Rich Habits Podcast - Q&A: Spending $8K On Fun, Forming LLC For Rental, & Turning Basement Into Airbnb

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Starting point is 00:00:30 In Toronto, every arrival is a statement, and nothing says it better than this. Cadillac Optic was the number one selling luxury EV in Canada for 2025. Find your rhythm across a seamless 33-inch display and an immersive 19-speaker AKG surround audio system. This city demands agility, and optic delivers with precision to make every drive extraordinary. Let's take the Cadillac. Find out more at Cadillac Canada.ca. Luxury sales claim based on S&P Global Mobility Canadian New Vehicle Total Registrations for calendar year 2025 for the Cadillac definition of luxury. Hey everyone and welcome back to the Rich Habits Podcast question and answer edition. These are our Thursday episodes where every single Thursday we answer your questions as if we were going through whatever you might be going through right now. You can ask us questions on Instagram at Rich Habits Podcast in our DMs or you can email us your questions at Rich Habitspodcast at gmail.com. We love these episodes because we get to hear directly from our audience. We have 100,000 of you that come back every single week to listen and tune in and interact with us. We're so grateful for that. And so these episodes are a cool opportunity for us to

Starting point is 00:01:34 see what's really going on in your own money lives. Yeah, I definitely love these episodes and they've grown to be so huge over the last few years. And just remember, for all of you that are avid listeners that are here every week, it's in your schedule, share these episodes with a friend because everyone is going through something financially from the top to the bottom. It doesn't matter what someone's net worth is. Everyone has issues and blind spots. And, their financial journey. So make sure you share it with a friend. We'd love that. Show the support because you're here every week and we want to see more people get this education that we provide. So our first question comes from Arturo C. Arturo says, hi, Austin and Robert. Thank you for your

Starting point is 00:02:15 continuous guidance and knowledge bombs that you drop on a weekly basis. Recently, I heard Austin say something along the lines of, I saw Nvidia was cheap, so I had to hit pause and go buy $10,000 worth of it, which made me wonder, where does this random spare cash come from. High yield savings, checking account through a quick bank transfer, sell something else in the brokerage account, trying to capitalize on stocks trading at lower valuations, and I want to be ready with my capital and make sure it's in the right place. Thank you all for the help. Good question. Yeah, in this specific instance, what happened was, what was it, Robert? Like, I don't know, maybe like two or three months ago in video was at like a buck 90, a buck 80, a buck 95, something like that.

Starting point is 00:02:57 And you look at its like historical valuation from a priced earnings perspective. They just had a killer earnings results. And I was like, this makes no sense. I got to own some more in Vydea here. So yeah, I bought $10,000 worth. What I did in that specific instance was I looked elsewhere in my brokerage account portfolio. And this was in one of my retirement accounts. And I was like, I should probably get rid of that.

Starting point is 00:03:19 I could see myself trimming this one a little bit. Take some profits over here. And in all of that trading, quote unquote, added up to about $10,000. I then took that cash in that retirement account, not a taxable event, and I invested it into Nvidia in that instance. That's how I played that. If you are someone who's like trying to figure out, you know, how to do this in my humble opinion, I think the best way to like think about monthly cash flow and investing and

Starting point is 00:03:45 things of that nature, right after you've built your base. So after you've got the index funds and ETFs and you're actively thinking about, oh, do I want to buy a little bit more Bitcoin and have diversification into that? or want to have this single stock or this thematic ETF in my portfolio, I like to think about it as a monthly calendar. So at the beginning of the month, I say, okay, great, I'm going to put $2,000 or, you know, in this instance for you, Artura, who knows what your number is. Let's call it $2,000 a month. I invest $2,000 a month, so I'm going to put $2,000 in this specific brokerage account. It's sitting in cash. I kind of scan. I'm looking around. Okay. The thing, Robert, that people make a mistake on is they get too

Starting point is 00:04:19 active. They're looking every day, every moment, every trading hour. They're trying to figure out everything. It's not that deep, right? So I'm scanning and I'm looking, okay, let's, let's, let's dollar cost average. Do I want to buy more index funds in ETFs or maybe this month? Do I want to opportunistically deploy this capital into a thematic ETF or a single stock or something of that nature? And so I'm saying, okay, great. Let's call it $500 a week is what actually gets deployed because over the course of that month, I want to make sure that if something happens in week three, right, I've got a little bit of capital set aside to ensure that I can act upon that information. So I'm saying, okay, 500 bucks is this first week. I'm going to DCA into these things.

Starting point is 00:04:52 500 bucks a week two, buy these things. Oh, wait, week three. I'm glad I've got some capital set aside here because it turns out Oracle just had a great earnings call and I want to buy the stocker. You know, something happened with Bitcoin. I want to buy some more of that. So you have the liquidity from the first of the month all the way through until the end of the month in that account because you kept the 2000 total divided into $500 a week. Did I explain that right, Robert? Does that make sense? I think you did a great job. And the only thing I want to click back on is making sure because Arturo here says, spare cash or cash it's sitting around. There is no such thing. In Austin's illustration and how I do things, you have to understand the difference between spare cash and earmarked cash. Because the difference

Starting point is 00:05:38 is people that have spare cash sitting around, a lot of times that cash sits there for months and months and then turns into a year or two because they don't know what to do with it. When you have earmarked cash every single month to invest in, then you're prepared to make those investments. And I remember vividly, Austin, we were sitting there like, holy crap, Nvidia is so cheap. We paused the podcast filming and literally both invested more in Nvidia right at that moment, and we had the cash available. I feel like when people say spare cash, it's just sitting in a checking account. Please don't ever do that.

