Rich Habits Podcast - 115: How to Recession-Proof Your Wealth

Starting point is 00:00:00 Hey everyone and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify, brought to you by public.com. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croke. Robert is a seasoned entrepreneur in his 50s with lifetime revenues of over 300 million, and I'm an entrepreneur in my late 20s with the background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. Now, as the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique

Starting point is 00:00:40 perspectives, one from an industry veteran, which is Robert and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, what are we going to be talking about in today's episode? In this week's episode of the Rich Habits podcast, we're going to be sharing with you our favorite strategies to recession proof your life and your wealth. Over the last several weeks, we've had a lot of podcast listeners reach out, concerned about economic uncertainty, and the probability of a recession being declared later this year. At the moment, the expectations index is at a 12-year low, hitting 65 points. And historically, when we've been under 80 points, a recession was right around the corner. The Michigan Consumer

Starting point is 00:01:22 Sentiment Index hit 51, the sharpest decline since 1952, all pointing towards. economic pessimism driven by tariffs, inflation, and other uncertainties. Now, on the other side, core inflation hit four-year lows during the month of March. Trump paused his tariffs for 90 days earlier this month, and corporate earnings expectations remain positive. We can't predict the future, and we're trying not to, but we want to make sure that all of our listeners have the tools and resources they need to make the best decisions possible with their money for the future.

Starting point is 00:01:59 Yeah, economic recessions impact everyone completely differently. So some of the techniques and ideas we'll be sharing during this episode might not perfectly impact every single one of you. But we hope by the end of the show, you'll feel much more confident in what you can do with your money to whether whatever storm might be headed our way. So this is our first strategy for recession proofing your wealth, assuming we do experience a recession. and that is to build a financial fortress. When the markets are shaky and jobs feel less secure, having a liquid savings gives you optionality. Aim for an emergency fund that covers at least six months of living expenses.

Starting point is 00:02:41 I know that sounds like a lot, but hear me out, if you lose your job, your income goes to zero and you face some unexpected costs like a medical bill or a car repair or something with your children, that emergency fund is your lifeline. The last thing you want to do during an economic recession is be forced to cash out of your investments at what is likely a 20 or even 30% loss because the markets are down to pay for emergencies because you weren't properly saving ahead of time. So if I were you, I would start small if you've not started yet at all. Starting small could mean automating $50 or even $100 a week into a high-yield cash account on public.com. Their account is paying 4.1% APY right now, which means over a year you'll have saved $5,200 before interest. And a pro tip for you is to keep this money completely separate from your checking account,

Starting point is 00:03:34 so you're not tempted to dip into it if you're bored on a weekend and want to go to the farmer's market. Yeah, I think that's one of the keys to your pro tip. Don't dip into the money. This is your emergency fund. You're setting it aside for rainy days, and it's so important to do that. And finally, if this seems just too daunting, I think a great idea for everyone that really can get you ahead is do an inventory around the house in the garage. We talked about this maybe a year and a half ago, but it's really time to go through, find the old golf clubs, find the, you know, things around the house that still have value that are collecting dust because you probably have $2,000 to $3,000 in junk just sitting around the old Peloton, the golf clubs, clothes, shoes, all kinds of things that you could put on Facebook marketplace, get that money

Starting point is 00:04:24 out of the junk and into your pocket, and use that towards your emergency fund to build up that stability just a little bit further and put you in a better place because with so many of those items and we're all guilty of it, they go down in value over time. So the sooner you sell those items, the better. And I actually have a pro tip on selling items. If you don't wear, use, or do something with an item for one year, it's time to sell it. So many of you have the old roller blades you haven't used in five years or whatever it might be. They still have value, sell them and put that money to work for yourself. And the faster you do this, the more money you can set aside in case something happens in a recession, right? So I guess what I'm saying is don't wait

Starting point is 00:05:10 until it's recession time to start going through your items and try to sell stuff on Facebook marketplace, like proactively begin doing some of these things. I love it. So let's get into strategy number two, and that is diversifying your income streams. I look at it this way. Relying on one paycheck is like putting all of your eggs in one basket. And if that basket breaks, you're definitely in trouble. Because with recessions, they bring layoffs.

