← Rich Habits Podcast
Rich Habits Podcast
Q&A: Donating $8M, Borrowing $36K For A “Career Start” Loan & $6M In Single Stocks
00:43:39
Loading summary
Transcript46 lines
- [00:01]
Austin
Tuesday on NBC. Jimmy Fallon and Bozma St. John host the highly anticipated new competition show.
- [00:07]
I hire 10 creatives from all walks of life. They will be battling it out to.
- [00:12]
Robert
See who can impress the world's biggest brands. This is a huge opportunity.
- [00:16]
Austin
This is the battle for the next big idea.
- [00:19]
Robert
This is not Play Play.
- [00:20]
Austin
We're spending millions of dollars.
- [00:21]
Robert
I'm so excited to embark on this.
- [00:23]
Austin
Adventure with all of you.
- [00:24]
Say the Best idea on Brand with Jimmy Fallon. Series premiere Tuesday on NBC.
- [00:30]
TJ Watt
I'm NFL linebacker TJ Watt and this is my personal best. YPB by Abercrombie is the activewear I'm always wearing. That's why I reached out to co design their latest drop. I worked with designers to create high performance activewear that holds up to my toughest workouts. Shop YPB by Abercrombie in store, online and in the app because your personal best is greater than any.
- [00:58]
Austin
Hey everyone, and welcome back to the Rich Habits Podcast Question and Answer Edition brought to you by public.com these are our Thursday episodes where we answer your questions as if we were in your shoes going through whatever you're going through now. Again, this is from my perspective and Robert's perspective. So maybe you agree, maybe you don't agree, but that's okay because that's what's so fun about this show. We're all just talking about personal finance and investing and having a good time doing it. If you have a question for us, please email us@richhabitspodcastmail.com or you can DM us on Instagram at Rich Habits Podcast.
- [01:31]
Robert
Yes, we definitely love these Thursday episodes and it's just so much fun because we always say personal finance is personal and we get to dig into all the crazy questions you guys throw at us and take it off the dome and do our best to shed some light and just bring a ton of value. Because we all go through things, life gets in the way and it's fun for us to try and give everyone those little nuggets of advice to help you guys figure it all out.
- [02:00]
Austin
And we've got some really good questions teed up. But before we jump into the actual Q and A, we've got to give a major shout out to public.com it's really important for everyone to understand that this is our reality, that if we don't start investing toward our futures and building a nest egg, we will have to work forever. So if you want to stop working, working a 9 to 5 job or your hourly job, you have to have portfolio income that's going to supplement your lifestyle in the future.
- [02:32]
Robert
And the easiest way anyone can begin investing towards their future is by using public.com they make it incredibly simple to build a multi asset portfolio including ETFs, stocks, bonds, crypto options and more. They also offer access to industry leading yields of up to 4.1% APY for your emergency fund.
- [02:54]
Austin
And for a limited time, you can earn a 1% match on all of your IRA deposits, IRA transfers and 401k rollovers. That's $1,000 of free money for every 100k you roll over into their platform. So if you're listening, you've got an old 401k that's sitting on a silly, boring brokerage account. Roll it over, get your free money and start investing.
- [03:14]
Robert
Yes, fund your account in five minutes or less. Just head to public.com or forward/rich habits to claim your 1% match today. Paid for by Public Investing. Full disclosures in the podcast description all.
