Loading summary
Transcript41 lines
- [00:01]
Sponsor/Advertiser
This episode is brought to you by indeed. Stop waiting around for the perfect candidate. Instead, use Indeed sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate. C According to Indeed data, Sponsored Jobs have four times more applicants than non sponsored jobs. So go build your dream team today with Indeed. Get a $75 sponsored job credit at Indeed.com podcast terms and conditions apply.
- [00:29]
An all new season of the Secret Lives of Mormon Wives is now streaming on Hulu and Hulu on Disney.
- [00:34]
Austin
Mom talk has just been blowing up. Whitney and Jen are on Dancing with the Stars. Taylor is a bachelorette. Saying that out loud is crazy. Like that is huge.
- [00:42]
Sponsor/Advertiser
But all the cool opportunities could pull us apart.
- [00:44]
Austin
It's causing issues in everyone's marriage.
- [00:46]
Sponsor/Advertiser
My whole world is falling apart right now.
- [00:49]
Robert
It's chaos.
- [00:51]
Sponsor/Advertiser
Watch the Hulu original series the Secret Lives of Mormon Wives now streaming on Hulu and Hulu on Disney for bundle subscribers to from supply.
- [00:58]
Austin
Hey everyone and welcome back to the Rich Habits Podcast Question and Answer edition. These are our Thursday episodes where every Thursday morning Robert and I come at you answering your questions as if we were in your shoes. We answer your questions that you ask us via email at Rich Habits podcast gmail.com or via Instagram dm@rich habits Podcast on Instagram. My, my energy levels are low. I've been sick for a week now, but I'm powering through and I appreciate you guys and just so cool with me not having the, the rigor and the excitement that I normally come to these episodes with. Hopefully I'm, I'm better by the next time we film an episode. Robert But I just wanted to share my gratitude that you guys are so flexible with us. You know we've been publishing these episodes non stop since February 2023. The only time we took a break it was for I think even just a week or so when my dad died last year. But like we have just been at it for years now and we're just so grateful that you continue to come back and support us because we like to come back and, and share the answer your questions.
- [02:02]
Robert
Well, I think it's a testament to your tenacity as a business owner and to the audience of the Rich Habits podcast and in the Rich Habits Network because yeah, you have definitely been very, very sick. I actually had a pretty sprained back last week, but we powered through it. But I'm excited for today's episode. I'm feeling much better and I'm definitely ready for you to feel much better as soon as possible.
- [02:24]
Austin
Well, before we jump to the episode, got to give a shout out to public.com the investing platform for those who take it seriously. Because on Public you can build a mult multi asset portfolio of stocks, bonds, options, cryptocurrency and now generated assets which allow you to turn any idea, any idea you can ever come up with into an investable index using artificial intelligence.
- [02:49]
Robert
And it all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put AI to work. It screens thousands of stocks, builds a one of a kind index, and even lets you back test it against the S&P 500, all with just a few clicks.
- [03:10]
Austin
Generated assets are like ETFs with infinite possibilities, which means they're completely customizable and they're based on your thesis, not someone else's. So go to public.com rich habits and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com rich habits paid for by
- [03:29]
Robert
Public Investing and the full disclosure in the podcast description. So Austin, let's get into it. We have some awesome questions this week.
- [03:37]
Austin
Our first question comes from an anonymous listener. Our anonymous listener says, hey guys, I found your podcast in February and I've been binging your episodes like crazy. I love the breadth of information covered in the questions you answer. Our anonymous listener says, I have my family's Roth IRAs, traditional IRAs, and a taxable brokerage being managed by Empower at 0.79% annual management fee. About half a million dollars is completely totally invested across these accounts and being managed by Empower. Ultimately I want to cut out the management fee by moving my accounts to a self managed broker. How do I then simplify the portfolio without selling positions and realizing hundreds of taxable events? Or am I better off just staying put within power? This is a big pivot for me and I'm trying to think about the move from every single angle. Robert, do you have any advice for our anonymous listeners? It relates to leaving a robo advisor and going full self managed?
