Q&A: $4K / Month for Daycare, Graduating Debt-Free & HSA vs. Roth IRA

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0:47Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. Welcome back to the Rich Habits Podcast question and answer edition. These are our Thursday episodes where every Thursday we answer your questions as if we were going through whatever you might be going through. I'm sick right now. Robert feels fine. So we're recording and we're going to get through this. It's going to be an awesome episode and we're going to answer a ton of questions and we're going to have a great, great, great outcome.

1:22Now, if you have a question to ask us, email us at richhabitspodcast at gmail.com or DM us on Instagram at richhabitspodcast. Robert, we've got like 40 something thousand followers now, 42 ,000, 43 ,000 followers on Instagram. We're popping. We're popping off. Yeah. It just goes to show you that people do care about learning what to do about finance, business, and mindset. And we're right smack dab in the middle of it, trying to help everyone figure all this out. So Robert, our first question here comes from Veronica. Veronica says, Hi guys, I've recently started listening to the podcast and I love all the tips and tricks you all provide.

2:00I'm 22 years old and I recently graduated college where I was a scholarship athlete. I recently received a$13 ,000 refund from the school as a back scholarship. I'm not sure exactly how it works with taxes if I have to pay something on receiving that. However, I do want to put this money in some sort of investment or savings account and would really love to hear your thoughts on how to approach this. I'm also going to medical school in the next couple of years, and I want to make sure I'm setting myself up for success financially. Thank you all for all you do. Best, Veronica. Robert, I'll let you kick this one off.

2:34Yeah, congratulations. That's really cool that you're getting ready to go to medical school. And I think for me, the first thing I would do is just hold the entire$13 ,000 in a high-yield savings account until you confirm exactly how the school is classifying the payment. Because there is a world where if you get this refund from the scholarships, it can be tax-free, but it also can be taxed, especially if you're using it for normal household groceries, rent, or whatever. So you need to understand where it's being classified for your college and your situation. I think one way to look at this would be to ask these questions.

3:13What academic year does the scholarship apply to? what expenses was it intended for in the first place, and have they issued you a Form 1098-T just yet? So if this income ends up being leftover scholarship money and that falls under the IRS filing for the amount of money you make, because I don't know if you have a job or anything yet, then you would be in that non-taxable position. So just get all of the facts, put the money in a high yield savings account for now. And I think you'll be just fine. And absolutely, once the dust settles and you know what you're doing here, I would get that money invested and get the Roth IRA up and running and get it into that basket of index funds we talk about all the time.

3:57I think that's a great breakdown. Those are the key questions to be asking, right? What academic year does this scholarship apply to? What expenses were it intended to cover? And are you all going to issue or maybe revise an already issued Form 1098-T? Because what Robert said, you know, around the scholarships being tax-free, generally, if they are covering tuition and required books and fees and supplies and required things, like, yeah, rock and roll, like, congrats on your 13 grand. You deserve it. But on the same token, maybe that money was spent or was supposed to be spent on something else.

4:34So just get a little bit more clarity there once you understand where that money was supposed to go. you should be fine. The last thing I want to do though is spend all of this$13 ,000 or have it be allocated places and find out that I might have to owe a little bit of money in taxes on this$13 ,000, assuming you're working and whatever's going on here, right? And you have to owe a little bit of money on this and now you don't have the money anymore. And then the IRS is knocking on your door saying, hey, give me my money. What's going on, Veronica? So love this breakdown by Robert and best of luck in medical school.

5:05That's so exciting. Our next question comes from Barry K. Barry says, good morning, big fan of y 'all's podcast. I listen regularly to the show and I finally am ready to ask a question. I'm 39, my wife is 36, and we're entering the daycare phase with our first kid who is now eight months old and we're paying$2 ,000 a month. I have been savvy with my retirement starting around the age of 29 years old. I've half a million dollars invested into my Roth accounts in the S &P 500. Think Roth IRA and Roth 401k. My wife is a public school teacher and should have a pension of about$40 ,000 to draw on annually in 20 years from now.

