Q&A: $1,200 / Month Car Payment, $59K 401(k) Loan, & Owing $30K to the IRS

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. This episode is brought to you by Marshalls, where you never have to compromise between quality and price. The buyers of Marshalls hustle hard, working to bring you great deals on brand name and designer pieces.

0:42Because Marshalls believes everyone deserves access to the good stuff. Visit a Marshalls store near you or shop online at marshalls.com. Hey, everyone, and welcome back to the Rich Habits podcast, question and answer edition. We are so excited to be back every single Thursday to answer your questions via Instagram DMs at richhabitspodcast, via email at richhabitspodcast at gmail.com. And sometimes we even spotlight the questions shared inside of the Rich Habits Network because they are really good questions. As a quick reminder, Robert and I are running a seven-day free trial to join the Rich Habits Network.

1:22This means if you've been on the fence about it, if you wanted to join a live stream that we have over there, if you just want to see what it's all about, literally, it will cost you nothing. Seven days, free trial. If you don't like it, you can cancel. No hard feelings, but definitely go check it out. Yeah, I can't think of a better way to spend$77 a month because we cover it all. We give you guys all the scoop, all the insights right off the top of our dome every single week, every day in school. And I just think it's a really, really cool thing that we've built. And I'm really excited for the future as we grow more and more.

1:58And how I like to describe it to my friends and family, Robert, are this allows us the opportunity every week to give people the inside scoop into our portfolio changes, into the headlines that we think are important to pay attention on as it relates to the economy and the stock market. I mean, every week we are sharing so much information with you all. So again, 7-day free trial. There's going to be a link in the show notes below to check out the Rich Habits Network. Now before we jump into our first question in this episode, we have to remind everyone that if you are serious about investing, you need to know about public.com.

2:34On public, you can invest in everything. Stocks, options, bonds, and cryptocurrency. They even offer some of the highest yields in the industry, like a bond account that pays 6 % or higher and remains locked even if the Fed continues to cut interest rates. Now, what sets Public apart is how they give you the tools you need to make informed investment decisions. They have a built-in AI tool called Alpha, and it doesn't just tell you if an asset is moving like a simple watch list on your Apple charts. It tells you why an asset is moving so you can have full clarity and understanding as it relates to what drives your portfolio's performance every day, week, quarter, and year.

3:14Yes, and Public is a FINRA-registered, SIPC-insured, U.S.-based company that has a customer support team that really cares. So the bottom line is your investments deserve a platform that takes them as seriously as you do. Fund your account in five minutes or less at public.com front slash rich habits and get up to$10 ,000 when you transfer your old portfolio. That's public.com front slash rich habits paid for by public investing full disclosures in the podcast description. So let's get into our first question. So our first question comes from Zach S. Zach says, Hi, Robert and Austin. I listen to your podcast every week and I love it.

3:52These episodes have made a great impact on my financial planning and I thank you for that so much. Now my wife and I took out a 401k loan in 2017 to purchase our primary home. The current outstanding balance on these loans are$59 ,000 at 4.5 % interest. In hindsight, this may not have been the best decision, so I need some guidance on how we can attack the repayment. We're 54 and 50 years old respectively. We each have$200 ,000 in our 401ks, not including the outstanding loans,$50 ,000 in my Roth IRA,$25 ,000 in her Roth IRA, and they're invested into the ETFs you guys talk about. We have$10 ,000 in a brokerage account,$25 ,000 in a savings account, and most of this has been accumulated in the past eight years as our income has grown, our kids got older, and we became more financially responsible.

4:40As I mentioned before, we used these 401k loans as a down payment on our primary house. And at the moment, our balance of the mortgage at 3.5 % stands at$280 ,000, while the market value is around$680 ,000. We're scheduled to max out our Roth IRAs this year and contribute up to the match on our 401ks, although we've started a little late. I earn about$150k a year. My wife makes about$50k, so combined we're around$200 ,000 total. Now here's the question. How do we prioritize 401k loan repayments? Should we make it a high priority and attack it? Should we make scheduled payments and address the loan payment down the road when we sell the house?