- [04:37]
Robert
Yeah I do. First and foremost you need to make sure if you're going to self manage your account no matter how much money you have, do you want that yoke on your shoulder? Do you want the pressure of maintaining and optimizing these accounts over time? That's the number one thing. How to manage that and how to migrate. That is a different story. I don't think you have to worry as much about the taxable events as long as you do an account transfer and you don't sell everything off. That's pretty simple to do as long as you're using like a public.com or a Vanguard or one of the bigger platforms. So I wouldn't worry about that so much because I look at it from both sides because of Croak Capital. When I think of 79 basis points to manage someone's portfolio and all of things that go with it, I don't think that's that bad. But if you have the knowledge and want to do it on your own, go for it. Austin and I manage our own money. We're very good at it. We've been doing it for a long time. But just make sure you understand that you lose some of the ability to have others helping you along the way with that information by not having a broker manager helping you along the way, like a wealth manager. So those would be my takeaways of what to do here. But I wouldn't worry about the taxable event because in almost every instance you can do an account transfer, it's called UCats. It's very simple to do with most platforms.
- [05:59]
Austin
Yeah, I totally agree there. And even if there are stuff that you can't transfer, like mutual funds, of course, buying and selling inside of individual retirement accounts, none of that is a taxable event. The only taxable events that could be taking place here are actual transactions taking place in the taxable brokerage account that you said that your family sort of has here. You also mentioned, and I didn't mention the question, that you're 33 years old, which tells me that you probably just want to have a set it and forget it mentality when it comes to your money. Perhaps there's a world where you just park it all into a VOO or a VTI and you just like let it go up into the rider over a long period of time. Thinking about though, that 80 basis point management fee on that 450 to 500,000, you know, we're talking about $5,000 a year or so of a management fee, which again, not bad assuming you need the hand holding. But you are locked in on that not needing that handholding. You understand it, you understand the risk. Perhaps you've got that internal dialogue and self awareness that you can stomach the ups and downs that come with the markets. Because at the end of the day we know that the markets can be volatile any year, but over a long period of time they go up into the right. So to the anonymous listener here, I would definitely do a transfer that Robert had talked about. Know that Roth IRA and traditional IRA transactions are not taxable. And I would also, if I were you, have and create a portfolio that you stick to for a long period of time. By that I mean, okay, before I move over any money, let me get out a pen and paper and write down what ETFs am I going to buy? What four or five ETFs do I want all this money to be invested into exactly how much into each one? Why? What's my thesis around that? I need to back test this portfolio. Let me go ask Gemini or Chat or Claude to back test this portfolio to see what the max drawdown would be and compare that to the S and P. Right. Really do your research and your homework to ensure you, one, completely understand how this money is getting invested. Two, understand the volatility that's going to come with the specific investments that you've chosen. And three, have some sort of like, backup plan where, oh my gosh, I don't like this. I need to go back and have a manager. Like, maybe put it back with empower. Maybe you've got someone that can, you know, it's close with you, that isn't a fiduciary, that can take this money over for you. Like, I would, I would definitely have some sort of backup plan because again, half a million dollars invested, I mean, 20, 22 happens and you get a 30% correction, it's 150 grand that disappears. And $150,000 out of your account makes people do some funny things, right? Where if you had a financial advisor that's like, doing this for you and encourage you, hey, it's okay. Ride the wave. Everything's cool. That could, you know, keep you in the game longer. So just really know here what you're getting yourself into. I love where your head's at. I believe in self management, self custody, especially if it's, you know, hundreds of thousands. But once you get up to the millions, you know, then you really begin to want to work with more people. And the only other thing I'd add here is that empower is just sort of the robo advisor. If you were telling me you were going to move away from a fiduciary financial wealth planner, I would be like, why do you want to do that? Because some of these wealth planners, like, you know, they're not just investing your money, but they're helping you understand business structure. They could be helping you understand different types of tax strategies, things of that nature, where empower is just saying, oh, no, I'll tell you how to invest your money, which is cool in and of itself, which is fine. Just make sure you kind of understand those two differences.
- [09:28]
Robert
Yeah, I really, really like the last part of that. Because a lot of people get it wrong. They're worried so much about the fee with a fiduciary, not a robo advisor. The they're worried so much about the fees, but they don't realize everything that comes with it when you're working with an actual wealth advisor, because you know that gets you into structure, tax strategies. How do you leave these things later on for your family? All of that all wrapped up in that fee. So just make sure you understand the difference and understand what you get for your money if you're with a real fiduciary.
