Rich Habits Podcast - Q&A: Escaping Student Loans, Owning a Dog Grooming Business, & Dividend Investing

Episode Date: October 3, 2024

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz answer your questions!---🚀 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.

Are you one of those media strategy people clicking through slides, scrolling spreadsheets? Yes? Good. This is for you. Because on Spotify, there's an audience that's different. Locked in. Loyal, invested. They're called fans. Fans don't just listen to music. They feel seen by it, like it belongs to them. So when your brand shows up on Spotify, that's who you're talking to. And you're right next to artists like me, Lizzo. So, are you ready to talk to fans? Spotify Advertising. You're among fans. Hey everyone and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify.

My name's Austin Hankwitz. I'm joined by my co-host Robert Croke. In this episode is our question and answer edition, which means every single Thursday, Robert and I sit down and we answer your questions live. We have questions in this episode ranging from a ton of different topics. We cannot wait to jump into them. But before we do, want to remind you all how to ask us a question in the future in case you want to do so. There are three ways you can ask us a question.

The first way is inside of the question. the Rich Habits Network. This is our sort of private community. We have those one-on-one conversations, those live streams, those really cool ways of communicating with our true fans of the podcast, and these people always get their questions answered. The second way is by sending us a DM on Instagram at Rich Habits Podcast, and the third way is by emailing us a question at richhabitspodcast at gmail.com. This episode, we've got questions from all three, so Robert, can't wait to dive in. Yes, but a quick heads up, time may be running out to lock in that 6.6% yield at public.com. Right now, bond yields are at their highest since 2009, and you can take advantage of

that right now at public.com with their bond account. But here's the thing. The Fed has begun cutting rates, and there will probably be more to come this year and into 2025. The good news is, though, that with a bond account on public.com, you can potentially lock in a 6.6% yield until 28. And when the Fed lowers interest rates, your yields remain the same. That is the key thing here is to Remember that you're locking in that rate. But you must act fast to take advantage of some of the highest bond yields in years. Discover how you can lock in that 6.6% yield until 2028 with the new bond account only at public.com forward slash rich habits. And as a quick reminder, just so we're all on the same page about what this is,

a bond account is a self-directed brokerage account with public investing, and they are a member of FINRA and SIPC. Deposits into your bond account are used to purchase a set of 10 fractional investment grade and high yield bonds. The yield represents a monthly average that's annualized over time before fees as of September 30th, 2024. The yield is subject to change daily and that yield at the time of purchase may differ. Remember, all investing carries risk. This is not an investment recommendation, but to learn more, you can visit public.com. So as many of you figured out our last episode, How to Escape Living Paycheck to Paycheck was audio-only. You weren't having glitches on your end.

We had a glitch on our end. So we apologize. But hey, you guys all know our beautiful faces and our voices. So you can live with it for one week. And we promise we got it fixed and we won't have another issue. And we're back. So as you can see, we're smiling. We're waving our hands.

We're excited. If you're not yet watching this, watch it on Spotify. This is a video podcast on Spotify. And we also have a YouTube channel so you can go watch these video episodes there as well. But as you can see, we're back on video and we're excited to be here. So our first question, comes from inside the Rich Habits Network from a man named Max. Max says, Hey, everyone, I want to talk about dividend investing. I want to specifically know how much people

allocate to their specific dividend portfolios and what funds they're picking. I know we talk a lot about SPY and QQQI and sometimes SCHD, but how is everyone sort of breaking down these dividends? How do they think about monthly dividend allocation? Are you reinvesting your dividends? What's everyone's approach to dividend investing? Now, Robert, I can't speak for everyone that listens to the podcast or even the now over 400 people inside of the Rich Habits Network, but I can share my own dividend investment strategies, and it's pretty simple. So just so we're on the same page, what is a dividend? A dividend is simply a cash payment from the company you're investing into to you, the shareholder for owning stock in the business. That's it. That cash comes from a percent

of the profits that business generates over the last three, six, nine, or 12 month period of time. So what happens is as the company makes all this money, they take some of those cash profits and they pay them to their shareholders as a, hey, congrats for being a shareholder in a winning company. Here's your portion of our profits. And why being a dividend investor is pretty important here from a shareholder perspective is because you're investing in companies that are one, profitable and two, paying you a percent of their profits that tend to go up every single year. A good example of this is Cintas Corporation, ticker symbol CTAS. Their most recent earnings call, state, did that this year, 2024, is their 41st consecutive dividend increase to their shareholders, right?