Starting point is 00:05:38 So now is the time to explore side hustles or passive income streams getting ahead of this recession or potential danger. down the road. I love this because you can really just kind of do a personal audit. Think about your skills. Can you freelance? Can you use platforms like Upwork, which is a gold mine for writers and copywriters, designers and consultants? Or maybe you have a knack for teaching where you could do online tutoring. That's booming right now, which is great. Or consider something totally outside of your nine to five, like renting out one of your spare rooms on Airbnb or becoming an affiliate on TikTok shop. So many people are crushing it just by finding these items on TikTok shop that have

Starting point is 00:06:22 really good affiliate programs and showing them to their audience. You do these videos, you do this user-generated content, and then you can make money for every item you sell. Here's a stat to chew on. A 2024 survey found that 40% of Americans have a side hustle and those with multiple income streams were less stressed during economic dips. Diversifying also doesn't mean just patting your wallet. It builds confidence. If one income stream dries up, you've got others flowing, and that is why we like to show you to make sure you're building these side hustles. They always tell you that millionaires have up to seven streams of income, and I just posted a video on Instagram the other week, and I made the claim that every single person listening,

Starting point is 00:07:08 and probably most of you, are sitting on over $1,000 right now in revenue inside of your Google drive. Maybe you're good at resume writing or you have your old grandma's recipes so you could build a template, a digital download on Canva and begin selling those items through a stand store all for free and start that side hustle on your own just with items you already know how to do or you already have. I know for a fact, I have all of my old grandma's pizza recipes and Italian food recipes. So maybe I should do that for myself. Sell those recipes off. Make some extra money. But you could do it too. You know, Robert, you mentioned the millionaire with the average seven streams of income. I just looked it up online. So let's walk through what those are real quick. There's earned income,

Starting point is 00:07:54 which is your salary, your wages, your earned income. But then there's also business income. Maybe you have equity in a profitable business. There's interest income from things like the public high yield cash account. There's dividend income from the single stocks of Apple and Nvidia and Microsoft and now meta. There's rental income. Maybe you've got some real estate. There's capital gains. Maybe that is from a, you know, fix and flip real estate or a, you know, gain you might have in the stock market. And then here's a funny one, royalty income, money received from intellectual property such as books or inventions. I actually don't have any royalty income. Maybe you do, Robert, but those are the seven streams of income that are broken down by the average millionaire.

Starting point is 00:08:35 And I guess I have five or six, five or six of those myself. But what you all need to remember here is it takes time to build additional revenue streams. It's all about trying new things. things and getting something to stick, allowing you to earn money on the weekends and during the off hours throughout the evening after your 9 to 5 wraps up. A pro tip, in my opinion, is to put your resume inside of chat GPT and begin tweaking it a little bit. No one knows if they're going to lose their job, but if you're working in like marketing or sales or something of those likes, you have a higher probability of getting laid off during times of economic uncertainty. So polish up that resume and start reconnecting with some of your past coworkers, if that's sending them an email, hitting them up on LinkedIn.

Starting point is 00:09:20 Maybe you guys are friends on Instagram. But like, get those conversations going in case you do lose your job. And the company that they're now working for is hiring and you can get a cool referral or a warm intro for your next opportunity. Yeah, one of the things that I kind of live by and I think people could adapt in their own way is that I try to either learn a new skill. set, adding it to my repertoire of skill sets, or I try to engage in a new bucket of income every 90 to 120 days. That could be an investment into another company where I'm going to get some income from the company.

