Q&A: $1.2M and "Broke," the Rat Race of Leasing, and Finding Balance w/ Investing and Spending

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0:41Discover quality finds and perfect presents for everyone on your list, even those who are hard to shop for. Toys and jewelry to new beauty brands and styles, these gifts go seamlessly from our stores to under your tree. Seriously, with these savings, why shop anywhere else? Hey everyone and welcome back to the Rich Habits Podcast Question and Answer Edition. These are our Thursday episodes where you send us via email, Instagram DMs, or through the Rich Habits Network your questions and we answer them live here on the show and we cannot be more excited to answer the, I think Robert now, seven or eight questions we've got banked up for this episode.

1:19Yeah, I'm excited. It's going to be a really good episode. I love how detailed the questions are getting. So it's awesome that, you know, everyone in the Rich Habits Network is really digging in and understanding the word network and that we're trying to really build this awesome, awesome community where we can just help so many people across so many different sectors of business, mindset, investing, personal finance, and all of that. So it's super exciting for me as well. Totally agree. If you've not yet signed up for the Rich Habits Network, there's going to be a link with more information in the show notes below.

1:49We also have a completely free once per week newsletter that went out this morning. Those go out every Thursday mornings as well. It's called the Rich Habits Newsletter. We've got about 45 ,000 people that have signed up for it, and you guys are absolutely loving the things we share inside of that. So that's going to be linked out in the show notes below as well. And just a quick heads up, time might be running out to lock in that 6.7 % yield at public.com. Right now, bond yields are at their highest level since 2009, and you can take advantage of it with a bond account. But here's the thing, Robert, the Fed has signaled potential rate cuts in September, and there will probably be more this year to come and into 2025.

2:27The good news is that with a bond account on public.com, you can lock in a potential 6.7 % yield until 2028. And when the Fed lowers interest rates, your yield remains the same, but you must act fast to take advantage of some of the highest bond yields in years. Discover how you can lock in a 6.7 % yield until 2028. The new bond account only at public.com forward slash rich habits. Robert, I remember four, five, six weeks ago, we were reminding people to lock in this 7.3 % yield and then it was 7.1, then it was 6.8, now it's 6.7. If you want to lock in a yield above that 6 % range, time is definitely running out.

3:07So go check out public.com's new bond account. I want to make sure everyone's on the same page here too. a bond account is a self-directed brokerage account with public investing. They are a member of FINRA and SIPC, so they have that insurance. Deposits into your bond account are actually used to purchase a set of 10 fractional investment grade and high yield bonds. Now, the yield represents the monthly average that's then annualized before fees as of September 16, 2024. The yield is subject to change daily and yield at the time of purchase may actually differ. Don't forget, all investing carries risk, not investment advice, but be sure to visit public.com to learn more about the bond account.

3:44All right, Robert, our first question comes from Everett. Everett says, Robert Nostin, I love your podcast. Thank you so much for taking the time to put out such great information. Here's the deal. I own two properties outright with no mortgage on them. One is worth$350 ,000 and the other is worth$1.2 million. However, I've spent all of my savings renovating the$1.2 million property and we now have nothing in our emergency fund. Our monthly expenses for my family are around$15 ,000. And I'm sort of in this desperate situation where I do not have any access to money because it's all in equity in my homes or tied up in my retirement accounts.

4:21I'm really desperate right now to find some options. What do you guys think about my situation? Do you have any advice for me? Robert, want to kick this one off? Everett, Everett, Everett. I have been there. I remember back, This was like 2015. I had the big house in Vegas. I had the big house in Ohio. I had the rental properties. I had all this, everything going on. Everything was great. And then the bottom fell out of my cashflow. We just had some lost clients. We had a couple of businesses go awry. So Everett, I've been there. I know this sucks. And you are in a very difficult situation because you're cash poor right now.

4:57I would say you do have some options. you could maybe go looking at taking out a loan against one of the properties. You know, we talk about that all the time. You could sell the$350 ,000 property to give you the cash right now to sustain this situation, but it is not pretty, and it is something you have to make sure you don't ever do again, because when you get in these situations where you're cash poor and equity rich, it can be a killer of your financial situation for a very, very long term. And speaking from experience, it is tough to get out of. So my opinion would be either get a HELOC because it's quick and simple, little bit painful, or I would sell the one property because you have to do something because you don't wanna be in a situation where you drain all of your retirement accounts and you find yourself just with these two properties because in the end, you're gonna end up having to sell one or both anyway.