So, like, that is really, really cool. And you go look at their stock chart. And it has outperformed over the last five years, Apple, Microsoft, Amazon, Google. So dividend investing isn't always boring, Robert, but it could certainly be a way to have a good strategy around your portfolio. Now, to answer Max's question specifically, he asks a little bit further in this around how he should allocate $300 a month to building a dividend portfolio. In my opinion, the easiest way to get exposure to companies like Cintas Corporation and other companies that are raising and growing and paying their dividends is through the SCHD, ETF that he had mentioned.

That is an ETF that holds stock and companies that pay dividends to their shareholders and increase those dividends to their shareholders every single year. It's a winning investment strategy in my book. I agree. And, you know, we have different strategies of how we do this. I do hold SCHD. but I also hold individual stocks that I like. You know, we talk about also SPYI as a fund and QQQI as a fund.

We love both of those from Nios, but I also love Lowe's and John Deere and some of these other dividend-paying company, Citigroup. There's just so many good ones out there. So I think Max just do your research and figure out what is your risk tolerance and how much of your portfolio you should have in these dividend-paying ETFs in stocks. I personally keep it around 10% of my overall portfolio, but I know Austin, I think you're a little higher than that, but you're on the right track, Max, and you're looking in all the right places. And a quick pro tip for everyone listening in Max's great question is to look at two things. One of them is payout ratio.

You want to make sure that there's not so much of a payout ratio as it relates to the profits of the stock, because that can be a little bit of a red flag. But also, you want to look at what they're actually paying. as a dividend. Once they get over 5%, I always look at that as possibly being a red flag because they're trying to coax you into staying into their stock with this high dividend, while maybe there's some rocky road ahead. So keep in mind of those two things when you're looking and making a decision that it's all not rainbows and unicorns with dividend paying stocks. And so just keep those two tips in mind and that should help you. I love that perspective, Robert. Our next question comes from Priyanka K. Pranca says we currently own a townhome, which we bought for 600

thousand dollars in 2019. That town home's interest rate is 2.9% and we pay all in $2,800 a month in property taxes, homeowners insurance, and everything in between. We always have wanted to own a single family house mainly because we need a backyard for our dog and would really love a basement. We found a home that meets this criteria for $1.2 million and the builders are offering us a 2.99% buy down rate for the first year, but it will increase by 1% for the next two years. after that, then we'll have to refinance and figure things out. We have a few options and would love your perspective. Option number one is to rent out the townhome for $3,800 a month and then go out and buy this house while keeping the town home and renting it. Option number two is selling our town

home for about $850,000, taking the difference in putting that toward our next home. Our third option is to rent for three years and then sell our town home to take advantage of any additional appreciation and house value and also avoid capital gains taxes, and our fourth option is to not buy a single family home at all. Our long-term financial goal is to retire in the next 15 years, so whatever option we pick, we do not want it to deviate us from that goal. Thanks for letting us ask a question. All right, Robert, we've got a couple options here, and just to break things down, looks like they did a great job, buying a town home for $600K, it's now worth $250,000 more. They've got a great interest rate, and we're not going to see interest rates like that again for several more

years. Without context, I'll let you take things away from here. Yeah, I mean, congratulations, Priyanka and husband. It's a little tough without all of the information to know which of these four or five options is best because we don't know how much they've got socked away in retirement. We don't know what their income is every year. We don't have all of the details. So it's a little tough, but I'm going to take a stab at it. It seems to me right now, based on this information, I don't know that I would go by the single family home just yet, unless let's say your retirement savings is maybe over 500K right now and you guys are making 150,000, 250,000 plus per year.

Otherwise, I would look at keeping the town home maybe for one or two more years, letting these rates come down. Let's see what the market does. Does it cool off in your area? Because again, we don't know where this location is. You could be in an area where the prices are really hot and high still. we might see a cool off period. So I'm unsure of what the best option is given the information.

I don't mind if you sell it, but I don't know if I'd sell it again and take all the money and dump it into this $1.2 million home. Because again, you could see a decrease in values like a lot of people are seeing in South Florida, some parts of Austin, Texas, Southern California markets. So I would hate to see you buy it at 1.2, get the short-term buy-down.

