Rich Habits Podcast - Q&A: I'm Stuck in an MLM, Tactically How to Start a New Biz, & Buying vs. Leasing a Car

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Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. Hey everyone and welcome back to the Rich Habits Podcast question and answer edition. This is the episode per week that we take your questions via Instagram DMs at Rich Habits Podcast or email Rich Habitspodcast at gmail.com and we answer them. We give you our candid feedback what we would do if we were in your own shoes. And it's probably my favorite weekly episode, Robert, because it's kind of relaxed. You know, we're over here just hanging out. I've got my allie pop lemon lime and we're just sitting around answering questions.

Starting point is 00:01:30 I love it. I love it. I really get a lot of joy out of answering the follower questions, the community questions, our DMs, all of that. Just because we get to stretch our muscles a little bit without kind of the day-to-day stuff that we have to do for the rich habits brand. So I definitely enjoy them as well. And what's really cool too, Robert, is our listeners love these episodes, right? You guys have been given us the best feedback on these episodes saying we want more, we want them longer. So I think, Robert, we've got nine questions to answer on this week's episode. I mean, it'll probably be over an hour long, which is cool because that's what the people want. And I'm excited to dive in. We are definitely men of the people, so let's get in. Well, before we do that, let's take a moment to talk about this episode, sponsor, public.com.

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Starting point is 00:02:59 so try it out. It takes two minutes to sign up, and I think you'll love it. Public.com, all you're investing in one place. This is a paid endorsement for public investing, 5.1% APY as of June 17, 2024, and is subject to change. Nerd Wallet's overall rate rating of 4.6 out of 5 stars as of May 2024 and full disclosures in the podcast description. We are massive fans of public.com. We love their platform. So go check out public.com forward slash rich habits and you can get some free stock. It's great. You guys are going to love it. So go check that out. Let's show up into our first question. Our first question is coming from a very awesome person who emailed us again at rich habits podcast at gmail.com. And her name is

Starting point is 00:03:45 Rhythm. Rhythm says, when building my base of 50 to $100,000. Should this be in a taxable brokerage account or in a retirement account? Or should it be a combination of both? And how much should I allocate per month to achieve that? Robert, this is a great question. And I feel like maybe we should start being a little bit more concise and straightforward when we say building your base, right? When we say build your base, specifically here talking to U-Rhythm, we're talking about $50,000 to $100,000 invested into the index funds we all know and love across all accounts. That could be a taxable brokerage account that you have on public. That could be your Roth IRA that you have on Schwab. That can be your 401k that you have at your employer. Maybe

Starting point is 00:04:29 it's even inside of a SEP IRA because you're a solopreneur like Robert and myself. So we're talking about getting tens of thousands, $100,000 plus invested across all different accounts in the index funds we know and love because then and only then is when you're really going to start to see sort of the snowball effect of compound interest take hold with your investments is when you hit that that 50, 75K mark in your portfolios. Yes, I love this question, and that is just a really good way to put it. That 100K base is across all of your investments in the markets, and we just feel that that is so, so important for everyone that follows along and listens, because I see it

Starting point is 00:05:13 every single day where people get 10 or 20,000 invested maybe in a Roth or a traditional counter in their 401k. And then their next tranches of money are investing in a food truck, or they're going to go flip a house with a friend, or they're going to go, oh, Uncle Bill said I should go buy this precious metal because it's going to go through the roof. To me, that's too much risk, too early. We like to see you have that $100,000 base earning you hopefully 10, 12% a year to start out because you're making money while you're sleeping, not on your feet. And that is so important to understand to get that base built first before you start going off

Starting point is 00:05:53 on all these other tangents without having a plan. So I love the question and the takeaway, Austin. And Robert here, she's got a couple follow-ups that I think are equally as important. With the first one being, should the holdings across my accounts here as I build my base be 100% inside the S&P 500. And Robert Nye's answer is probably not, right? If you want to be 100% in the S&P 500, I'm not mad at you, right? You are diversified across 500 of the largest, most profitable companies in the United States. However, we think you should also have some VTI, which is the total stock market. We think you should have some VGT, which is a little bit more of tech

Starting point is 00:06:33 stocks, maybe some QQQ, which is the NASDAQ, or even AIQ, which is AIF focused names. Don't get me wrong. If you are super focused and gung-ho on having all your money in the S&P 500, I'm not mad about it, but Robert and I definitely think that you should diversify into other tried and true indices that have performed 10, 12, maybe 14% since inception. I couldn't agree more. And really, the way I look at it is this. I would rather someone be all in on V-O-O than what I see a lot in people's portfolios where they have a little bit of money spread across 15 or 20 index funds and 20 other stocks, et cetera, et cetera, or ETFs. For me, I'd rather see it condensed, but we really like to see that sweet spot of maybe that four or five ETFs that we know and love

Starting point is 00:07:19 and talk about all the time, because I think that's the best way to build a diversified base to grow your investment portfolios. Now, Robert, what do you think about when the right time is for someone like a rhythm to start adding some tried and true blue chip single stocks to her portfolio as well as some of these income focused ETFs that we know and love like SPY or QQI. I think it's really right at that $100,000 mark because once you get that base built and I don't know why you and I are both stuck

Starting point is 00:07:51 on this $100,000 mark, but I think it's for me, it's such a huge psychological hurdle because the first 100K in my opinion is so difficult to reach. And once you do and you follow these plans, I don't want anyone to do. to touch that. I want that $100,000 to be, just pretend it's not even there, forget about it,

Starting point is 00:08:13 let it do its job, and then you can start playing around with their diversification into single stocks, cryptocurrency, some of the other investment strategies that we talk about. So for me, it's always going to be that 100K mark to get them started. But I think then after that, everyone should look at having a smaller basket of individual stocks. Maybe it's in a separate account that they manage directly and they do their homework on. But even then, they're going to want to have active management on that account because you don't want to fall asleep at the wheel and find that there's a big retraction in tech or that there's a big retraction in energy or whatever sectors you're in. So I think it's important to still keep your eye on the prize and actively

