182: You’ve Invested Your First $100K, What’s Next?

26:35And the surviving spouse can't cover the mortgage or the bills or the kids' expenses. This stuff is real and it's happening every day, even to smart people, because they never got around to handling it. And I think the biggest reason, Austin, is so many people think when it comes to structure for building their net worth, that they wait until they get the net worth to$2 million,$5 million,$10 million. Then they start handling the structure. They start thinking about the will, the trust, all of these things that are so important that we've been talking about in the Rich Habits Network for years.

27:08And they just don't get around to it because they think that's a thing for older people that already have the money. That is absolutely incorrect. You want to start this stuff early and make sure you maintain it and grow it over the years so you have structure in every form of your financial life. So let's break this down into three specific things that I think everyone at the$100 ,000 plus stage should have in place. First and foremost, estate planning. And I know you're 28 years old. You don't think you need a will. But if you have assets as you do now, you need a basic estate plan. a will, updated beneficiary designations on all your accounts, and ideally a conversation with an estate planning attorney.

27:52This doesn't cost a fortune. Basic estate planning can be done for a couple thousand dollars and ensures that if something does happen, even though you're younger, your assets go where you want them to go and not where the state decides they want them to go. Because trust me, you don't want your assets ending up in probate court because many times It costs thousands of dollars and it ties everything up for 8, 10, 12, 15 months. You don't want that. Yeah, the second thing here, and I think this is major. I recently did this. That's an umbrella policy. Single most underrated, underpriced, honestly, financial product in existence.

28:28An umbrella policy sits on top of your auto and homeowner's insurance and provides an additional$1,$2,$3,$5 million of liability coverage. It covers you if someone sues you for a car accident, a slip and fall on your property, defamation, right? Situations where the underlying insurance limits get exhausted. The cost is very cheap. A$1 million umbrella policy typically runs a couple hundred bucks. I have a$5 million umbrella policy. It costs me less than$1 ,000 a year to keep it. Less than$1 ,000 and I have a $5 million umbrella policy for liability. Like why? If you're listening right now and your net worth is$200,$500,$1 million.

29:10Why do you not have an umbrella policy for$500 a year that's for$2 million or something? You need to be thinking about this stuff. You've spent years building it and you're one accident away from something bad happening. And when you say, oh, it might not happen to me, you could be right, but it might happen to your wife or your husband or your child. I explicitly remember growing up, Robert, I had a friend, they were very wealthy. Their parents were very wealthy, both doctors. And that friend got in a car accident at 16 years old. And the car that they crashed into was a woman who was pregnant and she lost the child.

29:45And they went and they sued. And I don't know all the details there, right? But that could happen, right? Stuff like that happens. And if you don't have the right liability coverage in place to protect yourself, if or when, God forbid, that stuff happens, you need to. And it's not just you. You could be careful. You're right. But your spouse might not be as careful and your children might not be as careful. I have a boat. I got the liability, the, the, what is it? The umbrella because of my boat. What if someone on my boat does something silly and they hurt themselves and now they want to sue me for something?

30:17No, like I just, you gotta be protected, Robert. You gotta be protected. This is so, so important. And I'm going to linger just for one more minute. I witnessed, I was there at a party, a birthday party, a very close family to me. They're very high net worth. A kid, let's, I think he was 17 years old, offered the mother to load the water jug, one of the glass water jugs that goes in the stand. And he dropped it, tried to grab it as it broke, cut his hand wide open. They put a wrap around it. He left. They went and took him to an urgent center. They sewed it up, whatever. The family sued and won.

30:52And they got a tremendous amount of money out of it. When the kid did the offering, they didn't have the umbrella policy. And it was just a simple little accident. So that is why this is critically important as you build your net worth, protect it. It's not what you make, it's what you keep. And that is so important along the way. I've had an umbrella policy for probably 25, 30 years now. And you could say, well, you haven't used it that many times. It's probably not worth it. Trust me, it's worth it. You'll sleep a lot better at night, especially if you have kids over your house, or maybe you have a pool, whatever it is, you want that protection.

31:29So let's get on to number three. If anyone depends on you for your income, you need term life insurance. Term life. Term. Remember that. Not whole life, term life. A 20 to 30 year term policy that covers 10 to 15 times your annual income. If you make$100 ,000 a year and your spouse and kids depend on that income, a$1 million to$1.5 million term life policy ensures that if something happens to you, your family's financial life doesn't collapse along with you. And term life is shockingly affordable as well, especially when you're young and healthy. We're talking$30,$50 a month for a 30-year-old getting a million dollars in coverage.