5:452026 Roth IRA is maxed out for myself and I've queued up 2027 Roth IRA contributions as well. I make 100 ,000 a year gross. My wife makes 72 ,000 a year gross. We know within the next 12 to 18 months, we'd like to have our second kid and we're having to now think about daycare for the future between both of them. How we see it, that's going to be$4 ,000 a month. Paying$4 ,000 a month in daycare costs while trying to save for retirement seems unlikely. I get a 6 % match from my employer and I currently contribute 11 % to my Roth 401k, so a 17 % total consideration. My wife has been doing her Roth IRA and has$40 ,000 invested and put 6 % toward her pension.

6:27That is a must. So going forward, do you think it's worth only doing the match and maybe saving as much cash as we can ahead of these daycare expenses and some sort of dedicated high-yield savings account. Right now, we have$12 ,000 in a high-yield savings account set aside for future daycare expenses. We're fine letting the S &P do the work until we're 50-ish years old, but we want to revisit where we are. Ideally, we like to retire around 60 years old. I'm beginning to really get stressed out about kids, life, and money. appreciate all of your help and guidance. Robert, what a sticky situation.

7:02Yeah, but I think there are options. They're making good money. They're thinking ahead, which is half the battle. So for me here, I want to lay out some options. Number one, consider having the wife stay home, pause the teaching job for two, three years, because when you break down the math and you think that at$4 ,000 a month,$48 ,000 a year, and the wife's making this$72 ,000 a year gross. So after taxes around$58 ,000,$56 ,000, it really gets tricky here math-wise because if they were to pause her from working, have her stay home, it's so much better of a family environment for the two kids and really lets her entrench herself into the family element rather than working and having to deal with daycare every single day for two children.

7:54So I want to talk about that first and foremost and get your opinion, Austin, because I feel like it's close to a break even or maybe just a little bit of a cash flow negative to stay home because we also have to look at the fact that they have to pick up, they have to drop off, they have the gas, they have the wear and tear on the cars, all of this other time suck to be able to have the kids in daycare, Whereas in maybe if they just took this as an opportunity and paused her job for two, three years, when the time comes, they could save that$4 ,000 a month. And also, I want you to think about this too, Austin.

8:30I think they should just go up to the match with the 6%, take the rest of those funds and get that invested for now in this daycare fund to be able to protect themselves. But what are your thoughts on that of potentially her giving up the job and them doing it that route rather than fighting this uphill battle of$4 ,000 a month? Yeah. So at just the$2 ,000 a month, which is where they are now, it will not make sense. She's obviously earning much more. And she's got the pension she's doing. So with just one kid in daycare, it still makes sense for both of you to work. But once you get to$4 ,000 a month, two kids now are in daycare,$4 ,000 a month just to have them be in that daycare.

9:14You're talking about, I didn't even think about the gas, the wear and tear on the car, all the other maybe miscellaneous expenses that go into dropping kids off and showing up and things like that. But now you're getting really close to break even, right? If you just look at the numbers, you're thinking, you know, roughly, let's call it$58 ,000 a year take home pay versus$48 ,000 a year of after tax spending$4 ,000 a month. And so we're talking about$10 ,000 difference. That's less than$1 ,000 a month, called 900 bucks a month now that you are working to secure. And so if you can find that$900 elsewhere in your budget while also staying home with these kids, then maybe, again, to Robert's point, after some of these other considerations, this is a net neutral or even net positive situation to stay home with these children.

10:05miss out on that$4 ,000 a month expense and take perhaps a couple of years off your teaching career before your kids are now in maybe a preschool or a kindergarten or something like that, where both of them are off to the races and you can go back and start teaching again. This is a very, very sticky situation. And I'm never going to tell someone, you know, go stay at home with your kids or whatever, because I know everyone's situation is different. But mathematically speaking here, just looking at the math, that$4 ,000 a month is really hard to ignore at a$72 ,000 a year gross salary, knowing that, you know, you're taking home probably 56 to 58 ,000 of that every single year.

