Rich Habits Podcast - 68: Financial Concepts You Need to Know

Episode Date: June 10, 2024

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz break down three financial concepts you need to know. Dividend ReinvestmentSavings Rate vs. Rate of ReturnNet Income vs. Free Cash FlowThere are of course several other concepts that are important for building wealth and analyzing new investments, but these concepts will get anyone moving in the right direction!Don't forget to subscribe to the new Rich Habits Newsletter! 2,300 of you already have since it's launch only 4 weeks ago :) thank you!---👉 Discover new stock ideas and analysis on Moby! ⁠Click here to learn more⁠. ---⭐ Download our FREE Budgeting Template – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⭐ Earn 5.1% on your savings with a High-Yield Cash Account – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⭐ Trade stocks, options, music royalties and crypto on Public – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⭐ Get a $35 bonus when you start saving & investing with Acorns – ⁠⁠⁠click here⁠⁠⁠⭐ Automatically buy stock where you shop with Grifin – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⭐ Protect your family with term life insurance from Suriance – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⭐ Use code “Spotify” for 15% off our 4-module video course – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠⭐ Optimize your portfolio with Seeking Alpha – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠---👤 Explore everything Austin does – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠👤 Explore everything Robert does – ⁠⁠⁠⁠⁠click here⁠⁠⁠⁠⁠❓ Ask us questions for our Q&A episodes – @richhabitspodcast on Instagram📬 Inquire about working together – [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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multiply at a rate that would make a rabbit say, yo, chill. But Laura shopped on Amazon and saved on cleaning spray, countertop wipes, and fly traps. Hey, fruit flies, your baby boom ends here. Save the Every Day with Amazon. Welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify. 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 across all of his businesses of more than $300 million. 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 I 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, but we try and bring you two unique 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. So, Robert, what are we going to be talking about in today's episode? In this episode of the Rich Habits podcast,

we're going to be explaining three of the most missing. understood concepts in personal finance and investing. Because these concepts are so misunderstood, even in 2024, many people completely avoid the learning curve. And in my opinion, it's a huge mistake, causing you to leave so much money on the table. By the end of this episode, you'll completely understand the key differences in popular terms we hear on a daily basis, allowing you to make better decisions with your money. So Austin, what's the first misunderstood concept. The first misunderstood concept is the term differences between dividends and capital gains. So if you're listening to the show, you're likely an investor, right? You've probably invested into

the popular ETFs we talk about all the time, V-O-O-V-G-T, QQQQ, things of that nature. However, you might also be an investor into single stocks. We've talked about Google and Nvidia and Apple and Microsoft, things like that. Now, new investors often confuse. the price action associated with these investments as the best way to track their returns. Now, when you're tracking your investments, you should, of course, be checking in on the price of that investment because we want this to go up over time, but you should also be keeping track of the dividends that are paid to you, the shareholder. These are the cash payments paid to your brokerage account for simply owning the stock,

and chances are you get paid those dividends every three months, and they go up every single year if the company is raising their annual dividend. This is a great point, Austin. And most people just forget about is that 75% of the total returns from the S&P 500 over the last 40 years came from dividends paid to investors. So of course, we want to see the price of our investments go up over time, but the dividends paid to you are equally as important. And that's just something we need people to understand and really hammer home in this episode.

And there's a popular strategy that we think everyone should be doing with their dividends. And it's called drip DRIP. And it simply stands for dividends reinvestment plan. And it's exactly what it sounds like. So just make sure you turn on your drip settings inside of your brokerage account. So you're always optimizing your long-term returns and reinvesting those dividends that you're making. Robert, I want to restate the fact that you just said that 75% of the total returns of the S&P 500 over the last 40 years, right? So if you bought $10,000 worth of the S&P 500 back in 1984, the total return of that investment over last 40 years,