Starting point is 00:08:57 manage it. Yeah, I totally agree. And just to clarify, right, active management is different from day trading. We're not encouraging anyone to trade or make some, like, but be cognizant and aware of just what the market's up to and what your own risk tolerance and investment horizon might be. Before we move on, Robert, I really want to harp back on this idea that you just kind of propose, which is like, why do we care so much about this $100,000 milestone? And it's because once you get $100,000 invested, your money is now working for you as hard as you work to earn it, right? And so if you've got $100,000 invested and you're making 10%, 12% per year on that money, that is $12,000. thousand dollars a year, a thousand dollars a month in portfolio passive income that you're making while you sleep. We had an episode earlier where we talked about these like really important

Starting point is 00:09:46 financial concepts. I think it was like episode 67 or 68. And in that episode, Robert, we talked about the difference between your savings rate and your rate of return. While you're building up this first $100,000 invested, which on average takes seven and a half years to accomplish, the savings rate is what's important, right? You want to be saving and investing as much as possible. You don't really care too much about the rate of return because it's not going to be a needle mover in your journey of achieving this 100,000. But once you have the 100,000, now it's time to focus on the rate of return, right, that 12% per year. If you are saving $7,000 a year over here, but you're now earning $12,000 a year passively in portfolio income, your money's working harder for you than you're working to earn it, right?

Starting point is 00:10:31 So it is just such a big milestone. And in my opinion, it's the most important milestone that. everyone needs to achieve to reach financial freedom. Yeah, I agree. And one of the things I see a lot of, and I know back in my early beginnings, I suffered through, was people start to get everything automated. They're chugging along. They get to 70, 80 grand. They feel good. And then they go, bam. Oh, shoot, I'm going to go buy a jet ski. They're back down to 50. Then they get it back up and they get to 88 grand. And it's doing well. It's making money. Bam, they go buy that car. The goal here is, for this 100k, you're carving this out, you're automating it with the goal of getting it past 100k and

Starting point is 00:11:14 letting compound interest do its job, but you're not looking at this money as money that is available to spend on other things. This is for your future and this is to make sure that you are letting compound interest do its job for as long as possible. That's why we always preach to everyone to invest early and often. It doesn't mean you're building it up as a picture. to constantly use it because that won't help you get where we want you to go. Well, speaking of early and often, our next question from Harrison is exactly that. Harrison says, I'm 22 years old. I recently graduated from college and I started a sales job making $4,000 a month after taxes.

Starting point is 00:11:52 I still live at home with my parents, so I'm trying to take advantage of this time period where my expenses are very low. My question regards my student loan debt. I have $30,000 in student loans, $10,000 in one account and $20,000 in another. I've been making small monthly payments since I graduated, but I'm wondering if I should start getting really aggressive with paying off my debt while my expenses are low or if there are other things that I should be doing with my money. I anticipate I'll make a $10,000 bonus at the end of the year.

Starting point is 00:12:19 And so maybe I should put that toward my student loans. What do you guys think? I'll take the first step of this one, Robert, if you don't mind. Yes. You know, when I hear about people, especially in their early 20s, mid-20s, really focused on like, I want to pay off my student loans. I want to pay off a car. I want to pay off this debt. Don't get me wrong. I don't want you to be in high interest debt,

Starting point is 00:12:39 period. If it's high interest debt, paid off. Robert and I will always tell you to do that because you cannot out-invest high-interest debt. However, student loan debt is normally 5.5%, 6%, maybe 7% on the high end. And so with that being said, I immediately think about my girlfriend, right? She's turning 26 in about a month. She's got $35,000, $32,000 of student loan debt, but she also has $10,000 and a high friend. high-yield savings account and she has $25,000 in a Roth IRA. That $35,000 in quote-unquote investments there, which I know a high-yield savings account is a savings account, but let's call it, you know, let's group it in here, right? That 35 grand of assets that are working for her because she is earning interest on that savings, that didn't come because she decided that she was going to get

Starting point is 00:13:24 really aggressive and pay down the student loans. It came because she said, okay, I'm going to keep doing the student loan stuff. It's going to, it's always going to be there. But let me really start to build my financial base, right? Build that savings account that's going to make me feel is if I lose my job, I'm always going to be there. I've got my six months or three months rather of expenses saved up. Let me get that retirement working for me because I know the sooner and younger that I get invested, the more money I'm going to have in retirement, right? So Harrison, my advice to you is, if you are taking home $4,000 a month, and let's say you're spending $1,000 a month on miscellaneous stuff, you now have $36,000 a year to play with, that you can save, invest,

Starting point is 00:14:03 do whatever you want. You can spend all 36,000 of that paying off your student loans in one year, or you can take all 36,000 of that, max out your Roth IRA, put $10,000 in a high-yield savings account, put another, I don't know, $15,000 in a taxable brokerage account on public.com, and invest this $36,000 into the index funds we all know and love and let your money start working for you at a young age that all of your peers are not going to be able to do. So at 42 years old, when this 36,000 is now worth 250,000, and you didn't touch it, you didn't do anything. It's just growing in the S&P and these index funds, right? You're going to be very, very happy that you decided not to pay off your student loans early and you started investing early.

Starting point is 00:14:49 Yeah, and for me, the student loan debt always is tricky because it's not quite high interest debt at the 4 or 5%, maybe 6%. I always believe that the markets are going to go up and to the right because they normally do. So we're going to make 10, 12, 14%. But also, you have that ace up your sleeve that the government is always releasing new plans to give loan forgiveness on student loans. So you have that chance that what if you go pay them all off, you delay starting your investment journey, you take away your option of investing early and often and letting the money compound like Austin illustrated. And then all of a sudden the government says, well, hey, we have a new program where all student loan debt is going to be interest-free. And so then your payments go all the way down and you get this free money.