Starting point is 00:06:12 Every dollar has to have a job, and you should at least have that earmarked cash either in your brokerage account in a high-yield cash account or high-yield savings account. so it's making money while you wait to deploy it unless your dollar cost averaging into the same stocks pretty much every single month. So I hope that covers the entirety of the question, but I think you covered it perfectly. The last thing I'll end here with is that there's never more than a month that goes by where I've got money that has been earmarked for investments, where that money sits before it actually gets invested, right? Like that's the whole point of saying, okay, $2,000 here, but let's go $500 a week. So I'm not like,

Starting point is 00:06:51 all 2000 on day one and then you know September 28th rolls around or September 14th the day we're filming this rolls around I'm like oh I wish I had some money because Oracle this or Amazon that or you know NASDAQ this or thematic ETF that I wish I could dollar cost average into these opportunistic price action things there so it's like you do it in such a way where you have the money available throughout the month but not pass that right it's a one month to a one month thing there at the first through the 31st, make sure all of it's deployed. And then, you know, at the beginning of the next month, boom, you've got that next cash infusion and you can follow that same playbook. There's never a time, Robert, where I've got $2,000, $4,000, $6,000 in my brokerage account for

Starting point is 00:07:34 nine months and it's just sitting there weathering away to inflation, which, by the way, is running at 3.5% right now. So quite literally, if you have cash in a checking account or a savings account and it's not sitting in a public high yield cash account earning three and a half percent interest, your cash is withering away to inflation because you have to be keeping up with inflation or you're buying power. It's just going to go further and further lower. And I want to add one more thing to this. Every dollar has to have a job. And make sure you understand the amount you do every month for this earmarked cash for your dollar cost averaging and you're investing, it can range greatly. Some people do $10,000.

Starting point is 00:08:14 Some people do 100,000. But if you only have $100 a week, still do the same thing because the goal here is to invest and automate it as much as possible, but always be investing. Because too many people, they sit on the sidelines. They're trying to let it build up to 20 grand. Don't do that. Invest consistently, and you will win and build wealth. So our next question comes from an anonymous listener. They say, hi, Austin and Robert.

Starting point is 00:08:39 I always hear you talk about how you reward yourselves after each $100,000 milestone. with a splurge purchase. My wife and I are 28 and 27 years old, respectively, and are approaching a $400,000 net worth across a couple of Roth TSPs, Roth IRAs, and a taxable brokerage account, as well as a high-yield savings. All of which are invested into the index funds and ETFs you talk about, of course, except for the high-yield savings account. We've saved aggressively the past three years, and I want to get something nice once we both cross that $400,000 net worth. So my question is, what are the mechanics of actually doing this? How much is okay to spend? Personally, I'm thinking we spend between 5,000 and 8,000. When you do this, do you sell shares in your brokerage account?

Starting point is 00:09:24 Do you instead save up cash? I don't want to take on margin loans. I love the podcast. I've been listening for the last three years after I made a bad financial decision with a truck. And since then, we've sold the truck, ramped up our investing, bought and sold a house. And I think in 2031 or 2032, we will be millionaires. Thank you all so much. I love this question. What do you think? I'll let you start. Yeah, I think they're on the right track here for our anonymous listener.

Starting point is 00:09:49 Five to $8,000 is, you know, $8,000 puts them at a 2% of their total net worth. And I think that's totally fine because, you know, when we work hard, we save hard, we do good with our investments and we're doing all this stuff. We still have to reward ourselves. So I don't know what they're interested in buying, but $5,000 to $8,000, maybe it's a used boat or a jet ski or they want to, you know, get something cool. and fun for the backyard. I think it's totally fine to do that one or two percent of your total net worth as long as you understand you're not doing it all the time. So make sure you do that. When you have these milestones, they're using the $400,000 milestone. That's great. When they get to 500,000 or 600,000, they could do it again with that 1%. But just want to make sure that you're not

Starting point is 00:10:34 prohibiting yourself from building the wealth you're trying to build because you're constantly taking these wins and these milestones and buying something that's fun and likely a depreciating asset. Yeah, I agree. I think five to eight thousand is great. Do you sell off shares in a brokerage account? The answer is no. What you're doing to find that five to eight thousand is instead of investing into a taxable brokerage account that 700, 900, $1,200, $1,200 a month that you've been investing to build your net worth up to where it is right now, instead of, you know, continually investing aggressively, you pause the aggressive investing, you build up that cash savings of money that would have been invested, and then you say, okay, great, we hit this $400,000 milestone.

