Q&A: Escaping Student Loans, Owning a Dog Grooming Business, & Dividend Investing

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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, a top 10 business podcast on Spotify. My name is Austin Hankwitz. I'm joined by my co-host Robert Croke. In this episode is our question and answer edition, which means every single Thursday, Robert and I sit down and we answer your questions live. We have questions in this episode ranging from a ton of different topics. We cannot wait to jump into them. But before we do, I want to remind you all how to ask us a question in the future in case you want to do so.

1:19There are three ways you can ask us a question. The first way is inside of the Rich Habits Network. This is our sort of private community. We have those one-on-one conversations, those live streams, those really cool ways of communicating with our true fans of the podcast. And these people always get their questions answered. The second way is by sending us a DM on Instagram at richhabitspodcast. And the third way is by emailing us a question at richhabitspodcast at gmail.com. This episode, we've got questions from all three. So, Robert, can't wait to dive in. Yes, but a quick heads up. Time may be running out to lock in that 6.6 % yield at public.com.

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2:29Discover how you can lock in that 6.6 % yield until 2028 with the new bond account only at public.com forward slash rich habits. And as a quick reminder, just so we're all on the same page about what this is, a bond account is a self-directed brokerage account with public investing, and they are a member of FINRA and SIPC. deposits into your bond account are used to purchase a set of 10 fractional investment grade and high yield bonds the yield represents a monthly average that's annualized over time before fees as of september 30th 2024 the yield is subject to change daily and that yield at the time of purchase may differ remember all investing carries risk this is not an investment recommendation but to learn more you can visit public.com so as many of you figured out our last episode how to escape living paycheck to paycheck was audio only you weren't having glitches on your end we had a glitch on our end so we apologize but hey you guys all know our beautiful faces and our voices so you can live with it for one week and we promise we got it fixed and we won't have another issue and we're back so as you can see we're smiling we're waving our hands we're excited if you're not yet watching this watch it on spotify this is a video podcast on spotify and we also have a YouTube channel so you can go watch these video episodes there as well.

3:45But as you can see, we're back on video and we're excited to be here. So our first question comes from inside the Rich Habits Network from a man named Max. Max says, hey everyone, I want to talk about dividend investing. I want to specifically know how much people allocate to their specific dividend portfolios and what funds they're picking. I know we talk a lot about SPYI and QQQI and sometimes SCHD, but how is everyone sort of breaking down these dividends? How do they think about monthly dividend allocation? Are you reinvesting your dividends? What's everyone's approach to dividend investing?

4:16Now, Robert, I can't speak for everyone that listens to the podcast or even the now over 400 people inside of the Rich Habits Network, but I can share my own dividend investment strategies, and it's pretty simple. So just so we're on the same page, what is a dividend? A dividend is simply a cash payment from the company you're investing into to you, the shareholder, for owning stock in the business. That's it. That cash comes from a percent of the profits that business generates over the last three, six, nine, or 12 month period of time. So what happens is, is the company makes all this money, they take some of those cash profits, and they pay them to their shareholders as a, hey, congrats for being a shareholder in a winning company.

4:55Here's your portion of our profits. And why being a dividend investor is pretty important here from a shareholder perspective is because you're investing in the companies that are one, profitable, and two, paying you a percent of their profits that tend to go up every single year. A good example of this is Cintas Corporation, ticker symbol CTAS. Their most recent earnings call stated that this year, 2024, is their 41st consecutive dividend increase to their shareholders, right? So like that is really, really cool. And you go look at their stock chart and it has outperformed over the last five years, Apple, Microsoft, Amazon, Google.

5:32So dividend investing isn't always boring, Robert, but it could certainly be a way to have a good strategy around your portfolio. Now to answer Mac's question specifically, he asks a little bit further in this around how we should allocate$300 a month to building a dividend portfolio. In my opinion, the easiest way to get exposure to companies like Cintas Corporation and other companies that are raising and growing and paying their dividends is through the SCHD ETF that he had mentioned. That is an ETF that holds stock in companies that pay dividends to their shareholders and increase those dividends to their shareholders every single year.

6:06It's a winning investment strategy in my book. I agree. And, you know, we have different strategies of how we do this. I do hold SCHD, but I also hold individual stocks that I like. You know, we talk about also SPYI as a fund and QQQI as a fund. We love both of those from Neos. But I also love Lowe's and John Deere and some of these other dividend paying companies, Citigroup. There's just so many good ones out there. So I think, Max, just do your research and figure out what is your risk tolerance and how much of your portfolio you should have in these dividend paying ETFs and stocks. I personally keep it around 10 % of my overall portfolio.