Starting point is 00:15:38 So for me, I always, when it comes to student loans, I want to kick the can down the road as long as possible, pay the minimum, especially at your age, Harrison. And get money working for you because compound interest truly is the eighth wonder of the world. And everyone should be listening to this episode and following a long time. when it comes to this kind of debt. I mean, Harrison, it's super simple, man. 36,000, year one, invest it. Year 2 living at home. 36,000, if you really want to pay them off, go pay them off.

Starting point is 00:16:08 But you've already built that $36,000 sort of nest egg, right? That's what's really important here. I don't care if you want to keep the student loans or get rid of them, but make sure that before you make that decision, you have your investments, you have your financials in order, and your money is working for you and compounding for you. that is the most important thing you can do at 22 years old. Now, Robert, our next question comes from Jordan.

Starting point is 00:16:32 Jordan says, I love the podcast, and you guys have inspired me so much. I'm 23 years old, and I'm making 120K a year. Oh, my gosh. Unreal. Amazing. Great, Jordan. Geez. Jordan says, I wanted your opinion on my strategy.

Starting point is 00:16:46 Right now, I've got 20,000 invested in some ET apps that you guys talk about, a couple reits, a couple single stocks, and about 1,000 in some T bills. I have $40,000 sitting in a high-y-old savings. account as my emergency fund. I also have a car loan with a 5% interest rate, but I don't want to pay it off because I'd rather have that money working for me in the markets. Do you have any additional advice on my situation? What do you think, Robert? Yeah, I wouldn't touch it. Great job, Jordan, but I wouldn't touch the car loan and pay extra payments on it. I would leave it go at 5% because you're going to do better than that in the crypto markets. You're going to do better than that in the Treasury bill even.

Starting point is 00:17:20 So I think you're in a great position. Your thinking is right on track. And I would just keep me making the payments because at the end of the day, and we're going to cover this a little later in the episode, so everyone stick around that's interested in this topic, is that an automobile is generally the greatest appreciating asset you're ever going to purchase besides a boat. So I don't want you to put extra money towards paying it off early since you did secure such a good interest rate on your loan. Yeah, I'm right there with you, Robert. I think that maybe if Jordan, I don't know where you live and what your monthly expenses are, it seems like you probably have six months worth of expenses in your high-yield savings account. I have no idea

Starting point is 00:17:58 how stable or unstable your job is, but maybe you can trim that 40,000 down to 30,000, take that additional 10,000 and invest that into the ETFs as well. And then, you know, something else to think about, especially making this much per year, is what do you want to do from a real estate perspective? Of course, we always want to encourage our listeners, especially at a young age like Jordan here, to house hack, right? That first property to be a duplex or a triplex. But I think it might be time, Jordan, depending on if you're, you know, in apartments or I don't know what your situation is. But the next big milestone, in my opinion, that you need to start thinking about is what do I want to do from a real estate perspective?

Starting point is 00:18:38 And also, don't give yourself a shot clock of like, oh, I need to get laser focused and stop investing and all this money needs to now go toward a down payment on a duplex. No, don't overthink it, right? Continue to invest in your Roth IRA every single month. continue to take, I would imagine, two or three thousand a month from your $120,000 per year. So let's call it $25,000 to $40,000 a year and continue to deploy that in the markets. However, maybe it's time to trim out $15,000 of that per year and start putting it to the side for a down payment fund. So over the next three years, you now have $45,000, $50,000 set aside to say, okay, I am 26 years old. I'm ready to go buy a duplex.

Starting point is 00:19:16 Interest rates have come back down. I've got $50,000. What should I go do? That's the only piece of advice I would have. I mean, dude, you are absolutely crushing it. You're well on your way to be a multi, multi-millionaire by the time you're in your 50s and 60s. And if I were you, you know, it'd really just be what's up with real estate. And how can I begin to think about retiring early even, right? Maybe in your 40s. And again, the way to do that is to make sure that your monthly expenses are paid for by your investment income. So start thinking about that at 23 years old and you are going to be crushing it. Definitely. That's a great takeaway. And good job, Jordan. I love seeing so many of our listeners at these younger ages figuring it all out. I hope that the Rich Habits podcast is shedding light on all of these strategies to people of all ages because we all have tweaks to make to get to our freedom numbers and to really live a life of financial freedom as early as possible. So I love seeing these stories where people are crushing it early, taking our advice. and taking action because all of the educational tools that we can provide don't do anyone any good if they don't take action. So I love seeing questions like this. I'm right there with you. And our next awesome question comes from Michelle. Michelle asked this on Instagram. She says,

Starting point is 00:20:36 I recently partnered with someone I just met on a courier business. So far, we have one van and one box truck. He's the driver and I'm working administration until we can afford to hire somebody. I recently became a single mom not too long ago, and I only have about $10,000 to my name. So far, our returns have been great. But how do my partner and I protect ourselves other than opening a partnership LLC? How do we split profits? How do we pay our first employee? How do we find reliable drivers and other employees? How do we pay taxes? Something that we've yet to dive deeper on, and I hope that you guys can give us some guidance. Robert, I'll let you take this one. Michelle, Michelle, Michelle. This is a lesson of exactly what never, ever, ever do in your situation. Don't start

Starting point is 00:21:29 businesses. Don't create partnerships. Don't buy assets. Don't do any of this without clearly getting it outlined. And at the very least, a letter of intent when you start so you can agree on the overall terms of how the money is going to be split. Who owns what equity? What name are vehicles and the assets going to go into because in this instance you'd want to have the LLC first, the operating agreement first, the business bank account first, the EIN number first. All of this should be done first, not only because it protects you personally from your partner if something goes awry, but also it protects you from an outside or an inside attack if God forbid something happened with the business. Say a driver runs into somebody with your

