Rich Habits Podcast - Q&A: $500K in Savings, Defining High Interest Debt, & the Best Way to DCA

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Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. Hey everyone, welcome back to the Rich Habits podcast, question and answer addition. Before we get started, I want to remind everyone, we are hosting a webinar, a live webinar where Robert and I are going to be teaching you guys more about startup investing. We've had a lot of people say, hey, guys, I've been doing this stuff now for a year or even longer, and I've got my base built. I've got the 50 to 100,000. I've got hundreds of thousands of dollars invested into the index funds you talk about. I'm ready to diversify. I've already got some crypto. I've got some real estate. But we've got the what else is there for me? And so for our aggressive investors, right, people who want to take a

Starting point is 00:01:35 little bit of risk and begin to diversify into not just publicly traded companies, but large privately traded companies, think SpaceX, Figure AI, Open AI, Canva, companies of this nature, we're going to be hosting a webinar on August 8 at 4 p.m. Eastern Time to show you exactly how you can do this. We're going to break down what the process is like, all the different things that we'll look out for behind the scenes, some tax considerations, as well as how you guys can invest alongside Robert and I into massive privately held companies across a bunch of different sectors. Robert, I just got an offer to invest into this insane defense company. I don't know if you saw, but Chamoth Palahapitia just started writing about the company on his substack two days ago. But long story short, the round was

Starting point is 00:02:22 led by Andresen Horowitz, one of the largest, most respected VCs in the country, in the world even. And so you get these opportunities all the time. And so what I'm saying is we want to open the opportunity for you guys to invest in those series A, series B rounds and really see all that upside potential up until the IPO as well. Yeah. And it's really going to be a lot of fun for us because, like you said, we're pulling back the curtain for the average person that follows along and watches the podcast and help you better understand the risks involved. help you understand the upsides involved in just everything in between. So this is going to be a really great webinar. I've been at venture investing for over 20 years.

Starting point is 00:03:04 I've had some massive wins, some massive misses. We've all talked about the Uber story. But it's just been a great run for me in this sector and Austin as well. And we're just really excited to share it all with you, but also share our deal flow. Because once you get those at bats in through this sector of investing, and you really understand the terms, the deal flow, how the deals function, it'll really help you make better decisions in the future, whether you invest alongside of us or go out on your own.

Starting point is 00:03:35 So I'm super excited about this webinar. So join us. There's going to be a link in the description below to register for the webinar. Join us on August 8 at 4 p.m. Eastern Time. And now let's take a moment to hear from this episode, sponsorpublic.com. If you trade options, you've got to ask yourself, why wouldn't you choose an options trading platform that puts investors first. At public.com, there are no commissions or per contract fees. And more importantly,

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Starting point is 00:04:32 options not suitable for all investors, and carry significant risk. Full disclosures in podcast description. All right. So our first question comes from Nicole D. Nicole says, Hey guys, my husband and I are 40 and 39.

Starting point is 00:04:46 He has a Roth IRA and I have a traditional IRA. He opened up these accounts for us about six years. ago and we max them out for the last four years in a row. After that, we made a job change and had a big transition, but now we are ready to max them out again each year. I've been listening to your podcast and I know that I want to have a Roth IRA set up for myself instead of a traditional. So here's my question. Should I convert my traditional into a Roth, pay the taxes on it now, or leave it as a traditional IRA and then just start a new Roth IRA from scratch in a different account? Robert, what do you think about this question i think it's a great question Nicole thank you for submitting it's a

Starting point is 00:05:25 little tough because we have incomplete information we don't know how much is in Nicole's current traditional definitely you need the Roth now the question comes down to do you get rid of the traditional pay the tax hit now and then you're scot-free for the rest of your life that's probably what i would do but without knowing how much is in the traditional it's a little bit tough to tell but either way you need the Roth so for me it's get rid of the traditional open the Roth, convert everything over, or start the new Roth, keep what's in the traditional, don't move it. But you have to understand the key component of this equation. And that is, we don't know what the tax man is going to do over the next 20, 25 years as you head into retirement.