75% of that number, 75% came from reinvesting dividends. If you are making the mistake of letting your dividends sit in your brokerage account and not turning on that drip setting, so they're reinvested every single quarter year, whatever, however often you're getting your dividends, you are leaving so much money on the table. Yeah, this is a point that I think this whole episode, I almost feel like, why did we wake so long to make this episode? Because I feel it just really goes along well with our underlying message for the rich habits brand and what we do every single day. And that is getting people to understand

that every little strategy we talk about is a way for people to better leverage their money and their investments and their savings. And I love this because it's just so many of these points no one talks about. Robert, I just did the math for our listeners because I want to really hammer home on this point. $10,000 invested into the S&P 500 in 1984 would be worth $750,000 today. If you did not reinvest your dividends back into the S&P 500, like we're telling you to do, that $750,000 would only be worth $187,000. Can you believe that? Right? That's what we're trying to help people understand here is that like you are making a mistake by not logging onto your brokerage account right now and making sure your drip setting is turned on. I love this episode. This really works me up because, you know,

time is your friend in investing and too many people don't realize that. Well, let's talk about the second sort of concept here that is misunderstood, which is the difference between savings rate and the rate of return. So I'd argue that concept is probably the most important one for people to understand as they're building their base. I know a lot of listeners right now already have built their base, right, $50 to $100,000, but if you're still trying to get to that first $100,000, listen up to this concept. The savings rate versus the rate of return in your portfolio and understanding those two different things, right? No one's talking about this, Robert, and it is blowing my mind. So let's call it this. If you're making $80,000 a year at your job and your size,

hustle, right? You're making 80K a year and you save and invests 10% of that. Well, that's $8,000 that you've now invested into the markets. That's great. Now, that same $8,000 invested earning 10% per year is only spitting out $800 of portfolio income over that one year period. No one got rich off of $800 a year, but they certainly got rich off of $8,000 per year, right? So the savings rate of that 10% is definitely going to move the needle for you more as you build your base than the 800 is. So savings rate is more important than rate of return as you build up to that first 100,000. Now, as you've grown your portfolio, let's call it $80,000, that same 10% return is now completely replacing your savings rate. And when it then grows to $250,000, that 10% return is the exact same as maxing out your 401K for the year.

So understanding how important it is to lean into the savings rate as you build your base and then rely on the rate of return after you've built your base for long-term wealth creation is so important, Robert. I love this example and it excites me to watch you when you nerd out on numbers because, you know, I think sometimes when people listen to our podcast or other people's podcast, they might get lost in the numbers and think that it's above their head, but it really isn't. It's a lot simpler than people think. You know, and so this is just such a great example, and especially with the Roth IRA. We all know we can contribute up to $7,000 per year into this account. So if you have $70k in your account and it returns 10%, that's $7,000 right there. So add on top of that your $7,000 contribution. Now you're cooking with gasoline.

The power of compound growth is incredible. And everyone who's starting out needs to understand this. I really wish we could, like we said, tattoo. savings rate versus rate of return on your forehead and remember it because it's just such a critical, critical understanding and step in people's wealth building journeys. I couldn't agree more. I mean, this is what's going to make building your base actually get built. Because when we say 50,000 or 100,000, people are like, oh my gosh, can't do it.

No way. Not for me. And it's really hard to understand compound interest when you only have 10,000 in a brokerage account. thousand in a brokerage account because you're only getting 500 bucks a thousand bucks a year it's like oh whatever like investing's not for me i don't make that much money from it whatever but as you learn about how important the savings rate is and then get the base built now the rate of return can really take hold of your investment and can really begin to push your net worth up in the right direction by doing nothing right first it was sacrifice side hustle do what you could to save more now you're

living life normal no more sacrifice no more side hustle you're just you know contributing here and there, but the rate of return is now taking care of all of the heavy lifting for you. You just have to get the base built first. Yeah, I had a call yesterday with a friend's daughter who's 19 years old. She's sharp. She listens to our podcast. She's really on top of it. And she had an accident recently and it was really shitty, but she got a settlement of $10,000. And one of her first calls was to me and say, I have this money now. It's in my, you know, bank account. What should I do? And it really illustrates the power of financial literacy because, you know, we should do the numbers real quick. If she puts this $10,000 away into this basket of index funds and let's say at 20 years old till 65, so 45 years at an 8% interest, how much would she have, Austin, just on that one lump sum addition, even if she didn't add any more money?

