Rich Habits Podcast - 21: How To Make Your Child a Millionaire

Episode Date: July 17, 2023

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz share their three favorite strategies to build wealth for minors. By leveraging these three strategies, your child will be able to stay out of student loan debt, get a jump start on their retirement investing, and won't need a co-signer come 18 years of age. If you have a question for next week's episode, be sure to ask it through Instagram DMs! @richhabitspodcast---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.

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From binge all episodes exclusively on Paramount Plus. Hey everyone and welcome back to the Rich Habits podcast, a top 10 and soon to be top five business podcast on Spotify. My name is Austin Hank Wits and as always I'm joined by my co-vo's Robert Croke. 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've built a seven-figure media business and actively advise 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 and bring you two unique perspectives along the way. 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. Yes, in this episode of the Rich Habits podcast, we'll be walking you through exactly how you can set up your children to become millionaires before their peers. Specifically, we'll be breaking down the 529 plan, the custodial online brokerage account, as well as our favorite hack for building credit for minors. We hear the term generational wealth on social media nearly every day and how excited people are about one day achieving that. But when we hear about

people whose parents help put them through college, starting investing for them early, or set them up with good credit, we get mad and jealous. That's a losing mindset. You really have to watch out for that lack mindset. We know the game of life can be hard, which is why we want as many people as possible to be leveraging the tax-deferred benefits that come with the 529 plan, the wealth-building power of compound interest, and the additional chances to build wealth that come with a higher credit score. Unfortunately, so much of society are stricken with this lack mindset. And they believe that because someone else is doing better than them or their parents help them or showed them away, that it's unfair somehow to them. And it also resonates well with people's belief that the IRS is bad.

At the end of the day, the IRS are our friends and their rules and regulations, their laws are put there in a nice little packet for us, for us to follow and exploit them to build our wealth. So we have to figure out a way for everyone listening to really find their path to the right mindset in building wealth. With that being said, Austin, walk us through what the 529 plan is and the benefits of it. Well, with that being said, Robert, let's talk about the 529 account, which is actually getting its name from Section 529 and the IRS tax code. Now, the 529 account is a tax advantage investment an account that can be used to pay educational expenses from kindergarten through graduate school. Anyone can open a 529 account, which is why this is such a powerful wealth-building strategy.

Here's exactly how it works. You, the parent or even soon to be parent, you don't have to have a child to open one of these accounts yet, opens a 529 account through either the state or an online broker of your choice. Make yourself the beneficiary. That's key. Then start depositing any amount of money on a monthly basis, making sure it's properly invested into the S&P 500 or some other fund of your choosing immediately after depositing, and then finally, when your child is grown and ready to attend college, you're able to both withdraw the original deposits and the profits that came from those deposits tax-free and use that money to pay for those education-related expenses. This might be tuition, this might be books, or even dorm housing, right? All the above.

Now, the best part is when you withdraw this money, again, you're not obligated to pay a dime and taxes on those profits over that 18-year period. Now, my favorite part about the strategy is if you don't spend all the money inside of this $529 account, right? Think like maybe your child got a full ride to college because they're very athletic or very smart. You could actually roll over $35,000 of the money in this account, directly into their Roth IRA at the age of 18. So they're already getting a jumpstart now on their personal retirement.

You're also able to withdraw $10,000 per year out of this account tax-free to pay for educational related expenses for your children between kindergarten and 12th grade, right? So it doesn't always have to go toward college. If you're wondering, right, okay, maybe I put in $100 into this account every month. What could this really turn into? The answer is your account could grow to nearly $50,000 by the time they're $8,000. Now, as we talk about setting your child up to be a millionaire, imagine that child having a $50,000 jump on paying for their college tuition

and not having to take out $50,000 in student loans, right? That's what you're doing with this account, and that's why this account is so important. I really love what it can do to really give that child and soon to be adult a head start on everyone else because we all know student loan debt right now is a killer, and there's a lot of good and bad news happening. so it's a great way to give them a head start and I love it.

Let's talk about the next wealth building strategy, setting your child up to become a millionaire before their peers. What's number two? Yes, the custodial investment account. I love this one because in theory it is so, so easy for you to set your children up to be millionaires and it's really a set it and forget it strategy. We normally don't like that, but in this case we do because we want this to be like paint drying and when they turn 55 years old, they're a millionaire.