Starting point is 00:11:20 Normally we invest $1,000 a month into our taxable public account. We are going to pause on that $1,000 a month for the next eight months so that we can have this $8,000 nest egg because we're going to go on the best all-inclusive resort vacation that Mexico can offer, and you're having a good time, right? That's a cool way to think about it. What we don't want to do is sell shares of V-O or sell shares of Amazon or whatever our investments are doing. We want our investments to continue to compound for us over a long period of time. And if we sell those, they can't do that.

Starting point is 00:11:51 So what I do is I say, okay, great, I have saved and invested so much in the last six months, whatever it is. This month, call it the seventh month or whatever. It's just an example. I'm going to hit pause on that. I'm going to carve out that $5,000 that I plan to invest this month. and instead, I'm going to go spend that $5,000 on a jet ski. Or I'm going to go spend that $5,000 on something I'm trying to figure out right now. Robert is upgrading my wake surfing situation from my boats.

Starting point is 00:12:15 Maybe that's different fat sacks or maybe a different surfboard or maybe a different, you know, Bimony on whatever, right? We'll figure that out. But it's like that's something that you could think through is like, okay, instead of this month of investing aggressively, I have been investing aggressively. I have been sacrificing. I have been doing the right things for so long now. I've accomplished this $400,000 net worth.

Starting point is 00:12:37 I'm going to hit the chill pill. I'm going to relax a little bit for a month, maybe two if you want to, right? But I'm going to relax a little bit here, save up some cash instead of investing it and spend that delta that saved cash on something that makes me happy because you can't just be this hamster going hard, hard, hard for years and years and years. You have to think about investing as running in sprints. You sprint for a season and then you take a deep breath. You sprint for a season and then you take a deep breath.

Starting point is 00:13:03 That's what's worked for me, and that's how I like to approach it myself. Speaking of jet skis, Robert, our next question comes from Michelle Z. Michelle says, hi, thank you for the podcast. I listen to every episode. I'm trying to buy a jet ski. I need some advice. Should I buy a new one? Should I buy a pre-owned one?

Starting point is 00:13:20 What are the factors to consider when buying a watercraft of this nature? Can you give me some insight on what is involved as far as maintenance and winter rising? I live in New York. Any information would be greatly appreciated. Robert, go for it, dude. I have a general rule here that everyone should implement. If you've never owned a boat or a jet ski, buy one that's three years old so you can get into the game, see if you like it, see if you actually use it. And then because most of the bad depreciation has already happened in that first two or three years of ownership, you're going to buy it right and not have it depreciate as badly as if you bought a new one.

Starting point is 00:13:58 Because here's the problem. So many people go, I want a jet ski this year. I want to get out on the water. looks fun. They go plunk down $20,000. They buy a brand new one and they use it three times that year, two times the next year. Then it's in their garage or in their backyard. They don't use it and they lose a ton of money. So in this instance, if you've never owned a jet ski or for anyone else out there, I used because that way you don't get beat up so much on the price and you're going to be fine. Now, if you're somebody that's done it for years and you've owned jet skis in the past,

Starting point is 00:14:28 you just bought a lakehouse, then I would say buy new, keep it for 10 years. because then you get the warranty and you get all the good stuff, you don't have all the wear and tear. That would be my scenario for best case when looking at this option. I love that. It's exactly what I did. I think it was two years ago. I bought myself a birthday present of a $9,000-2019 Yamaha VX Cruiser,

Starting point is 00:14:53 three-seater jet ski. I love the Yamaha VX cruiser. It was a 2019, so I bought it in 2024, so it was five years old, had about 75, 80 hours on it. I think now it's probably closer to double that, right, 150 or something because I've used it. But a couple things to keep an eye on. One, when it comes to winterizing,

Starting point is 00:15:12 just know that you got to pay a couple hundred bucks at the end of every season to have someone winterize it if you're not handy. I'm not handy. So I'd be happy to pay someone to do that. Two, insurance. You've got to make sure that you have the right insurances in place there because if something happens on your jet ski,

Starting point is 00:15:27 someone falls off. So, you know, you run into something like, jet ski accidents happen all the time. Please make sure you have the right insurance. And I guess the last thing to consider is where you store it. For me, I stored it in my garage, which was like kind of tacky and not all that fun because I couldn't have a car in that garage, right, when I was storing it there. So like if you store it in a garage, if you store it somewhere like at a marina, are you

Starting point is 00:15:50 going to pay for the slip? Like there's like the hidden costs, I feel like when it comes to owning watercrafts like this, the insurance, though, potential storage and slip. maybe, you know, if you do put it in the garage, you got to tow it every single time to the boat ramp and then you have to like do all that stuff. Like, there's a lot of little things like that. But I love Roberts rule here of buying something that's three, four, five years old. Winterizing it shouldn't be too complex. Having the right tools around, you know, charging the battery and things like that. That's not too complex either. Make sure you got, you know, a little budget for some life jackets, a little budget for, you know, some other little trinkets that you want to put on it. I put speakers on mine, which is pretty cool. They were aftermarket, a couple hundred bucks there. But at the end of the day, I think jet skis are a really fun way to. like go spend $10,000 because Robert, what's the phrase? I've never seen someone unhappy on a jet ski. Like, I love jet skis. They're awesome. Yeah, the phrase is people say money don't buy happiness, but you've never seen anyone frown on a jet ski. And that is 100%. We went out on a little teaky boat, this guy. It's a franchise. I'm like, I got to check this out. It is literally the size of a picnic table.