5:17Should we sacrifice maxing out our Roth IRAs? How do we approach repaying this loan? Robert, this is a wonderful question. Do you want to kick things off? Yeah, I will. I love this question and I love the thought process to even create this question. So great job, Zach. In my opinion, I would just keep paying the payments as long as you're steady at your job? Because for any of you that have considered taking a 401k loan, please make sure you read all the fine print and understand that if you were to leave that position at that company, you would have to pay it off in full. So keep that in mind.

5:49But I love this question and I would just keep paying the payments because that interest rate falls in what we would call an okay interest rate. It's not high, it's not super low, But I believe over time, adding that additional money into your investments is going to outperform the 4.5 % interest you're paying on the 401k loan. So for me, it's always one very important thing. Make sure that your arbitrage, the positive arbitrage of your money is going into your pocket and not someone else's. So I love just paying the payments, keeping it as it is, keep building on the Roths, the 401ks, and keep investing along the way.

6:27Yeah, Robert, whenever we normally talk about 401k loans, there's a phrase that comes to mind, which is don't borrow against your future to fund today. We've talked about this a couple times. And essentially, all that means is do not rob future you, right? Do not borrow from your future. Allow future you to be really, really happy that you're invested, you let compound interest do its thing and you are growing wealth over time. Zach S here and his wife in this situation did borrow against future Zach and his wife but they did it to buy a primary home of which it seems like it appreciated a whole lot during this period of time.

7:06So I think they just kind of got lucky there. Normally we don't tell people to use their 401ks and borrow against them and like it's just not something we've really believed in too much. To answer the question of like how do we approach paying off this debt. So at four and a half percent interest, I largely agree with Robert that, you know, it's on the totem pole to tackle. You guys need to pay this off. I would argue in the next 24 to 36 months, what you don't want to do is stop investing to pay back this debt. In my opinion, Zach, if I were you all and you plan, you mentioned you plan to sell the house down the road a little bit.

7:43If you plan to sell the house in the next three or four years, I would use that as the liquidity event to pay off this loan. I guess what I'm trying to get at here is like, I wouldn't sacrifice maxing out your Roth IRA every year because you guys are on the older side and you really need to like, I don't want to say catch up, but like you guys need to build some substantial wealth here in the next 10, maybe 15 years to have a comfortable retirement, which means you need to be investing aggressively specifically via the Roth IRA. So if it were me, I would keep it on the back burner for a little bit, knowing that in the next two or three, maybe four years, when you do sell the house, you will use the proceeds to pay off this 401k.

8:23And then hopefully, you know, the proceeds as well of that to perhaps, you know, go buy your next house, either in cash or invest a ton of money or maybe approach that some other different way as you near retirement. And for everyone listening and watching, make sure you understand that positive arbitrage with your money needs to go in your pocket. And the simplest way to understand that is if you believe you can make 10 % in the market and something costs you 4 % to borrow, that is why the wealthiest people on earth have mortgages on their homes, mortgages on their yachts, mortgages on their vacation homes, because they can borrow money for less than what they can make with their own money.

9:06That is the key takeaway for this question is that if you keep paying on that low interest loan and put the money elsewhere to accelerate your wealth, that is the better play because the positive arbitrage of the money is going into your pockets. So our next question comes from Ryan S. Ryan says, Hello, Austin and Robert. I've been listening to your podcast since 2023, and I have become a more disciplined investor because of it. I'm 24 years old, and last April, I opened a brokerage account on M1 Finance alongside my current portfolio on Robinhood. My ideal focus was for the M1 finance portfolio to hold dividend stocks like MasterCard and Costco, while my Robinhood account will hold majority ETFs like SPYI, QQQI, and maybe a couple growth stocks like Apple and Waste Management.

9:53Robert, I didn't know Waste Management was a growth stock, but I'll take it. Yeah. So here's my question. Should I leave things how they are and keep contributing about$400 a month to both, or do I combine the accounts together? If the advice is to combine the accounts, which investing platform should I choose? I already have maxed out my Roth for 2025. Ryan, I think it's a really great question. I love M1 Finance. It has been sort of a... Now, people always ask us, Robert, Austin, you guys love Public. You love Schwab. You love M1. Like, which one's the best? Like, how do we approach this? And we are the biggest believers that Public.com's platform is the easiest way for new investors to start investing.