32:11So there's no excuse not to have this. Could not agree more. Term life insurance, very important. I used sureance.com. Shout out Russ and Robin. They helped me get onboarded and all that stuff. insurance.com slash rich habits. You can call them, Russell pick up. He'll say, hey, how's it going? Let me help you find a policy. They did some stuff. I'm now with Prudential, but they brokered it. They figured it all out. I had no idea what I was doing. I just know I needed coverage. I've got a$2 million policy and I spend 40, 50, 60 bucks a month on this. Term life insurance, if anything happens to me, it's all figured out.

32:48If you're listening right now and anybody depends on your income in your household, right? What happens here is you die, your income goes away, your beneficiary of this term life insurance policy gets the$1 million or$2 million. They then put it in the stock market and they do the 4 % rule, right? So then they can begin to kind of supplement where your income disappeared. They're now able to supplement that. So again, that's assurance.com slash rich habits. We'll have a link in the show notes below for it. best people to do this, best deal. We cannot recommend them more. Please do not put off the umbrella and do not put off that term.

33:25Both are so important, Robert. So here's our rule of thumb for protection. If losing it would set you back more than five years financially, insure it or protect it legally. Your life, your liability, your assets, your estate plan. These are four corners of financial protection and every single one of them should be in place before you start aggressively building beyond that$100 ,000. The people who build lasting generational wealth are not just good at growing money, they're good at protecting it and keeping it. 100 % Robert. So let's bring it home. Let's bring it all together. You've hit your$100 ,000 invested, you've built the base, the foundation solid.

34:02Now it's time to think bigger and move intentionally. Strategy one, diversify beyond the stock market. Bitcoin, precious metals, real estate, alternative assets. So your entire net worth is not in just US large cap equities like Apple and Amazon, right? Strategy number two, make some of those asymmetric bets. Two to 5 % of your portfolio into high conviction, pre-IPO opportunities inside the Rich Habits Network where your downside is capped, but the upside could be life-changing. Strategy three, invest in some cash flowing businesses. Put your capital to work in real operations that pay you every single month.

34:38Think laundromats, service businesses, anything with some recurring demand and simple operations. And then strategy number four, most important here, protect what you've built. Have an estate plan. Get an umbrella policy. Get some term life insurance from assurance.com. These cost nothing relative to what they protect. The first$100 ,000 was all about discipline. The next phase is all about strategy. You've proven you can save and invest. now prove you can think like an owner, diversify like an institution, and protect like someone who plans to be wealthy for decades, not just for the moment. The base is built.

35:18Now we want you to go build the empire. I love that, Robert. What a wonderful, wonderful episode. So Austin, before we go into our Q &A, Capgemini just released the 13th edition of its World Wealth Report this month. And according to the report, the wealth of high net worth individuals grew almost 9 % last year, the strongest pace in five years. The rich got richer, but buried in that report is an actual rich habit. Capgemini surveyed 6 ,500 wealthy investors and nearly half of them named the same priority, fractional ownership of real assets, something we talked about in this episode. Not just more index funds, but share of real scarce things.

35:58And outside of the report, this is exactly what our sponsor Masterworks does. And we've been invested with them for years now. They're opening a market that's shown to move independently of equity for 30 years. That kind of independence is really hard to find right now. And that's why we love Masterworks. With Masterworks, you can invest in shares of museum quality, post-war and contemporary artworks featuring Banksy, Basquiat and Picasso without spending millions of dollars. Over 70 ,000 members have invested more than$1.2 billion across over 500 artworks. And across 29 exits to date, investors have seen net annualized returns like 16.5, 17.6 and 17.8 percent, not including those unsold.

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37:24Links in the show notes below. Investing involves risk. Past performance is not indicative of future returns. See important regulation. A disclosures at masterworks.com slash CD. Masterworks is great. I use them. Robert's used them. We've had their CEO in the show. Like Masterworks is a awesome platform, which is why I recommended it earlier in this episode. If you can find another cool way to invest in art, let us know. I have no idea. They are the best. They are the like, they're the ones. Like it's so cool. So shout out Masterworks. Thank you for supporting the show. We think they're great.