Starting point is 00:16:52 It holds like six people. It was so fun. And I'm like, man, I got to get jet skis again. So, I myself, I love this question today because I've had jet skis my whole life. And it's time for me to go find two jet skis right now. So before we jump to our next question, got to give a shout out to public.com, the investing platform for those who take investing as seriously as we do here on the Rich Habits podcast. On public, you can build a multi-asset portfolio of stocks, bonds, options, cryptocurrency, and now generated assets, which allow you to turn any invested idea you can ever come up with into an actual index that you can invest in powered by artificial intelligence.

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Starting point is 00:18:20 Cody? Cody says, thanks for what you do. I joined the Rich Habits Network about a month ago. It's been a great level up on my financial journey. Let's go, Cody. Thanks so much for being a part of the Rich Habits Network. Good reminder. Join us. Rich Habits Network, seven-day free trial. You get to join us, join for a live stream, watch the video coursework, learn about some investments we're making, and it's all free for the first week. First week's on us. We'll pay for it for you, right? Seven-day free trial. Link in the show notes below. Type in Google Rich Habits Network. It's going to pop right up. Join us in the Rich Habits Network to see if it's a good fit for you. Two hundred three people joined it in August. 57 people so far in September have joined us. We've got nearly now 1,100 people

Starting point is 00:19:03 inside the Rich Habits Network. We are so grateful. Rich Habits Network 7-day free trial. Go check it out. Cody says, my wife and I, 40 and 35, with a combined income of $240,000, have three kids, and we need more outdoor space. So we're going to buy a new house in the next one to two years. Here's our current situation. $700,000 combined in our first. 401k's, $250,000 combined in our Roth IRAs, $100,000 in a taxable brokerage account, a $20,000 emergency fund, and we're currently investing $3,000 a month. Our plan is to keep our current home and use it as a rental, as we only have $33,000 left on the mortgage and $450,000 of equity.

Starting point is 00:19:46 I'm a veteran, so I qualify for a $0 down VA loan on the new house. Cody, thank you for your service. So my two questions are, with a $0 down VA loan on the table, does it make sense to keep investing at our current pace? Or should we redirect some of that $3,000 to $4,000 a month into a house fund or a higher liquidity fund? So when we do buy this in the next two years, we have that money set aside. And at what point does it make sense to set up an LLC when we actually do turn our current residents into a rental? Do we set it up before we convert it to a rental? when we convert it to a rental, or is it more so about hitting a certain amount of equity or a threshold inside of that or a cash flow thing?

Starting point is 00:20:29 Please let me know. Great questions here, Robert. I'll let you kick us off. Yes, I love this situation. And yes, on the LLC, I'm going to tackle number two first. I think it's really smart because at the end of the day, as you're building wealth, which you guys are doing a great job of, by the way, you want to make sure that you control everything and own nothing. Everyone out there, remember that. Control everything and own nothing. Because you don't want to have personal liability along the way. Someone in the rental slips or falls off the porch because they have a party ensues you. You want to have that rental property in the LLC. You already have equity in it. So I don't think of the equity amount as a determining factor of when to do it. I would do it before you put anyone in there as a rental after you buy the other home and you moved in. Now to go to number one. Yes, yes, yes. I love this.

Starting point is 00:21:19 I would trim back, even though you have qualifications for the zero-down loan, I would trim back your investing amount and build up your emergency fund or start another fund for the house, but it could be just combined with the emergency fund because you're going to have furniture, moving costs, closing costs, all of these other things that are coming to play. And we don't want to see you taking money out of brokerage or taking money from credit cards to be able to make the move seamless. and also, I assume, you're going to need to furnish the rental house, which is probably, depending on the size,

Starting point is 00:21:54 going to cost you $6,000, $7,000, $8,000. To get that dialed in, you might want to do some new floors. I don't know if you have to change out some carpets. So, yes, I love this idea. And because the window is one to two years, I wouldn't say investing, it makes sense because then you're going to have to sell it, have a taxable event. I love it.

Starting point is 00:22:12 Just earmark it, get it into the high-yield savings, get that ready so you're built up and ready to rock and roll when you're ready to buy the new house. So, Robert, let's have a discussion about this because I'm thinking about something that they didn't mention. They talked about keeping their current residence as a rental property, right, whenever they move into this new place. Why not sell it? Take the $450,000 of equity and earn $36,000 a year, 8% in the stock market. I mean, yeah, I think it's a great idea. It just comes down to two things. You know, we had this earlier in a conversation in the Rich Habits Network. Someone said, well, I want to buy more rentals, but does it make sense or should I just put that cash in the stock market?