- [03:26]
Austin
Right Robert, our first question is coming from Jackie H. This is via Instagram dms. So again, Rich Habits podcast on Instagram. Jackie says, what's up fellas? Jackie from Ohio here. I love to listen to your podcast while I'm walking. Thank you for all of the advice. I share it with my kids all the time. Thank you Jackie. That's so nice of you. So here's my question. We're in our late 50s and have several million dollars invested in the stock market. But our financial advisor has always discouraged us from investing into ETFs as we listen to your advice and agree that we should switch from growing our wealth to maintaining our wealth now that we're getting a little bit older, is there a smart way to rebalance our portfolio without incurring massive capital gains taxes from selling our individual stocks and now using that money to buy index funds and ETFs. We have SEP IRA accounts, not Roth account because we're small business owners, so we don't have any protection that we know of from taxes. Thank you so much. So Jackie, good news for you. The IRA in SEP IRA stands for Individual Retirement Account. Transactions that take place inside of your individual Retirement Account are all tax free. You can buy and sell and trade and do anything you want inside the account without having to incur capital gains taxes. This is why, for example, you know, let's say Robert puts $7,000 in his Roth IRA this year, maybe 8,000 because he's over the age of 50 and has the catch up contributions. And then let's say that 8,000, he puts it in gold. Gold's up 40% year to date. He wants to now sell that gold only, you know, nine or ten months into the year. He's not going to owe short term capital gains on his 40% gain on that gold because it all took place inside of this bucket that is called the ira. Now if he did that in a taxable brokerage account, that is maybe a public dot com, a Fidelity, a Schwab, a Vanguard, he would definitely ow term capital gains on that transaction in that taxable account. So yes, you absolutely can sell your single stocks and take some profits and put them into index funds and ETFs all inside of your SEP IRA or other retirement specific accounts without having to incur a short term or a long term capital gain on the transaction. Now where you will incur taxes on a SEP IRA is on the withdrawal of the money. So all of the money that you put into your SEP IRA you wrote off against your taxable income over the last several years. Right? Because a SEP IRA is a pre tax retirement account just like a normal 401k is a pre tax retirement account or a traditional IRA is a pre tax retirement account. So that means you wrote that off your earned income, right? Your, your taxes on an annualized basis. But now as you withdraw the money out, that's when you owe the taxes. So you will be taxed at your normal ordinary income tax brackets on the withdrawals. Think about that as ordinary income. But you will not be taxed on the transact actions or the sales, which also like Robert, isn't that weird that Jackie's financial advisor, one didn't explain this to them and two also doesn't they don't want them in ETFs and index funds. Like what? I mean maybe they're just in a bunch of mutual funds which I guess is similar to an etf. So I could get, you can understand that. But mutual funds are also expensive.
- [06:44]
Robert
Yeah, well I was going to say let's back this train up first and foremost. And they need to have a serious talk with this financial advisor because I assume he's not a fiduciary. I assume because of that he is taking commissions and that's why he's trying to dissuade them from the ETFs because they have lower fee structures than mutual funds and target date funds and who knows what else. So yeah, I really have a problem with this because no one with that much money should be in individual stocks and just mutual funds. There's no world that people should not have index funds and ETFs in their portfolio. It just doesn't make sense to me. So I think Jackie, the first thing she has to do and anyone else listening, have a serious conversation with your financial advisor and say, hey, I've been learning a lot over the past few years. I want to understand better this portfolio allocation and why and just really dig deep. Because you want to also understand the fees that they're taking. If they're a fiduciary, they should only be taking a percentage of the total assets under management. And in this case you have a few million dollars. So I assume it's probably 3/4 of a percent, maybe 0.80 of a percent. But you should definitely understand all of that. So Aust I think your breakdown of what they're not being taught is perfect. But they also need to ask these deep hard questions to understand why this person is dissuading them away from ETFs and index funds.
- [08:12]
Austin
So let's be very clear here. You have several million dollars invested into the stock market via a SEP IRA account. Let's say that 4 million of your 6 million is profit and it's all in these single stocks that are up hundreds of percentage points. You can literally sell all of those single stocks that are up hundreds of percentage points, cash in on that profit, not owe a dime in taxes on the transaction itself, but only owe taxes on the money you withdraw from the account. So let me just make that super, super clear. Doesn't matter how much you have in profit in this account like retirement accounts, if you make the transactions inside of these accounts like they are not taxable. The taxes only happen specifically for pre tax retirement accounts like a SEP ira. When you take the money out then you owe ordinary income taxes. Now you could take out, I don't know, 50 or $60,000 and have a small little bit amount of taxes, right? Very low taxes. Or you can take out $7 million or 6 million whatever is in the account and have a very high tax bill. So you've got to work with a tax accountant and your financial advisor and everyone else to make sure that you're kind of taking out the right amount of money there. That makes sense to you. But Jackie, have some of those serious conversations with your financial advisor. If I had several million dollars I would be. Oof. I'd be all over this one.
- [09:25]
Robert
Yeah, and I want to click back one more time that so many people out there will not even pick a financial advisor. It'll be Someone that knows this person and says you should try them. I've worked with them and they did great. But it's weird to me because if you're going to get heart surgery, you get multiple opinions. When you're going to get your car looked at, when there's something bad happening with your car, you get multiple opinions. Lasik surgery, multiple opinions. Yet people will take all of their money, give it to someone and not even understand their strategies, their fee structures, what has been their past performance with other people's portfolio. So just anyone listening to this podcast, as you're building your wealth, get multiple opinions and understand the fee structure and if it aligns with your portfolio desires and your risk tolerance. It's so incredibly important.
