23: Our Biggest Financial Mistakes & How to Avoid Them

0:00Hey, everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast. on Spotify. My name is Austin Hankwitz and as always I'm joined by my co-host Robert Croak. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. As the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset.

0:38However, we try and bring you two unique perspectives along the way. One perspective from an industry veteran, which is Robert, and the other perspective from myself, someone who's still in the process of building wealth and figuring it all out. So Robert, what are we going to be talking about in today's episode? In this episode of the Rich Habits Podcast, we're going to be sharing our biggest financial and business mistakes that have happened throughout our careers. So many of you in our live streams and in our DMs have asked us to share with you these stories. And wow, do we have some good ones.

1:11And one of the key things here that I want to put out there is thinking about mindset. making sure that as you guys listen to this madness of these stories that you realize that through your careers as you're growing your businesses and growing your wealth that there are always going to be ups and downs and the key is to understand and learn from the mistakes and the pitfalls of growing your portfolio growing your businesses and really just understanding that it's not all rainbows and unicorns and sometimes things just go wrong and you have to pick up the pieces and keep moving. I'm excited. Let's hear about some of these stories.

1:48Kick us off with the first one. So we're going to go way back here to 2010. So picture this. I hire the most brilliant person that I've ever met. I bring him on board and his job, just like in Billions, the TV show, his job is to tell me what is next, where to put my money, and how we're going to multiply my money faster and with new technologies and projects. So the story goes in 2010, he came to me with a simple document. He said to me, Robert, I've got our next project and I want to open a Bitcoin exchange. So I was like, great. I don't know anything about it. This is 2010. Remember, I don't know anything about it.

2:30Talk me through it. So he talks me through it. He's like, hey, Bitcoin is cryptocurrency. It's the future. It's going to be amazing. Right now, there's a lot of negative press around it. But in the future, it's going to be fantastic and it's going to really disrupt a lot of different categories in our financial world. I was like, great, sounds good. What does this cost me? So this is where it gets fun. So he says to me, he goes, hey, here's the breakdown. We go through the breakdown. Ten thousand dollars we're going to use to populate the website, the exchange. So we're going to buy ten thousand dollars worth of Bitcoin.

3:03So think about it this way at that time a bitcoin was six cents a piece so i think the math on that is 166 ,666 bitcoin would have been purchased with the 10 ,000 the other 5 ,000 would have been used for the website insurances and different things that we would need to hire an assistant to help us get the bitcoin exchange up and running so here's where the story gets good i didn't do it i was nervous I didn't know enough about it. So I went to my accountant. She was like, oh, I've never heard of it. Don't know what to tell you, but it sounds illegal. Then I went to one of my prize lawyers and friends.

3:41He's like, I would never do it. Bitcoin's never going to be legal. And I was like, man, my heart and my gut just said I should go forward with this. It's only$15 ,000. I can certainly afford it. If it goes to zero, whatever, who cares? It's worth the risk. So then I said, all right, let's do this. I hire an SEC lawyer that works out of Las Vegas. That's where I was living at the time. And I meet with her. We go through the Bitcoin and the exchange and what it looks like. And she said, look, if you want to light$15 ,000 on fire, go for it. You can afford it. I personally wouldn't recommend you do it unless you were going to set up an offshore account or you were going to do it in another country and have it in a holding company because it's just simply too dangerous for you to do personally.

4:29So that's the story. And so the key takeaway for me over the years and the learning curve from this experience was really all about you should never ask people that are unqualified to give you the answers to the questions you're asking because these people didn't really know what Bitcoin was. They weren't qualified to answer the questions but instead I took their legal advice and I didn't do the project and it forever changed the trajectory of my financial life. When you're building your business and you're building your portfolio, you're on your wealth journey, you have to be very careful who you listen to.

5:08So you don't want to listen to the barber, you don't want to listen to Uncle Bill down the street, you just really want to go to qualified mentors that can help you that understand the category or the sector or the technology, and they're going where you're going. Because if you ask the wrong people, a lot of times you're going to get talked out of doing a project that might change your life and your family's life forever. Yeah, I think this really resonates with people who might be closer to my age, right, in their 20s and 30s, kind of going to their parents for that first financial advice. For example, my dad never really understood investing, neither did my mom.

