Q&A: Patenting an Invention, Agency Bonds, & Raising Children as a Millionaire

Summary

Rich Habits Podcast: Episode Summary Title: Q&A: Patenting an Invention, Agency Bonds, & Raising Children as a Millionaire
Hosts: Austin Hankwitz and Robert Croak
Release Date: May 22, 2025

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Introduction to the Q&A Format

In this special Thursday edition of the Rich Habits Podcast, hosts Robert Croak and Austin Hankwitz delve into a series of listener-submitted questions, offering their expertise on a variety of financial topics. This episode emphasizes practical advice tailored to real-world scenarios, blending Robert's extensive business experience with Austin's entrepreneurial spirit.

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Audience Engagement and Community Growth

Robert opens the episode with enthusiastic gratitude toward their growing listener base:

"When we started these, we weren't sure how you guys are going to respond, and it has been an amazing journey... last week's episode had 137,000 downloads" ([01:25]).

Austin echoes this appreciation, highlighting their community of over 200,000 Spotify subscribers and the importance of their listeners in the podcast's success.

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Sponsored Segment: Public.com

Before diving into the questions, Robert and Austin promote Public.com, a modern brokerage platform, emphasizing its user-friendly features and attractive APY offers:

"Public is offering 1% match on all IRA contributions. So if you're finally investing towards your Roth IRA this year, do it on Public and earn a free 1% match" ([02:31]).

They encourage listeners to explore Public for their investment needs, especially for those maintaining an emergency fund.

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Question 1: Financing a Garage/Workshop (David C.)

David C. from Nashville seeks advice on financing a $30,000 garage build. With $25,000 in high-yield savings, a substantial mortgage, and investments in his 401k and IRA, he wonders whether to withdraw $15,000 from savings and take a signature loan for the remaining $15,000 or consider alternative options.

Robert responds by endorsing a balanced approach:

"I'd probably spend 15k of what I have and borrow the rest maybe through a HELOC or like he said, maybe a personal signature loan" ([04:08]).

He underscores David's strong financial standing, including a high credit score, which qualifies him for favorable loan rates. Austin further advises caution against high-interest loans, suggesting HELOCs at around 8-9% as more manageable:

"If you really wanted to get this done ASAP, maybe it's a good idea to take 5, 10, 15,000 from the emergency fund... and then the difference could be borrowed via a HELOC at this, let's call it 8% interest rate" ([05:22]).

The hosts emphasize the importance of considering both immediate desires and long-term financial health, advocating for strategies like sinking funds to avoid high-interest debt.

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Question 2: Patenting an Invention (Jason)

Jason seeks guidance on transitioning from a 3D-printed model to mass production for his invention. He inquires about patenting processes, costs, and tactical steps to bring his product to market or attract a purchase from a company.

Robert provides a comprehensive roadmap:

1. Documentation & Contracts: Ensure all collaborators are under proper contracts to protect intellectual property.
2. Trademark & Patent: Advocate for both trademarking the product/logo and understanding the patent process, recommending starting with a design patent before a utility patent.
3. Market Research: Identify the total addressable market and define customer demographics.
4. Exhibiting at Trade Shows: Suggest taking the product to trade shows with a simple setup to attract potential buyers or partners.
5. Manufacturing Strategy: Caution against overcommitting to large production runs without proven demand.

"Make sure you have all of your documentation in order... have a manufacturer's agreement in place before you share it with any manufacturers" ([08:52]).

Austin adds practical steps, recommending starting with a Shopify website to sell directly to consumers before venturing into retail avenues like Amazon or Walmart, which require handling large inventories and can complicate cash flows.

Robert emphasizes the strategic importance of securing trademarks and URLs to prevent knockoffs:

"When you buy the URL, buy every other web address similar to the one you go with because then that locks people out from getting a good name to be able to knock you off" ([14:49]).

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Question 3: Savings Strategy for College-Bound Son (Monica W.)

Monica seeks advice on optimizing her 18-year-old son's savings strategy as he prepares for college, currently contributing to a Roth IRA and a bridge account.

Robert recommends consolidating savings into the Roth IRA to maximize tax-advantaged growth:

"There's no reason, in my opinion, if he's not maxing out the Roth IRA on an annualized basis... have it be all 125 going into his Roth IRA" ([19:55]).

He illustrates the long-term benefits of compound interest, projecting significant growth by age 65 with consistent contributions.

Austin concurs, suggesting the Roth IRA as the most beneficial account at this stage and advising against unnecessary diversification into multiple accounts prematurely. He later expands on integrating bridge accounts after establishing a robust retirement foundation.

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Question 4: Managing High Housing Expenses (Nick E.)

Nick E. discusses his financial strain due to a high mortgage payment ($3,600/month) relative to his income ($7,000-$10,000/month). With significant investments but limited savings, he seeks advice on alleviating his financial burden.

Robert identifies the high mortgage-to-income ratio as unsustainable:

"Your house alone... is over 50% of your net income monthly. And that is a recipe for being broke for decades" ([22:58]).

He advises selling the condo to reduce monthly housing costs, potentially utilizing a 1031 exchange to defer taxes and reinvest in a less expensive property.

Austin complements this by analyzing budget adjustments and emphasizing the importance of emergency funds to buffer income fluctuations. Together, they outline a strategy to lower housing expenses from $3,600 to approximately $2,200/month, freeing up significant funds for saving and investing:

"If you can bring that payment down from what you alluded to, from $3,600 to $2,200, that $1,400 a month is the $1,200 a month that Robert was just alluding to" ([24:40]).

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Question 5: Setting Up Generational Wealth for Children (Matt C.)

Matt C. and his wife, both nearing a net worth of $1 million, seek strategies to establish generational wealth for their two children, aged 9 and 11. With existing contributions to 529 accounts, they ask for tactical and psychological advice.

Robert suggests maximizing 529 contributions and later transferring funds to Roth IRAs upon the children's reaching adulthood:

"You can really beef up those 529 accounts to be 60, 70, 80, 90, 100, $200,000 over the coming decade... roll over to the Roth IRA" ([30:22]).

