131: How to 70X Your Money

0:00When it comes to what your family eats and drinks, you know your choices matter. You're the expert because you know what fits your life. And getting it right starts with good information. That's why America's beverage companies are sharing more information about our ingredients at GoodToKnowFacts.org. No spin, no judgments, just the facts straight from the experts for more than 140 beverage ingredients. Visit GoodToKnowFacts.org.

0:33When did making plans get this complicated? It's time to streamline with WhatsApp. The secure messaging app that brings the whole group together. Use polls to settle dinner plans. Send event invites and pin messages so no one forgets mom's 60th. And never miss a meme or milestone. All protected with end-to-end encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. Hey everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by Public.com. Today's episode explains how to 70X your money. It might sound like hyperbole, but it's not.

1:14You just wait and see. My name's Austin Hankwitz, and I'm joined by my co-host Robert Croke. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million, and I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. So Robert, what are we going to be talking about in today's episode? In this week's episode of the Rich Habits Podcast, we're going to break down what every dollar you waste in your 20s, 30s, and 40s costs you in retirement.

1:45As you all know, we're big fans of the phrase, invest early and often. And we believe compound interest is the eighth wonder of the world. those who understand it earn it, and those who don't pay it. However, our brains think linearly and not exponentially. Let me say that again, linearly, not exponentially. So through this episode, we hope to help you unlock just how impactful compound interest can be to your wealth building journey if you take advantage of it while you still can. Compound interest can be thought of as a snowball rolling down a hill, right? Every turn of the snowball, it causes it to grab more snow.

2:25That more snow now grabs more snow. And now the surface area grows and grows, and it's grabbing snow all over, and it grows exponentially. So we're going to talk a little bit about how that works with the money you waste in your 20s, 30s, and 40s. So Robert, kick us off with our first example. Wasting money in your 20s. So when you're in your 20s, you think, oh, I have time to do all that later. I'm going to enjoy my life now. This mentality is what 99 % of recent college grads have and unfortunately take with them into their 30s. But let's run the numbers, Austin, for everyone following along and listening.

3:02The S &P 500 since its inception has averaged around 11.9 % or 9.5 % return after you adjust for a 2.5 % annual inflation. So all those numbers we're about to share with you are already accounting for inflation and the historical average return of the S &P 500. So what does a typical weekend look like for someone in their 20s? Maybe a couple beers or cocktails, some takeout, or that$16 avocado toast that you all absolutely love. Here's the reality. Every dollar you spend in your 20s is worth$70 at 65 years old had you invested it. That's right,$70 at 65 for every dollar you waste now, which means your$3 beer is really costing you$220.

3:52Your$13 cocktail is really costing you$910. That's for every one of them that you didn't need to drink. And that$16 avocado toast is really costing you$1 ,120 in retirement. Now this is every weekend throughout your 20s And this is the real math. So please take a moment, let it seek in because this is crazy. It certainly sounds crazy, but this real math is based upon the above shared assumptions, right? A nine and a half percent inflation adjusted return in the S &P 500 over that 45 year period of time. Now people ask us all the time, how much do I need to have saved before I can start investing, right?

4:37Is it a hundred dollars a month, 500 a month, a thousand dollars, some guy on the internet told me I need 10 grand to start. No, it's literally that$32 example that we just gave you, right? That$32 turns into$2 ,250 in retirement. That same$32 that you're spending like it's nothing turns into thousands by the time you're 65. And this is$2 ,250 that you're not getting because you are spending that$32 every weekend out with friends. And this$2 ,250 you're not going to have in retirement is what us money nerds call opportunity cost. The cost of the 32 that you're spending, what that turns into over time.

5:14Now, we're not saying that you should stay home and not have any fun, right? You should go have fun, meet people, you're in your 20s, do your thing. But you need to understand what every dollar could turn into if you had instead invested it from age 20 to age 65. Understand that this is how you 70X your money throughout your lifetime. Yeah, I love this episode because it really illustrates, do you need that next beer? Do you need that avocado toast every single weekend? And it's really all about taking those little differences in what it looks like in retirement, you know, 40, 50 years down the road, if you didn't do it.