- [10:00]
Austin
So our next question comes from Carlos. Carlos says, hey, guys, my name's Carlos and I really enjoy your show. I'm an NYPD detective that has fallen in love with investing. I recently opened up a UTMA account for my 5 year old son and he now has $12,000 in it. I know that legally I have to turn over the account to him by the age of 21. My question is, when I hand it over to him, can I still contribute funds into this account? If I can't because it becomes a regular brokerage account, at that point, can I somehow set up a joint checking account with my son so that I can contribute to that said brokerage account? Sorry for the complicated banking question. I just want to do right by my son and I also want to educate him on how to be responsible with his finances. Let's go, Carlos. What a dad. What a dad. Dad of the year. This is what I'm talking about, dude. Let's go, Carlos. I love this. So let's walk through and answer this question, you know, step by step. Robert, the UTMA account is actually something we talked about on last Thursday's episode. It's a way for you to open up a brokerage account on behalf of a minor, contribute to it. But once they turn a specific age, where in the state of New York here, it's 21 years old. Your custodianship over this account, right? Having control of what's invested into all that stuff, it goes away. And your son, now at the age of 21, has everything about it, owns the money, choose what to do with it, cash it out, yolo it, whatever they want to do, right? The account legally belongs to your son. When Your son turns 21 and to your point, it also typically converts into just a normal brokerage account in your son's name. So it'll just convert to public.com brokerage account. Carlos, son, you, date of birth, whatever. So to answer your question is like, can you contribute to it at 21? Yes, you can. You of course can just, you know, like anyone can connect their bank account to a public or a Vanguard or Robinhood account. You just connect your bank account, you contribute a thousand dollars or five hundred bucks or $200 or whatever it is. But because you do not have custodianship over that account, you lose complete legal control over how the money is invested and spent. So just keep that in mind. And then the last thing to ensure that there's no extra paperwork when it comes to taxes. Don't forget about the gift tax limits. If you personally are gifting your 21 year old son $1,000 a month, well, that's $12,000 a year of a, you know, tax free gift here to your son. But I think it's around like 18 or maybe $19,000 now with the annual gift tax exclusion, Robert, that someone can gift someone else without that person paying taxes. That's receiving the gift. So just make sure, Carlos, whenever you are gifting your son this money, when they are 21 years old here, so they're five, it's going to be for a while. I'm sure it's going to be different limits by then. But whenever you are doing that, just make sure you're not gifting them so much money that it turns into a weird tax situation. Yeah.
- [12:50]
Robert
The only thing I would add to that is look into a discretionary trust because if it's a good fit for you, instead of giving more money into this account that you have no control and no say in where the money goes. You don't want to teach your children bad habits. And for anyone out there that's thinking about doing this, look at that discretionary trust because then you can still define how the money is spent, when is it spent and what it goes into while still allowing you to help your children long term by investing for them and with them without them being able to yolo the money whenever they want.
- [13:24]
Austin
Our next question comes from Vincent R. Vincent says my girlfriend's mother is a recent widow. Her husband passed away from cancer three years ago. It came up in conversation that he had a 401k worth half a million dollars, but it is no longer invested in anything. It's just sitting in cash. How Do I bring up to her that she needs to start investing this money, she needs to roll over the 401k into perhaps a public traditional IRA. And if she agrees, what would that process be like what kind of ETFs or index funds or bonds should she be investing into? Should she dollar cost average and if so, how often should she be doing this? I was going to help her with it personally, but do you think it'd be better if she talked to a financial advisor? Yes, I do. I do think that this is one of those instances where like one, it's enough money where you need to go talk to an advisor about it. Especially if to a traumatic life event happened like the passing of a husband. There's a lot of estate stuff, I'm sure there's a lot of like accounts and legal things that have to get probably figured out if they've not already been figured out. It was, you know, three years ago. Here. Advice I like to give people when they come in with a lot of money is to act slow. I think the opposite of that is when people win the lottery, they go out and they spend it. They figure out what they want to do with it immediately. Oh, my buddy Brian told me about this. Martha wants me to go do that. I can invest in this. I could buy this. Everyone's giving me advice. I love that. It's already been a couple years, right? She's had time to grieve the passing of her husband and I think that giving this money to a fiduciary financial advisor, again, go interview like six of them, go sit down, talk with them, understand how they make their money, what funds they put people into, the performance of people that are in her shoes, how her money is projected to potentially grow, what other types of, you know, perhaps wealth building or tax saving strategies they offer. Right? Just go interview a ton of financial advisors that could be local or perhaps like statewide. Avoid sort of the Edward Jones Countrywide type things, right? Work with someone, you actually go to their office and be nice to and you know, go have breakfast with them later, whatever. But at the end of the day, in my opinion this is a great example of someone who, who needs to speak with a financial advisor. I don't think she's in a position just with this question you gave to understand what it means to dollar cost average to have a difference between stocks, bonds, ETFs, right? To like understand all this stuff that's saying she can't learn it. I hope she learns it. I want her to learn it. But to me, this seems like one of those situations where you need to do what someone you trust is telling you to do. And that person you Trust is the fourth advisor you interviewed out of 12.