$2.1 million after adjusted for inflation. Isn't that crazy? That blows my mind. And that's why I love it when we have episodes like this where we can really illustrate for people to have this long term outlook and stick with it because it's the best feeling on earth when you wake up every single day and your accounts are compounding. I love it when I get up in the morning and I look at my accounts and I'm like, oh, I'm up X amount of thousands of dollars today as I slept last night. And that is the best part is getting people to understand. Don't look right in front of your face for the returns and what's going to happen. Look at it 10, 20, 30 years down the road. I love it. And you know, Robert, I think a pro tip that our listeners should consider here is as you start investing and get more excited about it, start tracking your net worth. Like, seriously. Like, do it once a month, once every three months.

But like, do it often enough where you can see the incremental difference that you're making with your sacrifice, with your side hustles, with this new habits, rich habits that you are implementing in your daily life. because if you're doing these things and you don't see, like, you know, it's like, oh, I'm doing all this hard work, but I don't see anything from it. You're not going to stick to it, right? Personal finance is 80% behavior and 20% head knowledge. So we're trying to help you stick to the behavior side of the equation. While the head knowledge is important, behavior is what's actually going to move the needle for you. And so if you can stick to this sort of, you know, always investing, always ensuring that you're maxing out your Roth IRA and just living below your means and doing the things that you should be doing with your money and you're seeing the improvements, you're going to stick to it.

Yeah, I love it. And aren't we building a net worth tracker that we're going to have inside the community as well? Yes, stay tuned for that. We've got a lot of things that we're working on behind the scenes here. Hopefully should be done by the end of July. But yes, we've got a lot of cool products, courses, things of that nature that are going to be coming out very soon that are very, very cool. Now, the last concept, I think people misunderstand. It is a nerdy one, Robert. But we all watch CNBC. We look at the Wall Street Journal. We read these financial publications online. And a lot of them as we look at the Amazon's, the Microsoft, the NVIDias, they talk about some of these companies that report corporate profits, net income, right? And what I want people to understand is net income or profits that you might see on the headlines are not really profits. They are in the eyes of the IRS, but when we think about this from an investor perspective, I want you to kind of switch your mindset here. So understanding the difference now between corporate profits and free cash flow is really, really important. Because in my opinion, if you can predict how much money, Amazon, Nvidia, Microsoft, Salesforce, how much money these companies are depositing and net new cash

into their bank accounts, you can predict roughly where their stock price is headed. So here's an example I want to talk about. As we break this down, Robert, I want everyone to think about the term free cash flow as new cash added to a company's bank account. Just like Robert, if I was to give you $10,000 and you spent $6,000 of it throughout the month of June on your living expenses, that $4,000 you actually have left, that's the free cash flow, right? Super simple stuff here. So net new cash added to a bank account after these people spend on their, you know, whatever corporate expenses they have. Now, corporate profits are different because they include line items categorized as non-cash expenses. Here's a couple examples. Depreciation, amateurization, capitalization,

all these isations, right? But again, all of these line items that are these non-cash expenses, they might be a line item of millions of dollars or even billions of dollars. But that's not actual cash that's leaving the bank account of these companies. So, Robert, I know we're kind of in the weeds here. You do a good job of breaking things down for our listener. So I want you to sort of break things down a little bit more than I have for the people listening. I would say depreciation is the easiest one to explain. So, for example, and we'll keep it in simple numbers so it helps.

is let's say that I was Amazon and I bought another warehouse for logistical purposes. Let's assume I spent $100 million on the warehouse. Let's also assume I'm able to depreciate $10 million of that every year for the next 10 years. Well, I bought the warehouse with debt, so I didn't, of course, actually spend $100 million in cash. And the $10 million I'm able to write off of my taxes at a loss isn't cash either. So follow along here. That $10 million, however, will show up as a loss on my income statement, lowering my corporate taxes.

It will not show up in my free cash flow because I never pay the $10 million to someone. I'm simply taking advantage of the U.S. tax laws that are laid out there for all of us and understanding how the companies use these tax strategies will help everyone listening become better investors and learn how to focus on that cash flow and be able to build your business better and with less stress on how you're going to finance it. We could go down a rabbit hole of amortization. What are the best types of loans to use to be able to do these types of projects? And it's just really all about understanding depreciation, I think, is the easiest one and the most important one to understand. Cash is king, especially from an investor perspective.