10:34It's very simple. It's straightforward. it's easy to sign up they make it very easy to learn along the way i mean public.com is the just like easiest way to start investing if you've never invested before robert and i have been investing for a long time and i would argue that m1 finance for me makes just a little bit more sense i feel like i've kind of like graduated a little bit to a more complex and sophisticated portfolio structure with a lot more active management where i need some of the tools that M1 Finance provides me. I'm not saying I couldn't also do that in public. I probably could if I tried really hard, but they just kind of automate some of that stuff on the back end for me, which is easy, especially for dividends.

11:11They've got a whole dividend calendar. It's really cool. But what I'm trying to get at here, Robert, is that you should definitely merge the accounts. And if you're comfortable with using an M1, go for it. If you're comfortable using a Robinhood, go for it, or even a public.com, go for it. But you shouldn't have to have these different accounts, ones with dividends, ones with ETFs. Just put it all in one broker. It's going to allow you to consolidate and allow you to continue to keep better tabs on your money, track your net worth better, and have better visibility onto your portfolio's performance on a weekly, quarterly, annual basis.

11:44I think the key takeaway for me from what Austin said is comfort. Because for me, the more confident people are when they're investing because they understand the platform, They know how to use the interface. They got used to it. I think that leads to more automation and investing, and it leads to more consistency. I know from my own personal experience, if I struggle with a platform because the UX is wonky and I just don't understand it, I generally don't use it and I go somewhere else. So to kind of piggyback what Austin said, I don't think you need multiple accounts. As you grow more and more, maybe one account like public is more for your crypto investing and you keep the M1 Finance one because you're trying to really understand it.

12:29And M1 Finance has a lot of great interfaces to follow. But overall, most people I think can get away with one to two overall accounts over time until they grow their wealth. Now, here's a question for you, Robert. How many different brokers do you use, not including obviously money that might be professionally managed by someone else? Like for me, for example, I use two. I have two different brokers. I've got a public.com and I've got an M1 Finance. I do have a Robinhood account, but that's just been like, you know, Robinhood's been around for a while. And it's just kind of cool to have that in the back pocket.

13:02But I've got two. How many do you have? Let's count them right off my phone because I knew you're going to ask this question. Okay, I have my professionally managed money. I have Fundrise. I have Acorns. I have Betterment. I have E-Trade. I have a little bit in Webull. and then I also have Coinbase, Crypto.com, Kraken Pro, Public.com. I have KuCoin. So I don't know how many that was, but like seven or eight. But in my defense, that is over time. That is way, way over many, many years of investing. I started my Acorns account, you know, whenever it launched and I put in some money in there and then I have a direct deposit that goes in there every single week.

13:50I do my roundups in there. So that's just kind of that automated. I don't think about it. I don't check it. I don't even know the password anymore, which is good. All of those things. But for the most part, I'm kidding. I do know the password, but I'd really have to look it up. But anyway, for the most part, I think people should not overcomplicate investing because if they overcomplicate it, they won't have a strategy. And if they don't have a strategy, they won't be consistent. I couldn't agree more, Robert. I'm right there with you. Consistency, automation, especially Robert, especially during times of volatility like we're seeing right now, consistently dollar cost averaging into the markets as the S &P and the NASDAQ and, you know, other funds fall three, five, seven percent.

14:31Who wants to buy all time highs anyway, right? So I just I could not agree more. Consistency is the key to building wealth. Our next question comes from Eric G. Eric says, Hi, Austin and Robert. My name's Eric and I'm 52 years old. I work with a financial advisor and I have about$560 ,000 invested with them. I have another$80 ,000 in a savings account with a current yield of about 4%. I also have a public account with about$152 ,000 in it. My question is about my public account. Currently, my investments are in ETFs like SPY, QQQ, VGT, VOO, and a couple others that you've talked about. However, I've also invested in technology stocks and as you guys have probably seen, they're taking a beating.

15:14Unfortunately, I did not sell or try and time the market and I'm consistently dollar cost averaging. But as I send this email, I'm still kind of hesitant. Do I continue to hold these names? Do I sell them and try and buy them lower? I love your show. Keep it up. But any insight you guys might have is really helpful for me. Robert, you want to answer Eric's question? I love this question. And the answer is forget your password, lose your password, keep doing the dollar cost averaging because at the end of the day, when in doubt, zoom out is something Austin and I share every single day of our lives.

