Rich Habits Podcast - Q&A: Student Loans, HELOCs, and the Stock Market

Episode Date: October 6, 2023

In this episode of the Rich Habits Podcast Q&A Edition, Robert Croak and Austin Hankwitz answer your questions about student loans, HELOCs, the stock market, and much more!Don't forget to send us a DM on Instagram @richhabitspodcast if you'd like to be featured in future episodes. ---Be sure to check out Public's new ⁠⁠High Yield Cash Account paying 5.1% APY.⁠⁠ This is higher than anything else on the market and is FDIC insured up to $5M. ---Earn 5.1% APY using a Public HYCA, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Opt-in and share your email, ⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠Learn more about our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠4-module video course!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Download our FREE Budget Template, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Robert: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/RobertJCroak⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Austin: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/austinhankwitz⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Contact: [e-mail] ---Hankwitz Group LLC has an existing business relationship with NEOS Investment Management LLC. The opinions expressed are those of the author, and the author owns several NEOS ETFs.

Hey everyone and welcome to the very first question and answer episode of the Rich Habits podcast. There's been literally thousands of you who have DMed us on Instagram and Discord and TikTok and everywhere in between asking us questions, hoping we would answer them on the podcast. As you know, we only can answer three questions per episode. So we're like, well, why not just introduce a new weekly episode entirely dedicated to answering as many questions as we possibly can? So as a reminder, please ask us a question on Instagram DMs at Rich Habits Podcast or join our Discord group. Ask us a question in any of those channels.

All the fun stuff. It's super easy to do. And we'll try our absolute best to get back to you. I am so excited about this new concept. Obviously, we are inundated with really great in-depth financial questions, business questions, mindset questions. And now with this new Thursday podcast concept, we can just dig in, answer more questions, and really just help as many of you get those questions answered

right here on the Rich Habits podcast Thursday edition. Let's jump into our first question. Our first question comes from Lydia G. Lydia says on Instagram, first of all, I want to thank you for making this podcast. The information and practice advice you provide has been super helpful for me and my family. I have a question for you both. When you talk about investing in rental properties, how does that help generally? generate income. Do you rent it for a higher rate than what your mortgage payment is? Also,

do you recommend having savings before purchasing an investment property? Thanks again for all you do, Lydia. Robert, you want to take this one? Yes, I love it. Lydia, thanks. That's a great question. First and foremost, do you always hear me every single day preach about having your base first? And what I mean by a base is that investment money that's 50, maybe $100,000, that's through traditional investment strategies like the Roth IRA, index funds, having some money in acorns, maybe T-bills, but really having a base of investments before you go off into the real estate world. Now, if you're not going to listen to that advice and you really want to start with real estate first, then I would say definitely you should have some money saved. Remember, you're going

to have the down payment, you're going to have the insurance, the closing cost, all of those associated fees, but also I would consider looking at maybe house hacking where you buy a multifamily unit instead of just a single family home. So it's really just about what your goals are because always remember when you're buying real estate, let's say it's a single family home. Most of the time, those properties are going to only cash flow four or five or six hundred dollars a month. So to really make a big difference in your income, you're going to need to purchase several of them over time for that money to add up. So you shouldn't be looking at real estate just for the cash flow. You should be looking at it for the capital appreciation, the depreciation and all of the

other tax benefits that come with owning real estate. So there's a lot going on here, but I hope that covers most of it for you. Yeah, just to answer your question here specifically, you make income from investing in real estate by purchasing a property. Let's say your mortgage is $2,000 a month, on that property and you are now renting that property out to someone else for more than you pay on a monthly basis for that property, right? So that rent maybe is $3,000 a month. So if you rent it for $3,000, you pay out $2,000, you are now cash flowing, quote unquote, $1,000. Now, of course, you want to set money aside for occupancy. You want to set money aside for all the things that go wrong when owning a property. So your cash flow to Robert's point is probably going to be closer to $4,000,

but that is how people make money owning real estate and renting it out to other people. Good question. Staying on the topic of real estate, our next question comes from William T on Instagram. William says, I own a second home that needs an estimated $25,000 in upgrades and repairs. I owe $180,000 on the mortgage. My monthly mortgage and HELOC payment on that second home is 14 per month. I could rent the second home out as is right now for about $2,000 per month, but if I went to go sell it, it would fetch about $350,000.