5:55And like Austin said, we're not trying to tell you not to have fun, not to go out with your friends, not to go out to dinner. We're trying to get you to understand that every little bit you can chunk away in your 20s turns into massive amounts later on in retirement. So let's go into number two. And I think this one is gonna hit a lot of you really hard. And that is wasting money in your 30s. So now you're into your 30s, you're likely married, have a couple car payments, take an annual vacation, and maybe you're even investing towards your retirement. How does the math shake out now for you in your 30s?

6:32Well, we don't say invest early and often because it's fun. We say it because it's true. Every dollar invested in your 20s turns into 70. And in your 30s, it only turns into 26. But$26 is a whole lot better than the minuscule returns you're earning in your checking account because you never started investing. So let's be clear. A dollar invested in your 20s turns into 70 in retirement. a dollar invested in your 30s turns into only 26 in retirement. That's a big difference, right? That is not linear. That is quite literally the exponential compound interest we're talking about, right? So just by pushing off investing for 10 years, you are losing so much steam and compound interest throughout your life.

7:20But Robert, let's talk about that car payment, right? The average American has a$775 per month car payment for a new car. That is$9 ,300 per year being sent to these big banks to finance the new car you just had to have, right? So let's say instead of sending the$9 ,300 a year to Wells Fargo, you took that$9 ,300 a year and you parked it in the S &P 500. Fast forward 35 years, it's now worth a quarter million dollars. So every year that you keep that$775 per month car payment, you are losing a quarter million dollars in retirement and opportunity cost. That is what that new car is. It's funny.

8:06I was listening to a podcast and someone's like, where's all your retirement money? He says, I don't know. And he goes, well, what's your car payment? They're like, well, 700 bucks. Do you eat out? Yeah, I spent about a thousand. You're eating your retirement. You're driving your retirement, right? Like that's how you should be thinking about these, you know, what feels like, oh, I have to have a car payment. I should go eat out. I should do these things. That's what everyone else does. Everyone else is broke. You're not. You're building rich habits. It's so true. And we know all of you need a car and some mode of transportation.

8:36So first and foremost, especially with this double digit used car interest rates, consider paying cash for something you can afford. But if not, opting for that$400 a month payment and buying used versus the$775 monthly payment that Austin illustrated and investing that difference turns into$127 ,000 in retirement if invested over that 35-year period of time. So you've invested another 4 ,500 the following year And that is another$127K in retirement. This is so powerful to think that just by adjusting that one thing from that$775 a month car payment to$400 a month equates to$127 ,000 in retirement every single year.

9:28I love this illustration. I think this is such a great way to help everyone understand that at some point you have to put the brakes on your spending, live within your means, and put that money away for retirement. And these numbers are mind-blowing. So a dollar invested in your 20s turns into 70 in retirement. A dollar invested in your 30s turns into$26 in retirement. What does a dollar invested in your 40s turn into? Yeah, so we did the math on this and let's talk about wasting money in your 40s. So we fast forward now, you're in your 40s. This is the part of people's lives where they love to keep up with the Joneses.

10:10And the easiest way people fall victim to lifestyle creep is by buying too much house. Their monthly payment many times exceed 40, even 50 % of their household take-home pay. And not only are they struggling to keep up, but they're literally investing nothing towards their future when arguably this is the time it matters most. So every dollar invested at 40 only turns into$10. Now, again, that's a whole lot better than a sharp stick to the eye. But you're beginning to realize just how important it is to invest early and often and stay invested. So that$1 ,000 a month extra you're paying towards a mortgage that you can't afford is$12 ,000 per year or$120 ,000 in retirement.

11:00Assuming you're someone who might be late to the game, that$120 ,000 is a real needle mover for anyone. So let's make sure people understand this, Robert. A dollar invested in your 20s turns into 70 when it's time to retire. A dollar invested in your 30s turns into 26 when it's time to retire. And a dollar invested in your 40s only turns into$10 when it's time to retire. That is what it means to invest early and often, and you see the exponential growth as it relates to compound interest. So what's the solution here? Lifestyle creep is real, but it's not something you need to fall for, right? Practice contentment, have gratitude for what you have, and be sure that your monthly mortgage payment falls between 25 % and 35 % of your monthly household take-home pay, ensuring that you're not house poor, you have some margin, and you can invest that money.