Starting point is 00:09:56 It could be adding a new product to our consumer products division to try and, you know, blow up and have a product go trending on TikTok. But I always try to add these additional income streams every quarter if I can, just because even if it's only a thousand or two thousand. extra dollars a month, that can go into another investment bucket for me. And I think it's really easy for people to adapt into their lives as well. Yeah, I generally agree with that. If I was someone though just starting out and I was getting some traction from maybe leather goods or power washing or landscaping or something that is like a cool side hustle for someone, I'd be weary of what's

Starting point is 00:10:36 called the shiny ball syndrome of, oh, I'm doing this right here. I'm going to go, it's starting to make a little bit of money. I'm going to go now completely pivot and go start something else. Like, I would double down on what's working first and do that for a couple of years and see where that can take you before maybe having, you know, your eyes spread across too thin, across a bunch of different ideas there. So our third strategy for recession proofing your wealth is through diversification. Recessions, as we've seen so far in 2025, cause uncertainty in the stock market, which could also cause those stocks to tank and pulling out entirely from the stock market is a huge mistake. So instead of pulling out all your money and going to a safe haven like cash or treasuries,

Starting point is 00:11:19 we'd love to see people diversify their investments even further. For example, Fundrise right now is returning about 2 to 3% year-to-date to their investors, and when you compare that to the negative 8% to 10% we're seeing in the stock market, that sounds pretty good. Public also offers a bond account that's paying over 7% at the moment, so maybe you want to move some profits out of your highest risk on single stocks that are turbocharged during the last two or three years and take some of those profits and move it into something a little bit more predictable. The key here is not to try and time the market by buying and selling and buying and selling and buying and selling, but instead to live another day by strategically allocating capital away from those explosive single stocks that might be unprofitable companies that are doing. some crazy technology and instead toward the blue chip names that we talk about all the time

Starting point is 00:12:12 that we know we'll be here no matter what happens to the economy. Yeah, definitely. And really, it comes back to something we talk about every day and that is keep dollar cost averaging. Markets recover and buying during a dip means you're snagging shares at a discount. So for example, someone who has invested $10,000 in the S&P 500 during the 2008 crash would have seen it grow to over $50,000 by $1,000. 2025. And this just really alludes to the patience pays off. But here's the kicker. You can't try to

Starting point is 00:12:44 time the market. Even pros get that wrong. So it's always best to build a plan and stick to it. You hear us talk about this every day and we're going to continue to repeat it to make sure none of you have those knee-jerk reactions when you see these crazy headlines that we've been dealing with right now. And that might mean investing weekly, bi-weekly, or even monthly, but it's just all about cost averaging and being consistent. It doesn't matter the cadence or the amount. What matters is the consistency in investing so, so important. And that leads us to strategy number four.

Starting point is 00:13:21 Cut the fat, not the fun. And I know you guys have been waiting for us to get to this because we don't want to sound like we're the guys where you can't go out and have dinner, you can't drink a coffee, you can't do some of the funer things in life, but recessions force us to look at our spending, and I'm not saying you need to live like a monk, but instead focus on cutting non-essential expenses that don't bring you joy. Think about that gym membership you haven't used since January. Cancel it. Those five streaming services, pick two, cancel the rest. And here's a funny one that we like, that vitamin subscription called AG1 that you swore to yourself and told

Starting point is 00:13:59 yourself you're going to drink, but you never did. Cancel it and sell the unopened remains. Your weekly car wash membership, same thing. Forget about it. Get a towel, get a bucket, wash your own car. It makes sense. AT&T, are they charging you too much? Maybe you should check on your bill, check on your insurances once a year. All of these things can help you save money to put you in a better place. And one of my favorites, stop using DoorDash all the time. You're paying $13 for a $7 sub. Stop being so lazy. Go to the grocery store, make better food, save the money. and live better. And really it's all about it's okay to spend money, but make sure you're spending money on things that bring you joy. Also make sure you're spending money on things you can afford.

Starting point is 00:14:46 I'm sure we've all seen the meme where over 60% of Coachella general admission attendees put their tickets on payment plans. That is financial suicide. Please don't do that. I am the biggest believer that it's okay to spend money if what you're spending your money on brings you a lot of joy, right? I don't get the biggest joy from buying new clothes every month or buying new shoes every month or like being materialistic. That doesn't really like, you know, get me excited. But I really enjoy eating nice sushi and I really enjoy like going out and getting a good steak or like getting a good drink somewhere with my girlfriend. Like I really enjoy doing those things. I'm a foodie. And so like I will happily not spend $200 a month on clothing and shoes to spend an extra