So how this works is when your child is born or as early as possible, you want to open up a custodial investment account on their behalf. You have to do it, remember, because they're a child and they're under 18. Just like you or I can go to public.com to open an investment account, you're doing the same for them where you're opening it up. Then here's where it gets easy. You're going to deposit $100 a month for 18 years and invest the $100 into the S&P 500 every single month. Then once they turn 18, you can stop contributing and then you can sign the account over to them only with the caveat that they don't touch the money until 55 years old. And assuming they don't contribute another dime more in principle, by the time they're ready

to begin winding down for retirement, this account will have grown to a million dollars in value. I think this is a super hack. Almost every parent on earth should be able to afford $100 a month to set each child up and it's just a sure-fire way to really put them in a great position because, you know, life has its ups and downs. We don't know what they're going to go through in their career, but at the end of the day, you're putting them in a spot where you at least know they're going to have a million dollars at retirement. And just so we're on the same page here, we assumed an 8% returns. So we're absolutely taking into account future inflation. And what we're also really demonstrating

here is how powerful compound interest can be. I mean, what Robert just laid out was a plan for you to over 18 years invest about $21,000. That $21,000 invested and stopped investing toward, turns into a million over your child's lifetime. So I love this strategy, Robert. What is our third strategy to help these people set their children up to be millionaires before their peers? Yes, it is make your child an authorized user on one or more of your credit cards. Just so we're on the same page, making your child an authorized user on your credit cards allows them to benefit early on from your good credit history and helps them build their own credit score before they're even 18. This is a mind-blowing strategy that I'm shocked more people don't implement or know about. So we're going to break it down for you today.

This is as easy as checking with your current credit card providers and what their rules are. We did the research for you and there's no minimum requirement for Bank of America, Capital One, Chase and City, while there are age requirements for American Express, Discover, and a few others. Now, here's where the pro tip comes in. Some of these credit card providers might not have age requirements, which is good news, but they also don't report your good credit score habits to your child's credit bureaus. So completely negating this strategy. So before you start doing this, make sure you call your credit card companies, see what their requirements are, check in with some of the others we've listed because there are several of them out there that report to the bureaus so your child's credit is being built all along the way while they're doing none of the work. You'll thank us when your child turns 18 and you don't have to co-sign for anything. Definitely do this. It's going to help your children so much in life by having a great credit score by the age of 18.

So many of us grew up with parents that didn't teach financial education to us. Just because we didn't get the financial education from our parents doesn't mean we can't pass along good habits to our children. So I think these three strategies are just great to get them on the ground running and really set them up for the future. I couldn't agree more, Robert. And with that being said, let's introduce the sponsor of today's episode. This episode of the Rich Habits podcast is brought to you by Nios Investments.

Nios offers ETSs that aim to offer monthly income while providing core portfolio exposure across equities, fixed income, and cash alternatives like T-bills. Their ETS may be particularly interesting for folks to generate passive income inside of their investment portfolio. They even offer an ETF that provides exposure to the S&P 500 index while aiming to offer high monthly income beyond what investors would receive from plain exposure to. to the index. Their funds may serve as a compelling income-focused alternative or complement to many of the investments already in many investor portfolios. If you're looking to add

passive income-focused ETFs to your portfolio, consider learning more about Nios's ETFs at NiosFunds.com or in the show notes below. And as with all investments, investors should carefully consider their investment objectives, risks, charges, and expenses of Nios exchange traded funds before investing. To obtain a prospectus containing this and other important information, please visit neosfunds.com and please read the prospectus carefully before you invest. Neos ETFs are distributed by Foreside Fund Services LLC. The investment in Neos ETFs involves risk, including possible loss of principle. The equity securities purchased by the funds may involve large price swings and potential for loss. A fund's income may decline when yields fall,

and fixed income securities will decline in value because of an increase in interest rates. Thank you all, as always, for sticking with us as we read through the scripted part. And I say this after every single ad read for Nios, but I'm a big believer in their SPII ETF. It is an awesome ETF I personally hold in my portfolio. Robert does as well. And it is something that I'm really excited about. So go check out Niosfunds.com. Seriously, it is not just a sponsor. It's something that we actually use and are really excited to be working with them. So, Robert, with that being said, question and answer. Everyone's favorite segment of the episodes, I'll kick this first one off, but I want to hear from you what your thoughts are, Robert.

So our first question comes from Sam W. Sam asks, I'm a 21-year-old landscaper who never went to college because I was afraid of student loan debt. I'm now maxed out from a career growth perspective on my earning potential, but I want to learn a new skill. I'm not sure college is the answer because of high student loans and the rise of artificial intelligence, what should I do? Sam W. I love this and I think you're in a great spot, 21 years old, you're already doing well, you have the entrepreneurial mindset so you know how to run a business, you know how to get in there and get dirty and really set things up and go for it. My opinion, because you're looking away from getting into college, you don't really want to get into AI,