- [16:01]
Robert
The only thing I'll add to this is two key words. Girlfriend's mother. If you really care about this girl, and I know you do, and you want to help her mother, that's fantastic. I would offer some suggestions like what Austin just laid out. But I would be very, very careful giving her financial advice because even though you have a good heart and you're trying to be in the right place, if something goes awry and she loses money on something you recommended, you're going to be in the frying pan with your girlfriend, her mother, and everyone else involved. So just be careful there. I would along the way give her some suggestions like Austin alluded to. Get her in front of some good advisors that can help her and get her started and on the right track. And then maybe later on, once you guys are married, if you get married, then you could jump in and say, hey, I want to help you a little bit more. But I would be very wary just in the girlfriend stage of getting right in the middle of her money.
- [16:55]
Austin
Our next question comes from Chris L. Chris says, I'm 41 years old, I'm married, and I have a household income of half a million dollars. Net worth breakdown is as follows. 475,000 in retirement accounts, 350,000 in a taxable brokerage account, 200,000 in a high yield savings and we're relocating from St. Louis to Ohio to be closer to family. And we're buying a 1 million house in the process. We have enough liquidity to buy the new house without selling our current St. Louis home. The home is valued at $650,000. We have a $350,000 mortgage on it at 3.1%. Our all in payment is $2,800 a month. The St. Louis home will rent for about $4,000, roughly $1,000 a month in cash flow with renters paying down this 3.1% mortgage. The alternative is we sell it after commissions and fees, net about a quarter million dollars, invest it and simplify our lives. I already self manage a lakefront Airbnb which is a million dollar property. It's cash flow neutral, but it has some really strong tax benefits given how much money we earn with our W2 jobs. I've built my investment portf without an advisor, so I'm comfortable running another rental and confident I can deploy sale proceeds effectively either way. So here's my question. Do we keep the St. Louis home, rent it out for $1,000 a month and have our renters pay down the 3.1% rate, or do we sell it, simplify and deploy the liquidity elsewhere in our portfolio? Robert, what is your play by play for Chris?
- [18:24]
Robert
Yeah, Chris, you're crushing it. So, so cool to see it at 41 years old. Just an amazing situation you're in. And because of being a high earner and having yourself really dialed in and set up, I would keep it because assuming there's decent capital appreciation for this home, which it looks like there is, you owe half of what it's worth, which is nice. I would keep it, make that money, see what happens in the coming years and keep building along the way because it seems like you have the tenacity and the ability to self manage more and more of your own money and property. So that's what I would do. I would keep it, keep rocking and rolling, make it a long term rental and then that way you get some cash flow as well as the other advantages and just do what you're doing and just keep crushing it.
- [19:10]
Austin
So what advice do you have for Chris as it relates to being a long distance landlord?
- [19:17]
Robert
Well, obviously they lived in St. Louis, so they have connections there. I'm sure over that time they have, you know, handymen and they know people in the area and all of that. So I think it would be okay as long as they have that one person they can count on. That would be kind of like a key holder where you say, hey Bill or hey tj. I have a TJ in Ohio, he's amazing. Where you could literally just say, hey, can you go over? There's a problem with the gutters and they can take care of it. And then you manage everything else financially from afar, I think they'd be fine. Now if it was a rental property in some area, they knew no one and they bought it on the Internet and had no infrastructure in place, then I'd probably sell it, take the money and invest it in the stock market and other things. But given the fact that they were from St. Louis, they know people and they could just have some local person that they use 1, 2, 3, 4 hours a month for the things they need, I'd keep the property.
- [20:13]
Austin
Now what advice can you offer Chris as it relates to protecting himself from maybe renters that are mischievous?