And then in two years, the house is worth not, $9.50 and you're back up to 5.5% interest. So just be careful there. You do have options. You've set yourself up well. I would hate to see yourself go backwards financially by choosing the wrong option. What a great breakdown. And I largely agree with you, Robert. I would stay in the camp of probably just not buying a single family home at all right now. Just looking at these numbers, right? Let's pretend that you did sell the house for $850,000. And after fees and everything else, Let's say you had $200,000 to put toward this next house. That means you'd be borrowing about a million dollars.

Now, sure, in that first year, it's at that call it 3% interest rate, and then it'll increase to 4% for the next two years. And maybe you could refinance it at 4.5-ish percent. But still, at 4.5% interest, that is a $5,000 per month payment on just the principal and interest alone. We're not talking about property taxes. We're not talking about insurance. So you guys right now are at this $2,800 range. You're immediately going to double that.

let's call it $5,500 a month after you include everything else. I'm not saying you can't afford that, but just make sure if you all really do want to retire in 15 years, just make sure that you can't afford that. Because if I was in your situation, I'd really consider holding on to that $2,800 a month payment a little bit longer because you have to think about the opportunity cost of not doing so, right? So by buying this new property at this call it $6,000 per month, $5,500 per month, you are now talking about an additional $3,000 a month.

in property costs, right? Cost to just live. That extrapolated over the next five, six, seven years, because I'm sure you're going to be there for at least five, six, seven years before you consider doing anything regarding early retirement is going to be a quarter of a million dollars of net additional costs to live. I mean, unreal, $250,000. So if you had not done that and you just lived in the townhome for another five, six, seven years, you would have saved yourself one, a quarter million dollars of cash out of your bank account over that, call it, six or seven year period. And then two, if you had taken that quarter million and had invested it, now we're talking about half a million dollars of additional capital that would

allow you to retire early. I guess what Robert and I are saying is you've done a great job, and you've done a really great job of laying out your decisions and methodically thinking through this next process of your life. Whatever choice you make, just make sure you understand how much it's going to cost you and net capital, right, leaving your bank account every single month and year and over that time period, as well as what that money would have looked like if it was invested over that same period of time. Yeah, I agree. And another way to look at this, and it bothers me a little bit, is you're going from 600 to 1.2. So it's a pure double in house cost. Okay. And so as Austin alluded, that's going to be a pure double and more in your monthly income. So I don't

know if you've made a bunch more money per year since 2019. If you had great, then maybe you can afford this home, but why not look at an $850,000 home that's got a yard? You're going to still be able to find these pre-construction deals right now in almost every market where you can get that buy down to save you some money. So those are my thoughts. Tell us more about it in the school community and we can talk through it further, but that's where I'd be in this situation. So our next question comes from Zachary T. Zachary says, hey guys, I'm 30 years old and I've worked for a dog boarding facility since I was a junior in high school back in 2011. We were a small business at the time, but we've since grown to six locations all across Alabama,

and I'm really excited about the growth. I worked my way up in the company to an okay salary of $76,000 a year as a general manager. The owner is a good guy, and in May of 2024, my dream came true, and the owner sold me 15% of the operations of a single store through a seller financing deal. I'm not paying anything out of pocket for this deal, which is amazing, and paying the loan back to him with the distributions of my 15%. equity in the business, which means I'm also not reaping the rewards of being a part owner just yet. At the rate of my distribution so far, I'll pay him back over the next 18 months.

The cost for my 15% of profits was $78,000 and the balance is now down to $58,000. I'm eager to figure out how to buy more equity in this business because I believe there's going to be more opportunities in the future. However, here's my problem and my question. I have a lack of cash. I've got $12,000 in my simple IRA, $16,000 in my Roth, and $7,000 in a high-yield savings account. My monthly mortgage is $2.50, and I split this with my wife, who also makes a $70,000 year salary. We have zero credit card debt, and our car is completely paid off.

Our credit score is north of $800. Is there a creative way that we can get a $50,000 loan so I can perhaps get some more skin in this game? I can maybe ask my boss for another deal, like the first one, but I'd prefer to have some leverage with cash on my end. I'm okay with taking on debt because I think this will do well in the future, but I want to know your thoughts. Robert, this is definitely down your alley, so I'll let you kick this one off. Yeah, Zachary, great question. And let's back up a little bit. It says here that you paid $78,000,

you're paying $78,000 for your 15%. So I would like to understand, without knowing it right now, maybe down the road, what multiple was that figured at for owner's discretionary income per year? Because it looks like to me, if it's just a one-to-one, you're paying on basically a million or close to a million dollars in revenue. I think it's like $880,000 in profits for the year for you to pay for that. So that's number one. I would want to know before you try to get more equity, are you getting a good deal? Generally in a business like this, you're going to want to base the equity multiple on a multiple of owners discretionary income, which could be a two X multiple, a three X multiple of the profits of the business. That's number one. Number two, there are a lot of