Starting point is 00:22:51 Personal finance is personal, and I question myself every day because I own a lot of real estate. Is it worth it to have rentals? But you have to think of it this way. You have cash flow. You have appreciation. You have the mortgage buy down. So there are multiple ways to make money. But what you have to calculate is what is your all in blended return, that cash on cash return, if you keep this as a rental,

Starting point is 00:23:15 versus simply taking it and putting into VOO or QQQM. And that is the billion dollar question for everyone out there that wants to have diversification through real estate, but also doesn't want to leave too much money on the table. And I don't have the mathematical answer because I don't know the zip code or what the rental rate is in this area. But it's definitely something everyone needs to question because owning rentals always sounds fun, but it is work. It's not fully passive until you get to five or ten rentals and you can hire a team. But in the beginning with one rental, you're going to have to either go mow the lawn or hire a lawn guy. You're going to have to keep up on the roof and all those things.

Starting point is 00:23:55 So, Austin, I think it's a great, great question. I'm probably the wrong person because I love real estate because I can touch it, feel it, and see it appreciate. But you're right as well on the math when it comes to just putting it in the stock market, letting it ride and not have the hassles of a rental property. Yeah, I think what's so important is people realize that 2026 in 2025, like, you know, real estate this year, last year, like probably next year, too, is very different than real estate from like 2018, 2019, 2020, where interest rates were reasonable. Prices on homes were reasonable. The 1% rule still very much applied to a lot of real estate. Where I feel like now, I mean, we're talking about a home that has $450,000 of equity and they owe $35,000 on. at 33. So it's a $485,000 home-ish, I don't know, but like, let's call it half a million

Starting point is 00:24:47 dollars. So we're talking about a half a million dollar home here. How much could you reasonably rent out a half a million dollar home to somebody? Maybe $2,500, $3,500 a month, I'd assume is probably like what you could probably get for that. So now it's like, okay, let's call it $3,500 a month. Well, you still have a mortgage on it. So you have to pay your mortgage out of the $3,500. You still have, I'm sure, different types of insurances. You're going to be running an LLC, which like now you have to think about the annual tax return. You have to think about the annual, you know, feed around the LLC in the state you're in. You have to think about like all the expenses, setting aside money for vacancies, setting money aside for maintenance. And so at the

Starting point is 00:25:24 end of the day, it's like if I just took that $450,000, put it in the stock market, earned 8% on average on that money. That's $36,000 a year or $3,000 a month. And I didn't have to worry about vacancy, maintenance, insurances, LLC upkeep, new tax returns, anything like that. And I'm making 3,000 over here where you can make 3,500 of, you know, top line before the mortgage, before, like, so it's like, you got to just do that. You got to figure out what the number means to you. Maybe this situation's way different and I have no idea, you know, what Cody's going through. I just think real estate's gotten really tricky in the last couple of years for most people. And in some very specific areas, I know, Robert, you know, you're in Toledo. Like,

Starting point is 00:26:06 there are properties you can buy for 80, 90, 100, $120,000 that rent out for a thousand. thousand a month and the 1% rule applies all day long and so like it makes sense to do that whereas like normal you know places i know the medium right now is like i don't know 430,450 400000 somewhere in that like 450 to 500 range for existing home sales in america like what about those people though and i have a funny feeling that cody is one of those people and i just want cody to be thinking holistically about the whole money picture here because he's done such a great job getting invested being diversified in real estate doesn't mean you have to actually own a property it could mean you use one of these platforms, if it's Vest funder, if it's funderize, you could have REITs, like,

Starting point is 00:26:45 VNQ or IYRI with NEOS. Like, there's a ton of ways to, like, have real estate exposure without, like, putting yourself up to being a landlord. And I have a funny feeling, like, that's where a lot of this future of real estate investing is going to go as more and more of these, like, mom and pop landlords are getting squeezed out with higher interest rates and higher existing home sale prices. I love that take, Austin, and I want to just linger for a second because you use the word holistic. I think it's very, important because so many people never understand the totality of the numbers. That's what I think of when you think holistically. What is the total ownership cost? What is my actual cash on cash

Starting point is 00:27:24 return because people never budget for roof replacements or washer and dryers or whatever may come up? So I love that idea and I think everyone needs to really focus on that when they're making such a complex decision to understand the totality of the numbers, not just what they see on a sheet, because things happen and this is very important when you're trying to calculate which move is the best for you. Could not agree more. So our next question comes from Maria O on Instagram. Maria says, could this be for a Q&A episode? How would you deploy $300,000?

Starting point is 00:27:57 My renters are planning to exercise their option to buy the property in about six months from now. I will meet the requirement where my gain on the property will be exempt from taxes, so no concern there. And I'll net $300,000 on the sale. I'm a single mom of two kids. My mortgage on the residence is pretty high at about $4,300 a month. My car loan is $25,000. I have no other debt. My 401k is $200,000, making contributions up to the match. My Roth IRA is $1,000. I have $35,000 in an inherited IRA with Edward Jones. Also, I'm starting $5.29s for the kids with Edward Jones as well. I'm thinking I'll pay off my car, put some money toward a mortgage recast from my own residence here at that $4,300 a month, keep some in a high interest savings,

Starting point is 00:28:45 and invest the rest. What would you do? What would you invest in? Are shorter term private real estate funds a good idea? Appreciate your insight. Robert, I'll let you kick this one off. Yeah, I think this is a great and very thorough question, so I really, really appreciate this from Maria. First and foremost, what's glaring to me is I would not do the 529s with Edward Jones. That's just my opinion. They charge extremely high fees, sometimes up to to 4.25% just to carry and host those 529s when you can go to a state program or an individually purchase program and not have to pay all of those fees. That would be the number one thing I would research first is to not use Edward Jones for the 529s. Although I do like the idea. I just

