Q&A: $1,200 / Month Car Payment, $59K 401(k) Loan, & Owing $30K to the IRS

Summary

Rich Habits Podcast: Detailed Summary of "Q&A: $1,200 / Month Car Payment, $59K 401(k) Loan, & Owing $30K to the IRS"

Release Date: March 13, 2025
Hosts: Austin Hankwitz and Robert Croak

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The Rich Habits Podcast, hosted by financial experts Austin Hankwitz and Robert Croak, returned with an engaging Q&A edition, addressing a variety of listener financial dilemmas. This episode delves into strategic debt management, investment consolidation, market volatility responses, real estate investment strategies, tax obligations, cryptocurrency skepticism, and high-interest debt decisions. Below is a comprehensive summary capturing all key discussions, insights, and conclusions from the episode.

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1. Prioritizing 401(k) Loan Repayment

Listener: Zach S.
Question: Zach and his wife took a $59,000 401(k) loan in 2017 for a home down payment. They seek guidance on prioritizing loan repayment versus maximizing Roth IRA contributions.

Robert’s Insight ([05:32]):
Robert advised maintaining regular loan payments, emphasizing the importance of understanding the loan terms, especially the obligation to repay if employment changes. He noted, “the interest rate falls in what we would call an okay interest rate... adding that additional money into your investments is going to outperform the four and a half percent interest you're paying on the 401k loan.”

Austin’s Perspective ([06:33]):
Austin stressed the importance of not sacrificing Roth IRA contributions despite the loan. He suggested leveraging the eventual sale of the house to repay the loan, thereby allowing continued aggressive investing for retirement. “You guys need to pay this off, but you also need to keep investing aggressively,” he advised.

Key Takeaways:

• Continue regular loan payments to avoid penalties.
• Do not halt retirement contributions; balance debt repayment with investment growth.
• Use liquidity events, like selling the appreciated primary home, to tackle outstanding loans.

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2. Managing Multiple Brokerage Accounts

Listener: Ryan S.
Question: Ryan manages multiple brokerage accounts (M1 Finance and Robinhood) and seeks advice on whether to consolidate them.

Austin’s Advice ([11:51]):
Austin recommended consolidating accounts to streamline portfolio management. “You shouldn’t have different accounts for dividends and ETFs; put it all in one broker for better visibility and tracking.”

Robert’s Addition ([12:47]):
Robert emphasized familiarity and ease of use with a single platform to enhance consistency in investing. “Confident investors stick with platforms they understand, leading to more automation and consistent investment behavior.”

Notable Quote:

• Austin ([11:51]): “But you shouldn’t have to, like, have these different accounts... just put it all in one broker.”

Key Takeaways:

• Consolidate brokerage accounts for easier management and tracking.
• Choose a platform that you are comfortable with to ensure consistent investing.
• Avoid overcomplicating your investment strategy with multiple accounts.

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3. Holding vs. Selling Technology Stocks in a Down Market

Listener: Eric G.
Question: Eric holds ETFs and individual tech stocks experiencing market downturns. He is uncertain whether to hold or sell his tech stocks.

Robert’s Guidance ([15:40]):
Robert advocated for maintaining investments through dollar-cost averaging, advising against market timing. “Forget your password, lose your password. Keep doing the dollar cost averaging because at the end of the day, when in doubt, zoom out.”

Austin’s Insights ([16:37]):
Austin reinforced the strategy of long-term holding, highlighting the resilience of strong companies. He cited institutional confidence, stating, “Amazon was the number one most held stock by these smart money investors.”

Notable Quotes:

• Robert ([15:40]): “So in this instance, when I look at these names... I would not be concerned with this short term blip.”
• Austin ([16:37]): “To know that Amazon was the number onemost held stock by these smart money investors makes me feel pretty good.”

Key Takeaways:

• Maintain a long-term investment perspective despite short-term volatility.
• Focus on high-quality, well-established companies with strong growth potential.
• Avoid emotional reactions to market downturns; continue strategic investing.

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4. Investing Proceeds from a Flipped House

Listener: Jake H.
Question: Jake plans to flip an inherited house and invest the proceeds. He seeks advice on whether to stick with ETFs, buy growth stocks, or pursue income-focused investments like SPYI.

Robert’s Experience ([22:25]):
Robert emphasized the importance of understanding the full financial picture before flipping, including costs and legal agreements when splitting profits. “Make sure you fully digest all of the numbers and the understanding of what you're taking on so you can get this right and actually make a decent profit.”

Austin’s Strategy ([24:00]):
Austin introduced the core-satellite portfolio construction, recommending the majority of proceeds be invested in ETFs and index funds, with a portion allocated to high-growth individual stocks. “The core side of the equation is ETFs and index funds... the satellite side are more of those high octane growth stocks.”

Key Takeaways:

• Thoroughly assess all costs and legalities in real estate investments.
• Adopt a core-satellite investment approach to balance stability and growth.
• Diversify proceeds between broad market funds and selected high-growth stocks.

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5. Payment Strategy for IRS Debt

Listener: tw.tw
Question: Owing $30,000 to the IRS after a year of hefty capital gains and Roth IRA conversions, the listener seeks validation for their repayment plan.

Robert’s Urgent Advice ([31:30]):
Robert was emphatic about prioritizing IRS repayment due to the high interest rate of 7%. “I would find a way to buckle down, give up some things for a few months just to get this knocked out.”

Austin’s Support ([32:27]):
Austin concurred, suggesting aggressive repayment strategies, including increasing contributions from savings or taxable investments. “You can absolutely come up with $10,000 faster than 12 months.”

Key Takeaways:

• Prioritize paying off high-interest tax debt swiftly to avoid penalties.
• Utilize savings and adjust other financial contributions temporarily to expedite repayment.
• Avoid prolonging tax debt to mitigate accumulating interest and potential legal issues.

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6. Government Crypto Reserves and Concerns

Listener: Matt H.
Question: Matt expresses skepticism about the government's strategic crypto reserve, fearing potential market destabilization if the government sells its holdings.

