Q&A: AI Bubble, Mutual Funds vs. ETFs, & Spending $30K On A Car

0:00Hey everyone and welcome back to the Rich Habits Podcast question and answer edition brought to you by public.com. These are our Thursday episodes where every Thursday we sit down and we answer your questions as if we were in your shoes going through whatever you're going through. You can ask us questions via email at richhabitspodcast at gmail.com, Instagram DMs at richhabitspodcast, or just join the Rich Habits Network link in the show notes to learn more about that seven-day free trial. And always get your questions answered because we host those two-hour weekly live streams every Tuesday night.

0:32Robert, I'm excited for this episode. We've got a ton of cool questions to answer. And man, we are getting really close to Thanksgiving and the holidays. It's snowing here in Nashville. I feel like this year just like flew by us. It has definitely been an amazing year for us in the Rich Habits Network and our entire ecosystem. And I just love seeing all the cool new things that we have going into 2026. And yeah, these episodes have really grown and grown and I just really enjoy making them. Now, before we get started, Robert, it's always important to remind people that the only way they're ever going to be able to retire is if they have a nest egg that's growing for them over time.

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1:53Roll that money over and get your free match. And fund your account in five minutes or less by heading to public.com front slash rich habits to claim your 1 % match today. Paid for by public investing. Full disclosure in the podcast description. So our first question comes from Aaron C. via email. Again, richhabitspodcast at gmail.com if you have a question. Aaron says, hey, Austin and Robert. I'm a big fan and longtime listener of the show. Thank you for everything you're doing to make finance approachable and empowering for all your listeners. I have a question about how much my family should spend on a car.

2:25We're expecting our second child and need a bigger car. Well, first off, second child, bigger car. I think a lot of these cars come with four seats. So we'll see, but just maybe pump the brakes, literally and figuratively, as it relates to that. But let's assume you do need a car. So let's keep rolling. Aaron says, my husband's 38. I'm 30. We bring home about$120 ,000 a year, so I can stay home with our son. Combined, we have a net worth of about$450 ,000, roughly broken out to a quarter million in savings and investments,$65 ,000 in our retirement accounts,$110 ,000 in home equity, and$17 ,000 in cars bought with cash.

3:04We also have$5K and our$539 for our son. We're looking at a 2024 SUV to last us until the wheels fall off. We have set aside$35 ,000 for the car purchase. However, I feel guilty spending this amount of money on a vehicle because I've always bought the cheapest thing that would fit our needs. Is it too much of our overall net worth to have tied up in a depreciating asset? Any advice you have would be greatly appreciated. To answer your question, I do not think it is too much to have tied up in a depreciating asset. You have about a half a million dollars of a net worth. You're making$120 ,000 a year, which means you guys are probably investing anywhere between maybe$15 ,000 to$25 ,000 of your income on an annualized basis.

3:44let's even say the$35 ,000 car purchase will depreciate by 50 % in the next, call it three, four, five years. Your current investments with your current net worth and what you're going to invest over that period of time will more than offset that$35 ,000. I think the$35 ,000 is a very fair purchase. I wouldn't feel bad about spending that much money on a depreciating asset in your specific circumstance, but just make sure you actually do need a car. I don't know what you're driving right now, but two seats in the back, two seats in the front, family of four that could work. Now, if you have family of five, six, and seven, obviously you wouldn't need the van or upgrade to a larger vehicle.

4:21You mentioned some sort of SUV here. So that does make sense. But to answer your question,$35 ,000 seems pretty appropriate. Yeah, I agree. And I think Austin's breakdown is really important to understand that it's in line with where your net worth is. And the only thing that I'll add to this, my general rule of thumb when it comes to purchasing a vehicle is if you're going to get a new vehicle, I prefer leasing. If you're going to get a used vehicle like in this instance, then I think it's totally great to just go ahead and buy it. Seems like you want to pay cash for it versus financing it, which is great as well because rates are pretty high right now, but I think it's totally in line with your net worth and how much you guys are making.