5:49All right, so here's my perspective. Everett, you claim that you don't have any mortgages on these two properties. That's awesome. How are you spending$15 ,000 a month? just on what utilities and groceries? Like what, like car payments? I don't know, I can understand maybe, let's say it's crazy outlandish car payments. $15 ,000 a month is still a lot of money, assuming you don't have any mortgages. So the first thing I'd want you to do is really audit your spending. Everett, I want you to go listen to episode 80. It's called How to Be Intentional with Your Money. We just published it a couple of weeks ago, but to me, it just seems that your budget is way out of whack.

6:23I don't know how you're spending$15 ,000 a month not having any housing costs. I mean, I could understand if your mortgages, you know,$1.2 million house, you had a mortgage of four, five, six,$7 ,000, that would make total sense, but you don't have any mortgage payments and you're still spending this much money. So the first thing I would do is audit my spending. I would download our budgeting tool in the show notes below, really build out your honest budget and figure out where your money's going. Assuming that this 15 ,000 is real and you cannot cut down on it any which way, the other option to Robert's point is to sell the$350 ,000 house.

6:58If you wanted to take out a very small HELOC to help you make ends meet, which I think is just unreal to even think about with someone that has so much millions of dollars. But if you did wanna do that, I could understand that, but please don't overdo it. Please don't do it and use it as a way, as like a crutch for your spending patterns or your spending habits. But I do wanna really, really encourage you to kind of audit that 15 ,000 a month. I don't know how you can't bring that down maybe to 10, 12 ,000 at least, right? It just doesn't really make sense to me. But the core problem here, Robert, is that this couple is spending a lot of money, 180 ,000 a year just to live their lives.

7:38And they have all their money tied up in real estate in these IRAs. And so the only way you are going to be able to sort of build that buffer again is if you cut back on the budget, allowing you to save the difference. Or you pause the home renovations, which is what you were alluding to, spent all your money on. Pause the home renovations for a little bit. Build up that emergency fund. There's no shot clock on these home renovations. And allow yourself the flexibility to begin to add some breathing room into your monthly budget and build up that emergency fund three, six months of expenses. So for you, maybe that's$30 ,000,$45 ,000,$60 ,000, depending on how conservative you want to be.

8:15But this situation is really weird to me. and if things don't turn around, I would consider selling that$350 ,000 property and I would use that money, one, to finish those renovations and also two, beef up that emergency account again and then three, perhaps begin investing even more now but inside of a bridge account where you actually have access to the money. Yeah, you hear me talk all the time that I no longer put myself in these situations. I always have a very substantial cash reserve that would be in high yield savings, treasury bills or one of my brokerage accounts that I can easily access it.

8:50And I think this is an important learning lesson that sometimes people go, oh, well, we're gonna do this$500 ,000 renovation. That's fine. We have the money. And then they end up exhausting all of their free cashflow and put themselves in harm's way. And we just wanna make sure everyone listening understands. Don't do that. Don't overstep what you have the ability to handle. So many people take on too much and find themselves in trouble. And we just don't wanna see anyone in harm's way. Our next question comes from Susan. Susan says, I'm new to investing in the stock market. I listen to your podcast and you all talk about single stocks that you're excited about, but how do I actually add these to my investment portfolio?

9:27Am I supposed to set aside a specific amount per month to invest in them? What's the strategy? Great question, Susan. Here's how I like to explain it. I want personally to have 65, 75, 85 % of my investment portfolio invested into these long-standing index funds that we always talk about. The S &P 500, the NASDAQ, you know, VTI or Moat or things like that, right? So I really want to have great diversity with a vast majority of my investment account. With that being said, I also like single stocks. It's one of my passions is doing the research and owning equity in companies I really believe in.

10:02So to your point of how do you approach investing into single stocks, it's pretty simple. If you want to carve out 5, 10, 15 % of your total investment portfolio and allocate that to single stocks, I think that's a pretty healthy consideration. The way that you could do that is every month, let's say that you invest$1 ,000 or$500 into your brokerage account, just take out 10 % or 15 % of what that number is and allocate that to your single stocks. So for round numbers, if it was$1 ,000 a month, 850 of would go to the index funds we talk about and the other 150 could go to buying some single stocks maybe like amazon or google for example right want to make sure though that you're not confusing single stocks with penny stocks i think a big mistake people make earlier in their investing careers is they get really excited about finding the next amazon or the next google or the next microsoft or the next nvidia and so they go in and they allocate too much of their portfolio into a risky single stock that goes down 30, 40, 60, 80 % in a short period of time and all of their investment vanishes.

