Q&A: Doubling My Income, Life Insurance, and SEP IRAs

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0:35This episode is our question and answer edition, which means we look at our Instagram DMs, we look at our email address, richhabitspodcast at gmail.com, and other places for your questions. And then we take those questions and answer them on this episode. So if you have a question to ask us, be sure to DM us on Instagram at richhabitspodcast, or again, email us a question over there. Now, Robert, before we jump into the episode, I just want to remind our listeners of a couple key events coming up. The first key event I want to remind people of is our webinar. We have a webinar on March 27 at 4 p.m.

1:11Eastern Time. We have 1 ,000 seats. We ran out of seats last time. This time, be the first 1 ,000 and hopefully you will be able to attend the webinar. This webinar, like our last webinar, will be joined by the NEOS Investments team and their Wall Street veteran asset managers to talk with us about portfolio composition, right? How to build an investment portfolio from scratch. We're going to be talking about index funds, different ETFs, different single stocks, different alternative assets, all the types of cryptocurrencies. It's going to be a really, really fun webinar. And I think Robert is very excited about it.

1:45Yeah, the last one was amazing. I learned a lot. I think we all did. And having them back on is just so exciting, not just for us, but I think for our audience, because I just love the fact that we've built rich habits to this point now where all these amazing talents from around the country want to join us and really dig deep on all of these subjects that we talk about on a daily basis. So we can really help everyone on their journey understand all of the nuances of investment strategies and how to build wealth. So I'm super excited and I love it and want to do one a month if we can. Let's hopefully get there for sure.

2:24And also just wanted to remind everyone here too, something I did over the weekend, and I think it's a rich habit we've talked about in the past, but I really want to encourage others to, you know, put this into their monthly routine is tracking their net worth. I think a lot of people listening right now might not know where they are from a net worth perspective. And that could come from a place of one, just not knowing how to track it or two, kind of being scared to even look to see what it is. But we want to just really remind everyone here that it's so, so important to know where you are, because if you don't know where you are right now, it's gonna be really hard to know where you're going in relation to that.

2:59So put it on your calendar as a monthly reminder to check in with yourself financially and look at your net worth. Have you paid down your debt? Have you taken on more debt? Have your investments grown? Have they dwindled? Have you invested new money? How have you been as it relates to growing your net worth? It's something I do every month, Robert. I know I think you do it quarterly, but I think it's really important for our audience to kind of put that reminder on their calendars for them to do. Yeah, I deal with it every single day with clients and people that work through my private community in the fact that they look at it almost as if the amount of stuff they have is what is equal to their net worth.

3:37And that's just a bad way to look at it. I see so many people that go, oh, we have two new cars. We have this nice house. We have a boat. We have all this. But then when you dig through the numbers, you know, we talk about the honest budget all the time. When you dig through the numbers, they have a negative net worth. because what they don't realize, just because you possess assets does not mean you own them. And that is a key factor because if you have a loan on a boat and let's say you took out that loan for 50K and now the boat after depreciation's worth 35K and you might have it paid down to 40K, it's still a negative net worth on that what could be asset.

4:12And this is one of the biggest problems I think most people understand is just because you have stuff does not mean you have a positive net worth. And it's very, very important to understand that because you want to get your ducks in a row as soon as possible. So very important. I'm very excited about it. And Robert, before we jump into this question and answer episode, thanks everyone for bearing with the short conversation beforehand. Talk to the people about how important it is to own assets that go up in value, like investments or real estate or businesses versus assets that go down in value, like boats, cars, or electronics.

4:43This is the key to success. So many people, as soon as they make money, let's say, and you start making money. Let's say you were making 42 grand a year. You get a bonus. Things are going well. You're up to 65K a year. The first thing most people do is figure out how to spend that extra money instead of keeping their lifestyle the same and building their base. You guys have heard for over a year now, Austin and I speak about building your base. And I think it is the most important thing you can do for yourself and your future is understand without a base, you're not going to have any future financial freedom because if every time you get more money and you make more money, you just spend more on lifestyle creep, you can never get ahead and kicking the can down the road for years and decades will get you in trouble later.

