's a different story, but two and a half million over ten years. Ten years is a long time to be connected to somebody, to be earning out against a business. It's a very long time to.
- [29:13]
A
And is this service based business going to be around in 10 years with AI? Is AI going to take.
- [29:18]
B
Yeah, there's a really long time.
- [29:20]
A
So many variables. 10 years is too long. But also, you know, we have limited information. So keep that in mind because, you know, if he wants two and a half million over 10 years, where is he coming up with this multiple of what the business is worth, you know, because it's not really making sense. Because if you're making 260 and you're going to give him 2.5 million over 10 years or $250,000 a year, there's some weird math going on. So I'd be careful. I would look at calling his bluff, try and get it for a lot less or ride it out. Make as much money as you can can and start your own thing.
- [29:54]
B
Our next question comes from our chat. Our chat says hi Robert Nassen. I'm an avid listener of your podcast. I've listened to various other podcasts for Fire or Financial Independence, retire Early and other financial advice over the years. But I find your podcast my go to for new things to learn and to understand new approaches to investing that you both recommend. My wife and I are in our mid-50s. We came to the United States as students with 600 and a suitcase. We got our master's degrees and have settled down here in our older age. Starting from scratch, we built up a liquid net worth, not including our house, of $4.5 million and a total net worth of 6.3 million when you include our home's equity. So here's our question. We live in a very high cost of living area and we've lived in this house for over 10 years. The house is not quite what we would like and we've embarked on a plan to demolish the house completely and build a new one in the exact same location as we really like the location now estimates for rebuild per our specs are $1.9 million. So when you add together our existing mortgage and this new money we'd have to spend our new total post construction mortgage would be $3.4 million. In 2025 we're expected to have a gross income of 1 million. It'll probably go down a little bit in 2026 due to some of our RSUs vesting and not getting new ones. But my wife plans to retire in seven years and I plan to retire in another 10. I'm expecting our income to be about $800,000 or so combined. Until I now, so far, we are healthy with some minor issues that occur with age. So our question is, is it a wise thing to do this at this point in our lives? And how long into retirement is it wise to carry a mortgage? Robert, you kick this one off, man.
- [31:44]
A
This is a tough, tough cookie. Because on one side, I get it, you have a high net worth, you've done well for yourself, you're high earners, you want to have a nice house. But then if you're in your mid-50s now and you're looking to retire in the next five to 10 years, and let's say bulldozing the house and building the new one takes 18 months before you get settled in. So that's two years of the 10 years, you've got eight years left that you want to really go at it and work. Do you really want to go into retirement with a $25,000 a month mortgage? Is the main question I have. To me, it sounds like a lot. I'd love to see it if you could take the existing house, maybe do a 3, $400,000 renovation, $500,000 renovation, and make it what you want not or sell it as is and go buy something that's already done and ready so you can move into something that's more fitting for what you desire without putting yourself in harm's way with having this huge mortgage going into retirement, that's just me. Because things change and, you know, you don't know what could happen with the new house. You could run into issues where it takes longer, longer. So you're gonna have to offset that with a place to live during the rebate build, so you're going to have those expenses on top of that. So I would really think long and hard of, do you want the freedom in retirement more than a heavy, heavy mortgage on the house payment?
- [33:12]
B
I like that answer. I guess I'll answer their question here first and then kind of walk through where my head's at. So the first question that they asked, right, is like, how long into retirement is it wise to carry a mortgage while assuming that you're not like retirement for most people assumes they're not earning income anymore and they're living off of their portfolios income. Portfolio income of like that, 4, 5, 6% every single year is different for everybody. But it's normally 80 to maybe $200,000 a year. So if you're making 80 to $200,000 a year, pre tax, let's call that 60 to 160,000 a year post tax. Having a mortgage that would take away pay 20, 30, 40, $50,000 of that every year is not a good idea. Which is why I'm a firm believer that people should pay off their mortgage before they're 65, before they want to retire and they can just own their house and make money or live off the money they have, whatever. So I don't think people should retire with mortgages. So let's dig into some numbers here. Robert. They said that their current homes, they have a $6.3 million net worth, including the home, 4.5 without it. Which means, you know, the Equity there is $1.8 million and they want to spend, spend $1.9 million to build out this new home. And they have a $1.5 million mortgage right now on their home and they want to spend another 1.9 building it out, which gets them to that 3.4. I guess I'm just worried about right is like what happens to this 1.8 million in equity of the house? Does it just disappear? Are you hoping that this new home is worth.