11:05So do not make that mistake. If you are going to buy single stocks, be sure you buy them in big blue chip companies that are operating in secular growth trends like Amazon, like Google, things like that. And you're not over allocating to single stocks. I agree. Austin and I talk all the time about building your base first. And I think most people, they don't really want to listen until they get dinged around a little bit. They get into investing. It feels good. They get their first five, 10 or$15 ,000 going, but then they go off the rails and they listen to Billy down the street or Bob at the barbershop or Susie at the nail salon.

11:40And they've got a hot stock tip. And unfortunately that is not being an investor. That is being either a gambler or a speculator. And you need to know what you are as a person, because if you're a gambler, you're going to see a lot of highs and a lot of lows. If you're a speculator, it means you want to learn a little bit and you're going to know what you're doing somewhat, but you're still taking higher risks. And if you're an investor, you're going to likely just follow the rules. You're going to learn along the way. Your financial education is going to improve and you're going to do very well over time.

12:15So just understanding that is important. And I don't think anyone on their investment journey should start out picking individual stocks. Now, if you love Amazon or you love Alta Beauty or you love Costco, great, go buy their stock. Buy what you know. This is a very important part of investing. But for the most part, until you get up and running and you're making money passively, we want you to build your base in those ETFs and index funds that we talk about and keep it safe because guess what? The pros are going to do a better job than you are. I couldn't have said it better myself, Robert. Now, as a quick heads up, time may be running out to lock in that 6.7 % yield at public.com.

12:54When you invest in a bond account, you can lock in your rate until 2028. And with potential rate cuts on the horizon by the Federal Reserve, you might want to act soon. Discover how you can lock in a 6.7 % yield until 2028 using the new bond account only at public.com forward slash rich habits. All right, Robert, our next question comes from inside of the Rich Habits Network from Erica. Erica says, I love the Rich Habits podcast for its uniqueness and for having Austin and Robert collaborating on some monetary motivations for the masses. That is a really cool phrase. I like that. We're going to steal that.

13:30That is getting trademarked. Thank you so much. So Erica says, here's my bare bones story. I'm 54 years old. My spouse is 56 and we own a struggling restaurant in which all of our monetary income seems to fall into. We're either constantly paying off debt and then accruing more of it. I recently though unearthed an old traditional IRA which has$14 ,000 into it. A really cool start to a nest egg. A couple months ago, my brother and I sold our rental property at about$300 ,000 and after paying off the home equity loan that we had against it, my takeaway from that transaction was$105 ,000. The other$76 ,000 sits in a high yield savings account paying 4.2%.

14:09I'm keeping in mind that capital gains tax will be around the corner, so I'm setting aside a heart-crushing$20 ,000 for the IRS. So here's my question. I've got$80 ,000 after the IRS is paid between this high-yield savings account and the CD. What is the best way to put this money to work so that hopefully in 10, 15, 20 years, I might have the opportunity to retire? Robert, wanna kick this one off? Yeah, I mean, I think you're on the right track. And with having 80 ,000, that lump sum, I think if you play your cards right, you can definitely get into a good situation. Obviously at 54 years old, you've got some time to make up and you've got to hustle and be smart with this money.

14:50So first and foremost, I would look at getting it into the markets. It's okay to have these high yield savings and CDs, but you're just not gonna perform as well as the overall markets would do. So I would look at that first and foremost. At 54 years old, you could do a traditional account. You could do a Roth IRA even still and get some benefits for it. But I would do that first and foremost and use a substantial chunk of that, maybe$50 ,000 or$60 ,000, and put it into these ETFs that we talk about all the time, like the VOOs, the QQQs, the VTIs. And I would look at getting a basket of these index funds up and running so you can have some good gains to look forward to over the next 10 or 15 years until retirement.