Starting point is 00:15:35 $200 a month on maybe restaurants or dining or, you know, buying some things that I can cook at home that make me happy. And so that's exactly what Robert and I are trying to say. It's okay to spend money, but just make sure you're spending your money on things that actually bring you joy and you're not spending money on those three to four extra streaming subscriptions or that agey one subscription you haven't used or the gym membership you don't go to, right? So now the question is, what do you do with all this extra money you're saving? Well, the first thing is if you don't have that six months of savings yet set aside go put it there right you're saving now an extra two three four five six hundred dollars a month because you're really cutting out the fat and not the fund

Starting point is 00:16:13 go put that extra money toward your emergency fund of six months if you're in high interest debt you can now use this extra money to pay off your high interest debt even faster remember you can't out invest high interest debt so by using this money to pay off that used car loan at a 14% interest rate you dummy you can now put some of this money toward paying that off faster or you got that credit card with $4,000 on it because you bought a Peloton that's now a coat rack or some other thing that's sitting in your garage now that doesn't make any sense but you bought it on a credit card at 30% APR use this money to pay off that high interest debt and then once you've paid off that

Starting point is 00:16:52 high interest debt if it is the credit card if it is the car maybe it's a personal loan maybe it's something else you've got borrowed that's that 10 12 15 18% APR you You now have a monthly payment that's been unlocked inside your budget, allowing you to have a little bit more margin to either invest more or save more or whatever your situation calls for. I love this because it really makes you think. You know, I did a video a long time ago. I think it was a TikTok, whereas if you put away $200 a month for 30 years, you'd be a multimillionaire and people like, oh, that never works. That never works. but you really have to look at every dollar you spend as opportunity cost.

Starting point is 00:17:34 And like we said before, we want you to enjoy life. We want you to spend money on things you enjoy, but just at least think like an investor and not like a consumer when you're spending it. Because a lot of times you're going to go buy that $200 item that you could turn that $200 into $1,000 in five, six, seven years if it was invested. And you have to start thinking of it that way because a lot of times you spend $200, on something and in six months it's worth $50 and you haven't really used it anyway. So I just think people should think more like an investor and less like a consumer and put that money away and

Starting point is 00:18:11 help them build their wealth so they can retire with dignity. Well, here's that stat for you, Robert, $200 a month at nine and a half percent interest per year, right? Which is about what the stock market does after inflation, give or take, invested for 40 years is $1.1 million. Like, that's the stat, $200, $200, right? But instead, we can't, you know, cut the subscription or stop drinking the fake AG1 or whatever with your gym membership, that excuse you want to come up with to keep paying that extra $200, $200, $300, right? So, like, I'm not hoping we have a recession by any stretch to the imagination. I hope we don't. I hope everyone keeps their jobs and everything's fine. But I do believe now, after seeing the statistic about Coachella and seeing all the credit card debt and the auto loan debt and all this

Starting point is 00:18:54 high interest debt people on, I think we need some sort of like, kicking the butt that's going to wake up a lot of Americans and say, whoa, I have been on a drunken spending spell since COVID and I really need to bring it down, cool it off, and be more intentional with my money. And I want people to do that regardless. Again, I'm not saying a recession can do that. I hope we don't have one. But I really hope that this episode is what's going to be the wake up call for you to really analyze what you're spending your money on and being more intentional with your money. Wow. Yeah, it's just so important. All of this just really just rings so true to everything we try to preach every week. And that is just getting people to think like investors,

Starting point is 00:19:38 because you can kick the can down the road all you want, but at some point, you've got to start really thinking long and hard about what kind of life do I want to live in retirement and how much money that takes. That's for another episode, but I think it's so important for everyone to remember, personal finance is personal, which means these strategies might not fit perfectly for everyone, but we hope to have shared some frameworks you can use in your day-to-day life to ensure that you can endure an economic recession and that you're prepared. I hope it helps. We're so excited to present this episode to you guys. We appreciate you following along each and every week. Now, Robert, speaking of investing, if you're someone who's looking for an online brokerage platform

Starting point is 00:20:22 that was actually built during the century, you need to give public.com a try. Because on public, you can invest in almost anything. That includes stocks, bonds, crypto, options, and more. And if you're like us and you actually keep an emergency fund, like in this episode, a six-month emergency fund, you need to take advantage of their 4.1% APY that is offered by their high-yield cash account. We love it. Discover why NerdWallet gave public five stars for its ease of use and investment selection.