He also addresses the psychological aspect, emphasizing teaching children the value of money and work ethic to prevent entitlement issues.

Austin reinforces the importance of early financial education and strategic account management, advocating for integrated holding companies and trusts to ensure seamless wealth transfer without probate complications.

Robert adds the necessity of having term life insurance and open communication about financial expectations to safeguard and manage generational wealth effectively.

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Question 6: Understanding Bonds for Investment (Dan F.)

Dan F. seeks a clear explanation of various bond types (US Treasuries, municipal bonds, agency bonds, corporate bonds) to strategically move excess cash into bonds before considering equities.

Austin breaks down the fundamental differences between bond types, explaining their purposes, tax implications, and risk levels. He highlights the tax advantages of municipal bonds and the stability of agency bonds while cautioning about the credit risk associated with corporate bonds.

Robert advises maintaining a balanced portfolio, suggesting that bonds should complement rather than dominate investments. He warns against overinvesting in bonds to avoid missing out on higher long-term growth potential from equities.

"Bonds could be a good complement to an already well-diversified portfolio... but you don't want to be sitting heavy in bonds either because they're only going to earn you 4 or 5% yearly" ([37:53]).

Austin concurs, emphasizing flexibility and adaptability in investment strategies to respond to market conditions effectively.

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Question 7: Utilizing Home Equity for Real Estate Investment (Luis M.)

Luis discusses his solid financial footing with substantial investments and equity in his single-family home. Interested in expanding into multi-family properties, he inquires about using a home equity loan versus a home equity line of credit (HELOC) for down payments.

Robert elucidates the differences:

"A home equity loan... is a lump sum with fixed interest. A HELOC... allows you to borrow as needed and only pay interest on the amount used" ([41:34]).

He advocates for the flexibility of a HELOC, allowing Luis to manage repayments more effectively and adapt to investment opportunities without committing to a large debt upfront.

Austin suggests maintaining the current investment strategy to grow wealth further before leveraging home equity, given Luis's strong financial position and low mortgage rate.

"If you can turn $215,000 into half a million by the time you're 35, that would be more exciting than forcing a HELOC now" ([44:12]).

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Closing Remarks and Community Invitation

The hosts wrap up the episode by celebrating listener successes and encouraging engagement with their Rich Habits Network, offering additional resources like real estate hacks and a weekly newsletter. They emphasize the personalized nature of financial advice and the importance of ongoing learning and community support in achieving financial freedom.

"Personal finance is always personal and everyone's road to success is different" ([45:59]).

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Notable Quotes

• Robert ([04:08]): "I'd probably spend 15k of what I have and borrow the rest maybe through a HELOC or like he said, maybe a personal signature loan."
• Austin ([16:15]): "If you want to do it the best way possible, the smartest way money possible, that's how you do it."
• Robert ([22:58]): "Your house alone...is over 50% of your net income monthly. And that is a recipe for being broke for decades."
• Austin ([37:53]): "Bonds could be a good complement to an already well-diversified portfolio... but you don't want to be sitting heavy in bonds either because they're only going to earn you 4 or 5% yearly."

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Conclusion

This episode of the Rich Habits Podcast offers valuable insights into personal finance management, investment strategies, and generational wealth planning. Robert and Austin provide actionable advice tailored to each listener's unique situation, reinforcing the podcast's mission to empower individuals to take control of their financial futures through informed decision-making and the cultivation of healthy financial habits.

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For more detailed discussions and actionable financial strategies, listeners are encouraged to join the Rich Habits Network and explore additional resources available in the show notes.

Transcript

[A]

Put us in a box.

[B]

Go ahead.

[A]

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[B]

This message is brought to you by Abercrombie and Fitch. I've been ready for summer for a while and now it's finally time for summer outfits. With a trip coming up, the A and F Vacation Shop has me covered. Abercrombie really knows how to do a lightweight outfit. Their tees, sweater, polos and linen blend shorts never miss. I wear Abercrombie denim year round. Their shorts are no different and have the comfort I need for summer. Prep for your next trip with the A and F Vacation Shop. Get their newest arrivals in store, online and in the app. Hey everyone and welcome back to the Rich Habits Podcast Question and Answer Edition. These are our Thursday episodes where we take your Questions via Instagram dms@rich habits Podcast on Instagram or email us at rich habits podcast gmail.com and we answer them. We answer your questions in real time as if we were in your shoes. We've got I think six or seven questions teed up for this episode. They are pretty good questions, I would argue.

[A]

Robert yeah, I love these episodes. They're getting better and better and you all love them, which is the important part of the puzzle here. When we started these, we weren't sure how you guys are going to respond to them and it has been an amazing journey and we love it because we are also trending up in the charts again on Spotify and we couldn't do that without each and every one of you. So thank you, thank you, thank you. I think last Week's episode had 137,000 downloads or something like that, which is just really, really incredible.

[B]

100% major shout out to the over 200,000 of you that are subscribed to our show on Spotify and continue to share it with your friends. We're super grateful. Now, before we answer our first question via email from David C. We have to give a quick shout out to public.com because Robert, did you know that they are a brokerage platform that was actually built during this century on public? You can invest in almost anything, stocks, bonds, crypto options and more. And if you're like us and you keep an emergency fund, you should be taking advantage of their 4.1% APY that's offered by their High Yield Cash account.

[A]

Yeah, we love Public and discover why Nerd Wallet gave Public five stars for its ease of use and investment selection. Fund your account in five minutes or less and earn up to $10,000 when you transfer your investments over to Public. And for a limited time, public is offering 1% match on all IRA contributions. So if you're finally investing towards your Roth IRA this year, do it on public and earn a free 1% match on all contributions paid for by Public Investing. Full disclosures in the podcast Description so.