- [10:18]
Austin
So our next question comes from Fernando CM Fernando CM says thank you guys for all of your work. I've been listening and sharing the podcast for the last two years. I'm 26 years old, married, with a two month old. Our combined income is $180,000. We have around 175,000 in a brokerage slash retirement account and another 30,000 in savings in a high yield cash account on public.com. my wife has $50,000 in student loans and 18,000 remaining on her car. We're planning to move to St. Petersburg, Florida. We were looking at duplexes with this 5% Annie Mae program, but most of them are super expensive right now. What do you guys think about looking into purchasing a single family home? Are there any benefits on living in it for one to two years then moving and using it as an investment property? Or should we rent initially and look into buying after we are more settled in the area? Any thoughts are greatly appreciated. Thank you guys once again. Well Fernando, good news for you. Robert lives in St. Petersburg, Florida so I'm sure he's going to give you some tips here on places to live. But for me here I would do what Robert did, which was I'd live in the area for 1, 2, 3 years, figure it out and then buy something more permanent. But I'll let Robert take this one away.
- [11:29]
Robert
Yeah, 100% you're going to love St. Petersburg and exactly that. I would move to the area rent where you think you're going to want to buy in an area that you like, do that for one or two years, learn the area, learn what you like, learn what you don't like. And one of the cool things about St. Petersburg is there is a ton of multifamily in every neighborhood. Almost every neighborhood has single family homes with adus. They have duplexes, triplexes, quadplexes, they are everywhere. And right now I would say you've got about a year window where prices are suppressed because these rates have been so high. I think St. Petersburg is an incredible buying market right now. And so that's what I would do. I would definitely do the rental, learn the area because you're going to find the restaurants and what grocery stores you like and the coffee shops, whatever floats your boat. I would do that. Rent and start digging in right away, get on Zillow, start driving around and learning the area because man, there are some incredible, incredible neighborhoods where you could buy either the single family or the duplex, triplex or quadplex.
- [12:35]
Austin
And in my opinion, I think the single family home to using it as my first rental property is a cool playbook. Right? That's what I did. It's a very interesting and effective playbook if you can get the right price for it. Now that's the thing when it comes to multi family properties, it's a lot easier to cash flow them, right? It's a lot easier to actually make money because you're splitting the mortgage or able to reinvest elsewhere. Like there's a lot of things there that can help you do that. Where with a single family property, what's hard about that sometimes is like if the numbers don't work, then it's never going to work, right? So like if, if your mortgage on the single family is $3,500, which is very common in America right now, is to buy a home and have a $3,500 a month mortgage and you can only rent it for 2, 800. It just doesn't make sense. Like people will make the mistake of, oh, I'll negative cash flow, however many dollars a month and hopefully the price goes up or you know, hopefully I can refinance and then they end up losing, I know, 10 grand in a year on a stupid decision like that. So if I were you, if you wanted to go the single family route, make sure that it's a place that you feel good about and you feel comfortable living in for five, seven, ten years, right? Do not go into this hoping that the numbers work. In one or two years, yes, interest rates will likely come down, so you could always refinance in the future, but that's not a guarantee. Rental markets are always unpredictable. Like, so there's a lot of things here that if I were in your shoes, I would prioritize. Finding a duplex, that makes sense. Finding a multifamily family situation that makes sense. If I can't find one, I would then do the single family route. Make sure that it makes sense to me as a actual father, a man with a family. Right. Someone who's trying to lay roots and really begin to grow their family here in St. Petersburg. That makes me happy, first and foremost. And then if the numbers shake out to be a rental in the future, awesome. If they don't, that's fine. I bought this to raise a family, not to turn into a rental property. If I wanted to to get a rental property, I would go and, you know, do that separately.
- [14:33]
Robert
Yeah, I love it. And we just looked at a deal. And if I was looking to buy a home, it would have been a deal I would have loved to do. And it's a single family home that is right in a beautiful area, walking from the beach. And it had an ADU on it that was just a small adu, but a really nice garage studio. And that one could have been purchased for $480,000, in which you'd be right in that range Austin alluded to. I think the all in cost would have been around $3,100. But you'd be in a beautiful neighborhood with an ADU to offset some of the costs because the ADU would rent for a thousand dollars. So the numbers can work even in St. Petersburg. Just make sure you do your research.