- [20:22]
Robert
Yeah, that's a good call out. I always want to make sure that you have obviously good liability insurance. I make sure if the property is currently in their personal names or his personal name, I would get that into an LLC and just make sure your mortgage lender will allow you to make that transfer. You should be able to quit claim, deed the property over to this llc. That'll give you some additional layering and protection if something were to go awry with a tenant. And then I would just make sure in the lease don't be friendly with people. Over time you can become friends, but in the beginning, you need to make sure you have an ironclad lease. So if you're renting even to a family member or a friend, you want to make sure you have all your coverage in place so there's no liability coming back to you personally because you've already built a lot of net worth and you don't want to give anyone access to that. So that starts with good insurance, good liability, LLC and a great lease. That's where I would do it.
- [21:17]
Austin
Yeah. I think the other piece I'd add would be umbrella insurance. Right. I feel like Chris is, is ready for some umbrella coverage. I've got I think a $5 million policy and I pay just over 1100 dollars. A. That's it. And it covers everything, right. Like if something happened to somebody on my boat or if something weird happened with a, you know, a rental property or like literally anything that happens, it. It's $5 million of insurance coverage beyond the insurances already have in place. So Chris, if I were you, especially looking at your net worth here, right? I mean like your, your net worth millionaires, I feel like if I were in your shoes, I would get an umbrella policy for 2, 3, 4, $5 million. Probably 2 or 3 million, to be honest with you. Nothing too crazy. But again, like it's probably just an extra 200 bucks to go up to 5 million. So like why not? But I would, I would consider some sort of umbrella coverage as well.
- [22:09]
Robert
Yeah, I like that call out. I forgot about the umbrella coverage. And I think it's a very important one, especially as you own more and more stuff in your net worth increases.
- [22:17]
Austin
Most definitely. And make sure when you do it, make sure it covers the Airbnb, make sure it covers this St. Louis home. Make sure, you know, if you have a boat, maybe you got a jet ski, maybe you got some ATVs, like maybe go to Ohio to be out more in the country. Like I have no idea what's going on. Sure. That you are holistically sharing everything that you own and have so that it can cover all of Those specific variables. Our next question comes from an anonymous listener. Our anonymous listener says, I'm 26, I own a company and last year we did over $21 million in gross sales. The company's majority revenue is just pass through. So I'm currently sitting at about a 1 to 2% net income margin. Our cash flow is typically between 250,000 and 700,000 a year. I opened up a brokerage account for the business and $85,000 in it, depositing $500 a week. I have questions on how I should go about with this annual cash flow and I go back and forth between a couple ideas just to make sure we're on the same page. All of the loans I'm referring to are at a 6% interest rate. So the first scenario is I could continue to take out loans for equipment at the 6% interest rate and instead of paying for them with cash, use the cash and invest it somehow into this brokerage account. I could use this cash flow to pay down my current loans and sit on these automated annual payments of between 250 and 700,000. Or I could pay for equipments all in cash with no loans. But my current loans get paid off over the next three or four years and then buy new equipment when I need to. With the automated payments in more of a cash flowing situation, I currently pay myself $65,000 a year. I can afford to give myself more, but I would just invest the extra money into the business to grow the revenues. Anyway, love your show. I've been listening for years and I've learned a lot. Thank you so much, our anonymous listener. Listener. What a, what business is this, Robert? Like I thought. And when I, when we were looking at this, I'm like okay, $21 million in gross sales, 1 to 2% net. I thought it was payment processing. I thought it was, you know, you're taking 70 bips, 120 bips, 200 bips on, on, you know, the 2,21 million in gross here. But then I'm thinking like, what equipment are you buying that is so pain? I don't know. I genuinely don't know what this business is. And I don't blame this person for not wanting to tell us because like, good for them, they figured out a way to just print money. I guess my quick take would be in a situation like this. Specifically, when you look at the variable of cash flow, 250 to 700 is a big swing. That's a $450,000 swing on any given year. I don't feel comfortable taking on debt in that situation. I take on debt in a business if I understand my cash flows are very recurring and I can like have good visibility into that for you, it seems like, I mean, that's a $40,000 swing any given month. If I were you, I would stop reinvesting into this business. I would let the loans get paid off over the next three to four years, and then I would have this business that prints money for you. And then after you're coming from a place of strength, which is 30, 40, $50,000 a month of cash flow, then I would say, okay, what visibility do I now have into the future? And what loans should I consider taking out at perhaps a different interest rate than this 6%. Maybe I can borrow against future revenues. Like, who knows, right? But I'd probably just let this pay out. I don't know too much about this business to give you some specific adv, but generally speaking, that's where my head goes. What about you, Robert?
