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Rich Habits Podcast
Q&A: $4M Invested in a Single Stock, 529 Account Loopholes, & Dividing Expenses When Married
01:03:13
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- [00:01]
Robert Krok
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Austin
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Robert Krok
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Austin
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Robert Krok
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Austin
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- [00:40]
Robert Krok
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- [00:45]
Austin
Hey everyone and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify, brought to you by Public.com this is our question and answer edition of the show. These episodes come out every single Thursday and I'm joined by my co host Robert Krok and we're going to be sitting down for the next hour or so answering your questions. We receive these questions all over the place. You guys always figure out a way to get our attention if that's inside of Instagram's DMs, our email address@richhabitspodcastmail.com or even inside of the Rich Habits Network, our sort of exclusive community that you guys can learn more about in the show notes below. Now, Robert, we've got a ton of interesting questions. We have some about a 529 account, $4 million invested, not knowing what debt to payoff first. We'll be talking about some house hacking ideas. We'll be talking a little bit about moving to a sketchy area of the country to earn a little bit more money. There's a lot of interesting things that we're going to be covering here. But dude, before we jump into all that stuff, I think it's worth talking about just briefly what Trump announced on Sunday, which is yesterday for us as we filmed this on March 3rd, the strategic crypto reserve. How crazy is that?
- [01:57]
Robert Krok
Yeah, I'm super excited about it and really glad that it's happening right now because it could have been put off for a few months, which may have delayed more of what we're hoping for. And that is this bull run, this furthered bull run in the crypto space. I think it is really, really strategically smart for Trump and his camp, but also just incredible for the adoption and the legitimacy of crypto as he wants to put his foot down and put a stake in the sand that the US Government in the United States is the leader in cryptocurrency I think it is huge and I'm super excited. And obviously the markets responded quite favorably and very, very quickly. People were really excited about the initial headline about Solana, XRP and Cardano, but they didn't follow up and read the rest of the tweets, which included other favorable cryptocurrencies like bitcoin and Ethereum. So I think it's huge news for the United States in general, for the crypto space, and obviously we're big proponents of cryptocurrency in your portfolio. So it's great news and I can't wait to dig into.
- [03:07]
Austin
I think the biggest takeaway for me with that is if you do not have a 1, 3, maybe 5% portfolio allocation toward cryptocurrency at the moment, specifically bitcoin, this is probably your sign that it's okay. You should probably put a thousand, two thousand, three thousand, dip your toes into the dark arts of cryptocurrency, buy yourself some bitcoin and just ride the wave. Right. If it's going to be a strategic crypto reserve for the United States, that likely means that many more countries will follow, which means that over a long period of time, bitcoin will likely trend higher. It's what I am believing. I've got a long term bitcoin exposure in my own portfolio, as does Robert, and we encourage people to have a little bit of it in their own as well.
- [03:51]
Robert Krok
Yeah, I agree. You know, as my video alluded to a couple weeks ago when I went to the state fair, I still believe we're early. So many people feel it's too late because bitcoin is at 80, 90, 70, $100,000 and I just don't agree with it. I think there's still time to get in, there's still a lot of upside, and I think it is part of our future. It is game changing. And as adoption and technology really, really get to where we believe it's going to go, along with AI and everything else we're talking about, there's a lot of money to be made and wealth to be built within the crypto space.
- [04:26]
Austin
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- [05:17]
Robert Krok
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- [05:47]
Austin
All right Robert, let's jump into our first question sent to us via email from Sean S. On February 26th. Sean says, hey guys, I love the show. You got me more interested into Bitcoin by listening and I was wondering what your thoughts were on buying Bitcoin via an ETF like IBIT or just buying Bitcoin directly. Thank you so much for all you do, Robert. I'll let you take the first stab at this one.
- [06:09]
Robert Krok
Yeah, I like it either way, Sean. A lot of people when you think of like you have your broker, you have your Roth ira, you have all these different investment and retirement accounts, it's okay to use these ETFs, you're going to pay a little bit of fee for them to manage it for you, but you're safe and it's a great way to get exposure to Bitcoin and other cryptocurrencies. Now the flip side of that is if you're pretty well versed in wallets and you have a Coinbase account or a public.com account and and you're buying cryptocurrency in those platforms, then I suggest it's okay to buy it directly because then you own it. You're not paying a premium, you're not paying any fees on it, you're simply owning it and managing it yourself. So I think it goes both ways and the timing right now is fantastic because with the announcement of the crypto reserve through the federal government that is going to really jump start and get this bull run back moving again. So I think it's really great timing to ask this question.
- [07:09]
Austin
I totally agree, Robert. I Think it's great for everyone to have again, a little bit of bitcoin in their portfolio. If it's 1, 3, 5, 10%. Right. Whatever you think, depending on your risk tolerance and your time horizon makes the most sense for you. For me, I've got it in my Roth ira. I'm not going to be able to withdraw any of that money for 30 plus years. So I've got it making up about a 10% weighting of my Roth IRA. It's literally the S P 500 at 90% and ibit the ETF at about 10%. So if you want to buy bitcoin and your using public, go for it. They charge fees, Everyone charges fees. It's part of the game. That's kind of how they keep the lights on at these exchanges. But at the end of the day, paying a 1 or 2% fee shouldn't be a big deterrent for anyone to get into buying and accumulating a little bit of bitcoin in their own portfolio. I love this question, Sean. Love where your head's at. I love how Robert answered it. It's important to have a little bit of exposure to this asset class moving forward.
- [08:06]
Robert Krok
Yeah, I couldn't agree further. Crypto, you know, I've been talking about it for a decade now and I feel like it's kind of like broken record because so many people, I was telling people to get into Bitcoin at $17, 1 70, $400, $1200. And people have always said it was either too late or it was a scam. And none of the above. And we can see that by the federal government in Trump's camp, announcing the strategic reserve, which is huge, huge news for the United States and cryptocurrency in general.