Robert’s Evaluation ([36:43]):
Robert defended the strategic reserve as a means to stabilize the USD and support Bitcoin as digital gold. He argued that government involvement could lead to more stringent regulations, reducing scams and rug pulls. “Having the government involved in cryptocurrency through strategic reserves, through better legislation and regulations, it's going to actually help prevent so many rug pulls.”

Austin’s Perspective ([39:55]):
Austin highlighted the minimal impact of government-held Bitcoin on the overall market and encouraged cautious yet open-minded investment in cryptocurrencies. “The government, how I understand it, is going to have about 5% of the total outstanding supply of Bitcoin. That's a drop in the bucket.”

Key Takeaways:

• Government crypto reserves can lend legitimacy and stability to the cryptocurrency market.
• The proportion of crypto held by the government is relatively small and unlikely to cause significant market disruptions.
• Regulatory involvement may enhance market security and reduce fraudulent activities.

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7. Paying Off a High Car Payment vs. Maintaining Investments

Listener: Lisa B.
Question: Lisa is deciding whether to pay off a $1,200 monthly car payment by withdrawing $65,000 from investments during market volatility.

Robert’s Recommendation ([43:49]):
Robert advised against depleting investment accounts for vehicle payments, suggesting maintaining investments and managing car payments separately. “I personally would just have the car payment and deal with it because... I hate to pull all this money out of investing for my future to own a car.”

Austin’s Strategy ([45:05]):
Austin recommended keeping investments intact while aggressively paying down the car debt over time. He suggested pausing other contributions to redirect funds towards eliminating the car payment. “Once this $1,200 monthly payment is paid off, they're now taking that same $1,200 a month and investing it toward their bridge account.”

Key Takeaways:

• Avoid liquidating investments during market downturns to prevent locking in losses.
• Maintain investment growth while managing high-interest or significant monthly debts.
• Develop a separate financial strategy (a "bucket") to handle large expenses without disrupting long-term investments.

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Conclusion

In this episode of the Rich Habits Podcast, hosts Austin Hankwitz and Robert Croak provided insightful, practical advice across a spectrum of financial challenges. Emphasizing long-term investment strategies, disciplined debt management, and informed decision-making, they empowered listeners to navigate financial complexities with confidence. Whether dealing with retirement loan repayments, consolidating investment accounts, weathering market volatility, or addressing significant tax obligations, the hosts consistently advocated for strategies that balance growth with responsible financial stewardship.

Notable Quotes:

• Robert ([05:32]): “It’s not high, it’s not super low, but I believe over time adding that additional money into your investments is going to outperform the four and a half percent interest you're paying on the 401k loan.”
• Austin ([06:33]): “You need to be investing aggressively... you really need to be investing aggressively to have a comfortable retirement.”
• Robert ([15:40]): “Forget your password, lose your password. Keep doing the dollar cost averaging because at the end of the day, when in doubt, zoom out.”
• Austin ([24:00]): “If you really wanted to double down on income, I’m here for it. I think it’s a great idea.”
• Austin ([39:55]): “If you can be a part of an asset class that allows me to diversify my portfolio and that goes up tremendously during times of prosperity...”

Listeners are encouraged to implement these strategies and consider joining the Rich Habits Network for further personalized financial guidance.

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For more insights and to join future discussions, visit Rich Habits Podcast or connect via Instagram and email as mentioned in the episode.

Transcript

[Austin]

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[Robert]

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[Austin]

Hey everyone and welcome back to the Rich Habits Podcast Question and Answer Edition. We are so excited to be back every single Thursday to answer your Questions via Instagram dms@rich habits podcast via email@rich habits podcastmail.com and sometimes we even spotlight the questions shared inside of the Rich Habits Network because they are really good questions. As a quick reminder, Robert and I are running a seven day free trial to join the Rich Habits Network. This means if you've been on the fence about about it, if you wanted to join a live stream that we have over there, if you just want to see what it's all about, literally it will cost you nothing. Seven days free trial. If you don't like it, you can cancel. No hard feelings, but definitely go check it out.

[Robert]

Yeah, I can't think of a better way to spend $77 a month because we cover it all. We give you guys all the scoop, all the insights right off the top of our dome every single week, every day in school. And I just think it's a really, really cool thing that we've built and I'm really excited for the future as we grow more and more and how.

[Austin]

I like to describe it to my friends and family, Robert, are this allows us the opportunity every week to give people the inside scoop into our portfolio, changes into the headlines that we think are important to pay attention on as it relates to the economy and the stock market. I mean every week we are sharing so much information with you all. So again, seven day free trial. There's going to be a link in the show notes below to check out the Rich Habits Network now before we jump into our first question in this episode, we have to remind everyone that if you are serious about investing, you need to know about Public. Com on Public 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 6% or higher and remains locked even if the Fed continues to cut interest rates. Now what sets Public apart is how they give you the tools you need to make informed investment decisions. They have a built in AI tool called Alpha and it doesn't just tell you if an asset is moving. Like a simple watch list on your Apple charts, it tells you why an asset is moving so you can have full clarity and understanding as it relates to what drives your portfolio's performance every day, week, quarter and year.

[Robert]

Yes, In Public is a FINRA registered SIPC insured US based company that has a customer support team that really cares. So the bottom line is your deserve a platform that takes them as seriously as you do. Fund your account in five minutes or [e-mail] 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 the podcast Description so let's get into our first question.

[Austin]

So our first question comes from Zach S. Zach says hi Robert and Austin. I listen to your podcast every week and I love it. These episodes have made a great impact on my financial plan and I thank you for that so much. Now, my wife and I took out a 401 loan in 2017 to purchase our primary home. The current outstanding balance on These loans are $59,000 at 4.5% interest. In hindsight, this may not have been the best decision, so I need some guidance on how we can attack the repayment. We're 54 and 50 years old respectively. We each have $200,000 in our 401ks, not including the outstanding loans, 50,000 in my Roth IRA, 25,000 in her Roth IRA and they're into the ETFs you guys talk about. We have 10,000 in a brokerage account, 25,000 in a savings account, and most of this has been accumulated in the past eight years. As our income has grown, our kids got older and we became more financially responsible. As I mentioned before, we used these 401k loans as a down payment on our primary house and at the moment our balance of the mortgage at 3.5% stands at $280,000 while the market value is around 680,000, we're scheduled to max out our Roth IRAs this year and contribute up to the match on our 401s. Alth though we've started a little late. I earned about 150k a year. My wife makes about 50. So combined around 200,000 total. Now here's the question. How do we prioritize 401k loan repayments? Should we make it a high priority and attack it? Should we make scheduled payments and address the loan payment down the road when we sell the house? Should we sacrifice maxing out our Roth IRAs? How do we approach repaying this loan? Robert, this is a wonderful question. Do you want to kick things off?

