Q&A: $4M in SpaceX Stock, Buying an Airbnb with Family, & Losing $70K from Annuities

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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. these are our Thursday episodes where Robert and myself answer your questions as if we were in your shoes. We've got a ton of awesome questions and we read through a few of them and I feel like we're gonna have to give some tough love in this episode. It's coming from a good place. We want you guys to win with money. We want you guys to be in a wonderful financial situation in the future, which means someone's got to look you in the eyes and talk to you like an adult and let you know that you might be in a weird situation, but you can change it.

1:23That's what's so cool about the stock market, money, everything. It's controllable, right? We are able to control our controllables and we can change our futures. I love these episodes. And this one is going to be about tough love because I think one of the biggest misnomers or misunderstandings out there is so many people think if they have a lot of cool stuff, it means that they have money. But many times that's not the case. And we see it every single day where people just have a ton of debt. And when you have the car payment and you have the house payment and you have the appliance payment and you have the solar payment, all these payments, that doesn't mean you're rich.

1:59It just means that you have a lot of overhead. And we're here to always help you understand how to put aside money for retirement, how much you should be putting aside and where it should go. That is why these episodes are so special. And don't forget, we've already kicked off our Friday episodes. So last Friday, we had an awesome episode all about Meta and Microsoft. spending$150 billion on capital expenditures. And we also talked about the boring company and the tunnels under Nashville. And this Friday's episode, you got to tune in to find out. So be sure to come back tomorrow to listen to this week's Friday episode.

2:34And remember, these Friday episodes are all about the biggest headlines and happenings that are impacting you and your money. So if you want to know what's going on around the world, specifically with your portfolio, tune in every single Friday. Now, when it comes to investing, one of the most important things to consider when it comes to choosing a brokerage platform is if they have stocks, bonds, options, crypto, and more. They're not just one or the other. That's why we like Public.com. Public.com is an investing platform for those who take it seriously. And Public's artificial intelligence isn't just a feature built into the platform, it's woven into the entire experience.

3:11From portfolio insights to earnings call recaps, Public gives you smarter context at every touchpoint of your investing journey. And for a limited time, you can earn a 1 % match on all IRA deposits, IRA transfers, and 401k rollovers. Let me say that again. You can earn a 1 % match on all IRA deposits, transfers, and 401k rollovers. Fund your account in five minutes or less only at public.com forward slash rich habits paid for by public investing. Full disclosure is in the podcast description. All right, Robert, let's now jump into our first question. This one came via email. So if you have a question for us, you can either DM it to us on Instagram at richhabitspodcast or email it to us at richhabitspodcast at gmail.com.

3:55So our first question comes from an anonymous fan. They want to stay anonymous and we respect that. They say, hi Austin and Robert. First, I want to say I'm a huge fan of your show and I recently started listening a few weeks ago and I've already learned a ton. Your invaluable insights on what ETFs to invest in has been a game changer for my personal portfolio. A little more about me. I'm in my late 30s. I'm a medical professional who just separated from the army after close to 13 years in service. I have no debt, about$150 ,000 in a Roth IRA,$350 ,000 in a traditional brokerage account, and another$315 ,000 in my thrift savings account.

4:29My new job in the private sector will pay me$160 ,000 a year for working about 30 hours a week, and I'll also be able to collect an extra$30 ,000 a year non-taxed in disability income from the military. My question is, I will not be able to invest in my new jobs 401k for the first six months. So I want to know what retirement investment options are out there that I should consider to reduce my overall taxable income. Thank you for your awesome expertise and I look forward to your response. Robert, I'll let you kick this one off, but I want to preface your answer with, I don't know why this person wants to reduce their taxable income at$160 ,000 a year.

5:08Like, don't get me wrong. That's a lot of money to make and you are certainly paying taxes. But why do you think they might want to do that? I think it is quite prevalent in society that a lot of people put the cart before the horse. They start making money and immediately, instead of focusing on building that money into wealth, they're worrying about where are all the shortcuts, what are all the hacks to help me make more money and pay less taxes. And I think that comes from a societal message that the IRS is the boogeyman and it's bad to pay taxes. You and I don't agree with that. We believe that the tax bill, all of the tax books are there for us to learn from and utilize to our best advantage.

