Rich Habits Podcast - Q&A: $230K Income Living Paycheck to Paycheck, 15 vs. 30-Year Mortgages, & How Inflation is Calculated

Episode Date: September 26, 2024

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz answer your questions!---To review the Federal Reserve charts we mentioned during the episode, click here! Don't forget to subscribe :)---Open a Bond Account on Public and receive a potential 6.5% yield on your money, click here!---Sign up for the Rich Habits Network so you don't miss out on the next big investment opportunity, click here!---⭐ 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⭐ 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]---Disclaimer: A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. The [6.9%] yield is the average annualized yield to maturity (YTM) across all ten bonds in the Bond Account, before fees, as of [8/28/2024]. A bond’s yield is a function of its market price, which can fluctuate; therefore a bond’s YTM is “locked in” when the bond is purchased. Your yield at time of purchase may be different from the yield shown here. The “locked in” YTM is not guaranteed; you may receive less than the YTM of the bonds in the Bond Account if you sell any of the bonds before maturity, or if the issuer calls or defaults on the bond. Public Investing charges a markup on each bond trade. See our ⁠⁠⁠⁠Fee Schedule⁠⁠⁠⁠. Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. You should evaluate each bond before investing in a Bond Account.  The bonds in your Bond Account will not be rebalanced and allocations will not be updated, except for Corporate Actions.Fractional Bonds also carry additional risks including that they are only available on Public and cannot be transferred to other brokerages. Read more about the risks associated with ⁠⁠⁠⁠fixed income⁠⁠⁠⁠ and ⁠⁠⁠⁠fractional bonds⁠⁠⁠⁠. See ⁠⁠⁠⁠Bond Account Disclosures⁠⁠⁠⁠ to learn more.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.

Hey everyone and welcome back to the rich habits podcast, a top 10 business podcast on Spotify. This episode is our question and answer edition, which means you email us, you send us Instagram DMs, or you ask your questions inside of the rich habits network. We take those questions and we answer them live here on the show. We love doing these episodes. You all love them as well. You guys actually starting to like these more than our normal Monday episodes and we couldn't be more happy about it. Yes, it is awesome to see the Q&A episodes not only have, the questions become more complex, but they are growing in popularity. And I think it's just great because everyone gets to be involved in what we're talking about, the answers, and all of this

in-depth information that we break down each and every week. Super exciting news. Before we jump into this week's episode, we got allocation for the Rich Habits Network to invest in SpaceX. As you all know, by joining the Rich Habits Network, not only are you able to get, you know, exclusive access to myself and Robert. We have these weekly live streams. We have. We have six hours worth of video coursework. There's all these cool perks that come with joining the Rich Habits Network, but one that we're specifically excited about is we get to share investment opportunities that come across our desk with all of our listeners.

Just last week, we were able to share an exclusive opportunity to invest into SpaceX. I think, Robert, there was 10 or 12 people that invested into SpaceX from inside the Rich Habits Network through this opportunity. About a quarter million dollars was invested from the Rich Habits Network, you know, community members into SpaceX. They got the stock. It's a whole thing now. So it just goes to show, like, we have some really cool stuff that we're working on.

And we try so hard to share and give you guys the best opportunities possible by being a part of the Rich Habits Network. And by joining us, not only will you have opportunities like that again in the future, but again, you can ask us questions during these live streams we host every single week. You can ask us questions directly on the platform. You can leave questions. You can network with others. Oh, Robert, we also gave a pair of AirPods fours away to someone that paid off their credit card debt.

I mean, we're doing all weekend. to support our community members, get them excited about building wealth, and I can be more happiest to where the Rich Habits Network stands today. Yeah, it's definitely one of my favorite things I've ever been part of and built. And so the cool part is, is looking forward to a year from now. You know, the Rich Habits podcast is a top 10 podcast. The network is growing so, so quickly. The responses we're getting really speaks volumes to the effort we're making and the information we're providing. And, you know, as educators, I just love it every day because I feel like we're giving our community that edge that they want to be able to really crush it in life, business, and in their

portfolio. So it's really exciting for me each and every day to be able to do the research and do the work with you and build this awesome community. So I'm really excited for the future. So before we get in, I want to give a quick heads up that time may be running out to lock in the 6.6% yield at public.com. Now bond yields are at their highest level since 2009 and you can take advantage with a bond account on public. But here's the thing. The Fed has officially begun cutting rates and there will probably be more rate cuts this year and into 2025.