- [15:12]
Austin
So our next question comes from Mr. And Mrs. W. They say my wife and I are teachers in our 40s and hope to retire by 55 to 60. We have about $28,000 in our Roth IRAs. We just opened our 403Bs and plan to each contribute 500amonth to both. We also own two homes. Our rental property nets $350 a month with $500,000 in equity, and our primary residence has $600,000 in equity. The only debt we have is a $20,000 car loan besides our mortgages. And we don't have kids and we don't plan to have any at all. We travel a lot, almost every break we get as teachers and want to continue that both now and into retirement. So here's our question. If we sell our primary home, we could use the proceeds to pay off our rental, move in, and still have around $300,000 in cash. Our plan would be to max out our Roth IRAs and 403Bs each year and put the remaining money into a high yield savings account. Would that put us in a stronger position for an early retirement, or are we better off keeping our Current home and continuing as we are. Thank you so much for all you do, Mr. And Mrs. W. I am so freaking proud of y' all for being teachers in your 40s with millionaire status. I mean 600k equity in your primary, 500k equity in a rental. You all are crushing it. So congratulations on being millionaire teachers in your 40s when it comes to investing and building a well diversified portfolio. Robert and I lean toward the stock market because the stock market has three main benefits and in our humble opinion, the first benefit is tax advantages. Specifically if you're able to invest in the stock market via a tax advantage account like a Roth Roth IRA or you know, any of these, like pre tax, like there's just, there's a lot of tax fund stuff that can come when you invest via these retirement accounts. So that's one benefit. The second benefit is liquidity. Right? I can go sell my million dollars invested in the markets right now and have that in my bank account tomorrow. And then three, you have this long standing 900 year track record of call it 10 12% annual returns and if you're lucky, maybe more, sometimes maybe less, but average about call it double digit returns. With that being said, that is why we highly encourage all of our audience to have the vast majority of their wealth invested into these index funds and ETFs we talk about. You all however are on the flip side of that. You have very little invested in the stock market, but you have a lot in real estate. Now there's tons of perks that come with real estate. If it's the depreciation, the appreciation, the stability of it, the cash flow in a couple instances here, right? So like having a lot of money in real estate school because you said you hope to retire by 55 or 60. When I hear the word retire that means one thing. That means my portfolio is supplementing my income. And for a portfolio to supplement your income, you either one, have it paying you cash via rental properties or you know, real estate investments that are cash flowing on a monthly basis or two, your, their investments are rising so much so quickly that you can cash out on some of them, realize a long term capital gain against them and use that money to supplement your life. That's very much how a lot of people plan to retire those, those two methods. Now I don't think you're doing either of those methods at the moment. You've got $350 a month that you're netting, which is peanuts in my humble opinion, against half a million dollars in equity, for example. The S&P is up 14% year to date. If you had that same half a million dollars of equity, you would be up $70,000, right? Of profits of unrealized gains. But unfortunately you guys are only up about maybe 3 or 4,000 depending on the month to month there. So like when you think of a cash flow to equity ratio, very bad. And then again here I always believe that if you want to retire early, you should have a pay for mortgage, right? Mortgage is the largest line item in a lot of people's expenses. And so if you're in your 60s and 70s, you shouldn't have a mortgage anymore in my humble opinion. So. So if I were in Yalls shoes, I would do what you said. I would sell the primary residence, take the $600,000 of equity. If you want to pay off that rental, go for it. Now you've got freed up the biggest line item in your budget to aggressively invest that money. Now every single month into the markets you're going to have $300,000 in cash, max out the Roth IRAs, max out the 403Bs and dump as much as you can into a public.combridge account, right? So this is a normal taxable brokerage account we call a bridge account because it going to bridge you into retirement when you retire early here and make sure that money is invested in such a way where it will double every seven years. So Voo, VGT, QQQ, VTI, all the index funds and ETFs we talk about, you will have in my humble opinion and Robert, feel free to disagree with me. But by investing this $300,000, you'll probably have more in seven years from a wealth perspective than if it was just cash flowing a little bit every month with a rental property.
- [20:28]
Robert
Yeah, 100% I agree with you. The only would change is I would seriously consider waiting just a little bit longer because here's why right now, and we don't know what you're paying for your interest rates on the mortgages currently, but assuming that you want to do this deal, and I agree with Austin, you're going to make way more money for retirement to help you retire early by making this move. But I would wait until mortgage rates come down a little bit more. That might take a year, 14 months because in that instance then as you're paying down and you're using this money, you're still going to make more money getting it invested. But I think you'd make more with the house once it becomes a seller's market versus Being a buyer's market like it is right now. Let me explain right now because rates are high, so many people are sitting on the sidelines, but the people that are buying can name their price in a lot of situations because homes are not moving, moving. So that's the one caveat I would look at is get yourself in a position to get a higher price for the home once rates start to come down. And I don't mean waiting till they come down to 3 or 4%, but if they keep nudging down little by little and we start to see something in the mid fives, then I think you're going to get much more for the home, giving you that bigger boost into retirement to get this money invested in the stock market. But I agree with everything else Austin said. The only difference, difference, I would consider waiting a little bit longer because rates are coming down currently, but we want to see them come down a little bit more to get you that extra boost in the cash that would go into those accounts.
