Rich Habits Podcast - 10: Money Hacks for Marriage, Teen Money Tips, and PMI

Episode Date: May 2, 2023

In this episode of the Rich Habits Podcast, Robert Croak & Austin Hankwitz share three money hacks every engaged couple should consider doing + Q&A (setting up teens for financial success, getting PMI removed from your monthly mortgage payment, and understanding an investment's cost basis). ---Be sure to check out Public's new ⁠⁠⁠High Yield Cash Account paying 5.1% APY.⁠⁠⁠ This is higher than anything else on the market and is FDIC insured up to $5M. ---Earn 5.1% APY using a Public HYCA, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Opt-in and share your email, ⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠Learn more about our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠4-module video course!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Download our FREE Budget Template, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Robert: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/RobertJCroak⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Austin: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/austinhankwitz⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Contact: [e-mail] ---Hankwitz Group LLC has an existing business relationship with NEOS Investment Management LLC. The opinions expressed are those of the author, and the author owns several NEOS ETFs.

Welcome back to the Rich Habits podcast. My name is Austin Hankwitz, and as always, I'm joined by my co-host, Robert Kroke. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt, and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I built a seven-figure media business and advised some of the most well-known fintech companies around the world. As the show name might suggest, every episode we talk about rich habits, as they relate to business, finance, and mindset.

However, we try to bring you two unique perspectives. One from an industry veteran, Robert and the other, myself, someone who's still in the process of building wealth and getting it all figured out. So, Robert, why don't we jump into things? What are we going to be talking about in today's episode? Let's do it. This episode, we're going to be talking about three considerations every person should be thinking about before they get married and tie the knot.

Then we'll jump into some Q&A to finish out the episode. Quick reminder, if you want to ask us a question, send us a DM at Rich Habits podcast on Instagram. So let's get started. So the first thing we're going to be talking about today is buying a duplex, a triplex, or a quondplex before you get married. What's the ideology behind this? What's the strategy? Kind of give me the play-by-play on why this is so important, Robert. It's something that I did in a TikTok recently, and it really struck a chord with a lot of people.

And what it is basically is just gamifying the system. If you both have good credit, you have good jobs, but you're thinking about getting married in the next year or so, one of the key hacks that you can do is each of you go by a duplex, a triplex, or a quadplex. You each live in it for one year, get a FHA loan, and then you save all of this down payment money. Because think about this. Once you're married, the government and the banks look at you as one entity. but prior to getting married, you can spread the wealth and each of you buy a property and use the FHA loan strategy. So you're only putting down a collective three and a half and three and a half, which is seven percent of your money, to get two properties with up to eight doors, rather than just buying one single family home that's your primary residence and putting 20 percent down.

So I think it's just one of the greatest wealth building hacks for new couples before they get married and tie the next. I think this is actually commonly referred to as house hacking, right? Because if you think about it, you know, a duplex, a triplex, or a quadplex, this is essentially a home that is equally divided into two, three, or four units. And by purchasing one of these types of homes as your first place of residence, you're able to, one, live in the unit and you have a place to stay, while also two being able to rent out the other units or doors, as you alluded to, to cover the rest of the mortgage payment. A really big call out, though, on this is a good condition. consideration is in the eyes of the law, you need to live in the unit for at least one year before

you rent out your own unit. So just keep that in mind. Yeah, but what a great wealth building tool. Think about it from this perspective. You're a year and a half away from getting married. You're both on your wealth journey and you decide to buy two separate properties. Then the day you say I do, you move into the one house or you're already ready to buy your first primary home. then you have four or eight, six doors all generating passive income as you go into your marriage. It's just such an incredible strategy. I love it. And you're keeping more of your cash in hand because you both use the FHA strategy, which is three and a half percent. Hey, maybe you could take some of that cash and go on a great honeymoon, right?