Starting point is 00:22:20 vehicle and all of a sudden you don't have the right insurance or the right protection. So Michelle, right now today, as soon as this episode hits your ears, you need to stop everything, have a meeting with your partner and get all of this done. Get the LLC spelled out, get the operating agreement spelled out so you know whose duties or what, who's responsible for what. Get the business bank account set up, the EIN. You want to get the NIA-C-S number as well because this class. classification will help you get easier business funding if you needed to grow. All of these things

Starting point is 00:22:55 need to be done next because right now you are wide open to either get ripped off or have the liability that no one should have personally in this business because you didn't protect yourself first. Tactically speaking, if I was in Michelle's shoes, this is exactly what I would do, right? To what Robert said, I would talk with my partner and get a line on all this stuff. The first thing is, we need to open up an LLC. If I were to go open up an LLC right now, I would use Buffalo Registered Agents.com. It is who I use personally as my registered agent. They are a Wyoming-based registered agent, which means I have the utmost privacy laws in my quarter.

Starting point is 00:23:37 They will then give me a operating agreement that I can review, change, sign, whatever I want to do. Of course, add my partner to this operating agreement. I would do the LLC partnership, right? we'd have all that done automatically. They would do it all for me. They'd file it. It's pretty cheap. It's like $75. It's worth every penny in my opinion. And then inside of that operating agreement to your point about how do we split profits, I would make sure it's spelled out 50-50, 60-40. I don't know what your thing is, right, but make sure it's all spelled out there. How do we pay our first employee? You likely will pay them through a payroll provider

Starting point is 00:24:13 online. I personally use a platform called Gusto, G-U-S-T-O. is the name of the website. It's very simple to sign up. I think I pay $45 a month to use it. They do all of the tax filing for me. They automate all of the business bank account transfers and everything like that. It is super, super simple. Speaking of business bank accounts, you need to go open a business bank account, go apply for an EIN through that Buffalo registered agents. They'll be able to walk you through how simple that is and they'll get all of it done for you. I use a business bank account called Ro. R-H-O-C-O is the website there. It is super simple. Their slogan is better business banking from idea to IPO. So doesn't matter how small you are or how big

Starting point is 00:24:58 you're going to scale to. They've got you covered. How do we pay taxes? Again, you can pay taxes on behalf of your employees through Gusto or you can log into your own, I don't know what state you live in, Michelle, but for example, in the state of Tennessee, I have something called T-N-T-A-P. And through them is how I figure out how much I owe in taxes, show me how to pay it either to the state or to the federal. Get an accountant, right? That's the answer to that question.

Starting point is 00:25:23 How do you pay taxes? You get an accountant. So I hope, Michelle, this is tactically insightful. And Robert, now that I've gone through all that, do you have anything additional that you want to add with your specific experience? No, I would just say when it comes to growing your business, Roe is great. but I also would want everyone listening to look at Chase Bank. They have really, really great programs per small business owners and new business owners.

Starting point is 00:25:48 They have no loan docs. They have a lot of different funding programs you can use as long as you set yourself upright by having the proper EIN number, the operating agreement, the NIA-C-S number. But Michelle, get that handled right away. And anyone else out there do the same because you just want to make sure, especially for new business owners, that you're pretty. protecting yourself. 100%. I didn't even think about the loan side of the equation because I don't know if Roe does like loans like that. It's more like a software than it is like a bank that does like loans. So I don't know. Yeah, definitely got to check out Chase Bank for sure. I actually have a Chase Bank credit card for my business. So there we go. Rocking and roll it. Good question, Michelle.

Starting point is 00:26:29 Our next question comes from Maria. Maria asked on Instagram. I've been following your podcast since the very beginning and I'm so glad you guys are doing so well right now. You deserve every single thing coming your way. I wanted to know your opinion about this. My company offers a Roth 401k and they match 5%. Should I focus on maximizing that or should I just contribute up to the match and open a Roth IRA and put the rest of the money in the Roth IRA? Robert, I'll let you answer this one. I know this is one of your favorite questions and I'm going to let you dig in too, but yes, we believe that every person on the day of their 18th birthday, their parents, instead of a Buying them whatever they're going to buy them should get them right in front of the computer, get the Roth IRA

Starting point is 00:27:14 and take that money in cash and put it into the Roth IRA into that basket of index funds and ETFs that we talk about. That should be the first thing that you do the time the day you turn 18. But Maria, you're past 18. You're up and running. You're crushing it. You definitely want to get the Roth IRA open. And we always want you to just pay up to the match for the Roth 401k. and then everything else go into the Roth until you max that out. And Austin, I'll let you give away the big, big tip that we love to say to everybody. Yeah, so the phrase that Robert's alluding to is match beats Roth beats taxable. And here's why.

Starting point is 00:27:54 If you are starting from scratch, right, you're at net zero here, and you invest 5% into your Roth IRA, Maria. You are now having that 5% that's invested plus a 5% match on your money, which is a 100% return on your investment. I don't care who you are. Getting 100% return guaranteed is a really, really cool thing. And we definitely want people to be taking advantage of those matches and those 100% returns.