Now the good news is that with a bond account you can potentially lock in a 6.6% yield until 2028. And when the Fed lowers interest rates further, your yield remains the same. But you must act fast to take advantage of some of the highest bond. yields in years. Discover how you can lock in a 6.6% yield until 2028, the new bond account only at public.com forward slash rich habits. And just so we're on the same page, Robert, a bond account is a self-directed brokerage account with public investing. They are a member of FINRA and SIPC. Deposits into your bond account are used to purchase a set of 10 fractional investment grade high yield bonds.

Yield represents a month the average that's an annualized rate of return before fees as a of September 23, 2024. The yield is subject to change daily and the yield at the time of purchase may differ. All investing carries risk. This is not an investment recommendation. Be sure to visit public.com to learn more. You know, Robert, it's kind of funny. We've been talking now about the Fed cutting rates for almost three months. We've published a couple episodes about it at this point, not just as to how it will impact your portfolio, but how to now generate additional yield in your portfolio with these lower interest rates that are, you know, now happening. The Fed cut rates by 50 basis points, right? So half a percent last week. And we're seeing that all across the markets, right?

We're seeing sort of the small cap Russell 2000. Some of these others indices is really rally. For example, Robert, yield on T bills now have dropped dramatically from 5.3% to 4.6 in a matter of weeks. So we told you guys this was going to happen. We gave you the heads up and we gave you the blueprint, the playbook to follow as the Fed cuts rates, how it's going to impact your money and what to do with your money to help navigate this entire situation. Robert, what did you think about the rate cuts before we jump into the episode? Yeah, I thought it was okay. You know, we expected it to be, you know, 25 basis points. They ended up going 50, but the good thing is right now is that the market did not respond negatively. So that was a good sign that there is some help in the market because everyone

has to realize that was the first rate cut in four years, which is just really, really important. And so what does that mean to the average person listening to this podcast? It means cheaper credit card bills, cheaper interest rates if you're looking to buy a house. So the mortgage rates should come down and are already coming down. So it is a good sign for the market as long as the reaction to it is positive. And we don't see us turning into a recession right out of the gate. So I'm excited for the weeks coming ahead. But I just want everyone to understand, I believe we will still see volatility over the next 40 days leading up to the election.

just because that's the nature of the beast. And that is why, Austin, it's so important how each and every week we break these things down for everyone. And we just don't employ a set it and forget its strategy in our education because there's so much happening in these markets right now. And you have to be on top of the changes. What is going to affect the markets? Where are the markets going?

And so this is so important. And I love this conversation because of that of just giving people that window of a heads up so they know how to react rather than having a panic, action when the markets change. Robert and I published a very detailed newsletter last Thursday after the Fed cut rates. It included a ton of charts, data, historical trends, everything in between. We will link that newsletter, the Rich Habits newsletter, in the show notes below if you want to read that.

It goes into depth as to what the Fed did, why they did it, what they're looking for, what could happen in the future, how it might impact your portfolio, all that stuff. So definitely go check that out in the link in the show notes below. Now, our first question comes from Kenneth T. Kenneth says, hey, Austin and Robert, I'm 59, and I'm a late started to investing. I've only got $140,000 in a employer IRA. I've got $80,000 in my public.com brokerage account. I have no debt, but I am making regular deposits into this IRA, and I'm investing that money into the ETFs that you all mentioned. Now, here's my question. Should I convert this IRA into a Roth IRA at my age? If so, how do I go about doing that? Robert, what do you think about this

question. Yeah, I would say Kenneth should just stay put. I don't see a point. Maybe you do so you can take it away when I'm finished, but I don't see a point of rolling it over at 59 years old. You might as well stay there. You haven't had the years and years of growth and compounding that a Roth provides tax-free. So I think you're fine leaving it into that regular brokerage account and just keep rolling and doing what you're doing because at this point, you're not going to be able to take advantage of the Roth enough to probably make a difference. No, I totally agree. I think, Kenneth, if you had asked me this at 39, I'd have probably said, heck yeah, why not, right? 20, 25 more years of investing of that compound growth that Robert was alluding to. And the reason

why Robert and I sort of take age into consideration here is because this, once you convert a traditional IRA, a normal IRA into a Roth IRA, that conversion process means you realize the entire balance of that retirement account as income in the year that you converted, which means you would theoretically realize this $140,000 balance in your IRA as income during the year of 2024 and have to pay federal income taxes on that. The reason being is because all of the money you deposited into this account, you did not have to pay taxes on. You didn't have to pay federal income taxes on, right? It was a tax-free sort of contribution or brought down your taxable income for the year. Honky-dory, all as well until now you're in your 50s and 60s.