11:49That's$120 ,000 extra in retirement because you decided that keeping up with the Joneses is what was actually keeping you broke. I love this episode and the breakdown, so I got to give Austin all the credit for figuring this out because it's really mind-blowing to me because we're always talking about investing early and often, but I think more importantly is getting people to understand if they let their money sit in their checking account, they're going to blow it. They're going to go to the farmer's market. They're going to go out to the new sushi place. They're going to do all of that. And we're okay with that.

12:22As long as you're being intentional with your money and putting aside enough for retirement in these numbers are real. This is the math. And we are so hopeful that all of you take Make some notes and really consider this the next time you're going to buy that avocado toast or get that extra drink that you don't need anyway. And just really focus on what that money turns into. What is the opportunity cost lost and the difference it makes in retirement? If you really think ahead, starting in your 20s all the way into your 60s. Well, I think too, Robert, that people in their 20s, they think, oh man, that's like, I don't have like hundreds of dollars a month to invest.

13:02So like, why even start? I don't have$7 ,000 a year to max out my Roth IRA, so I'm not going to put anything in my Roth IRA in my 20s. When in actuality, every dollar you would have put inside of that account would turn into$70 ,000. Every$1 ,000 turns into$70 ,000. And it's the same in your 30s and your 40s. But I think people just forget that money matters when it gets invested. It might feel small in the beginning. It might feel like, oh, I'm not really taking advantage of the markets or I'm not contributing enough to make a difference for my future. And it might feel like that in the beginning, but we promise compound interest after 5, 10, 15, 20, 25, 30 years is what's really going to help you build wealth over that long period of time versus, you know, trying to squirrel away so much money that it starts to kind of feel a little overwhelming.

13:48Yeah, I remember when I think I was 19 years old, my cousin Tim got me started. And I was already, you know, really interested in finance, studying, understanding how to build wealth and all of that because I grew up really poor. And I remember I started out with$20 a week. That was it. And I think everyone is just so caught up in what the fake gurus tell them. If you don't have 10 grand, don't bother. It's ridiculous. The numbers don't lie. The math doesn't lie. I don't care what you have to put away. It's all about investing early and often and staying consistent. And this episode illustrates it better than anything we've ever produced.

14:27Now, before we jump into our Q &A section of the episode, which by the way, if you have a question for us, be sure to email us at richhabitspodcast at gmail.com or DM us at richhabitspodcast on Instagram. Got to give a major shout out to our episode sponsor, public.com. Public.com is the investing platform for people who take investing seriously. So if you're serious about investing toward your financial future, like you should be if you just heard some of these examples, it's time you learn more about public.com. On public, you can build a multi-asset portfolio if you want stocks, you maybe want some bonds, some crypto, some options, whatever, they've got it on there.

15:02And that's not all. Public's artificial intelligence isn't just a feature that's built into the platform, it's woven into the entire experience. So that could mean portfolio insights to earnings call recaps, whatever you want. Public gives you smarter context at every touch point of your investing journey with some artificial intelligence sprinkled in. And for a limited time, you can earn a 1 % match on all IRA deposits, IRA transfers, and 401k rollovers. Let me say that again. 1 % match on all IRA deposits, transfers, and 401k rollovers. Fund your account in five minutes or less at public.com forward slash Rich Habits, paid for by public investing.

15:41Full disclosure in the podcast description. And Robert, we just talked about, you know, you're in your 30s and every dollar you invest turns into$26, which means this 1 % match, right, is money, free money. So if you max out your Roth IRA in your 30s,$7 ,000, 1 % of that is$70. It doesn't seem like a lot, but you multiply that by 26, that's nearly$2 ,000 of free money that you are getting from public with this 1 % match. So take advantage of it. Shout out public.com. Go take advantage of all the perks you guys get by being Rich Habits listeners at public.com slash rich habits. Now, our first question comes from Molly B on Instagram.