5:28I promise you, this is one of the things that is the most important for everyone to understand. So the way I would rather see everyone do, everyone that's listening and following along to the Rich Habits podcast and in our community is to understand, soon as you get that money, build that base, whether it's 50 or 100K, start buying cash flowing and appreciating assets, whether that's real estate, stocks, ETFs, even crypto in the Bitcoin and the Ethereum's of crypto. Start building that base. So you have passive income and appreciation before you start buying all the toys. Because at the end of the day, I don't think I've ever met a person that's bought a boat, bought a jet ski or bought a new car that sold it for more than they paid for it.

6:10Because guess what? They're the biggest depreciating assets you're ever going to own. It's almost strange to call it an asset because there's no positive arbitrage for you with your money. So it really just is a fun liability. So keep that in mind. The most important part is to understand you can't kick the can down the road forever and just have a blast because then you're going to be working till you're 75 years old and no one wants to see that happen, at least not on our watch. A fun liability. I really like that. I I mean, I would argue my Toyota 4Runner is a fund liability, that's for sure.

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7:26Discover the most cost effective ways to trade options now and start getting something back on every contract, every trade. It only takes a couple minutes to sign up at public.com. And just as a quick reminder, this was paid for by public investing, you must activate your options account by March 31st for revenue share. Options are not suitable for all investors and do carry significant risk. To read the full disclosure, there is going to be that in the podcast description below. And as just a quick reminder, this is for US members only. All right, our first question comes from Jesse. Jesse says, I've got roughly$30 ,000 in a SEP IRA.

8:02My investment options are limited inside of this account and it's been underperforming the market. So I'm actually excited about the possibility of moving money out of this account into an account with more flexibility. I think I can move it into a traditional IRA with no tax implications or even convert it to a Roth, but I will have to pay taxes in that case. I'm leaning towards just moving it to a traditional so I have autonomy over my investments, putting it in a handful of index funds and leaving it there to grow. What are your guys' thoughts on this idea? Robert, you want to kick this one off?

8:33Yeah, without knowing the Age of Jesse. Great question. Love it. I would be looking at first and foremost, let's assume you're under 40 years old. I wouldn't want to kick the can down the road. I'd really consider migrating as much as you can into that Roth IRA now, getting those taxes out of the way. So then you have the benefits for the rest of your career into retirement. So that would be one of the things I would want to do. But also I want to understand more. And Austin, maybe you can shed some light of why don't you have autonomy now? I know that in my SEP and in your SEP, I believe you have full autonomy to do the investments as you'd like.

9:08So Austin, touch on that a little bit for our listeners, because I think that's important to understand, especially if it's underperforming, that you want to have a say in what's happening with your money. All right, Jesse. So a SEP IRA is a simple employee pension plan, which essentially you can think about it like this. Your employer doesn't offer a 401k or one of these more more established sort of retirement strategies. So to keep things simple, they offer a SEP IRA, which just means that they're taking a percentage of their, call it annual profits, and they're using that to contribute to their employees' retirement funds, right?

9:45They're the ones that are contributing to your fund. You are not contributing to it. Your employer is doing that, right? So in my instance, back in 2021 and 2022, when I was building my small business as a solopreneur. I was the employer, so I was able to contribute to my own SEP IRA in the eyes of the employer, if that makes sense here. But that's the key differentiator about the SEP IRA in a 401k. The employer is the one who is contributing to that, where a 401k, the employee is the one who's contributing to that. So Jesse, in this example of your$30 ,000, not having autonomy over that is really important.

10:21If I were you, and I agree here with Robert, depending on your age, we were talking about maybe like$8 ,000,$10 ,000 in tax liability here if you do roll that over to a Roth. And then now you have the lifetime tax regrowth that comes with the delta that's left in the account, plus any other contributions you make, assuming you roll it over to a Roth IRA. So if I were you, I would roll it to a Roth IRA. I would take the tax hit now early as there's not that much money in there. And I would continue to max that out every single year. To your point, I would put it in those index funds we talk about, VOO, QQQ, VGT, VTI, MOAT, even AIQ.