37:54Robert, let's jump to our questions. Our first question here is coming from Chase on Instagram. Chase says, hi Austin and Robert. My new question is I'm dealing with a 1099 job. As a 1099 worker, I don't have consistent flow of income as it depends on my sales. How should I budget if I don't know exactly how much money I can expect to earn each month? Is there a rule of thumb or a strategy that you recommend? I'm 20 years old, going to college, working full-time in the summer and part-time during the school year. I want to start investing toward my future, but as I'm starting this 1099 job, my income is just very inconsistent.

38:27So I feel hesitant to invest because I want to make sure I can pay my bills first. Chase, great question. You're totally right. There is a sort of strategy around this. We talk about having that emergency fund of three to six months of expenses, but that's for people who are, you know, they have a lot of visibility into their monthly income. Maybe they're on salary and they know they make six, seven, 10,$12 ,000 a month. And that, I mean, there's no reason they're going to get laid off. So that income just is very consistent. If that's the case and you're listening right now and that's you, three, four, maybe five months of monthly expenses is in your emergency fund and you're good to go, right?

39:03Shouldn't take you more than three, four, five months to go find another job in case something happened to you. Now, if you're like myself or Robert, or maybe you work in sales or maybe you're a real estate agent, something of that nature, and you have lumpy income, what we like to think of is six, maybe even more months of expenses, depending on just how lumpy that income can be. So for example, if I were in your shoes, I would say, okay, I would lay out a piece of paper and I would have my budget in front of me and I'd say, okay, cool. I've got my honest budget. Now I want you to divide your budget between essential spending and non-essential spending.

39:36Essential spending is stuff that you have to buy to survive. Your rent, gas in your car, insurance, groceries, right? Like things that you need. And if your essential spending is, I don't know,$2 ,500 a month, okay, great. You now know that you need at least$2 ,500 a month to survive. Your Netflix subscription, eating pizza on the weekends in college, buying beer at the bar and like all that's your clothes, your shoes, all that, that's non-essential spending, right? You don't need those things to survive. So as you think about as a 1099 worker having lumpy income, you would say, okay, I need to go figure out now, one, am I going to have this$2 ,500?

40:16If yes, cool. I get to survive this month. Everything above that now goes to that non-essential, but maybe for months that you are below the $2 ,500, that's when you tap into that emergency fund. Well, how much do I have in my emergency fund? It totally depends on how often you think you'll need to tap into it. Obviously, you have this lumpy spending or lumpy income rather. So if I were you, I'd really consider to have a beefier emergency fund than not, especially if you're only working part-time and you have this bigger number you need to hit. But if I was someone that was even out of college or whatever's going on, that's how I would think about it, right?

40:47Essential spending. How much do I need? And then if I'm going to hit that, great. If not, I need to tap into the emergency fund. And if I'm way above it, then I need to use the surplus to fill back up the emergency fund. But Robert, I want you specifically to answer Chase's question around having inconsistent income like this. How does Chase know what should get invested and what should not get invested? Because from my perspective, I'd say if it's over that essential spending, then yeah, go invest it. But if it's below that essential spending and you're tapping in, you shouldn't be investing if you can't pay your rent.

41:18Yeah, I really like your breakdown and I think it's really, really good. And one kind of psychological mindset hack that I've used for decades is I try not to look at it when you have that lumpy income as a dollar amount. I try to look at it as a percentage. So if you have one month where you make$2 ,500 and I want to have 10 % go to investing, you know, after I've got that emergency fund built, then I know that 10 % is$250. But maybe the next month, because I sold cars, it was very lumpy. It was up and down. and the next month you might only make$1 ,750, but if you can still do that 10 % and do$175, then you're taking the thought process out of it so you don't go, oh, I had a down month.

42:03I'm not going to invest. Even though your essential spending might only be$1 ,200 a month, you want to make sure it's spoken for, and I think a good practice is by doing it as a percentage of whatever the income is, get the essential stuff, the emergency funds set up, and whatever's left over, try to work from a percentage because you don't have that regular income where you can define it every single month based on dollars. Our next question comes from Danielle. Danielle says, Dear Austin and Robert, my husband turned me on to your show last year and I've been hooked since I'm a 53-year-old ER nurse.

