← Rich Habits Podcast
Rich Habits Podcast
Q&A: Mega Backdoor 401(k), Medical School Debt, & Losing a $50K Investment
00:41:51
Loading summary
Transcript33 lines
- [00:01]
A
Toast the holidays in a new way and raise a glass of Rumchata, a delicious creamy blend of horchata with rum. Enjoy it over ice or in your coffee. Rumchata. Your holiday cocktails just got sweeter. Tap or click the banner for more. Drink responsibly. Caribbean rum with real dairy cream, natural and artificial flavors. Alcohol 13.75% by volume 27.5 proof. Copyright 2025, Agave Loco Brands, Pojoaquee, Wisconsin. All rights reserved. So good. So good.
- [00:30]
B
So good. Give big, Save big with RAC Friday deals at Nordstrom Rack for a limited time. Take an extra 40% off red tag clearance for a total Savings up to 75% off. Save on gifts for everyone on your list from brands like Vince Cole, Haan, Sam Edelman and more. All sales final and restrictions apply. The best stuff goes fast, so bring your gift list and your wish list to your nearest Nordstrom Rack today.
- [00:57]
A
Hey everyone, and welcome back to the Rich Habits Podcast Question and Answer Edition. These are our Thursday episodes where we answer your questions as if we were in your shoes. And this is a very special Thursday, Robert, because it is Thanksgiving. I hope everyone is enjoying the turkey, enjoying the cranberry sauce, making the gravy, got the sweet potatoes with the marshmallow on top of it, maybe a little bit of green bean casserole with some of those little crunchies on top. I think it's like a green onion crunchy there that my dad used to do. Thanksgiving is awesome. Big fan of the holiday and I hope y' all are enjoying it and we appreciate you tuning into the show regardless.
- [01:32]
B
Definitely. I was gonna say, don't forget to mention the sweet potatoes. Back in the day, it seems like everywhere I went, no one had sweet potatoes. I don't know why. So I would bring them myself so I could make them just right. Because some people don't do the marshmallows and they don't do the cinnamon. You gotta have the cinnamon in there. So definitely a good call out. Let's get into the episode, though.
- [01:52]
A
Let's do it. But before we do, I think it's only appropriate, right, a day of thankfulness to just share our thanks to all of you for the continued support of the Rich Habits podcast since February of 2023. Because of your support over the last two and a half years, we've been able to impact millions of people's lives positively. We've been able to host some incredible events. We've been able to do some incredible things. We've got this newsletter we Got the Rich Habits network. We've been able to have incredible people on the show like Reid Hoffman, Harley Finkelstein, John who, Sarah, Sahil Bloom, Candace Nelson. We just had Bob Pisani, right? All these incredible guests. I mean, we're just, we are, are living the dream right now and it's because of your support. So if I've not made it very clear, let me be as clear as possible. Thank you for your support. We're incredibly grateful and we can't wait to continue to make you proud, get you excited to come back every week for the show and take Rich Habits to the moon.
- [02:47]
B
We definitely have a lot of cool things on the horizon for 2026, and it's crazy to think we are coming up on three years of the Rich Habits podcast. I couldn't be more grateful to each and every one of you because, you know, it started with a dream. And here we are three years later making what I believe is an incredible impact on so many of you that are struggling a little bit here and there, trying to figure out the mindset, the business strategies, the investment strategies, personal finance, all of those things. So I live one of the greatest lives because I get to do this every single week with Austin and, and with all of you.
- [03:20]
A
Well, Robert, speaking of investment strategies, a very good investment strategy is to just have one in general, right? Because if you ever want to stop trading time for Money in your 9 to 5 or your hourly job, you need a nest egg that's growing for you over time.
- [03:35]
B
And the easiest way anyone can begin investing towards their future is on Public. Com. They make it incredibly simple to build a multi asset portfolio including ETFs, stocks, bonds, crypto options and more. And they also offer access to industry leading yield of up to 3.8% APY for that emergency fund.
- [03:55]
A
And for a limited time, you can earn a 1% match on all IRA deposits, IRA transfers and 401k rollovers. Which means a thousand dollars in free money for every hundred thousand you roll over into their platform. I know you've got that old 401k that you haven't touched on. That one weird stinky broker that you just can't figure out how to make the buys and sells on. Roll that money over, get your 1% match and start using public.com.
- [04:21]
B
That'S right, fund your account in five minutes or less by heading to public.com rich habits to claim your 1% match today. Paid for by Public Investing. And the full disclosures are in the podcast description.