11:01Robert loves his AI stocks. So that's what I would do. I agree 100 % with what Robert alluded to. And I think you're well on your way, Jesse. Our next question comes from Kim. Kim says, I love the podcast and I'm learning so much and I'm kind of kicking myself for not starting sooner. I'm 56 years old and have a traditional IRA of$250 ,000 and a SEP IRA of$450 ,000. Can I combine them? What's the difference between all these IRAs? Do I need to roll this over into a Roth? How should I be thinking about this? Robert, think about what we just talked about with Jesse. Now that we know how old Kim is, let's answer this question.

11:34Great question, but let's answer the core part of the question. Would I do the Roth at 56 years old? I personally would not do that. I don't think it makes sense for you. I like where you're at right now with the traditional IRA and the SEP. So I think you're on the right track. I wouldn't do the Roth IRA right now. I would leave those where they are, and I would continue to monitor them and make sure you're just not in a situation where you're trusting the employer to be able to make all of those decisions. Because as we said in the prior question, we want to have as much autonomy as we can or say in our investments to make sure they're performing well.

12:10Very important. Good question, Kim. So the$250 ,000 that you've got in the traditional IRA, you're 56. I would imagine most of that is invested into the index funds. The$450 ,000 that you have in the SEP IRA, if you want to combine that, right, and roll it over to the traditional IRA, I'm not mad at it. Just know that when you do that, that does not mean selling the individual securities, which are stocks and ETFs, taking the money out to your bank account and then redepositing it into a different account by combining them, quote unquote, that really means that you're transferring the ownership of these stocks off of, you know, whatever, if it's Fidelity or Vanguard or Bank of America, whoever your SEP IRA is through and transferring it over into whatever your traditional IRA is through, which might also be Fidelity or Vanguard, right?

12:59But you know, I'm saying you're moving from one asset manager to the next. And then once you've done that, I think you're in good shape. I mean, you're 56 years old, you're able to now invest up to again$7 ,000 in the year of 2024 toward this traditional IRA, you're definitely going to see some compound growth between now and 65, again, another 10 years ahead of you. But if I were you, I would also consider how you want to think about taxes, right? Because now you're at that point in your career where you might want to begin dwindling down over the next eight to 10 years. And of course, I would imagine now$700 ,000 will absolutely double over the next 10 years if it's invested in these S &P 500 index funds we talk about.

13:37So call it one and a half million dollars by the time you're 65. However, this one and a half million to your point will be in a traditional IRA. And so as you enjoy that money that comes out of that traditional IRA to fund your retirement, you need to be thinking about setting aside the money for taxes. Now, I'm not saying there's specific tax loopholes to use. I'm just saying it's probably a good idea to consult with a tax professional on that process. Our next question comes from William. William says, I've got a question coming out of Murfreesboro, Tennessee. I'm turning 21 years old this year, but I failed to set a good goal for myself.

14:10I feel like I'm spread too thin financially. Right now, I'm contributing$100 a month to my Roth IRA, and I'm also putting$100 a month toward a traditional portfolio on public.com. I'm also trying to dabble a little bit into Bitcoin. I'm in school for radio and broadcasting, but I'm currently unsure if I'm ready to commit to this major and make a career out of it. I still live with my parents, so my bills are limited, but I'm afraid this isn't sustainable for when I move out and begin to live on my own. How should I go about really dialing in my finances and making more efficient moves with my money?

14:42Robert, do you want to kick this one off? Yeah, I think you covered it yourself, William, and that is dialing in. Right now, it sounds like everything I hear dabbling, I hear this, and it just sounds like you're fragmented and don't really know where you want to go. So let's define that. Let's figure out how much are you making right now and can you'd be making more money with a side hustle or something else. What are your financial goals, let's say for the next five to 10 years to get you started to build that base? And how do we achieve that? Where are we at with you've got the Roth up and running.