5:52I think this happens more frequently than we believe. And I just don't understand it. Like you always say, Austin, pay the tax bill, pay the tax man. Do what you can to make sure that you're using it to your most benefit. But it doesn't mean you should be trying to escape taxes. They're there for a reason. And if you really understand the advantages and how to take advantage of them, everyone wins. So I don't quite get it either. And in this instance, you know,$160 ,000 a year is a lot of money, but I wouldn't be concerned with how do I beat the tax man out of a little bit of money at this point in my career.

6:28Yeah. So tactically speaking, if you really wanted to reduce your taxable income, that means that you would contribute toward your traditional IRA, your pre-tax IRA. So you could write off that contribution of$7 ,000. You would contribute as well to your HSA, about$4 ,300 there for self-only coverage and$8 ,550 for family coverage. So I'm not sure if you're married or not. I'm not sure if you had mentioned that. But long story short, we're talking about$12 ,000 maybe,$11 ,000 or$12 ,000 here of money that you can write against, write off against your taxable income. At$160 ,000, your effective tax rate is probably in the low 20s.

7:08So you could probably save two, maybe$2 ,500 in taxes, which is great. But remember, the money that you're saving today means that you have to pay in the future, right? The traditional IRA means that all the money you take out of it in the future is taxable. And who knows if you're going to be making more or less in your retirement age, but more importantly, who knows what those tax rates will be, right? As you might remember, the big, beautiful bill solidified the lowering of tax rates by about 2 % per bracket there and increased the standard deduction, which essentially is going to allow middle class theoretically to have more of their income stays in their pocket on an annualized basis.

7:53That's up for debate, of course. But at the end of the day, that was just because some flippant bill was signed into law, right? What happens in 30 years from now when another flippant bill is signed into law that says, no, we're actually going to raise the tax brackets and everyone's going to make, you know, oh, you have a bunch of money in your retirement accounts. And I got to pay more on that money because I'm a politician and I say what I say goes, right? So there's a lot of like, who knows what's going to be in the future. And for myself and Robert, we think that since we can't predict the future, we want to be able to know what we have to pay, which is zero in taxes.

8:24on those Roth IRA profits. So if I were in your situation, I would use this as an opportunity to max out the Roth IRA and go that route. However, if you really want to lower your taxable income, traditional IRA and HSA are the best ways to do that. And I think the only other addition to what you broke down is open a business. If you start an LLC and you open a business and have a side hustle, that is one way to lower your tax burden because you will have automatic write-offs from starting that business. You could get into real estate with short-term rentals. There are some good programs there that'll help you have some write-offs and some depreciation to help you lower your tax burden.

9:03But otherwise, everyone needs to understand to exploit the tax bills for why they're there and the rules. But don't ever break the law to try and save on taxes. That's a terrible strategy. But those are the goods. That's what you can do in this situation where you're a high earner, but you're a W-2 employee is do what Austin said to get the max benefits there, but then also look into real estate and look into opening a business. So our next question comes from Garrett. Garrett says, Hey guys, my name's Garrett. I'm 37, married, and I have three kids. I work as a general manager for a fast food restaurant, making roughly$145 ,000 a year before taxes.

9:41My wife makes$90 ,000 a year before taxes, so our household income is$235 ,000 a year pre-tax. We make good money, but I can't help but to feel behind. I want to retire at 55 years old, but I feel like I'm never going to get there. The breakdown of our finances are as follows. We have and maintain$10 ,000 in our checking account. We have$40 ,500 in a joint brokerage account. We each have a Roth IRA with$28 ,000 in it. And now the ugly part is we have a mortgage with a very low interest rate, and I'm in no rush to pay that off, but we do have a HELOC that we used to pay off high interest vehicle loans and credit card debt.

10:17The total for the HELOC is$175 ,000. That is all of our debt. We've been pushing anywhere between$6 ,000 to$10 ,000 a month toward the HELOC in hopes of knocking that out as soon as possible. And then after we pay off the HELOC, the plan was to use that same amount of money, catch up on our investments, and hopefully retire early. Am I way out of left field thinking I could possibly retire early? Thank you all so much for the help. Love your podcast. Garrett, thank you so much for listening to the show. We are super grateful that you listen to our show and so many of you do. It's really awesome.