15:35And then keep some in an emergency fund and a high-yield savings or, like you said, the CD. I think that's a great place to start. I would agree, Robert. Now, I think the first step to retirement is knowing what it's gonna take to retire, right? Not just blindly investing or blindly kind of doing whatever I can here to just maybe I'll have money in 15 years. I don't know, right? Maybe, no. Erica, I want you to have full understanding of your situation as well as where you want to be headed over a specific period of time. So what I want you to first do here is figure out, you know, we're looking at about 15 years until retirement, maybe 10 if you're lucky.

16:13Let's call it 10, 12, 15 years. It'll be that 65 to 70 range, right? Let's call it 67. At 54 years old, I'd imagine you have a pretty good understanding of what specific milestones need to be accomplished before you can retire in let's call it 12 to 15 years. Do you have a mortgage on your house right now? Is that something that you can pay off over the next 10, 12, 15 years? You mentioned that You've got this$80 ,000. Can you use this$80 ,000 to, again, then max out that traditional IRA of$14 ,000? So add another seven to that. And then maybe you mentioned you have a restaurant business. Maybe there's a world where you can open up a solo 401k.

16:48And through that solo 401k, you can start to begin aggressively investing into these retirement accounts. I guess what I'm trying to get at here, Erica, is if I were you, I would really sit down and begin running the numbers. I would understand, okay, I want to give myself the goal of retiring at 67 years old. So for you, that's going to be 13 years. The stock market doubles every seven years. So let's call it two doubles right between now and then. So if you invested all$80 ,000, or let's call it this$94 ,000, if you include the traditional IRA into the stock market, that would be a potential$376 ,000 in a retirement account.

17:25That's a really great place to be, especially if you have a paid off mortgage. Now the other thing, Erica, I want to encourage you and your husband to do is to begin to rethink what retirement looks like. You mentioned you have a restaurant. Maybe owning a restaurant isn't something you want to do in retirement, but potentially working or consulting local restaurants could be something you want to do. I guess what I'm trying to get at here is a lot of people make the mistake of, okay, I'm 65. I'm now just going to sit at the beach all day or I'm not going to do literally anything. I'm just going to watch sports and play golf and, you know, go on vacation every single day.

17:58That's what retirement looks like. I'd argue that's not what retirement looks like, right? And so for you, retirement might mean doing some passion projects that make you an extra$30 ,000 or$40 ,000 a year to supplement some social security income and supplement the income you're gonna pull from this retirement account. So I think, Erica, there's a lot to look forward to here. There's a lot to be excited about. And having this$80 ,000 windfall can really help push you in the right direction. And I wanna add one more thing, and that was a great hot take, Austin, but I wanna add one more thing, Erica.

18:25As someone that's been in the restaurant business my entire life. Just be very, very careful here because if you say you have a struggling restaurant, then you need to be careful that you're just not hanging on to it for all the wrong reasons. If it's struggling and it's bleeding you guys dry and causing a lot of financial stress, you might wanna consider, can it be fixed? Are you not marketing correctly? Do you not have the right website? Is it a bad market fit? Has the neighborhood changed? Whatever the reasons may be that it's struggling because a lot of people in small business will struggle for years and sometimes decades because their pride overrules their sense when it comes to finances.

19:05And so just be very, very careful there and maybe doing an internal audit on the restaurant as well and say, okay, how long have we been struggling? Obviously it's been a while or you wouldn't have mentioned it. And so look at that and say, all right, is this worth it? Can we get out of it? Can we sell it and have some positive arbitrage in our favor? and really do an internal audit regarding the restaurant as well because you don't want it to be a drain on your finances for too long. I couldn't agree more, Robert. And that just made me think here. Sometimes, you know, to your point, do not fall in love with investments.

19:38Do not fall in love with occupations. Do not fall in love with how you're generating income for your family. It is simply a means to an end. And if you guys can sell the restaurant, even break even on it by selling it, and then you go get a job for$45 ,000 a year, Your husband gets a job for$45 ,000 a year. Congrats. You now have household income of$90 ,000. Let's call it$78 ,000,$80 ,000 after taxes. That's now$75 ,000,$78 ,000 of take-home pay. We're talking about$6 ,000 a month. You invest$1 ,000,$1 ,200 of that every single month. Now you guys, this$376 ,000 investment retirement portfolio is worth hundreds of thousands of dollars more because you decided to get rid of the restaurant, have your normal nine to five jobs, making maybe less in the grand scheme of things to your eyes because you're like, oh, the restaurant, I get paid this much more.