Starting point is 00:06:07 And you have to realize that the more money you have that is not tax free in retirement, the more you're going to get dinged later on. So we don't like to kick the can down the road here at the Rich Habits podcast. We like to get it out of the way so we know exactly. what we're going to have in retirement. So that's my take on this. I like that answer, Robert. I'm going to try and use some context clues. They said that they opened these accounts about six years ago and they've been maxing them out for four years in a row, which means they should have between maybe $30,000 to $35,000 in each account. So if you do convert that and you are a top 25% taxpayer, which means your adjusted gross incomes between $85,000 and $150,000 a year,

Starting point is 00:06:47 your effective tax rate is about 17%. So let's round that up to 20% just in case. And then let's say they've got, call it, you know, $30,000, $35,000 in these accounts. We're talking about a $6 to $7,000 tax liability whenever they convert these from a traditional to a Roth. So, you know, I agree with Robert entirely as these numbers are small, right? $6,000 paid for now. I mean, you're saying like, all right, I'm going to sit out for one year, right? Six thousand, seven thousand. I'm going to sit on the sidelines for a year to make sure that the next $2,000. years, I've got tax-free growth and tax-free income in retirement. So that's where my heads at. I 100% would convert the existing traditional into a Roth and then max out the Roth IRAs

Starting point is 00:07:29 every single year in perpetuity until you retire, hopefully, with millions of dollars. I love it. Yeah, I think that's the way to go. And it's a great question. And I just am really happy that everyone is thinking more long-term now. When we started this podcast a year and a half ago, it seemed like so many people were lost and didn't have a strategy. And over time, it seems like everyone is coming in, guns blazing, knowing what to do. And it's really all about optimizing. And we're here to educate you in a way to where you can optimize your gains now and for the future. So this is a great question. Our next question comes from Christopher from Santa Barbara. Christopher says, I'm 43. I live in Santa Barbara and I work in real estate. I bring home anywhere between

Starting point is 00:08:13 $350,000 to $500,000 a year. I have $40,000 invested into the markets. I have half a million dollars sitting in a money market account earning 5% because I want to use this money to buy a house. However, it feels like the real estate market is kind of high right now and I don't want to buy at the top of the market. So my question is this. Do I use the money to go buy a house, which feels like it's the top of the market? Or do I use the money to build my $40,000 nest egg into something much greater. And if I do that, am I also buying the top of the stock market? How do I deploy this capital? Want to kick this one off, Robert? Yeah, Christopher, great question. You know, you've done some of the hard work by getting money put away. And you're a high earner that helps a lot. I don't like the fact that at

Starting point is 00:09:01 this point in your financial career, you only have $40,000 invested in the market. And I also don't like the fact that you're thinking about taking your whole $500,000 and using that necessary. to purchase a home, whether you're going to house hack or not, and I don't think you're thinking of house hacking. So for me, it's a no. I think it's more of take the 500, leave 100 in if you want a nest egg for emergencies like your emergency fund. Of the 400, I would take 200, get it into the markets. And yes, it's okay if you're buying at the top of the markets right now, because you can dollar cost average in over time with the 200k, then I would put 200k somewhere else to be able to maximize your gains over the money market.

Starting point is 00:09:48 That could be a basket of index funds. It could be treasury bills. It could be a high-yield savings account on public.com. But I hate seeing that much money sitting and then you converting it from there to being dead money in one single property. I think there's far better ways to utilize what you do have to diversify your portfolios overall, build your base and set you up better for your financial future. So you're saying take 200 of that dollar cost average it into the index funds and ETFs we talk about. So let's call it, I don't

Starting point is 00:10:22 know, 50,000 a month, right? $10,000 a week if you want, maybe $20 if you want to get aggressive there. And then take the other 200 that's in the money market account that he's saving to buy a house with. You want to invest that money? I think some of it should be invested because you don't know when you're going to buy a house. And if you're going to buy a house, a lot of people say, well, I've got this 200K sitting because I'm going to buy a house. Two years goes by. That 200 could have turned into 250, 280, 300. They still haven't bought a house and the money's still parked making no money. Now, at least in this instance, it's making whatever it's making in the money market, but I think there's better places to put it. And if he wants to leave the 200 in the money market and