- [08:39]
Austin
So let's now jump to our next question from Adrian C. Adrian says, what should I be paying down first? In the subject line of their email, Adrian says, good evening, gentlemen. My name's Adrian and I've been listening to your podcast for the past four months. I've learned a ton of new concepts and ideas for my wealth building journey. So I appreciate that. Now here's the deal. I currently have $53,000 of debt. Nine thousand of that is credit card debt with interest rates that range from 12%, 24%. $12,000 is a car loan with a 3.6% interest rate and $32,000 of that are student loans. I make about $44,000 a year and my total expenses come out to be about $2,100 a month. I'm also married, so my wife helps a lot with the expenses as well. Should I keep paying my student loans or should I get aggressive with my credit card debt? There is interest accruing on my student loans, but I don't want it to strain my margin. Thanks for reading this and I look forward to hearing from you both soon. Robert, let me jump in here real quick because I love this question from Adrian, specifically because they have the right idea. They want to get rid of the credit card debt. They know it's high interest debt and it's not something to keep around. But there are a couple things I want to call out. The first one is you mentioned my expenses come out to $2,100 a month. I'm married, so my wife helps a lot with the expenses as well. Just want to remind everyone, if you are married, it is a very good idea with some weird, extreme circumstances not to. But it is a very good idea to combine your finances. Be on the same page about what is going into our joint checking account every month, what we are spending every month to run our household, what we are investing into each other's accounts and into our own retirement accounts so that we have a wonderful nest egg for us to retire on in the future. Being completely aligned on where you are today and where you're going financially just makes it so much easier to build wealth with a spouse. So Adrian, you mentioned that your wife helps a lot with the expenses, and my expenses come out to about 2,500. Really want to encourage you guys, if you're not already, to build the honest budget with everyone's income going into a single bucket and everyone's expenses coming out as the household expenses, not Adrian's expenses or Adrian's spouse's expenses. Right. You guys are on the same page with money and you're growing your wealth together. So like, that's like a really big differentiator. What I've seen with people who are, you know, wealthy in their 40s and 50s and married and then the people who are not wealthy in their 40s and 50s and are also married. Right. Being on the same page as early on as possible in your marriage with money. It's just I've done a lot of these calls with people and I see it all the time being on the same page. Very important. So to answer your question, just like super simply credit card debt, that is the number one thing you need to worry about. 12 to 24% interest rate. That is absurd. Get rid of that as fast as you possibly can. When it comes to the car loan at 3.6%, I would bet that that is lower of an interest rate than the student loans. The student loans are probably closer to 6, 7 or 8%. So I would probably start tackling the student loans next. We always encourage people to follow the avalanche debt pay down method, which essentially means you're paying down the debt with the highest interest rate first. Because like what Robert and I always say, you can't out invest high interest debt. If you've got a 24% interest rate here, a 19% interest rate here with your credit cards, and then let's call it a and a half or 8% interest rate over here with your student loans, you're going to focus on the higher interest rate with the credit cards and then focus on the student loans next at that 7 or 8%. Then with the car at the very bottom of the totem pole at 3.6%. Our goal, of course, is to be largely out of debt, especially high interest debt as we enter retirement. I would imagine the way you're talking here, you guys are probably still in your 30s and 40s, so you can probably keep that car loan around a little bit longer, just depending on how big that monthly payment is and how much it eats into your monthly mar. But the goal, of course, is to pay it off over the next two, three, four years whenever the note eventually expires.
- [12:47]
Robert Krok
Yeah, I think that's a great way to cover this question. And the most important takeaway, I think for me is making sure everyone understands when you sign the dotted line and agree to get married. You're one entity. And although you may have a past and you may have old student loans or some old credit card debt, you need to have the hard conversation to be able to understand how do you move forward with that debt. Because all too often we see couples where the husband's hiding things or the wife is hiding things, and it ends up being the downfall of the marriage because they couldn't be open and honest about their financial situations. And I strongly suggest getting rid of that mindset because if you both know exactly where you stand and you understand your kind of pitfalls and your weaknesses in your financial journey, you can help each other. But if the person you love and you're married to does not have the full picture of where you're at financially, then it's really hard to get to a place where you're both living, you know, the lives you dream of and retiring comfortably. So have the hard conversation, lay it all out there, and Figure out the best strategies. You wouldn't be asking the question on the podcast if you weren't trying to come to that conclusion. So we appreciate that. But just everyone listening, make sure you understand that. Don't keep secrets. Make sure your spouse and your significant other knows where you're at financially, especially if you're the breadwinner.
- [14:17]
Austin
And just to linger on that a little bit longer, Robert, let's say, for example, Adrian or someone else out there listening is trying to pay off their debt or trying to invest aggressively and really, like, get after it with their money. But their spouse maybe isn't on the same page. Maybe their spouse doesn't understand what's going on, why they're wanting to do these things. And their spouse is now, like, why are you being so cheap? Where's our vacation? Why can't we do these things? I want to go eat out. Where's date night? I want to go buy these new shoes. Right? Like, being on the same page not only means that you all are on the same page financially, but it allows you now to be on the same page, like, emotionally and like relationally and say, hey, we are very much determined to go through an 18 to 24 month season of our lives of austerity and working our butts off to make a little extra income here and pay off our debts and really get our base built or like, save for that big down payment. The next big thing that we want to do with our lives financially, like, that is so healthy. That is how a long lasting, wonderful marriage is built. And I cannot emphasize that enough.
- [15:19]
Robert Krok
Yeah, I agree. And I want to say one more thing. You know, I've gone through those seasons where money gets lean sometimes. And, you know, if your spouse or your significant other doesn't know that, and all of a sudden those meals dry up and the trips dry up or the Lululemon and Nike dries up, whatever it is, they need to know why. And if they do and they truly love you, then they can go through it with you. You. But I find so many people keep it hidden because they're embarrassed or they're scared or worried. And I don't think that is a sustainable strategy. So I love this question and I love the takeaway because it comes from two different perspectives with you and I, Austin. And I think it's so important for people to just know and understand. They have to have the hard conversations.