- [34:40]
A
Well, you'd have to take 3.4 and you'd have to add the equity loss, the potential equity loss to come up with what the value of the new home would be, the perceived value based on comps to figure out where that goes.
- [34:54]
B
And so it's like, do you think that this new home that you're going to build is worth 5.2 million? Are there other 4, 5, 6, 7 million dollar homes in your neighborhood? Like, is that a real thing? And by reading this, your home right now is worth about three. So you're saying that you could like tear it down and build a new one and this new one's going to be worth five and a half. Like that's what I'd be worried about is like getting rid of this $1.8 million of equity in your home. The math doesn't math for me. Unless you can keep that somehow, some way, and you can prove that that equity is going to remain there. And then golly, like I don't know what y'all are going to do with a $25,000 a month mortgage. Like, that's crazy. That's crazy. You guys obviously have the money to pay it off if you wanted to, but that wouldn't really leave you that much in your investment accounts. Well, I guess maybe once they double in like 10 years or so. So maybe you could Right. Maybe you could keep this 4 and a half million invested in the markets, it doubles to 9 and then use 3 ish million I'm sure would still be the balance on the mortgage. So you'd have a paid for house and $6 million of investments. That's like the best case scenario. But I mean that is assuming a lot of stuff here.
- [36:01]
A
Well, let's do some more assumptions though. If we want them to follow the 4% rule, which is what we believe everyone should seek in retirement to be able to cover just the house payment and let's say HOA or taxes and insurance, they're going to be somewhere 26, 27, $28,000. You would need over 8 million DOL in investable retirement capital, not including any equity at a house to be able to stick to that 4% rule just to pay the minimums on this house. So they would have to get to $8 million plus in the next eight or ten years to be able to make that work. To me the math just doesn't math. I personally wouldn't do it.
- [36:44]
B
Yeah, $8 million just to live in the house. Like that's not, you know, you mentioned you're in a very high cost living area. Like that's not groceries, that doesn't include transportation, that doesn't include eating out and actually enjoying your retirement. If it were me and I were in your shoes, I would say okay, Great, I'm taking 300,000, $500,000 because that's only three or four or five, six months of you working because you guys make a million dollars a year. I would take a lot of money and I would redo the house that I'm in right now. I want the perfect kitchen, I want the redone backyard, I want to have a cool pool, whatever you want to make it more, more you and you know, feels better to you because you like this location. But I don't think I'd, I'd, you know, demo the house, build a new one, take on three and a half million of debt. It just doesn't make sense.
- [37:29]
A
Got it. I agree.
- [37:30]
B
So our last question comes from John N. John says, hey guys, I love the show and I've been listening for over a year now. My situation is a little bit different than most so I hesitate to ask the question, but here it goes. I'll be 40 years old this year and I got out of prison three years ago after a 10 year sentence. I started working immediately for a farm where I was able to renegotiate my contract and now I can live on the farm rent free, and I make roughly $50,000 a year on an hourly wage. I also make a bonus based on production, and this year it looks like I'll make a $40,000 bonus from my hard work in 2024. Now, when I got out of prison, I started my life over with nothing but a pair of jeans and a T shirt. I currently have a couple thousand dollars in savings. I've got $6,000 invested. Most of it is in a Roth IRA split between VGT, Voo and Quantum. But I also have some money in a webull account where I've dabbled into buying individual stocks, my ex wife and our two children by giving them 35% of my income. This is not court ordered, but she doesn't make much and I know they need it and so I want to continue to give them money. I have less than $2,000 of debt left over from my previous life, and I plan to pay off the rest of her debt, which is roughly $5,000, after I get this bonus check. So that's my situation. My question is, how do I make this $40,000 work best for me? Is it by buying a duplex and renting that out or something else? Maybe I partner with a friend and I start a lawn care business. I don't know. Or should I just park it all in the markets and build my base like you guys always say? I plan to max out my Roth IRA for 2024 and 2025, but then what? What happens if the market tanks? I just don't know what to do with all this money. I've never seen so much in my life. Robert, you want to take a first stab at this?