If I'm investing into a company that is continually printing cash by operating their business, right, their free cash flow margin on that revenue is 10, 20, 30 percent. That means every $100 million in revenue that company generates, 20 million, 30 million of that is net new cash that stays in their bank account. That is a good thing to see because that's net new cash the company can then take to issue a dividend to buy back their stock. To do these specific things, they're going to send their stock price higher. over time. So that's what I look for as an investor. I'm always keeping an eye on free cash flow. I do,

of course, care about net income, profits, things of that nature. But as an investor, I always want to make sure that the companies I'm investing into are generating more and more cash for their shareholders over time. And a lot of people just look at revenue and profits. They don't care about the cash. It's a big misconception here and a big concept that you need to understand as an investor. Yeah, we could spend hours and hours breaking these points down just because I think it just is so helpful getting the listeners to understand the bigger macro picture of why a company does what and all of the tax breaks and all of this because it's just the way of the wealthy and the way these large corporations grow to such behemoths is understanding all of these strategies and being

able to legally take advantage of them, which benefits them, growth, and their investors. So I love this episode. I do too, Robert, I think a fun example. I remember back in 2021, kind of to lean into this depreciation example you gave, I bought a SUV. I paid $50,000 for it, and I put 10% down to buy it, right? So $5,000 of cash actually left my bank account. But I use some IRS tax code depreciation thing. My accountant told me to do it. And I was able to bonus depreciate the entire $50,000 value of the car against my business. So I showed a $50,000 loss, which means that's $50,000 I don't have to pay taxes on right, of profits.

I showed a $50,000 loss and I only spent $5,000 of cash. That's what we're trying to explain to you guys. Companies do this all the time. Apple, Amazon, Nvidia, Microsoft, Google. They're always doing these things to help bring down their tax liability, which means their profits are not always aligned with the actual cash that they're generating for shareholders. And we're trying to tell you, look at the cash. Don't care about so much the net income and the profits on the income statement.

Look at that cash flow statement and care about the cash. Now, Robert, talking about analyzing single stocks and getting excited about Amazon's and Teslas and invidias, there's an up-and-coming research platform used by over 5 million investors called Moby that helps them make better informed decisions between their consistent market updates and their individual stock picks, it's been really great becoming weekly users of this platform ourselves. Yeah, I didn't even know about Moby last year and now I can't get enough of their weekly stock picks.

I just love how straightforward they are. And they don't make analysis overly complicated, which is so key for everyone listening and why I love it. You all heard me talk about analysis paralysis being such a huge issue for investors. And I feel like Moby does a great job helping retail investors. be more efficient with their time and not overcomplicate things, especially those who are ready to diversify into single stocks after you've built up your base. And the other thing is, too, is their Instagram.

I think they nail it with their graphics on Instagram and really flushing out a point in a single graphic. So I would check that out as well. Yeah, their Instagram is awesome, Robert. I agree. I actually like their email updates. You know, I get those email updates every single week and they're pretty straightforward. I do, though, do my research, and I did do some back testing on their 2023 stock picks, and they did average a return of 30% and their 22 stock picks during a bear market averaged a return of 35%, which is pretty interesting.

Yeah, you know that the ultimate goal of the rich habits community is to help you take back control of your money. And I believe that Moby is one of those tools that will really help you just do that. So check out the link for Moby Premium in the show notes and in our stand stores. and as always let us know if you have any questions. But I love Moby. I'm really excited to be working with them and so glad you brought them to the table, Austin. Yeah, Moby's great.

I was looking at their platform the other week and they talked about how, I think it was late October that they picked Kava. We all know what Kava is, right? The place to get those salads at. Kava stock is up like 150% since they did their analysis on it. It's unreal. So yeah, go check out Moby.

Obviously, we're not selling every stock they pick is going to be perfect. But it's a pretty cool place to get inspired if you want to find new single stocks. All right, Robert, let's now jump into the Q&A section of the podcast. If you have a question to ask us, be sure to shoot us a DM on Instagram at Rich Habits Podcast or shoot us an email at Rich Habitspodcast at gmail.com. Our first question comes from Adrian C.

Adrian says, I have a whole life insurance policy, but I want to cancel it now after watching your episode with George Campbell. Before I do, though, I want to get your perspective on my situation. I pay $300 a month in my premium. it has a $500,000 death benefit, and I already have $7,000 built up inside the cash value that I can borrow from. Would you cancel it in my situation? Robert, I would cancel it. Again, we've talked about how terrible of a product these IULs and Whole Life Insurance policies are.