42:38I love it. This is a late career starting for me here about seven years ago, at which time I began contributing to a 403B account, which my company does not match. I allocate 10%. I have just over$200 ,000 in this account, as well as a pension of about$47 ,000 due to your show, a new Roth account contribution of 5%, as well as a bridge account with$25 ,000. Let's go. Good job. That's great. Emergency fund is set up too. My husband's 51, medical sales rep with a 401k of $300 ,000. Question. We purchased a second home two years ago, and now we're renting out our previous home, which we now have 10 years left on the mortgage at a 2 % interest rate.

43:17However, since we're so far behind in retirement, we're mulling over the idea of selling this previous home, profiting$400 ,000 and investing it into the stock market and into our retirement accounts, or continuing to rent it out for the next 10 years. And then once the mortgage is paid off, we'll bring in$3 ,500 to$4 ,500 per month in that retirement phase of our lives. We do not have a property management company, but the house will need a new HVAC system soon. Should we keep the house or should we sell the house? Robert, what's your take? This is a tough one. They've done a good job getting where they're at.

43:57Yes, it would be nice right now to have the$400 ,000 invested if they sell the house, but here's the things that want to make me say I think they should keep it for a while longer. Number one, it is not a great housing market right now. So you're not going to get top dollar for the house because interest rates are so high and people are sitting on the sidelines. So you might be able to sell it if it's an area that's hot and it's growing or whatever. But my indications of doing real estate every day like I do is that I would probably wait from selling until a better market condition for buyers.

44:32Because then you might find yourself in a bidding war to get this house in which then you make more money and you're in a better position. The second part of this of why I'm leaning towards taking the house, 2 % interest on your mortgage and only 10 years left. So if you kept this house for 10 more years, you've got really low mortgage rate. You've got the capital appreciation. You've got the current rental plus the rental increase. I don't know where the home is, so I can't figure out and calculate what the rental increases are for that home every year. Let's assume it's a general area in Ohio or Indiana or somewhere, and maybe it's 5 % a year.

45:10So you've got capital appreciation plus the 5 % plus the low interest rate, really making it favorable for you that by keeping it, you might make more from the property than you would putting it in the stock market, especially because this will be a taxable event if you sell the house. That's my take. I wouldn't worry too much about the HVAC system. I assume that's going to be five, six,$7 ,000 to put a new system in. So that's not a big deal to worry about, but that would be my take given the information we have. I like that take, Robert. I'm looking at the math here,$572 ,000 invested using the exact number she shared.

45:48So let's call it 575. She's 53. Her husband is 51. She's contributing 10 % of her salary every year. I'm sure he's contributing as well. This money is going to double every seven years. You all shouldn't feel weird, like you're struggling with this idea of being so far behind in your retirement. You're not far behind in your retirement. You're going to retire at 65 with probably one and a half to two and a half million dollars, depending on how aggressive you get and what the stock market does. One and a half to two million, two and a half million is a great amount of money to retire off of, especially if the house you're living in right now doesn't have a mortgage.

46:26So that's not like the big question to ask is like, do you plan to retire? You mentioned the second home two years ago. Do you plan to pay off that second home when you retire? Because let's say you don't and you have a mortgage of $3 ,000. Okay, well now that's$36 ,000 a year of portfolio income you have to come up with. Then you have a$2 million portfolio, you're making$80 ,000 a year on it with the 4 % rule. So now call it 40 ,000 of that 80 ,000 is already allocated to this mortgage. Think utilities and property taxes, all that stuff, insurance. So now you can only live off of$3 ,500 a month.

47:00That's not that much to live off of in retirement. So that's interesting. But on the flip side, let's say that when you do want to retire and call it 12, 15 years from now, this home that's paid off in 10 years, this first home, the previous home that you're renting out and making$3 ,500 a month on, maybe you use that cash flow from that to pay for your existing mortgage or you sell it when market is much better, like what Robert was alluding to, and you sell it and you profit$450 ,000,$500 ,000,$600 ,000, use that money to pay off your existing mortgage. And now you've got a big old buttload of cash in your nest egg here and you have no mortgage.

47:35So there's a couple of ways you can kind of put this together where you do retire with a massive seven-figure nest egg and very low living expenses in retirement. And I want to add one more thing to this. I did some math and some research while Austin was giving a great answer. And the median retirement savings for couples between 45 and 54 is right around$115 ,000 to$200 ,000 in retirement combined income for that household. You guys are way ahead of that. So you've got to lose that mindset that you're behind. Yes, you're kicking yourself because you didn't do more sooner, but you're still ahead of the masses.