ways you can go get money and I wouldn't take it from what you have nestled away now because we always say before you go out and start diversifying too much you want to get that 100k base built and you're not there yet so in my opinion you could go to chase bank get a credit line get a high balance card something like that to free up maybe you can find 18 months zero interest on 50,000 dollars but at this point I think you should stay put with the 15 percent look maybe down the road. later for more. Or like you said, go back to the owner if the deal is right for you and say, hey, I'd like to up my equity percentage to 25%. What would that look like with you, given the current numbers of the business and all the work that I've done because you can also play

the sweat equity game a little bit here and say, hey, I've worked really hard for years at this location. I've done a great job for you. And I just want to be rewarded for that. What does it look like if I wanted to get 10% more. I really like that. And just to piggyback on that, you know, Zachary, I think that you and your wife might have a money problem just by the verbiage that you've used, right? You guys talk about how I split that 50-50 with my wife. She makes 70,000 a year. You know, you don't split your mortgage with your wife. You guys have a joint bank account and you pay for your mortgage out of your joint bank account. You guys are married. You're not roommates that you split your rent with 50-50. Do you guys, he also share them?

mustard, who buys the mayonnaise? That's just, that's not what marriage is. So, Zach, I also want to encourage you now to think about as you invest toward your future, not just think about it as me, me, me, but think about it as us, right? You guys are married. And the second thing I want to call out is you're making $146,000 a year as a combined salary for your household. Household income of, let's call it, $150,000 a year of a salary. Now, of course, you're going to take out taxes and insurances and things like that benefits. So you're probably around this 110,000, $115,000 take-home pay range, which is just north of $9,000 a month. I don't understand how someone who is taking home $9,000 a month with a 2250 mortgage, which is very reasonable,

does not have $25,000 in a high-yield savings account. And then also perhaps maybe tens of thousands, if not hundreds of thousands of dollars now going forward, invested to build your base. You mentioned you're 30 years old. Maybe you guys are newlyweds. Maybe, you know, you both are new to making, you know, six figures as a household. But this goes back to what we're talking about in our episode on Monday, right? Living paycheck to paycheck, there's 63% of people that make over $100,000 a year that are living paycheck to paycheck. I'm not saying that you guys are living paycheck to paycheck, but only having $7,000 saved doesn't look very good on the surface. So just make sure before you get into all the semantics with trying to own equity in the dog grooming business and

doing all these different things, to Robert's point, that you go out and you build your base first. I need you to max out that Roth IRA every year. I need your wife to be maxing out her Roth IRA. Maybe she does have a retirement account at work. It's time for her to invest up to the match with that. You guys have money left over. Maybe it's time to beef up that emergency fund to $15,000, $25,000. Whatever, let's call it, six months of expenses are for you, should be saved in an emergency fund. There's a lot of things that you need to do and worry about, in my opinion, before you go out and say, I want to go own 15% of a dog grooming business. And I want to add one last thing in Austin.

That was a great breakdown. One last thing, Zachary, is this. Right now, you're getting your payments made by your distributions of the business, correct? That's the way I understand it. But you don't know how those numbers are being calculated at this point. Are you seeing monthly P&Ls? Are you seeing quarterly P&Ls to know what the actual profits are? and if in fact your distribution is correct,

that would be my next question for you to make sure you understand. Because what happens when you get to the end of the train ride? You're paid off. You own your 15% free and clear. And then all of a sudden your distributions go down to $500 a month because the profits weren't really ever there. And so you have to keep in mind, you need to understand those numbers of the business.

But I agree with Austin. I'd stay put on the 15%. I would work really hard to get your expenses in order so you guys can start stocking away more money towards retirement? Because the number one thing we are always going to the hill that Austin and I are going to live on is making sure you have that 100K base first before you diversify too much because we don't want to see you living paycheck to paycheck down the road. I love it.

I mean, straight from this email, right? My problem is a lack of cash. You guys take home $9,500 or so per month. There is no lack of cash. There shouldn't be. No credit card debt. You have no car loans. You have nothing else debt.

that you had mentioned here, but your mortgage. It's like, figure it out, Zach. We think you guys got this here. Just time to buckle down and get that figured out. You're 30 years old. It's time to make those moves. So as a quick heads up, time may be running out to lock in your 6.6% yield at public.com. When you invest in a bond account on public, you can lock in your rate until 2028.