Starting point is 00:11:04 making the 5% I'm okay, but I don't like the fact of taking all 500 and putting it into one property. I think it's a death sentence for growth because unless you're in a very, very explosive market, the average return you're going to get in capital appreciation in most markets is 4% or 5% and you can crush it way better with a basket of index funds over time of 2, 3, 4 years than you would leaving it sit at 4% or investing it into the property. Honestly, my take on this is the guy makes 350 to 500K a year. He has 40,000 invested in the markets. Take all 500 of that, invested in the markets, and then start saving $100,000,

Starting point is 00:11:46 $200,000 a year from your earnings that you make because you make a lot of money. Like take half your income, crime me a river. You're making half a million dollars, dude. Go take $200K of that for the next two years. But now you have $400,000, two years have gone by, which means that if we were at the top of the market, it's crashed by now, if that's what you think it's going on in Santa Barbara. If we're not at the top and we just keep going up, then that's another problem you have here, but that's your kind of prerogative, Chris. That's what I would do. I mean, I would, because, dude,

Starting point is 00:12:09 I'm seeing 43 with 40K invested making this much money makes no sense to me. And this guy needs to start investing a lot more aggressively. But I also want him to know that it's okay to live on less than you make. That's obviously not been something, assuming he's been making this money for a while, something that he's not been doing considering how little he has invested with making so much money. So maybe, Chris, I'd encourage you to, you know, live on 200, $250,000 a year. I know it's expensive in Santa Barbara, but then also take the extra 150 to $250 a year and save that for a house. And then you do that for one or two years, you now have the same amount of money ready and you can go, you know, go out and buy the house of your dreams. Yeah, I love it.

Starting point is 00:12:49 The bottom line is you're making way too much money, Christopher, to not have a much, much bigger base of money that's in the markets. And that could be analysis paralysis. It could be just whatever it is that you're very risk-averse, but you need to get more exposure in the markets. You should have some crypto at your age. You should have maybe some reits and just some of these other tools that we have in the tool shed to give you diversification, but better earnings than 5%. Our next question comes from Maddie F. Maddie says, hey guys, I've been listening to your podcast and I love every single episode. And what are your episodes? You talk about prioritizing paying off high interest debt. But here's the question.

Starting point is 00:13:28 Where do you draw the line in deciding what rate is actually high interest? For example, my car loan has an interest rate of 7.8%. And I have three and a half years to go on it. So I'm not sure if I should pay that off sooner and avoid paying high interest if this is even considered high interest. So what are your thoughts? I'll take a stab at this one, Robert. In my brain, I've always thought high interest debt is debt that is higher than what the stock market, generally speaking, has performed against a long history. right? So think 8, 10, 12%. Credit cards, for example, are high interest debt. Most personal loans are high

Starting point is 00:14:03 interest debt. Some helox can be high interest debt. And so if it's over that like 8, 10, 12 percent, it's definitely high interest debt. You're right on the edge there, Maddie, which means that I would probably want to pay it off. Like, in my brain, if I can take a car payment that is costing me 8% a year, right? 7.8% a year. And I can get rid of that car payment. and then I can go put it in the markets and make the same 8% per year after inflation, then I'm happy, right? And so if I were you, Maddie, I'd really consider paying it off. I don't know how big the payment is here. And certainly there's a lot more factors like, are you already investing?

Starting point is 00:14:40 Do you have a Roth IRA maxed out for the year? Do you have your emergency fund? You know, this is not scary high interest debt. It's not something you need to feel like your hair is on fire. I need to go paid off. It's on a credit card at 33%. So you can kind of take a deep breath. But another example of this is like my girlfriend, right?