- [25:39]
Robert
Yeah, this one really scares me because whenever I think about razor thin margins of 1 to 2%, 1 change in AI or 1 change in how that industry works could just ruin you because you have all this revenue, but it's just pass through and you're getting your little piece of it. So I would try to do anything I could to get my debt paid down to be able to make sure that I can put away more money. And I would look at paying myself more to be able to extract some more out of the business now, because I just don't know how long this would last. And without us knowing the sector, I mean, it could be equipment rental because they say they got to buy a lot of equipment. So maybe there's equipment rental because that's a razor thin margin. Maybe it's some sort of like laundry processing equipment for hospitals. So that's a really small margin. But other than that, it's tough for me to answer this. I just don't like a lot of debt for a little margin. Even though it's on $21 million in gross currently. It's kind of a reminder for me of people that own McDonald's. For instance, the average net on a McDonald's is like 6%, even though the average McDonald's does $4 million in revenue. To me, that's a lot of risk and a lot of different variables that come into play with labor and liability and all this stuff. Just to make a 6% margin. I'd rather put all my money in the S&P 500 and call it a day, rather than dealing with all the complexities. And this is a prime example of a business that really is intensive, labor intensive equipment for very little margin. And it's still a lot of money. But at his age, I would definitely want to extract as much as possible, get it set aside for my future, because you never know what could happen.
- [27:25]
Austin
Yeah, no, I totally agree. I would want to make sure that if I were this Anonymous listener at 26. Congrats. You struck gold. Get as much money, money out of the business and into your personal checking account. Pay your taxes, do everything the right way. Work with a CPA to ensure you're doing everything correctly. Paying yourself the right salary, you're taking the right deductions, you're investing the right amount of money. Like, do the right things now, because I don't know if it's going to be raining money for you when you're 32 years old in six years from now. Right. Because this is cool. This is cool. I'm glad it worked out for you, but I would definitely, definitely take some time and thoughtfulness around moving it out of the business and into your own name.
- [28:03]
Robert
Yeah, we see this every day on the Internet where you see younger people that figured out a way through AI or high ticket sales or whatever it is, the, the soup du jour of the month. And they make all this money and their first move when they're printing all this money is get the Lambo, get the high rise apartment, get the Rolex and all that. And that's actually the backwards way to do it. When you have a moment in your 20s or 30s and you start really making real money, the first thing you need to do is set up your selfie, your future. And that starts with buying assets and investing for the long term. Then let that money pay for the toys and the fun stuff.
- [28:43]
Austin
Yeah. Robert reminds me of that quote I saw James from School of Hard Knocks interviewing someone. And they, their quote was, stay small enough long enough, you'll be big enough soon enough. Yep. Which just means you can go be making all this money like our friend here. Hundreds of thousands of dollars at a very young age. But if you live on, you know, very little, you, you pay your taxes, you invest, you build that base, you diversify into real estate. You're buying the stock market index funds. You are, you know, diversifying into precious metals or other different things that are allowing you to just build your wealth over time versus buying a Lamborghini or dumping it into a Airbnb. Because Someone told you to do a bonus depreciation, but the Airbnb doesn't make any money, like, whatever, right? Like you're doing it the right way, you're taking it slow. You stay small enough long enough, you'll be big enough soon enough. It's just, it's a really cool mentality. So our last question comes from Melissa. Melissa says, I am 23, almost 24, working, making 86,000 a year as an engineer. Graduated with my Master's this year, 96,000 in a brokerage account, mainly invested in the long term ETFs like Voo, Vti and Qqq. I've maxed out my Roth IRA. It's got 21 1/2 thousand dollars fully funded my emergency fund and I have no debt. What an anomaly you are, Melissa. Geez Louise, that is cool. Congratulations. You are 24 and just doing incredible. Melissa says, I recently learned that my job offers an HSA and I'm wondering if it is worth it. I don't have any side hustles, so I really want to focus on passive income. Do you have any recommendations for other investments I can make? At my age, I thought about real estate, but I moved to Florida from New Jersey and I'm not sure how long I'll be here. My current job, plus I don't like being away from family, so buying a property might not be a good idea. But first and foremost, what should I do about this HSA offering? Melissa, let's, let's walk through this together here. So an HSA is an acronym for a health savings account. It's a personal savings account designed for people with high deductible health plans. So they're able to set aside money month to month specifically for medical expenses. Now, what makes them awesome is that they are what's called triple tax advantaged. Here's how. Every dollar that you put in and contribute to this savings account reduces your taxable income for the year. So if you're saying, hey, my name is Melissa, I'm going to put in a hundred bucks a year into my hsa. This savings account, I now, instead of making what you say, 86,000, I now made $1,200 less than that.