But with more potential rate cuts on the horizon, you might want to act soon. Discover how you can lock in a 6.6% yield until 2028 using the new bond account only at public.com forward slash rich habits. So our next question comes from Thoy V. Thuy says, Hi, Austin and Robert, I love listening to your podcast. I want to ask for your advice. My mom is 55 years old. She has no debt. She has not built her base yet for retirement. So is it still worth it for her to invest in the Roth IRA now? What are some options for her to maximize her savings for retirement if she wants to retire in five years by the age of 60? Good question. How does someone with no money retire in five years? They don't, right? Just to be blunt here.

So I think the first thing I would do, if I were you kind of helping, you know, coach your mom financially through her next 5, 10, 15, 20, 25 years in retirement is to set expectations. Unless your mom is making a quarter million dollars a year and she can sock away a couple hundred thousand of that every single year that we don't know about, that's great. And she can retire in five years, right? She'll have a million dollars in five years at 200,000 a year and you guys are going to be fine. I just don't know if that's the, you know, situation here. And I argue it's probably not.

being more realistic, here's what I would do. Yes, at 55 years old, you absolutely can invest toward the Roth IRA, especially as you think about, you know, we don't know what taxes are going to look like in the future. Robert and I always say that. And because of that, we choose the Roth IRA for our retirement vehicle of choice because we pay taxes today and up front. Therefore, we can enjoy our profits and our capital gains over, you know, our lifetimes tax-free. That's the joy of the Roth IRA. Because she's over the age of 50, your mother is able to now contribute $8,000 per year toward the Roth, which is $1,000 more than everyone else. It's sort of thought of this like catch up amount of money here. So $8,000 a year. If I was in your mother's

shoes, I would absolutely do everything I could to start maximizing my Roth IRA contributions of that $8,000 per year over the next, let's call it, 5, 6, 10, 15, 20 years. That will likely increase as well. We've seen that in the past. So maybe that'll increase to $8,500 or $9,000, maybe even $10,000 one year, who knows, but what I'm saying is absolutely start investing in the Roth IRA. If she has nothing at all saved, I would probably be aggressive, but then I would also consider the time horizon of the investment. So back to this idea of setting expectations, you cannot retire at 60 years old unless she plans to live off of rice and beans for the rest of her life. I did the math for you, an $8,000 a year invested until your mother is 72 years old, which is the first

year she has to start taking those required minimum distributions out of her retirement accounts, that $8,000 per year for that 17-year period of time is going to be about $430,000, starting from scratch. That's a pretty decent nest egg to retire on. I mean, it's not perfect, but you mentioned she has no debt, so that could be a really cool thing to generate some income for her, let's call it maybe $2,500 to $3,500 a month of income. But yeah, all in all, there's a world where she can have a comfortable retirement, let's call it in her early to mid-70s, by maxing out the Roth IRA, taking advantage of that tax-free income in her 70s and later on in life, but also to reimagine what retirement might look like. We talk about this all the time, Robert, how people think

retirement is sitting on a beach, drinking my ties, and listening to music. When in actuality, retirement for a lot of people is passion projects and maybe doing some consulting for things that they're really, really passionate and excited about, right? Making a little bit of extra income on the side while also, you know, doing things that make people happy. I think, you know, Robert, you could retire 10 times over, but you do this podcast. It's a lot of fun and it makes you excited to wake up in the morning and it's cool. So Thoy, I would encourage your mom to think about, you know, what does retirement look like for her? Does she have a specific skill set or a background in something that maybe she could offer some consulting or do some side work and things

like that around her passions, allowing her to generate an extra $500 to $1,000 a month to help subsidize her lack of retirement nesting? So that's my just quick breakdown. I think your mother has a long way to go as it relates to retirement since she's starting from scratch. However, she has a lot of time. She's only 55. She's very young and she's likely going to live for another 30, 40 years.