10:45Now, as it relates to this like question of like, do I just contribute up to the match, take that other 5 % of my annual salary and set that aside for daycare? Sure. Yeah, that's$5 ,000 a year. So you make$100 ,000, right? So 5 % of 100 ,000 is$5 ,000 a year. That's extra that you'll be able to set aside. So that'll pay for two and a half months of daycare for your one child here. I think that's totally fine. Let me just say this, Robert, and I want to make sure that our friends can hear us very clearly. You have half a million dollars invested. You are going to retire millionaires. You are so, so prudent with your money.

11:21You're so forward thinking. You're so mature about all of it. Your decision making processes are wonderful. You've done a really great job getting a lot of money invested in the markets. and that money is just going to compound and compound and compound no matter how much you contribute to it. So like, let's be very clear. That's going to double every seven years if you add any money to it or not. So don't feel some type of way of I was getting a 17%, you know, total contribution to my Roth accounts. Now it's only six. Am I going to, you know, whatever's going on, just take a deep breath. You've done well, very, very well.

11:54Now it's time maybe to say, hey, I did such a good job over the last 10, 12 years here financially. My wife has the flexibility to stay home with the kids if she wants to, because we can afford to pause some of our retirement investing because we are now being more intentional with our money about saving on that daycare and maybe giving her the autonomy to stay home with the kids. I think that's what's so powerful about money, Robert, is it gives us options. And that's what you said in the beginning of this. Money gives us options to make choices. And not every choice is going to be perfect in black and white.

12:29Sometimes they're gray. But when you have money, you have the ability to say, what do I want to intentionally spend this on? Especially when you have half a million dollars invested at only 39 and 36. So this is a very personal decision to make, Barry. But I hope that some of our guidance here, specifically on the numbers and encouraging you with how much you've accomplished at such a young age with half a million dollars a year before 40 is giving you enough to make an educated decision. And I want to add one more thought to this. And that is, there is a world, let's say in 18 months, two years, she decides, you know what, I like this idea.

13:07I'm going to stay home. I always talk about quality of life is so important to me. So I think they would have a much higher quality of life having their children at home with their mother. But there is a world, too, where she could take a side hustle being a stay-at-home teacher tutor on like Preply or Elevate K-12 or one of the platforms where even if she only made$2 ,000 a month, which would be pretty easy if she's a certified teacher, to stay home with the kids, do some tutoring online instead of going to a classroom, then that changes the whole mathematical game as well in their favor even more.

13:43It certainly does. I did not even think about that. I think that's a genius idea. Who doesn't want Mrs. ABCXYZ, not going to use your real last name here, to be giving their little bit of tutor action on the side, if that's a weekend tutor, if that's maybe in the evenings or during the summertime, right? Like, I love that idea. Listen, I wish I had an extra tutor growing up. I think that's so smart, Robert. Now, before we jump to our next two questions, we are definitely in the second half of 2026. We just saw a 4 % decline in the NASDAQ just the other week. CPI came in. I think it was at 4.2%.

14:24The Fed was going to cut rates by three times. Now they might raise rates in 2026. I feel, Robert, as if uncertainty has never been higher. Which is why it has never been more important to have a plan and stick to it. And if you're a long-term investor like us, that plan has never been easier to come up with and implement dollar cost average and ride the wave. We've been talking about how important it is to dollar cost average for years now. And when the market feels shaky, it's really hard to see the progress you're making, which is why we recommend being part of the social platform Blossom Social.

14:57On Blossom, you're able to see your entire portfolio in a very clean and simple way. Your holdings, your performance, your dividends, all of the good stuff that you care about. You're also able to follow other long-term investors on the platform, helping you stay motivated during uncertain times. Not to mention the portfolios on Blossom are all verified. So if you're seeing someone buy or sell a name, it's actually because they did it in their own brokerage account. We're both on there. Robert's portfolio is on there. My portfolio is on there. We're having a good time. So if you want to join us, be sure to search Blossom Social in the App Store.