- [22:07]
Austin
I think that's great advice. And I think that, again, millionaire status. So excited for y'. All. Y' all are doing something right. I'm not here to say you're not doing something right. I'm just here to help you optimize for the words of hope to retire by 55 or whatever that might be. Right? And so again, the only way anyone can retire is to become financially free, which is defined as your passive income, right? Portfolio income, rental income. Right? Your passive income can completely supplement your lifestyle. Now, that's because it maybe gives you a lot of money on an annualized basis. Right? You have a lot of investments, or you cut down on your lifestyle so much that your moderate amount of investments can offset it. It's a balance that everyone has to navigate for themselves. But at the end of the day, I think you all are going to be able to figure this one out. Very, very smart. Thank you so much for te our youth. I cannot imagine being a teacher in 2025. So again, all crushing it. So our next question comes from David S. David says most questions to you all are from people at the beginning or middle of their financial careers. I'm 76 and nearing the end of mine. I have a net worth of $11.6 million. 11.3 million of that is in the stock market. 3.2 million of the 11.3 million is in an IRA cash in money markets and high yield Savings is about 375,000. And I have no debt. I rent a 1B bedroom apartment for $27.50 a month with furnishings worth maybe $4,000. I own a 2016 Honda Odyssey and two old bicycles. I have one son who's 38 with one year old twins. His net worth exceeds mine by a lot. My son doesn't need a big inheritance. I've already given him 1.4 million. That was in my mother's account when she died in 2021. I'd like to begin giving away 5 to 8 million dollars, which should leave plenty for me to live on and still have some to leave to my son and grand twins. As you can see, I've been very good at sa, had much interest in spending beyond my necessities. So here's the question. How do I decide what to do with the money? I know that is a ridiculously broad question, but I truly don't know where to start. I don't expect specific answers, but some philosophical concepts of how to help me decide where and how would be very helpful and very much appreciate it. Thank you so much. David Robert, I'll let you kick this one off.
- [24:23]
Robert
Yeah, this is a wonderful situation and I'm actually kind of going through this right now. I had a big birthday this year and I've been thinking a lot about where does all of this go. And so for me, how I have looked at it philosophically is because I don't have children, you do have one. I look at it that I want to take care of the people that are most important in my life. And Austin here is one of those people, my cousins. I have some other people. But it's really all about what makes sense for you. Sometimes at your juncture in life, people look at what are the charitable functions I can do? Or do you want to set up some sort of a trust that's going to give money to a school that you went to? Maybe there's just so many things you can do that would be very fulfilling but also make sense for you. But just make sure you understand that you don't want to give away so much because we are living longer lives now. Medicine is better and health is better and all of this. So just make sure you have a plan that makes sense because you can always do this in phases. You can set things up for your son's children. You can set up a local charity, maybe that is a foundation for you after you pass. There's so many different really cool things you can do. I'm going through it right now where I'm having conversations with my financial advisors to make sure that my Legacy lives on after I'm gone in a way that I'm taking care of the people that I love the most most. So I hope that helps from a philosophical standpoint, because it is very much all about figuring out what resonates with your heart the most. To be able to do the right thing with this money and just make sure all of your structures are set up. Because what you don't want to do is have all of this go into probate and everything kind of get tied up in the courts. So that's very important as well to set everything up up. With a revocable trust, you don't really have a lot of assets, so I don't think a holding company is necessary. Maybe a living trust that your son is the beneficiary. But you have a lot of incredible options, and I think you should just really figure out what makes your heart sing. That is the best thing for you to do in the coming years.
- [26:41]
Austin
I think there's a couple ways to go about this. I don't have a net worth north of $11 million like you, but if I did, knowing that my son doesn't need it because my son and their grandbabies are already doing great, so. So here's how to approach it, right? When it comes to charity and donations, I know this is just a personal preference. I generally speaking, don't like the broad stroke, like, oh, I'm just going to go donate to, like, a cause. Sure. Like, that's great. I know a lot of people do that and that's wonderful. But I would rather donate to something I can specifically see the impact on. That could be a local channel church, that could be a community used to live in. That can be a school, maybe it's a university, but like, something that, like, if it's by starting a scholarship, like, you can clearly see that 8,000 people applied for the scholarship and two people ended up receiving the scholarship. And because of that, they're now able to go to school and they went on to go be these. Like, that is a cool impact that I like to see. So, like, whenever I'm donating money, I like to be able to see, like, the impact of it versus, like, well, I donated to this organization and I'm sure it went somewhere cool. But, you know, so that there's that if I were in your shoes, I would take some time to reflect upon your life, specifically as it relates to major milestones and events that really positively impacted your trajectory. So, for example, I had my dad's memorial two weeks ago when this episode comes out, the weekend of September 13, and he went to a military academy for high school, and he sat on their board of directors, and he was, like, really involved in that. So I want to now start donating toward that academy because it positively impacted my dad's life, and I want to positively impact other people's lives, to go live lives like my dad did. And so, like, that's something that. That really gets me excited. And so, like, maybe