Starting point is 00:14:55 She's got 20-something thousand invested in the market. She has a nice $10,000 emergency fund, but she has student loans that are at like five and a half, six percent. So she prioritized investing because she knows that the index funds go 8, 10, 12 percent per year compared to this six-ish percent student loan. And so, Maddie, I'm sure there's much more to your financial picture we're not seeing, but I do want to encourage you that if you are at this 7.8%, like it should be something you want to pay off, not something you want to keep around for a long time. Yeah, I agree. I think you're right on the cusp, Maddie, with this being considered high interest. And I think it can go either way. Again, with us not knowing your total financial picture, I would say chip away at it, get it paid

Starting point is 00:15:35 off, and then pretend it's not paid off and take that same amount of money and get it into the markets and pretend you have that payment because consistency in investing is key. And that's what I would do. But again, we have incomplete information, but that's my opinion based on what's provided. So Robert, what would be a scenario in your opinion that Maddie doesn't need to pay off the car early? I think a consideration that she doesn't need to pay the car off early would be if she has her budget in order. She has a good mix of index funds that we talk about in her Roth IRA already. She is dedicating money every single month to maybe her Roth, her crypto accounts, and potentially maybe some REITs or some other high-performance.

Starting point is 00:16:22 you know, investment, then I would say just keep it business as usual at the 7.79%. But if she's just getting started, doesn't have a nest egg, doesn't have all of these things in place, it might be better to just knock this out at first. Totally agree. And, you know, Robert, I think it's funny because a lot of people, especially Dave Ramsey, are focused on net worth, net worth, net worth, right? It's like if I bought in cash a, I had no debt, but then I went out and spent $500,000 on a single family home and I lived in it, my net worth would be $500,000. But if I lost my job, sure, I don't have a mortgage that I have to worry about, but like, I'm not making any money because all $500,000 of that's invested into owning this house. Where if I had then chose to rent,

Starting point is 00:17:08 for call it $1,500,000, $2,000 a month, I didn't add anything to my net worth by doing that, but by taking that same $500,000 and investing it into the markets, that's going to produce income, right? The S&P's up 16% year to date. So now at that same rate, I mean, year to date, we're talking about like 70 grand on that half a million dollar investment. So it's $70,000 of portfolio income. And so, like, I just want people to understand there's a difference between chipping away at debt to increase your net worth versus chipping away at debt because you think that it will be better over a long term to hit your sort of portfolio income goals. That's why I carry a low interest mortgage. I've got a 3% mortgage on my rental house. I think it's like $240,000 on that mortgage. I could go take

Starting point is 00:17:51 $240,000 and pay it off. Or I could have $240,000 invested. The S&P's already up 16% this year. It was up 20 something percent last year. It's like that's the route I'm choosing to take because I prefer income over the idea of like my net worth is going to go up. Right. So it really again, Matt, it comes to where you are in your sort of investing journey. And what matters most to you, if you're Dave Ramsey, net worth matters most, right? He wants everyone to be net worth millionaires. I, you know, net worth is great.

Starting point is 00:18:19 I want people to make passive income. I want your portfolio to grow while you sleep. I want you to be doing these things so you can retire early. You know, it'd be cool to say you're a net worth millionaire because you have your house paid off, but if you're not making an income, you can't retire. And my end goal, and I think Robert would agree with me is I want to retire early. I want to be financially free and I want my investments to pay for my lifestyle. Yeah, I mean, Dave Ramsey has some good stuff.

Starting point is 00:18:42 But for the most part, his whole debt analysis of how he explains it to the younger audience is wrong. The math just doesn't math. And at the end of the day, I think the easiest way for everyone listening and following along to understand is whenever you can have positive arbitrage on your money going into your pocket instead of someone else's, that is the key. If you can borrow money for less than what you can make with it, you always borrow money. That's why the wealthiest people on earth don't pay cash for their homes even though they have millions of dollars They use other people's money because they can borrow it for less than what they can make with their own money That is the key to building wealth. It's that simple Borrow when you can and carry debt when you can if it's low interest debt

Starting point is 00:19:29 We don't want you to carry high interest debt Obviously that's not good for anyone But in this instance Austin that's a great takeaway and I love the Dave Ramsey reference because I think you gets it wrong in a lot of ways here because you want to leverage debt to build wealth as long as you're making more with your money than what you can borrow it for. And I think just last comment here about this is like the very silliest thing someone can do, credit card debt is a good example of this, auto loan debt is a great example of this, not exactly student loan debt, not exactly a mortgage, but taking out debt to purchase a depreciating asset, right? That is the most terrible idea anyone can take,