4:58And I totally respect and appreciate the fact that you're already looking at used cars because so many people just want to go in and get the shiny new car, not taking into consideration all of the depreciation that happens over a few years. So that's my take. I think you guys are spot on. Get the used car. Get rid of that first year depreciation. Try to find one that fits the safety and all the elements and aspects that you want for your family and your growing family. But I think it's a great idea. There's a lot of different ways that you can go about purchasing this car. But I think to answer your question, the$35 ,000, I think it's a perfect amount.

5:31Even if you said maybe closer to$40 ,000,$45 ,000 maybe. Robert, do you have like a general framework as it relates to like how much car someone can afford? Yeah, I don't really have framework as far as exact amount versus their net worth. But I would say this. They're already considering in this instance looking at a one-year-old car. I would do the math and really look at a two - or three-year-old car because I feel like most new vehicles right now that are in that two-, three-year-old range depreciate the most in the first two or three years. and therefore you're getting the better part of the deal.

6:07And a lot of times you can find two or three-year-old cars that already have depreciated 40 % that have low miles and are just incredible vehicles. There's a lot of them out there. But as far as a framework for the amount, that's a good question. I just feel that when we looked it up recently in an episode, I think the average car payment in America right now is$740 a month. That seems crazy to me because generally you need two of them. And I think$1 ,500 a month just for car payments for a family is a lot of money considering after that you have to take into fact insurance, upkeep, maintenance, gas, and all of that.

6:43So I think it's important for people to really understand the total ownership cost of the vehicle they want to buy. And then that way they can better figure out if it fits within their budget. As a general rule of thumb, though, the way I would look at it is take your net monthly income and whatever 10 % of that is, that is the gross amount you should be spending on your car payment. I think that'll keep people in a good spot. I see far too many people that have these$900,$1 ,200 a month car payments, but they're only making$4 ,800 or$5 ,000 a month. That is just not a good idea. Now, what about if in this situation where they're paying cash and there won't be a monthly payment, just like rock and roll?

7:21In this situation, I think it's fine because they have a solid net worth and really good income. So I don't think spending that$30 ,000 or$35 ,000 is going to hurt them. I would just like to see them go with a little bit older car, maybe two or three years old, so they get more car for the money and less depreciation for them to absorb down the line. I think it makes a lot of sense. Good question, Aaron, and wishing you the best of luck growing your new family. That's so incredible. So our next question comes from Joseph P. Joseph says, good afternoon, Robert Nausen. I hope all is well. Once again, I come with a question.

7:52For the past three years, I've been paying for custom whole life insurance. I pay$300 a month for a$300 ,000 death benefit. I don't know who I should talk to, but I feel like if I put that$300 in the market instead, specifically into the ETFs you guys talk about, and then just surrender the life insurance policy, I would be better off in the long term. What should I do? Thank you in advance and keep up the awesome work that you guys do. This is a really good question, Joseph. So as you guys know, we are big believers in term life insurance As just another definition reminder here, the only reason that you have life insurance is if you pass away, the beneficiary that will receive that lump sum payment can then invest that money to offset your income now that you are gone.

8:34right so let's say you're married and your husband's over here making a hundred two hundred thousand dollars a year they have a life insurance policy of two million dollars they unfortunately pass away the wife receives a two million dollar lump sum payment she is able to invest that into the markets and she can safely take out four five six seven percent whatever she needs to then supplement his two hundred thousand a year income right so like that is what life insurance is specifically for. And if you have that much investments, technically speaking, you don't need life insurance because you can just take it and invest it anyway.

9:07But if you're like me and you're just like building your wealth and doing all that stuff, it's a good idea to always have that term life insurance. So in this instance, you're saying, hey, I've got this whole life insurance policy, which has like a cash value and a investment portion and like all these are the different little things. For perspective, I have a$2 million life insurance policy, term life insurance policy. I think it's like 15 or 20 years. I got it through Prudential. It's about a hundred bucks a month,$2 million, a hundred bucks a month, 15, 20 year term. You've got a 300 ,000 at$300 a month.

9:42Do you see the difference there? Right? 2 million for a hundred or 300 ,000 for 300, right? It's like, there's a lot of fees and weird assumptions that are baked into this whole life insurance policy. And the only way you can get your money out before you die, if you're going to borrow it, all this weird stuff, right? So yes, you should surrender the policy, take the cash value or whatever you have left here, go invest it in the markets, earn your 7, 8, 9, 10, 12%, and then take that same$300 a month that you were paying toward this life insurance policy, add it right to that same brokerage account, same ETFs we talk about.