and you want to begin taking the money out, that's when you owed the taxes. So, Kenneth, I wouldn't do it. You're already old enough. If I were you, I would continue to contribute to the account as much as you possibly can. Obviously, no debt is a really good place to be in. We've got a quarter million dollars working for you. That could doubled about 500,000 here by, let's call it, 65, 66 years old because the rule of 72 tells us that an investment growing at 10% per year doubles every seven years.

And we definitely can get that in the markets. Last year, the markets went up 28%. So far this year, the markets are up 20%. so I wouldn't at all feel bad about your situation of being a late bloomer. You have a lot to be excited about. Our next question comes from Stacey. Stacey says, I have a question around retirement accounts. My husband doesn't get a 401k at work and doesn't consistently contribute to his IRA.

I have a 401k, but next year, I'm actually going to be a partner at my law firm, and that comes with the requirement to contribute to a defined contribution plan that's going to be at least $43,500 per year. I plan on maxing that out, and I also want to max out the 401K since we don't get that benefit for my husband. After listening to some of your podcast episodes, though, we're beginning to rethink this strategy. We do not have autonomy in the 401k because it's mostly target date funds. What do we do with this $23,000 that we would have put into the 401k, assuming we don't do that and maybe instead use it to build a bridge account or something else? For what it's worth, I have about $250,000 in this 401k, and I think we don't do that. that's a pretty good place to start. In the past, we've been heavily focused on the 401k and the

529 plans for our children, and how we're starting to think we might be behind from an early retirement perspective. Robert, I'll kick this one off. So you guys are definitely not behind. I mean, you didn't share your ages here, but having a quarter million dollars in your 401k's, that's a great place to be. You mentioned how your husband doesn't consistently contribute to his IRA. Maybe he has, though, in the past, and you have a couple, you know, 10, 20, 30,000 into that account. you probably are contributing yourself here. But what I think is very, very important is for us to figure out exactly how much as a household we're making and how much of that income we are investing toward retirement.

If you all as a household, for example, are making $250, $300,000 a year. I mean, being partnered a law firm, we're going to be making much more than that. If you want making a couple hundred thousand dollars a year and you're now contributing, call it 10, 15, 20 percent every year toward these retirement accounts, you guys are in a great place, really good spot. But if you are now making 200, 300,000, and you're only contributing that $20,000, well, then I'd encourage you to contribute a little bit more. But it seems like in your example here, as you begin to make partner at this law firm, you will have to contribute $43,500 a year. In my experience, I would argue that contributing $44,000 a year essentially

into retirement accounts are enough, considering you're probably in your 40s, maybe early 50s at the latest here. That's going to carry you greatly into having an awesome, well-funded nest egg for your retirement. And then that 23,000 that you would have said you contributed to the 401k, you can now take that money to, one, help your husband max out his IRA, and two, begin sort of contributing toward this bridge account. You said you wanted to have an early retirement, and the only way you're going to have an early retirement is if you have hundreds of thousands of dollars sitting in a normal traditional brokerage account on public.com that can generate a healthy yield for you, bridging the gap between early 50s, mid-50s, and to when you can really touch that money

at 60 years old. So that's my perspective. Yeah, I love it. I'm glad you touched on the bridge account because I think that is the key missing link here is you don't want to have everything tied up in these 529s in the 401k. And so I think it's a really good time for you to consider that bridge account because with the 43,500 that's going to be required in your defined benefit plan, I would take everything else and start putting it into the bridge account and moving some money that way because like you said with the 401k currently having those, you know, let's say less than autonomous investments in that, you know, we want to make sure that you're just making as much money with your money as you can and not all 401ks are built equally. And we just want to make sure you're not leaving a lot of money on