Starting point is 00:29:29 personally wouldn't use Edward Jones. Second, what should you do? I would build everything up since you're getting this big lump sum and get yourself really, really focused on getting the Roth fully maxed out, making sure that you get that emergency fund, use some of that to build that up completely to make sure you're good. And I like the mortgage recast part of this,

Starting point is 00:29:50 but just make sure, like Austin just alluded to in the last question, make sure you understand the total cost to be able to recast that mortgage and make sure it's worth it long term for you because you're already doing well and a $4,300 mortgage currently is expensive. So make sure that the long-term benefits outweigh the short-term costs of recasting the mortgage. But otherwise, I think you're doing great.

Starting point is 00:30:15 I don't know if I go into these shorter-term private real estate funds. It's highly illiquid. You may not make as much money as they claim. So I'd be careful there unless you're doing it with a very reputable firm, like Fundrise or Vest Fundor or something like that. But that would be my take, Austin. What did I miss? No, I think it was great. talk about the mortgage being high at 4,300 a month, like, I don't know what your annual income is,

Starting point is 00:30:39 but if you're saying it's high, you're probably house poor, right? You're probably in a situation where your take-home pay is maybe like, I don't know, $6,000, $9,000 a month, and you're saying half my take-home pay is going to my mortgage. This is getting uncomfortable. So we can solve that problem in two ways. One, by having more cash flow, more margin, right, in your monthly budget, which means paying off this car loan. So let's take $25,000 to that, pay off this car loan. You need car debt. Now let's pay that off. Now you have a monthly payment of probably $500, $700 a month that's going to be freed up in your budget. Now you have a little bit more wiggle room to pay this higher $4,300 a month mortgage. But if you also wanted to take an extra $75,000, so we got $25,000 for the

Starting point is 00:31:19 car, $75,000 for the mortgage recast, figure out how much it would actually cost to recast this mortgage, but maybe there's a way now where your mortgage payment comes down from $43 to $3,750,000, I've no idea what 75,000 is going to do to your specific mortgage, so please look into this. But let's do some of that stuff. Or if you truly do not have the desire to do those things, you can afford that $4,300 a month. The car loan is going to get paid down. You have a plan for that. That's totally fine. If you take all $300,000 of this at the age of 39 years old and you invest in the S&P 500, adjusted for inflation at the age of 65, you'll have $2 million. So if you take all $300K, you don't do the recast, you don't do the car loan, and you invest it in the S&P,

Starting point is 00:32:00 and it earns 7.5% which is adjusted for inflation between 39 and 65. You'll have $2.1 million here in this retirement account. Again, taxable brokerage account, rock and roll that way. I'd consider doing that. I love Robert's perspective here on the 529. Maybe you also want to carve out $15,000 to $20,000 of this $200 or $300,000, depending on what you do here, to seed those $529 as well. Wouldn't do it with Edward Jones. I use Vanguard for my $529. I think it's awesome. It's simple. You seat it with 3,000, and then it's all in the Vanguard ETFs, which are super low fees. I love that. But there's no perfect recipe here.

Starting point is 00:32:35 Personal finance is personal. But if I were in your shoes, I'd move away from Edward Jones. I'd consider getting as much of this money put into the markets as possible. So it's going to compound for you. Maybe there's a way you recast this and find some more extra room in your budget. Maybe that 25K is a recast of sorts. If you're able to unlock a $4, $5, $700 month car payment now, right? That's essentially lowering your mortgage payment.

Starting point is 00:32:57 the same amount every month because you have more cash flow. A lot of different ways to piece this puzzle together, Robert. Yeah, and the last thing I'll say is when recasting, and I don't know who you're doing this with, but most mortgage lenders are going to require you to give them 10 to 20% of the mortgage balance to do that recast. So make sure you understand that if you put down 20%, let's say that's their requirement, what would that 20% of that mortgage be if just invested in the S&P 500? what would that gain you and earn you over time compounding towards retirement like Austin alluded to?

Starting point is 00:33:31 So make sure you understand all of the numbers before you just start bang, bang, bang and paying things off without investing this money. I like Austin's idea, pay off the house, set up the 529s, maybe bolster the emergency fund and the rest goes into investing and not recasting the mortgage. So our next question comes from Sylvia O. Sylvia says, hi, Austin and Robert. I hear you talk about borrowing money for less than what you can. make from it in profit. I'm thinking about turning my downstairs to an Airbnb solely for extra income. I know I can get about $1,000 a month looking at comparable Airbnb's in my area. My goal is to pay off all of my debt excluding my student loan, which is $18,000 of total debt

Starting point is 00:34:12 in the next six months. Unfortunately for me, the bulk of that $18,000 is high-interest credit card debt, $15,000 worth. I applied for a he-lock but was denied due to a couple missed student loan payments. So I'm thinking about pulling from my current investment account. I really hate to do that. It'd be very hard for me to get a second job due to other responsibilities in my life. So what are your thoughts on pulling $8,000 from my 401k or Roth IRA, using the $8,000 to fix up my downstairs, put the downstairs basement on Airbnb the next month, make $900 a month, use the profit to pay off the debt, and then aggressively build my retirement accounts back up. I'm 39 years old with a 15-year-old child. Interesting. Let's think about.