Starting point is 00:20:09 Right? Because to your point, Robert, if someone could borrow at 5%, and they could borrow half a million, a million dollars, go buy a business that they can then make sure it cash flows and they can work hard in the business to grow its profits every year. And then to your point, they're borrowing at 5% to go make 10, 15, 20% on their money from a cash flow perspective. You're right. That is how wealth is built. But then those same people say, oh, I'm going to go borrow half a million dollars, or maybe not that much, but maybe 80,000, $100,000 to go buy the new escalade or the new Porsche or whatever it might be, they can't afford it. And then in five years, that asset, quote unquote, has gone down in value by 50%. And so it just, it's a mindset shift, right? It's like, we want people to know and understand that debt can be a tool for wealth building, but a lot of people unfortunately use it in the wrong ways in a very irresponsible manner. And Maddie, we applaud you. You're asking all the right questions. And we hope that we kind of laid this out for you in a way that you understand where high interest debt, you're right there on the teeter of it. And for someone who maybe has their base built, maybe it's time to pay it off.

Starting point is 00:21:11 If you have no money invested or save, forget about it. Drive your car to work every day to make money and then get money saved and invested, right? You know, it's not always black and white. We talk about that all the time. There's a lot of gray area with money and personal finance because personal finance is personal. Yeah, and everyone's mousetrap is different. And that's why we could spend hours just talking about this. It's like the difference between Dave Ramsey saying you should go buy a car in cash.

Starting point is 00:21:36 go get it so you have no payment. It's the biggest depreciating asset besides a boat you're ever going to buy. Why would you tie up your cash? Unless you're going to go buy a used car and drive it for 10 years, you should never pay cash for a car. And in fact, you shouldn't even buy a car.

Starting point is 00:21:53 You should lease it and just trade out of them every two or three or four years because let the dealership worry about the depreciation so you don't have to. We could go on for hours on this one, so let's go on to our next question. Our next question comes from Blaine A. Blaine says I've got $120,000 sitting in a high-yield savings account. This is split between my

Starting point is 00:22:13 emergency fund of $35,000 in a savings account of $85,000. With that being said, I'm looking to take $80,000 of that $85 and put it into the funds I hear you guys talk about on the podcast. V-O-O-Q-Q-Q-G-T, V-T, V-T-I, and SPYI. What should the allocation look like? So Robert, this is a really good question because we talk about how important it is to have your base built, right, to have as much money as possible invested into index funds that go up into the right. Over time, they've gone up into the last 90 years, right? We want to ride that wave. But we'd never really break down for people the percent allocation into sort of each one of those ETF. So I'm going to take a stab at it first. 50 or 60 percent of the funds there should be in the S&P 500. It is a index that's been around for over 90 years. Since inception, it's averaged. It's 11.88% returns every single year, right? You want to have a large chunk of your base invested into the S&P 500. So let's call it 50, 60% into VOO. Let's call another 20% invested into QQ. The NASDAQ, it's full of technology companies. It's more volatile than the S&P 500 because of that, but it is crushing it so far this year, last year, and it's done very well the last couple decades. VGT, maybe another 10 or 15%

Starting point is 00:23:31 VTI, maybe another 10 or 15%. SPYI, maybe another 10 or 15%. You know, you can really play around with these wittings however you want, but I think people need to understand the most important part in the point I'm trying to make is that the bulk of this base should be invested into the 500 largest, most profitable companies in the United States, the S&P 500. Yeah, I think you broke it down really well. I did this last week for our money mindset community.

Starting point is 00:24:00 and for a moderate risk profile, optimal, in my opinion, it should be 45% index ETF funds, individual stocks, 20 to 25%, cryptocurrency 10%, high yield savings and bonds as a mix at 20%. And so I think you're spot on with your breakdown of S&P versus NASDAQ within that 80,000. I think that is a perfect blend of exactly what I think would be optimal. Awesome. Yeah, Blaine, in your question, you also mentioned you've got a 401k and a target date fund that you max out every year. Just want to encourage you to look at the performance of that target date fund. Guarantee you, it is underperformed to the S&P 500 over the last couple of years because you likely have these international stocks and the bonds and like whatever else. I don't know your age. You didn't include that in the question, but just be sure that you are not leaving tens of thousands of dollars every year on the table by having too much of your nest egg. invested into a target date fund. Great question, Blaine.