the table by dumping everything into the 401k. So I love that breakdown, Austin. And I think the bridge account is definitely the way to go here. And great job, Stacey, on making partner. And for everyone that's thinking about submitting a question, when you have really in-depth details for what your pain points are and your questions are, always try to give us as much detail as possible. Ages are very important. How many kids do you have? Do you have multiple mortgages? How many car payments do you have alongside of it? So we have a better picture of how we can wrap a bow on this and really give you an in-depth answer. 100%. Our next question comes from Brailleau. Brailleux says, is a brokerage slash bridge account treated the same as a Roth IRA when it comes

to withdrawing your original investment amount? For example, if I deposited a thousand dollars and I invested it into VOO and over time it turned into $1,500, so a $500 profit, am I able to now withdraw my original deposit of $1,000? without it being taxed. I'm not withdrawing my profit, just my original investment. Robert, do want to take this one? Yeah, Brailleo, great question, and a lot of people are confused on this. The answer is, with this brokerage account, this bridge account that we call it, you have autonomy to do whatever you want. You can take out all the money, you can take out your initial investment, because you control the account, and it's not through a company, and you can do whatever you want.

However, there are tax implications, and Austin, I want you to break it down, because we want you to understand, you know, when we're talking about building these bridge accounts, we want you to be building them for retirement, not to be in and out of, not as a trading account. I think maybe what you should think about based on this question is having a bridge account and a trading account, because what you don't want to be doing is just continually going in and out of this account and withdrawing your initial investments, just because I don't think it's a good strategy to try and build this for the long term. But I'd like to hear your thoughts, Austin, not just on the tax implications. but possibly having two accounts.

I have multiple accounts because I don't ever like to draw from any of my brokerage accounts that are retirement accounts, but I'd like to hear your thoughts. So, Braalio, to answer your question, you are confusing two separate actions as it relates to these accounts. So, yes, you're correct. With the Roth IRA, you can withdraw your original deposits, although we don't recommend that. We want you to be investing your money.

You can withdraw your original deposit and not pay a penalty and not pay taxes, right? That's totally normal. However, what's different with the Roth IRA versus a normal bridge brokerage account over here is the withdrawal process is where things get tricky. With a brokerage account, the trading process is where things get tricky. So in a Roth IRA, you can trade or sell or buy whatever you want inside of this account, how often as you want and not pay taxes, right? It's all in this account. it's in this little bucket and any trades you make in the bucket are not taxable events. With those Roth IRAs, the only taxable events and reasons to worry about is when you take money

out of the account, if that's early or whatever it might be, right? In a taxable normal bridge account, brokerage account, like on public.com, every trade you do is a taxable event. Not the withdrawal process, the trading itself, that's the taxable event. So if you're putting $1,000 into a public.com account, a normal brokerage account on any other platform, and you're investing that $1,000. $1,000 into the S&P 500, V-O-O-O over the last two, three years or whatever goes up 50%. That 50% gain that you had, if you sell that $1,000 original investment that's now worth

$1,500, you sell it all for cash. That trade was a taxable event. Not the fact that you're only going to take out $1,000 from the account and leave in the other $500, that doesn't matter. The fact that you made the trade, that is what matters. And because you made a $500 profit from that trade, even over a two, three, four-year period of time, however long it took you, you have to pay taxes on the profits of that trade. And so the profits of that trade in this example are $500. So because you held it, because the S&P doesn't go up 50% in a year, you probably held it, let's say, for example, three or four years, that's a long-term capital gain. So you're now taxed at a long-term capital gain rate, which could be as high as 20%. So now you're paying $100 of taxes on that $500 of profit that you made.