So with that, I'll pause. I'll let Robert jump in with his perspective as well. Well, I'd say you crush that. And here would be just a few little minor points I'd like to have. It may seem like maxing out the Roth IRA at 55 since she doesn't have her base is daunting at that $8,000 a year. But look at it this way. she can have some dignity in retirement and have almost a half a million dollars just by putting away

that $666 a month. So that's the first step. How can she do that? Is it a side hustle? Is she getting Social Security? Where can she go to get this money, the $666 a month, aside from her normal expenses right now, to put that into the Roth IRA? I think that's mission critical in where you should start. And then secondarily, exactly what Austin said. Retirement looks different. for everybody. She may not have dreams of being on the beach with my ties and music. She might just want to play in the local pickleball league and pick up some shifts at, you know, a local nursing home or a store that she loves or some shop. All of these things come into play and the Roth IRA is definitely not too late for her. She can make these contributions to the Roth IRA for years to come, really setting herself up

to get in better shape for retirement than she is now. And I think it's really, really, really of you to ask the question, get out there and find the help for her, and I hope this helps. Our next question comes from Katie I. Katie says, hey guys, thank you so much for providing this resource to all of us. It is such a benefit. I have a 401k through my previous employer with $20,000 in it, and I want to roll it over into a Roth IRA since I've recently transitioned into being a stay-at-home mom. It will have more autonomy with the funds. Since the Roth IRA contribution limit is $7,000 a year, where do I park the remaining $13,000 from my 401k during the roll-over period? Can I park all of it in my Roth IRA and then just contribute $7,000 a year from that total amount?

Or can I contribute the entire 20K at once since it's a direct rollover? Or does the remaining 13 go into my checking account? I'm a little confused on what to do. Much appreciated. Oh my gosh. This is such a fun question. All right, Katie, you are thinking about this entirely correct. We are so excited that you're thinking about autonomy with your money.

You want to have controlled. You want to invest it correctly. You want your money to grow and we cannot be more excited for you. Here's the deal as it relates to rollover. Think about your Roth IRA like this. Every year, you can only take $7,000 from your checking account or wherever else and deposit that into the account. Net new capital, right? New money invested is $7,000 a year.

If you already have money invested that's been, you know, deposited over the last several years like you have with this 401K, that money is already invested. It's already deposited and it's already out there in the ethos. Therefore, you can take all $20,000 of that and directly roll it over into your Roth IRA. You do not have to worry about a $7,000 here, $7,000 here, got to wait on this, none of that. The $7,000 only applies to net new cash deposited into the account. If you already have money invested elsewhere with a 401k or some other cool way that you can roll over to a Roth IRA, that money is already there. You don't have to worry about trying to divvy it up.

So, Katie, what I'm saying is you can take all $20,000 of your 401k and roll it into a Roth IRA. All 20,000, there's no breaking it up or anything. Two things I want to warn you on, though, in this process. The first one is this is a 401k, not a Roth 401k, which means you've not paid taxes on the contributions you made in this 401K balance, nor have you paid taxes on its profits. So what does that mean? The moment that you roll over your 401k into a Roth IRA, you will have to pay taxes on that money. So we're talking about a $20,000 adjustment to your gross income for the year of 2024. And let's say you're taxed at an effective tax rate of like 15, 20%.

So you're talking about a $3,500 tax bill because you're rolling this money over. And the second thing I want to warn you about, and you sort of alluded to it here with your checking account, you do not want to touch any of this money. you want to call up whoever your 401k person is, give them the account and routing information of your Roth IRA, and you want them to move the money for you. Because when you have that money hit your checking account, the IRS sees that as a withdrawal, and they're going to charge you a 10% penalty fee, thinking that you're just tapping into your retirement account early, which is another $2,000. So you don't want to pay another $2,000 on top of the $3,500 in taxes you're already going to have.

to pay. So it's a very simple process. You're going to call them up and say, hey, I want to transfer my 401k funds into my Roth IRA. They're going to transfer those funds. All 20,000 will be transferred. However, you will now own additional $3,500-ish or so on your taxes in April the following year. And you did this in a way where it did not hit your personal checking account. It just boop, transferred right over to your Roth IRA. And Katie, something to think about here is this. You might want to think, man, I don't want to pay the taxes. I work so hard to get that 20k saved. But the thing is, you don't want to kick the tax man down the road. Getting it rolled over into that Roth is so critical because you're going to pay the taxes one time. That $3,500 is going to be paid. And then that

money is tax-free earning and compounding for life. So just don't look at it as, oh, I'm going backwards by paying the tax bill because you have to pay the tax bill at some point. And it's better to pay it now than it is to pay it later. Robert, I just did some quick math. here, which is cool. Let's pretend Katie's 35 years old and she doesn't need this money until she's 70, so for 35 more years. This $20,000 in her Roth IRA compounding at about a 10 to 12% annual return is going to be worth over $1.2 million, assuming she doesn't add anything to it. So paying a $3,500 tax bill to have $1.2 million tax free in 35 years sounds like a pretty good tradeoff to me. Well, you know the story that I told you when we first met, and that was a girlfriend of mine many, many, many years ago.