Yeah, or buy your first primary own. That would seem more fun and important. Definitely a better rich habit that just go blow it on a honeymoon. But I love it. So let's get into actionable insight number two, paying off high interest consumer debt. We all know this is one of my favorite topics to talk about that you can't out invest high interest debt. So Austin, I know you're really good at this one. So why don't you take us away and tell the listeners the best strategy? The average interest rate on credit cards right now are about 24% APR. On an annualized basis, you're paying 24% interest on what?

whatever that balance is. By paying off this high interest consumer debt, it is one, incredibly important, but two, pretty feasible if you make a plan. So here's how I would go about that. I'd create that budget. I'd start cutting my non-essential spending, and I might even begin to pick up extra shifts at work to generate more income. This might also include perhaps a side hustle, or this is the most important part, though, to make sure that this high interest debt isn't eating you alive, consider opening up one of those zero percent intro rate credit cards and rolling over the balance. So by doing this, you'll be able to give yourself 12 to 18 months of runway of 0% interest that allows you to now attack the entire principle, this whole balance, without

having to worry about 24% screaming in your face. What a great way to explain a strategy to get out of it, because I know you do an idea with so many clients and so many people through my followers and my lives and my private community that are always talking about, hey, what should I invest in why they still carry high interest consumer debt. And it's just one of those things we have to get everyone to understand there has to be this mindset shift to get away from that because if you're paying 24% 26% of high interest consumer debt and the markets might only be paying 10% or 8% you've got an arbitrage of 15 to 18% right there that you can really work in your favor by paying off that consumer debt sooner. So I really like your idea.

of picking up extra shifts, getting a side hustle, because at the end of the day, like we always say, you can't out-invest high-interest consumer debt. So it's most important to take care of that first and foremost. Nothing sounds worse than getting married and staring $30,000 of credit card debt in the face, right? No one wants to do that. Pay it off early, get it done. Well, and that's one of the big conversations that has to be had. So many people get to the phase of being engaged. They haven't even had this conversation about the other person's debts. What are the their philosophies on wealth building. What are they doing with their own credit? And all of these things should be done preemptively before you ever get engaged and start planning a wedding. It's just so

important. In the comment section, Robert, of your video that you posted talking about these topics, someone even suggested pre-marriage counseling. That's a great idea. Big proponent of that. Well, and there's another strategy too, and this comes from lawyer friends of mine and some of my wealthier friends. They say that before they ever even bridge the topic of engagement when they're getting serious about someone in a relationship is they have this meeting based around what a pre-up looks like in their situation. And what the pre-up helps you flush out is the other person's beliefs and expectations. And this is very important because most marriages end because of financial issues or the mal-alignment of issues between the two of you and your thoughts around money. So I think

it's just very important whether it's the pre-up idea or just having a serious conversation of what those expectations are will prevent a lot of problems later on. Couldn't agree more. Okay, let's dig into number three. I think we've got some good numbers here, and that is paying off student loans, should you, and the fears and the real issues that come along with high student loan debt. So, Austin, let's dig into that because you've really broken down the numbers, and I'm fascinated to share it with our listeners. The average student loan balance for a recent graduate is about $40,000. Now this can turn into much more depending on how advanced your degree is. As an example here, I have a girlfriend who soon I will marry at one point. But anyway,

my girlfriend has $37,000 in student loans and is paying $372 a month toward them. Shout out to her for sharing this really sensitive information with me and now the thousands of listeners we have here. Her loan is a 20-year-long loan, which means over the life of the loan, she'd be paying nearly $90,000, on that $37,000 loan, right? That's a lot of interest. So if instead she buckled down for a call it 24 months, two hard years of paying off aggressively this student loan, she'll have 18 years of quote unquote saved payments.

Now think of these saved payments as if I'm not paying this to the bank who lent me the money for my student loan and instead took this money every month, $372 and invested it, that's what I want you to be thinking about this, right? So if she took that 372 for 18 years, every month, instead of paying the student loans, and still took that money to invest it, she'd end up with $277,000, right? That's a $357,000 difference in her net worth because in the first two years of graduating or just decided to say, hey, I'm going to pay off these student loans early, and really

buckle down and got them done versus the lingering, the years and decades that some people like to keep these student loans around. So I just think it's incredibly important to attack these student loans with a vengeance. Yeah, I love this. And thank you for that really, really good breakdown because what it really alludes to is for people to understand having the time in the market because of the fact that compounding is so critical when you look at your money on your wealth journey and trying to build that. So this illustration really breaks down the power of compounding and making that effort to get rid of these consular bad debts that we would say. So you're on your wealth journey.