I think you might have misunderstood what a taxable event is in each account, right? Again, the Roth IRA, the trading doesn't matter. What matters is taking the money out. In a normal brokerage account, the trading is what matters. It doesn't matter how much you put in or pull out at any time, right? You can do that as much as you want. But when you make a trade and you make a profit in that account, what happens is you look at all the profits you made from the trade for 2024,

and then you compare it to all the losses that you had made from those same trades in 2024. and if you made a net profit in the account over that period of time from a trading perspective, that's what you owe taxes on. It doesn't matter when you take it out. It doesn't matter how much you put in or whatever. Did you make a profit? Yes or no. If yes, pay taxes April of the following year. Yeah, I almost feel like great breakdown. I almost feel like we should do an entire episode to get people to understand that are at that point in their investing careers where they're doing active trading of stocks, individual stocks, because I think there's a lot of confusion between short-term and long-term capital gains. And a lot of people just really don't understand what their

net profit really is on a trade because they're not taking into consideration these short-term capital gains, which are taxed at a higher rate than long-term capital gains. So I think maybe down the road we should talk about doing maybe, you know, a webinar or an episode about this because it's so important for people to understand. No, I totally agree. And you're asked earlier about having two accounts, I think that's not that great of an idea, especially for the average investor here. You know, you want to Robert's point, have a bridge account that's a, I mean, this is a retirement account, right? You don't want to be trading and having fun in your retirement account. And for the average person, you probably don't have enough money to be gambling on

single stocks. So I don't think it's a very good idea. If you want to now invest into a single stock inside of your retirement account, I think that could be a fine idea, just depending on what the stock is and how well you know it. But generally speaking, for 90% of people listening, you should have index funds in your portfolios, including your bridge account. And if you want to add some, you know, niche exposure to big tech, you have different ETFs for that. Or if you really understand a company like Robert and I do and you want to invest into a single stock that could be a good idea, just make sure you've done your research first. Yeah, I love it. I only have the separate account for the illustration for all of our listeners and followers to not be trading in and out in your retirement

account and I practice that myself and that is why I have two or three accounts that are just for individual stocks that I trade but you're right if the average person doesn't have their base built and they don't have all of this laid out then I think it's important for them to be careful of what they're doing there as another heads up time may be running out to lock in this 6.6% yield at public.com when you invest in a bond account you can lock in your rate until 2028 but with more potential rate cuts on the horizon you might want to act sooner than later discover how how you can lock in a 6.6% yield until 2028, the new bond account only at public.com forward slash rich habits. Robert, we've been warning people about how the fact that these yields are going to come down

when the Fed cuts rates. It was 7.3% six weeks ago. Now it's down nearly an entire percentage point. So people, if you want to have that steady income, you want to have that sort of fixed income in your portfolio, public.com's bond account at 6.6% is still a really great way to do that. Yeah, I mean, we're just here to educate and help you find the free money. We are always stretching the limits of information out there, finding you this public bond account, finding the Nios accounts like the SPYI and the QQQQI. So just keep that in mind. We are always just trying to find you the best gains and the best opportunities for your portfolios. Our next question comes from Sue.

Sue says, hi, Robert Nosson. My husband and I are lucky enough to have a pretty decent income of about $230,000. but we're struggling to budget, especially for retirement, assuming we want that 15%. Plus, our kids 529s, we've got life insurance to pay for, personal savings for updates to the house, buying new cars, we got groceries, insurance, utilities, and activities for the kids. Everything in between is making us feel very overwhelmed. Between our mortgage, which is well within our budget at $28.50 a month, our groceries and childcare, which costs another $2,600 a month, it's taking more than half of our monthly

income. I should also mention that our monthly income is closer to $12,000 and the rest come from bonuses where we try and play catch up, but it never seems to be enough, especially with the amount that we lose in taxes. Do you have any guidance or any advice? I don't see how we could possibly put away $3,500 a month for retirement because that plus all the other expenses we have would mean we're living on next to nothing. We don't even have car payments. Thank you so much sincerely an overwhelmed mother. Oh my gosh. Sue, I'll let Robert kick this one off. Sue, I want to say this first and foremost. First, thanks for submitting the question to the Rich Habits Podcast. But secondarily, breathe. You are not alone in this plight. You guys are crushing it.