you have something like that for you. Maybe it was a place that your son went. Maybe it was something, you know, if it was a school or a university you went to, maybe it was a church, maybe it was a. A summer camp. Right? There's so many things that positively impact and change the trajectory of our lives that we don't maybe think about until we really sit down and try and identify them. Something else I'd. I'd highly enc you to do is to not just donate the money, but donate the stock. So you can go to donatestock.com we had the CEO and founder of this company on our podcast, like, a year and a half ago. But long story short, donatestock.com allows you to directly donate the stock in your brokerage account versus having to sell the stock. Either realize it as taxes as you pull it out of your IRA or whatever, you just donate it directly. So it's a much cleaner transaction from the perspective of Uncle Sam. So highly recommend maybe finding some partners over there that you recognize and resonate with. But I would really think about, you know, was it a high school? Like, for me, my dream is to go back to Kingsport, Tennessee, if it's in the next five, 10, 15, 20 years, and either start up some sort of organization, start up some sort of nonprofits, something of that nature, where I can teach people from my community how to be an entrepreneur, entrepreneur, how to run a business, how to invest, like, do these things. And that's not something. I'm not in a position to do that right now at 29 years old, but maybe at 49, I'd be able to do that. So I guess what I'm saying here is, like, really think about your life, where you came from, what moved your trajectory, what moved the trajectory of people around you that you love. To Robert's point, right? Like my dad. So it's like, find those things and then begin to say, okay, I want to donate half a million dollars to this specific church, because without them, I wouldn't be the godly man I am today. Or maybe, hey, I Want to donate a million dollars to this summer camp? Because I went there every year for six years growing up and taught me how to be, you know, the man I am today or whatever. Right? Like, think about this stuff, David, but at the end of the day, it's a you question. And don't let anyone make you feel bad for donating or not donating money. It is your money. You earned it. You get to choose what you want to do with it.
- [30:39]
Robert
And the only thing I want to add to that, and that was amazing, Austin, is, is not all charities and foundations are built the same. So make sure you do your research. A lot of these charities and foundations have high fees going to their CEOs and the operators, or they have really lavish, you know, offices and vehicles and all of this. And you just want to make sure that wherever the money's going, the people that need it are the ones getting it. So, Austin, that was an incredible breakdown.
- [31:08]
Austin
And if you're like, me and you like a charity or you see a charity, but they maybe don't have their financials published and you don't, like, trust them a hundred percent, but you really do enjoy their mission and, like, what they're doing, maybe instead of donating money, it's donating equipment, right? Oh, you guys need a new van or you guys need a new, you know, whatever this equipment might be for transporting goods and services or whatever it might be. Cool. I'll go. I'll go buy the hundred thousand dollar sprinter van and I'll just donate it to you guys, right? So, like, that's what's so fun about donating money and being able to, like, have a positive impact on our communities is when you have the money, you very well could figure out where it goes. But also you can choose the direct impact it might have, right? It's not just like a blind. Like, for example, during my dad's memorial, I was talking with the president of the academy, and I was talking with him about, I want to really, you know, figure out how to donate money here and really do some positive things. And he's like, well, perfect. That'd be wonderful. Thank you. But please make sure you specifically, you know, describe what this donation's for. Because if you just blindly donate, we'll go into like, our slush fund, our general fund. Like, this is just like what we, you know, spend money out of, where instead, if you want to start a scholarship or if you want to donate toward the, the boys dorm room renovations, like, whatever else is going on, like, just be very specific with how you want to donate your money, David, because if you don't, sometimes these organizations just kind of lump it all together and it might not make the same impact. Impact over a long period of time as you had hoped.
- [32:37]
Robert
Yeah. Before we get into our next question, I want to shout out our sponsor real quick. So listen up, folks. You can lock in a 6% or higher yield with a bond account on public, but remember, your yield isn't locked in until the time of purchase, so you might want to act fast. Lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds. Only@public.com.
- [33:03]
Austin
So our next question comes from WK WK says, hey guys, my name is WK and I'm a longtime listener who really appreciates the advice you provide on financial planning. My questions about my extended car warranty. I feel like I'm just getting a phone call right now. I'm calling because I want to talk to you about your extended warranty. WK says I own a 2015 Nissan Rogue with about 65,000 miles on it and it's been a great vehicle. Its age is over nine years, so it means it no longer qualifies for the Nissan Security plus warranty that I originally had. Given the car's age and mileage, what are my best options for third party extended warranties? Are there specific types of plans, Powertrain only, comprehensive that you recommend for older vehicles? How should I weigh the cost against the potential for future repairs? I love this question. I'll be short and sweet. WK you don't need need a third party extended warranty. You need a sinking fund with 1500 to $2500 inside of it. You can make a little, you know, go to Wealthfront and go make one of these little sinking fund things. Or you can do this on Public.com's High Yield Cash account or just have it in a separate savings whatever, but just have 1500-2500 dollars set aside and if something bad happens, you use that money and then you replenish it and you're back to the races. That's all you need. You don't need to pay $4,000 for an extended warranty from who knows who it I wouldn't do any of that stuff. But Robert, what's your take?