[Robert]

Yeah, I will. I love this question and I love the thought process to even create this question. So great job, Zach. In my opinion, I would just keep paying the payments as long as you're steady at your job. Because for any of you that have considered taking a 401k loan, please make sure you read all the fine print and understand that if you were to leave that position at that company, you would have to pay it off in full. So keep that in mind. But I love this question and I would just keep paying the payments because that interest rate falls in what we would call an okay interest rate. It's not high, it's not super low, but I believe over time adding that additional money into your investments is going to outperform the four and a half percent interest you're paying on the 401k loan. So for me, it's always one very important thing. Make sure that your arbitrage, the positive arbitrage, your money is going into your pocket and not someone else's. So I love just paying the payments, keeping it as it is. Keep building on The Ross, the 401ks and keep investing along the way.

[Austin]

Yeah. Robert, whenever we Normally talk about 401k loans, there's a phrase that comes to mind which is don't borrow against your future to fund. Today we've talked about this a couple times and essentially all that means is do not rob future you. Right? Do not borrow from your future. Allow future you to be really, really happy that you're invested. You let compound interest do its thing and you are growing wealth over Zach s here and his wife in this situation did borrow against future Zach and his wife, but they did it to buy a primary home of which it seems like it appreciated a whole lot during this period of time. So I think they just kind of got Lucky there. Normally we don't tell people to use their 401ks and borrow against them. And like, it's just not something we've really believed in too much to answer the question of, like, how do we approach paying off this debt? So at four and a half percent interest, I largely agree with Robert that, you know, it's on the totem pole to tackle. You guys need to pay this off. I would argue in the next 24 to 36 months, what you don't want to do is stop investing to pay back this debt. In my opinion, Zach, if I were you all. And you planned, you mentioned you plan to sell the house down the road a little bit. If you plan to sell the house in the next three or four years, I would use that as the liquidity event to pay off this loan. I guess what I'm trying to get at here is like, I wouldn't sacrifice maxing out your Roth IRA every year because you guys are on the older side and you really need to, like, I don't want to say catch up, but like, you guys need to build some substantial wealth here in the next 10, maybe 15 years to have a comfortable retirement, which means you need to be investing aggressively, specifically via the Roth ira. So if it were me, I would keep it on the back burner for a little bit, knowing that in the next two or three, maybe four years, when you do sell the house, you will use the proceeds to pay off this 401k and then hopefully, you know, the proceeds as well of that to perhaps, you know, go buy your next house either in cash or invest a ton of money or maybe approach that some other different way as you near retirement.

[Robert]

And for everyone listening and watching, make sure you understand that positive arbitrage with your money needs to go in your pocket. And the simplest way to understand that is if you believe you can make 10% in the market and something costs you 4% to borrow. That is why the wealthiest people on earth have mortgages on their homes, mortgages on their yachts, mortgages on their vacation homes because they can borrow money for less than what they can make with their own money. That is the key takeaway for this question is that if you keep paying on that low interest loan and put the money elsewhere to accelerate your wealth, that is the better play because the positive arbitrage of the money is going into your pockets.

[Austin]

So our next question comes from Ryan S. Ryan says. Hello, Austin and Robert. I've been listening to your podcast since 2023 and I have become A more disciplined investor because of it. I'm 24 years old, and last April, I opened a brokerage account on M1 Finance alongside my current portfolio on Robinhood. My ideal focus was for the M1 finance portfolio to hold dividend stocks like Mastercard and Costco, while my Robinhood account will hold majority ETFs like Spyi, QQQI, and maybe a couple growth stocks like Apple and Waste Management. Robert, I didn't know Waste Management was a growth stock, but I'll take it. Yeah. So here's my question. Should I leave things how they are and keep contributing about $400 a month to both, or do I combine the accounts together? If the advice is to combine the accounts, which investing platform should I choose? I already have maxed out my Roth for 2025. Ryan. I think it's a really great question. I love M1 Finance. It has been sort of a. Now, people always ask us, Robert Austin, you guys love Public, you love schwab, you love M1. Like, which one's the best? Like, how do we approach this? And we are the biggest believers that Public.com's platform is the easiest way for new investors to start investing. It's very simple. It's straightforward, it's easy to sign up. They make it very easy to learn along the way. I mean, public.com is the just, like, easiest way to start investing if you've never invested before. Robert and I have been investing for a long time, and I would argue that M1 Finance for me, makes just a little bit more sense. I feel like I've kind of, like, graduated a little bit to a more complex and sophisticated portfolio structure with a lot more active management where I need some of the tools that M1 Finance provides. Me not saying I couldn't also do that in public. I probably could if I tried really hard. But they just kind of automate some of that stuff on the back end for me, which is easy, especially for dividends. They've got a whole dividend calendar. It's really cool. But what I'm trying to get at here, Robert, is that you should definitely merge the accounts. And if you're comfortable with using an M1, go for it. If you're comfortable, comfortable using a Robinhood, go for it. Or even a public dot com, go for it. But you shouldn't have to, like, have these different accounts, ones with dividends, ones with ETFs, and, like, just put it all in one broker. It's going to allow you to consolidate. It'll allow you to continue to keep better tabs on your money, track your net worth better, and have better visibility onto your portfolio's performance on a weekly, quarterly, annual basis.

[Robert]

I think the key takeaway for me from what Austin said is comfortable because for me, the more confident people are when they're investing because they understand the platform, they know how to use the interface, they got used to it. I think that leads to more automation and investing and it leads to more consistency. I know from my own personal experience, if I struggle with a platform because the UX is wonky and I just don't understand it, I generally don't use it and I go somewhere else. So to kind of piggyback what Austin said, I don't think you need multiple accounts. As you grow more and more, maybe one account, like public, is more for your crypto investing and you keep the M1 Finance one because you're trying to really understand it. And M1 Finance has a lot of great interfaces to follow. But overall, most people, I think, can get away with one to two overall accounts over time until they grow their wealth.