16:21Molly says, Hi Austin and Robert. I've been listening to your podcast with my boyfriend. I'm 24 years old. I'm a year out of college and I'm working full-time making $60 ,000 a year. I contribute 5 % to my 401k and my company matches 4%. I recently opened a Roth IRA this year and plan to max it out. I have$40 ,000 in my savings account. Oh my gosh, Molly, let's go. Molly says I pay around$600 a month in student loans and have a$450 per month car payment. I know that I need to do something with this$40 ,000. What would be the best way to allocate my savings? Thank you in advance. Robert, you want to kick this one off?

16:55Yes. Well, congratulations, Molly. You're crushing it at 24 years old. We really appreciate anyone that has a plan at that age because so many people like this episode illustrates, they just kind of kick the can down the road in their 20s and 30s and think retirements, I don't have to worry about it right now. It's a long ways away. But the real key to building wealth is starting early and often, as we talk about all the time. So yes, you're right. That$40 ,000 needs to be active. You need to get that into, to at the very least a high yield savings, but we would rather see it go towards building your base.

17:30So we would love to see you get that basket of ETFs, maybe get some precious metals, a little bit of cryptocurrency, and work towards the future with some of these investments that we think everyone should have in a diversified portfolio. But don't panic because you are doing very, very well. And I don't think it's too bad to have that$450 a month car payment, assuming that it is a normal interest rate on the car. That is what I would do with the money. So that way you're making money while you sleep, building towards your future. Even though you still have some debts, we all have debt. It's just making sure that you're not trying to out-invest high interest debt, which it doesn't seem you have currently.

18:13Molly, let me shoot you straight. We just talked about this$1 invested in my 20s turns into 70 in retirement. Same math, same assumptions. $40 ,000 invested into the markets growing at 9.5 % per year from 24 to 65 is$2 ,016 ,701 at 65. Your retirement is staring at you in the face. You just have to be smart with it. So what does that mean? If I were you, I would open up a Roth IRA on public. I would contribute immediately$7 ,000, get that free match, make sure half of that's invested in the S &P, the other half is invested into the NASDAQ, VOO, QQQ, let it ride. And then the other$33 ,000, I would also deposit that onto public.

18:55I would open up a taxable brokerage account, normal taxable brokerage account, we call it a bridge account. And I would make sure the money is invested 50-50, just the same into the S &P and the NASDAQ until you build your base up to that$100 ,000. And then once you have $100 ,000 invested into these index funds and ETFs like the NASDAQ and the S &P 500, then you can begin to diversify into some precious metals, maybe some blue chip single stocks, maybe some cryptocurrency, maybe some real estate, right? But there's a bunch of different ways to think about that once you've hit that$100 ,000 goal.

19:24But right now, you need to get invested so you can really enjoy this compound interest over the next 40, 50 years of your life and guarantee millionaire status adjusted for inflation by the time you're 65. And I want to piggyback on that for everyone listening, that$40 ,000 in Austin's illustration turning into$2 million at 65 is a one-time investment. That's not$40 ,000 a year. That's one time. And I want to make sure everyone understands the math, how that works with compound interest, because I've seen so many times over the years where people get a$20 ,000,$30 ,000,$50 ,000 lump sum payment from a settlement or an inheritance, and then they just go blow it.

20:07Whereas if they would have taken a chunk of it, put it away forever, they would set themselves up for multi-million dollars in retirement, no matter what else happens through their investment journey. So our next question comes from Brady P. Brady says, Hey, Robert and Austin, I just started listening to y 'all's podcast and I love everything you're teaching. I do have a question though about whether to save for school tuition or take on some student loans and invest the remaining amount of money now. so I won't miss out on that sweet, sweet compound interest. I am a junior in college studying finance and economics and plan to get my master's in financial management and accounting.

20:42I'm paying for everything myself and would like to know whether I should try and save as much as I can to pay the least amount of student loans, aka pay cash for my tuition, or I should still make all that money, but instead of paying cash for my tuition, allocate it towards a Roth IRA and max it out and then take on some more student loans as a byproduct of this strategy. Thank you guys so much. So Robert, here's how I'm thinking about this. Brady probably doesn't have much invested to begin with. And he's saying that he can really get some money turbocharging in his Roth IRA. He probably has four more years of school, right?