- [34:28]
Robert
I was going to say almost exactly the same thing. That's why I'm smiling. I was going to say take $100 a month, open a public.com account, put it into a high yield savings. There you go $1200 a year making 4.1% or whatever the percentage it's making and you just leave it there. That is your car fund. So you own the money instead of paying these exorbitant fees for these warranties that you may not even use use. So I love the sinking fund idea. Exactly what Austin said.
- [34:58]
Austin
Our next question comes from Addie N. Addie says I'm currently a junior at the US Air Force Academy, on track to commission and head to pilot training after graduation. As cadets, we are eligible for $36,000 career start loan from USAA at a 0.75% interest rate with repayment beginning only after graduation over a five year term. At the moment I have $2500 invested in my Roth IR IRA 1500 spread across ETFs and individual stocks in a different brokerage account. And my plan is to leverage my VA loan at 0% down to begin building a real estate portfolio shortly after graduating while still focusing on flight training. What should my priority be with this $36,000 loan? It's currently parked in a high yield savings account with public, but I'd like to take a more aggressive approach given my age and timeline. Good question. I hate that these banks are so predatory toward our military. You don't need to go $36,000 in debt for a Career Start loan. What does that even mean? I don't. I don't think that's a good idea at all. If you want to go borrow $36,000 to try and invest in and make more money with it, sure. Cool. Go have fun. I wouldn't do that. That's just unnecessary risk. But you know you've already done it. So it's currently parked in a high yield savings. I want to be more aggressive. Sure, use the money to may into the S&P 500 in the NASDAQ, but I'd be careful about putting it into any retirement accounts because you shouldn't take money out of your retirement accounts after you've put it in there. I would only put retirement money into like a Roth IRA that's going to be in there for the next 40 years. Yeah. Robert, what do you think?
- [36:41]
Robert
Yeah, I like it only because of the fact that they do have a very long window before they have to start making payments. And at three quarters of a percent interest, it's basically free money money. So I totally get where you're at with not borrowing to invest, but in this instance I think it's okay. Under one one stipulation, you've already put it in the High Yield Savings in public. That's great. If you're going to start investing, I would do it cautiously in public with a basket of these index funds and ETFs we talk about. Maybe you split it up between Voo, QQQ and maybe VT. But you have to make sure because so many people that get this free money, they start chipping away and blowing it. They go buy a motorcycle, they go do this, they upgrade their car. Then all of a sudden you're not making money with the free money, you're going further into debt with depreciating assets. So I don't mind it. You've already taken the money. I would just get a little more aggressive, but not so aggressive. So don't go buying meme stocks or anything crazy because remember, it's still a loan and even though you don't have high interest on it, you do have to pay it back. That's what I would do. Because if you look at it, even if you left it in the High Yield Savings at 4%, whatever it is, you're still going to make more money and you're arbitraging the upside to yourself, which is great. So going a little more aggressive, getting that to maybe 8, 10 or 12% a year would really jump start things. But I would not use that money to get into real estate estate because if you do lose the money, you still owe it and it's going to put you further in debt. And I just don't think that's a good idea.
- [38:17]
Austin
I think that's a great answer, Robert. It's just very important to understand to your point, right? Borrowing to invest, not exactly the smartest move. But if it's free money then like, okay, just please be careful. This, I, I would never do this personally, so just please be careful. Our last question comes from Meg on Instagram. Meg says hi, I'm 23 years old. I'm a girl who recently bought her first home. I started listening to your podcast a few months ago. So thank you for all the inspiration I'm contributing to my 401k through my 9 to 5 job. But it is not maxed out as I'm making around 50,000 a year. Should I focus on putting extra money toward my home's principal or would you recommend I start investing elsewhere? If so, what would be a good option for someone in my situation? A Roth ira? Something else. Thank you for all the great advice, Meg. Congratulations on being a 23 year old homeowner. That is is incredibly Inspiring. Super excited that we were able to somehow help you achieve that. So thanks for listening to the show. Robert and I have a sort of investing playbook that goes like this match beats Roth, beats taxable. So up to the match with your employer's 401k to get the free money. Anything above the match you want to use to max out the Roth IRA if you still have money left over to Invest, which at 50,000, I'd imagine not really, but if you do and you have Autonomy over your 401k, you can go back and then max out that 401k. And then still, if you have money left over, put it in the taxable bridge account. So tactically speaking, here's what this means for you. You make $50,000 a year, and let's say you have a 3% match on that $50,000. So you're going to contribute 3% of your salary or $1,500 a year, which comes out to about 60ish dollars per paycheck. You contribute 60, they contribute 60. And now you get about $3,000 a year invested toward your retirement. Amazing. Now what we're going to do is try and max out that Roth IRA. So $7,000, which is the annual amount of money that you can maximumly contribute to a Roth IRA, comes out to about $580 a month. So in my opinion, making $50,000 a year if you can go up to the match, so 2, 3, 4%, whatever it is at your company, of a contribution to your 401k, and then also max out that Roth IRA at $580 a month, like 23 years old. You're doing that. You are. And you're a homeowner. I mean, come on, this is millionaire status by like 40.