[Austin]

Now, here's a question for you, Robert. How many different brokers do you use, not including, obviously, money that might be professionally managed by someone else? Like for me, for example, I use two. I have two different brokers. I've got a public.com and I've got an M1 finance. I do have a Robinhood account, but that's just been like, you know, Robinhood's been around for a while and it's just kind of cool to have that in the back pocket. But I've got two. How many do you have?

[Robert]

Let's count them right off my phone because I knew you were going to ask this question. Okay, I have my professionally managed money. I have Fundrise, I have Acorns, I have Betterment, I have E Trade, I have a little bit in Weeble. And then I also have Coinbase crypto.com Kraken Pro, public.com. i have Kucoin. So I don't know how many that was, but like seven or eight. But in my defense, that is over time. That is way, way over many, many years of investing. I started my ACORNS account, you know, whenever it launched, and I put in some money in there and then I have a direct deposit that goes in there every single week. I do my roundups in there. So that's just kind of that automated. I don't think about it, I don't check it. I don't even know the password anymore, which is good. All of those things, but for the most part, most. I'm kidding. I do know the password, but I'd really have to look it up. But anyway, for the most part, I think people should not over complicate investing because if they over complicate it, they won't have a strategy and if they don't have a strategy, they won't be consistent.

[Austin]

I couldn't agree more. Robert. I'm right there with you. Consistency, automation, especially Robert, especially during times of volatility like we're seeing right now, consistently dollar cost averaging into the markets as the S and p and the NASDAQ and you know, other funds fall 3, 5, 7%. Who wants to buy all time highs anyway, right? So I just, I could not agree more. Consistency is the key to building wealth. Our next question comes from Eric G. Eric says. Hi, Austin and Robert. My name's eric and I'm 52 years old. I work with a financial advisor and I have about $560,000 invested with them. I have another $80,000 in a savings account with a current yield of about 4%. I also have a public account with about $152,000 in it. My question is about my public account. Currently my Investments are in ETFs like SPY, QQQ, VGT, Voo, and a couple others that you've talked about. However, I've also invested in technology stocks and as you guys have probably seen, they're taking a beating. Unfortunately, I did not sell or try and time the market and I'm consistently dollar cost averaging. But as I send this email, I'm still kind of hesitant. Do I continue to hold these names? Do I sell them and try and buy them lower? I love your show. Keep it up. But any insight you guys might have is really helpful for me. Robert, you want to answer Eric's question?

[Robert]

I love this question. And the answer is forget your password, lose your password. Keep doing the dollar cost averaging because at the end of the day, when in doubt, zoom out. Is something Austin and I share every single day of our lives. And it is probably one of the most important flags we have on the Hill for people to understand and to live by. Because so many people feel that they somehow can beat all the smartest and brightest computers and minds in the world by timing the market. And I assure you, no one can properly time the market. I don't care what they say. So in this instance, when I look at these names, Tesla, Amazon, Apple, Nvidia, Google, those are some of the best names that you should own for Life forever until something changes. I think those are all great companies that will do well in the future. So I would not be concerned with this short term blip, this volatility that Austin and I have been speaking about for months because these are awesome holdings that will continue to grow.

[Austin]

And just to add some like more on top of that, I think it was Robert Amazon was the number one company owned by hedge funds and institutional investors in 2024. I guess what I'm trying to share when I say that is I consider myself a sophisticated investor, but I am not someone who has billions or trillions of dollars in assets under management. And those people that do have all that money have a lot of insight and clarity and visibility into what happens in these companies on a weekly, quarterly, annual basis. And to know that Amazon was the number one most held stock by these smart money investors makes me feel pretty good. So like to answer your question, Eric, I can empathize with buying the local top right is kind of how people describe it. The markets got overextended after Trump was elected. We've since seen a, a little bit of a cool down after the inauguration. But I want to remind people that there's a difference between the indices like the S&P 500 and the NASDAQ experiencing a little bit of a cooldown. Like we've seen 3, 5, 6%. Whereas the single stocks, the individual holdings inside of those indices experience much more volatility during times of uncertainty. Right. So if we just zoom out for a second and think about the most recent bear market we had in 2022, the S&P 500 contracted about 25. The Nasdaq contracted about 35, 38%. But Meta, Netflix, Amazon, Google, all these names were down more than 50, 60, 70%. It's not like the company's revenue went down by 70%. It's not like the Company's profits went down by 70%. It was the fear and uncertainty with investors that caused them to do that. Nvidia was at 12 a share and you couldn't pay someone to buy Nvidia stock back then at 12 a share. And with Meta it was at like $88 a share. You couldn't pay someone to buy it there and now it's at 500 plus. I guess what I'm trying to get at is if you have an investment thesis, you understand the fundamentals of a company where they're trending toward what is driving their profitability and what key themes are going to remain the same, like with Amazon or costco or, you know, waste management, another example. Right. We know people are always going to need garbage pickup. We know people are always going to go to Costco. We know people are always going to order on Amazon. And the things that remain the same allow me to have a little bit more certainty and cool common collectiveness. And what's also important too, Robert, is back to this idea of automation, especially for Eric here. You know, Eric, if you say every other week I allocate 400 or 5, whatever you invest right into these single stocks at no matter what their prices are. I promise you, when you fast forward three years from now, two years from now, eight months from now. Right. No one knows what the market's going to do. But I do know that over the coming years and decades, these names would be worth multiples higher than they are right now. Which just goes back to something Robert and I have always been saying. If you are an investor, you want to be a net buyer of assets. You don't want to try and time the market, sell things. You want to continue to grow your portfolio over time.