You're making a lot of money. But also what is happening with inflation, cost of living and everything, lifestyle creep is eating you alive. Life is expensive. And if you don't find a way to be able to watch your budget and get it within your means, you won't be able to save this 15% free. retirement every month because kids are expensive, homes are expensive, everything is expensive. So what do we do? First and foremost, I noticed you said you have a savings account. I would like to point out, I hope that's in a high yield savings account and not just sitting in a savings account with your bank or credit union, because at least if it's in high yield, you're going to make four or five percent. That's going to help a little bit to take the edge off of this situation. But I think you and the hubby need to sit down,

do a deep dive. How can we change things? Because it always comes down. down to you either have an income problem or you have a spending problem or both. And it seems like in this situation, you just have a big, wonderful life with great kids. But the problem is you can't carve out that retirement savings because everything costs so much. Soccer is expensive. Travel is expensive. The cars are expensive insurance food. Everything that goes with it. And so I agree with you. Your house payment at $28.50 a month based on your income is within reason. But somewhere along the line, you guys are overspending and causing yourselves to be in harm's way by not being able to put away that 10 or 15% a month. Yeah, so tactically speaking, I think I'm just going to ramble here.

The first one is you mentioned activities for the kids. I don't have children, but I do listen to podcasts that the hosts do have children. And they have talked about in the past how they're spending $30, $40, $50,000 a year on some of their kids to play sports and be in the clubs and do these other different like athletic things. I'm not saying that you shouldn't be doing that. But I just also think that you should be considering not doing that if that makes sense. I don't want to tell you how to raise your kids. But just if you're really stretching yourself thin, because your kids' activities, definitely reconsider that sort of tradeoff there.

The other thing I want to mention is between your monthly mortgage year of 2850 and then the groceries and child care, you're looking at about $5,500 a month. Okay, $5,500 a month. I think that's pretty reasonable. Obviously, the child care is what's more expensive in relation to groceries in that equation here. But $5,500 a month, you're bringing home 12. Now you're looking at another $6,500 a month. From that $6,500, you're telling me that utilities, activities for the kids, 529s, life insurance, all that stuff is $6,500. Like, I just don't see it. I don't know. I guess what I'm saying here

is, I really want you to audit your spending. I want you to go back to our episode that we did with Jesse from You Need a Budget. The episode, I think was episode 80. It's called How to Be Intent. with your money and I want you to audit your spending habits and your spending patterns. It takes about three months to do this. It's a process that might even make you begin to feel guilty on some things that you are spending versus things that you should instead be spending on or saving for, but I really want you to audit your spending. And by that, I mean, I want to know exactly what that bare minimum number is that you can live off of every single month. And then you mentioned you make about $85,000 a year in bonuses, right? So you 12,000, 144. You said to make $230. It's about $85,000.

delta there that $85,000 you said you play catch up with it well how I want you to be doing with this if you want is you could take half of that every single year call it $40,000 when it comes and then you can use that $40,000 as your annual retirement investing nest egg number that is about that $3,500 a month that you were alluding to 3500 times 12 is about that 42 45 range so if you want to use that you know take half of that and use it as that then you're done for the year you don't have to think about anything else, right? You could use all of your income now to sort of support this lifestyle that you've built. But I would just really audit your spending. I would also audit the cost of these kids' activities because at the end of the day, you shouldn't be feeling overwhelmed,

living paycheck to paycheck, making $230,000 a year. Something is wrong. Something is wrong. And we're not here to blame you or make you feel bad, but you need to know that something here isn't adding up. And there absolutely are ways that you can approach this where you have a very similar lifestyle, but now you're carving out and you're finding an extra 2 or 3,000 a month in your budget. So again, please watch that episode, dive deep, do that audit and you're spending yourself. But it's not adding up for me, Robert. Yeah, and I want to go a little further on this. Sue, I feel like you are living in existence that many, many, many households live.

And that is, instead of understanding where your money's going, you're just paying the bills, you're living the life, you're doing the thing without having any control over it. And to me, this is a recipe for disaster. So just like Austin alluded to, I would get that honest budget figured out because I think you'd be really shocked of where your money's going because it doesn't add up to me either. Let's say even you're spending $8,000 a month all in. That still leaves four. But if your net income, let's say it's $12,000 a month and all of the bills stay the same, you should still, at these current bills, be able to carve out $1,800 a month,

which would be that 15% and that would really do a lot of damage towards getting you guys on the right track for retirement. So I think you just need to sit back out of your expenses, do the honest budget, and you'll find that there is a lot of waste of money in there somewhere and get yourself back on track. Because remember, Sue, you've done the one thing that is the hardest right, and that is you guys have great income. Now you just need to reverse engineer the math and get your finances in order. Couldn't agree more. You guys have an awesome income.