- [04:32]
A
So our first question comes from Kaylee F. Kaylee sent us this question via email at rich habits podcastmail.com as you all know, we receive questions via email and Instagram dms@rich habits Podcast got a couple of those in this episode as well. So let's jump into Kaylee's question. Kaylee says, hi Austin and Robert. I'm a longtime listener and have learned so much from your podcast. This is my third question submitted. Unfortunately I'm 0 for 2 so far. But I don't think you've brought up this on the show yet. And maybe a lot of people are wondering what to do in the situation as well. Kaylee, that's why we always continue, right? We got number three here. Three's getting answered. So thank you so much for the persistent question asking. So Kaylee says you always say match beats Roth beats taxable. My husband and I currently match both our pre tax 401ks. Both employers match in full, which is amazing. Then we max out our backdoor Roth IRAs and then everything else we can afford to save goes into our brokerage, which is like the kids 529s and a custodial brokerage account. So kind of both of those. Now my husband has the option for a mega backdoor Roth through his work. Where should this fall in priority? We're struggling to come up with a plan to incorporate this new opportunity. Thank you so much for coming considering my question. So here's what's going on, Kaylee. Your husband now has an incredible opportunity to get up to $70,000 contributed to this mega backdoor Roth 401K. Now if you're listening to this, you're like, wait a second, I thought you could only put up to like 23,000 or whatever it is into a normal 401k. How am I getting 70? So what this means is your husband is able to now max out his 401k contribution limit this year of 23,500. But your husband's employer is now offering the opportunity for them to also contribute up to $46,500 into this account, making it a total contribution from your husband and your husband's employer of $70,000. Now this type of retirement account strategy thing going on here is very uncommon, right? I don't know a lot of people in the real, you know, normal 401k9 to 5 that is being offered something like this. So that's really, really cool that your husband has this option. Where does it fall in the match beats Roth beats taxable. I personally would follow this general Framework that If you're investing 25% of your annual pre tax salary slash income, you guys are probably good, right? Like if you want to invest, I guess I'm trying to say here is like theoretically speaking. And again, I don't know how much money you guys make on an annualized basis combined, but $70,000 that gets invested to a retirement account per year is probably overkill for a lot of people, right? Especially if this is a retirement account they can't touch until they're 59 and a half years old. So if I were in your shoes, I would say, okay, match beats Roth beats taxable up to the match. Get the free money. You mentioned you've got match in full, which is amazing. Max out that Roth, right? Definitely do that. Now you go back to the match like we always say and assuming you have autonomy, it's like cool. We can essentially max that out if we want up to that 25% sort of figure there. But then I would now weigh that with like, like okay, if I'm investing up to 25% of my pre tax income and this is a Roth, so it's actually going to be post tax there for you, how much does that like leave me for the 529s and in, in that sort of bridge account? I wish I had like a perfect number for number framework for you, but because now it's getting so complex, it really comes down to personal preference how I personally do it. And again, personal finance is personal. I like to get a lot of money turbocharged and invested into these retirement accounts because I want to make sure that I have millions of dol of after tax profits in my own mega backdoor roth solo 401k because I'm self employed. So I've got about 200 grand, 250 grand right now in my own account and that's after a couple years of this 70,000 a year contribution. So like if I were you, I don't see an age here. But maybe there's a world where you guys get up a couple hundred thousand in one of these accounts, right? And then maybe you pull back on the aggression a little bit and kind of now deviate those funds to that 529 in that bridge account because it's, it's a good thing to want to have a lot of money in these retirement accounts, especially if they're tax advantage like, like a Roth is. And Robert can talk about this. A mistake people make is they're like these net worth millionaires but they can't Touch the money. So it's a balance between getting a lot of money in this mega backdoor Roth 401k versus having money to allow you to retire early and do the 529 stuff.
- [09:17]
B
Yeah, Austin, I think you nailed it perfectly because so many people think retirement, retirement, retirement, but they don't realize you have to have a bal between your traditional brokerage account and your retirement account because you don't want to be a net worth millionaire or a net worth multi millionaire, but not have access to these funds to allow you to retire early if you wanted. So I love your breakdown. I think it's exactly right. I would keep doing what they're doing, but not go overboard in the retirement accounts and really build up the traditional brokerage and the 529 accounts because that way they have access to the funds anytime they want and they will not put themselves in harm's way where they have all this equity in the home and all this money in the retirements, but they don't have any money to live life in their 40s and 50s because it's all tied up. So I love that breakdown.
- [10:06]
A
And Kaylee, last thing here for you before we move on is only put in that 70,000 if you can, of course, control what it's invested into. Right? If that money is invested into a bunch of hocus pocus. Right. But you're like, oh, I could put 70 grand into it. It's like, do you really want to?