- [16:05]
Austin
So our next question comes from Maria S. Maria says hi, Austin and Robert. I know you guys talk all the time about opening a 529 account for your children. But what about opening a 29 account for myself? If I know I'm going to grad school this fall, can I do this? Is it a good idea? I live in Indiana and I want to go to the University of Chicago and get my mba. So this is a great idea, Maria. Yes, you can do it. But there are a couple things to consider. So when Robert and I are traditionally describing the 529 account strategy, it goes to something like this. You have a child, you Open up a 529 account investment account for them, you put money into it, you invest that money and that money grows compound interest over a 5, 10, 15, 18 year period of time. So let's say you put in 20 or 30 grand, but now it's worth 50 or 60 because the stock market went up over that. Call it decade or two. That's the cool thing. You can use those profits tax free to pay for your education related expenses. Now you're saying you want to do this for yourself. You 100% can. But there's a couple things to consider. The first thing is if you're going to grad school this fall, that's not a lot of time for your investments, you know, to grow at all. So the first thing is what I would do is I would put the money in the account and just like not invest it. I would just use it as a way to take advantage of the second point I'm about to talk about, which is the tax deductions that come with contributing to 529 accounts, depending on the state you live in. Indiana provides a 20% state income tax credit on 529 contributions up to a maximum credit of $1500 per year for joint filers and $750 for single filers. So this applies only to the contributions in Indiana's own 529 plan, like the Indiana 529 Direct Savings Plan, for example. So if you're a single filer and you contribute $3750, you can get a $750 tax credit for contributing that money. Right? So it's like, hi, my name's Maria. I'm going to put 3750 into the Indiana 529 Direct Savings Plan. I'm just going to keep it in cash. I'm not going to invest it or do anything crazy with it. Maybe have it in like a T bill or something in this account so we can earn a little bit of interest. But just by contributing the money into that account, keeping it there until you have to pay the money back out in the fall. You will be able to take advantage of a $750 tax credit for just doing that. So it's not life changing money. But yes, you can do it. It, yes, it's a good idea and in Indiana actually, it's a wonderful idea.
- [18:46]
Robert Krok
Yeah, I love this question and your takeaway is really good. And just a couple things I'd like to add. Make sure you do the research in your own state because not all states offer this tax credit. So that's important to understand. And then secondarily, yes, getting the tax credit, you might not look at it, the $750 as being life changing, but these are the little hacks we want you all to be learning and trying to integrate into your daily lives because it's not what you make, it's what you keep. And the more you research and find these kind of loopholes and ways to better your financial situation, the better off you're going to be long term. Because a lot of people, I'll be honest, they're just lazy with their money. They don't work as hard for their money as they work to get it. And that's just really not a good strategy. I want people to always be looking how can I optimize my money in the best ways for my lifestyle to give me the best retirement? And I think this is important to understand. So this is a great question. And Austin, great response.
- [19:49]
Austin
Robert, to your point, $750 is not life changing money, but that $750, assuming she's 22 years old, grows for the next however many call it 45 years until she is 67. At a 8% interest rate, right. Adjusted for inflation, we're talking about 35 grand. So it's only a little bit now, but it's like every dollar that you can save using these little tips and tricks to then put and invest into your Roth IRA or your bridge account or whatever you can do turns into thousands, if not tens of thousands of dollars over a long period of time. So I just really want people to like really conceptualize that every dollar that you're able to put away Normally turns into 20 or $30, $40, $50, $60 over your lifetime if invest.
- [20:40]
Robert Krok
Yeah, compound interest is everyone's friend. And the more time you give compound interest to do its thing, the better off you're going to be in retirement, hands down.
- [20:50]
Austin
So our next question comes from Andrew D. Andrew says, hey guys, I'm 28 I make $150,000 a year as a lawyer with the potential to rapidly increase that over the next couple of years. I decided to move back in with my parents after law school because I wanted to do some big catching up after making pretty much no money in my early 20s and it's been about two years that I've been living with them. My question is about purchasing a home or a condo in the current market. I currently have $130,000 invested between my Roth 401k, my Roth IRA, my Bridge account, as well as $40,000 sitting in cash in a money market account. So what I'm hearing, Robert, just make sure. So 40k in this money market and then 90k invested in these retirement accounts. It sounds like Andrew says I have absolutely no debt, very low current living expenses because I'm at home. But with interest rates so high with mortgages, I'm struggling to decide whether it makes more sense to buy something that I can live in for a few years and then keep as a possible rental or just continue to rent for the time being and deploy that extra cash into my investments if I start to see some big dips in the markets. I live in a very high cost of living area, so my fear is I might be locking myself into a high mortgage payment that will preclude me from investing and limit potential cash flow if I decide to rent it at some point. Wow, this is definitely written by a lawyer. It sounds like it for sure. So I'll let you kick this one off. Robert.
- [22:15]
Robert Krok
This is going to be a lot to unpack, but I love this question, so let's start with should you buy now or should you wait? I don't think there's ever a bad time to buy real estate. I don't think I would buy a single family home right now. I think you should really look at house hacking because then maybe you can find a situation where your payment is zero out of your pocket. Pocket. If you buy that duplex, triplex or quadplex. Because if you were to do that and use one of these Fannie Mae 5% down mortgages, you could really put yourself in a great position where you'd have the upside potential with the capital appreciation. You would have some tax benefits. But also finding good payments could equate to either 50, 60, 70 or maybe 80% of the payment being made by the tenants. And that gives you this property in this great opportunity without coming out of pocket much. It's a tough situation, but I think you should go for it if you're willing to house hack. Now, if you want to buy a single family home, something we cover with Brandon Turner last week, that's very popular, you could look at buying a four or five bedroom home in an area that's going to have good capital appreciation and maybe rent out one, two or three bedrooms to some tenants that you would pre screen, make sure that they're compatible and then that way you could have some income there as as well. So I love your situation and you're definitely on the right track of what to do and you have a lot of options. So just carefully weigh which one works best for you. Or if you live in a high cost of living area, go 15 minutes away to an area that's starting to gentrify but doesn't have the same cost of living of where you're at, and then just have a little further commute for your job but be able to get into something at a more reasonable rate.