Starting point is 00:34:54 this. You talked about borrowing $8,000 from your retirement accounts. Never going to encourage anyone to take money out of their retirement account to go do something that could potentially work, but potentially not work. I mean, Airbnb is kind of finicky. If you were going to take money out of any investment account, it would be a taxable brokerage account and you'd use it to directly pay off the credit card debt at $15,000 here. Yeah, this is a tough situation to be in. I'm sorry to hear that you've got all this credit card debt and other debt. If I were you, I'm not sure that I'd try and outsmart my situation by, I'm going to borrow from this account, take that money to do this, and I'm going to flip it on Airbnb, make 900 bucks a month,

Starting point is 00:35:35 take the money here, do a backdoor that, have an LLC this, go make a billion dollars by, you know, all that stuff. Theoretically, sure, maybe it works. Like, I have no idea. In practice, a lot more goes wrong than what we plan for. If I were in your shoes, I would do probably two or three things. Number one, I would really, really lean into my honest budget. I'd cut all my subscriptions. I would shop at Aldi like I do. I would do everything I can to find an extra $2, $3, $400 a month in my budget

Starting point is 00:36:05 before I'm going to go borrow against my retirement to try and offset some of this stuff. That $2, $3, $4,500 towards some of this credit card debt is really going to help you move in the right direction. I know you mentioned you can't get a second job because of existing responsibilities. That very well could be the case, but maybe a second job could be driving Uber on the weekends or doing some DoorDash delivery or some Instacart, right? Have the 15-year-old teach them out of shop. Take them to the grocery store with your Instacart. Teach them more to find and use grocery store. Like, that's a life skill that you're teaching them as well as earning some money along the way while delivering groceries. Like I just, I think there are some limiting beliefs here, just the way that this question

Starting point is 00:36:44 is kind of crafted in a sense that makes it seem like the only way I can get ahead is if I borrow against my retirement or do this Airbnb thing because my existing circumstances aren't enough, which like, I don't know everything, so you could be right there. But I guess I'd really, really, really want to encourage you to think more about how you can optimize your budget and how you can boost your income before going nearly $10,000 in debt, borrowing against your 401k or cashing out your 401k even worse, paying essentially a 40% tax on that cash out with the fees. Like, don't do that. That's a bad, bad idea. I want to figure out every other way we can get this situation to be better before ever thinking about that.

Starting point is 00:37:26 I love that breakdown and I'm going to add a little bit more texture to it. I love the idea of where she's thinking here of getting that Airbnb up and running to get some extra income to help her get out of debt. But I agree with you 100%. Do not go into your retirements and borrow money on a maybe. You already have the money there. It's building. It's growing towards your future. Please don't do that.

Starting point is 00:37:48 Here's the magic number. need to find $150 a week for one year. $150 a week for one year. That either comes from you budgeting or getting a side hustle. Doesn't matter. $150 a week for one year, a little over a year is $8,000. So put off the dream for one year, get more of this debt paid down, get the extra $150 a week. Maybe you can make $250 a week instead. So you've got $100 a week extra to go towards the credit card debt and the other 150 to go towards the dream of making this an Airbnb. So delay this for one year. Please don't go into your retirement to be able to do this because you don't know if it's going to take off like you think. Then you're going to be further in debt. That's how I would approach it.

Starting point is 00:38:32 Combine what Austin said. It's a perfect formula along with finding an extra $150 to $200 a week and you'll be just fine. I think the last thing to encourage you to do as well is, and Robert does this and talks about this a lot, which is like, what can you sell? You have some old clothes, old appliances, old shoes. Maybe that tennis racket you only use twice to the pickleball setup you use 10 times, but it's still pretty good. And you can sell it a marketplace for $17.00. What do you have around the house? You've got probably $1,500, $2,000 of stuff around your house. Like that could be a really cool way to jumpstart either saving for this $8,000 or aggressively paying down this credit card debt at, I don't know, 19, 20, 25% interest. Like I just,

Starting point is 00:39:14 the last thing you want to do is cash out your investments. That's a $8,000. That's a lot. That's never a good idea. But really, really great question. We're rooting for you. You've got this. All you have to do is have a plan once you see the end goal rate. Oh my gosh, I can do this. I've got this much money a month. I can achieve it by doing this with an extra Instacart or this with the DoorDash or maybe this with Chipotle or this whatever's going on here. And I can make a little bit more here. And by doing that, I can stack these wins. It's all about stacking a little bit of a win. Right. It's $1,000. It looks like a lot of money, Robert. But $150 a week. Okay, I can do that. That makes sense to me. Right. That's cool. And so it's like, how do you get that little win and you stack those little wins? And by the way, when you're saving this 150, right, if you're not using it against the credit card debt, which you should probably run the numbers on that to see how much interest you're paying and see, like, you know, the best use of this funds. But as you're saving this money or deploying it, whatever, you know, make sure it's parked in a high yield cash account on public.com. So it's earning some interest along the way. That's the freest money you ever going to get. It's really great

Starting point is 00:40:09 feedback, Robert. Sylvia, we're rooting for you. You can do this. Final question coming from Jennifer. But before we jump to that, again, public.com. slash rich habits, go check out generated assets. The easiest way to build your own investing strategy completely for scratch using AI and then getting invested into that strategy. It's awesome. And it's so fun, we decided to make, I think was it, Robert, 13 different strategies for ourselves inside the Rich Habits Network.