Starting point is 00:28:21 So that's why we think definitely up to the match so you can get that return. However, the reason why we want you to just go up to the match and not beyond the match is because a lot of people's 401ks, unfortunately, do not have autonomy. Which means they can't choose their own. investments. Their employer bunches them up with all the other employees, puts them in some target date fund that might be like 30% bonds for some reason in a bunch of underperforming international stocks and whatever else, right? And now you have, you know, for example, Robert, I met to share this on the podcast. My friend Chris, he's got $38,000 in his 401k. He called me and he's

Starting point is 00:29:00 like, hey man, can you look at my investments? I said, yeah, no problem. Sure. I looked at it. And they had him in a target date fund that for the last five years, like I'll see five years of history. He underperformed the stock market by half. Literally every single year. And this guy's 25 years old. He doesn't need to be 20% bonds, 30% bonds, right? So Maria, that's what we're trying to allude to here, right? You get thrown in these target date funds and your 401k underperforms. And so people say, oh, let me just put all my money in my 401k. I'm going to be rich when I grew up. It's going to be awesome. Like, yeah, you're contributing a lot of money, but the money that's in there is not invested properly, quote unquote, which means you might be sitting in some

Starting point is 00:29:38 underperforming funds that don't make sense to be sitting inside of and so instead we want you to take that money put it in a account that you have full control over the Roth IRA and then start buying the ETFs and index funds that we talk about V-O-O-V-G-T-Q-Q-Q-Q-Q-Q-I-V-I-Mote right things of that nature SPYI some of these income funds are great so that's what we want you to do right up to the match max out the Roth and then if you do have autonomy over your 401k and you're rocking and rolling over there then sure, invest more into it because you can choose where the money gets invested so you can keep up with the market. But if you don't, we're going to go match, we're going to go Roth, and if you still have more money, that's when you open up an account on public.com and you buy those same

Starting point is 00:30:23 ETFs that we talk about, but you do it over there. Because even though it is not tax advantage, the profits you're going to make over time by being in the right funds is way going to over extend the quote unquote losses you're expecting from a tax perspective, right? It's okay to pay taxes. That means we made money, Robert. I think the biggest takeaway here is that most people think a 401k is a retirement strategy. And although it's better than nothing, you have to realize this one mathematical problem that we have. If you don't have autonomy and you're not beating the benchmarks and keeping up with the S&P 500 or beating it, you're leaving so much money on the table. So just envision this from Simple Matt.

Starting point is 00:31:10 Let's say like Austin said, his buddy's target date fund was doing half of the returns of the S&P 500. So if you were to look at it that way, not even half. If you said you left 3% on the table and that was for 20 years, you'd be leaving 60% gains on the table over 20 years by just leaving everything in those tariff. target date funds and not trying to optimize your gains through diversity and having these other accounts like the Roth IRA. So just keep that in mind that you want your money to work as hard for you as you work to get it. And it starts by understanding the different ways to invest it and making sure you're optimizing your gains everywhere you can. I couldn't have said it better

Starting point is 00:31:54 myself, Robert. I just did some quick math over here. And let's say you had $100,000 invested. And that $100,000 over 20 years is going to return 12%. That is $1,089,000 of hypothetical portfolio value, right? So you've made essentially a million dollars of profit of growth on your $100,000 investment. Now let's say it was only a 9%, right, that 3% difference. Your million dollars that we just talked about is now only worth 600,000. So you went from $1.1 million to $600,000. dollars because you're leaving money on the table by investing into underperforming funds now you might

Starting point is 00:32:36 be like whoa i'm in the green this year i don't really pay attention to this stuff but it feels great so i'm making money right that's what chris thought chris is like dude i made 14% last year how great i said bro the smp did like 27% last year what do you mean 14 like you do not want that dude so if there's one thing that you take away from this episode maria it's that one you need to know what's in your 401k and two if you don't you better go figure it out tomorrow now before we next question, I want to remind everyone that at public.com, you can earn 5.1% APY with a high yield cash account. There are no fees, no minimums, just an industry-leading 5.1% APY on your cash. And with up to $5 million of FDIC insurance, your money is absolutely secure. So go to

Starting point is 00:33:22 public.com and start earning 5.1% APY straight up with no strings attached. It's an industry leading interest rate with no fees, period. Public.com. This is a paid endorsement for public investing, 5.1% APY as of June 17, 2024, and is subject to change. Full disclosures in the podcast description. All right, Robert, our next question comes from Samantha. She asked this question on Instagram.

Starting point is 00:33:47 Samantha says, I'm 28 years old and me and my husband are trying for our very first baby. I would love to be able to work less and stay home more with our future baby. So here's my situation. We have $65,000 in a high-yield savings account. earning 4% and I put $400 a month into a Vanguard retirement account. Any advice on what more we could do for some passive income or to get extra money per month that will allow us a little bit more flexibility from work and double down on our freedom? I'll kick this one off, Robert. Okay. So first off, congratulations that you guys are working toward your first kid. That is so,

Starting point is 00:34:21 so exciting. You know, you mentioned how you've got 65,000 in this 4% high-yote savings account. That's great. Go earn 5.1% on public, if you want. instead. But if you're really focused, Samantha, on passive income, Robert and I are big, big, big believers in the Nios funds, right? Yep. They have ETFs like SPY and QQQI that pay anywhere between 12 and 14% annual yields on your money, which means if you took all $65,000 of that and parked it into a 50-50 split between SPYI and QQQQI, you would make, let's call it 13% on your money or over $700 a month in passive income. It's about $8,500 a year, which is incredible. And again, the way that these are taxed as a return of capital, 95% of that

Starting point is 00:35:14 income that you make is tax free. So you do not have to pay taxes on that. It's called return of capital. Google it. Go check it out on Investopedia. It's a really, really cool tax classification. You're looking to, you know, make an extra 700 bucks a month. Maybe that is the freedom. Like, I don't know what your specific circumstance is. It's a pretty broad question here, Samantha. That's the first thing I would be doing, right? I'd take my existing money over here. That is just parked making 4%. I'd start having it make me 13% per year. Assuming I was already focused here on this passive income and I do have a little bit of a nest egg somewhere else. But Robert, do you have anything to add? Yeah, without total information, so we have a complete picture