[Robert]

Yeah. The only reason to ever sell a stock, in my opinion, is if your thesis on the company changed or if there's some great change in that sector of the market. But when we're talking about these metas and Amazons and Teslas and Apples and Googles of the world, Microsoft, I don't see a world where I sell any of those to try and time the market or time a dip or any of that anytime in the next decade, just because that is not how you grow wealth. You know, there's an old adage in the world of finance that the greatest accounts that perform the best are the ones of dead people and people that forgot their password. And I always say this because it is kind of a joke and it's funny, but it's also pretty accurate because so many people in my daily life that I work with and in the Rich Habits Network, they're always like, oh no, the market's falling and they never zoom out. That is why we always tell you one of our best little hacks for you to help you with the emotion of it all, when there's a correction, is to go to a stock chart and go to the five year chart. Don't look at a month, don't look at six months, don't look at a year, look at five years. You'll see all the hiccups, you'll see all the volatility, but generally you'll see it going up into the right so that is why we are long term investors and you should be too.

[Austin]

Our next question comes from Jake H. Jake says, hey guys, I love the podcast and everything else you do. Just a little bit of background on me and my finances because I know it's going to help. I'm 25 years old, I have no debt. I'm studying financial management, living in Colorado with my girlfriend and right now I make about 40,000 a year. I have $14,000 invested mostly in the S&P 500. And here's my situation. I have inher rented a house that I'm in the process of fixing up and selling. I'll be splitting the profits with my younger brother as it is in both of our names. Realistically, I plan to bring in somewhere between 130 to $160,000 when it sells. My plan is to invest most of this money into the ETFs you guys talk about and build my base. I was also thinking about putting some of the money into SPYI for some extra income. Now here's my question. If you were in my position, would you stick to ETFs, would you buy some growth stocks or would you get aggressive on the income with spyi? I'd love to hear your thoughts, Robert. I think before we answer that question, it could be a really good idea for you to share sort of your just decades of experience flipping houses. How you've, you know, let's say split proceeds with co investors, co flippers, however you kind of like. How do you approach that?

[Robert]

That is a great question and something that most people get wrong. So let's back up to this situation how it relates to my experience. First and foremost you say you're going to fix it up and flip it. Do you have any experience, do you have any knowledge of how to do this? Because maybe you should sell it as is instead of putting in all this time and money into a flip. Because so many people that flip houses forget that when they spend a thousand hours on that house flip, they're not factoring that time in at whatever their hourly rate that they believe their time is worth worth. They're also not factoring in holding costs. How long does it take you to tie up the money that you might borrow to do this renovation and do this flip. But they're also not looking at the tax considerations either because when you sell this house you mentioned you would probably net somewhere between 130 and $160,000. Now I don't know if that's total or each of you is Going to get that amount. You didn't clarify that, but that's okay. So for me, it's always understanding, just like when you're buying something but also selling something is understanding the totality of the numbers. So many people just look at the base numbers, oh, the house is worth this. We put in this, we sold it, so we made all this profit. But they don't take into consideration the interest, the closing cost, the commissions to sell it and everything that goes along with it. So make sure you fully digest all of the numbers and the understanding of what you're taking on so you can get this right and actually make a decent profit.

[Austin]

So in the past, when you have, you know, split profits with co investors, how did you approach that from a legal perspective? Did you have some sort of agreement in place? How did you figure out exactly what those profits are? How did you divvy out the work that you did versus the work the other investor did? How did you guys approach that?

[Robert]

That, yeah, that's a great part of this kind of bigger story. I think I've done around 45 flips to date in my career because I do some buy and hold, I do some flips, all of the above. And that is why it's important to understand that like in this instance, when you're splitting money with someone else, you either want to have this home in an LLC if you can, or at the very least have a contract like Austin alluded to. If you don't have a separate contract and you have the LLC spell it all out in the operating agree it. So then that way you know what you're getting, the other person or persons knows what they're getting. Because you just don't want to be in a situation where you put in a thousand hours and maybe your partner puts in zero hours and then you're not getting paid for that thousand hours because it wasn't spelled out ahead of time of who gets what. So for instance, let's say you're going to be on site and you're going to be the general contractor. You should get paid for that on top of your investment, because at the end of the day you're putting in actionable real time to be able to get this build out done timely and get it done right, and you should be paid additionally for that. So just make sure, I always tell people at the end of the day, the best paperwork wins. And it's so important to understand that because you just don't want to get into a riff where you end up in court over a project like this with your brother or a friend or a family member, because everything wasn't spelled out in the documentation.

[Austin]

And now to answer the actual question that Jake had around, like, how do I take these proceeds and build my investment portfolio? The first thing I would encourage you to do is to learn more about what Robert and I call the core satellite portfolio construction. Robert and I very much believe in this portfolio construction as it relates to having the vast majority of your portfolio, 65, 80, 85%, somewhere in that range, invested into the ETFs and index funds we talk about. Because over a long period of time, these ETFs and index funds continue to trend higher up and to the right and you're keeping up with the markets. And then that's the core side of the equation. The satellite side of the equation are more of those high octane growth stocks that we know and love. Think Tesla, think Nvidia, think Google, think MasterCard or Costco or these other names that we believe over a long period of time, let's call it 3, 5, 7 years, will continue to outperform the markets. Right? That is the key term, outperform. If we were literally just trying to perform with the markets, why not just throw it in the index funds already? But we're trying to outperform the markets with this sort of more strategically constructed portfolio of both great index funds and great single stocks. Now, if you really wanted to double down on income, I'm here for it. I think it's a great idea. You could use spyi, you could use qqqi, you could use qqqh, considering the volume volatility we're experiencing. But I think at the end of the day, again, now you mentioned you're 25. As we look toward the next 10, 20, 30, 40 years of investing, you'll probably end up with a bigger nest egg if you have a portfolio constructed of both, you know, upside appreciating index funds and ETFs as well as high octane growth blue chip stocks that we've talked about. And when you're ready to maybe begin to optimize for income alongside your real estate investing again, totally recommend SPYI and his other names that are the Neos funds.

[Robert]

And for everyone that follows along with the Rich Habits podcast every week, I strongly recommend you consider having these three best friends, especially if you're going to build a real estate portfolio. One is an attorney that actually knows real estate law and tax structures. Very, very important because a general counsel person might not know the best Strategy number two, a really good CPA that works a lot with entrepreneurs and not just with small business owners, because that is very important that they help you in the right strategies of what to do with your money. And then number three, and we fill that gap is someone that can really educate you financially on how to grow your wealth. So I think it's very important that everyone listening understands those things because you get to choose who your friends are, who you work with, and make sure you choose wisely.