sooner because it's all about investing early and often and getting ahead of things because the longer you're in the market, the better off you're going to be on your wealth journey. So super, super important. So Austin, let's get to the fun part. Listeners, we've been introducing this questionnaire part of the show here. And so let's dig into that. We've got three questions. So let's start off with Luke. So Luke comes to us via Instagram, right? If you have a question, DM us at Rich Habits Podcast. And Luke shot us a DM, he said, as someone who was about to turn 18, how do I set myself up for success? Now, I think this question is not really important for teenagers listening right now, but also the parents of teenagers who are listening right now, call it 14, 16, 18-year-old children who are about to, you know, come of age. So listen up if you're a parent.

Here are two things I would do immediately upon turning 18 years old, and you might even be able to do this younger, but that's kind of complicated. so we'll stick to the over 18. The first thing I would do is open an individual brokerage account and a Roth individual retirement account. And I'd start investing. Any amount of money I had, if I'm mowing lawns, if I'm cleaning car headlights, I'm flipping baseball cards, whatever I'm doing as a teen, if it's 10 bucks, 50 bucks, 100 bucks a month, I'm investing it into this account. What am I investing into? Good question. I'm buying index funds and I'm buying ETFs. So I'm buying V-O-O, I'm buying V-T-I-V-T, and I'm buying V-G-T. I'm doing that all the same.

They can be equally weighted. Maybe one is more than, it doesn't really matter. As long as you're buying them, that's the important part. So that's the first thing I'm doing. The second thing I'm doing when I turn 18 is I'm applying for a credit card. Now, you're young. You don't have any credit history, so you'll likely have to turn out and get one of these secured credit card. They sound kind of confusing.

Maybe the bank teller's giving you some mumbo-jumbo. very simple. Here's what it is. A secured credit card is essentially you borrowing against money that you are giving the bank. So what I did when I, unfortunately, I didn't start building credit until after I graduated college at 22. So I did have to go get a secured credit card. It's okay. But I had to go to my local bank of Tennessee. I gave them $300. And then in exchange for that $300, they gave me a credit card with a $300 spending limit. Right. So it's my own money that I'm kind of borrowing against here. Now, I'm not maxing out this $300, right?

All I'm doing, especially if you're 18 to go build up that credit score, I may be putting some subscriptions on it, think Netflix or Spotify. Maybe I'm putting a tank of gas on it, right? Maybe call it $40, 50 bucks. But just a little bit of money to begin showing that credit history and that payment history, more importantly, when you paid off on time every single month. Yeah, and one of the pro tips here, thanks, Austin.

That was a great breakdown. but what are the pro tips here for the parents out there? If you've got children that are 15, 16, 17 years old, 14 years old, make them a signer on one of your credit cards. Because what you can do, what you can do before they're 18 is make them a verified user of your credit card or multiple credit cards. You're still in control.

They can't run up the card. But what you're doing is you're preemptively building their credits. So when they do turn 18, they already have a credit history. Then they're not going to be using you to co-sign to go get that first car or go get that expensive item that they need. So that's kind of a little pro tip that you can do where it's totally in your favor to add them to your credit cards early on because then they have that credit built when they're 18. And that's just a nice little added bonus if you can do that.

Major shout out to Luke for being so young and so eager to start implementing these rich habits upon turning 18. Round of applause for Luke. We love it. Definitely, definitely. Okay. So we're going to go to number. Number two, Megan, what is PMI and should I get it removed? That's a great question, Megan, and a lot of people struggle with this. So we're going to break it down for you, and I'm going to let Austin dig in. PMI stands for private mortgage insurance. And it's essentially required on your loan if you don't put down at least 20% whenever you go to buy a home. So it's called private mortgage insurance because it's essentially ensuring you to not default on the loan itself. So I personally, had past tense PMI on my mortgage after I purchased it I did the FHA right I got the 3.5% down it was about 10 or 11,000 or $11,000 at the time with my down payment and that was obviously much lower than that 20% threshold so I had to pay $189 a month on top of my principal and interest in the form of PMI to my lender which was rocket mortgage so

here's what happened I was paying 189 every single month and I'm thinking wait a second, this money is not going toward my principal, this money is just evaporating into thin air. I don't want to keep paying this every month. What's the point of it? So here's what I did. I went to my lender, I gave them a call. I said, hey, I think that now that I've been making my payments on time and the value of my property has increased so much, I think that I now have at least, at least 20% equity, right, that original 20% down payment number. I believe I now have at least 20% equity in my home. How do I go about getting PMI removed? And so they ended up sending out this really nice woman.