- [40:42]
Robert
Yeah. The only thing I would add is we don't know what the interest rate is on the mortgage for the home. And she mentioned potentially paying down the principal. I like Austin's playbook better because you want to get that money compounding for years and years and years. And that starts with the Roth ira. And the only way to really look at the principal is if you're paying a mortgage rate of say, 6% or higher, then there's a world you could make multiple payments a month or pay down on the principal a couple hundred dollars a month when you had it. And that works as well. But I like Austin's playbook better because you can always refinance the home in a year or two when rates come back down. And so, yeah, you've done a great job at 23 years old. And for everyone else listening, if you're 18 and over and you don't have a Roth IRA IRA, do that next. Do your very best to get the Roth set up. Even if you only have a hundred dollars a month to put in it. $583 a month is the maximum. So you're still doing well at $100 or $200 a month because it is one of the best vehicles to help you build wealth tax free later on in life.
- [41:49]
Austin
Everybody, thank you so much for tuning in to this week's episode of the Rich Habits Podcast Question and Answer Edition. Do not forget every Thursday morning to check your email inbox as new Rich Habits newsletter get published. Normally, Thursday morning, sometimes Thursday afternoons, we try our best. We're just a couple of guys working, working hard to educate people as to what the markets are doing. So go check that out. Go check your email inbox sometime today. You should see an email for sure and then be sure to come back tomorrow for our Rich Habits Radar Friday episode. Last Friday we had a super special guest, Bilal Little. He joined us to talk about all things ETFs happening at the New York Stock Exchange. Bilal is the Director of Exchange Traded Products at New York Stock Exchange. So if you've not yet listened to that episode, be sure to go check that out. And Monday's episode was a blast. Robert, we talked about the psychological impacts and this weird behavior economics that come into subscriptions, right? And by cutting out the average subscription, sort of like margin there that the average American has, which is $194 a month, right? And you invest that over 30 years, $678,000 in retirement. So I don't want to hear any of y' all say, oh, I don't have money to invest. Yeah you do. It's sitting in 9.99 subscriptions. So go listen to that episode please and thank you. If you have a question for these episodes, email us at rich habits podcastmail.com DM us on Instagram at Rich Habits Podcast Comment on Spotify all the fun stuff. Get a hold of us anyway you can and we will try to answer it on the show. And as always, please, if you learned something, consider sharing this episode with a friend. Leaving us a five star review on Spotify. Spotify voting in the poll and just continually providing support like you all have for the last two and a half years now. We are so incredibly grateful.
- [43:39]
Robert
Yes, you definitely. If you're trying to build wealth and financial freedom want to immerse yourself in the ecosystem that is Austin and Robert and the Rich Habits Podcast and the Rich Habits Network. We are here to provide continuous value every single week. Three times a week now at the podcast. Podcast. And we just love helping others grow their wealth and figure it all out. Because as we always say, personal finance is personal and life does get in the way. And we're here to help you every step of the way. So we appreciate you stopping by every week.
- [44:11]
Austin
Thanks everyone and we'll see you tomorrow.
- [44:39]
Here we have the Limu Emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug Limu. Is that guy with the binoculars watching us? Cut the camera. They see us.
- [44:58]
Only pay for what you need@liberty mutual.com.
- [45:03]
Savings very unwritten by Liberty Mutual Insurance Company affiliates.
- [45:05]
Excludes Massachusetts.
- [45:07]
Vanguard Narrator
Take the next 30 seconds to invest in yourself with Vanguard. Breathe in. Center your mind. Recognize the power you have to direct your financial future. Feel the freedom that comes with reaching your goals and building a life you love. Vanguard brings you this meditation because we invest where it matters most in you. Visit vanguard.com investinginyou to learn more. All investing is subject to risk.