Starting point is 00:20:52 Fund your account in five minutes or less and earn up to $10,000 when you transfer your investments over to public.com. And for a limited time, public is offering a 1% match on all IRA contributions. So if you're finally investing towards a 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. You know, Robert, what a great conversation. I hope a lot of people take away some really great.

Starting point is 00:21:22 frameworks and actionable insights from this episode to apply to their own day-to-day personal finance lives so that if we do experience an economic recession, they are prepared. Now, let's jump into the Q&A section of this episode. As you guys know, you can ask us questions via Instagram DMs at Rich Habits Podcast on Instagram. You can email us your questions at Rich Habitspodcast at gmail.com, or you can join the Rich Habits Network and ask us a question in there. And as a reminder, we're still running a seven-day free trial to join. So our first question comes from Joe. Joe says, good morning, guys.

Starting point is 00:21:56 You both are amazing, and I've been listening to you all for the past month, and I absolutely love it. I'm just looking for a little bit of advice. I'm currently 26 years old, and I work as a police officer in New York, and I have no student loans, but all I do have of debt is $8,000 of credit card debt from, unfortunately, overspending and eating out a lot, and just spending more money than I make on the holidays. I currently make $90,000 a year. I've got $22,000 invested in my Robin Hood account across multiple ETS.

Starting point is 00:22:26 I also have $24,000 in a deferred compensation plan with my employer with that retirement account. My question is to you all is do I take money out of this $22,000 in my Robin Hood account and use it to pay off my credit card debt? My credit card APR is around 29%, so it's super expensive. I currently have money in stocks, and I just really don't. don't want to use it to pay off this debt, but I don't know. What do you guys think? Robert, what do we say? Joe, Joe, pay off the credit card. You can't out-invest high-interest debt. If I knew of a vehicle that I could consistently make 30% on every single year, I'd have billions of

Starting point is 00:23:07 dollars. And that is why you, you're doing great. You're at a young age. You're making good money. Get it paid off now. Learn how to use the credit cards wisely because credit cards are fine as long as you're not running up balances and paying a high APR on them and just move on. I know it's hard because you're looking at your accounts going, man, I got 22,000 here, I got 22,000 there or whatever it is, but you don't want to pay off that $8,000. Guess what? Pay it off tomorrow if you can. Get rid of it and then take that same amount you've been paying every month on the credit

Starting point is 00:23:39 cards and put that right back into investing. And you'll be shocked at how much more money you'll have in two or three years because you're not blowing so much money on the high interest. Just get it done. Never look back and don't put yourself in that predicament again. Echoing everything Robert just said, right? Please pay off this credit card debt, cash out whatever your investments are, move it to your bank account, pay all this off. How you can also think about this is I did the math for you. You're paying $200 a month just in interest on this credit card debt. So you are paying $200 a month just to just to the bank, Just saying, hey, guys, here's your money. You're not giving me anything. Here's just, here's just your money. Like, get out of this credit card debt, Joe. Understand how to build an honest budget. Use your honest budget. Stop overspending. I get it. You're 26. You're having some fun. You want to live in New York and do those things. I'm all here for that. But I think this should be your wake up call. I want this to be your wake up call, right? Build an honest budget. Understand all the money that's coming in every month, which is this 90,000 a year. Understand how it's all getting spent.

Starting point is 00:24:45 and find the margin in your budget, start investing back into, to Roberts point, this Robin Hood account or whatever brokerage account you want to use, start investing back into that, build it back up to the $20, $30, $50,000 that we always talk about and set yourself up for long-term financial success. Children do what feels good in the moment, like swiping an $8,000 of credit card debt, but adults devise a plan and they stick to it. It's time to be an adult, devise a plan with your money, and stick to it, Joe. We believe in you, man.