Now I have $80,000 in consumer debt. I want to pay this off and I want to build wealth. Do I sell the home? Do I rent out the home? By the way, I make $200,000 a year. Which first off, William, my guy, if you're making $200,000 a year, what are you doing with $80,000 in consumer debt? Like, dude, you make so much money.

Like, you should not have $80,000 in consumer debt. But Robert, do you think he should keep the house? Should he sell the house if he kept it, assuming he'd rent it? What are your thoughts? I think we need two hours to unpack this, and I'm going to try and take a shot at it in about a minute and a half. So here, let's start here. First and foremost, if you owe 180 on the house and you want to put 25 into it, that puts you all in at $205K. So therefore, at a $2,000 a month rent, you don't meet the 1% rule.

So that's a problem because you want to be able to when you're looking at an all-in cost of a home for a rental, you want to be able to rent it for whatever you are all-in purchase price and any repairs. You want to be able to rent it for that amount. So in this instance, you're close but you're not quite there. Second, and Austin alluded to this, why if you're making 200K, do you have that much consumer debt? So that doesn't add up either. And then number three, if you can sell it for 350 as is or put it. putting the 25K into it and you only owe 180.

So let's say 350 minus 205, you're going to have $145,000 to pay off that consumer debt and then take the rest and reinvest it in better investments and get rid of all that consumer debt. I hope that covered all of the math from what limited information we have. And then we need to talk about you getting on a budget, figuring out your debt-to-income ratio so you can really start stockpiling some of that 200k a year.

Couldn't agree more, right? At the end of the day, it seems like William is unfortunately average, right? A lot of people make all this money, but they are also spending all of this money that they're making. And maybe Williams just got a really nice BMW, and he's all about that BMW, and he deserves it. You might, right? Pay it off. Then if that's the case, you obviously, it's fine to drive cool cars. we're just saying we also hope that if you have $80,000 in consumer debt, maybe you have $800,000 in investments, right? Because you make so much money. Who knows? But really good question, William. I would also sell the house. I'd pay off the consumer debt. I would try and not keep that high interest consumer debt around. I want to get on a budget. I never want to go into high interest

consumer debt again and start building wealth. Really good question, man. So what do we say every day, Austin, and this is for you, William. You can't out-invest high-interest debt. So lose that consumer debt, get rid of it, sell the house, start over, and get cash flow positive in a good way. Our next question comes from Lena M. Lina says, I tell everyone about how great your podcast is. Thank you so much, Elena. We appreciate it. I need advice. I need to consolidate my credit cards. What should I look for in a company that offers these debt consolidation services? Really good question, Lena, here's what I want you to start thinking about. Think about what you should not do. So first, what you should not do is you should not go out and find one of these debt consolidation

services companies. What they're going to do is they're going to tell you to stop paying your credit card debt and instead pay that monthly minimum payment to the company instead. And when they get that money, they're going to try and take it and use it as a negotiating sort of tactic to pay off your now defaulted debt, which is going to ruin your credit score. It's going to be a very bad experience. You don't want to do that. That's not the debt consolidation tactic that you should be thinking about. What I would consider doing and recommend you doing is instead getting out a debt consolidation loan. What a debt consolidation loan is, and you can find this on bank rate, lending tree, literally just type in debt consolidation loan on Google. And there's going to be a bunch

of them that are offered to you for 9, 10, 12, 15 percent APR. And what these loans do is they allow you to have all your credit cards paid off at once now with this money that they lend you at a lower interest rate and now you only have one monthly payment going to this new debt consolidation loan and once that's paid off you're good to go another website i think is t a l-l-l-y they're actually pretty decent bright money i think is another one right so there's a couple here that are just these debt consolidation loan companies they are not debt consolidation services companies you don't want to do a service. You want to definitely not default on your debt. You want to keep your credit score nice and high. And you can do that by using a debt consolidation loan instead. So I'm going to go a different route on this,