- [24:04]
Austin
I love that breakdown, Robert. And let's put some numbers behind this. So you're making, I think you said, $150,000 a year. As a lawyer, you're obviously investing aggressively toward your Roth 401k. So let's just say your effective tax rate, after taxes, insurance and contributions, all that fun stuff, is like 25%. So let's say you're taking home on average about 9,000, maybe $10,000 per month after taxes and everything gets figured out. So, so to Robert's point about house hacking, let's say you found a duplex in the 600 to $650,000 range, you put about 5% down. So let's call it 30 to $35,000 at an interest rate of about 7%. Assuming you've got a decent credit score, which I would imagine you do, you would probably be able to get that interest rate. Now, assuming we set aside some property taxes, some homeowner's Insurance and some PMI every month, you're looking at about 5,000, maybe 5,200amonth, month total for this mortgage. If you're able to live in half of it and rent the other half out for 2,000, maybe $3,000 a month, depending on how cost of a living area you actually live in. We're talking about a two to three thousand dollars a month, you know, mortgage for yourself right after that person participates, helping you pay your monthly payment. Now, I guess, you know, you're very analytical, you're a lawyer, so you can kind of run the numbers. Well, what would that be? If I got an apartment how are apartments priced where you are right now? Are they around the 2, $3,000 a month range anyway? Because if they are, then maybe this duplex idea would allow you to have a similar monthly payment for your living expenses, not cause you to go house broke, assuming you can find a tenant pretty easily, and then also allow you to build equity inside of this piece of real estate that, let's call it in two or three years time when you're ready to either move up in your career, maybe you want to move somewhere else around the country. You've got an opportunity to go make a bunch more in a place like Chicago or Nashville or Atlanta or something else that might allow you to now rent both sides of the duplex out. Maybe you're cash flowing a little bit more. Perhaps you can refinance it at a lower rate. There's a bunch of different ways that this comes together for equity appreciation. A decent chunk of this being paid by a tenant every single month, and a little bit of flexibility where if you do want to move, you kind of have an out, which is someone else can just, you know, live where you were living.
- [26:31]
Robert Krok
Yeah, I think it's a great breakdown and just, you know, there's a lot of options when you have high income and you're really learning what your financial options are. And I think this is a good one and it could go either way. I like the running side and dumping as much money as possible into the markets and not trying to time the markets. But I also like owning property. I try to buy properties all the time. Time. And so either way works and they're both good strategies for the future.
- [27:00]
Austin
I think the most important thing to just realize here, Andrew, is that you've done a wonderful job, an absolute wonderful job financially. By 28 years old, you're making 150, 200, $250,000 a year, likely over the next couple years. Here you have zero debt. You've been living at home, you've been investing aggressively like you've done all the right things to give yourself the flexibility to make a choice that makes the most sense for you. I know you're trying to figure out the perfect choice, but sometimes the perfect choice doesn't exist. Sometimes you just have to jump into the water and start swimming. And maybe that could be with real estate. Maybe that means you're still living at home. You apartment like it doesn't matter. It doesn't matter the choice you make, like what Robert said, because you're the type of person that's going to make it work regardless.
- [27:46]
Robert Krok
Remember everyone listening and I love these episodes. Personal finance is personal. Personal life gets in the way. You fall in love, something happens with your family, you relocate. Life gets in the way and all you can do is your best. So as long as you're learning and you're advancing and you're executing on the things we talk about and the things we educate on, you will be just fine. Because everybody's path to freedom is different.
- [28:15]
Austin
One of the best pieces of advice I ever got when I was super down about losing some money in the stock market or losing some money on a business venture, whatever this person said, Austin, you have the rest of your life to make money, right? And so like I took that and I apply it to all parts of my life where if my dad, for example, who's turning 80 this year, if he wants to go on a two week vacation with me, I'm gonna go hang out with my dad, right? Because I might not have that opportunity in the future. I can always, you know, make more money in the future to offset that two weeks of like vacation. It's just I want people to really hammer home what you just said. Personal finance is personal. You can always make money for the rest of your life life. Do the things that matter most today with the people that you love. That's what money affords you. The flexibility and the opportunity to make these choices.
- [29:04]
Robert Krok
I love, love, love that response. Wow.
- [29:06]
Austin
Now, before we jump into our next question from Lauren M. I do want to give a quick shout out to the rundown podcast by public.com Zaydid Moni last weekend did a wonderful breakdown of Nvidia and what Nvidia Media's potential future could be depending on what happens with Congress and a bunch of different things with the United States and China and export laws. And it's pretty interesting. So if you're someone who one wants to get the quick hit seven eight minute long episodes every day about what moved the markets yesterday, headline news, biggest earnings, investor relations, all that fun stuff. Listen to the Rundown podcast. There'll be a link to listen to that in the show notes below. But also don't forget they have a video section of the podcast that comes out every single weekend that does like this great deep dive analysis on a really cool topic. Last week again I said it was about Nvidia. The weekend before that it was about Uber Eats versus DoorDash. I'm not sure what this weekend's going to be about, but I'm sure it's going to be great. So Go learn something cool about investing by listening to the rundown by public dot com.
- [30:11]
Robert Krok
Yeah, I love it. Zay crushes those episodes. And, you know, it really is why we love Public so much. They just do such a great job. From customer service to their offerings to what they charge for fees. It's just a great, great platform and we love what they do.
- [30:27]
Austin
So if you want to listen to the rundown, click the link in the show notes below. All right, Robert, our next question comes from Lauren M. Lauren says. Hey, Robert and Austin. I'm excited to see what you guys have to say about this one. I've been given a job opportunity by a friend of mine that would come with the benefit of living rent free, as well as my utilities completely being paid for. I'd be getting paid $25 an hour, which comes out to $48,000 a year before taxes. However, again, it's rent and utility free. But here's the catch. This new job opportunity is located in Crenshaw, and I don't know the area except for all the negative drawbacks that I've heard everyone say about it. I'm a female and I'd be bringing my partner with me, so I wouldn't be alone, but my housing would be gated for some kind of safety measure, which makes me feel good. But you guys kind of can see the dilemma I'm having with the situation. It's a really great opportunity to save some money with my rent and utilities being completely free. Free. And my good friend would also be the one training me on this new endeavor. But what would you do in my shoes? Do you take the job even though it's located in a not that great part of town and save money for future investing? Or don't take it and miss out on the opportunity. The location is the only thing holding me back. And if I do take it, what game plan would you see for my investment future that I could save for? Thanks so much. Love the podcast. Ooh, what an interesting question from Lauren.