Starting point is 00:25:15 Thanks so much for your question and tuning into the show. So our next question comes from Segura. Seguera says, hey guys, my name is Seguera. I'm a Spanish guy living in Colombia. First of all, thank you all so much for your content. I absolutely love it. I'm 37 years old. I do not have any kids and I'm currently living with my girlfriend.

Starting point is 00:25:30 I have a half a million dollar USD portfolio invested into S-C-H-D, S-C-H-G, a little bit of Bitcoin and a little bit of gold. Again, this is $500,000 US. I quit my six-figured job to, start a digital business project. If this project doesn't go well, I was thinking to move my half a million dollar portfolio to the NEOS ETFs in order to retire early and live off of my dividends. I know my upside potential will be capped with these types of covered call ETS, but retiring early sounds pretty good. So do you think this is a good choice? And if yes, what NEOS ETFs do you think

Starting point is 00:26:07 I should consider? Robert and I saw this question and we were like, man, Neo's ETFs are going to pay this guy maybe like, you know, $5,000 a month if he's lucky. How on earth is anyone at 37 years old going to retire off of $5,000 a month? Like, don't get me wrong, that's a lot of money. But I also feel like, you know, life happens, things happen. They're not leaving that much margin in your monthly budget here for a vacation or, you know, maybe you do want to have kids one day. Who knows?

Starting point is 00:26:36 And then we realized, wait, this guy lives in Columbia. Right. And so we looked up online what it would cost this individual Segura here to live his monthly and annual life in Colombia. What was the name of the city that we used as an example? We did Medellin and Bogota, which are two great places. Right. So we used like two awesome places in Colombia for our friend Segura here to live. And the internet told us this guy could live and live a very normal life in these places for less than $10,000 U.S. a year. So yeah, if you're living in these awesome places on a modest $10,000 a year, you absolutely can't afford it with a half a million dollar portfolio, which I guess is why you've done it so far into SCHD and SCHG.

Starting point is 00:27:25 So to answer your question directly here, Segura, what would I do? I would think about, because again, Nios, what they've done is they've created ETFs that hold all the underlying constituents of these awesome index funds that we love, like, the S&P 500 and the NASDAQ 100. So if you think about it, what you really should be thinking of is like, what weighting do I want in my own portfolio of the S&P 500, of the NASDAQ, of the Dow Jones Real Estate Index, of maybe Bitcoin, of maybe, you know, the Russell 2000, right? What sort of weightings do you want that way? So if I were you, and again, personal finances personal, it's totally up to you. We're not financial advisors. But if I were in your shoes and I wanted to build a portfolio around these indices. I think I'd probably have like 50% in the S&P, maybe 25 or 30%

Starting point is 00:28:16 in the NASDAQ, another maybe 5 or 10% in their Dow Jones Real Estate Index, IYRI, maybe another 5% or so in the BTCI Bitcoin one, things of that nature, right? I'd have the bulk of it in the S&P and the NASDAQ and I'd sprinkle on some diversification on top. Yeah, I like that breakdown a lot. the only thing I would do a little differently at 37 years old is I would probably up the risk a little bit in the crypto stage. And I'd probably bump that up to 10% of the 500,000. So, you know, 50,000 maybe into cryptocurrency, get some more Bitcoin, get some Ethereum, some chain links, some of these other important projects. And that's the only change I would probably make, especially after being shocked at how well you can live on this few thousand. $1,000 a month in these Colombian cities.

Starting point is 00:29:08 So I really love your position in where you're at. And the only thing I would change, aside from what Austin alluded to, what I would bump up the crypto holdings just a little bit, maybe five more percent. But I do really like that you have gold. And I would also add some silver into there because also you have the upside potential with this digital business project that if it takes off and does well, you can invest all of that money or at least a bunch of that as well. but that's what I would do different.