Starting point is 00:35:49 of everything, I would also suggest figuring out a work from home business, that side hustle we talk about all the time. If you could add a side hustle in here that makes you even a thousand or two thousand dollars a month additional to allow you to stay at home and you could use those funds then to go towards your investments and your passive income through your portfolios, I think that would be another great way to be able to achieve what you want to achieve with the newborn and be able to be at home more. So I would look at some of these side hustles that you could do right from home to make extra money, and it might not have to be game-changing money. It's just enough to supplement what you're trying to do

Starting point is 00:36:31 so you can spend more meaningful time with your new child. And if you're looking for some inspiration there, I mean, Robert, we talk about TikTok shop all the time as a really easy side hustle. I've got a lot of friends making a couple thousand about doing that. They just go out, they buy a product, and they make TikTok videos reviewing it, affiliating it, things like that. Anytime someone buys the product because of your video, you get to earn a commission.

Starting point is 00:36:52 I've probably had hundreds of dollars of commissions paid out to people across the internet because I buy stuff on TikTok shop all the time. It's kind of embarrassing. Yeah, I mean, listen, Samantha, if you are looking to make an extra a couple hundred, a couple thousand, I mean, if I were you, I would just roll the dice in some TikTok shop stuff. Maybe something else to consider is I know they've got like remote call center support desk type roles. I know Apple is always hiring for those types of roles. So maybe do some research on becoming an Apple remote technician. I know AT&T's got some roles like that. Right. There's a ton of them out there. So just get creative. And at the end of the day, I think, Robert, people make this mistake as they're like, oh, retirement is sitting on a beach drinking margaritas all day and doing absolutely nothing. It's like, no, but retirement does mean that you get to choose how you want to spend your time while still working, but maybe you're working and doing something that you really love, right? Maybe Samantha, you love making content and making short little videos about baby products or baby clothes or maybe about your favorite olipop flavor. Like, I don't know. But I guarantee you there's a way that you can make that content.

Starting point is 00:37:53 and share something you're passionate about on the internet and be able to monetize it in a really easy way. That is not overwhelming and is going to help you stay home with a new kiddo. We could sit here for hours and talk about how we're living in the greatest economic time and history to be able to make money out of thin air. We talk about it all the time. We love clicking buttons, but there are just so many hundreds and hundreds of ways

Starting point is 00:38:17 in ways we haven't even thought of yet to make money from home, make money from a beach, make money if you want to live the van life. So I think that's the next step there is finding another income stream that you can put towards this to help get you more passive income so you can stay at home more. Now our next question comes from, and I hope I say this right, Anna Corelli. Anna Corelli says, perhaps you can help me with an irresponsible financial decision that I made. Family member recommended that I begin investing with a multi-level marketing shareholder service

Starting point is 00:38:47 called Primerica. However, I want to invest wisely now, given your podcast, has been. better educated me. So I've decided to transfer my Roth IRA of $13,000 and two taxable brokerage accounts of $33,000 total to Schwab. The problem is, these mutual funds make my shares of stock non-transferable, and any fractional shares would be liquidated by the delivering firm upon the transfer of the whole shares. Is it worth transferring these funds? Or should I simply stop contributing to the shareholder service with Primerica and start a new Roth and individual account with Schwab altogether? is switching to Schwab the best choice? I understand that these are all loaded questions,

Starting point is 00:39:26 so any guidance you can provide is very much appreciated. Robert, you love Schwab. Maybe talk a little bit about why you like using them, and then I'll jump into some nitty-gritty. Yeah, I think Schwab is a great place to build from their user experience is good, their customer service is good, their slice service is great when you're buying fractionally, so I think it's a really good platform, and I think you're on the right track. And then there's just a few things during the migration of these accounts to look for in Austin. I think you touch on those and we go from there. Yeah. So as you think about sort of how these funds are non-transferable, that means that you bought into a mutual fund that is like exclusive to Primeraica, which means they're making money on these fees just,

Starting point is 00:40:10 oh man, they're probably robbing you, unfortunately. Or maybe some other fund that they've got inside of their ecosystem, but it's like a thing just for them. So what you want to do, first and foremost, you want to log into your investment account portal, sell all of the funds in the Roth IRA. You can do this. It's not a taxable event. It's a retirement account, right? Turn all of that mutual fund money into cash. Take the cash, call up Schwab and say, hey, what do I have to do to transfer an old Roth IRA into you guys? I want to transfer out of this random Primerica account into Schwab. They're going to tell you they'll need some account numbers,

Starting point is 00:40:50 they'll tell you what to it. They'll walk you through it. They'll hold your hand. It'll be easy. You're going to wake up in maybe a week from now. The $13,000 will have automatically left the Primarica account and it will be in your Schwab account. It did not come to your bank. You did not touch the money, right? That's not what we want to do. That is a taxable thing by doing that. By letting them do it for you. It is non-taxable and you're good to go. Now you've got the Roth figured out. Next are these taxable brokerage accounts here. Same deal. I mean, I'm assuming they've got you in these funds to rob you from an expense. ratio perspective and they're probably underperformed. So I would just sell them anyway, right? I would sell

Starting point is 00:41:26 the funds. Maybe you're up 20%, depending on how long, maybe you're up 10%. I don't know what your situation is. I don't know how much profit you've made or lost there. So let's just assume that you've made $3,000 or $4,000 a profit over the last five years or less, who knows, maybe it's much longer, considering how much money it is. And so just make sure that you're setting aside 25, 30% of whatever that profit that you made and you put it in a high yield cash account on public so that when it's tax time in 2025 for calendar year 2024 in April, right, then you have this money set aside to pay your taxes on that money. So I would just set aside 25%, maybe 30%, just, you know, extra conservative, be careful, never want to get an unexpected tax bill. And then you'll be able to just