- [31:50]
Robert Krok
So here's my thought, and I talk about this a lot, and that is quality of life at every age is so important and so many people don't consider it that much. And so what you're saying is, to save 20, $25,000 a year, you're willing to live in Crenshaw in an area that could be, you know, very run down. It could be. It could lack opportunity. It could lack the opportunity for networking for the time you're there. So for me, I would rather you work on your skill Set to be able to find a higher paying job in an area where you feel safe, where your quality of life is better and you just have a better overall situation. Now I haven't spent time in Crenshaw. All I can do is imagine from reading about it of the troubles and, and you know, issues you may have living there from a safety perspective. But in my opinion, I think it would be better to go out, find a way to make more money and not take the opportunity. Because it'd be different if this opportunity was, hey, I'm going to get free room and board and utilities in a bad area, but they're going to pay me a hundred thousand dollars a year. Right now you're getting paid a menial wage, you know, a pretty standard wage that's out there for any kind of decent job, yet still living in kind of a worse area. So for me it's a no, I wouldn't do it just because I want you to be safe. I would look for a better opportunity elsewhere or work on my skill set, keep my expenses low and go find it somewhere else.
- [33:33]
Austin
I love that answer. I agree with you. Now let's pretend that she did want to go. Let's run some numbers. And again, I think that's the correct answer. Honing in your skill set, making more money in the future so you can afford to live in a better cost of living area, whatever, right? I think that's the right answer. But assuming you did go for this, we have to think about the opportunity cost of not going for it. So let's say you didn't go for it and you're working somewhere else else, making $48,000 a year. Assuming you can find some affordable rent for about $2,000 a month plus utilities, we're talking about $30,000 a year just in housing costs. You mentioned you'll be making $45,000 a year pre tax. That's about $38,000 post tax, which means 30 of your 38 grand that you would be taking home home would be going to your living costs. That's obviously not sustainable. So the only way for you to not take this job is to go make twice as much money somewhere else. Like that's the only way you'll have enough margin in your budget to stay invested and to make saying no to this opportunity actually worth it. So if you can go make twice as much money somewhere else, go do it. If you did take the job, it could be a two or three year season of your life where you can probably live off of of 60, maybe 70% of your monthly take home pay. Stash away the other thousand to $1,500 a month, which would come out to between like 12 to $18,000 a year and do that for three years and go build your base. Right? That's how you come up with, let's call it $50,000 in three years. By doing this. You know, if you really wanted to do this and you're like, you know what? It's just, I'm just going to do this for a couple of years. It'll be a season of my life to get my base built. Like, I'm not going to blame you. Like, everyone has to do things, things that make them uncomfortable to get ahead sometimes. I've done that, Robert's done that, and maybe this is that thing for you. But we would much rather see you go make $100,000 and have a normal, you know, cost of living, live somewhere normal, feel really good, and still have the margin in your budget to invest that 500, 1,000, maybe $1,500 a month to really get that head start on your financial journey.
- [35:55]
Robert Krok
Yeah, and I want to add a little bit more to this.
- [35:57]
Austin
This.
- [35:58]
Robert Krok
We're not saying it's easy to control what you make. You know, maybe you're just getting started in your journey and you're working on this new skill set and you got to start at the bottom. All of that is fine. So we're not saying there's anything wrong with making 20, 25, $30 an hour. Most of America makes that kind of money or even less. What we're saying is we want to make sure that you're understanding the opportunity cost from what Austin broke down. Down. Because it is harder to just all of a sudden make more money to live in a better area. But also you have to understand the flip side, opportunity cost. Whereas if you're living in this area that is less than desirable to take this opportunity, Is the opportunity cost negatively affecting your quality of life in a way where you don't make new friends, you're not networking and you're not advancing your career so you can make more money, money and get out of that situation? But at the end of the day, personal finance is personal. Like we said earlier, if you feel this opportunity is right for you and you feel your quality of life and safety will be fine, then go for it. Just look at it as a season. You're learning this new thing, you're trying to get ahead. So you're taking this opportunity because of the free living expense and just go for it. But just understand both sides and we.
- [37:19]
Austin
Really appreciate the question 100% appreciate the question. And there might be a world too, Robert, where if Lauren did take this opportunity, she might be able to save more than call it 30 or 40% of her income. Maybe she can save 50, 60% of her income and it really moved the needle for her. So just if you're going to do it, here's my advice, right? If you're going to do it, go all in, be as frugal as possible, save as much of this money as you possibly can. If you're going to be living in this, you know, situation that you hate, make sure that you are taking advantage of it every single day, week and month. I want you to be just super, super all in on this idea of learning as much as you can to what Robert said so that you can take this experience and go move up elsewhere in your career from this experience and then also be saving as much as you possibly can on the back end when it comes to your monthly expenses because you now don't have to worry about monthly rent and utilities and things of that nature. Maybe there's a world where you don't have 50k, you have 100k at the end of this three years. That would be life changing money, Lauren. So like, if you're gonna do it, go all in and make sure you're retaining as much information about this experience as possible. So in three years time when you want to eventually move, you can take what you learned and then hopefully make, you know, 60, 70, 80,000, living somewhere better and just rocking and rolling, growing your career and building your base even further.
- [38:39]
Robert Krok
I love these questions and they're definitely getting more in depth and just, I just really love digging into the intricacies of what people go through on a day to day basis in their lives. And I just feel so blessed that we get to have all of these incredible questions brought to us every single day and every single week. It's amazing.
- [38:59]
Austin
So our next question comes from Amit S. Amit says hi Robert and Austin, first up, I must congratulate you guys on an awesome day job. You folks have been the single biggest impact on my finances and the future of my family will enjoy everything because of this podcast. What an awesome message from Amit. Thank you so much for saying that. Amit says. My Name's Amit, I'm 52 years old, married and I have two teenage kids and I moved residents to the United States two years ago from another country and I discovered you guys about six months ago. I have a portfolio of $4 million invested in the stock market, and we make about $400,000 per year. My challenge is that 90% of 4 million is invested into a single stock, which has done very well over the last eight to 10 years. And I've just never touched it. Almost 60% of that $4 million is due to capital gain appreciation. After listening to you guys, I'm now ready to diversify, build my base, and use all the good tips I've learned from you. So my question is this. I want to diversify 2 million of this 4 million away from this single stock stock. So should I bite the bullet and do all 2 million at once or do I sell 500,000 a year for the next four years? Or maybe something different? I want to make sure I'm taking taxes into account when I figure out the strategy. What do you recommend, Robert? You want to kick this one off?