She was at the time, I think I was 20 and she was 19. And she got in a car accident and got exactly that. She got a $21,000 settlement and asked me what to do with it. So she met with Croke Capital. We weren't named that. Croke Capital wasn't the name back then. And Tim told her, put this away and you'll be a millionaire when you retire just off of this $21,000. and she went ahead and bought the Chrysler-Laboran convertible,

which that car has long been in the ground at the junkyard. So it really does matter. These one-time lump sums can set you up for life, even if you never, ever add to it again. So I love that illustration. So our next question comes from Jordan M. Jordan says this. Hello, Rich Habits Network.

Hope you all are doing well. I have a dear friend who is stuck in a bind with her student loans. She took out private student loans, and they're hurting her bad with their interest rate to the point where she's paying. back an extra $500 a month in interest every single month. She has a job and is actively working to pay them down, but it's really overwhelming for her. If you all have any ideas on what she should do, I really appreciate it. Jordan, I appreciate this question because I took out

private student loans when I was in college. I, of course, got them paid off after I had graduated, but I totally empathize with the student loan game. My girlfriend's still got some student loans. I've got a lot of friends that have them. It's just like part of life at this point. The only thing I could suggest is to get them refinanced because it seems like the person who took them out with her in the first place here might be taking advantage of her. Maybe she has a lack of credit history. Maybe she is new to the credit game and so maybe she took out a very predatory loan with these people. If you go to sparrowfi.com, S-P-A-R-R-O-O-W-F-I-com, you can think of that as like the Google Flights for student loans. You can kind of look at all the different offerings that are out there, both private and public,

and figure out which refinancing option works best for you. They're a great tool to figure out exactly how much you'll pay an interest over time, the different sort of loan characteristics and details. It's all spelled out very eloquently on their website. So go check out if there's a way for her to refinance her student loans. Beyond that, Robert, do you have anything to add? No, I mean, I would just understand what interest rates you're paying right now, but Sparrow's great because it's free.

They're pre-qualified loans, and it does not affect your credit score by refinancing with them. So that's what I like about that service. I think that's probably the best way to start poking around and looking, unless you have a family member out there that wants to provide a low-interest loan and help you out. There's not a lot of options, and there are millions and millions of people out there suffering from this same exact scenario. Like Austin said, student loans, especially private student loans, have just become part of life now. And that's unfortunate because it really prevents people from getting out there and starting their investing towards retirement because they have these hefty student loan payments every single month. So check out Sparify. I think it's great. It's a good place to start. And what's tough about this too, Robert, is when we got invited to the White House earlier this year to learn more about the save plan that the Biden Harris administration had sort of came up with there.

And what's tough again is about this is these are private student loans. So they're not even, you know, this woman isn't open to. to any benefits that might come from sort of this debt relief or anything that's kind of working on behind the scenes there. So definitely check out that website Sparify Jordan and we're wishing you and your friend a lot of luck. Our last question comes from Trayton C. Trayton says, hello. First, I would like to thank you guys because I've been listening to the podcast for about two months and I've learned so much already. I'm a 20-year-old college student in my third year.

I have enough scholarships and grants that I do not have any student loans and I actually receive refund checks every semester. I am an education major, so my degree will not be very high earning to begin with, but maybe it will increase over time. My question is, what should I do to be financially free with a medium earning job? I'm brand new to investing. I currently have $1,000 in my high-yield savings account, $800 in my Roth IRA, and $500 in a traditional brokerage account. I have two years of school left, and I should receive about $20,000 in income through these refund checks. What would you all do in my situation? I'll take this one right out of the gate.

Trayton, you're already doing it. You may not realize, but just by listening to the Rich Habits podcast and submitting a question like this, it already means you're ahead of the game by 95% of everyone else that's in your age group of 20, 22 years old. Because most of them are more concerned of what's happening with P.Ditty and what's happening in football, while you've got your eye on the prize and that's your future.