You literally can save 80% of that monthly premium have the exact same death benefit on a term life insurance policy. And I did the math actually here for you, Adrian. And so from 42, which is how old you said you were in the DM to 67 years old, right? Retirement age. You could take that same $300 per month of a premium you're paying, invest it in the S&P 500, have the average return of 10 to 12% per year. And that is $550,000 in retirement, right? So that's your death benefit, right?

You want to go get 500 grand, like for your children or whatever. Like, that's it right there. And if you want, you're still worried about this. Like, go take out $35 a month. Go use the link in the show notes below. with Sherrients, tell Russ that Austin and Robert sent you. He's a really great guy. You'll love him. And take that $35 a month and go get half a million dollars of life insurance through term life as a death benefit there for your situation. We just think that the whole life, you're just getting screwed, man. You're just getting screwed.

Yeah, the expenses are just so high. IULs are worse. And you know, you just have to look at it that these insurance policies, the only person making a lot of money is the person selling it to you. So, Austin, I thought it was a great breakdown. And I couldn't agree more. And I just don't like it. Term life, if you're going to do something is great. But otherwise, it's just not a good strategy. Adrian, literally do this. Go shop at Sherryans, figure out how much a $500,000 death benefit's going to be for you for the next. Let's call it 30 years, right, to 72 years old. It'll be 35, maybe $40 a month. Take that difference of the $300 you're doing already. Let's call it $260, $250. Take that difference and go invest it in the S&P. 500, you're still going to come out with way more money than you would if you stayed in this

whole life insurance policy. So please do not fall victim to these high commission salesmen, as we call them, and do some research. We appreciate you listening to the episode with George, and we wish you the best man. All right. Our next question comes from Samuel B. Samuel says, I have $22,000 in student loans, and I have $20,000 invested in my Roth IRA. My wife and I are moving to Florida for her graduate program, which is luckily getting paid for by scholarships. Her program's in Tallahassee, Florida, and when we get there, we want a house hack. We have $15,000 save for a down payment. We have no credit card debt, no car loans, and we're looking to buy maybe a duplex or a triplex, and of course live in the other sections. Are we jumping the gun here?

Should we save and invest more beforehand? Together we make about $70,000 a year. My salary is $50,000, and I make $20,000 a year with side hustles. Robert, you should probably take this one. Yes, definitely, Samuel. Thanks for asking the question. Let me touch on the real estate. estate side first and then maybe Austin can touch on the student loan side. I would say, I don't think you're jumping the gun. 15,000 is a little light because it's going to really lower what you can qualify for when you consider closing costs and everything to purchase a home. But the first thing I would look at is if you have that $15,000 or $20,000, you could get yourself into about a $350,000 duplex using the Fannie Mae 5% mortgage. So that is one way you could tackle this and a house hack,

then overall would really improve your financial situation because even if you bought a duplex and lived in one side of it, that would greatly reduce your monthly expenses. So I like where your head's at, but you'll just have to do the math and make sure it works. And then also with the two of you making collectively 70K a year, you need to also have a really long look at your budget to figure out your debt to income ratio. So you can see how much you should be putting away for saving and investing to buy a property or to get into your 401k's or your Roth IRAs. So I would be looking at that as well. And then, Austin, what are your thoughts on the student loan since we don't know the interest rate on that versus the 20K that's invested in the Roth IRA? Yeah. So of course, it's a great

idea to have your 20,000 in the Roth IRA because that's going to grow into millions in retirement. So that's awesome that you've done that so far, Samuel. I would say, if I were you, your wife's going for this program in Tallahassee. Of course, you guys just move out there. I would rent for a year. I would not jump the gun on the house hacking just yet because here's the deal. When you give yourself the breathing room to rent for a year, making $70,000 a year between the two of you, she's full time in school, so you're working full time yourself. So as you rent for a year, you're now giving yourself the opportunity to find the right communities in Tallahassee, right? I'm sure, you know, you can pop onto Zillow or Realtor.com or whatever and try and find that perfect duplex. But you're