She came in with a GoPro and started taking all these photos on my house to get it appraised. Now the reason she did this was because once she had it appraised and then she was able to kind of back into that calculation of how much I've actually paid off, you then figure out that equity number, right? Did Austin have 20% equity in his house? I did, I think it's around 22 or 23%. And because of that, Rocket Mortgage said, oh, he's good. He doesn't need to pay this 189 anymore.

So that was my experience paying off PMI. I highly recommend doing it. If you have the opportunity to get rid of PMI, two thumbs up for me. Definitely look into it. And the simple way to really look at what PMI is and what you need to do to get rid of it is you need to get to that 78 to 80% loan to value range of your equity. And once you get there, then you can request to get it removed. Generally, they're going to send you a notice that you've gotten to that criteria.

But if you believe you've got that 20% equity sooner and you don't hear it, from them, it's totally okay for you to reach out to them and say, hey, I'm ready to get this removed. What do I need to do? I will say, before we move on to our next question here by Ryan, I did have to pay for that appraisal. This was about $375. You know, I made my money back, quote unquote, for about two months because this 189 times two was more than the 375. So that did take a little bit of time to recoup on that money. I'll definitely keep that into consideration when you're thinking about getting rid of the PMI. Great. I love that question and I love that the people following along here really challenging us with some great questions because we want to use

this platform that you guys have given us in Rich Habits, the podcast, to really dig into the deeper pain points and the unknowns that everyone faces in their journey. And that's why it's a really great position that we have with our 30 year age difference between Austin and I, because we've got the experience and the finance knowledge and it's all kind of bundled together to really break down these difficult topics so you guys don't have to make the mistakes that I might have made 20 years ago. So let's get to number three. Ryan asked what is the cost basis of my investments and how do I understand that? And this is a really, really good one for Austin to break down because he is the financial ninja of the group and I love it. So let's dig in. Here is how you begin to think

about the cost basis on your investments. What is the word, the core word of this term cost, right? How much did it cost you to purchase this investment? Now, this investment might be a wheat. This investment might be a single stock. It might be an ETF. It might be an index fund, right? So let's just use the blanket term investment. So if this investment costs you, let's say, $1,000, right?

And now the investment is worth $1,100. You know, have a 10% return on your cost basis of $1,000. And this return might go up or down as the, value of the asset increases or decreases, and so can your cost basis depending on the price at which you purchase that investment. So for example, let's think we're buying maybe a share of Apple stock, right? So let's say you go out and buy one share of Apple stock for $100. And that share is now trading at $110. You're up 10% on your original cost basis of $100. But now let's say you want to buy the equal amounts of money now at $110. Well, as we've done,

dollar cost average over time, your cost basis, because you bought some at 100, and now some at 110, is now 105. So when you think about your cost basis and dollar cost averaging, your cost basis will change as you continually average and purchase more shares of stock, assuming the stock is trading up and down over time. So when you think about your cost basis, it's very simple. Normally a lot of these apps, they normally show you, right, the average cost per share that you're in for right here. so then that helps you better understand how much am I really up or down on my investment. But cost basis is very simple. That's a great question by Ryan and a really great explanation from you. So let's wrap this episode up and give us our outtakes.

If you have any questions at all, shoot us a DM at Rich Habits Podcast on Instagram. We'll definitely read it and we might feature it on the next episode of the podcast. Don't forget to leave us a rating and a review. Robert, can you believe that nearly 200 people have given us five-star ratings on Spotify? Isn't that wild? Yeah, it's amazing, and we really appreciate all the support. You guys, we're really proud and excited about the Rich Habits podcast, and we look forward to so many more episodes, and we appreciate the support.

Have a great start to your week, and we'll see you next Monday.