20:26I'm going to make this much, right? But there's so many other factors that you're juggling and not taking into account. It's okay to be a cog in a wheel. It's okay to be a worker bee. It's okay to work that nine to five because at the end of the day, it's a means to an end. It's just a way to sack money over to the side so we can retire happily one day. And I really think that's something you guys should consider. So our next question comes from Danish. Danish says, what are the signs that you're focusing too much on saving that it's now limiting your potential for happiness today or even earning more in the future?

20:53Are there any guidelines, percentages, or signals that help you figure out when to save versus when to invest in yourself or experiences? Robert, I'll let you take this one first. I love this question, and it is the hardest thing to figure out because personal finance is personal. And I'm gonna tell a quick story about a dear friend of mine. He is a wonderful, intelligent, 60-some-year-old guy. He's a great guy. He has millions and millions of dollars. And I yell at him every time I see him, which is every couple of years, because he will not upgrade his living. He will not take vacations. He has an old beat up truck.

21:31And he even had the last time I was at his house, a tube TV. It was a big TV, but an old style tube TV. And to me, that is taking it too far. You have to enjoy life and enjoy the fruits of your labor along the way while still making sure that you set yourself up for retirement. And he has done that 10 times over, but he just doesn't know how to do the balance of living a great life and then also saving for retirement. So I think this question is fantastic and it is different for every single person. We're not saying don't buy the jet ski along the way or don't upgrade the kitchen or get that hot tub that you want so badly for the new house.

22:11We're just saying, make sure that you're doing it in balance. Make sure you're saving along the way because so many people live beyond their means for decades and then try to play catch up. I assure you, I get a million DMs and emails a month of people saying, hey, I'm 54, I'm 46, and I'm running behind. So this question is great. It's different for everyone. We always tell you that in a perfect world, you would be putting aside 15 % of your net disposable income per month towards retirement and investing, but everyone is different. Some people save more, some people save less. It all just comes down to your personal goals because we want you to have fun along the way, but not so much fun that you become a Walmart greeter at 75 years old.

22:54I really like that, Robert. And he asked for guidelines. So I'm going to give him my guideline. And I've mentioned this on the podcast a couple of times. Every$100 ,000 that I invest into the stock market, my retirement accounts, whatever else, I purposely set aside$10 ,000 over the next however many months to just enjoy. That might be a vacation. For me recently in May, that was a jet ski. It could be whatever else. But I think what's more important about this, like, oh my gosh, Austin, I don't have 100 ,000 to invest. I don't have 10 ,000 just throw. You're right, use a percentage. For example, Robert, let's say that someone makes$100 ,000 a year and they're investing 15 ,000 a year, right?

23:30That 15 % savings rate into their retirement accounts. How about every single time that you invest that 15 % or however much you feel is adequate to you, you set aside 10 % of the number that you invested, and that is now all you money. So for example, if you max out that 401k, and that's what 23 ,000, you can now say, okay, I'm giving myself permission to spend 2300 on that vacation on that new pair of shoes, plus the this and I want to do this, like whatever it might be that makes you happy. But you know, a good maybe just general guideline is say, let's say 10 % of what you're investing over, you know, an annualized basis can be used to say, all right, this is just fun money.

24:11I want to enjoy this. I know I'm doing everything right as it relates to retirement investing, but I need some near-term motivation to keep me up at this pace. So I'm going to set aside 10 % of whatever I invested and use that as my rule of thumb. I love this and how you break that down because to me, it's so important as the elder statesman of the Rich Habits Network. And that is, I've been through it all. And that is one of the beauties of having age and wisdom. In too, too many people, a huge percentage of society, they literally kick the can down the road forever. And then one day they wake up and it's usually after a big financial scare and they go, oh shit, what are we going to do?

24:52We only have$87 ,000 for retirement,$112 ,000 for retirement. How on earth are we going to retire? And then they try to unravel that 20 or 30 years of living beyond their means. And it's so important to spell it out because if you can be vigilant and just put aside something every single month, I did a TikTok yesterday actually about it, of how you can turn$250 a month into$1 million guaranteed if you stay focused and you just do the work. And it doesn't have to be this huge amount of money every month, as long as you stay consistent, then you can live a life with balance of both fun, but also making sure you're set up for retirement.