[B]

Our first question comes from David C. Via email again at rich habits podcastmail.com if you want to ask us a question. David says Austin and Robert, I would like to build a garage slash workshop and I'm considering getting a loan to get started. What do you think are my best options? Here's what I've got so far. So the build cost is going to be about $30,000. I've got 25,000 in my high Yield Savings account, but this is very much my emergency fund. I have a mortgage and owe about $225,000 on it and my home is worth 600,000. I have 135,000 dol thousand dollars in my 401k, $10,000 in my IRA, and I'm currently saving $1,000 a month toward this project while still contributing 500amonth to my Roth IRA. My annual income is $170,000 and I've got a 750 to 800 credit score. So here's my question. Do I take 15,000 from my savings, borrow 15,000 via a signature loan with the intent of paying it back over the next 12 to 18 months and fund the build that way? Or do you have other ideas? Love your podcast. I wish I found you guys sooner than David in Nashville. Robert, what do you think about this?

[A]

Well, I'm going to go the real world route on this and then we can talk about what is the smartest route. The real world route is David is crushing it. They've set themselves up with having all the things the IRA, the 401k, the emergency plan, all of that is in place and David wants a garage. And so in my opinion, I would probably do the half and half. I'd probably spend 15k of what I have and I'd probably borrow the rest maybe through a HELOC or like he said, maybe a personal signature loan. But when you want a garage, I can feel where David's at. I'm a car guy. I have a lot of tools, a lot of stuff. You're going to get the garage. And I know there are other better ways we can discuss. What would that look like if he just saved the money so he didn't take from his emergency fund, save it for another 15 or 20 months and then just pay for the garage? Maybe that money along the way is in a high yield savings account. But I also know what it's like to say, all right, I'm crushing it. This is the real world. I want this garage now. I want to get him started. So I think either way works financially because David is doing well, making a lot of money, has a great credit score. And with that high credit score, it means he's going to qualify for better rates on any of these loan programs.

[B]

Like I mentioned, you mentioned the heloc. I didn't even think about that. I immediately went to the signature loan that's like call it 12 and a half percent, which I would argue is high interest debt. It is anything in double digits, you want to get rid of that. So let's not go into high interest debt. But to the point of the heloc, I think HELOC raised right now, depending on your credit score, anywhere between 8 and 9%, which is right on the fringe. That I think is still kind of, you know, manageable. So, David, if you really wanted to get this done ASAP, maybe it's a good idea to take 5, 10, 15,000 from the emergency fund, assuming you still have about three months of expenses saved in here, assuming you guys are spending five or six thousand a month, I think you can, you know, keep that 15 to 18,000 set aside in the emergency fund. And then the difference there between what you pull from the savings account could be borrowing borrowed via a HELOC at this, let's call it 8% interest rate, which again isn't unbearable if you really had to get this built out today. Now that's the emotional way to go about it. That's the I want a garage, I deserve a garage way to go about it. The smart way to do it is do exactly what you're doing right now, which is saving a thousand dollars a month toward this project. Because if you think about it, we Fast forward maybe two years, three years, you now have 20 to $30,000 set aside that you could build this project out in. You don't have to go into 8%, 10%, 12% interest on any sort of debt. And now you have both this awesome garage and you've got no interest payments to any lenders. Along the way. So if you want to do it just the best way possible, smartest way money possible, that's how you do it. But delayed gratification sucks. It's so hard to set aside and put this money, you know, saving in a high yield savings account for two, three, maybe four years, depending on how long it's going to take you to save that.

[A]

And I love how you said the real world versus the math side of it, because there's always two sides of the equation. We all get caught up in things we want and we are just here to break it down for you and give you all the options we can think of for all of your questions. Because we know that life is meant to be enjoyed along the way. And the other way to look at this too, the assumption would be building this garage is going to add additional value to the upside for this property. So that's one thing we want to make sure we consider as well. Because having a nice garage, let's say maybe it doesn't have a garage at all, or it's got a carport or it's got an older garage, having a new, nice garage would definitely add value. So you have to take that into consideration as well.

[B]

I think the important takeaway here from everyone listening, it doesn't matter if you're in a situation like Dave or not, but you might find yourself in a situation later about this idea of starting a sinking fund, saving for a couple of years for a large purchase, or really running the math and understanding the numbers around borrowing money at an 8%, 10% percent, 12% interest rate and what that could instead be working for you in the markets and what that could be earning. So just like being able to talk through these questions in real time and sort of how you should be coming to your own conclusions mathematically, emotionally. Like, that's what this podcast is all about. So our next question comes from Jason. A. Jason says, hey guys, I'm working with an engineer on an invention. We have the drawing and we're now getting a model made with a 3D printer. My question is, after we get this model made, what are the next steps to make so the invention can reach production or have a company purchase it? What are the steps to get a patent? What is the price? If you guys could just help me with some tactical things I can do to make my dream become a reality, I would greatly appreciate it.

[A]

Yeah, I love this, Jason, and you're in the right place. I've been doing this for almost 30 years now, so this is going to be a little long winded for everyone, but I'll try to keep it as brief as possible. So, Jason, great job. You've got the engineer involved. You're getting your 3D model. Your next steps are really going to be research. You want to understand what is the total addressable market. Market. Who is your customer? Do you want to exit it right away, or do you want to get it to market, get a story built and then maybe look to exit? But I'm going to walk you through all of this. First and foremost, make sure you have all of your documentation in order, no matter who you use. The engineer, a graphic designer, a web developer, all of these people need to be under contract so they know that you own everything. Because a lot of graphic designers, a lot of web companies, a lot of engineers will say, I designed this thing for this gentleman, Jason. And so I'm not going to release these drawings, especially if you have a lot of success. So have a manufacturer's agreement in place before you share it with any manufacturers. Have a design contract in place before you go any further in this process. Because trust me, people will knock you off, people will come after you, or they'll try to extort you for money. Now let's move on to the trademark and then what to do about the patent. You want to make sure you do both. I want you to trademark the product, I want you to trademark your logo, and I want to make sure that you understand the patent process. It's very long and arduous and very expensive. So what I would recommend you do, and I don't know the product, but I would recommend you do a design patent first because those can be accomplished very quickly and inexpensively, sometimes 3, $400 while filing your utility patent. Because a utility patent might take you 15 to $20,000 and two years to get handled. But the key here is make sure that everything you do that you have patent pending showing, because then anyone that's thinking about knocking you off or doing anything else is going to shy away if they know you've taken all the right steps to build this product out correctly to be able to get to the market and possibly sell. Now let's move on to how do you exit this product? You've got the product in hand, you're ready to go, it works, you're happy with it, you've gone through all the iterations. I would look to taking it to a show, go to a tool show, get yourself an 8 by 8 booth. You don't need anything fancy. I've Done it with just a fold out table and a banner and done very, very well in the past. Take the tool, go there, have your all your ducks in a row and try to sell it to a larger company. A friend of mine did this years ago. It was amazing to watch. He had a product that he made locally. It wasn't even great, but the idea was great. He took three prototypes that he personally spray painted with a banner to a tool show and sold the tool outright for $11 million on day one. Life changing money for my friend. It was an incredible journey for him. He got like 5 million up front and the rest over time. But just make sure along the way you're protecting yourself front to back because you never know what will happen, especially if you're using a factory that's abroad because if you don't have protection with them and this product starts really, really doing well, they're going to sell the idea to other people in other countries without you knowing and manufacture it for them as well.