Lena. What I would look at is can you take on a side hustle right now and take all of that money from the side hustle to put towards these credit cards? Maybe do that to get them paid down quicker. Austin, maybe you can touch on the snowball method? Or I would look at can you qualify for a zero interest credit card where you could transfer the balances to that and get in a situation where you can combine them into a zero interest card, which would give you more time to catch up

to be able to pay that off. So there are other ways to look at this. I tell people all the time when they're in consumer debt and they don't have enough income from their main job to go get that side hustle, even if it's only $300 a week, $200 a week, and put all of that money towards the money,

debt to get it paid down much faster if you don't have other options because you definitely want to maintain your credit without punting it and starting over. So I think that's a key strategy is there are options for you. These two methods help you pay off your credit card debt in a very efficient manner. So again, go check that out. Our next question comes from Tammy C. She says, hi, just started listening to your podcast. I really enjoy the short form and the two perspectives. I hope to see some more in-depth chats about the economy or stock analysis. Okay, I appreciate that feedback, Tammy. Here's my question.

If I get stock grants for my job, I work in tech, would you guys suggest selling them right away and divesting that money into the S&P 500, aka V-O-O-O-O, or holding on to them? Good question. So actually, in our last episode, episode 32, we talked about this with the ESOPs, the ESOPs, right? And essentially what our takeaway there was like, listen, this is part of your compensation package. So if you're receiving stock in your tech job as part of your compensation package, don't feel bad about selling that and diversifying that into the S&P 500, real estate, pay off high interest debt, whatever you want to do with it, right? It's your money. From my perspective, I think I would take a 50-50 approach, which is something you alluded to in your DM as well, where I would think about it as, okay, I mean, maybe you work for Facebook, right?

stock's crushing it. You work in tech, tech is great. So if you believe in the company and you want to be along for the ride over a long period of time, keep maybe half of them, you know, keep maybe half that stock in the company and then divest the other half into the S&P 500 or maybe use that as a down payment on a house one day, like do whatever you want with it. But that's how I would approach it, a little bit of skin in the game because you work there, you directly have an impact on the future, as well as, okay, I need to diversify a little bit though. I want to make sure I'm doing the right things there. Yeah, my takeaway is very similar to that, although slightly different. And that would be Tammy, what I would look at is never feeling guilty if you sell these stocks. Because at the end of the day,

even though you work for the company, you earned those shares. So you should do whatever you want to do that optimizes your wealth building strategies and not worry so much about the company's future because they're going to be fine. Great question, Tammy. So our next question comes from Dylan M. Dylan says, hey Austin and Robert, thanks for everything you guys are doing. I got a couple of questions after listening to your most recent episode. When you say match beats Roth beats traditional, would you recommend prioritizing putting money into an after-tax brokerage account over continuing to increase contributions to a traditional 401K above the match?

Really good question. And just so we're all on the same page, I want to break down exactly what you just asked. When we encourage people to invest toward retirement, we encourage them to do it in a three-step process, right? Three sort of priorities in this order. The first order is the match of your 401K. The match of the 401K is free money from your employer. So of course, you want to prioritize getting free money from your employer.

The next thing we prioritize, right, up to that match, normally it's like that 3%. Once you've hit that match, the next thing we prioritize if you still have money to invest is to max out the Roth IRA. That's $6,500 per year. And if you max that out, upon retirement, you will be able to enjoy up to several million dollars of tax-free income. Once you've done that now, and you've maxed that out at $6,500 per year and you still have money left over, that's when we encourage people to park that money into your traditional brokerage account, public Robin Hood, Fidelity, Vanguard, and put that money in index funds.