[Austin]

I think that's great advice. Robert.

[Robert]

Before we get into our next question, 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 is not 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 of high yield and investment grade corporate bonds only at public.com forward/rich habits and Robert, just to.

[Austin]

Remind everyone, the market right now is pricing in three rate cuts in 2025 from the federal Reserve, which means that your high yield savings account or maybe the T bills that you're invested into for some stability in your portfolio might begin to trickle down from 4% to 3 and a half percent to 3% sooner than you think. So if you're someone who likes the stability in your portfolio, someone who loves to see those consistent payments added to your brokerage account, open up a bond account on public that right now is paying at least 6%. In the past it's been up to seven or seven and a half, right? Just go check it out is a really good idea, especially if this volatility is freaking you out and you just want some stability. Again, the Fed's going to cut rates in 25. They're expected about three is what the market's pricing in. So if you want that six, six and a half, 7%, just go check out the yield on it. Right now. Public.com rich habits is where you need to go. So our next question comes from tw.tw says. Hi Austin and Robert. I've been listening to your podcast for the past two years and Happy anniversary to you both. I've taken so many good pointers and suggestions from the show and I've implemented them into our family's finances. My husband and I are both 38 years old. We live in a high cost of living area in California and make a combined income of about $270,000 a year. After doing our taxes it looks like we're gonna owe an additional $30,000 of combined federal and state taxes. This was a very abnormal year for us because we had some heavy rebalancing in our investment portfolios that caused us to incur some capital gains taxes. A chunk of a rollover IRA to a Roth ira, a large lump sum of money in a Roth IRA conversion. A lot of stuff happened for us that's not going to happen in the future, thankfully. But we didn't plan this correctly from a tax perspective. So now we owe the IRS $30,000. And here's our plan. We want to take $10,000 from our high Yield Savings account because we don't want to deplete all cash savings. We're going to take another 10,000 from our investments in our taxable brokerage account on public, and then we plan to pay off the remaining $10,000 over the next 12 months with the IRS's 7% interest rate plan. My question to you both is, is this a good payment strategy? Would you pay it down another way if you were in our shoes? What do you think, Robert? I'll let you kick this one off.

[Robert]

I don't understand this at all. You guys are crushing at $270,000 a year and yet you're worried about how to pay down this $30,000. My answer is immediately, because at the end of the day, there's one entity in this country you don't want to mess with, and that is the government, especially the irs. You want to make sure to stay on top of this stuff. So in my opinion, I would find a way to pay it off sooner than later. Especially because with 7% interest, you're in that range of high interest interest. And we always say you can't out invest high interest debt. So in my opinion, I would find a way to buckle down, give up some things for a few months just to get this knocked out. It's not a lot of money. Get it off your plate and move on so you don't get in trouble with the IRS where you miss a payment or you get your wages garnished or something like that. It's only $30,000. Figure it out and get it done quickly.

[Austin]

Yeah, so I agree with taking 10,000 from the high yield savings and selling 10,000 of investments. I don't know how you have in your High Yield Savings account. I would imagine at least 20,000. Maybe there's a world you could take another 2500 or 5000 from that and deplete your savings down to about one month's of expenses, assuming it's closer to that 20 or $25,000 range. I largely agree here with Robert that you can't out invest this, especially during times of volatility. Perhaps it's a good idea to sell more of your taxable brokerage. Just make sure you actually set money aside in taxes or the markets are down. Could be an opportunity to do some tax loss harvesting if you're experiencing some volatility in your own portfolio. But doing some back of the envelope math, I'm seeing your guys are probably taking home between 15 and maybe $16,000 a month after taxes. I could be wrong. I might be a little bit lower than that. Which if it is lower than that means that you guys are investing in your 401ks. I would pause the 401k investing and use that monthly, you know, income there as a way to pay this debt off even faster. But even if you're making 15, 16, maybe even less, 12,000amonth, take home. I understand you live in a high cost of living area, but like we're talking about $10,000, I feel like, which is only like 800 bucks a month, right? So over this 12 month period of time that you alluded to, I feel like you guys can afford this. I feel like you guys can cut back on maybe the eating out, no vacation this year. Maybe it's selling, having a garage sale and you come up with another two grand that way, right? Maybe you've got things laying around the house that you don't use. Maybe there's something that you can do when it comes to a side hustle that's totally worth your time. You guys live in California making great money. Maybe you guys, you know, have a specific skill, maybe work in software. I don't know what you're up to, but I have a good feeling that you can absolutely come up with $10,000 faster than 12 months. That to me was the red flag in this question, is that you guys want to keep this debt around for 12 months as if you couldn't afford to pay it off. You make a quarter million dollars a year, you can pay off $10,000 in six months, in three months, right? You just have to get really, really intentional with your money. Again, Again, pause the 401k investing. Maybe take a little bit more from the high yield savings. Take a little bit more out of the taxable brokerage account. But get aggressive with this because the last person you want to mess with is the irs. They are not someone you want to be on a payment plan with yeah.

[Robert]

And I think the number one takeaway I get from this question and your response is that so many people when they're looking at money, they look at their debt on one hand and they look at their money on the other other and they just emotionally don't want to give away their money to pay off the debt. And that's okay when it's low interest debt, but when you get above 6, 7, 8% credit cards, 20, 30%, you really need to wipe that out because behind the scenes you don't really see it or feel it in a daily basis. It's just eating away your wealth because you can't out invest high interest debt. And in this instance you have the money, you have the income and you have the ability to pay it off. Off, pay it off, move on and get back on track.

[Austin]

Our next question comes from Matt H. Matt says hey Austin and Robert, longtime listener of the podcast, always appreciate the hard work you guys put into each and every episode. I fall into the slightly skeptical yet still actively participating in investor class of crypto. Primarily I have Bitcoin and a very small amount of Ethereum. While I'm excited about the strategic crypto reserve and what that could mean for Bitcoin and other popular cryptos in the short term, taking my crypto hat off, I'm concerned that long term doesn't make much sense. Using Bitcoin as an example, the government will own a significant percentage of all bitcoin. Won't they be essentially locked into holding it forever? What if the government were to ever sell the bitcoin? It would tank the value of it, right? Isn't that the idea? Right. A large percentage of the asset can't be sold, so it builds some stability in the long term. It just seems odd to have a strategic reserve for an asset that doesn't fall into the usual category of critical consumable resources like oil, medication, food, etc. Again, I'm not a crypto as a scam person, but between Trump and others involved in the administration launching their own meme coins after the inauguration and the general fraud the space has seen and dealt with with bad actors over the years, I just can't shake the feeling that this is going to turn into a government sponsored rug pull. Robert, you want to kick this one off?