Starting point is 00:40:33 So if any of you all have joined the Rich Habits Network and you're looking for generated assets strategies, just type in generated assets at the search bar there at the top of the community. Should pop right up. But generated assets, public.com. Go check them out. Robert, our final question here comes from Jennifer W. on Instagram. Jennifer says, Austin and Robert, love the show, and I've learned so much.

Starting point is 00:40:51 I'm making some changes on how I save and invest and would love your thoughts on my kids' 529 accounts. We're in Florida. My 14-year-old is a freshman and currently on track for bright futures is 76,000 in his 529, and a sixth grader has 35,000. Both are currently with Edward Jones. Would you keep them with Edward Jones, or would you transfer them to a lower cost 529 and manage them yourself? Is there any real benefit to keeping them in Edward Jones? To be honest, I'm not sure what the Edward Jones fee is. They have the money invested, quote unquote, aggressively. If my oldest does get bright futures, we would redirect future contributions to my younger son, so I know a Roth rollover may be an option down the road. Would love your advice on what you do in my

Starting point is 00:41:30 situation. Thank you. Over to you, Robert. Yeah, here we are. Sorry, Edward Jones, but I would definitely transfer them because they charge really high fees. You have ongoing expenses, maintenance fees, but then also they have their front-loaded fee, which is roughly 4% up to 4.25%. And I know, Austin, you have your 529s in Vanguard, and you can do this direct-sold 529 plan through like a fidelity or a vanguard, and there are zero-zero fees.

Starting point is 00:42:00 There's no load fees. So I would definitely transfer those. I hate to sound like we're picking on Edward Jones today, but it's just important that your money grows and makes as much as it can for you and not them. And that's why they could pay all that high rent, having an office on every corner.

Starting point is 00:42:17 And I just don't think it's a good idea. So I would transfer them. I would use Fidelity or Vanguard or somewhere else if you find something that has zero load and low fees. Because you're going to get pretty much the same outcome, no matter where you go with the 529 plan, that would be my take. Yeah, I think that's great.

Starting point is 00:42:33 Congrats on the bright futures. I didn't know what that was, but it's a scholarship program in the state of Florida. If you get the Florida academic scholars, it provides full tuition coverage plus a stipend. Wow. That's awesome. That's awesome. So I hope your child gets that 14 years old. That'd be awesome. Routing for y'all there. And yes, if they end up getting that awesome, you know, bright future scholarship, you know, you talked about 75,000 in his 529 account in the sixth grader with 35,000. Don't forget, like, 529 beneficiaries are like super interchangeables as long as they're all related to each other. So that like $76,000, you can like redirect that to your sixth grader or you can redirect it to a family member else.

Starting point is 00:43:14 You could push it back to yourself. Like 5.49 accounts are super flexible, super interesting. So I love pulling it out of Edward Jones, not paying all the fees. I use Vanguard again. Robert, I think I told you. I seated it with $3,000 in 2022. I put I think $200 or $250 a month into it. It's got $15 grand in it right now.

Starting point is 00:43:34 Like it's just invested into V-O-O and VU-G. It's an 80-20 split V-O-O and VU-G to very cheap index funds that just go up into the right over time. That's the same deal here that you can do on Vanguard. I just wouldn't use one of these high-fee front-load, whatever, with Edward Jones. It's simple. It's automatic. You don't have to do any of that stuff. So, rooting for you here, Jennifer.

Starting point is 00:43:54 Thank you so much for the question. And everyone, thank you so much for tuning into this episode of the Rich Habits podcast, question and answer addition. What an incredible episode. I love how complex and fun these questions are because we always say personal finances personal. And when you listen to these episodes, you really realize how different everyone's issues are with money and building wealth. And that's why we're here to help. Make sure you check out the Rich Habits Network. If you've been following us for a long time, I think it's time you check out the seven-day free trial.

Starting point is 00:44:26 The network is incredible. You get hours and hours of this with Austin and I every single month, directly related. to our members, pain points, issues, questions about real estate, finance, whatever it may be inside of the Rich Habits Network. And again, just go to Google, type in Rich Habits Network, click somewhere in the show notes, do whatever you got to do to get inside the Rich Habits Network and join now nearly 1,100 people. I think it's like 1098.

Starting point is 00:44:52 Like we're getting really close there. People that are inside the Rich Habits Network. So thanks again, everyone, for hanging out. And we'll see you tomorrow for our episode of the Rich Habits Radar.

Rich Habits Podcast - Q&A: Spending $8K On Fun, Forming LLC For Rental, & Turning Basement Into Airbnb

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