[B]

So how does he go from 3D printed model to reach production?

[A]

I would say the first step, getting the contracts in order and then the second step is seeking out a manufacturer, whether in the US or abroad, China, Mexic, wherever. I don't know the product, so I don't know which country would be best. And then figure out your production, what is your tooling cost? Where's that money going to come from once you get all of that figured out, do this one thing and I promise it'll be great for you later. Do not fall for the unit economics scam. So many people develop a product and they go, man, I only need 100 units to get started so I can show it around and get samples out. But then the factory says, man, but if you buy a thousand units, we can save you XYZ percentage. So many people fall for that. They buy the thousand units and then they're stuck with it for years and have all this money tied up. Get it handled, figure out who's going to do your injection molding, your assembly, all of that. You can do that by just doing research online. You can go to alibaba, thomas.net all of these different sites and just make sure you understand the process and protect yourself along the way. So assuming you get it done, you've now got the 3D prototype, you've got the final product in hand, you're happy with it, you're ready to go. Make sure you have your URL, your website, your social handles, and do this one thing for any of you developing products, I don't care what kind of product it is. When you buy the URL, buy every other web address similar to the one you go with because then that locks people out from getting a good name to be able to knock you off. I made this mistake with Silly Bands and it cost me millions and millions of dollars. When we settled on Silly Bands as the name for the product, we considered crazy bands, zany bands, all these other iterations of the name. And I didn't buy those URLs. And immediately once we hit, you know, mass scale, everyone else popped up that was knocking me off using those URLs. So for an additional hundred dollars in URLs a year, I could have prevented myself from having all of these knockoffs have similar names. So keep that in mind as well.

[B]

So do you have any advice for Jason here as it relates to maybe getting his invention on Amazon, on TikTok, at Target, at Walmart, with like actual is it quantities that are needed?

[A]

So I would say no, I wouldn't do that. I think the best route to success in the beginning, so you prove the concept with the market is to not even consider retail. Because at the end of the day when you go into retail, the age old saying is it's easy to get the product on the shelves. The key is you have to get it off the shelves. And we could spend hours talking about this one point. So focus on direct to consumer, focus on. And again, I don't know what the product is, but focus on direct to consumer, focus on B2B. If this is something you would sell to firms or companies or mid scale companies around the country, focus on that first. Build your story, build the need, build the desire. Get all your manufacturing and your shipping processes in order. Then consider, I would say TikTok first, Amazon second and then build from there. I would say make retail last. Because with retail, if someone loves your product and says okay, we want this and you're right now selling 500 units a month and they say we'll take a hundred thousand units, you have to figure out how to pay for it. It. You have to figure out the carry cost to pay for it. Because from the time you order it to the time you get paid is probably going to be 100 to 150 days. You have to be able to hold that money wherever you get it from and pay the interest on that money for all of that time without getting paid back. So you have to keep all of these things in mind when thinking about going to retail and so my last.

[B]

Comment around this though, Robert, would be, if I was in Jason's shoes, I would go just create a Shopify website. I think you could do it for like 30 bucks or something, right? Go listen to the episode we did with Harley, the president of Shopify, on this show and use Shopify a super easy way to list a product, connect it to your Stripe account, sell it, like get on the shop app. Like there is an easy way to go from, okay, I've got a 3D printed model, I've now created it, I've got a production line for it, and now I need to sell it direct to consumers. You can begin selling all that stuff very simply on Shopify.

[A]

Yeah, 100%. And I love that, that plug. And it's really just all about protection along the way and making sure. Before you even name a product for any of you that are out considering, you know, white labeling a product or building a company, make sure you do the research on the name and the social media handles. I see so many people that don't do this as one of the first steps and it really comes back to haunt them because you want to make sure you have a URL that is good for search engine optimization. You hear about SEO all the time. It is magical. Too many people think of the names for their company or their product in a way that's cute and fun for them. That's not what this is about. When I launched Silicone bracelets back in the Livestrong bracelets days, everyone on my team was talking about all these cool names and they looked really good in logos. And I named the company Customsilicone bracelets.com because guess what? Everyone that went on to Google back then would type in where do I buy custom silicone bracelets? So we ranked number one without buying AdWords for the 15 years that product was hot. So make sure you think through all aspects of this and prepare yourself first before you leak any of this to anyone to make sure you're set up.

[B]

There you go. Jason gave you the play by play. Can't wait to see your product out and about. And hopefully Robert and I can be customers one day.

[A]

There we go.