Starting point is 00:29:35 I'm right there with you, Robert. Shout out to Segura here for figuring out how to just live his best life in Columbia with his girlfriend. Good for him. Now, before we jump into our last question of the episode, let's take a moment to hear from this episode, sponsor, Masterworks. A recent Bank of America survey of wealthy individuals stated that next year, these ultra-high net worth people could be devoting up to 11% of their portfolios to find art in collectibles. You just heard us talk about how important it is to divers. your portfolio in this episode, and here's a great way to do that. Tariffs will have their own impact on the markets, but art has historically been an asset class

Starting point is 00:30:14 celebrated for its lack of correlation to other popular assets for the last 30 years. Sotheby's just had their first big auction of 2025, and it nearly topped the very highest end of their own internal estimates. Not to mention the co-founder of the private equity firm Blackstone has quietly been buying up art for impressive prices as well. It's important to keep an eye on multiple acid classes, not only because we always preach about diversification like we just did in this episode, but because we have our own investments in art as well. We've both been using the Masterworks Art Investing Platform to diversify for over five years now.

Starting point is 00:30:51 That's right. Both of us invest through Masterworks, the sponsor of today's episode, and we've even interviewed their founder and CEO, Scott Lynn, on the show. Since then, they've crossed over a billion dollars in capital raised, featuring artwork offerings that typically range from a half a million to $20 million. Although with Masterworks, you don't need to spend millions or be an art expert. Masterworks has offered investments in over 450 works and exited 23 works, with investors realizing annual net returns, including 17.6%, 17.8%, and 215% on those works held longer than one year.

Starting point is 00:31:29 Join over 1 million Masterworks users at Masterworks.com, front slash rich habits, which is also in the show notes of this episode. As with any investment, past performance is not indicative of future returns. Investing involves risk, sale returns and not inclusive of unsold works. Important regulation aid disclosures can be found at masterworks.com front slash CD. So let's now jump into our last question coming from Nikki. Nikki says, hey guys, I've been listening to your podcast for some time now, and I could use some advice. I have a rental property that negatively cash flows $800 a month, and I'm thinking about selling it and getting out completely. I had very bad timing with interest rates back in 2022,

Starting point is 00:32:11 and this property has turned into a major mistake. I've had it for three years now, and I put $40,000 down when I purchased the property. All in, I'm out of pocket around $70,000 so far in the first three years, which includes $30,000 of negative cash flow. I purchased it. I purchased it, for $350,000 and I could sell it now for around $350,000 after paying for selling costs. So I would basically be giving up $100,000, including my initial investment and negative cash flow for the past three years. My question is, is it worth bleeding $9,500 a year with the hope that it appreciates enough to make my money back? Or do I sell it? Take a massive loss on my initial investment. But I don't have any more bleeding now and just use that extra.

Starting point is 00:32:59 $800 a month to try and build this $100,000 back no matter how long it takes. I have a 6.4% interest rate and I owe $340,000 on the mortgage. Whoof, Robert, I'll let you kick this one off. Yeah, this is a tough one, Nikki. And, you know, if we could summon the Jim Kramer button, sell, sell, sell, sell, sell, sell, sell, that's what I would do. I look at it this way. If the property is not currently appreciating at a decent rate,

Starting point is 00:33:28 it probably isn't going to in the next two years. Sometimes that's just the case. So you really don't have any upside and all you really see is downside. I'm okay sometimes. I've been through it many years where a property is negatively cash flowing, but the upside potential and the appreciation is good. So it's okay as long as that capital appreciation outweighs the negative cash flow. But in your situation, you have both.

Starting point is 00:33:54 Negative cash flow and no growth. So in this instance, I would sell the property. I would take that $800 a month, get it invested into the S&P 500 into the NASDAQ like we talk about. And at least then you're back on track to build your wealth. And you learned a bunch, cost you some money. But you learned that when all these people tell everyone that real estate is all rainbows and unicorns, you found out the hard way. Unfortunately, it's not that simple.