15:13Let's define what you're doing with it. You're putting in a hundred dollars a month right now. How can we make that more and get it up more to 500, 600, or even$250 a month? Because you have the gift of youth and we need to make sure that we accelerate everything you're doing because of your age to set yourself up so much better for later on in life. So that's where I'm at. I would really figure out how can you make more money? How can you dial in your objectives so you understand what you're doing and have a plan rather than kind of haphazardly going about it? Because the last thing we want to hear is dabble or uncertainty or all of these words.

15:52It just means you're kind of bouncing around and we need to fix that right away. So more tactically speaking, I think I'd break this up into two buckets, right? Left side of the aisle, we've got pre-graduation. You're still in college. On the right side of the aisle is post-graduation, right? You're out of college. Pre-graduation, I think the only thing you need to worry about is, well, I guess two things. One, do you want to do radio broadcasting as a major and what's the career from that? And if not, two, how can you find a major or something to study that you can make a career out of that pays off your student loans and is a fruitful career.

16:23So all I would focus on right now in college, sure, if you want to keep doing the 100 bucks to the Roth IRA, 100 bucks over here, be my guest. But I think what's really important is I knew a lot of people in college who drifted around. They had like seven different majors throughout the four years. They graduated with something they don't really care about. They had 40, 50, 60 ,000 of student loans. And then they were just kind of like, oh, woe is me. Don't be that person. Figure out, yes, I want to do radio broadcasting, double down on it, be the best radio broadcaster you can be, graduate first in your class in radio and broadcasting, and go become the next Chris Cuomo or something like that, right?

16:56And then from that is post-graduation. So from a post-graduation perspective, you have three things to worry about. The first one is paying off the student loans, especially if they're high interest. The second one is doubling down on investing now that you have actual income. And the third one is, to Robert's point, figuring out those longer-term goals. The medium-long-term goal I think a lot of people should have is to build an emergency fund. It's a lot more approachable than what I think a lot of people make the mistake of making a goal of, which is buying real estate. A lot of people make the mistake of going out and buying real estate or trying to buy their first primary house or house hack or something like that without having$15 ,000 to$20 ,000 in cash sitting in a high-yield savings account first, right?

17:31Don't make that mistake. So again, William, you go to MTSU, you're in Murfreesboro. If I were you, I would double down on whatever major you want to do, be the best major you possibly can be. Do not go into high-interest student loan debt studying something that's not going to make you money out of college. So if you do want to do radio and broadcasting, figure out exactly how much it's going to make you, get the internships, line up the jobs, do everything so you're gainfully employed when you graduate. And then once you graduate, I want you to pay off the high interest debt as soon as possible.

17:55And I want you to build an emergency fund of six to 12 months of expenses. For me, that's call it$30 ,000. For some people, it's 15 to 20. For others, it could be up to 40. But figure out that for you. I guess it's close to probably 15. And then once you've done that, you can kind of have that safety base built. Not exactly the investing base, but the safety base, right? You're out of debt. You've got your emergency fund. Now you've got a little bit extra income. Let's double down on investing and really max out not just the Roth IRA, but also other taxable accounts and Bitcoin and alternative assets.

18:25Maybe you go buy your first real estate property and house hack. That's when you should begin to do those things. And the biggest piece of advice I can give you, William, is it doesn't happen overnight. We're talking about a five to seven year process, right? I turned 28 in a couple months and it has taken me so long to get to where I am. And if I think back to like with the goals I had when I was 19, 20, 21, 22 years old, like, yeah, I mean, it's taken nearly a decade now and I'm just starting to scratch the surface on those. So please take a deep breath, slow down, enjoy the process, but make sure you have a plan so you're not just drifting through life after graduation.