10:46So you guys make a quarter million dollars a year and you're broke. That's the reality, right? We make$235 ,000 a year before taxes, about, I'd call it$14 ,000 a month after taxes. So about$170 ,000 a year. And you guys have, let's call it, you know, 60, about$100 ,000 invested. Now, that's not a bad sum of money by any stretch of the imagination. Congratulations on getting$100 ,000 invested by 37. But man, what went wrong? Maybe you guys recently started earning this much money. Maybe you guys were in a very different situation up until a couple months or a couple years ago, which is why you have all this high interest vehicle loans and credit card debt that was the HELOC and things like that.

11:33Maybe you guys were in a completely different situation. But maybe you weren't. Maybe you've been high earners for all of your 30s and you guys just swipe the credit card and said, you know, what's the payment? Broke people ask, what's the payment? Rich people ask, what's the amount? Right? So it's like, what's that monthly payment? How can we fit it to the budget? Is it going to work? What are we going to figure this out? So here's what I would do. If you guys are actually trying to retire early and you actually can put aside, let's call it$8 ,000 a month, seven or$8 ,000 a month, toward this HELOC, that's$175 ,000 divided by$7 ,000 is 25 months.

12:12So let's call it two years. So in two years of putting$7 ,000 a month toward this HELOC, you will have it paid off. So that's what I would do. I would spend the next two years putting$7 ,000 a month toward this HELOC, which is likely at eight and a half to nine and a half percent interest, which Robert and I would classify as high interest debt. You're not going to be able to invest that. So it makes more sense to really aggressively pay it off. However, during that period of time, Robert and I talked about this beforehand, you don't want to stop investing toward the Roth IRA. You want to continually to max out that Roth IRA for you and your wife, which will be about$1 ,000 a month, which gets you at $8 ,000 now of that$14 ,000 a month that you are taking home every month is getting invested to the Roth and using to pay off the HELOC.

12:54So you're going to live off of$6 ,000 a month. You're going to be fine. You're going to survive, right? $6 ,000 a month is a ton of money. That's how I'd approach this. And then now you're 39 years old, you guys have$100 ,000 invested, you want to retire by 55. So let's run some numbers. So 39, 55 is when we want to retire here, you already have$100 ,000 invested, you're going to be contributing, let's say you just continue to max out your Roth IRAs every month, and your average returns 10%. So at 55, you'll have about$1 million, which hard to retire off of a million dollars with three kids. But the good news is by 65, that turns into$3 million.

13:32That is a healthy retirement. So maybe there's a world where you do retire early and you guys get really aggressive on this investing stuff. And you know, who knows, right? I think you said you want to take that 7 ,000 a month and toss that toward investing, right? You did that correctly, you'd really be able to have more than a million by 55. But it really comes down to behavior. I mean, you guys got yourself in this mess and I'm optimistic you can get out of it, but you got in a mess to begin with. And sometimes you got some scar tissue that rolls over and I don't know. I'm wishing you guys the best, but I'm eager to hear what Robert thinks.

14:05This question in this situation really is all about what we discussed earlier. And that is people just keep buying stuff. They have to have the two new cars. They have to have the new iPhones. They have to have the new iPads, the big screen TVs, the jet skis, whatever it is. And this is a perfect situation where we have a high earning couple, a quarter of a million dollars a year, yet they have high interest debt. And that just doesn't make sense to me. And so I think it is some tough love, but the good thing, because they're high earners, they can fix this. I agree 100 % with you that I would have a really, really tough love conversation with the family.

14:42I'd sit everyone down and say, we're going to make some changes and here's why. It's short term, but we're going to fix this together and get everyone to understand we can't go out to eat five nights a week. We can't be door dashing. We can't be doing all of this because we have to chunk away on this debt as fast as possible. And if you want to retire early and enjoy your kids and have a wonderful life, you can do it, but you have to do the hard work now over the next two or three years. And I think Austin, your plan that you laid out is perfect. Keep maxing out the Roth because we We want to make sure we have that after-tax money towards retirement that's ready to rock and roll later on, but then the rest of it has to go to get rid of this.