[Robert]

Yes, I love this question and it is very, very top of mind recently. So let's talk about the strategic reserve first. Do I think it's a good idea? I think it's a great idea idea because Right now our assumption is, as we migrate more and more away from fiat currency into digital assets and digital currency, that we need this now. When it was announced a week or so ago that there was going to be a strategic reserve including Bitcoin, Ethereum, xrp, I think it was Cardano and some other ones, maybe even Litecoin was involved in that list. I did not think that was a good idea. But the reason I think a strategic reserve built around Bitcoin is a good idea idea is because I look at Bitcoin as digital gold. It is not going to be something we're going to use on a day to day basis to buy a sandwich or a coffee, but it is going to be something that we can use as a store of value. Now why does that make sense for a strategic reserve? Well, in my opinion it does because what it does is it gives the United States a chance as bitcoin grows. We all believe that bitcoin could go to 150, 300, 500,000 thousand, maybe even a million dollars a coin. It gives us some stability and collateral against the US Dollar to help strengthen the dollar. Because let's face it, for the United States, we have to find a way to get out of this money printing situation that has happened over the last four or five years to get us back to a better spot and bring down the federal deficit. So I think it's a good idea to have a bitcoin strategic reserve. So let's talk about getting you off the ledge and the scam. Look at it this way. We are still very young in the blockchain and cryptocurrency era because if you think back, maybe you weren't old enough, but back in my day when the dot com era was happening and all of that, there were scams and rug pulls every single day. It was just a different time in a different sector. And I think having the government involved in cryptocurrency through strategic reserves, through better legislation and regulations, it's going to actually help, help prevent so many rug pulls because people will have to follow a much more stringent set of rules moving forward in the crypto space. So I get where you're at. A lot of people are on the fence around cryptocurrency and that is why Austin and I say that you should only invest 5, maybe 6, 7% of your net investable capital into crypto as a sector as part of your wealth building strategy rather than going all in. Because so many people, they get 5,000, $10,000, they want to Go all in on some meme coin or XRP because somebody online said XRP was going to be $10,000 a piece. That is gambling, that is not investing. We agree with you. Bitcoin, everyone should hold, I think everyone should hold Ethereum and then several other coins that we talk about on a regular basis like xrp, hbar, ando Finance, etc, etc, etc. But be safe, make sure you do your own research and keep it to a minimum as a part of your overall investing strategy.

[Austin]

Yeah. So Matt, here's my perspective. The government, how I understand it, is going to have about 5% of the total outstanding supply of Bitcoin. That's a drop in the bucket, right? Like an absolute drop in the bucket. So to your point of like a government sponsored rug pull where things get sold or like whatever, whatever. How I understand it at the moment is that the bitcoin or crypto strategic reserve is just them promising not to sell the bitcoin that they've already seized in the past from criminal activity. They're pretty much saying this isn't going to be taxpayer funded, this isn't something that is going to be, you know, we're not using public funds for this. We just have all this bitcoin over here. We're not going to sell it to go, you know, fund whatever else is happening in this country with taxpayer money. We're instead just going to hold on to, to it and ride the wave together. Is it bullish? Sure, other countries will likely take note and go do the exact same thing, but from the perspective of like a government sponsored rug pole or like, you know, is this scammy and stuff again, 5, 6, 7, 15, right. At the very max, depending on how like young you are and you know, risk averse and things like that of your invested capital should be in bitcoin, specifically cryptocurrency in general. Right. But Bitcoin is what we talk about here. I think everyone should allocate a couple percentage points, 5, 10, 15 if you want to go that aggressive into the asset class. Because it's proven over now a decade of time that it trends higher and continues to explore these boom and bust cycles, but is now being adopted by a whole lot of people. I understand if you don't want all the other crazy little coins like I'm the same way, count me out. I don't care about that stuff. But if I can be a part of an asset class that allows me to diversify my portfolio and that goes up tremendously during times of prosperity and happens to Go through some bear markets along the way, but over a long period of time, outperforms the S and P, the Nasdaq and things like that. Count me in. Sounds like fun. It's a way that I can diversify my portfolio.

[Robert]

Yeah, I couldn't agree more. And one last anecdote that I'd like to put in here for everyone listening is countries, the largest banks, hedge funds, and the smartest people in the world are investing in cryptocurrency. And when you think about the blackrocks of the world, or you know, the ark investments of the world and Cathie Wood and Michael Saylor and all these people generally, they might not have their timing perfectly, but they're going to not be wrong very often. And when you think about how big crypto is getting and how much adoption is happening around the world with governments and hedge funds and huge banks, banks, it's hard to think that it's still a scam if you really, really digest it. So just think of it that way. Be careful where you invest, make sure you do your own research, and I think everyone will be just fine as we see cryptocurrency grow and get adopted more and more in our everyday society.

[Austin]

So our last question comes from Lisa B. Lisa says, I love the podcast and I'm wondering if I can get some advice. We recently bought a second car and we're wondering whether to pull out investments to pay for it or just keep the high monthly payment. The monthly payment right now the car is $1,200. Our house is fully paid off. $850,000 is the market value and we are debt free. We're in our 30s and we have a fourth kid on the way. With the stock market down, I feel like I should keep my investments in there and continue to dollar cost average until it turns around. But is it a better idea to deplete our bridge account by about $65,000, bringing its value down to about 30 despite the market volatility right now we both have our Roth IRA and HSA out on top of that. I know you always say you can't out invest high interest debt, but we're having trouble pulling money out of the markets when they're doing so poorly. Robert, what's your perspective on this?