Starting point is 00:34:22 So use it as a learning lesson. It's okay. Get back on the horse. take that $800 a month, get it invested, sell the property and move on because the stress alone and the opportunity cost you're losing by having to deal with all that negativity and negative cash flow isn't worth it. That's just my opinion. Right there with you with Robert. Listen, learning lesson. That's what this is. Do not feel bad. Do not, you know, get all, you know, upset about this. Like, seriously, this is a learning lesson. Yeah, it costs you $100,000 or so to learn this

Starting point is 00:34:56 lesson, but I've done that with more zeros at the end of it. Robert's done that with more zeros at the end of it, right? I would argue that we all pay our tuition to the markets, if that is the real estate market or the stock market or whatever. Think about this as your tuition to learn. I mean, I know it really, really hurts to think that you lost $100,000 on just this whole deal, but at the end of the day, Robert's right, that $800 a month that you're saving now. If you invest that into the S&P 500 for the next seven years, you get your money back. You got 100 grand right there for you. So three years of losses gets made up with seven years of gains. And that 100,000 that you now have seven years later will continue to compound year over year for the rest of your life,

Starting point is 00:35:42 much more than a negatively cash flowing house would not, right? So don't feel bad about this happening. Everyone makes mistakes. And I really want to encourage you to talk about your mistake to your friends. Don't be ashamed of it. it. Teach others about this mistake so they don't make the same mistake. I mean, that's what Robert and I do in the show all the time. I've lost hundreds of thousands of dollars making stupid money mistakes. Robert has lost millions of dollars making stupid money mistakes. And we made a whole podcast about it, right? So like, it's totally fine to make mistakes with your money. Everyone's human. No one's perfect. We all make mistakes. So Nikki don't feel bad about it. But I totally

Starting point is 00:36:21 agree. I would get rid of this house. I would make sure that you take this 800. and you start investing it, you start aggressively investing to try and, you know, grow your net worth back out of this $100,000 hole that you've dug yourself into. You're going to be just fine in the long term. This is not going to be the differentiator that changes Nikki's trajectory to become a millionaire or not. Like, it's $100,000, right? You're going to see millions of dollars in your lifetime, I'm sure of it.

Starting point is 00:36:46 And do not feel bad about this. Seriously, everyone makes mistakes. And I appreciate you being courageous enough to ask about this situation on a show like this and look for advice. I want to end this podcast on that note, and that's why I appreciate you so much, Austin. Everyone listening right now and watching, make sure you really follow up on this point. Share the problems you're going through. Share the emotion and share the instinctual things that are happening to you when things go wrong. So many of you, you know who you are, reach out to me in DMs, one-on-one calls, text messages and say, hey, I really screwed up.

Starting point is 00:37:28 I did this. Hey, I'm really nervous about the markets. I'm thinking about selling everything. But you're so afraid to talk to people about it. So you harbor all this anxiety around your money or the financial problems you're going through the issues. We've all gone through it. That is why Austin and I built the Rich Habits Network is to create a community of people

Starting point is 00:37:48 that all care about their personal finance and are looking to grow their net worth. but along the way life gets in the way and we all go through things. So just keep that in mind, share it with a friend, share it with a family member because money is difficult and a lot of times people don't share the wins or the losses because they're just, they don't know how to go about it. Make sure you do that because it'll help you so much better in understanding that other people are going through exactly what you're going through. If anyone tells you they've had all hockey stick growth in their career and they've never

Starting point is 00:38:22 lost money. They're lying. I promise you that. So keep that in mind, Austin, a great, great takeaway to get everyone to share the wins and the losses and just really get it out there so you're not harboring all of that fear. Yeah, you didn't lose money. You learned a lot. That's how you should think about it. It was your tuition you paid for learning. Everyone, thank you so much for tuning into this week's episode of the Rich Habits podcast. Again, a lot of uncertainty right now. If it's the tariffs, if it's inflation, if it's recession, if it's whatever is happening on your for you page, your Facebook feed, your X feed, your blue sky feed, your Instagram stories, whatever you're seeing, a lot of headlines are getting tossed around. Take a deep breath. Focus on what you can

Starting point is 00:39:04 control, which is your budget, your career, the relationships you have with the people that mean most in your life, and everything's going to be just fine. Thanks, everyone, and have a great start to your week.

Rich Habits Podcast - 115: How to Recession-Proof Your Wealth

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