10:15And in the long term, you'll be better off 100%. Yeah, I agree totally. In my experience, when I think of whole life, I think of higher fees, the opportunity cost lost because you're not investing that money in the things we talk about every single week. You have high surrender charges, let's say down the road, like we're talking about right now. You want to surrender this policy. The fees are really, really difficult. And one of the worst parts about the whole life policies that I've learned over the years is that the slow cash value growth is just not going to be very beneficial for you long term.

10:49And that's why I'd rather see you take this money and invest it in the S &P 500 through VOO or maybe throw some QQQ in there, AIQ, because I think long term you're going to be in a much better situation overall financially unless you went with the term life policy. So it might make sense to do both. Get rid of the whole life, get the term policy, and then invest the rest because the term policy is going to be a lot more affordable, lower fees, and just better long term. And if you're looking for term life insurance, there's a link in our show notes below. Go to shurience.com slash rich habits.

11:24They're who I use to find my prudential term life insurance policy for millions of dollars. And it was just, they were a broker. They're not going to underwrite you. They just helped you find it. It's awesome. 10 out of 10 experience, shurience.com slash rich habits. Our next question comes from Julian D. Julian says, hello, gentlemen, I caught onto your podcast a couple months ago, and I've been hooked ever since. Thanks for what you two are doing as it is life-changing information. I'm 38. I make$175 ,000 a year as an electrical engineer in Texas. I have$300 ,000 in a traditional IRA,$30 ,000 in a bridge account, and six months of expenses in my emergency fund.

11:59I just landed a new job and they're offering a Roth 401k. Do you recommend that I enroll in that or do I continue to contribute to my traditional 401k? As a high income earner, some of the language around tax benefits for a Roth account are confusing. I appreciate your feedback. Thanks in advance. This is such a great question. Let's jump into it, Robert. So just so we're on the same page, there are two variants to your retirement accounts. There's the Roth variant and the traditional variant. The traditional variant is pre-tax. The Roth variant is after-tax. Let's walk through what that means.

12:36Pre-tax means any dollar that you contribute to the traditional 401k, you are able to offset that against your taxable income whenever you're filing for your taxes. Where the Roth 401k, you are not able to do that. So then if I'm not able to save on taxes on my contributions, why invest in a Roth 401k at all? Good question. Every dollar you take out of the Roth 401k in your retirement years, so after the age of 59 and a half years old is tax-free. Compared to every dollar you take out of your traditional 401k in your retirement years is taxed as ordinary income. So either you get the tax benefits now with the traditional 401k or the tax benefits later with the Roth 401k.

13:26Robert and I are always telling people to do the Roth variant of any retirement account if that is a solo 401k, a normal 401k, an individual retirement account, whatever your retirement account is, we always think the Roth variant is the best way to do it because we cannot predict what the tax brackets will be in 20, 30, 40, 50 years from now, right? You rewind the clock and you can see that peak tax brackets back, and I think it was like the 40s, Robert, were up to like 80 or 90 percent. Then they were up in the 20, 30, 40, 50 percent, and they're coming back down. Like there's a bunch of different variables here.

14:02I have absolutely no idea who's going to be president, who's going to be in control, what's going to happen to tax rates in 20, 30, 40, 50 years. So if I can just say, you know what, I'm going to pay my taxes now, and I'm going to make sure that that money in the future is going to be earmarked as tax-free income for my retirement, rock and roll. So that's my answer here. And just to give you a little bit of perspective, if you did decide to stick with that traditional 401k because you mentioned as a high income earner, some of the language around the tax benefits are a bit confusing, and you maxed out that traditional 401k at$23 ,500 in 2025, at a blended 24 % effective tax rate, you'd be saving about$5 ,000 per year at your income level of$175 ,000.