15:47And it is probably one of the most important flags we have on the Hill for people to understand and to live by because so many people feel that they somehow can beat all the smartest and brightest computers and minds in the world by timing the market. And I assure you, no one can properly time the market. I don't care what they say. So in this instance, when I look at these names, Tesla, Amazon, Apple, NVIDIA, Google, Those are some of the best names that you should own for life forever until something changes. I think those are all great companies that will do well in the future. So I would not be concerned with this short-term blip, this volatility that Austin and I have been speaking about for months, because these are awesome holdings that will continue to grow.

16:31And just to add some like more on top of that, I think it was Robert, Amazon was the number one company owned by hedge funds and institutional investors in 2024. I guess I'm trying to share when I say that is, I consider myself a sophisticated investor, but I am not someone who has billions or trillions of dollars in assets under management. And those people that do have all that money have a lot of insight and clarity and visibility into what happens in these companies on a weekly, quarterly, annual basis. And to know that Amazon was the number one most held stock by these smart money investors makes me feel pretty good.

17:16So like to answer your question, Eric, I can empathize with buying the local top, right? It's kind of how people describe it. The markets got overextended after Trump was elected. We've since seen a little bit of a cool down after the inauguration. But I want to remind people that there's a difference between the indices like the S &P 500 and the NASDAQ experiencing a little bit of a cool down like we've seen, 3%, 5%, 6%. Whereas the single stocks, the individual holdings inside of those indices experience much more volatility during times of uncertainty, right? So if we just zoom out for a second and think about the most recent bear market we had in 2022, the S &P 500 contracted about 25%.

17:59The NASDAQ contracted about 35%, 38%. But Meta, Netflix, Netflix, Amazon, Google, all these names were down more than 50, 60, 70%. It's not like the company's revenue went down by 70%. It's not like the company's profits went down by 70%. It was the fear and uncertainty with investors that caused them to do that. NVIDIA was at$12 a share and you couldn't pay someone to buy NVIDIA stock back then at$12 a share. And with meta it was at like 88 a share you couldn't pay someone to buy it there and now it's at 500 plus i guess what i'm trying to get at is if you have an investment thesis you understand the fundamentals of a company where they're trending toward what is driving their profitability and what key themes are going to remain the same like with amazon or costco or you know waste management another example right we know people are always going to need garbage pickup we know people are always going to go to Costco.

18:58We know people are always going to order on Amazon. And the things that remain the same allow me to have a little bit more certainty and cool, calm and collectiveness. And what's also important to Robert is back to this idea of automation, especially for Eric here. You know, Eric, if you say every other week, I allocate$400 or whatever you invest right into these single stocks at no matter what their prices are, I promise you when you fast forward three years from now, two years from now, eight months from now, right? No one knows what the market's going to do. But I do know that over the coming years and decades, these names will be worth multiples higher than they are right now, which just goes back to something Robert and I have always been saying.

19:39If you are an investor, you want to be a net buyer of assets. You don't want to try and time the market, sell things. You want to continue to grow your portfolio over time. Yeah. The only reason to ever sell a stock, in my opinion, is if your thesis on the company changed or if there's some great change in that sector of the market. But when we're talking about these metas and Amazons and Teslas and Apples and Googles of the world, Microsoft, I don't see a world where I sell any of those to try and time the market or time a dip or any of that anytime in the next decade, just because that is not how you grow wealth.

20:17You know, there's an old adage in the world of finance that the greatest accounts that perform the best are the ones of dead people and people that forgot their password. And I always say this because it is kind of a joke and it's funny, but it's also pretty accurate because so many people in my daily life that I work with and in the Rich Habits Network, they're always like, oh no, the market's falling and they never zoom out. That is why we always tell you one of our best little hacks for you to help you with the emotion of it all when there's a correction is to go to a stock chart and go to the five-year chart.

20:53Don't look at a month. Don't look at six months. Don't look at a year. Look at five years. You'll see all the hiccups. You'll see all the volatility, but generally you'll see it going up and to the right. So that is why we are long-term investors and you should be too. Our next question comes from Jake H. Jake says, Hey guys, I love the podcast and everything else you do. Just a little bit of background on me and my finances because I know it's going to help. I'm 25 years old, I have no debt, I'm studying financial management living in Colorado with my girlfriend, and right now I make about$40 ,000 a year.