15:21But in the meantime, you can't take on more high-interest debt because you're chunking away at the HELOC because then it's going to be a perpetual cycle that you have to break. And this is for everyone listening. That is why we have the emergency fund, and that is why we have a debt-to-income ratio and a budget, so you don't live beyond your means. Just because you have credit does not mean you should always be using it to buy things that are going to depreciate and that you don't need. I don't even have a new iPhone. I have the 15 Pro Max and the 15 Pro. I could go get a new iPhone tomorrow and get two new ones and upgrade.

15:55But why? These work perfectly fine. And I think this is something that is mostly mindset for people to get over and be able to overcome in their lives because you want to be able to build towards that lovely, you know, financially free retirement. The earlier you can start it, the better off. So I think this is a fixable situation. You know, we're sorry for the tough love, but we want to make sure you understand how to fix it and the right way to do it. So really, really wishing you luck, Garrett. We really think you can get out of the situation. I truly believe that you are going to fast forward 20 years and thank yourself for all the hard work you put in when you were in your 30s and 40s and you will be able to retire early it just comes down to making the conscious decision of am I going to continue to live beyond my means and am I going to continue to want to keep up with the joneses or high interest this credit card debt that, like, you gotta just say, I'm not doing that anymore.

16:53I make$14 ,000 a month, I'm going to pay off this HELOC, I'm going to invest in my Roth IRA. And then two years in the future, we're going to live off of six, seven, 8 ,000 of that 14 and the rest is going to get invested. And you do that, you will have a couple million dollars by 55. But you got to make sure. And this is not just for Garrett, because I know there's 100 Garrett's listening right now that are in this situation of him in my 30s or my 40s. And I live beyond my means for a lot, you know, a lot of my life. And now I'm trying to catch up and I got to feel like I got to make some sacrifices.

17:22It's possible. It's absolutely possible. You just need to have the path forward and understand the steps to take. And I hope that you are able to listen and learn from what our answers were for Garrett here. And don't forget, you cannot out invest high interest debt. So our next question comes from Trenton B. Trenton says, Hey, Austin and Robert, I've been listening to the podcast for about a year and I love it. I just got done listening to the Friday episode and it was great. Thanks, Trenton. We appreciate it, my friend. Trent says, I was wondering about a potential real estate opportunity. Here's some background.

17:52I'm 18 years old. I'm living at home. I've got about$35 ,000 between my Roth IRA, a high yield savings account, and my checking account. I was recently presented the opportunity to get into real estate with my dad and my brother. I would be pitching in about $20 ,000 into a cash flowing Airbnb in my town. We'd be cutting costs by mowing and cleaning it ourselves. The passive income will cover the expenses and loan payments after the initial investment. Do you think it's a smart investment for me to dip my feet into real estate at such a young age, or should I wait for a better real estate opportunity?

18:23Would love to hear your thoughts. Thank you. Robert, you're the real estate guy, and I feel like you are also an 18, 20-something-year-old trying to figure out real estate, so I'll let you answer this one. Yeah, well, we have a message here in the Rich Habits Network and the Rich Habits Podcast, and that is we love to see everyone get to that$100K base before they start diversifying into real estate and other investment opportunities. And it sounds like you don't want to do that. Is it right or is it wrong? Only the future knows that because you could do this first deal and that could lead to many more real estate deals and you could go on to make$50 million in real estate.

19:00Or you could do this first deal, use 75 % of the money that you've done such a good job saving. It could go wrong. You could have infighting with your father and your brother. It could not cash flow and then you have to come out of your pocket for whatever your pro rata share of the deal is. Assuming you do 33, 33, 33, then you are on the hook for 33 % of the losses every month if there are losses and so on and so on. So what would I do? I would love to see you stay in saving and investing a little longer. Try to get to that 100K base. I get it. You're interested in real estate, that is a great thing.

19:39So don't take this the wrong way. But I think it's too soon to put all your eggs in one basket on one real estate property that could not be the answer to your prayers financially. So I would stick with build the base first, wait a couple more years, maybe work with them on the project. So you're learning the ropes, you're learning how to do the renovations, you're learning how to do the management, you're learning the construction side while not being an owner, because I'm sure if they're willing to split it with you and have you be an investor, you could just say, hey, pay me X, Y, Z an hour and I'll help you guys with this project so I can learn.