14:48That's$5 ,000 saved today, but you still have to pay ordinary income taxes on this money as you take it out in your retirement years. I like to do the opposite. I like to pay my tax is now and not have to worry about it in 30, 40 years. I agree with Austin. And I think we should pause the internet for a moment after that masterclass because so many people get confused in Austin. You always break that down so well for our listeners. So before we get into our next question, listen up folks, you can lock in a 6 % or higher yield with a bond account on public, but remember your yield isn't locked in until the time of purchase.

15:22So you might want to act fast, Lock in a 6 % or higher yield with a diversified portfolio of high yield and investment grade corporate bonds only at public.com forward slash rich habits. All right, Robert, our next question comes via Instagram DMs from Shelly B. Shelly says, hey, guys, my name is Shelly, and I recently started listening to your podcast. I love it, and it's super educational. I'm 34. I have about$120 ,000 invested across all of my retirement accounts. I felt as if I was doing a pretty good job, but now I kind of feel behind for my age. Most of my accounts have been in mutual funds and I've never touched them or even really looked at them over the last 10 years.

15:59But after listening to your show, I began rebalancing, investing into some of the ETFs and single stocks you guys talk about. I started looking at my IRA and I realized that I'm in five different mutual funds that a financial advisor recommended years back. My main question is, do I need to be in all of these mutual funds? Robert, what do you think about Shelley's situation specifically with an IRA? Does someone need to have mutual funds? Could they stick to ETFs? What's your take? My take is always I want my money growing as inexpensively as it can be. And mutual funds generally underperform and have higher expense ratios and fees associated with them.

16:36So for me, it's always going to be these low cost ETFs and index funds we talk about. And especially in this situation, because Shelly, you know, she's younger and she's got a long investing horizon ahead. And so for me, I would migrate out of those mutual funds, get myself a diversification of four or five of these ETFs and index funds and call it a day. But the big thing for me, the big takeaway here is I am so glad that Shelly is following along and actively watching her money. So many people, I see it every single day. They just have all these funds. They don't know why. They don't know what they do.

17:13And they're trusting some random advisor to tell them what to do with their wealth. And they're not even paying attention. I've asked people multiple times every single month, what do you have invested? What's it invested in? What is your weighting? What are the expense ratios? They don't know any of this. And then that just means they're not keeping their eye on the prize. So in this instance, I would definitely migrate away from these mutual funds, get into those ETFs and call it a day because she'll make way more money, have less fees going out, and she'll have her eye on her money because we want to make sure everyone is actively managing their wealth.

17:48Yeah, Shelly, I'm going to log into my Roth IRA right now on my phone here, and I'm going to shoot you straight. I'm going to tell you exactly what is inside of mine, and I can tell you without even logging in, I don't have any of these mutual funds that you're talking about inside my Roth IRA. 60 % of my Roth IRA is in VOO, the S &P 500. 30 % is in QQQ, the NASDAQ 100, and 10 % is in Bitcoin via NEOS BTCI ETF, right? So those are the three holdings I have in my Roth IRA. Got a little bit of Bitcoin, got some NASDAQ, got some S &P, and we're off to the races. You don't need these mutual funds.

18:28You don't need to be paying 60, 75, 85 basis points per year just to underperform the markets. So I'm so glad that you You are taking a look at your money here at 34 years old. You're not behind at all, Shelly. You're doing a wonderful job,$120 ,000 invested. You've got your base built. It's incredible. So we're rooting for you, Shelly, and you're doing a really, really good job. So our next question comes from Julie. Julie says, Hi, Austin and Robert. I'm Julie. I'm 25 years old and I live in California. I started listening to your podcast a few months ago. It's been incredibly helpful. Thank you for breaking down personal finance in such an approachable way.

19:01Right now, I make$28 an hour and my main expenses are rent and a brand new car payment. I recently opened a Roth IRA and an individual brokerage account after finally starting to learn about investing. I have$20 ,000 in my high yield savings. And my question here is, should I focus on putting more toward retirement so my money works harder for me or something else? This is a great question. Robert, what's your take? My take and my first red flag is new car payment. You're 25 years old. We just talked about this. You don't need to have this brand new car payment. It's going to eat away at your chances for saving money and building towards wealth.