Starting point is 00:42:14 pay it off and then take this money. You can actually say, sell it, you can have it hit your brokerage account, you can actually sell these mutual funds and withdraw the money because it's a normal taxable account. And so once you withdraw the money into your bank account, again, that's when you pull aside that 20, 25% of profits. And then you can deposit this now to Schwab, which will allow you to invest into the ETFs that we know and love, VO, VTI, VGT, everything in between. Great answer. Very well covered. And I think to summarize it. I like what Austin said because you're getting control of this and all of these funds and you have a clear path for where you're going from a taxable position and then also being able to have that

Starting point is 00:43:00 autonomy to know and be able to like we say maximize your gains year and year out by having a really good hold on what you're investing in and why. So we're so happy that you're following along the rich habits podcast. You're learning from us and we can help you. through these sticky situations to give you our best guidance of what we would do if we were in your position. The alternative route is you could leave the money. It wouldn't be a taxable event, but you're still leaving so much money on the table because I'm sure these funds are charging you way higher fees than most. That's why we don't talk about these types of funds and underperforming the benchmarks of the market. So that's why I like Austin's takeaway, get a clean start, get this

Starting point is 00:43:46 all dialed in and optimize your earnings for years and years to come. Really great question. Now our last question comes from Cole. Cole says, hey Robert Nostin, I was wondering if you could go more in-depth regarding leasing a car versus financing it. My situation is unique in that I bought a brand-new car for $30,000. I put $10,000 down and I was lucky enough to be able to take a loan from my grandparents at 3% interest for the $20,000 remainder. I was wondering if it would be smarter to sell the car, get $30,000, and put it into index funds that you and Robert mentioned, and then lease a car at $199 per month. I would still owe my grandparents their $20,000, so I guess I would only be investing $10,000 in the index funds, but I would now be saving

Starting point is 00:44:32 $304 a month on my car payment versus $199 for a lease. Robert, what a crazy convoluted question, and we're going to jump into it first, or here in a second, but, you know, something that we I think it's the only thing we really disagree on is the leasing versus buying a car. You are gung-ho on people should lease. I'm pretty gung-ho on people should buy. And I think it comes down to their preference, right? Correct me if I'm wrong here. But I think if you want to be driving a car, a new car, right, every three years or so, and you don't want to worry about maintenance, you don't want to worry about all these different things. And you do need for whatever reason a new car every three years, leasing is probably the way to go. Where on the other side, if you don't

Starting point is 00:45:19 care about driving a new car and you just care about getting from point A to point B, then financing a car is probably the way to go. But I would love to hear your perspective on why you like leasing versus buying. This is a really difficult topic to summarize in a couple minutes, but I'm going to give it a shot. Here's my takeaway after years in the car business, being in finance, in the automotive of industry early on in my financial career. If you want to have a new car and you need a new car because you drive a lot or you're a public figure or you want the safety of it or whatever, the rule is kind of this. Lease new, buy used.

Starting point is 00:45:59 Because if you buy a new car and drive it off the lot and the first three years of buying it, you're going to lose 40, 45% of its value right out of the gate. And because a car is a depreciating asset, you generally, really don't want to own it unless if you go to the dealership and you want to buy that shiny new car with the intent that you're going to drive it until the wheels fall off and you're going to keep it for 10 years, then go for it, buy it. But there's other parts of this equation that make leasing important and intelligent as a decision. And all the car people can come at me, but the math just doesn't math. Here's why. They're going to say, why would you lease a car? You're only

Starting point is 00:46:41 renting it. And you know what? That's awesome. I want to rent it because guess why? For that three years, I take it in, they service it, they do everything. I get a cheaper payment by a lot. I don't have to put a big down payment down. Most of the time, zero dollars can be negotiated so you don't have to put any money down for the lease. So you get a nicer car for less monthly payment and you keep all of your money in your bank account and in your investment accounts. That's one major reason. I would never buy a new car. So that's one. Number two, because of the depreciation of a new car, why would you want to go pay retail, knowing that in three years you're going to lose 40% on that car? And then if you get in a situation where you have to sell that car, you have to deal with

Starting point is 00:47:29 the negative equity. Nobody ever talks about this. You buy a car right now, let's say, and you're single. And then all of a sudden you fall in love, you get married, and you have two kids all in three or four years. Very reasonable situation. That car that you bought that was really cute and it's a two-seater or maybe it's a small four-seater, all of a sudden you need a minivan or you need an SUV and you've got to trade that car in. You've got negative equity in almost every situation. So guess what you have to do now? You have to take that car to the dealership to trade in on the other car you want to get. You have to pay the difference of the negative equity. So that's more out of pocket to own that vehicle. So I'm not against buying vehicles in general, but I'm laying out the framework of the only time it makes sense to buy a car new

Starting point is 00:48:16 is in that situation where you're going to drive it into the wheels fall off. Otherwise, mathematically, and from an investment standpoint, I like the fact, like for me, I lease, okay? If it's new, I lease because every two years or every three years, I hand them the keys, I grab the new one, and I'm out the door with no money out of pocket. So that's my takeaway. No, I think that's well said. And my perspective is, I think unfortunately, even if it's buying or leasing, a lot of Americans make the mistake of buying or leasing too much car than they can afford, right?

Starting point is 00:48:49 Yep. These are the same people that don't even have $7,000, $10,000, $50,000 invested, but they will put, you know, they'll lease a car for, you know, $700 a month or they'll have a car payment of $1,100 a month or something crazy like that. Yep. And so in my brain, and maybe this is. just naive of me to think. But for me, it's like, okay, if I, and I just ran the numbers here on Kelly Blue Book, if I bought a brand new Toyota Fourruder in 2014, I drive a four runner today, which is why I use that car.