20:18But I don't think it's the right time for me to invest just yet. So to give a reference, and this goes back a very long time, but I want to be fair to the audience. I bought my first piece of real estate was a fourplex so I could live in one and rent the other three units. I bought that when I was 23, so very young, but I already had$65 ,000 invested in my brokerage account, which wasn't the 100K base, but I was able to do this while not depleting that entire$65 ,000. So I still had money working for me while I sleep. So I hope that helps all of you of what I would do in this situation and my opinion.

21:01I'm right there with you, right? So I'm worried about going into business with family and friends, especially like as a novice entrepreneur or business owner. I think once you are someone who has run a couple of businesses in the past and you understand how to have conversations like that and navigate those challenges. But like, say for example, Trenton, that maybe there's a weird dynamic now between your dad and you because your dad is a business owner with you, right? You guys are partners on this, but hey Trenton I need you to go mow the lawn here oh dad you said you would mow it this week no I don't have time I gotta go work over here you gotta mow it but you know now your dad still wants to get paid the same amount that he's expected as a partner and you know maybe that might not feel right with you now you're gonna resent your dad it's just it's a weird dynamic and so in my humble opinion Trenton I would pass on this deal I would get my hundred thousand dollar base built and invested then yeah if you want to get into some real estate stuff be my guest and this could be a really cool learning opportunity for you.

21:59You know, if your dad and your brother decide to go with this opportunity, and they're just doing the Airbnb stuff, and they're cash filling, like it might feel weird in the moment that you're not like part of it, that's fine. But at the end of the day, you're going to learn so much from this experience that you'll be able to then use in the future. If that means finding your own partners, maybe it means you want to, you know, fund a deal entirely by yourself, right? There's a ton of different things to look forward to here. But a mistake people make is they go all in early. And I think this would be an all in bet for you, right?

22:30This is literally 60 % of your net worth would be invested into this one opportunity. And to Robert's point, I've got a friend who has an Airbnb that doesn't cash flow like nine out of the 12 months out of the year, it was the worst investment he ever made. And he has to pull two, three, four, five,$600 a month out of his checking account every month to pay the mortgage and the expenses and everything. Property management comes with it. I don't think you want to be in that situation, Trenton, where if that did unfortunately happen to you guys, that you would want to be on the hook for that. And then maybe your dad would cover it for a couple months, but then he'd begin to resent you.

23:01And so like, don't do any of this stuff, man, get your base built, max out the Roth, do your high yield savings, get your emergency fund, get some diversification when you're ready. But I would not move forward with this. I would focus on being an 18 year old who's investing and being smart and long-term driven and learn from the experience and then take that to a real estate opportunity in five, seven, 10 years from now. I love that you brought up the losing part because every time someone's ready to invest in a restaurant, a barber shop, a landscape company, or in this case, an Airbnb, they never look at what is the downside.

23:41I see it happen every single day where someone's like, yeah, but I could make all this money, but they don't take into consideration when there is negative cash flow and the bills are due and they have to come out of pocket a thousand two thousand dollars a month to be able to keep it alive i saw a friend of mine who was way in over his head buying a pre-construction condominium in downtownst petersburg and it was looked really good on paper but the carry cost was killing them because it didn't sell when it was finished and it took months and months to sell and by the time they paid all the carry costs and loan fees and all of that, the HOA fees, they ended up losing money on this deal that they thought they were going to make a million dollars.

24:22So always consider the upside and the downside when you're considering a loan, because it is very important to know the total numbers because most people only look at the positive aspects of a deal and not the what ifs if it goes bad. So Austin, I think it's a great breakdown and a great lead in with your friend's story because just most people don't consider the downside. And they're going to be wrong, right? I want people to be optimistic. And we want the show to show people how optimistic life can be and how investing is easy. It's fun. It's, it's optimistic, right? We want to plan for the upside, right?

24:58Life is better when you have control of your money and you're able to plan accordingly and have hope and optimism. But as someone who's made stupid investments and as someone who's made stupid business deals and realize like everything, like it happens. And at 18, this is just the recipe for disaster trend. That's all we're trying to get after. We're not saying it couldn't be a really cool thing. We're just saying as a couple outsiders looking in, I'd love to see you have that base built first. And I only have one more thing to add to this. And that is there is a world Trenton where you could go back to your father, brother and say, Hey, I want to be involved with this, but a smaller level and I don't want to put my cash up because I've worked so hard and really go after that sweat equity position.