15:30Head over to BlossomSocial.com on your phone or desktop and go check out their new AI agent, Beavis. You can ask it questions about your portfolio, like am I outperforming the S &P? Do I have too much tech exposure? Do I need more of this? What should I think about that? What's my dividends looking like? It's a cool AI built into Blossom. So go check out BlossomSocial.com. There's also going to be a link in the show notes below. So our next question comes from Felicia D. Felicia says, hey, Robert Nauston, first off, want to say how much I love you guys and how helpful your podcast has been for my family.

16:01I'm just getting out of this target date fund of a mess in my husband's 401k. Ever since we got out of it, we have made oodles of money. I love that. Let's go. Felicia says you give a lot of great advice regarding paying off student loans. But my question is regarding my 18 year old daughter, who's going up to college and wants to graduate debt-free. Okay, so the daughter wants to graduate debt-free. Got it. Financially, the daughter is killing it. Last year, she made$20 ,000 as a waitress. She has$23 ,000 saved in a Roth IRA, $10 ,000 in a high-yield savings account, $8 ,000 in another investment managed by her uncle, who is a financial advisor.

16:41But after my and my husband's contributions, scholarships, merits, and awards, the balance of her tuition bill each semester will be$12 ,500. She could take the money from her high yield savings and the money she'll make this summer to pay that bill and be debt free. However, I advised her not to do that because she's approved for a two and a half percent interest rate on her student loans. I think if she can continue to borrow at this rate and invest her money, she may be able to graduate with$100 ,000 total invested in her bridge account and across her Roth IRA by the time she is 22. Do you agree with this?

17:19And if you do, would you recommend investing that money in a high yield savings account or maybe in a taxable brokerage account or Roth IRA? How should that be divvied up? FYI, she will have to pay interest on this loan while in school, which will come out to about 20 bucks a month. Year two, it will look very similar financially. Year three and four will be similar, but she will move off of campus. And my thinking is, as long as we can get a great rate like this 2.5 % and keep borrowing it, why not get invested at a young age? Thank you so much for the podcast. It has been great advice. This is a really cool situation, Robert.

17:54So Felicia's daughter is just crushing it. One sentence here stuck out to me that made me want to rethink all of this, which was, after my husband's contributions, scholarships, and merit awards, the balance of her tuition bill each semester is$12 ,500. That's just tuition, right? So like you're saying that you and your husband are contributing to something here. She's earning scholarships and she's getting some sort of awards and she still has to pay$100 ,000 to the university on her own, right? $12 ,500 per semester, two semesters a year,$25 ,000 times$400 ,000. My immediate reaction to this is if she really cared about going to college debt-free and graduating debt-free, she would be doing this entirely differently.

18:43She'd be going to a community college for the first two years. She might be going to a smaller school. She might be going to a cheaper school, right? This college charging at least$100 ,000, because I don't know what you and your husband are contributing, but that's probably, I don't know, maybe a couple thousand,$5 ,000 a semester or a year, whatever, right? But like this$100 ,000 is after all of these great things that are happening to her. That's so much money. It's such an expensive place to go to school, all for a piece of paper. I would really sit down and say, okay, to my daughter, if it's your end game, it's your big, big goal here to actually graduate debt-free, I would think about different paths.

19:21Again, community college for two years. I had a bunch of friends that went to Pellissippi Community College in Knoxville, Tennessee. they went there for two years before they transferred to the University of Tennessee for the following two years and their degree says UT on it. It doesn't say community college. It doesn't say they just got their general education classes out of the way, paid pennies on the dollar for it to take place at that community college versus at an actual university and they saved a ton of money. So like if you really care about graduating debt-free and being prudent with your money here, I would consider a different path.

19:53Now let's say that you already considered that. Your daughter wants four years at a cool university, and this is what she wants to do. Okay, great. I like this plan of 2.5 % on student loans, getting as much invested as possible into the markets, that$23 ,000 in her Roth IRA, max that out every year,$10 ,000 over in the high interest. I don't think that needs to be... I mean, she's not going to have that many big expenses in college, so I'd probably wean that down a little bit, maybe$2 ,000,$3 ,000, 4 ,000. The rest can get invested in the markets. But like, if you're going to do this little two and a half percent over here while I'm making eight, nine, 10, 12 over here in the markets, do it.