Starting point is 00:25:02 And before we jump into our next question, I want to give a quick shout out to our sponsor. Are you paying too much to trade options? If you're not trading on public.com, the answer is yes. Public is the only platform where you earn a rebate on every option contract traded. And that's in addition to no commissions

Starting point is 00:25:19 or per contract fees. There's no one else out there paying trading rebates so you won't find a better deal. Bottom line, if you're paying more than zero to place an options trade, then you're paying too much. So switch to public.com and start getting rebates on every single contract traded only at public.com. Paid for by public investing, options not suitable for all investors and carry significant risk. Full disclosure is in the podcast description. Our next question comes from Rohit B. RoHitt says I'm 30 years old. I started my

Starting point is 00:25:52 investing journey finally after listening to your podcast and I'm super grateful. I wanted to ask you guys, What are your thoughts on dollar cost averaging versus time in the market? Let's say, for example, I had $10,000. I could either dollar cost average $1,000 of it per month for 10 months, or I could put all $10,000 into the market in one go. Now, if I look at my brokerage account after 10 months, doing a dollar cost average is definitely going to be reducing the amount of money working for me, so I would have lower returns, but I want your take on this.

Starting point is 00:26:24 Robert, I mean, I'm going to shoot your straight row hit every single January. the very first day of the year, I maxed out my Roth IRA and I put all $7,000, whatever it is that year and I invest it on day one. I do not dollar cost average it over a period of time. And the reason is, so Rohit, think about it like this. If you deploy all $10,000 of this today, you now have the rest of the next 10 months for it to appreciate in value, right? All 10,000 of it, not just 1,000 or 2,000 or 3,000. And so as we zoom out and we give these statistics about the S&P 500 going up by on average 12% per year since its inception back in the 1920s. You know, that is assuming you get that return if you stay invested for the entire

Starting point is 00:27:07 365 days, not dollar cost averaging along the way. That's why if you look and you see at a dollar cost averaged portfolio, it will be lower than the actual return year to date because it pulls from a single day. So Rohit, long story short, I would put all 10,000 in assuming, assuming you will have thousands, if not tens of thousands of dollars more to invest over the coming months and years in this portfolio. Yeah, I agree with that, but I want to add one piece to this so our listeners understand. We are huge fans of dollar cost averaging, but in this instance, in Roheets instance, I agree with Austin. Put it all in, get it moving, get it started. No one can time the market, but dollar cost averaging is so important after you've started and you're putting in that money

Starting point is 00:27:55 monthly that you get that 200, that $500, that $1,000 a month, that is definitely when you want to utilize dollar cost averaging as a strategy. But when you have a lump sum like that, it's not necessary to break it down in dollar cost average that long. If you're afraid of a bumpy road or we're coming into the election and you want a dollar cost average, you could look at maybe doing $2,500 a month for four months, but I would never drag it out that long. It just doesn't make sense. So I wanted to clarify that piece for those of you out there that have been following along a long time, because we definitely agree with once you're started and you're putting in your monthly amount into your investment portfolios that you dollar cost average. Yeah, and a good example, Robert, just to make sure we're all in the same page is if we look back at the S&P 500 in December of 2021,

Starting point is 00:28:43 it was at those all-time highs of about 4750. And let's say that, you know, you didn't want a dollar cost average do anything over the couple years after the, that because you thought it was volatile, whatever, and let's say you waited until it started hitting all-time highs again in January of 2024. So we hit new all-time highs of that 4750 in January of 2024, and now we're up another 17% since then. So I guess what I'm trying to say is Roit, if you had invested, like, if you're like, oh, I don't want to buy all-time highs, I'm scared, I'm just going to wait for the market to come down. Well, dude, it's up 17% since you said that. Like, why are you waiting, right? And so what we're trying to say is get your money working for