[B]

So our next question comes from Monica W. Monica says, I listen to your podcast weekly and find your advice super valuable. Thanks for all you do. Here's my question. My 18 year old son is headed to college in the fall. He's going to be working full time this summer and maybe even part time in college if his schedule allows. What should his savings priority be? I've opened a Roth IRA on Fidelity, and he deposits $100 a month into this account. 100% of it is invested into the NASDAQ. 100. I know it's not a lot of money, but I'm trying to get him into the habit of saving and understanding the importance of compound interest. He has about $1,200 in this account. I've also opened up a bridge account for him and he's putting $25 a month into this one as well as getting it 100% invested into the Nasdaq. This sort of double investing strategy a good strategy, or should I have him be doing something else? I'll take it for a stab at this one, Robert. So I am in love with the idea of getting the guy going on the Roth IRA on Fidelity. Maybe you want to go do it on public so he gets that 1% match. But there's no reason, in my opinion, if he's not maxing out the Roth IRA on an annualized basis, which is that $7,000 a year, that he should be doing a little bit in the Roth and a little bit over here, like just, just do all the Roth. He's 18 years old, doesn't need to worry about a bridge account, a brokerage account, anything like that. He just the Roth IRA. So instead of doing 100amonth in 25 over here, have it be all 125 going into his Roth IRA. And I've done the math for you. From 18 to 65, $125 a month invested into this Roth IRA, earning about 11% per year, starting with that $1200 that you mentioned will turn into $3.5 million when he's 65 years old and your son now has all this money in the world. It's all tax free because it's been invested into the Roth IRA. And that's he does nothing more than 125amonth for the rest of his life. We all know that's not going to be the case. He'll be investing hundreds, if not thousands of dollars a month, depending on how much income he makes after college, you know, in his 30s, 40s, 50s and beyond. By setting up this Roth IRA strategy of 125amonth that you've alluded to here. You are absolutely doing a wonderful job, Monica, of setting your son up for generational wealth over a long period of time.

[A]

I love this. And that is a great, great, great breakdown and illustration of what happens when you allow compounding to work its magic. And Monica, the biggest part of this that I love is the fact that you're paying attention. I always tell people that the number one present every 18 year old child should get for their birthday is a Roth ira. And I love the fact that you've already done it. Now I agree with Austin 100% on exactly not having both accounts yet. Now the only caveat that I would put in here, the only change I would make is I would probably do the Roth exclusively because you want to get as close to maxing it out as you can every year. But I would probably say I would want to see a bridge account integrated into his portfolios maybe in 10 years. So from 18 to 28, strictly Roth, get it built up, get as much in there as you can and then introduce the bridge account back into the day to day because what that allows is more flexibility as you're getting more and more wealth because you can take from that traditional account anytime you want. And Austin and I are always talking that we don't want people taking from their retirement accounts their future to pay for today. So that's the only change I would make. But I would have everything go in the Roth, at least for the first 10 years. Listen up folks. Time could be running out to lock in a 6% or higher yield. At public.com you can lock in a 6% or higher yield with a bond account. But remember, your yield isn't locked in until 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.

[B]

So our next question comes from Nick E. Nick says, hey Austin and Robert, I love the podcast. I'm a longtime listener and I've shared your channel with my family and friends. Right now I have a hundred thousand dollars in various funds, mostly technology, Nvidia, spyi, VGT, stuff like that. My 401k is roughly 140,000 in various funds selected by myself and my company. My mortgage every month is about 3,600. The condo's worth 450 and the remaining balance is about 295. And my monthly spend on everything beyond my mortgage is about $4,000 per month. Month. This includes food, going out, miscellaneous things like that. My income ranges between 7 and $10,000 per month after taxes. My budget is very tight and I don't have much left over to contribute and invest. What should I do? Robert, what a precarious situation Nick E. Has found himself in. Why don't we offer him some advice? I'll let you go first.

[A]

So, Nick, right now you are the prototypical US household that makes good money and spends all of it. So you put yourself in a very, very difficult situation because your house alone, your all in house payment is over 50% of your net income monthly. And that is a recipe for being broke for decades. And you're not alone, because so many people do it. I would guess over 60% of U.S. households do this exact same thing. So from there, you need to figure out either how do I make more money or how do I lower my expenses? In my opinion, I'd probably sell the condo as soon as possible, get that equity. I would roll over into a less expensive property, maybe do a 1031 exchange to offset some of your tax burden. And I would get that down as much as possible because at $3,600 a month, that is so high for what you make monthly that you have to make a change either with a lot more money per month or with less expenses. So that's where I'd start.

[B]

100% agree, Robert. So I just jumped into Bankrate's website. They got a mortgage calculator over here. And what I did was I took the median home price, which I think is $438,000 as of April 2024. And I assume that that's the home price you're going to go, you know, sell a condo and then take this money and go buy with you, put all 135ish thousand dollars as a, you know, you roll it into that property. Like you said, Robert, 1031 exchange. So now what you're doing is you're borrowing the difference of about 300,000. Now, the kicker here with the condo that's eating you alive, in my opinion, is the HOA.

[A]

Yep.

[B]

In your email you mentioned the HOA is $780 a month. So it is, it's a ton, Right? That's a lot of money. It makes sense. Condos have that. You got your perks, the amenities, things like that. Let's go find a single family home in a normal neighborhood that doesn't have a high hoa. And I did the mortgage calculator here for you. You're looking at about $2,200 a month. If you do something a little bit different, right. You go find something in that same 435 range, you 1031 exchange the equity into the next property. And now you've just unlocked fourteen hundred dollars a month of saving, investing. But more importantly, Margin in your budget. Right. Better understand with a difference between the 7,000 per month and 10,000 per overtime. Is that a sales bonus, whatever that might be. And depending on what type of job you have, I want you to beef up that emergency fund closer to five or six months of expenses, considering this like difference of $3,000 a month that you could take home or not take home. So I guess I'm trying to get at here, Robert, to your point is begin to pull down the housing from 3,600 to about 2,200 by selling the condo, 1031, exchanging it to something else and then two, beef up the emergency fund, let's call it 10 to $15,000 over the next call it 12 or 18 months. So that if you do have a couple months where you're closer to the 7,000 take home versus the 10,000 take home, you've got some wiggle room here with your emergency fund to help you bridge the gap so you don't find yourself going into credit card debt or worse, selling your investments to offset your daily lifestyle.