20:31Don't just have like a little high yield savings here and it's going to be sitting in some like bond stuff. Like no, like if you're going to do it, get in the S &P, put in the right retirement accounts and like have a plan on day one. But I think there's a separate option here, which is like go to a different community college, different path, different option that's going to be half the price of this$100 ,000 cash outlay and still come out way ahead because she can do both. She can still pay cash for this experience while also investing$50 ,000. And so now she's debt free and has a ton of money invested and she's got the best of both worlds.

21:08That's how I would try and get this figured out. But Robert, what's your take? I think you're spot on. I look at it this way. 20 years ago, going to a prestigious school that was expensive moved the needle for people when they were finished. But I don't think it's the same thing nowadays, unless it's a very highly specific purpose of the degree. So for me, cheaper college, I love, love the idea of the 2.5 % student loans. Anything that you can get below 5 % in these student loans is considered low interest debt. And then I would take the rest of the funds and invest it like Austin said in the S &P 500, NASDAQ, et cetera, because then you can out earn the money you're spending on this interest, this low interest debt.

21:51And so for me, I always want the positive arbitrage in my favor, not someone else's, but I would start by looking at other college options. And if that's a no-go, I would take the loans at 2.5 % interest. I would invest all the money at the same time, build, build, build, let that money compound over time and just have these low interest loans against the school. That would be my take. When you were going to college, do you have any, you know, maybe tips or tricks to share perspective on anything college related or anything, anything additional? Yeah, I think I covered it by saying back when I went to college, where you went to college really mattered.

22:31And I was only getting a business degree back then, which I don't recommend now, but I look at it this way. I don't see a world where prestigious colleges that are charging a fortune matter as much anymore with where everything is going with AI, universal basic income is down the road, all of these things. I still think it could be good for some people to get a college degree, but only if it's for a specific purpose. Do not go to college right now and spend$100 ,000 getting a degree in business management because it's just not going to move the needle as much as you would hope. So for me, I don't really have any secret sauce around it.

23:10I just believe that being taught is a lot different than it was when I went to college because education matters all across the board, but I don't know if it matters at the level of spending this much money per year versus a community college or a specialized college for whatever this degree may be. So I just looked up at the University of Tennessee, The all-in cost for four years, if someone was to go get this business degree in finance or management or marketing, whatever the business degree is, comes to about$62 ,000. So all-in, you're looking at about, you know, a little over half of what she's paying right now.

23:49So there are options out there. There are certainly options out there. And this is me maybe kind of even backpedaling a little bit. But something that if I were going to pay a ton of money, and I think this is where these like prestigious schools excel, which is the networking and how involved you can get on campus is going to be the game changer. you don't have all that much to get involved with at a community college, right? There aren't all these different associations or student government or different clubs or, you know, sororities and fraternities. Like there aren't things like that on a community college campus in my, maybe I'm wrong here, but in my experience, that's kind of like how I take that, where if you are on campus at an actual prestigious university, not only do you have all those things afforded to you, but you also have just the networking of that alumni base.

24:38But like, again, if you go for two years and two years, you're going to come out ahead. So it really just, it depends on how you play this. And at the end of the day, if you want to, and this is the only reason I'm saying this, if you want to graduate debt-free, there's a world you can do that and still have a ton of money invested along the way. Our next question comes from Emile S. Emile says, hey, Austin and Robert, you can call me EJ. All right, EJ, what's up, EJ? EJ says, I've been listening for over a year now and really appreciate all you do for the community. I've learned a lot from you.

25:08First, Here's my situation. I've been following the financial order of operations pretty closely. I'm contributing to my 401k up to the full employer match. Starting this November, I'll be able to max out my Roth IRA every year going forward. I have three months of expenses saved in a Vanguard money market fund as my emergency fund. I'm currently renting and the only debts I have are two car loans. One will get paid off in November at a 7.5 % interest rate, The other is at 5%. Once I pay off the first car, my plan is to redirect that monthly payment toward investing. But here's my question. I was talking with a friend this weekend and they suggested that instead of immediately maxing out my Roth IRA with that money, I should first prioritize my HSA.