21:14He's got his junior year, senior year, and probably two years to get his master's in financial management and accounting. So four years of a potential maxed out Roth IRA is$28 ,000 by the time he's, call it, 24 years old. Same math equation that we just gave Molly, right? That$28 ,000 from 24 to 65 turns into$1.4 million for Brady. Now, that's assuming he can get up to 28. Maybe he only hits$10 ,000. Still,$10 ,000 that he would have spent on his school tuition turns into half a million dollars of tax-free money in retirement. So I guess what I'm trying to say here, Brady, is you're young. Take advantage of this compound interest.

21:53Again, every dollar turns into 70 for you right now in retirement. And if I were you, I would make sure I'm taking out reasonable student loans. I'm not going more than, you know, one year salaries worth of student loan debt for my projected salary once I get a job with this financial management accounting degree. So call it 50, 60, 70 ,000 tops. But at the end of the day, what's important here is that one, you're getting invested early and often. Two, you're actually studying something that's going to make you$60 ,000,$70 ,000,$80 ,000 a year right out of college. And three, by the time you're in your late 20s, hopefully you'll have continued to invest in your Roth IRA and pay down these student loans, no problem, to set yourself up for a lot of financial positivity in your 30s.

22:36What a breakdown. I really, really love how you illustrated that. So I think you killed it. I don't have anything to add to that. I really enjoyed that. Now, Robert, before we jump to our final question from Akon, I want to give a quick shout out to Masterworks. I was actually looking at a State Street analysis from a few days ago, and I saw that half of financial advisors are now allocating to alternative investment strategies. And over two-thirds of millennials are investing in alternatives as well. And these advisors are saying that they're diversifying with alternatives because they want to reduce exposure to public markets and find alternative sources of returns.

23:12And, of course, there's a lot of options out there when it comes to alternatives. And obviously, we're not art experts, but that's kind of the point. We've both been using Masterworks' art investing platform to diversify our portfolios for five years now because it's easy to do and you don't need an art history degree. Both of us invest with Masterworks, the sponsor of today's episode, and we've actually interviewed the founder and CEO, Scott Lynn, on the show. With Masterworks, you don't need to spend millions or invest into multi-million dollar art deals or go with Sotheby's or some auction.

23:42They're offering investments right now across 500 different works to date. It's awesome. They've got over$1.2 billion of invested capital on their platform. And they've exited 23 works so far, with investors realizing annualized net returns, including 17.6, 17.8, and 21.5 % on those works held longer than one year. Join over 1 million Masterworks users at masterworks.art front slash rich habits, which is also in the show notes of this episode. As with any investment, past performance is not indicative of future returns. Investing involves risk. Sale returns are not inclusive of unsold works. important regulation A disclosures can be found at masterworks.com forward slash CD.

24:28Okay. So Robert, I know this is obviously not part of the call out for Masterworks, but I wanted to log into my own Masterworks account to see how I'm doing. I'm up 38.9 % over the last two years. So you can deduce what that looks like on an annualized basis, whatever you want to do there. But when it comes to having some exposure to things that aren't the stock market, blue chip artwork on Masterworks, it's good enough for me. All right, Robert, let's now jump into our final question coming from Akin Yu. So Akin says, hey, gentlemen, I had some emergencies come up that required me to go$20 ,000 in credit card debt.

25:04I currently have$44 ,000 of stock sitting in my Schwab account that I was actually planning to sell and reinvest into some different ETFs and index funds. But after listening to your podcast about how you can't out-invest high interest debt, I'm wondering if I should instead sell these stocks, set aside some money for taxes, and then pay off the credit card debt. And if there's anything left over, then invest the remaining into an index fund or an ETF. Thank you guys for your time for addressing this question. Any advice you have would be very much appreciated. Robert, I'll let you answer this one.

25:36Yes, this is a tough situation that I see many people fail the test. In one aspect, you have this cash. You're like, man, I got all these stocks. I have all this money. But you really don't. Because over here, you have this high interest debt that is eating you apart. And so I always look at it. You're absolutely right, Akon. You cannot outinvest high interest debt. So assuming that these credit cards are at 25%, 30%, 32 % interest rate, you're never going to win this battle. I think you're spot on and you already know the answer to this question, this situation. I would sell what you need to sell, set aside the money for the taxes, get this high interest debt paid off.