[A]

And for anyone listening, the easiest way to do this, like in this instance, let's say the blended average is 8,000amonth. Month, there was a 7 to 10,000 range. The easiest way to do this is go, okay, if I want to save a minimum of 15% of my net income monthly at $8,000, I need to be saving and investing $1200 per month. If you're not doing that and you're either much lower or like he stated, you are living paycheck to paycheck, you're doing it all wrong because you can't kick the can down the road forever. We say it every day. That is the easiest calculation. Look at the last year and say how much have I put away for the future? And if it's not 15% of your net, then you're living beyond your means.

[B]

And in this instance his beyond his means is the house, right? Yes, he is literally 51% of his monthly take home pay. Assuming that $7,000 range is going to his house, you've got a problem. This is an emergency. Let's get rid of the house. Let's use some equity to go find something else. And if you can bring that payment down from what you alluded to, from 3600 to 2200 that I shared, that 1400amonth is the 1200amonth that Robert was just alluding to, Right? So that's where you find the money to save and invest up to that 15. I promise you, Nick, you've got a good situation. You just have to kind of look at it from a different angle, get the condo sold and get after it. So our next question comes from Matt C. Matt says, hey, Austin. Robert, I'm a longtime listener, but a first time emailer. My wife and I have just shy of $1 million for a net worth in our late 30s. We contribute to our Roth IRA, 401k our and everything in between. We have two children, 9 and 11, and we want to set them up for generational wealth. What steps should I take now to ensure their success in the Future? They have 25,000 and 30,000 respectively in their 529 accounts. So like from a tactical perspective, what can you do now? You can really beef up those 529 accounts to be 60, 70, 80, 90, 100, $200,000 over the coming decade or so, because that's about how long they have before college and after they turn 18, you take some of the money from the 529, you roll over to the Roth IRA invested correctly, that'll be millions of dollars in retirement. It's just a wonderful strategy. Now that's the tactical thing to do. But Robert, I want us to spend more time on maybe the emotional, psychological and parenting advice after people find themselves in an awesome situation like our friend Matt has here where he is a millionaire in his 30s or 40s or 50s and they finally have money, right? They do all the things right. Their biggest fear is their children turn into these nepo baby trust fund b, silver spoon in their mouth and they don't have any sort of work ethic and they're just terrible adults essentially because all the money they came from. So the first couple things that I'd share is to practice contentment. I think the biggest piece of advice that I was given that really helped me understand money is to be super happy and grateful for what I have. Knowing that there's always going to be someone out there that has more, more money, better looking, more income, more business, whatever it might be. There's always going to be someone out there that has more. And the sooner you realize that at 9 or 11 or 12, whatever the age is, right? But the sooner you realize that someone's always going to have more than you, you should just be happy with what you have is massive. And the second thing I'd encourage them to do is really get your children to understand you and your wife have money. They don't. Right. I think it was Shaquille o' Neal that does this he goes, my children don't have any money. I think his thing was on an interview, you need three degrees before you get to touch the cheese or something. Like go put in the work in your college and post grad or whatever. It might be like what it means to build and educate and work and do all the right things before you have the opportunity to touch my money. It's not your money, it's my money. Right. My wife and I have a million dollar net worth. We get to choose where it goes. And if you want some of it, you have to prove to us that you can be good stewards of this money.

[A]

Yeah. This is a great question and I love that takeaway because I just think that so much of it is tactical, but it's also mindset. If you can teach them work e ethic tenacity and understanding your money versus their money early on, the better off you're going to be. I knew so many rich kids when I was growing up and they just had no inspiration to try because their parents were wealthy and they assumed they were going to get that wealth in some point. And that's just a terrible outlook on life because as we live longer and longer, you don't want to wait around your whole life for the this honey pot that's coming from your parents when you can build it on your own. So I think it starts early like you guys are doing. And tactically, the other thing to look at is, yes, you want to do the 529 accounts, yes, you want to build them up and make sure they understand all this. I would maybe because they're at that age coming up where you could put them on credit cards as signers on your credit cards, so when they turn 18, they have a good credit score built already. So that's a tactical thing you can do do. But I think the number one most important tactical side is make sure that you have your holding company and your trusts built up as you build more wealth. Because you're so early on in your late 30s, in the next 10, 20 years, as you build the 3 million, 5 million, 10 million in net worth, have all of the mechanisms in your setup to make sure that your properties, your money, none of it ever goes into probate and then your kids are fighting to get it and having to spend all that time and money, money that is one of the key takeaways of this whole situation is making sure your structure is very sound. So then that way it is a complete pass through to your children. They get everything that you've worked for when you were to pass away and make sure that all of that is done correctly. And that is just another tactical side of this wonderful situation.

[B]