you're not really living in the city. So it's hard for you to find that right pocket of where you want to invest in real estate because that's the most important thing, Robert, location, location, location. And so if you live in Tallahassee, you rent for a year, go find an apartment, 12, 15, 18, 800 bucks a month, 2000, I don't know what Tallahassee rents are. But if you rent in in Tallahassee for a year, you now give yourself the opportunity to, one, save a larger down payment, two, find the right location for the duplex you want to buy so you can house hack. And three, you can, you know, do what Robert said and really optimize your budget for the year there so you know when it is time to go out and buy that duplex or triplex exactly how much money you're going to have. So you can begin to kind of shop lenders and figure out the best interest rates there. You know, as it relates to the 22,000 in student loans, I would keep them on the side until we know how much the duplex or triplex is going to be. Wait till after you've sort of closed on that. You've figured out, you know, it's rented, whatever you got all that figured out too. I'd also be sure if $15,000 is all the money you have saved to your name, don't use all your savings to go buy a house. That's a terrible idea. You want to definitely have, you know, $15,000,

$20,000 saved in a high-yield savings account. And then in additional, maybe $30,000 to go down on this house hacking adventure you want to go on. Because when crap hits the fan and you got to go spend $1,400 or, you know, $7,200 on something crazy for this duplex. Like, you need to have cash to do that. Because you mentioned, you have no credit card debt, no car loans, right? You don't want to have to go into debt to do some of these repairs. That's what I would do, Robert. I would rent for a year. I'd save up as much as I can. I'd get a lay land and then I would go house hack. Yeah. I mean, if you think about it, Austin, it's exactly what I did. I moved here a year ago to Florida, a year ago, a year and one week ago, and I'm moving this weekend. I wanted to get to an area, figure out what I

liked, make sure I loved it here, you know, get the lay of the land like you said. And I think that's a great idea because then you really learn the area so you know what areas are growing, what areas have the best opportunities. What areas have the restaurants and the crowd that you want to be around, you know, for the future? So all of that is very, very important. And I would say the last takeaway for me, if I'm under 30 years old right now, I am living lean and mean and utilizing all of these opportunities in investing cryptocurrency, AI, because we are in one of the largest wealth transfers in history. And I would take every dime I could get my hands on and literally work as many hours a day weekends as I could, even if it was nights as a

bartender weekends at country clubs. I wouldn't care because you can set yourself up for decades by putting in the work now. So that's my thought and my final takeaway on this question. I love it. Our last question comes from Jess. Jess says I'm 27 and I feel like I'm behind with my money. I understand the basics and I've made it a goal of mine to set up the high yield savings account as I've also already opened up and maxed out my Roth IRA and I'm even contributing to my 401K. But I feel stuck as to what I should be doing next. Should I invest? Do I go buy a duplex?

Do I pay off debt? I really don't know. I have $34,000 in a savings account, $10,000 in my 401k, $18,000 in student loans, and have no credit card debt. My goal is to become financially independent as soon as possible. Jess, you're on a really, really great start. Oh my gosh, 27, with $10,000 in a $4,000. 401k, $34,000 in cash in a savings account, and you only have $18,000 left on your student loans. Oh my gosh.

Okay. So, Jess, if I were you, you know, I just turned 28. So I'm kind of, you know, in the same age realm as you are here. If I were you, I would assume you're probably paying between, depending on what your student loan balance was originally, $200, maybe $300 a month. It seems like you want to become financially independent as soon as possible, which means the easiest way to do that is to get rid of any lingering debts, because the more you're paying of your income out to debt, the less you can live off of your income because you want to be

financially independent. So I would consider taking some of that 34,000 in paying off your 18,000 of student loans, even if you're there at, you know, five, six, seven percent, like you could argue, yeah, I could invest the money, whatever, which is true, but you're already sending on so much cash that you still have a lot left over to invest, right, and become financially independent. We also have 10,000 and a 401K. So let's do some quick math here, Robert. So after Jess pays off for student loans, she's got $16,000 left. Let's carve out 15 of that $16,000 and park it in a high yield savings account. Use public.com's high yield cash account. It pays over 5%. It is wonderful. Link in the show notes below. That $15,000 is now your emergency fund, right? Something bad

happens, pop a tire, got to go to a funeral, like that's what that money is for. Now you've got $1,000 left over. Let's just throw that in your checking account for good luck. Now you have no debt. You have an extra $300 a month now in your monthly budget to start investing more with, and you're already investing in your 401k. So this extra 300, I would put just toward the Roth IRA. If you're not already maxing that out, you said you've maxed it out in the past. Make sure you're doing that now this year and continue that next year with this extra $300. And assuming you've maxed out the Roth and you're going up to the match with your 401k,