You have figured out the hardest part about building wealth, making money. Now it's time to make your money behave and work for you in a way that actually moves you closer toward a prosperous retirement versus making you feel overwhelmed like the world's collapsing on top of you. You can 100% do this, Sue, sit down again with your husband and just walk through every single line item, open up all your bank accounts, open up all the statements, build sort of that forecast, right? Wealthy people forecast, broke people react. It seems like you might have been reacting for the last couple months here. We want you to begin forecasting as to what you're going to spend in the future,

and we really hope that you'll be able to get this under control. Our next question comes from Lisa. Lisa says, hi, Austin, Robert. Thank you so much for the information and inspiration you provide. I've learned so much since your podcast started, and my husband and I have made several improvements with how we manage our money because of you. We are both in our mid-40s and have two young children. We're in the process of buying a house and selling our current one.

The price difference is less than $100,000, and we have a good amount of equity in our current home owing only 55,000 on our loan. Two questions. Number one, should we use all the equity we have and put it into the new house or maybe take some out and invest it? And then question number two, should we consider a 15 or 20 year loan with a lower interest rate or go with the 30? For added color, since 2023, we now max out our Roth IRAs every year.

We have half a million dollars in our 4 or 3Bs, and we have a three-month emergency fund and contribute money to our 529 plans for each child. Thank you so much. I can't wait to hear what you have to say. You got it, Robert. Lisa, great job. And I think you should consider this one thing. The difference between a 15-year mortgage interest rate and a 30-year is less than a half a percentage. So it's not going to really benefit you a ton. So I don't know if I'd want to see you have to stretch yourself thin for the first few years by doing the shorter-term mortgage. So for me, I would go with the 30-year.

I think that would be best for you because then you're not stressed about it. You're not feeling house broke. And it gives you. you an opportunity because rates are coming down right now and you could put yourself in a situation where you could take that additional money that you'd otherwise be putting into the payment and you could use that to be investing and to keep bolstering your investment accounts. That would be my take on that. And then as far as the equity goes, you have a good chunk of money everywhere in all the right places. So you could consider taking the equity and rolling it into the new property and that would lower your payment down some as well. But you could also look at.

that may be splitting it up and taking half and half and using a portion of it. But I think you're in a good spot. You could do a lot of different things here, but that's what I would do if I were you. Lisa, I love what Robert said. And I want to just reiterate the fact that you're in your mid-40s, so it's called 45, and you have half a million dollars in your retirement accounts. That is incredible. The rule of 72 tells us that this investment will double every seven years.

You have three more doubles between now and 66 years old, which means you're $500,000 nest egg if you don't touch it until $7. 65, 66 years old, theoretically could turn into $4 million. So you guys are set from a retirement perspective. Now, what I would be worrying about, to Robert's point, is, is this half a percent interest rate going to save me that much money? I mean, one, the monthly payment will be bigger if you do a 15 or a 20-year loan, considering just the loan size. But even if you stretch it out to 30 years, you're talking about a 6% interest rate right now, which, by the way, would come down to three and a half, four and a half percent over the next two years, two and a half years,

as the Fed continues to cut interest rates lower. So one, if you end up going with a 30 year and maybe that payment is now something that might be a little too hefty for you, which I don't think it would be, even here at 6.1%, you could refinance that at 4% by, let's call it, 2027. The other thing I want to mention too is that you don't want to go into retirement with a mortgage. So I do want to encourage you to have a plan to pay this off, no matter if it was a 15, a 20, or a 30 year, you should make a plan over the next, let's call it 20 years, to pay this mortgage off early. I know a lot of statistics of people that pay their mortgages off early say that they pay them off in 13 years. That's the average length of time it takes if someone is actually really intentional about paying it off. So give yourself a 13 to 15 year

shot clock of making those extra payments. Maybe you take some your tax refund every year through it toward the mortgage. Maybe you got the side hustle. So you throw it toward the mortgage. Maybe even you have money you would have invested toward retirement and putting that toward the mortgage. But what I'm saying here is you want to have that paid off before you're 65 years old in about 20 years time. So you definitely have some time. The last thing I wanted to mention, though, is the fact that you kind of said, hey, I've got 55,000 over here on this loan. And the opportunity buy a house, we got a ton of equity. Do we put all the equity in the next house? Or do we take some money out and invest it? I think you guys have done a great job with the investing already.