- [10:23]
B
Right?
- [10:23]
A
So just. I know you probably do that, Kaylee, because you're very prudent and you've listened to the show for a long time, so you wouldn't even be considering that if you couldn't control it, but just wanted to call it out just in case. Now our next question comes from aa. AA says, hey, Austin and Robert, I found your podcast at the beginning of this year and I'm so glad I did. I'm married and I'm 30 years old. I recently reached $100,000 in my taxable account, 20,000 in our taxable joint account, 50,000 in my own Roth IRA. I grossed 350 to 400,000 myself as a doctor since about a year ago. My wife makes 70,000 a year, but will make more after she finishes residency. We have an emergency fund, about 50,000 inside of that. I have a solo 401k but just recently opened that up. So nothing in it just yet. I also have student loans, about 150,000. So here's my question. Should I lump sum, pay off my loans first? With interest rates ranging between 4 and 6.5%. With the market possibly slowing down, or do a combination of that with moving funds into my 401k. Other major spending include my mortgage, which is about 3,000amonth, utilities and then a lease payment of a car at about 700amonth. So living pretty below my means here. So let me just get this straight, Robert. What I'm hearing is our friend AA is a doctor making 350 to 400 a year. AA has $150,000 of student loan debt, between 4 and 6.5% interest rates. They've got about a hundred thousand in their taxable, another 20,000 in a taxable brokerage account, 50 in their Roth IRA. So like they've got, let's call it, you know, 170ish thousand invested. And so they're asking do I aggressively pay down the student loans? Do I continue to invest or do a blend of both? So what's your take on that?
- [12:06]
B
Yeah, they're in a great situation, but I would definitely not take the lump sum and pay off these student loans because they don't have a large nest egg right now and we want to keep that compounding. What I would say is I would do a really strong honest budget, figure out where I'm at, and I would accelerate my savings of money that comes out every single month and goes towards knocking out the higher interest loans first to get those knocked off. I think it said six and a half percent were the higher ones. Knock those off first. Then I would go to the lower, lower until you get them paid off. But I would not go backwards and take the money out of the funds I've already put away that I'm building on. And I would do the hybrid like was mentioned in the question of doing some on the student loans and some towards the future at the same time. Because, you know, on average, let's say that the s and P500 returns 10% a year. We want to make sure that positive arbitrage is going into their bank accounts. Especially because they're so young at 30 years old. That gives them a very long time horizon for this money to compound and build on itself. So that's what I would do.
- [13:11]
A
I think that's a great call out. How I see this with AA is their combined after tax monthly income is about $24,000. Right. So this is like being conservative and I know you mentioned California, right. So higher taxes over there. So you're talking about, let's call it $24,000 a month. Is what you're taking home. You mentioned You've got a $3,000 a month mortgage here. You've got a $700 a month car payment, your utilities, I would imagine all in. You guys could easily survive off of anywhere between seven to $10,000 a month. You're a doctor, you deserve to have a little bit of, you know, you did school for a long time, right? So like you're good there. So that really unlocks. Now let's call it $15,000 a month of margin. With that 15,000amonth of margin, that's $180,000 a year that you can put into a taxable brokerage account. I would love to see you focus on that for the next 1, 2, 3, 4, 5 years. I agree with Robert. Like our rule of thumb when it comes to student loans is you don't want to begin paying off these like low interest student loans until you have the same amount or more invested in the markets, right? And so number for us here is 150,000, because that's what you have in student loans. And yeah, you have 170,000 in the markets, which is great. But like, I don't know, why not make it 360, why not make it, you know, 500, 600,000, like do this for another two years. Add 360, maybe even 400,000 to your brokerage account. Now you've got half a million in this account and then yeah, you can now kind of flip flop, right? Instead of focusing on aggressively investing, you already got your half a million dollars invested now aggressively over a one year period of time, right, because you have this 15,000amonth margin, right? 180,000 year. 180 minus 150, which is what you own, your student loans is a two month margin. So in 10 months you'll be able to pay off your student loans. So focus on getting your base net nest egg growing for you over the next two years. Get it up to that, let's call it 500,000 range because you can easily do that. And now once that's invested and growing for you, right, you're not behind when it comes to investing. Flip flop. Focus on the student loans, get them paid off quickly. And now you've unlocked what would probably be close to a $2,000 a month payment inside of monthly budget. And if you want to splurge a little bit with that extra 2k, be my guest. So our next question comes from OE. OE says, hi Robert and Austin, thank you for the great platform. You've created. You've advised that match beats Roth beats taxable. But does that advice hold true if I want to retire out of the United States where my cost of living is significantly lower? I'm 32 and I currently earn 280,000 a year. I have no debt and 180,000 in my brokerage account, 100,000 in a retirement account and 10,000 in my high yield savings account. I intend to retire and spend most of my time in West Africa, holding dual citizenship with the United States and in Europe, where I would need significantly lower income to retire. Should I then contribute more to a traditional retirement account rather than a Roth retirement account? As my current effective tax rate is about 20 to 22% coupled with 11% state and local income tax. My monthly rent is $2,500 in New York City for a one bedroom apartment coupled with an 11% state and local income taxes. What do you all think about my current situation and how should I best retire out of the country? Robert, I'll let you kick this one off. This is one. This one's fun.