Yeah. And additionally have term life insurance. Right. Get yourself a million or a two million dollar policy. Obviously you guys have done an awesome job building your net worth at such a young age. But, but maybe it's all come from you or it's all come from your wife or whatever's going on here. Matt, if something happens to you and your kids are in their teenage years and this million dollar net worth now turns into half of that because you've got to figure out whatever's going on. Just having some term life insurance can really help with some of that. And something else I'd want to mention too is as they get older, right. Let's call it now early 20s. So you guys have millions of dollars at this point and they're now at those ages where you should be having conversations on of this is what we have. This is how we should be thinking about this. Right. Really want to encourage you to have those conversations about the trusts, about the wills, about all the things that Robert laid out while you're still alive. A mistake that I would argue a lot of people make is they surprise everybody at the end. Right. They, they, they have all these specific instructions for an executor and then they die. And now to Robert's point, you go to this sort of meeting and it is not at all what anyone thought was going to happen. And, and that's how money fights happen between siblings and, and the in laws. Have those conversations while you're alive. If you're going to offend someone, offend them while you're still alive. Have a backbone and make sure your kids understand what they are walking themselves into assuming they're able to check the boxes that you lay out for them. So our next question comes from Dan F. Dan says I'd really appreciate your common sense explanation for the different types of bonds that I can invest in and whether beyond their yield you lean toward one type over another for reasons such as a higher risk level. It seems like right now my choices are US Treasuries, municipal bonds, agency bonds and corporate bonds. I have too much cash on hand and would like to move some of it into bonds so it can work harder for me before I get the courage to move more of it into equities. Thanks in advance. I've been listening and recommending your show to everyone for a while now. Thank you so much Dan for recommending our show. And as well listening to the podcast. So let's start by first understanding what a bond is. There's different types of bonds, but all of a these different types have the exact same underlying principles that you're loaning someone a lump sum of money, they are paying you coupon payments, which are essentially the interest on your loan to them. And then at the end of the term of the loan, they pay you back all of your original principal, right? So you loan them the money, they pay you some interest along the way, and then they give you back all of your money at the end. The term loan can be three months, six months, three years, 10 years, 30 years, years, it doesn't really matter. But that's the general structure. So with U.S. treasuries, what you're doing is you're loaning money to the US Government. They're paying you a coupon payment, either I think it's quarterly or monthly or annually, whatever it turns into, which is that interest rate, then at the end of the term they give you back all of your money. So a popular US treasury right now is the ten year. Essentially what you're doing is you are loaning the government a $10,000 or $1,000, whatever you want to do, and then they pay you about four and a half percent right now every single year on your loan, and then they give you all your money back at the end of 10 years. That's a very popular one. Another one to think about you mentioned are the municipal bonds. Municipal bonds. Instead of loaning it straight to the US Government, Jerome Powell, the Fed, things like that, you're loaning it to states and local governments. These are very, very stable investment grade bonds. I mean, is a state going to go bankrupt? Maybe, but like probably not. But what's really attractive for the municipal bonds that you should think about, Dan, is the tax efficiency. So what's cool about these is the interest you earn is tax free 99% of the time. That is local, federal, state, it's just tax free yield, which is great. The next one you called out are agency bonds. Agency bonds are government sponsored enterprises like Fannie Mae Mae, Freddie Mac and others like Ginnie Mae. And these are essentially those mortgage backed securities, right? So it's like you are essentially loaning your money to the government because it's backed by the government. The government's going to make sure no one goes bankrupt here. But it's not exactly the government, right? They make money in different ways. Those are cool. I don't really have much agency bond. My own portfolio. But the one that I do have are corporate bonds. These are what Public.com's bond account is all about. Now the corporate bonds are exactly what they sound like. You are lending your money to Apple, to Ford, to Nvidia, to Microsoft, to Tesla, wherever else wants to, oh, Hims and hers. They just did a big bond raise, right? So you're lending your money to these different companies for them to pay you four and a half, five and a half, 7%, 8% interest on your money every single year and then they pay you back a lump sum at the end. And why companies do this is they want to say, you know, Hims and hers is a great example. I think they raised like a billion dollars in the couple weeks with bonds is they're like, hey listen, we want to grow or we want to go acquire something, we want to go do a new project, we want to go do these big things. And the biggest thing you have to realize about the corporate bonds is you're betting on the liquidity of the company, right? If the company goes bankrupt, you don't get your money back. But I'd argue Apple is not going to go bankrupt. So Apple bonds are a pretty good idea. That's just the quick and dirty breakdown of the different types. You got the U.S. treasuries to the government, the municipal bonds to the states and the local governments, the agency bonds to the government sponsored agencies essentially, and then the corporate bonds which are loaning money to corporations for normally a little bit higher yield. But you have to make sure that the company you're loaning money to is not going to go bankrupt.

[A]

My hot take on this great breakdown, Austin would be, Dan, don't be so risk off that you have too much in bonds because I feel like you're leaving so much money on the table when you do. Bonds are a great strategy if you want to have 5 to 10% of your net investable capital in bonds because it gives you some hedge against volatility. But in the end, you don't want to be sitting heavy in bonds either because they're only going to earn you 4 or 5% yearly. And you just don't want to leave a ton of money on the table by not having most of your money into the S P500 and the NASDAQ like we talk about all the time through the Voos of the world and the QQQs. So Dan, I understand you wanting to be risk off a little bit, but just don't overdo it and be heavy in bonds. Because I think long term term you'll leave way too much growth on the table with that structure.

[B]

Yeah, I couldn't agree more. I think what's important to understand here, Dan, is bonds could be a good complement to an already well diversified portfolio. If you're someone who's looking for some stability during uncertain economic times. Looking back at it, I'd have congratulated you because April was crazy this year in the markets. Right. We saw a strong straight up bear market and what now seems to be like a weird V shaped recovery to it. Who knows what's going to happen for the rest of the year. But having a little bit of stability in a portion of your portfolio is always a good idea. Which again why we think the public bond account is a good place to be as well as some treasuries via CSHI or BNDI or just a T Bill account on public. There's a bunch of different ways to get some exposure here. The municipal bonds though, are pretty interesting to me. I don't think I, I have any of those in my own portfolio. Something I need to figure out for myself.

[A]

Yeah. And I guess my last on this question is for people to understand. This is why Austin and I every single day, for everyone that'll listen explain that active management and diversity are so important because there is no strategy that should be in your portfolios, that is set it and forget it for years and decades. We want you to be long term investors, but along the way you have to make changes and adapt based on market conditions. And this question really illustrates that.

[B]

So our last question is coming from Luis M. Louise says. Hi, Austin, Robert. My name is Luis. I'm 33 years old. I work in the healthcare industry in Miami, Florida. And I went from investing $0 before listening to your podcast a couple years ago to now having 65,000 in my 401k, 23,000 in my Roth IRA, 72,000 in my Bridge account, 12,000 in crypto, and 45,000 in my emergency fund. First off, dude, congrats.

[A]

That is so crazy.

[B]

Oh my gosh, that is amazing.

[A]

Amazing.

[B]

Wow.

[A]

Oh, I have goosebumps everywhere. That is so awesome.