- [31:17]
Robert
That.
- [31:17]
Austin
So you only get taxed on $84,800. Right? So that $1200 contribution you made to your HSA, you don't pay taxes on it, which is really cool. It also means if you do this via your payroll, you don't pay federal income tax or Social Security and Medicare taxes on that Money as well. So like you are just enjoying the tax free contributions. Now here's the other thing. Unlike a standard taxable brokerage account, the hsa, the money inside of this can grow tax free. So you can actually go onto your HSA depending on who your like employ the platform they use. If it's like Optum or like someone else. And you can invest the HSA contributions into the stock market and if it earns compound growth or maybe you put it into a bond or whatever and it's earning interest like any growth that comes from it, capital gains, dividends, you don't pay a dime in taxes on the growth. Just like a 529 account for a college fund, right? Like you don't pay any taxes on that growth. And now finally the third way that it's triple tax advantage is as long as you use the money for a qualified medical expense. Doctor visits, prescriptions, dental vision, ear, nose and throat. You know I'm sick right now, go buy yourself some nyquil or some dayquil. Like that is a qualified medical expense as long as you are paying for qualified medical expenses with this money. You pay $0 when you take the money out. So let's say for example our friend Melissa over the course of 2026 contributes $1,200 to her HSA. And let's just say the stock market goes up by 10% this year and that $12,000 $1200 is now 1320. So it's $120 of profit. Let's say she spends that $120 of profit on DayCool and NyQuil because she just got absolutely destroyed from some sort of illness. Right? She doesn't pay any taxes on that $120 of capital gains, dividends, whatever. Like however you get that 120, if it's just ETFs go up, whatever's going on that 120, it's all good. No taxes and you get to write off the $1,200 contribution. So not only are you now paying less in taxes on your earned income, but you're paying no taxes on the actual capital gains that was realized inside the hsa.
- [33:31]
Robert
So I'm going to cover the other part of this and that is Melissa, you're crushing it. But I don't think based on what you stated in the question and the information that you should buy real estate just yet. You're right on the doorstep of having your base built. You're doing a wonderful job for your and I just feel getting distracted with buying A piece of real estate, especially if you're not planning to stay in that area, would be a mistake. And let's make be very clear for everyone that's watching this episode. I love real estate. Everyone should own real estate at some point. But too many people put real estate first before they build their base or they buy a one off piece of real estate and think they're going to be a real estate mogul. It just doesn't work. If you're going to be in real estate, I want to see people buying multiple properties because once you get into a portfolio where you've got five or six, seven, eight properties, then it's less cost to manage. You start to have a team around you to help you make more money. But Melissa, right now, because you're not sure you're going to stay there, I wouldn't think about real estate. You could invest in real estate trusts, you can invest in other things to give further diversification, but I wouldn't buy one physical property. Especially given the fact that you stated you might not stay in Florida. That would be my take in the only addition to Austin's breakdown.
- [34:47]
Austin
Everybody, thanks so much for joining us on this week's episode of the Rich Habits Podcast Question and Answer Edition. I appreciate your flexibility. I'm still sick, but hopefully whenever you see me next, I'm feeling better. And regardless of how we feel, we are always feeling grateful that you come back every single week to listen to our show. Over a hundred thousand of you come back every single week and we could not be more excited about it. If you learned something from this episode, please consider sharing it with a friend and leave us a comment below on Spotify as to what kind of business you think our anonymous listener is running here at these 21 million gross revenues and 1 to 2% net margins. Comment below, give us your guesses. We'll be reviewing them because I want to know what you guys think as well. And of course, please go check out wallstreet favorites.com Wall Street Favorites.com podcast is a URL. It's going to be linked in the show notes below. If you want to do a seven day free trial with Wall Street Favorites to see what Wall street thinks about your own portfolio, go check them out in the link in the show notes below.
- [35:45]
Robert
And as always, have a great day and we apprec every one of you share the show, follow us on Instagram, follow us on YouTube and just get more involved with the Rich Habits podcast and we'll just keep bringing you all of this value and incredible episodes. And we'll see you soon,
- [36:15]
Austin
Sam.