I would stay in the services industry and I would just pivot to one that has a higher ROI per hour for you and your workers and I would go that route. Think plumbing, electrical, or some of the other high paying trades, I would pivot that route. That way you can grow further wealth. You'll have higher pay yearly and hourly and you can really build into a field that has more scale and more growth available to you. I couldn't agree with this answer more. Robert, I think there's a massive white space right now, especially over the next 10 to 15 years for people who want to build and work with their hands. You mentioned plumbing and electrical. I just paid $400 for someone to repair my HVAC system earlier this week. I don't know how to do that. And I'm sure over the next 10 years,

that $400 fee is going to increase to $1,000 or $2,000 because of the lower and lower amount of supply there is for people who are good at these specific trades. So Sam, if you learn these trades, electrical, plumbing, HVAC, fencing, all the boring businesses or parents like, oh, you're going to be a plumber when you grew up. Absolutely are going to be a plumber, Sam, and you're going to make six figures doing it. Yes, I love that, Austin, because we have to look at it from a macro level. Right now, while everyone is migrating to AI and copywriting and video editing and all the cool fun stuff on computers, those are now going to be the trades that are oversaturated with time, whereas the trades of old, the people that can work with their hands

and learn a skilled trade are going to thrive in the years to come. Because as everything has flip-flopped into digital and online work, all of those skilled trades are just going to keep going up and up in value and scarcity. So I think this is a great question, Sam W. I would look at one of the highest paid skilled trades and I would go all in there. Great question, Sam. Next question comes from Eric K. Eric asks, when it comes to investing in my Roth IRA, it's mainly in index funds right now. Shouldn't I keep this strategy or begin to diversify into other equities and asset classes? Eric, this is a wonderful question and I think you are absolutely on the right track. Whenever it comes to my personal Roth IRA and my personal retirement accounts, I've got 80, 85, 90% of

the value in index funds, right? We're talking VOO, O, QQQ, VTI, and other index funds of that nature. However, I do like to take some of that money and invest it into blue chip stocks that have been here for decades and will continue to innovate and be here for decades to come. For me, that includes Google, Microsoft, Apple, Amazon, and Vivida, those big, big, multi-trillion dollar companies we all know and love. I'm not dabbling in the dark arts of petty stocks in my retirement account, right? I want to make sure that this is a solid account that is going to be.

worth millions and millions of dollars in the coming decades when I'm ready to retire. So I'm not willing to take the risk of making a bet, no matter how large or small it might be, on a company that is speculative in nature. So you're definitely on the right track, Eric. Mainly in index funds is the way to go. And if you want to have 10, 15% of that weighting also in blue chip stocks, I'm not mad at it. I will put a different wrinkle to this. You know me in cryptocurrency.

I like to have alternative investments. I would have 5% of my funds in cryptocurrency spread across the blue chips and some of the ISO 22 coins. So, Eric, look at those as other strategies that you can diversify and help you grow in the future. You might want to also look at some of the other things like real estate or, you know, fine art. There's a lot of different ways to have your portfolios perform well, but you're definitely on the right track. Our last question comes from Leah F. Leah asks, I work in sales, therefore my monthly income varies tremendously. How do I build a budget for myself when each month can be so different?

Now, Robert, I'm excited to hear your perspective on this, but I'm going to take a stab on it first. Leah, I want you to think about what's that sort of bare minimum amount of money you're always going to get no matter what on a monthly basis. I'm sure, you know, you probably have a number in mind if it's $1,500 or maybe even $2,000 a month. And how can you look at that, the bare minimum, and make sure you're covering your essentials? I'm talking about rent. I'm talking about transportation. I'm talking about your utilities and food, things that you need to be paying for on a monthly basis to continue to earn this income and live an essential life. Now, Robert, what's your strategy on perhaps the variation and how Leah should be allocating the variables? Yes, this is a tough one. And I always related to kind of this yo-yo strategy of up and down.

It's really difficult when you don't have a defined amount each month that's going to come in. And that is why the budget is so important. So I want you to download the free budget template that's in our show notes, really take the time to fill it out. And then once you're done there with the budget, figure out what your debt to income ratio is. This is very important, super simple. You can Google it, break it down, get that figured out. And then you just have to really sit back because you're going to have the big high months. you're going to have the low, low months, and you've got to find that average.

Once you do, then you'll know the amount that you need overall monthly for all of your gross budget expenses. And then after that, figure out what is an overall average that you can set aside in the good months and the bad months so you can begin with your investment strategies. It's just very important when you don't have a stabilized income to find a balance in the middle and pull out what you can to get going on your investment. journey. Everyone, thank you all so much for listening to the Rich Habits podcast. We hope you have a wonderful Monday morning. And don't forget to share this podcast with someone else who might be

having children soon or maybe they just had a child. We want everyone to take advantage of the IRS, the tax code, compound interest, and every good thing that comes up building a credit score early so we can set our children up to be wealthy and eventually millionaires by the time they're ready to retire. Austin and I thank you from the bottom of our hearts for all the support you've given the Rich Habits podcast. We're so excited to be ranked number six, and we're hoping this week we can get into the top five. So please, please visit the Rich Habits podcast on Spotify and Apple, and give us a great rating if you love what we're doing. And don't forget to ask us a question on Instagram. Eric, Leah, and Sam all did that. So that's where we pull these questions from at

Rich Habits Podcast is the handle for that, and we'll see you over there. Thanks, everyone, and have a great start to your week.