- [16:40]
B
Yeah, you're in a great position oe great job getting so much money set aside and invested. You've got all your bases covered, you're making a high income and I love the plan. Here's what I would do personally, it seems like you want to travel, you want to have a blast, you want to kind of live off the gr, do all these fun things. I think you do need to focus less on the retirement account and really focus on building and letting the money compound in this traditional brokerage account because then you have access to the money whenever you want, there's no penalties for early withdrawal and you get to rock and roll and do your own thing. I love this plan for you because that way you can retire whenever you want, you can go from country to country and you'll be in a great shape because you're building it so early on at 32 years old, even if you were to retire in 18 years at 50 years old, having both the traditional the bridge account and the retirement account, both rocking and rolling, puts you in a really free spot to be able to do what you want to do. So I think it's a great plan.
- [17:39]
A
So oe, if I'm reading this question correctly, your main question resides in the fact that you are essentially paying an effective tax rate every year of 33%. And we all know Roth contributions are after taxes where traditional contributions are pre tax. And so we always say match beats Roth beats taxable but you're over here asking, should it be? In my situation, match beats traditional IRA beats taxable. So the traditional IRA is pre tax contributions, the Roth IRA is post tax, and your post tax is 33%. And so you're saying, instead of paying 33% right now, so I have guaranteed, you know, after tax, you know, income in retirement, should I instead write off that contribution against my 33% effective tax rate, knowing I will pay taxes in retirement, but because I plan to live out of the country, my spending and effective tax rate in retirement should be materially lower than this 33% I'm paying right now. So you're saying, do I somehow arbitrage the difference there? If I read that question correctly, I kind of had to back into that in my brain here. I think that's what you're asking. I think it makes sense. I think it's a valid question to ask, especially if you think that you're going to only be taking out 30, 40, 50,000 a year in retirement versus the, you know, call it 80, 90, 100, 120,000 a year in retirement that you might be if you were living in the United States. So if you're saying, hey, I can essentially save 33% on my contributions today, knowing that in the future I'll be paying 15% and arbitrage that difference, be my guest. I do not plan to live out of the country when I retire. I plan to live in the United States. I plan to spend money as normal. Like, like have a retirement plan. But in your unique situation, and we've said it four times on this episode already, right? Personal finance is personal. I think this makes sense. So if you did want to focus on beefing up that traditional IRA because it is a pre tax contribution, be my guest.
- [19:44]
B
Love it. Love it. Before we get into our next question though, 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 at public.com forward/rich habits.
- [20:07]
A
So our next question comes from Nathan L. Nathan says. Hi, Robert and Austin. My name is Nathan and I've been an avid listener of your podcast for about three years. Thank you for what you do. My question is, I have $50,000 invested into a private REIT real estate investment trust called Diversifund. And There was a five year vesting period that will mature this December 2025. The company recently pushed out that mature date to December of 2026 due to soft market conditions. But I've seen multiple complaints and lawsuits against the company, and I personally am worried if I'm going to even recoup my investment. I've contacted an ATT California because that's where Diversifund is based. He said there isn't much I can do until the vesting period is over. So what do you all suggest I do to give a little background? My wife and I are 40 and 39 years old. We gross about 220,000 a year in Texas. Our combined net worth is above 600,000 and our only debt is our mortgage, which we owe about 140,000 at 3%. Thank you again, Nathan. Robert, what would you do? And if you were Nathan Shoes here, right, you invested $50,000 into a REIT that's. That's promising you the world. And that REIT ended up saying, oh, yeah, we're just gonna, like, give it another year. Soft market conditions, like, how would you feel? What actions would you take to maybe preemptively get ahead of what could not be? So, yeah, I'll let you. I'll let you take it away here.