5:45And so I can remember very vividly back in college and after college, when I really started investing, I said, hey dad, what do I invest in? What do I buy? And he's like, I'm not, you know, these little ideas and things. And, you know, I really respect my dad and his opinion, but he wouldn't be qualified to talk on those topics. So I think at the end of the day, to your point, Robert, maybe it's not a good idea to listen to your barber about how to invest in real estate. There's a ton of different people who have an opinion. The people that are actually qualified to give you advice on that specific topic are the ones that you should be listening to.

6:16So I know we've got a second story teed up. I want to hear about this one. I think it has something to do with silly bands. Yeah, this is a wild one. And I hope everyone listening is sitting down because it'll tear at your heartstrings a little bit. So let's think silly bands, height of silly bands. Everything is going incredibly well. We have thousands of employees. We're making so much money. Everything is going great. I'm scaling a company bigger than I've ever scaled a company. Again, this was 2011. So right around the same time as the Bitcoin story. And I get a notice in the mail. And Becky walks it over to my desk and hands it to me.

6:50And it's from the federal government. And in this letter, they simply state that silly bands are no longer going to be able to be sold without a tariff tax. So this was interesting to me because I started reading up on it. I called my lawyer and we're talking about it. And they're like, no, silicone doesn't have moving parts. It doesn't have electronics. This should be a mistake. Silicone should be a zero tariff. That wasn't the case. The federal government decided that because silly bands were such a huge product at the time, remember, the craze was madness. And because we were importing so much silicone product that they felt they needed to get their piece of it.

7:28So what happens? We go through the motions with the federal government. We're saying, OK, it's five and a quarter percent. We can afford that. We'll just eat the cost moving forward and we'll continue doing business as usual. No, no, no. That was not the case, Austin. And for everyone listening, the federal government decided, hey, we're going to initiate this tax, but we're going to go back two years. We're going to make it retroactive. So the next step was I all of a sudden get a bill in the mail for$423 ,000 from the federal government. And they were like, Hey, this is what you owe us in back taxes for the new tax we just created.

8:05So we're sitting there, the lawyers get together. We're going, what do we do here? This is ridiculous. We can't pay that. That's just unreal. And it's unfair. And so I'm sitting there thinking wait a second this can't be right UPS was our provider at the time and UPS is the one that created the tariff code that we use so they're like oh wow that's true you didn't pick the tariff code so why should you be paying this debt we'll come to find out that yes UPS picked the tariff code but in the back of their 30 page contract that I signed in the very very small print that you would never ever read until you listen to this podcast was a disclaimer that states that if for any reason the legal language their tariff is incorrect or causes any kind of duress or financial problems for the receiver of that tariff code UPS is indemnified so this was a groundbreaking I'm going what the hell how can this be possible they provide me the tariff code They provide the shipping, but now they're saying they're indemnified and I'm the one stuck holding the bag and paying this$423 ,000 bill.

9:14So that leads to the mindset part of this. You have to learn to shake it off and keep going because through your career, there's going to be ups and downs. It's not all rainbows and unicorns like the fake gurus want to tell you. And the main takeaway that I want to share here with the listeners is read every damn inch of your contracts. I dealt with a contract just the other day where I told the lawyers there had to be a change in the majority voting rights part of the contract. They told me it was done. And at midnight, I almost signed it on DocuSign. I'm like, you know what? I'm going to double check that they actually did it.

9:50And they hadn't. So the moral of the story here is as you're on your journey, you're buying businesses, you're building businesses. Make sure you read every line in a contract because you never know the egregious nature of the other party and what might be in that contract to protect them and not you have a favorable contract that is in the spirit of what you agreed on. Robert, how do you see holding companies and LLCs and things of that nature kind of play into this lesson that the story is teaching our audience here? That is one of the best questions you could possibly put out there for our listeners.