So if you wanted to put all that equity toward the next house, don't feel bad about it. Right? You guys have a half a million dollars here in this retirement account that's going to grow into millions over the coming 20 years. Having, you know, some extra equity to put toward the next home is going to help you pay that home off early before you're 65, putting you in a wonderful spot to maybe even retire early now that you might not have a mortgage payment. Yeah, great job, Lisa. Great explanation, Austin. And just keep rocking and rolling. And I hope this helps. So our final question comes from Solomon. Solomon says, I went over your Rich Habits Network email and you had mentioned, inflation being at 2.5% in the month of August. Does that 2.5% include home prices, rent, and automobiles? How is that 2.5% number calculated? Really good question, Solomon. Let me break it down super simple for you. The inflation number is essentially dubbed the Consumer Price Index or the CPI.

The CPI, on average, goes up by between 1.5 and 2.5% every single year as it's annualized. that so we all know inflation historically has been that call it 2% range that is healthy that's what it's supposed to be and back in 2021 2021 inflation was running rampant at over 9% per year now the reason why it said 9% and not 60% like you might have seen with eggs or your insurance or things like that is because inside of this index are a bunch of different categories food energy services shelter health care, all these different categories are inside of this index. And each one of those categories has a different weighting that might be heavier than the others. The largest weighting in the index is shelter. And as we can see from the Bureau of Labor Statistics with their August numbers, the cost of

shelter actually increased annualized 5.2% in the month of August, which was more than that 2.5% number. Which means if the largest bulk is more than 2.5%, that means everything else has to be. to be much lower than 2.5%. And we saw that. Energy was down 10.2%. Fuel was down 12.1%. Gasoline of all types down 10.5%. Used cars and trucks down 11%. So there is disinflation that we're seeing in the marketplace, but because shelter is such a heavy part of this index and it's still growing at that 5, 5.5% per year, that's why it's up at that 2.5% as the CPI itself. So when you said, our home prices, rent and autos included in that two and a half percent number, they are included. Everything is included. But right now the largest sort of slice of that pie that is the consumer price index

is shelter and shelter is still pretty elevated from a month-a-month basis. Therefore, it's still above that two percent sort of goal that the Federal Reserve has been working toward. Yeah, I think that's a great breakdown. And Solomon, it's just really tough because without digging into all of the different sectors of the CPI index, it is hard to understand. you know, where are the true inflation rates on each category? And once you do understand kind of this blended rate, it helps you know because like as a restaurant owner, chicken prices and food costs are up 26% this year from last year. So that's a crazy jump that we have to deal with. But then there's other things like utilities that are down from last year. So that's why you have to

look at it as kind of a blended rate to help you understand where the hell is all your money going and how do you attend to that to make sure you're heading in the right direction financially? So Austin, I think it was an incredible breakdown, and that's all I wanted to add, Solomon. And Solomon, I do want to make sure we're on the same page too. That 2.5% figure and some of these other figures that I'm sharing, that is the acceleration of prices. It's not the price itself. So what I'm saying is the acceleration is going down, not the actual prices. Actual prices are not coming down, and they likely won't. They just won't. go up as fast in the future. We printed $8 trillion, and the aftermath of that is now everything

is 30 to 50% more expensive than it was pre-COVID. So because of that, prices everywhere are more expensive and thanks. Like, that's just the government, the US government, screw in the middle class, whatever, ever get into that later. But what I'm saying is the inflation rate is the acceleration of prices, and it really accelerated, it went and accelerated a whole lot in 2021 and in 2022. But now that acceleration is starting to moderate back to normal, which is about 2% per year. I love it. Well, thank you all for joining us each and every week here at the Rich Habits podcast. If you haven't checked out the Rich Habits Network yet, you definitely should. We are so, so proud of the newsletter, the school community. We're doing private lives for our group every single Tuesday night at 830 Eastern

Standard. So there is a lot we are offering within the Rich Habits Network, and we couldn't be more excited about the future. And so many of you keep joining each and every day, which is exciting for us, because we just want to build this awesome community and just really educate people the best that we can. So thank you all for joining. And don't forget to give us that five-star review and share the podcast with a friend when you get a chance. Thanks, everyone. And have a great rest of your week.