- [21:37]
B
Yeah, I've been down this road many times in my storied career, and unfortunately, you're in a tough spot. But I'm going through it right now with a REIT on an oil drilling company that I've owned for many, many years. And here is. Let me step back for everyone else that that is listening. First and foremost, be careful where you invest money in these REITs. Do the research, because anyone can put together a slick website, make a cool deck, give a great presentation, but make sure you do the homework to understand what is their track record, what has their internal rate of returns that irr been for previous projects for their investors? What is the overall plan to make sure you don't get in this situation? Because a lot of people just get excited. They get cash, they want to invest in real estate, and they don't do the research. So that's for everyone else in this situation. Nathan, the thing I would do first and foremost is I would say, hey, guys, not happy. What I would like to do is get a copy of all the P Ls with all the fee structures and everything for the last three years so I can take a look and make sure everything is in alignment with what I agreed to when I joined this and invested the money. Second, I would also ask the question once you get your ducks in a row. Are you freezing all future fees? This is very important because if they really do care and they're saying we're pushing this back because of a soft market, then they're likely going to freeze fees or discount all the fees for everything they do for management and carry and all this other stuff to be able to make it better for you guys because of the extended wait period. Those are the two main things I would start with. But from a legal perspective, you don't have much of a leg to stand on because you can't really do too much. You could try to file a lawsuit, you could try to find other investors to go in with you to go after them, maybe with a small class action lawsuit. But in most instances you're just going to have to wait and see. But do those two things in the meantime because you'll at least know more about where you stand. And if they're being egregious with their fee structures.
- [23:46]
A
Oh yeah, just looking at this website and you're right, you know, it's got, they got all the slick AI powered, oh yeah, these photos and it looks, you know, the emojis and you know, they got all this stuff to make it seem and like it's awesome and cool and, and everything. It's, it's, it's sad that companies like this exist and let's give them the benefit of the doubt that yes, soft market conditions and you all are owed your money. Let's assume you're going to get your money back and after they sell, which probably some sort of commercial apartment or you know, whatever they ended up using your money for, you're going to get your money back. Benefit the doubt. I'll say that because who knows, if I were in your shoes, I would do what Robert said. You guys have a net worth of 600,000. $50,000 sucks, but it's not going to ruin your life. Right. So I would also begin to have some self reflection and come to terms with like, wow, if I lose this 50,000, like what lessons did I learn from this? What red flag should I have caught earlier? How can I approach investing in real estate again in a different manner? That makes sense to me. Does it mean buying publicly traded REITs like VNQ or I, Y R I that are ETFs that you can sell in an instant to get your money out? Does it mean using a different, you know, trusted platform that's been around longer, like fundrise for example? Right. So like if I were you, I really Wouldn't beat myself up too much about this. We've all lost money with investments that seem cool, like really don't, don't beat yourself up on this. What's most important is how you move forward, the lessons you, you learn from this. And again, fingers crossed, I hope you do get your money out. I'm. I would expect them to do that. I, I hope as interest rates continue to come down as they have for the last several months now, hopefully that will make it easier for them to exit whatever their commercial real estate sort of project is here and return you your money, even if it's at a little bit of a loss. So our next question comes from Alex. Alex says hello, Austin and Robert. My name is Alex. I've watched every single one of your episodes up until now. You guys are incredible. Thank you for everything you do. Thank you so much, Alex. It means a lot to us. Alex says, just to start off, my situation is probably similar to a lot of people. I'm 24. I've opened up a Roth IRA on public, but I've not yet started depositing funds. I've got a rental property which I currently rent and I've had had for the last three years, brings in about $200 a month of profit. I make $77,000 a year and after bills and expenses, I save about a thousand dollars a month. I just got engaged. We're currently in the midst of building a home. I have a couple thousand dollars saved in a high yield savings account right now. But I would like to get started and I want to see the roadmap and what that looks like for me at this stage of my Life. I have 45,000 of equity in my apartment unit which I rent and my bills consist of my mortgage for my apartment, Internet, groceries, my car which is 800amonth, and my insurance, which is another 200. What is my next step? What's my game plan? I just signed up for Instacart so I could do some side hustle, make some extra cash for the wedding and build this house. Any insight is helpful. Thank you so much. Oh my goodness. I feel like I just got inundated with a bunch of different. Okay, so Alex and everyone listening, right? We'll trick of the trade here. We. We normally don't answer questions that are like, here's my situation, what should I do? Right? Because like that's boring. So that's essentially what Alex did here, right? Here's my situation, what do I do? But we thought it was important to answer this one Anyway, because Alex, my friend, you are all over the place. You've got a Roth ira, but you haven't started investing. You got a rental property, but you also have a house you're building. And you've got the side hustle thing. You're trying to get married, you got the equity in the apartment, like all these different things, you're all over the place. You got to figure this out. You gotta. You gotta get very concentrated and focused, step by step, on how you want to build wealth in your life. And unfortunately, I believe the way you're approaching it is the opposite. So, Robert, let's walk our friend Alex through what he should be doing to start trending in the right direction financially. I'll let you kick us off.