10:29So yes, how I see it is very, very important. As you grow, have the LLCs as the base layer for each different business or property, then into the holding company, then from the holding company into the revocable trust. And why this is so important is you've all heard this phrase, but if you haven't, I'm going to say it again. You want to control everything and own nothing. And what this means is by having the LLCs, having the holding company, having the trust, this gives you more and more layers of isolation and anonymity. And this is so important when you're building your wealth because these protective layers keep you in a much better place from an inside attack or an outside attack.

11:17So you never have to worry about losing your house or your cars or your personal money because something bad happens to one of the LLCs. And that is why the structure with integrating the holding company and the trust is so important as you build your wealth. So as someone here who is in his late 20s, I'm still building my businesses. I'm still figuring it all out. I have taken this advice to heart, right? I use a company called Buffalo Registered Agents. They're out of Wyoming. And through them, they are who file my LLC for me. They are the ones who get my EIN. They're my registered agent, right?

11:53They do it all for me. They're taking my mail. They're acting as the secretary of my LLC, which keeps me anonymous. There's a ton of different reasons why I recommend a lot of people to use a registered agent. I use Buffalo Registered Agents. There's a website. Go check them out. It's very affordable. But to Robert's point, it's incredibly important for everyone to have their ducks in a row, the papers signed, the T's crossed, the I's dotted, everything figured out in case something does happen. You are doing the most you possibly can to make sure that a mistake does not turn into a catastrophe.

12:26Keep that in mind and write that down. The registered agent is very important when setting up your business structures. So this brings us to our final story, Robert. What's the last one here? I'm really excited to hear it. Well, this one is real estate related. We see so much content every day about real estate and it's all rainbows and unicorns. You can buy these properties. You never have to visit them. It's passive. you can just put it in the hands of technology and contractors and yeehaw and just make all this money and I'm here to tell you it is nothing like that I've been in real estate for over 30 years I've done commercial I've done multi-family I've done single family home flips long-term rentals you name it I have done it and I will tell you this make sure you do things the right way and have all of your paperwork in order so let's go into story number three today so this was a few years ago I bought a four unit quadplex and it was multi-level two units on the bottom two units on the top we spent probably eight months renovating it it was a Victorian home four units it was absolutely stunning we get it done we get it rented and I didn't probably do the best job in vetting the tenant which now we have a lot better tools which is nice because back then let's call it five, six, seven years ago, the tools weren't as great as they are today.

13:48So fast forward a few months, it's fully filled, brand new, full renovation of this Victorian four-unit apartment complex. And one of the tenants was three months behind. They wouldn't pay, and we went through the eviction process. So what do they do? Picture this. It's the middle of winter. It's freezing cold. There's snow on the ground. And they were pissed off because I finally got the eviction done and handled and posted to their door. So they had three days to get out. So what did they do? They took hammers. They took bars. They took furniture. They broke in all the walls, busted the pipes, punctured all of the drywall, and completely trashed the place, and then turned all the waters on and flooded the entire building.

14:33So what happens now? We had to call the insurance. We had to call the police. I had to file all the paperwork. And then we had to move the tenants out of their current places because it flooded throughout all the way down to the basement and the damage was so severe that we had to displace these tenants for like a month and a half to be able to get everything repaired and get them moved in. And that was just for the three units. The fourth unit had to be completely renovated. They did so much damage. So that one took us about six months to get back in order and be able to put a tenant back in it.

15:07So the moral the story here is make sure that when you're getting into real estate, have your ducks in order, make sure your paperwork is great. Use all of the latest tools like Gusty, e-Renter, Rent Ready, and make sure you properly vet your tenants. Talk to old landlords and really do your diligence because you're going to be excited. You're going to want to get it filled and be like, yes, I got my first property. It's up and running. It's filled. But the nightmares begin when you don't have the right tenants. So I want to make sure everyone listening understands, take that little bit more time, really vet the tenants, and you'll be in a lot better place financially and for the headaches that you will endure if you get bad tenants.