18:56And I want to add one more very important thing for William and everyone listening that has a similar situation. Do not rush because at the end of the day, William, you said you're living with your parents. That is awesome. If you can make that work and prevent yourself, because I think so many people want to rush to go get the first house, get the bomb apartment or whatever it is. Don't do that. Like literally, I spoke to a guy the other day that was in his early 20s. He bought like a little camper van, not like a Sprinter, but like an older camper van, moved to the area where he could get this really good job, joined a gym, and he lives in the van in the parking lot of the job.

19:35And the gym is right there because he calculated by doing that, he could save$2 ,300 a month for the first two or three years of his career. So don't rush into going out and getting that nice apartment or buying that first home. Get your base built. Promise. I promise. I promise. You will love it later when you realize that you didn't immediately put yourself in this place where you have very little money left over because all you're doing is working to pay bills. Very, very important. I mean, Robert, would you rather have a cool social life and try and impress your friends or live in a camper in a parking lot with$50 ,000 at the end of two years.

20:14I mean, give me the 50 grand every day of the week, dude. And just to your point, Robert, too, I mean, I was that guy, right? There's an Instagram photo on my account of Mealik standing in front of my house with a dog and a cool Lexus. That guy was broke. That guy was super broke, but he looked cool. He thought he was cool. No, that's not what cool is, William. So to Robert's point, whenever you're now in your early 20s, mid 20s, even late 20s, don't fall victim to the keeping up with the Joneses or trying to look cool or impress people. Now's the time where you can live with your parents, save$1 ,500 a month on a rent, and no one cares.

20:45It's totally normal. It's fine. It's totally fine. Live with your parents for a year or two out of college, three years even, right? But make a goal to take the money you're saving by doing that to pay off the student loans or start investing, building that base we're talking about, the high savings account, right? Do things intentionally, right? You want everything to be intentional with your money, very intentional with your money. And if you're able to do that, if you add discipline to intentionality, you are wealthy. Really, that's all it is. Intentionality plus discipline equals wealth. That is the formula.

21:16I love this episode because, you know, me being the elder statesman of the two of us, I've been down the road. I've lived beyond my means. I've had all the crazy stuff. And now looking back, I think I did it better than 95 % of the people I knew because at 21. I already had the Roths set up. I already had my brokerage accounts and I did all that, but I still live beyond my means. So when I can share those stories now to people and say, I promise you later on in life, you're going to remember this day when you had your question answered on the Rich Habits podcast and you made those changes because there's no better feeling than financial freedom and waking up every day with a plan for what you want to do and not have to worry about money or paying a bill.

22:03Because trust me, it's terrible when you're like, how am I going to pay my rent? My cell's going to get shut off. Maybe you're behind on your car payments. That's not going to happen on our watch. So that's why I love this conversation in this episode. So before jumping into our next question, I want to remind everybody that public is officially the cheapest way to trade options. That's because they're doing something no other brokerage has done before. They're sharing 50 % of their options revenue directly with you, the customer. So whenever you trade options on public, you get something back, minimizing your transaction costs.

22:36Go to public.com and activate options trading before March 31st to lock in your lifetime rebate. That's public.com, the cheapest way to trade options. Our next question comes from Hank. Hank says, life insurance. You hear it promoted all the time as a good investment, but is it actually? For the record, I just got married and I do not have kids. Is it a good idea for me to get life insurance as an investment? If not, when is life insurance appropriate to consider? Oh, go for it. It's just the biggest sigh, man. It's just, oh my gosh. But that's okay. Hey, good question. That's what we're here for, dude.

23:13We want to answer these questions. We love answering your questions. So the first answer I have to your question of, is life insurance a good investment? Is no. Life insurance is insurance. It's insurance. Life insurance is not an investment. Life insurance is not a wealth building tool. It's not those things. It is exactly what it's called, insurance. Now, unfortunately, a lot of people make the mistake of thinking that life insurance can be an investment. And unfortunately, there's a lot of life insurance agents out there that deceptively encourage people to think that life insurance can be an investment.