- [27:47]
B
Yeah. So, Alex and everyone else in this situation, Alex, 24 years old, you got to build your base first. We've been saying it screaming at the mountaintops for years and years. And Alex, you are typical of people that are trying to do the right things in your age group, but you're just not aligned. You don't have a plan. Because think about it from this perspective. You just got engaged. So if you get married, we don't know the situation, but you just get married and you're building a house. So that's going to take a lot of money. The wedding is going to take a lot of money, a lot of planning and a lot of time away from your daily hustles and jobs and all that to make more money. And you're in this situation where you don't have your base built yet. We want to see everyone before they start building homes and doing all these things, have that hundred thousand dollar base built and invested. And I can appreciate the fact that you're out there hustling. You got the Roth IRA open, but you haven't deposited anything, so it's not doing you any good. Sounds cool. I have a Roth ira, but if it's not making you money while you sleep, it is pointless. So I just think we need to back this train up a little bit. Maybe push the wedding back two, three years, get yourself dialed in. I don't know why you're building a house right out of the gate without having hundreds of thousands of dollars saved and invested. But I think you need to recalibrate, get a plan and actually write this plan down and follow the plan. Because even at saving $1,000 a month, which I think is great, that's only $12,000 a year. And that is going to get eaten alive by the wedding. And the house building over the next two, three years. So I would be very, very cautious getting into a situation where you're newly married, probably going to have kids, getting a new house and having all of these big expenses. And then all of a sudden you're like, oh no, what am I going to do? And you're working 247 just to survive and not setting yourself up to be able to thrive. That's my takeaway.
- [29:45]
A
You know, Robert said a couple times, build a plan. Here would be my plan, Alex. I would step one, go to the courthouse and get married. Go elope if you want to write something super cheap. But like, don't go spend a hundred thousand dollars you don't have on a wedding, right? Like that's step one. So go get married if that's on your mind. Hell yeah. Rock and roll. Have some fun there. Celebrate. Do your thing. Here's where my head goes. First off. 45, 000 of equity in your rental. I would love for you to. I mean you're only making 200 bucks a month on it, right? Cash on cash return year versus like the equity that you have in it. Would love to see you get out of that rental, right? You only making 200 bucks a month. You are one bad tenant. One water heater, one insert thing that happens between losing money, right? On this. So I would get out of that. Take the $45,000 of equity, put 7,000, plus the 7,500 we can do next year for the Roth. So now you got 14,000 in your Roth between 2025 and 2026. Contributions. Rock and roll. You're now building wealth. The other bit, I want to see that in a high yield savings. You mentioned a couple thousand. I want to see 15,000, 20,000, right? I want to see three to six months of expenses. You mentioned that you're making 77,000 a year. So you're spending about $4,200 a month. So multiply that by three. That's $12,000. Go park. 12,000 in a high yield savings account. You're rocking and rolling just fine. So now you've got. Now you're in a cool situation, right? You've got a fully funded emergency fund fund. You have now tens of thousands of dollars invested into your retirement account and your bridge account, right? Your normal taxable account. You also now have this thousand dollars a month of margin in your budget to make cool decisions with. The first cool decision I would make to Robert's point is to build the base. I would forget about building a house I would forget about, you know, making these massive commitments, being broke, because that's what you are like, no offense, but like you don't have any Money yet. You're 24, you're not expected to have money yet. You're just jumping the gun a little bit on too many of these things. Focus, right? Let's come together, put those, the tunnel vision, right? Like the, the horses when they're racing, right? They're just focused on one thing. So here's what I'm doing. If you can stop building the house, I don't know what sort of construction loans you already committed to. I don't, I don't know what's going on there. But I would love to see you have that base built. First and foremost between your Roth IRA, the taxable, maybe a 401k at work, you're making decent money. You can absolutely get $100,000 invested into your retirement accounts, any account, right? Just in your brokerage account, 100 invested by the time you're, I would say 26 or 27. Rock and roll that way. You're married, you're having a good time and now, you know, fast forward, you're in your late 20s and you can afford to finally not just build a home, but build a home that doesn't feel like a burden, right? Oh my gosh. I'm one water heater away from the 200 month profit turning into 800 of expenses. I've only got a couple thousand in my emergency fund. I'm doing the instacart stuff to make extra money, but like it's, it's, I couldn't get the right this week, so I didn't make as much as I thought. Like you are in this chaos mode at the moment, unfortunately, and I would love for you to. Instead you're trying to optimize for growth and risk on type attitude. I would like you to optimize for the piece in the beginning. Focus on how much you can get saved and invested step by step. Okay, cool. I got the emergency fund. I'm not in credit card debt. I'm not going to have to go into credit card debt because something bad happened with the rental, right? You're like, you are focusing and sort of hitting the checks one by one on your life here of building wealth. That is how by the age of 30, right? Alex, at 30 years old, looks back, it's like, dang, I did it pretty right. I, I, I followed these steps, I did the right things and now I have a home that I built I've got a couple hundred thousand invested, got a couple cute kids, happily married. Right. Because, Robert, not enough people talk about this, and I want you to talk about it. The number one reason people get a divorce is because of money problems. Think about the money problems that Alex and his, you know, wife might end up having when you've got, oh, the water heater went out here, only a couple thousand in savings. You know, the. The house that we built, we can't afford the loan on it because the construction this and the instacart didn't work. Right. Like, just espouse on that a little bit.