So that's step number one. You've already got dialed. Number two is to remember any money you can put in early while you're young and let it compound into that Roth IRA that we talk about is going to pay you tenfold later on in life if you leave it there and you're consistent. So just by getting started now, even on a meager salary, and I don't know what that would be, let's say it's $60,000 a year. If you can still find a way on that $60,000 a year salary to max out that Roth at $7,000 a year. year at your age, you will still have over a million dollars in retirement. So you're in the game, you're doing it right, and you're on top of things and thinking about all the right things. So do what you're passionate about. If you want to be a teacher, you want to be an educator,

that is incredible. The world needs it. And just don't worry about it because if you're consistent and you get that money put away every month, you will be just fine in retirement. I couldn't have said it better myself, Robert. We definitely need more strong-willed teachers in this world. trade in a couple things the first one you'd mention is you're not going to have student loans that is an amazing blessing so that's great that should be a great sort of kickstart to make sure that you stay at a high interest debt i know a lot of friends that are in sort of that medium earning job between let's call it 45 000 to 65 000 a year in their 20s and unfortunately they did not have the right resources and tools in place to keep them out of high interest debt and so trade and what i'm trying to get at here is

stay out of high interest debt your entire life. You don't have it right now. There's no reason to go into it. Do not swipe the credit card. Do not get that used car loan for 9, 10, 12%. Do not go take out the personal loans to go on the vacation or whatever else thing you might find online. Or maybe you see your teacher buddies experiencing a better lifestyle knowing, wait a second. That person makes $55,000 a year. How'd they go on their third vacation this year? I don't really understand that. It's because they're in high interest debt. So, Trayton, here's what you need to do.

Take this $20,000 that you will get in these refund checks, assuming that you're going to take probably most of that to supplement your lifestyle over the next two years as you navigate college with your rent, maybe food and tuition and books. I don't know how much all that you're going to keep, but let's say you keep five, maybe $10,000 of it by the time you graduate. Have that $5 or $10,000 sitting for you in a high yield savings account. That is going to be the buffer between you and high interest debt with emergencies that you cannot predict. dick. So once that's sitting for you there, don't worry about earning money with it. Don't worry about investing it. That is what's going to be your insurance to keep you out of that high interest debt. Now you're earning that $45,000, maybe $55,000 a year as a teacher. The most important thing you need to do is get your money under control. That means going down to the link in the show notes below and downloading our honest budget template.

It's going to be a really easy way for you to see what your money looks like holistically and allowing you to really get after it and make sure that you're being as intentional with your money as possible. Now you're staying out of debt. You've got $10,000 in a high-yield savings account, and you've likely figured out how to wiggle 10, maybe 15% of a savings rate against that money you're earning as a teacher. We're now talking about, to Robert's point,

maxing out that Roth IRA, you're already contributing to your 403B, right? You're doing all these great things. You're not just going to have a million. You're going to have millions, plural in your retirement accounts by the time you're 60, 65, 70 years old here. So Trenton, there's a bunch of ways you can do this, but the secret sauce is to make sure you don't find yourself swiping that high interest debt credit card every single time that you want to go on that vacation or go, you know, maybe pay for that emergency because you've got your money handled and under control already.

And the other kind of, I guess, pro tip would be you've got summers off. When you've got that three months off during the summer, go have that second job. Go have that side hustle. Make 10 grand, 15 grand during the summer and put all of that into your investment portfolios. that will guarantee you that you will be a multi-millionaire in retirement and probably be able to retire early because most people that are teachers when they have the summer off, they just don't do much. They have a lot of fun, maybe work on their hobbies or whatever. And you could really change the game by just having a side hustle or a second job during the summer

and putting all of that away towards investing. We're rooting for you, Trenton, and we could not be more excited that you listen to the Rich Habits podcast. Everyone, thanks so much for tuning into this week's episode of the Q&A edition of the Rich Habits podcast. If you don't already, hit us with the follow button on Spotify or Apple or YouTube or wherever you're watching this. And be sure to share the episode with a friend. If you like the questions we answer, if you want to ask us a question in the future, there's a bunch of ways to get in touch with us. So be sure to do that and we can't wait to answer more of your questions down the road. Yeah, I'm so excited.

This was a great episode. So many incredible questions coming out of the Rich Habits Network. And like Austin said, if you've not checked out the Rich Habits Network yet, you definitely should. We love it. We have an incredible newsletter. I think it's one of the best in the country. We have our private lives every Tuesday at 8.30 Eastern Standard, and you can watch the videos if you can't attend.

There's just so much happening in the community. I really, really love where it's going and excited to have you join. Thanks, everyone. And have a great rest of your week.