So when Dylan says, would you recommend prioritizing putting money into an after-tax brokerage account, which is that traditional brokerage account, talking about public and Robin Hood, over continuing to increase contributions to a traditional 4K above the match, yes, that's what we're saying. Because, again, weird enough, sometimes the 401K does not give you autonomy over your investments, where a traditional after-tax brokerage account would. You can park it into the S&P 500 or the NASDAQ or the Dow Jones or whatever you want to put the money into, versus putting that money then back into your 401K,

they might park you in some weird target date funds that you have no idea what they're invested it, right? If you don't have autonomy, you shouldn't be investing into it. Therefore, we recommend putting all that extra cash into an after-tax brokerage account because even if it is after-tax and you're paying a little bit more in taxes on the back-end, that's okay because chances are you outperform these target date funds that only return 13% over a five-year period or something silly like that. I don't have words to express how good that takeaway is. So everyone dropped the mic and let's end the internet right now. That was incredible, Austin. That was so good. Oh my goodness. Let's go to the next question. I'm not even going to add to that.

All right. Our next question comes from Emma C. Emma says in episode 10, you all suggested that we should pay off our student loans as quickly as possible. But to me, that didn't make sense because student loan interest rates right now are around 5%. So how is it that you should take out a car loan, but your student loan should be paid off right away? Can't you just out invest the student loans? Wow, Emma, that's a great question. And yes, if your student loans are at 5%, you're right on that border of what we would call high interest debt. So I would say if they are 5%, yes, probably pay the minimums and stretch it out as long as you can because who knows what the government's going to do with these loans. But anything, a lot of the people I know of that have student loans are six,

six and a half, seven percent. And when you get that high as far as the interest rate and then you're looking at a down market right now because we're kind of in this kind of sideways market, then it becomes one of those situations where I would tell people to start paying it down. But it really depends on what your individual interest rate is because there's no one size fits all. Everyone is different. But I think five is definitely low enough that I would pay the minimums and invest the rest. Yeah, I think what's also important to consider is how much your monthly payment is. Right. So for example, if your monthly student loan payment is $5, six, $700 and all of that's going to interest and you're just feeling gross about it, like that's not good, right? What would

happened if you then maybe got aggressive, paid off that student loan, and still took that same $5, $6,700, and instead paying it to Sally Mae, you were now paying it to yourself in the form of a Roth IRA contribution or a 401K contribution, right? Now you have millions of dollars in retirement tax-free waiting for you versus, well, I did the 5% and I did that my whole life. And it was like, don't be wrong. Like, sure, you can out-invest if you're making a bunch of money, like that's cool. But I would argue that probably 80, 90% of people don't have extra funds on top of their student loans right now, especially with it all coming back to now to us in October. And my girlfriend just paid her first student loan payment of like $400. That's crazy. So Emma, great question. And it's right on that

fine line between opportunity cost and the positive arbitrage that we're always talking about with your money. So let's say right now in a sideways market, if you believe you can make 7 or 8% in index funds or whatever your investment strategies are, then I would definitely say pay those minimums because that two or three percent over time is going to add up. But in a situation where maybe your student loan debt isn't very large, the markets are kind of sideways and you're unsure of what to do, then I think it's also okay to pay it down and get rid of it. So I think it all is person dependent and also dependent on what your overall wealth building strategy is, Because I know for me if I can make an extra 2, 3, 4% on my money, I'm always going to choose

investing over paying that off. Really good question. Our next question comes from Mandy G. Mandy asks, my question is about VOO. With its current price of about $412 per share, if I maxed out my Roth IRA with $6,500, I would only own about 15 shares. Are you talking about this being a long-term play over the course of 20, 30 years? because next year if I add another $6,500 and the prices, let's say, $475, it seems like I'm buying

less and less shares every single year. So I'm struggling to understand how investing so little is considered a wealth-building strategy. Wouldn't it just be better for me to invest into a different ETF at a lower price so I can have more shares? Mandy, great question, but I think we need to get the information right here. In your wealth-building strategy, it's all about compound interest and the ROI on your So yes, you could buy something that's less expensive per share and own more shares, but if it's not performing as well, you're not going to get the returns you want, and therefore all the shares in the world aren't going to get you where you want to go from a wealth-building perspective.