Starting point is 00:29:21 you as soon as you possibly can, assuming, right, that you have more money coming throughout the rest of your life to continue to buy more of it. Now, I think there was a question here earlier when someone said, you know, this $80,000. That's a lot of money, right? You should definitely, you know, dollar cost that one into maybe $10, $15, $20,000 a month there until it's all in. I think there was even a question earlier about someone who had the $500,000 there. Dollar cost average that one in. Don't just drop it all in in in one bit. But it's important to know that it does underperform if you have your money on the sidelines. You want your money working for you as long as possible. Yeah, I agree totally. And man, I love episodes like this where we just get to pick the brain, go deep into

Starting point is 00:30:02 our experiences and our education and really get this out there. I hope most people listen to the podcast with headphones in just so they can really absorb the information that much better because this is some really, really good stuff. I love it. So our last question comes from Adam H. Adam says I was recommended this podcast by a work friend and I've shared it. with my entire team. We're all 1099 workers and we do door to door sales. What advice do you have for someone like me who's 22 years old is making 10,000 a month? My Roth IRA is maxed out and I have a couple ETFs invested into it, but I really want to expand my investing. Robert, I'll let you kick this one off. Yeah, 22 years old. You're crushing it. I love it. Thanks for sharing the podcast.

Starting point is 00:30:43 I would really get as much money at 22. That was the key to my success. Why all of my friends were out blowing all of their money, I was just stockpiling it. I had money at 22 years old in the ETFs we talk about. You know, now you can put it into cryptocurrency. You could get into some real estate and really just set yourself up for life now because I'm assuming you can live really, really affordably right now. And that's what I would do. I would live lean and mean. Do not get caught up in keeping up with the Joneses trying to impress a bunch of people because you guess what's impressive? having a lot of freaking money.

Starting point is 00:31:23 Because guess what? You could go out right now and buy the new Mercedes, buy a new motorcycle, whatever that. And I'm not saying don't have fun, but really, really put your money away now. Get it diversified. So when you turn 30 or 40 years old, you're so far ahead of the curb

Starting point is 00:31:40 that you never have to really stress about money. That's what I would do. And at 22, I would make sure max out the Roth like you did. I would get a traditional account and get that moving with. the same ETFs and index funds, I would get a crypto account and really start bolstering that and get a nice base in crypto. And then I would start looking at other ways to diversify like we discuss. Just kind of thinking back when I was 22, I'm 28. So some of the biggest mistakes I think I made.

Starting point is 00:32:08 You know, you talked about, right, keeping up the Joneses. I feel like all I could care about was trying to impress my friends, but like who cares? So don't do that. Don't make that mistake. Something else that I did that was massive was I did buy a house very early. I bought a house. I think at 24, 25 years old. I did the FHA loan. It was two and a half, three and a half percent down. Out of pocket, the seller paid closing costs, which was great. So total out of pocket for me was like $10,500. And that's the house that I owe about $240,000 on that site rental. And now it's worth $4.50. So, you know, Adam, get into real estate. If it makes sense for you, house hack.

Starting point is 00:32:42 Yep, very good idea. And then something else that I think a lot of people forget about is how long it takes to get your first $100,000 invested. You know, we made a podcast episode about this. It was like the three most important financial concepts you need to know. It was like episode 69 or 68. And we talked about the difference between the savings rate and the rate of return. And at your age and with as little money invested as you probably have right now, your savings rate is much more important than your rate of return.

Starting point is 00:33:12 Let's say that Adam invested, you know, he maxed out his Roth. It was $7,000 for the year. Let's say is Rothwin up 10, 15, 20% for the year. So let's say 10%, 7,000, that's $700 of portfolio income he made. $700 is nothing, right? But that $7,000 that he saved and invested, that is what's important. So your portfolio income, your rate of return is negligible until you have tens of thousands, hundreds of thousands of dollars working for you, which is why it's so important to get that

Starting point is 00:33:41 first $100,000 at them. So if I were you, I would get laser focused on not keeping up with the Joneses, making sure you have a great budget. Check out the template in the show notes below, as well as getting that first 100,000 invested into the index funds and ETFs we talk about. And one other thing that I want to bring up, and Austin, I love that you brought up the savings rate versus the rate of return because it's just not talked about enough. And that really leads me to one final thing, Adam. And for anyone else listening, that's younger, that's crushing it, that's making money, that's growing, is look at it from an opportunity cost. When you go out to buy that jet ski or you go out to