I mean, the secret to becoming financially independent is to leverage taxable brokerage accounts, right? Money that you can touch before 59.5. So I would start taking a couple hundred, maybe even up to $1,000 a month, just depending on your income, and start investing it through public.com into some of these passive income ETFs we've talked about, SPYI and QQQI. Assuming you want to live off of your passive income and become financially independent, once you have $50, $100,000 invested into these passive income ETFs, you can begin to expect one, two, maybe up to $3,000 a month in complete passive income. So that's the deal. that I would do for Jess, especially because she said her main goal has become financially

independent as soon as possible. That's how I'd approach this, Robert. But you know, you've been around longer. You've probably gone through something similar. What's your perspective? Yeah, I would be hollering at you, Austin, from the other side of the fence. Hello, over there. So here's my thought, Jess, 27 years old, you're obviously smart, you're crushing it, you're getting things together. I would go a little different. I still think with the election coming up and so much hoopla around student loan debt that there could be a program that we see another reduction, a giveaway where they, you know, release student loan debt, whatever could happen. I would probably go a different route. I would likely pay the minimums

on the student loans and hopes that down the road they, you know, make a new program to get rid of that debt or help us with some sort of aid. I would probably get a small portion of that 34,000 in savings. And I would get that into some cryptocurrency, maybe four or five thousand of it, into Bitcoin, Ethereum chain link XRP because I do believe we're going to have a huge bull market in the next 18 months to where you could take that five grand and really accelerate your earnings on it and then maybe use the winnings and the gains from that crypto to pay down the student loan debt. But for me, if there's a chance, even if it's a 10% chance of seeing some of that student loan debt go away by the government, I'm going to put my money elsewhere.

So that's what I would do different from Austin. but I think they're both good strategies. So what's your perspective on achieving financial independence for Jess? To me, financial independence does not mean no debt, as long as it's good debt. And I'm not saying student loan debt is good debt. But let's assume her student loans right now are 6%. Well, I strongly believe, and I'm sure you do in most of the listeners, that Bitcoin is going to perform better than 6% a year for the next two or three years, you know, and it could be immensely higher. So for me, I think I'd rather take some risk

to make 10, 15, 20, 30% with my money because we always have that in the pocket that there is a chance the government does more programs to relieve people of high student loan debt or high interest the student loan debt. So that's the reason I would hedge against paying it off with the cash that I have. I get it. I totally get it. All right, Jess, this is. is the Rich Habits podcast, those two perspectives right here for you. So whatever decision you make, just make sure that you are, again, focused on becoming financially independent, which I define, Robert, as your passive income offsets your monthly expenses. Yeah, that's the literal explanation and meaning. But I just wanted to clarify because some people might think that being financially

free means no debt, and that's just not the case. That is true. Yeah. I mean, becoming financially free slash independent just means like, oh, I woke up and my real estate paid for the this or, you know, my passive income through SPYI or the dividends or whatever it is, that pays my mortgage or my car note or whatever that looks like, right? So everyone, thanks so much for hanging out with us on this week's episode of the Rich Habits podcast. Don't forget, we have a newsletter now. New edition of the newsletter comes out every single Thursday. It's called the Rich Habits newsletter. There's a link in the show notes below. It's broken down pretty fun, Robert, right? Because we've got the chart of the week, which is a really cool illustration of some great financial tip or something in the

headline news that's impacting your portfolios. I mean, we're breaking things down for you illustrated first, right? We don't want you to get overwhelmed by too many words and definitions, right? We want this to be very fun to read. Robert has his own weekly callout. I've got my weekly callout and we have the Rich Habits Radar, which are some of the most important headline news that we see right now in the market. So be sure to use the link in the show notes below to subscribe to the newsletter, join 47,000 other subscribers and weekly readers of the newsletter. And with that being said, have a great start to your week.