15:52I mean, it's kind of like making an investment to make sure you don't lose money down the road, right? I'm sure these platforms aren't free, so maybe you're spending a couple hundred dollars doing the credit checks, doing the background checks, things of that nature, but I'm sure, Robert, you would have rather spent a couple hundred dollars to make sure you put the right tenant in there than have to lose tens of thousands of dollars repairing the property after the wrong tenant damages it. So I think it's all about figuring out what's that sort of yin yang, what's the right amount to invest into making sure that I don't make a bigger mistake in the future.

16:23Kind of comes back to our last point, making sure that the mistake stays a mistake versus a catastrophe down the road. With that being said, Robert, let's introduce this episode's sponsor to our listeners. This episode of the Rich Habits podcast is brought to you by Neos Investments. Neos offers ETFs that aim to offer monthly income while providing core portfolio exposure across equities, fixed income, and cash alternatives like T-bills. Their ETFs may be particularly interesting for folks looking to generate passive income inside of their investment portfolio. They even offer an ETF that provides exposure to the S &P 500 index while aiming to offer high monthly income beyond what investors would receive from plain exposure to the index.

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17:42NEOS ETFs are distributed by Foreside Fund Services, LLC. An investment in NEOS ETFs involves risk, including possible loss of principal. The equity securities purchased by the funds may involve large price swings and potential for loss. A fund's income may decline when yields fall. Fixed income securities will decline in value because of an increase in interest rates. Well, with that being said, let's jump into our first question of our Q &A segment from Max M. And by the way, if you have any questions for us, shoot us a DM at richhabitspodcast on Instagram. I spent last Sunday getting back to, I think, 80 people who didn't make it to the episodes.

18:22but still ask questions anyway. So keep them coming. I'll get back to you regardless. So Max M asks, I'm a huge fan of the podcast. I actually just found you guys when you were co-hosting a TikTok live stream last Thursday. I'm really glad I tuned in. Yes, we do that on Thursdays. Tune in. I'm currently living with my parents, so my expenses are low. I'm saving about$2 ,000 per month and investing about$500 per month. Should I flip-flop these? Should I be investing the larger amount while saving the smaller amount considering the S &P 500's historical returns? Really good question, Max, and I think it all comes down to your personal finance goals.

18:55You mentioned you're living with your parents. I would imagine that's probably not your end game, right? You probably want to get an apartment of your own. You're going to get yourself a lease or you're going to rent something or perhaps even go purchase a house later down the road. So I would be thinking about, okay, I've got this$2 ,000 a month that I'm saving. What is that savings goal? What are you saving the money for? Now, sure, you might be saving it for some sort of emergency, which is great, right? You should have three to six months of expenses saved at all times if you can. after you've kind of hit that three month mark, four month mark of expenses, what is the money on top of that being saved for?

19:28I would argue it should be saved for perhaps having that first and last month down for the rent so you can move out your parents, you know, a down payment for a house, maybe get an FHA loan. You should not be just saving to save, right? You should be saving for a specific goal. You should save up to a specific amount of money because it's gonna cover your expenses. And then on top of that, once you've hit the goal, then you should be saying, okay, I still have this$2 ,000 a month. I'm gonna pile that into my retirement account. I'm going to pile that into the stock market, VOO, VTI, QQQ, VGT, and the other ETFs we really like.

19:57Find yourself a goal, hit that goal, and then once you've done that, begin to flip-flop and start investing aggressively. I love this question, and Austin, that's an incredible answer. Max M, I couldn't agree more with everything Austin said, and my only takeaway would be have a plan and execute the plan. So what you should be thinking about once you have that savings built up for your emergency fund, and you've got your Roth IRA set up and it's maxed out, then you've got to start looking at what is my next move and what is my two-year, five-year, 10-year plan? Because everyone on their wealth-building journey should have a plan and most people don't.

20:34Our next question comes from Scott N. Scott says, I understand your investment philosophy. Don't invest while still having high-interest debt, but I'm ready to begin investing aggressively now. What percent allocation should I have toward low-cost index funds like VOO, VOO, VTI, and QQQ? Scott, and I really like this question, so let's dig in. Here's how we're thinking about percentage weighting for your long-term retirement investing. With VOO, I would have that make up about 50 % weighting of your portfolio. Then QQQ, I would have make up another 35%. These two are the leaders. You're going to do really well with them.