[Robert]

Well, $1,200, the average car payment right now in America is I think, $758. I get where you're at. It is a tough situation. But I also hate to see people taking money out of a investment account to pay off a vehicle. So first and foremost, I don't think they alluded to the interest rate on the car, but let's assume it's 7 or 8%. I personally would just have the car payment and deal with it because of the fact that I hate to pull all this money out of investing for my future to own a car. And first and foremost, I probably would have bought a used car. Unless you're going to drive it a lot. For me, it goes like this. If you're going to keep a car forever, buy it. If you're going to trade out of a car every two, three, four years, leave, lease it. Because with a lease you're going to have no money out of your pocket or very little money out of your pocket and you're going to get a much lesser expensive payment. So that would be my takeaway on this. But in this instance, I would not deplete all of your funds in your bridge account to buy this car. It is the biggest appreciating asset other than a boat that you're going to own and purchase. So for me, I just don't like to see people tie up all their cash. Cash in something that in two, three, four years is going to be down 40% in value.

[Austin]

Yeah, I'm right there with you. I'm just like thinking about this in real time. I mean, just looking at the surface here, they're millionaires, right? They have 850,000 in their house. They've got what seems like about a hundred thousand in their bridge account. So that's at least 950. And they mentioned Roth IRAs and HSA on top of that. I'm so certain that they've got more than 50k in those. Like they're net worth millionaires. They are very, very savvy with their money. They got very aggressive with a house and they paid that off, which, you know, we're not going to talk about that. But long story short, if I were in your shoes, I would keep the money invested, but I would aggressively want to pay this off, right? So like, maybe you're pausing the 401k contributions, maybe you're pausing vacations. I guess what I'm just trying to get at here is like I don't want to see you guys sell $65,000 worth of investments, but I also don't want you guys to invest another 65,000 on top of what you have that 1200 bucks a month as a car payment you have in your budget every single month. You guys obviously can afford this car payment. Or you wouldn't have got it in the first place. You guys are very smart. You kind of ran the numbers here. But I wouldn't want to keep $1,200 a month around for the next five years, which is like what it is turning out to be with this car note. So yeah, if you guys can get this paid off in two or three years, I think that's a dub. But I would not sell your investments, especially as they're likely in the red right now with the market volatility we're experiencing just to get rid of this monthly payment. Maybe we experience new all time highs later in the summertime. Maybe the Trump tariffs get taken off, Maybe crypto goes to all time highs. Like who knows what's going to happen in the markets. All we can do is like have a strategy and stick to it. But if we do experience momentum and you are now up 100, 200, 300% or something crazy with some of these names in your portfolio, then sure, take some profits and use that as a way to help you more aggressively pay down this car debt. But I wouldn't want to see you completely deplete your 9,500,000 dollar bridge account to 30k knowing that that money is working for you right now and you're adding to it and things like that.

[Robert]

And the only last thing I would say is from a mindset perspective here is I look at it that I'm always going to have a car payment. I need a new car, it needs to be 1, 2, 3 years old because I drive a lot, I travel a lot and I'm going to meetings all the time. I don't want to mess around, around with maintenance and having to worry about a car, all of that stuff. So for me it's important. But the way to look at this is, and this is something I've done for many, many decades now, is look at it as a bucket. Can you pick up an income stream to pay for that bucket? And that's how I do everything. If I want a new boat, I won't buy it out of invested capital. I just won't. No matter how much money I have, I find a bucket to pay for the boat. And you could do the same thing here. What is a side hustle? What is an additional income stream that you can invest in to then make enough money to pay for the car? So think of it that way. Of every one of these larger payments, especially on a depreciating asset, find a bucket to pay for it so you're not Taking out of your invested cash.

[Austin]

I'm the opposite. I can't wait to pay off my car. It's a very low interest rate, which is why I'm not paying it off fast. It's I think 2.8% or something. So it's like I'll be done with it though, I think next year, which would be cool. But yeah, I just, you know, I drive a car, it's 20, 214 runner. It's got like 40, 45,000 miles on it. I plan to drive it till the wheels fall off. I love this car. And you know, if I were in this person's shoes, I would make sure that once this twelve hundred dollars of monthly payment is paid off, they're now taking that same twelve hundred dollars a month and investing it toward their bridge account. Their net worth millionaires, which means they've done a fantastic job building well, especially just here in their 30s. But I think that they probably could have approached this new car a little differently. And I'm just glad though that they're excited about paying it off and not keeping a moderately high interest debt of this magnitude along for much longer.

[Robert]

I couldn't agree more. Well, what a great episode. So many incredible questions and I just love that people have really kind of hitched their wagons to the Q A episodes because I really enjoy making them and just, just really taking it off the dome from our experience and just trying to help people in these tough decisions that we all have to deal with on a monthly basis, yearly basis in our lives.

[Austin]

And do not forget, April 3rd, Robert and I will be in attendance at the Grit Money Summit in Toronto, Canada. We'll be joined by Cody Sanchez and Sahil Bloom and Chris Camillo and Megan Loyce and countless other incredible entrepreneurs, investors, and just incredibly smart people. So if you want to join us, us in person or virtually, there's a link in the show notes below. The tickets are completely free. You don't pay anything. You just click sign up and register and we'll send you the link to the webinar. I think it's going to be streamed on YouTube, which will make it super easy. No new software to download or anything to join us. And if you want to join in person, there's like a cocktail reception hour afterward. We do like a meet and greet. It'll be a lot of fun. So if you are in the area or you want to come to Toronto, Canada to join us at the Grit Money Summit on April 3rd, click the link in the show notes below.

[Robert]

Yes, I am so excited for that event. So many smart people and it's going to be really fun unpacking everything, especially right now because we have all this volatility, we have all this uncertainty. So it's going to be great to see what all these minds come up with of what we share with the audience. So I'm really, really looking forward to this.

[Austin]

As am I. Everyone. Thank you so much for joining us on this week's episode of the Rich Habits podcast Question and Answer Edition. If you want to ask us a for next week's episode, email us at rich habits podcastmail.com DM us on Instagram at Rich Habits Podcast or join the Rich Habits Network 7 day free trial right now and ask us questions over there as well. As always, we appreciate you coming back each and every week and if you learned something, please leave us a five star review or consider sharing this episode with a friend. Thanks so much and have a great rest of your week.