- [33:51]
B
So many people in the US Live beyond their means, and it starts early because people are always leveling up their lifestyle without ever allowing themselves the time to be able to build that base. I can tell everyone listening right now, if you're younger and you're just getting started or you're in that midway point, the first hundred thousand saved and invested is the hardest. But it is the best feeling on earth when you look into that account, whether it's traditional brokerage or your Roth or a combination on public.com, and you look at it and it's at $101,383. It's the coolest feeling on earth because it's growing every single day. But, Alex, unfortunately, a lot of people do it like you, where they're chaos. They don't have this nest egg to feel comfortable at night while your head hits the pillow because they're out there throwing darts at every little thing, trying to make things happen without having a safety net. That is why it's so important, because I can promise you, you do not want to go into a new marriage with a big house payment and all these other payments without having your base built, because you will live house broke and in chaos financially. And in my opinion, financial stress is the worst stress there is, besides health stress. And you don't want to be in that situation. So that's why we just strongly suggest, find a way to build your base, slow things down a little bit, and get a plan.
- [35:20]
A
I think the good news for Alex and everyone else listening right now is they're still very early in their process.
- [35:26]
B
Yep.
- [35:26]
A
They are not someone that's 47 or 57 and they're juggling all this stuff. They never built wealth over the last 20, 30 years, and they're just now trying to figure out, right, Alex, you're so young and everyone else listening that's in their 20s, 30s, and 40s. You all are also so young, even if you're in your 50s, heck, you're young, you still got two decades of investing, right? But it's like making sure that you are implementing the right habits with your money on a daily, weekly, monthly basis so that over time, just that little bit of compounding turns into a windfall of hundreds of thousands, if not millions of dollars in retirement. Like that's all we're trying to encourage people to do. And I understand taking risks when you're young is fine, not the like we encourage you to do that. But in our humble opinion, you should be taking risks from a place of strength, not from a place of scarcity. And it seems like you're taking those risks from a place of scarcity, not having the emergency fund, not having enough invested right, doing the instacart to try and pay for the wedding. Like you need to do it from a place of strength. So our final question comes from Warren P. On Instagram. Warren says. Hey Austin and Robert, I love the podcast. You both have changed the way I see money. However, I need some advice. I was subject to the consumer mindset and I got myself into $30,000 of high interest credit card debt. Since I started your podcast, I learned just how bad this was. I opened a new credit card to do a balance transfer with 0% for 21 months, but it only let me transfer 9,000. I hear you guys talking about taking loans against equity in my home. My wife and I own a single family home with around 200,000 of equity. What are your thoughts about using that 200,000 of equity to get rid of this high interest debt immediately and any companies or websites you would recommend. This is really cool, Robert. I'll let you kick this one off.
- [37:09]
B
Yeah, in this instance and only this instance usually. I think this is a good idea because if you can go get a heloc, is what we're talking about here, a home equity line of credit against your equity, you can then take that money. Let's say you go get the 21,000 or maybe you get a little extra and you can take that money, wipe out all the credit card debt, get rid of it, it and the arbitrage between the 7.5% or 8% you're going to pay on the HELOC is going to be so good in your favor because I'm assuming the credit card debt is 29, 30, 31%. And then you can put yourself in a much better situation. You will have the HELOC payment, but you will have a lot less money going out in interest that you'd be paying over the next couple years to get this paid off. So in this instance, I think it's a pretty sound idea. But you could also look at, hey, I'm going to go out and get a side hustle, take all of this money, I'm going to lump it into these credit cards to get them paid off. Because you also have to worry about the 21 months is going to go by in a flash and you've got the $9,000 that's going to go back to a normal rate as well. So keep that in mind. But I don't mind the HELOC in this predicament.