- [40:21]
Robert Krok
Yeah. This is a tough one because part of me says there's no time better than now to start investing and moving some of this money around. But first I want to back up a little bit and talk about how important it is to diversify. Diversify, because when 90% of your net worth is in one stock, you're one day, one bad report, one scandal away from losing most of your, you know, portfolio worth. And that's scary to me. In my opinion, you should have diversified a long time ago out of it. I know it's been making money, so it's great. But let's get this handled as soon as possible. So what would I do? Do? I would probably bite the bullet. I'd probably pull the 2 million, take the tax hit now of whatever you have to do and get that money moved and diversified elsewhere. I like the idea of dollar cost averaging and doing 500,000 at a time. But the other issue is then you're still opening yourself up to the fact that that one scandal or one issue with that company could wipe you out. And then you wouldn't even have the $4 million to work work with. So I would look at it that, yes, you're going to pay some taxes, but having that diversity is going to let you sleep at night a lot better and also put you in a position where you can really set yourself up for your children. You mentioned two teenage children. That's very important because right now I don't hear anything about 529 plans. I don't hear anything about, you have a custodial Roth IRAs for the kids. You're not diversified enough to where I would feel safe at night. Night. And that's why I would do it right away.
- [42:03]
Austin
I completely agree, Robert. So now let's put some numbers around it. So if you are taking home $600,051 or more married, as a married couple, then you will owe 20% on this long term capital gain that you have alluded to. So let's like break that down. You're taking home 400,000 right now, which means for you to take advantage of, advantage of a 15% capital gain because you wanted to keep taxes in consideration of selling this, you would have to only cash out $200,000 of this or less, which will be another 10 year period of time before you can completely diversify away. If you wanted to do some of that, I'm not mad at it, but I completely agree with Robert. It is so important to diversify your money out of a single stock. You have $3.6 million in a single stock, which to your point, probably has done pretty well over the last eight to ten years. Congrats, time to go cash in like you rode the wave for the last eight to 10 years. That is something a lot of people can't do. Now. You should reward yourself and say, okay, great, I'm going to cash in on this. I'll pay my 20% capital gains and I'll make sure now to invest this and diversify it perhaps into some real estate, maybe some gold and silver as a safe haven with precious metals, maybe a little bit of cryptocurrency, maybe a little bit of, you know, whatever else you can come up with. From a diversification perspective, beyond the US Stock market and the NASDAQ and the Dow Jones and things like that, I think it's a wonderful place to be. The biggest thing to consider here though is that tax hit. You will pay a 20% capital gains tax on the profits. So work with a professional CPA that can sit down with you and help you figure out exactly what that comes out out to you. Do not want to be, you know, in a situation where you have to get a surprise from Uncle Sam and it's like a whole thing. Maybe there's a world where you can max out some other retirement accounts to offset some of that. Just working with a professional will really help you offset some of this tax liability. But being sure to know that you will have a tax liability on this is the most important thing. And then, yeah, Robert, let's say that this person is able to diversify their Money away. They still have, I think they said, you know, let's call it one and a half ish million dollars in this single stock. Does that scare you? How does that make you feel?
- [44:24]
Robert Krok
Yeah, it's still a lot. You know, the general rule of thumb is you should never have more than 5, 6, 7% of your net investable capital into one stock. So even at this, let's call it $1.6 million, that's still 40, 45% of the net worth after taxes, assuming the 20% tax rate. But you also have to look at the flip side. A very important part of this is, is that when you're paying this tax bill and nobody wants to pay a tax bill is that a lot of it is gains. So you have to be able to look at it from that perspective is you are giving yourself peace of mind and diversity through your gains. So that makes it a lot easier to pay this tax bill and feel good about it moving forward. So I don't like having that much in one stock. It scares me and I think that a meat needs to really keep considering that. So maybe start with the 2 million and then migrate more over time. But I would definitely get some of that money out right away because you don't want to be a one trick pony and be in a bad situation if something were to go awry with that company.
- [45:30]
Austin
You mentioning that reminds me, right? Amit said they're 52 years old. This is the time where, you know, you said, hey, like listen, I made a big bet over the last decade and it paid off for me, right? From 42 to 52, I made millions of dollars by betting on this stock. Now it's like congrats, you're 52, your kids are going to be going to college soon. I'm sure you, you might be thinking about what retirement can look like in the next decade or so. It's time to take some of that crazy risk off the table, begin to diversify in the markets and different types of asset classes and set yourself up for a wonderful retirement.
- [46:05]
Robert Krok
I couldn't agree more. And before we go 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 isn't locked in until 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.
- [46:36]
Austin
As of recording this, Robert, on March 3, 2025, it is a 6.6% yield. That's pretty good. So if you want to diversify your portfolio, perhaps a meat, this could be a wonderful way for you to do that as well. And for anyone else listening, a bond account on public is a wonderful way to just add a little bit of stability right to your portfolio on a monthly, quarterly and annualized basis. So our next question comes from Kristen B. Via Instagram. Again, this is the Rich Habits podcast Instagram account. Kristin says what is a fair way for a married couple to divide their expenses when one partner makes significantly more than the other? In our case, my partner makes 125% more than I do on an annualized basis. Thanks so much, Robert. You want to kick this one off?
- [47:24]
Robert Krok
Yeah. So, Kristen B. I think this is a great question and more and more people, this is definitely something that didn't happen a lot 10, 20 years ago, but it's certainly happening now. And I really love it because if you can break this down proportionally and take each share and say, okay, your partner makes 125% more than you. So you break down the math of what your percentage should be, then of the totality of the monthly bills and that makes it much more reasonable and fair for both parties. I think it's a great conversation to have have. I think it's really smart to do. And this is can be for just regular money making earning couples. It doesn't have to be just in affluent couples. This can be for any random couple out there that's doing well, that's building their wealth and they're really enjoying life. So keep that in mind. Break it down proportionally just like you've alluded to. I just think it's a great strategy to have the financial conversations early. We talked about this in an episode a long time ago. Get these conversations out of the way even before you're married, if you can. What does our future look like? What is each person bringing to the table? Good and bad and I think you'll be in great shape.