[B]

So he says, I own my single family home in which my Equity is about 350,000. My mortgage is at a 3.75% interest rate and I pay the monthly minimum. And I feel that with this base being built already, I'm, I'm starting to get excited about buying a triplex or a quadplex to generate extra income. Would you guys recommend using a home Equity loan or a home equity line of credit to use as the down payment on this potential next home for me. If so, so do you recommend one over the other? I'm trying to understand what the difference is. Or would you recommend a completely different option? I'm also not in a hurry to do this, which means waiting a year or two to get a lower interest rate could be a good idea for me. Any advice is greatly appreciated. Thank you guys for changing so many lives. I cannot recommend you all enough. I'll let Robert kick this one off. But Luis, again, thank you so much for the kind words and we're super excited to hear all the progress you've made.

[A]

Wow. Yeah. This is an incredible situation you put yourself in in. And this is a big question. And I'm going to do my very, very best to give you some options. First and foremost, let me break down the difference between a home equity loan and a home equity line of credit. A home equity loan, let's use $100,000 as our base. So the math is easy. Home equity loan, they would give you the hundred thousand dollars, they drop it into your bank account and let's say it's at 7% interest. That's it. You pay the 7% on the whole hundred thousand dollars dollars. A home equity line of credit would be a line of credit for up to a hundred thousand dollars. And let's say the interest rate is the same at 7%, you only pay the interest on the money you're using. So let's say you get it, but you only use 42,000 of it to buy this first property, then the rest of it is sitting there. You don't pay any interest on it. You're only paying on the money you use. So that's the difference between the two loan types. I prefer a home equity line of credit. Better. Better, because then you can pay chunks down and you're only paying in the interest on the carried balance of what you're using. Now let's get back to your situation. You've got the bridge account crushing with $72,000, and then you have 45,000 in high yield savings, which I believe is a lot. So what I would look at is could you take 20 or 25,000 from the high yield savings, 20 or 25,000 from the bridge account, because you have total autonomy in both accounts. Accounts take that money to go towards new property you want to buy, and then be able to apply that and get a smaller heloc if you needed further capital to be able to put this together because at the end of the day, we have to do all of the math in this equation. So if you buy this triplex, let's say, or this quadplex, and all of a sudden it's cash flowing. As long as it's cash flowing greater than the payment on the HELOC for the portion you use, use, you're in great shape. Because you also have to realize you're buying a new property that we hope is going to have capital appreciation greater than 4, 5 or 6%. You might be in a hot area where it's 8 or 10%. So you have that growth to consider in your mathematical equation as well, to know if it's the right move for you. Now, because you said you're not in a hurry, so you're already crushing it. You've done so much in such a short period of time. I wouldn't run a rush. I'm buying a lot of properties right now. And so I recommend, you know, it's always good to buy real estate, but if you're not in a rush, wait for the interest rates to come down, get more money set aside for the real estate purchase, then you might not need the HELOC at all.

[B]

I love that explanation. You did a really good job breaking that down, Luis. You've got this single family home at a 3.75% interest rate. You've got $350,000 of equity. You've got hundreds of thousands invested. You're 33. You are absolutely crushing it. If I were you, I would spend the next maybe two to three years just doing what you're doing. I mean, you've got a low interest rate on the mortgage, so there's no reason to get rid of the single family home. You've got a bunch of equity in it, which means you're in a rising appreciating market. So here's the thing, man. You've got about $215,000, you know, saved and invested at the moment at 33. Fast forward three years. How do you turn this 250 into half a million? Right? How do we turn it into a million by the time you're 40? That, to me is more exciting than maybe jumping through hoops and trying, trying to force a HELOC to go buy a duplex, to get a quadplex, whatever else, right? Like, we think people should be doing those things, especially if they want to house hack. It makes a lot of sense if you're house hacking, but you've got the single family home, you've got all this equity, you've got hundreds of thousands invested. Maybe rock and roll for two or three years. You said you're in no rush, so maybe rock and roll for two or three years. Get this 220, 000 and turn it into half a million by the time you're 35 or 36. And then at that point say, okay, maybe it's time for me to you think about starting, you know, getting into multifamily here, a duplex, a triplex or a quadplex. And maybe interest rates have come down to the 4 to 5% range, so it's much more affordable and the numbers pencil a lot easier. And then that's when you jump into the game. You saying I'm not in a hurry to do this gives me the permission to tell you you should just keep rocking and rolling and doing exactly what you've been doing. And do not force buying a, you know, real estate or getting into any of that stuff. Like, you're doing a wonderful job. Job as is.

[A]

I couldn't agree more. And what an incredible set of questions for this episode. It's always so cool to break all these down and really just speak from experience and help people figure it out along the way. Personal finance is always personal and everyone's road to success is different. So we appreciate each and every one of you following along, sharing the podcast, giving us those five star reviews and helping us just keep growing this amazing, amazing podcast. And don't forget about the Rich Habits Network. For any of you that want to take this further, we have a network. It is an awesome community. There's a seven day free trial going on right now and it's something you might want to check out in the show notes. It's just so exciting to get to be part of this journey because you know, we're doing this live every single week, taking your questions and breaking them down to the best that we can to help all of you reach financial freedom.

[B]

100% yes, go join the Rich Habits Network. Seven day free trial. Absolutely no strings attached. On that seven day free trial, we host a two hour long weekly live stream on Tuesday nights. Joining the network comes with eight hours of video coursework as well as the opportunity to invest into pre IPO companies and different startups and real estate and things of that nature alongside Robert and myself. Additionally, don't forget to download the Rich Habits real estate hacks. We built this incredible. I think it's got like 30 plus different real estate hacks for people who are trying to get into real estate. To understand how to do it as efficiently as possible. That's completely free in the show notes below. And also, don't forget to sign up for the Rich Habits newsletter, which comes out every single Thursday Thursday morning. So go check your email inbox and read this Thursday's edition if you haven't yet already. All right, everyone, thank you so much for joining us. And if you want to submit a question for next week's episode, email it at [e-mail] or DM it to us on Instagram at Rich Habits Podcast. Thanks everyone and have a great rest of your week.