So my answer to this question is, don't worry about the shares. Worry about the return. VOO is a great vehicle. All of the wealthiest people in the world own it. And even Warren Buffett said recently, told his wife that when he passed away, put all the money in VO and treasury bills and forget it. Because it's so powerful. And the average return for VO is, I think, 11% a year over the last 50 or 60 years. So it's not about the number of shares you own.

It's about the total dollar amount and what the ROI is. Just want to reiterate, it's not about the number of shares. It's about how much money, right? So if you make 10% on your $6,500 per year, that's $650. You make 10% on your money. You don't make 10% on the number of shares. So don't be confused by, oh, I only have 15 shares, or I've got 30 shares of this, or I could have 100 shares of this.

Shares don't matter. What matters is the money amount that you have invested into these index funds. Another way to look at this and I deal with this every single day is people say to me, well, I don't buy Bitcoin because I can't buy a whole Bitcoin. and they don't understand. If they don't have $30,000 or $28,000, they don't buy a whole one so they don't buy any. Again, they're looking at it the wrong way.

If you buy $1,000 worth of a Bitcoin and it goes up 10x, well, guess what? You still had the same amount of return as the person that owns $100,000 worth of Bitcoin. So you have to stop looking at it from the share amount and look at the dollar amount and the return. Our next question comes from Amzati. L. Mzotti says, I've been listening to your podcast and loving the content. You guys talk about the S&P 500 index funds and I actually invest into the NASDAQ index funds because I think they have a higher yield. My question is for someone as young as I am, assuming maybe you're like in your 20s or 30s, would you recommend to invest into the S&P 500 or the NASDAQ? Really good question. Okay, so what's the difference, right? On one side of the aisle, you have the S&P 500. The S&P 500 is a,

list of 500 of the largest and most profitable companies in the United States, right? So they have very clear parameters about having to be profitable for over 12 months. They have to have over a specific market cap. It's this very rules-based index that only includes 500 of the best and most profitable companies in the United States. That's the S&P 500. The NASDAQ is a very different story. The NASDAQ is essentially.

all of the companies listed on the NASDAQ exchange, right? So the NASDAQ exchange is like the stock exchange. It's very similar. But long story short here, it's just a list of companies that are listed on the exchange. They don't have to go through any of these like rules-based parameters. Now, sure, the companies that are listed on the exchange have outperformed the S&P 500 specific years and over specific periods of time. But what I really want to encourage you to think about is the NASDAQ and let's say QQQ for example. The NASDAQ lists 5,000 different companies where the S&P 500 is the 500 best. Now sure, it's weighted where some years those companies crush it and they do really well, but other years sometimes they don't. They do worse than the S&P like 2022. So if I were you, I would think about it in two different ways.

One, to either continue doing what you're doing with QQQQ, solely focus on that, but maybe also. encourage you to think about diversifying into something called QQQM, which is the 100 largest companies on the NASDAQ, right? So you're not getting the other 4,900. You're just getting the top 100. I think those perform better. So go check that out. And then this other alternative, which is kind of this 50-50 hybrid, right? Maybe half in the S&P 500. And then also half into the NASDAQ or the NASDAQ 100 as we just described. I love that answer. And I, agree with you 100%. I don't really have anything to add other than always thinking about diversifying and making sure I don't have all my eggs in one basket, but I love the question. Our next question comes

from Kayla C. Kayla says I'm currently trying to figure out ways to get out of horrible debt, credit card, medical bills, student loans, everything. And because of these, we're living paycheck to paycheck, and I just can't seem to get ahead. What do you recommend to get ahead since we're so horrible with our finances. First and foremost, Kayla, sorry to hear about your situation, but we're going to fix that right here and right now. In the show notes is our budgeting tool. I want you to download that immediately and get your budget figured out. And no cheating. Please put everything in there. Don't leave out the Starbucks. Don't leave out any of your expenses because the goal here is to get you with a total budget so we can figure out your debt to income ratio. Once we have the debt to income ratio figured