- [48:38]
Austin
This is a great question, Kristen B. And Robert, I appreciate that answer. I'm going to take the other side of that. I'm going to say that it shouldn't matter. You guys are married, you guys have a joint checking account. You guys are paying for expenses anyway, out of this joint checking account. It's like, hey, how does our household make Kristen, let's say, for example, you're making 100, your spouse is making, let's say 225,000. Right. That 125% more. So together, you're making $325,000. It shouldn't be, oh, my spouse makes more than me, therefore they should pay more of the mortgage or they should pay more of the groceries or more. It's like, no, you guys have $325,000 a year. Year. Let's call it post tax. We're talking about $260,000 a year or about 20,000amonth. Let's say you have 20,000amonth that gets deposited to a joint checking account. Out of that joint checking account, we pay our mortgage, we buy our groceries, we pay our utilities, we pay for our insurances, we pay for, you know, all the other different things that go with running a household. We set money aside for our retirements. We are saving for our vacation. Right. It's an hour thing. It's not like my expenses and their expenses, because they make more than me. I will be in this sit situation with my fiance, soon to be fiance, and who will turn into my wife. I make 10 to 15 times more than she does on an annualized basis. I'm an entrepreneur. I'm a business owner. Right. I just, I just make more money. But at the end of the day, we're going to have joint checking accounts. We're going to have, you know, all of our money go into one spot. We'll do that after we get married, obviously. And then we'll make decisions with our money because we are married and it's our money. It's not my money, it's not her money, it's our money. And I just think again, that's like something really important that people need to understand when they're married. And I'll caveat that a lot of people are like, oh, what if it's an abusive relationship? What if it's these other serious things? Yeah. If addiction or abuse or whatever is going on here. Of course there are caveats to this. Do not combine finances with someone who is not a good person. Right. Like, I totally am empathetic to that. I hear you. But I would argue that 80 to 85% of the time that is not the case. The case. Maybe even up to 90% of the time that's not the case. And that combining finances, being on the same picture financially, knowing that this is our money, that is then, you know, financing our monthly expenses of our household and our retirement is the best mentality going forward for long term wealth building.
- [51:08]
Robert Krok
So I'm going to stay on the other side of the fence here when I was married. And in every relationship I've been in, I've paid all the bills. It's just the way it's been. It's always been that way for me. I think that's how it should be. If the man is the breadwinner, that's okay with me and that, that sits right with me. But I think in modern society, and we, we have to be cognizant that we do have a divorce rate of 50% or higher right now as we, as we film this episode, you have to look at both sides of it because, you know, with a more proportional earning situation between the two entities in the marriage, I think it's important to understand that what do you do in the situation? You know, nobody wants to think they could end up in divorce. I never thought I'd end up divorced. I'll be honest there. I thought I was in a great, great place. But what do you do if you want to protect yourself financially? If you just pool all the money and, and you don't have kind of your own side and their own side, then I think it's okay to pull it all. And I agree with you on that. But also, I think we live in a different era. Otherwise we wouldn't have divorce rates being so high to where I just feel people should at least be cognizant of protecting themselves whether they're the breadwinner or not. So they have some sort of separation to be able to have their own nest egg just in case, case you hear it all the time where people get divorced. And I deal with it all the time with clients where they get divorced. And let's say it's a traditional husband and wife marriage and the wife then fights for her portion of whatever is there. Or worse, the husband was misleading her for years and they didn't have the money that she thought. And then she's got to go out and start over. Or maybe it's flip side and he's got to go start over. It's just a little scary to me. So I, I like where you're heading ads at and I just disagree with it a little bit because I feel that not necessarily that it should be proportional on the bills, but that there should be some separation. So each person has their own accounts when it comes to their retirement.
- [53:19]
Austin
Oh, yeah. I mean, everyone has their own Roth IRA. They've got their own, you know, 401k, all that fun stuff. I mean, that's just, that's just smart. I Think what I'm trying to get at is, like, the money comes into a bucket, and then we say, cool, Austin, you need to max out your Roth IRA this year. So we're going to, you know, put in our budget, our honest budget. $583 a month for Austin's Roth IRA, $583 a month for Austin's spouse's Roth IRA, and then we're off to the races, right? So it's like. I guess what I'm saying is I'm also assuming that we're on the same page. Like, you were talking about, like, divorce rates and stuff like that. Isn't money, like, the number one reason why people get divorced anyway? I think I read the stat where if you're on the same page with money, politics, and religion, the divorce rate drops to, like, 8%. Like, there's a 92% chance that you guys are going to be just fine, assuming you're aligned with those three things, which I would argue everyone should be aligned with before they get married. Right? So I'm maybe it's just like the optimist in me thinking about, like, the best way to grow wealth is to be on the same page with money as a couple, and sending Venmo requests back and forth. That's just. That's not the relationship I want. I don't want to have to buy this or, oh, you buy this or I'll buy. It's like, no, like, we are a unit. We're going to be buying things together, we're going to be investing in things together, and we're going to be growing our wealth together.
- [54:32]
Robert Krok
Then I think the way to resolve this, as I think through this, because I've been on both sides of it, is to maybe everyone out there listening. No one ever thinks that their significant other is going to change, leave them, have an affair. You never, ever think that you want to assume when you get married that it's going to last forever and it's going to be beautiful, but that's just not the math. It just isn't that way. And so I would say then a way to cap this off would be, be maybe you have a life meeting once every 90 days where the two of you sit down, you look at the books, you look at where you're at, you look at the spending habits, and you say, okay, what are we doing here? Is everything on track? Are we getting off track? Is one person spending way too much? And you figure it out? And I think that would be the best strategy, moving forward to keep the romance going. Because you're right, I knew a couple that would venmo each other other back and forth for stuff. I thought it was very, very terribly unromantic. I would never ever be in a relationship like that. You know, I'm old school. I believe the man should pay all the bills. That's just the way it is. But then does it get tricky if there's more an equal balance in the financial set of things? For me, it has never been that way, but for others, maybe it does. So I think that's where a financial life meaning could come into play play and really kind of unpack it for both parties to make sure that there's no money constraints that someone is holding back and not sharing with their significant other.
- [56:03]
Austin
I think it comes back to our favorite phrase of Brooke. People react. Wealthy people forecast, right? Every 90 days, every 30 days, every 60 days. It doesn't matter how often. More often than not though, you and your significant other, right, your spouse, the person you're married to, y'all should sit down, pen and paper and forecast what the next month's budget's going to look like. Hey, we're going to make 20k this month. My name's Kristen. My spouse's name is whatever. What are we going to do with this 20k? It goes into the joint checking account. We got to pay the mortgage. We got to do this. Oh, Kristen. We got to max out your Roth IRA spouse. We got to, you know, I know you've got a car note, right? So it's like all these things are all getting figured out in real time. Being on the same page and being transparent with money is how you have a healthy relationship with it and a healthy relationship with your, your spouse. This comes from someone who's not married. I've not yet seen the downfalls of a marriage yet. So I'm talking from an optimistic perspective here. But like, that's how I plan to approach marriage myself.