- [39:10]
A
I do. And John, I love this story. I love your honesty and I love the fact that you're willing to put it all out there and let us talk about it to our listeners. Because I applaud you. You know, you could easily fall victim and play the victim mindset and lack mentality and say, poor me, I went to prison for 10 years. Now I'm going to be 40 years old and it's too late. It's not too late. And what I would do if I were you, 100%, is I would hustle, hustle, hustle. I would take the 40,000, keep making that. And with every other waking hour that you have away from your children, I would find another side. Hustle. I would start that lawn care business and just tell your partner you'll do whatever you can on nights and weekends or whenever you're not working your other job. But I would build that up or I would go get side jobs doing what you're best at, whether it's handyman services or landscaping, it doesn't matter. And I would take all that money, as much as I possibly could, could. And I would pour it all into investments. I would live lean and mean for two, three, four, five years. And you'd be shocked at how much time and money you can make up to feel better about your chances for financial freedom by doing this. Because you have the opportunity right now, you have the drive to live lean and mean. Use every waking hour you can. And I really like the idea of you partnering with somebody someone, because that means you're building equity. Sweat equity is one of the most powerful things a person can do when they're in a situation where they don't have a lot of money just yet, but they want to advance their careers. Get sweat equity with someone. Tell them you'll work your butt off. You want 10, 20, 30% of the company, but you don't have any money to put down towards equipment and get out there and earn more money so you can put it away for investing.
- [41:01]
B
I could not agree more. I am all on John's team here. I'm rooting for John. I'm such a big believer that, you know, you pay your time, you get it done like cool. Welcome to society. Let's get back to it, right? No hard feelings. All is well. We're on your team and we're ready to help you win, man. So the first thing I want to call out, good job investing $6,000 in 2024. That means you averaged $500 every single month. It seems like if I did my math right, you're taking home every month about 3,500. So that means you took 500 from that 3,500 and you invested it. I love that. Keep doing that. If you just do that, you're going to retire a millionaire, right? So that's first and forem. Get rid of the $2,000 of debt from your previous life and also pay off the 5,000 for your ex wife. I think that's a great idea as well. Great fatherly thing to do. I also agree to work your butt off and make as much extra income as you can. How do you make sure you get another $40,000 bonus check. Right? That's a lot of money. That's a lot, a lot of money. Now let's be tactical here, Robert. So let's use some real numbers. $40,000 bonus check. Let's say after taxes, you get to keep $32,000 of that. You're going to pay off $2,000 of your debt. You now have 30,000. You're also going to pay off $5,000 of her debt. You now have 25,000. This $25,000. If I were you, I would take $7,000 of it and contribute it to 2024's Roth IRA and I would take another 7,000 and contribute it to 2025 Roth IRA. Now, if you do that, that's $14,000 invested, which would leave you $11,000 to go put in your bridge account on public do, invest it the exact same way into Voo, VGT, VTI. I don't know about Quantum. It's a little risky here, but I'm cool with it. Right, you're doing it, you're investing, we're happy about it, $25,000. Which is what I just pretty much laid out for you here, that you could invest $25,000 invested from the age 41 to 67. You add nothing to it. You add nothing to this 25,000, it's going to be worth half a million dollars dollars by the time you're 67 now, you're already starting with 6,000. You're adding 500 bucks a month on top of it. Like you are going to make millions of dollars that you're going to have in your early 60s, especially when it's time to retire. So, John, it's not too late for you. You are doing a wonderful job and we're rooting for you every single day. Thank you much for listening to the podcast.
- [43:22]
A
I love it and I just really appreciate his story because the more people share with us, the more we can help help them. So many people are afraid because if they make a lot of money, they're afraid to share and if they don't make enough to where they think they where they should be, they're afraid to share. So this is really great. I love what we get to do every day helping people because we all have our issues, we all have ups and downs. Life gets in the way. And that is why the Rich Habits podcast and network is so important to me each and every day because we get to help people from around the world world deal with their situations in a way from experience. I've been at this for 35 years. Austin's really good at what he does and we just really enjoy helping others.
- [44:05]
B
Don't Forget, download the 2025 Financial Planning Workbook 2000 of you have already downloaded it within the first week of us launching it. You're loving it. You're giving us all the positive feedback. It is a really cool free tool. There's a link in the show notes below to go download our 2025 financial planning workbook completely for free. Free. All you gotta do is tell us what email to send it to. With that being said, thank you all so much for listening to this week's episode of the Rich Habits Podcast. Follow us on Instagram at Rich Habits Podcast. Leave a comment on Spotify. Let us know whatever you want us to know about the pod. I get back to all the comments, fill out the poll. Shoot us an email like get in touch with us. We love the feedback. Leave us a five star review. If you learned something. Share the podcast with your other friend that just got out of prison. Maybe we'll see you guys on Monday.