Starting point is 00:49:21 And they hold their values pretty well. Yeah, you chose the one vehicle that doesn't depreciate on earth 40% after three years. So way to cheat the system on my response, buddy. You're right. If I did look, I'm going to say something else, it would be down. Anything, anything else is 40, 45. I drive good cars, Robert. That's what I just heard you admit. You do have good choice. Well, you're a smart guy financially, but carry on.

Starting point is 00:49:46 For example, right, you could go buy a brand new 2014 forer 10 years ago and you would have paid $35,000, $40,000 for it. Today, with 150,000 miles on it, that forerner, according to Kelly Blue Book, is worth about $19,000. Over that 10-year period, you went down, let's call it 50, 60% in value. But in my brain, it's like, well, you stopped paying. paying off the car five years ago because you got a five-year loan on it. So for the last five years, you've taken that $300, $400, $600, $600 month car payment and you've been investing that money. That, in my opinion, Robert, and coming back to Cole's question here, is the differentiator between kind of having this mindset of, I'm always going to have a payment. Money's always going to be leaving

Starting point is 00:50:29 my bank account for transportation. Or I get to a place where the only money leaving my bank account for transportation is my gas and insurance and, you know, casual maintenance that comes and goes because I bought a car. I paid it off and yes, it did depreciate, but that $20,000 now it's worth is cool. Plus, I've been taking that car payment over the last five years and investing that money where I would have just been paying that to the finance department via a lease some time else. So I totally agree from your perspective, right? If you're going to do it new and you want to always drive new and you can afford, right? That's the big key here, Robert, that people forget about. If you can afford to drive new, then why not lease it? I get that. But if you

Starting point is 00:51:13 are someone who has not yet built their base, maybe you still have high interest credit card debt, maybe you are still working on your student loans or, you know, whatever the situation for you might be, going out and buying a brand new car or leasing a brand new car is both a terrible idea for you. And so if you want to go get a car, go buy it used, go spend $15,000, maybe put $3,000, $5,000 down in the process, bring your, you know, car payment as low as you possibly can. Use it as a way to get from point A to point B until you can afford to buy a car that you deserve to be driving because you have hundreds of thousands of dollars investing and working for you in the markets while you sleep. I love it. I love it. I'm glad we got to

Starting point is 00:51:57 cover that subject because You know, it's one that's been argued since, you know, leasing came out. And coming from that business, I just feel that the math and the breakdown that we provided should bring a lot of clarity for everyone. And maybe we do a module on that for the Rich Habits Network because I think it would be really important to illustrate it in a breakdown for the average car that people would purchase of leasing versus buying. I think it would be very helpful for people. Totally agree. And by the way, we've opened up the network to a select. few of our listeners. We've got some really great feedback already. If you want to be a guinea pig

Starting point is 00:52:34 of sorts and have access to our Rich Habits Network community before it comes out in mid-August, send us an email subject line, say, network, and we will put you in there. We'll get you, we'll get you working with us here and get a little bit of feedback on the early days of hopefully what is going to be the coolest thing Robert and I ever built. So now, coming back to Cole's question entirely, what do you think he should do? You know, if you're, If your payment every month is $300 and you bought the brand new car a couple years ago, it means it's still a brand new car. $300 is a really cheap car payment.

Starting point is 00:53:10 $199 is also a really cheap car payment. I have no idea where you're getting a lease at $199. But I guess it comes back to what you were talking about, Robert, of like, do you want to have this new thing or would you rather kind of buy it? And I don't know how old you are, Cole, but just kind of by looking at your profile picture here on Instagram, you're probably in your 20s. I don't know if you should be driving a brand new car that's $30,000. So, I mean, if you want to sell it and, you know, pay your grandparents back, take $10,000, difference there, whatever equity you still have, assuming you have some in your car.

Starting point is 00:53:40 And you want to use that to start building your base investing. I think that's a great idea, especially, I guess, if you can get a lease for $199 a month, just make sure that you are ironclad in what is included in that lease. So what a great episode. I love these questions. They're getting more and more detailed. The audience is growing. We just have so many things to look forward to in the future. And I could be more excited over the launch of Rich Habits Network.

Starting point is 00:54:08 And just everything is amazing. And I just love being able to wake up every day and work on this stuff with you, Austin. And I just appreciate our audience so, so much for giving us all the five-star reviews and continually following along and remembering to take notes and take action. I'm right there with you, man. You know, we've got 50, 60, 70, 70, 70, thousand people that come back and listen to the podcast every single week. You guys continue to share it with your friends. We're super grateful. And we, I think, are just like a couple dozen reviews away

Starting point is 00:54:37 from 5,000 five-star reviews on Spotify, which is crazy to think of. And don't forget, join us on August 8 at 4 p.m. Eastern Time. We will be hosting a free webinar for anyone to come hang. And we're talking about angel investing, startup investing, pre-IPO investing. right? These are for the people who have built the base. There's ready to diversify into some sexier investments. Maybe they're ready to allocate five, maybe $10,000 toward investing in what might be the next SpaceX, the next open AI, the next Uber. Who knows? But we have an opportunity to educate you guys on the biggest winnings and biggest losses that I've made in startup investing. Same here with Robert. We can't wait to dive into the nitty gritty and show you guys how you can invest alongside of us into the next big deal. that we allocate a lot of our money to. We can't wait to open up this community to you guys, and we can't wait to show you guys how to begin building wealth

Starting point is 00:55:35 in some more interesting and sexy ways beyond just the index funds that we talk about. So there's going to be a link in the show notes below to join us and register for that free webinar. Again, August 8 at 4 p.m. Eastern Time. Thanks, everyone, and have a great rest of your week.

Rich Habits Podcast - Q&A: I'm Stuck in an MLM, Tactically How to Start a New Biz, & Buying vs. Leasing a Car

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