Starting point is 00:34:17 buy that motorcycle, make sure you're looking at it from a holistic approach because, yeah, you want to have fun this weekend, you want to go out on the lake. I get all of that. But also remember, if you're paying $500 a month or $400 a month for that jet ski or that motorcycle, if you were doing the same thing and you waited a little bit and put that off and you were doing the same thing with $400, $500 a month in the S&P 500 at your age, you'd have millions of dollars in retirement. So sometimes just really think about it from the opportunity cost and the delayed gratification aspect of this to set yourself up early for financial freedom. You know, Robert, comparison is the thief of joy. And unfortunately, a lot of people in their 20s and in their 30s,

Starting point is 00:35:04 you know, they fall victim to that, right? They see their neighbors or they see social media highlight reals. And I just want, you know, I was actually going to make a video about this on the Rich Habits podcast Instagram account, Rich Habits podcast. on Instagram, go check us out. Because I want to remind everyone, Robert, I was feeling really down, dude. You know, I see my friends in Europe. I see my friends in New York. I see my friends on the boats. They're on the yachts. And I'm seeing this all on Instagram or TikTok. And I'm seeing these crazy highlight reels for summer 2024. And I'm over here making ham and cheese sandwiches in my boxers on a Saturday just kind of hanging out and just kind of, you know, doing my thing.

Starting point is 00:35:38 I'm not doing those crazy things. I can't afford it. I don't want to go below $40,000 on a vacation, right? And so I just want people to know if you're in your 20s, 30s, 40s, 50s, it doesn't matter how old you are, what friends you're seeing doing what. The average American is $6,000 in credit card debt. The average American can't afford a $400 unexpected bill. And the average American is broke. You listen to this podcast because you want to make a change in your life. You do not want to be broke. You have goals. You're not drifting. And you're making the steps, you're doing the steps needed to ensure that you have financial freedom in the future. So do not fall victim this summer to the beach houses and the lakes and the boats and the

Starting point is 00:36:18 yachts and the whatever else fancy vacations people are going on. Stay the course. Stay content. Comparison is the thief of joy. And just give yourself some grace. I'm going to put one more thing in there because you're crushing it today. And that is this. And probably most of you listening right now fall into this cycle.

Starting point is 00:36:37 spring comes you can't wait for the vacation you do the big vacation you put most of it on a credit card then you start hammering away at trying to pay the credit card down and you have the oh shit moment then summer comes and it's wedding season oh shit i got to go to the weddings this is going to be fun you put it on the credit cards then you have the oh shit moment then you start paying it down then what comes holiday season so it is a vicious cycle over and over and over again of lather rinse repeat for most people if you don't have a financial plan to set it aside and get that money working for you for the long term. So at the very least, if you're going to yolo and have a bunch of fun, make sure you do it after you have your base built. You have a budget figured out

Starting point is 00:37:22 and you're putting away at least 15% of your net disposable income every single month. And then you won't end up broke at 60 years old working in a Walmart as a Walmart greeter or worse, extending your retirement out to 70 years old. Please, please, please. Everyone, thanks so much for tuning in to this week's episode of The Rich Habits Podcast. Don't forget, we have a webinar coming up on August 8 at 4 p.m. We only have 1,000 seats last time. I think it was 2,700 people tried to get in, so we will sell out probably pretty quickly if we haven't sold out already. Go register for that. It's completely free. We're going to show you how to begin adding startups and different types of privately held companies to your well-diversified portfolio.

Starting point is 00:38:05 So maybe you will have the opportunity to invest in the next Uber or OpenAI or SpaceX, right? We're sharing our deal flow and we can't wait for you guys to invest alongside of us into some of the coolest companies out there. So everyone, thanks so much and have a great rest of your week.

Rich Habits Podcast - Q&A: $500K in Savings, Defining High Interest Debt, & the Best Way to DCA

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