19:38And the answer for me is yes, yes, yes. You should be focusing on living lean and mean at 25 years old, not having the brand new car, not having all the finer things in life, because the goal here is to get that base built, that 100K base, and get you saving and investing for your future. And it starts right now by not living beyond your means with the new car payment, because we'd love to see you have this Roth IRA set up, having as much as you can, 15, 20 % of your net monthly income going away to this Roth IRA every single month and getting yourself diversified and built for your future. And it doesn't start by having a brand new car payment on a depreciating asset.

20:18Yeah, so not working any overtime, right? You're making about$58 ,000 a year, assuming you do pick up a little bit of overtime, or you listened to Monday's episode, which was all about frictionless, effective, low-cost side hustles. Maybe you could make an extra$200,$400,$800 a month. That would really move the needle for you. But Julie, if I were in your situation, I'd do a couple things. The first one is I would stop contributing to this high-yield savings account. You've already got that emergency fund saved. No need to like add more to it. The other thing I would do is make sure I'm doing everything I can to prioritize maxing out that Roth IRA.

20:56$7 ,000 a year,$580 something dollars a month, right? That is the priority. And if you're saying, wait a second, I can't afford to max out my Roth IRA, then what I need you to do is have a hard look in the mirror and look at that honest budget and figure out what needs to go. I had the exact same situation when I was, I think I was like 23, 24, I was just around your age. I was making$62 ,500 a year. So just about the same you were making, but I had a monthly car payment of$440 and I had a monthly car insurance payment of$275, right? So all in, that was$715 a month. I was putting toward owning a depreciating asset.

21:39Why was I owning this asset? Because I thought it was cool. Because I thought it'd make me feel good. I thought that was the thing to do when you get a job. Turns out it was a terrible mistake. I sold the car. I bought a 15-year-old beater. My car insurance went down like$150 a month or something from like$275 to like$130 or something. So I was saving a bunch of money now. And that was that margin, that difference there is what I started to use to begin to make sure that I was maxing out my Roth IRA. I made that decision. I swallowed my pride. I said, I don't need this. I'm 24, 25 years old. Julie, if you can't afford to max out your Roth IRA, I would argue that maybe you should also get rid of your new car payments.

22:18Probably the best way to move forward there, right? But Julie, at the end of the day, personal finance is personal. We can only tell you what to do. We can only give you the math. We can only lead you in the right direction. It's you that has to look in the mirror and say, why am I doing this? Why do I drive a new car? Why do I, I don't need this. I can go buy a$7 ,000 clunker like Austin did and drive that. It was a 2000. So I bought it in 2019, 2020, something like that. 2019, I think. It was like right before the pandemic happened. Robert, here we go. It was a 2004 Lexus ES 330. And the thing about it was I was able to buy it from a very old person who bought a brand new, by the way.

22:59They were in their late 70s and decided they couldn't drive anymore. And so I got a screaming deal on about$65 ,000,$7 ,000 is what I paid. But here we go. Ready? The back seats didn't seem like they were ever sat in and it only had 65 ,000 miles on it despite being a 15-year-old car. But again, listen, you can find that stuff. You just have to put in the work to go and find it. Julie, you're doing a great job, but really consider finding those things in your budget that you don't need. Car payment could be one of them. Prioritize that Roth IRA, build your base, and then make a decision as to, hey, what's my next move?

23:30Do I want to start saving for a down payment on a house or one of the what is that next thing i could talk about this all day every day and that is lifestyle creep in this instance is getting in the way of your future dreams so many people just continually upgrade their lifestyle as they make more and more money and they never get off the hamster wheel to allow themselves to set aside that money for the future so i love this breakdown austin and yes all of you consider your budget before you go out and buy that new car because it is a depreciating asset. We don't want to see you get buried in debt.

24:01Robert, it's so funny. I'm on Carfax right now looking at the same car. And there's a bunch of them still for sale in my area. And they're all like, there's a ton of these that are under 100 ,000 miles. Like for example, this one's got 59 ,000 miles on it. It's for sale for eight grand. This one's got 82 ,000 miles on it. It's for sale for nine grand. I'm telling you, maybe this is the clunker y 'all need to be driving like I did if you're trying to find an affordable, old reliable used car. All right, Robert. So our next question comes from Isaiah. Isaiah says, Hey, Robert Nelson. I love the show.