21:23I have$14 ,000 invested, mostly in the S &P 500, and here's my situation. I have inherited a house that I'm in the process of fixing up and selling. I'll be splitting the profits with my younger brother as it is in both of our names. Realistically, I plan to bring in somewhere between$130 ,000 to$160 ,000 when it sells. My plan is to invest most of this money into the ETFs you guys talk about and build my base. I was also thinking about putting some of the money into SPYI for some extra income. Now here's my question. If you were in my position, would you stick to ETFs? Would you buy some growth stocks?

21:58Or would you get aggressive on the income side with SPYI? I'd love to hear your thoughts. Robert, I think before we answer that question, it could be a really good idea for you to share sort of your just decades of experience flipping houses, how you've, let's say, split proceeds with co-investors, co-flippers, however you kind of, how do you approach that? That is a great question and something that most people get wrong. So let's back up to this situation, how it relates to my experience. First and foremost, you say you're going to fix it up and flip it. Do you have any experience? Do you have any knowledge of how to do this?

22:34Because maybe you should sell it as is instead of putting in all this time and money into a flip because so many people that flip houses forget that when they spend a thousand hours on that house flip, they're not factoring that time in at whatever their hourly rate that they believe their time is worth. They're also not factoring in holding costs. How long does it take you to tie up the money that you might borrow to do this renovation and do this flip? But they're also not looking at the tax considerations either, because when you sell this house, you mentioned you would probably net somewhere between 130 and$160 ,000.

23:12Now, I don't know if that's total or each of you is going to get that amount. You didn't clarify that, but that's okay. So for me, it's always understanding just like when you're buying something, but also selling something is understanding the totality of the numbers. So many people just look at the base numbers. Oh, the house is worth this. We put in this, We sold it. So we made all this profit, but they don't take into consideration the interest, the closing costs, the commissions to sell it and everything that goes along with it. So make sure you fully digest all of the numbers and the understanding of what you're taking on so you can get this right and actually make a decent profit.

23:53So in the past, when you have split profits with co-investors, how did you approach that from a legal perspective? Did you have some sort of agreement in place? How did you figure out exactly what those profits are? How did you divvy out the work that you did versus the work the other investor did? How did you guys approach that? Yeah, that's a great part of this kind of bigger story. I think I've done around 45 flips to date in my career because I do some buy and hold, I do some flips, all of the above. And that is why it's important to understand that like in this instance, when you're splitting money with someone else, you either want to have this home in an LLC if you can, or at the very least have a contract like Austin alluded to.

24:39If you don't have a separate contract and you have the LLC, spell it all out in the operating agreement. So then that way, you know what you're getting. The other person or persons knows what they're getting because you just don't want to be in a situation where you put in a thousand hours and maybe your partner puts in zero hours and then you're not getting paid for that thousand hours because it wasn't spelled out ahead of time of who gets what. So for instance, let's say you're gonna be on site and you're gonna be the general contractor. You should get paid for that on top of your investment because at the end of the day, you're putting in actionable real time to be able to get this build out done timely and get it done right and you should be paid additionally for that.

25:21So just make sure I always tell people at the end of the day, the best paperwork wins. And it's so important to understand that because you just don't want to get into a riff where you end up in court over a project like this with your brother or a friend or a family member because everything wasn't spelled out in the documentation. And now to answer the actual question that Jake had around like, how do I take these proceeds and build my investment portfolio? The first thing I would encourage you to do is to learn more about what Robert and I call the core satellite portfolio construction. Robert and I very much believe in this portfolio construction as it relates to having the vast majority of your portfolio, 65, 80, 85%, somewhere in that range, invested into the ETFs and index funds we talk about.

26:11Because over a long period of time, these ETFs and index funds continue to trend higher up into the right and you're keeping up with the markets. And then that's the core side of the equation. The satellite side of the equation are more of those high octane growth stocks that we know and love. Think Tesla, think NVIDIA, think Google, think MasterCard or Costco or these other names that we believe over a long period of time, let's call it three, five, seven years, will continue to outperform the markets, right? That is the key term, outperform. If we were literally just trying to perform with the markets, why not just throw it in the index funds already?