- [38:19]
A
Robert. I could not agree more. And, and here's my head goes, right, because like people make the mistake of saying, hey, I'm gonna go take out HELOC and use that money, go start that business I always wanted. I'm gonna go start that photo business. I'm going to do the, the food truck thing. Like they put it into a outcome that could go to zero, right? Where they still owe this money and they didn't make any money on the back end like they had hoped. Where here this outcome will quite literally save you almost $400 a month of interest every year that you keep this $21,000 of high interest credit card debt, assuming the 9,000 at zero and you pay it off during that 21 month period of time. So you're saving literally $380 interest, nearly $400, $4,600 a year is what you'd be saving by using a heloc. And I would argue that as someone who found themselves in $30,000 of credit card debt, 400 bucks a month is material in your budget, right? I would say that's pretty material. So saving yourself now that $4,600 a year that you can now put down extra on paying off this debt is a game changer. So I would do it. I don't have any recommendations or things of that nature. However, I would recommend you to shop around. I would recommend you to not just shop around interest rates, but also shop around origination fees, right? You don't want to go pay some massive origination fee of a couple thousand dollars or whatever it is and they, oh, we'll just roll it into your loan. Like, don't do that. Go shop around, spend some time. But at the end of the day, Warren, let me be very, very clear. This only works if you pay it off, right? You are literally moving debt around, which is like generally Speaking like not that effective of a way of paying off the debt because you didn't pay off anything. But if you are actually saving yourself $4,600 a year in interest and you can apply that $4,600 a year of interest to this HELOC on top of the probably existing 5 or 6 or 7,000 a year you're going to pay it down with right now we're talking about some real estate momentum to get out of debt. This high interest credit card debt that's now on your home, which yes, you should pay off. It's not like, oh, it's only 6 or 7 or 8%, I can keep it. No, don't keep it. This came from a credit card. Now the only way this works if you pay it off, and the only way this really continues to work is if you don't go back into credit card debt. So if you are going to do this, one, make sure you pay it off. Two, make sure you don't find yourself into another $30,000 of high interest credit card debt. Three, make sure you're also paying off that 9,000 over 21 months. Get out of this debt, man. And that includes maybe you got investments, maybe you got some crypt hanging around or maybe you got some, you know, precious metals that your grandfather gave you that's in the gun safe that you've been looking at because they're shiny and you like the shiny rocks. That is an investment. You can't out invest high interest debt. So if you've got some investments hanging out somewhere, anything that's not in a retirement account, consider liquidating it and using that to pay off this debt.
- [41:12]
B
What a great episode. These episodes are so fun because the questions just vary so greatly. But I really enjoyed this episode because we had such a crazy amount of different types of questions. So very cool. So excited for the holidays coming up and we appreciate each and every one of you for following along every week, sharing with a friend, letting them know about the Rich Habits network. We have that seven day free trial happening. All of the cool stuff happening around the Rich Habits podcast. So we thank you all for stopping by.
- [41:42]
A
Thank you all for supporting the show for the last two and a half years. We are so incredibly grateful. Leave us a comment here on Spotify. Vote in the poll. Consider leaving us a five star review if you learned something. Share the episode with your friends. Like we are just bringing the heat non stop. Three episodes a week now. We are so excited about that. And speaking of Robert, Monday's episode was the Black Friday Cyber Monday deal. So if you've not yet listened to that, you still got a little bit of time here before Black Friday and Cyber Monday to take advantage of those tips and tricks. And of course, be sure to come back tomorrow for our Friday episode of the Rich Habits Radar where we talk about the biggest headlines impacting you and your money. Thanks everyone and we'll see you tomorrow. Hey, Ryan Reynolds here wishing you a very happy half off holiday because right now Mint Mobile is offering you the gift of 50% off unlimited. To be clear, that's half price, not half the service. Mint is still premium unlimited wireless for a great price. So that's that means a half day. Yeah. Give it a try. @mintmobile.com Switch upfront payment of $45 for 3 month plan equivalent to $15 per month required new customer offer for first 3 months only. Speed Slow Hacker 35 gigabytes of networks busy taxes and fees extra. See mintmobile.com.