out. Just Google it of how to calculate it. It's really simple. Then we're going to know where you stand and are you upside down, where you're at every single month because my assumption is you're spending more than you make every single month and that's how you got here. So those are going to be the first steps. Then after that, you're going to have to sit down with hubby your boyfriend or whatever it is and you're going to have to figure out how can you guys rectify this quickly. So what that might mean is giving up on some things, downsizing, a side hustle, whatever you can do to add income to get yourself in a position to pay these debts down swiftly because you can't out-invest high-interest bad debt. And we're going to have to really figure out the best steps and where to

start once you get all this information in front of you. I think if I was in your situation, Kayla, obviously I'd make the budget, but then I'd also figure out on a timeline calendar, right? What days of the month is this bill due? When is this subscription service getting pulled from my checking account? When am I getting paid from my employer, right? I want to understand day to day what is going to happen to my checking account. So I can, one, jump in and cancel that subscription service or cancel that, whatever it is to make sure that that doesn't happen and I keep the money. or help me figure out, okay, I need to pay this bill by Friday.

Do I drive Uber two times this week to help subsidize the payment of that bill? Do I walk a couple dogs? Like, what am I doing so I can ensure that I'm not overdrafting my bank account and paying more overdraft fees? I'm ensuring I don't have to now go into more credit card debt to stay current on a bill. So not just having the budget, but also understanding on what days of the month the money comes in and leaves your bank account is incredibly important from a planning perspective. And also look at relief mechanisms. Can you call and negotiate down the hospital bills? Generally, you can.

You can ask for itemized bills, go through those bills, and then ask them to settle those debts. So that's one way. Also, you might want to look at, can you call and find a program that gives you a better or lower interest rate on the student loan debts? There's programs out there. So there's a lot of ways to skin this cat,

but you just have to put in the work and really understand that it needs to happen now, and it's very, very important you get started right away. Our final question comes from Stephen. Stephen says, good morning, Austin and Robert. My wife and I are both 32 years old. And just this month, since our lease was up at our apartment, we decided to move in with our parents to focus on paying off high consumer debt and have to try to now save for a home within maybe two or three years.

Congratulations. No shame. That is incredible, Stephen. Now here's his question. Stephen asks, as opposed to a single family home being our first property, I'm considering at least a duplex so we can house hack. With the intention of one day owning more properties, should we purchase the duplex inside of an LLC that both my wife and I are members of? Wow, that is a great question. Well, I would say it goes both ways. In my opinion, I would say no, because here's why.

When purchasing that first property, that multifamily property, you should look at the FHA loan because it only requires three and a half percent down. That way you can keep the rest of that down payment into other investments. So if you really, really want to do this the right way for the first property, you can buy up to four doors with the FHA loan. So you could buy a quadplex, triplex, triplex, duplex, and qualify. I would do it in your personal names to start and then future properties. You would have to do traditional loans or maybe a 203K loan or whatever type of loan you would qualify a DSCR loan. Then you could do those through the LLC. You just wouldn't qualify on this first one if you wanted to use an FHA loan and it was in an LLC.

Yeah, I've never, I'm not really too, I'm learning. I'm learning about real estate. So Robert, I appreciate the perspective. And Stephen, we appreciate the question. question. And everyone listening, we appreciate you listening to the very first question and answer episode of the podcast. We're still trying to figure out the cadence. We're still, you know, trying to get through this episode. So if you have any suggestions on maybe a different way we should approach the questions or a different way that we should be answering them, let us know the direct

messages, as always, at Rich Habits podcast on Instagram. And everyone, thank you so much for tuning into this episode of the Rich Habits podcast. We hope you all have a wonderful rest of your week. Have a great day.