21:12Make sure you do your own research. And then VTI could make up the remaining 15 % considering over the last five to 10 years, it has moderately underperformed the S &P 500, but you want to have that variety and diversity of markets. Now, if you're wanting to instead be a bit more aggressive, you could also include AIQ. Everyone listening knows I love AIQ. I think it's a great place to be with some of your money. And it's one of our favorite artificial intelligence ETFs. Or you could even look at VGT, another incredible technology ETF by Vanguard. This is a great place for you to start. And I think you're really on the right track.

21:51Totally agree, Robert. I think that call that you had about the diversity of markets, right? VOO versus QQQ and VTI. You're right. VTI has underperformed the S &P 500 by about 5 % over the last five years and about 10 % over the last 10 years, which is very minimal. But considering that it is invested across so many different stocks, so I couldn't agree more. It's good to have that, but also not have that make up the majority of the portfolio, right? You want the majority to be in the S &P 500 and the QQQ and even dabble in a little bit into the AIQs or the VGTs of the world if you want to get a little bit more aggressive.

22:28Now, our last question comes from Allison M. Allison asks, do you recommend financial advisors? I have a few that are offered to me through my work, but I'm not sure which ones are good or not. Now, Allison, this is a really, really good question because I feel like once people kind of start getting to the ages of the late 20s, the early 30s, maybe even the late 30s, they begin to say, wait a second, do I need a financial advisor? Is it time I get life insurance? How do I know when I'm ready to move toward that sort of professional help versus just doing it on my own? So here's sort of what I think about.

23:00Everybody should be investing on their own once they get started, right? You don't need to go to an Edward Jones or some sort of Ameriprise Financial to start investing. That is a lie. You can go to betterment.com. You can go to wealthfront.com. You can go to public.com and just start investing. Open up that Roth IRA or even that individual brokerage account and just buy these index funds that Robert just alluded to, right? VOO, QQQ, VTI, and all of those. You don't need to be hiring someone to do that for you, right? Save your money, do it yourself. Once kids come into the picture, once it's time to think about life insurance, once it's time that you have 50, 100, 200,$300 ,000 into these accounts, now it's time to say, wait a second, maybe it's time for me to go consult a professional.

23:43Maybe there's a way that I should be thinking about life insurance with estate planning alongside of my 529 account, alongside these other different things to really bring together my whole financial picture so I'm moving in the right direction. That to me is when it's the right time to get a financial advisor, when it's really worth your time, energy, and focus. Now, how do you know if they're any good or not? You should be interviewing multiple financial advisors. You should ask them questions like, what are you doing with your own money? Do you have any examples of other clients that are in a similar situation as myself?

24:13What type of certifications do you have? And how long have you been practicing financial advisory? There's a ton of different questions you should be asking these people. But at the end of the day, you want to make sure that you hire a financial advisor that has the heart of a teacher. They're going to sit next to you. They're going to walk you through and explain to you what an index fund is, what term life insurance is, what a 529 account is, and all these other different really, really important tools that you should be using to build your wealth over time and make sure that you protect your wealth more importantly over time as well.

24:43So at the end of the day, yes, we recommend financial advisors, but it comes down to when you need it and how you go about finding them. Austin, that was a great recap and helping people understand their needs as they're building their wealth. But Allison, I want to add one more thing to this, and that is understanding the difference between a financial advisor and a wealth advisor that is a fiduciary. This is a key takeaway in your wealth building journey. As you start to look for financial advisory, really understand the difference between a financial advisor and a fiduciary. A fiduciary is licensed in a different way than a financial advisor, whereas a fiduciary charges a percentage of your overall assets under management for their only fees.

25:26Whereas a financial advisor that's not a fiduciary can take commissions on the ins and outs of your purchases of stocks and index funds and also can have higher fee structures. So really understand before you sign on with somebody what you're looking for and what is the best fit for you for the long term. Because with wealth advisory, especially a fiduciary, you're going to find all of those strategies in play that are going to help you for the long term to make sure you make all the right decisions in your wealth building journey and not just get stock tips or ETF tips. I love that perspective.