- [56:58]
Robert Krok
Yeah, I love it. And this is a very, very slippery slope of a conversation because you've not been on the bad side of all this. And I'm not trying to be a negative Nancy. I'm just trying to make sure everyone has their perspective in order. You know, I did a call with a very, very wonderful woman. It was a one on one call a couple, a couple months ago. And she was telling me this story that she thought that her and her husband were wildly successful. She never touched the bills, she never knew anything about the money. She just did what she wanted and it never mattered until the day the sheriffs came to the house and said that there were three mortgages and the house was getting taken by the sheriffs. And all of a sudden her life got upended. I'm not trying to get emotional, but it was brutal. And this happened. Happens all the time. So don't take this as negative. This is just me giving you the best experience and information I can give each and every one of you to make sure to keep the romance, but also have these meetings, have the hard conversations, so you always know where things stand.
- [58:04]
Austin
So our final question comes from Art V. Art says. I'll start by saying that the Rich Habits podcast is my favorite podcast podcast. Thank you. Now, with regard to the emergency fund that you guys are always talking about, you suggest to have money set aside in a high yield savings account. What do you think about me putting that money instead into dividend stocks? My logic is, is that I could sell stocks at any time. My monthly expenses are about 8,000amonth. I've got a couple rental properties. So If I have $50,000 in an account that's only earning 3, maybe 4%, it feels like a missed opportunity. What do you guys think about the stock strategy? Robert? This is something I think I get the most flack on, which is like an emergency fund is not an investment account. You're not supposed to be earning 9, 10, 12, 15% on it. It's an insurance against your existing investments. Right? It's the insurance that when it rains, it pours like it always does in life. And you're gonna have that $6,000 set aside to go do that thing, or the 12,000 that you'll need, need in case of this big thing happening or whatever. With your three rental properties, you might need a roof. You might need something else and something else 30k out the door like that if it's in the dividend stocks. And let's say that these dividend stocks are experiencing a 10, 15, 20, 25% correction, like they did in 2022. Well, congrats. Your 50,000 is now worth 32,000. And you don't have the money you used to have if it was sitting in a high yield savings account, just. Just sitting in cash, earning some interest and insuring against your investments that are in your retirement accounts, right? So now you drain your dividend stocks. They're down anyway. Now you gotta drain the 401k or take a loan out or something stupid. We don't want to do any of that stuff. We want to have our 30, 40, 50K, sitting in our high yield savings account, earning 3 or 4%, allowing us to stay invested with our 401Ks, our Roth IRAs, and our bridge account so that those in investments don't need to be touched, don't need to be borrowed against or cashed out or anything at an inopportune time.
- [60:02]
Robert Krok
I couldn't agree more. And I always tell the story about what one year looks like for most people, and it kind of goes like this. We're going into springtime right now. Guess what's happening? Wedding season. So you're going to get invited to all these weddings. You're going to put it on the credit card, you're going to take money out. You might even sell some crypto or stocks to go do that wedding, wedding. And what most people do is they say yes even when they can't afford it or haven't budgeted for it, because maybe this year is the year that more of your friends get married. And then you find yourself in a situation putting the money on credit cards. So wedding season's over. We're getting into the fall. You're paying down the credit cards, you're getting back on track. Holidays are here. Christmas happens. Boom, boom, boom. You're ready to rock and roll. It's an endless cycle. Cycle. And like Austin alluded to, the emergency fund isn't because you can't get your money out of stocks. I can right now ask for a wire of a hundred thousand or a million dollars and have it in my account in a couple hours. But the problem with that is if that money is invested and it's pulled out, it's a taxable event and you're robbing from your future for something you want to do today. That's why the emergency fund is great, because it's liquid. Liquid. It's not a taxable event when you use it. And it puts you in a situation where you don't use the credit cards when something pops up. So keep that in mind. I love it. Always understand, the emergency fund is not an investing account. It is for emergencies. And emergencies can be tires. It can be something at the house where you have a bad, you know, hot water tank. It doesn't matter what it is. It's to keep you from using the credit card cards or pulling money out of your retirement accounts.
- [61:46]
Austin
Yeah, a good example of an emergency is Christian. As you guys might know, he's, he's, he's our co, you know, partner here in the podcast. He had a burst with his pipes underground. And the new house he bought and whatever, it's like 15 grand he had to come up with in two weeks to go pay these people to fix it because his, you know, water wasn't running and it just didn't work right. So it's like these emergencies can be especially. You mentioned three rental properties. Properties, they can be thousands, if not tens of thousands of dollars that you might not be able to see coming. And if you have money invested into dividend stocks that for whatever reason, we might be experiencing a, you know, contraction or a pullback in the markets, now you got to sell at a loss to go cover an emergency. Or if you don't want to sell at a loss, you got to borrow on some credit cards. Like, it's just, it's a mess, dude. Don't dabble with it. Have your high yield savings account. Use it for emergencies only.
- [62:37]
Robert Krok
I love it. And that is what makes our 30 year age gap so special is because, you know, we have two spectrums. We have all the stuff and all the crap. I've gone through over 30 years and 35 years of investing in building my portfolio and my wealth. And then we have you, this brainiac, nerdy guy that's just really, really good at what he does. And combining all of that experience in stories and knowledge. Knowledge really helps us break down difficult subjects in two different ways. And that's what I love the most about these Q A episodes is us being able to really unpack it from two perspectives to help people make that educated decision. Because personal finance is personal.
- [63:22]
Austin
I couldn't have said it better myself. Robert, everyone, thank you so much for joining us on this week's episode of the Rich Habits podcast, Question and Answer Edition. We have gotten so much positive feedback on this show year to date date. We've got 70, 80, 90,000 people coming back now every single week to listen to our show. So if you've learned something on any of these episodes, please share it with a friend, send it to them via text message or a DM or maybe someone you know at work, maybe it's a family member. And if you do like what you hear, please consider leaving us a five star review on Spotify. Thank you so much for tuning in and we look forward to seeing you on Monday.