48:15And you're in great shape because you do have the equity in this property. And that property could go on to make you money for decades to come. So I just wanted to add that. Yeah, don't be average or median because average and median is broke here in America. You listen to the Rich Habits podcast, so that's not what you're doing. Our final question comes from Tyler on Instagram. Tyler says, Hey, Rich Habits team, huge fan of the Q &A segment, and I listen every day. Thank you for all your great insights. They've helped me build wealth over the years. My wife and I, ages 25 and 26, have$100 ,000 invested, and I graduate with my master's in statistics next spring, and my wife will transition to be a stay-at-home mom very soon.

48:53My dad is a big fan of the die with zero strategy and is gifting us$100 ,000 strictly for a home purchase. T-bills are okay temporarily, but strictly no stock investing is allowed with this money. We're open to house hacking or other ideas, but have zero real estate experience. So my question is, to maximize our wealth building while simultaneously staying safe, should we put a large percent down to minimize our mortgage or a small percent down to maximize the property we can buy. Robert? Yeah, my take here is obviously your father is a Bill Perkins fan. I don't agree with the die with zero formula, especially if you have kids, but that's okay.

49:34In this instance, I would not buy the house based on the amount you're being given. I would buy a house that is within your means. And I would put more money down given that you're getting that$100 ,000, but I wouldn't use all$100 ,000. Here's why. So many people buy too much house. They have to furnish the house. They have to do all these things. And then they don't have any money left over for if the roof happens, if a water heater goes bad or something else happens in the first couple of years, then you're putting it on credit cards. You're taking out of your emergency fund, whatever it may be.

50:11So for me, I probably use 60 or 70 ,000 of it as my down payment and closing costs for the house. I wouldn't buy too much house in the beginning because you guys are young. You can always get another house later, a better house down the road. And then I would probably keep 20, 30 or$40 ,000 of that money. If your father will allow it in a sinking fund, high yield savings account. So you have a backup plan in case anything happens. Yeah. I think if I were in your shoes, I would buy as little house as I can with as much down payment as I can while simultaneously being cognizant that I will probably need$5 ,000,$10 ,000,$15 ,000 for repairs or maintenance or things like that.

50:55You mentioned you have no real estate experience. Something's going to pop up and you're going to be like, I have no idea what's going on. I'm just going to hire a plumber. I have no idea what's going on. I need to do something or something's going to happen. So if I were in your shoes, I'd say, cool, let me go see if I can buy a$350 ,000 house. Put$80 ,000 to$85 ,000 down on that. Borrow, call it$250 ,000-ish or less. Have a monthly mortgage payment of$2 ,000,$2 ,500. Now, interest rates at 7%. But figure out a low mortgage payment and then have$5 ,000,$10 ,000,$15 ,000 set aside with your dad's permission for when things happen around the house, as they will.

51:32You've got a little bit of a buffer between you and a leaky roof or something that will inevitably happen. I love that take, Austin. What a great episode. I hope people love it as much as we loved putting it together because we just always want to give people as much good value as we can within the podcast and the Rich Habits Network, of course. And I just had so much fun filming this. So did I. Please, Rich Habits Network, go check it out. We talked about the pre-IPO deals, but we're being serious. The Rich Habits Network is the coolest way to get access to some of these pre-IPO companies before they go public.

52:08I mentioned SpaceX four times before the IPO. We mentioned this BCI company we're investing in right now. We just closed another pre-IPO investment a week or two ago. So we're doing fun stuff at least once a month over in there. Definitely go check it out. Plus, you get eight hours of video coursework and access to Robert and I every Tuesday night in our weekly live stream. And we host office hours on Fridays, where we're just kind of like hanging out and chatting with you all as friends. It's just whatever you want to do. Just join us, hang out, seven-day free trial. You get to test all of it out for seven days completely for free.

52:42And if you don't like it, then you just quit the trial and you come back to listening to these episodes and there's no hard feelings. So go check out the Rich Habits Network. Google Rich Habits Network. Click the link in the show notes below, whatever you got to do. And as always, thank you all so much for supporting the show. We'll see you on Thursday for our Q &A episode.

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