6:47But I know, Austin, I think you're a little higher than that. But you're on the right track, Max, and you're looking in all the right places. And a quick pro tip for everyone listening and Max's great question is to look at two things. One of them is payout ratio. You want to make sure that there's not so much of a payout ratio as it relates to the profits of the stock, because that can be a little bit of a red flag. But also you want to look at what they're actually paying as a dividend. Once they get over 5%, I always look at that as possibly being a red flag, because they're trying to coax you into staying into their stock with this high dividend, while maybe there's some rocky road ahead.

7:25So keep in mind of those two things when you're looking and making a decision, that it's all not rainbows and unicorns with dividend paying stocks. And so just keep those two tips in mind and that should help you. I love that perspective, Robert. Our next question comes from Priyanka K. Priyanka says, we currently own a townhome, which we bought for$600 ,000 in 2019. That townhome's interest rate is 2.9 % and we pay all in$2 ,800 a month in property taxes, homeowner's insurance, and everything in between. We always have wanted to own a single family house, mainly because we need a backyard for our dog and would really love a basement.

8:00We found a home that meets this criteria for$1.2 million and the builders are offering us a 2.99 % buy-down rate for the first year, but it will increase by 1 % for the next two years after that. Then we'll have to refinance and figure things out. We have a few options and would love your perspective. Option number one is to rent out the townhome for$3 ,800 a month and then go out and buy this house while keeping the townhome and renting it. Option number two is selling our townhome for about$850 ,000, taking the difference and putting that toward our next home. Our third option is to rent for three years and then sell our townhome to take advantage of any additional appreciation in house value and also avoid capital gains taxes.

8:44And our fourth option is to not buy a single family home at all. Our long-term financial goal is to retire in the next 15 years. So whatever option we pick, we do not want it to deviate us from that goal. Thanks for letting us ask a question. All right, Robert, We've got a couple options here. And just to break things down, looks like they did a great job buying a townhome for$600K. It's now worth$250 ,000 more. They've got a great interest rate. And we're not going to see interest rates like that again for several more years. So with that context, I'll let you take things away from here. Yeah, I mean, congratulations, Priyanka and husband.

9:16It's a little tough without all of the information to know which of these four or five options is best because we don't know how much they've got socked away in retirement. We don't know what their income is. every year. We don't have all of the details, so it's a little tough, but I'm going to take a stab at it. It seems to me right now, based on this information, I don't know that I would go buy the single family home just yet, unless let's say your retirement savings is maybe over 500k right now and you guys are making 150 ,000, 250 ,000 plus per year. Otherwise, I would look at keeping the townhome maybe for one or two more years letting these rates come down let's see what the market does does it cool off in your area because again we don't know where this location is you could be in an area where the prices are really hot and high still and we might see a cool off period so i'm unsure of what the best option is given the information i don't mind if you sell it but i don't know if i'd sell it again and take all the money and dump it into this 1.2 million dollar home because again, you could see a decrease in values like a lot of people are seeing in South Florida, some parts of Austin, Texas, Southern California markets.

10:30So I would hate to see you buy it at 1.2, get the short-term buy down, and then in two years, the house is worth 9.50 and you're back up to 5.5 % interest. So just be careful there. You do have options. You've set yourself up well. I would hate to see yourself go backwards financially by choosing the wrong option. What a great breakdown. And I largely agree with you, Robert. I would stay in the camp of probably just not buying a single family home at all right now. Just looking at these numbers, right? Let's pretend that you did sell the house for$850 ,000. And after fees and everything else, let's say you had$200 ,000 to put toward this next house.

11:07That means you'd be borrowing about a million dollars. Now, sure, in that first year, it's at that, call it, 3 % interest rate. And then it'll increase to 4 % for the next two years. then maybe you could refinance it at 4.5-ish percent, but still at 4.5 % interest. That is a 5 ,000 per month payment on just the principal and interest alone. We're not talking about property taxes. We're not talking about insurance. So you guys right now are at this$2 ,800 range. You're immediately gonna double that. Let's call it$5 ,500 a month after you include everything else. I'm not saying you can't afford that, but just make sure if you all really do wanna retire in 15 years, just make sure that you can afford that.

11:45Because if I was in your situation, I'd really consider holding on to that$2 ,800 a month payment a little bit longer because you have to think about the opportunity cost of not doing so, right? So by buying this new property at this, call it$6 ,000 per month,$5 ,500 per month, you are now talking about an additional$3 ,000 a month in property costs, right? Cost to just live. That extrapolated over the next five, six, seven years, because I'm sure you're going to be there for at least five, six, seven years before you consider doing anything regarding early retirement, is going to be a quarter of a million dollars of net additional costs to live.

12:23I mean, unreal,$250 ,000. So if you had not done that and you just lived in the townhome for another five, six, seven years, you would have saved yourself, one, a quarter million dollars of cash out of your bank account over that, call it six or seven year period. And then two, if you had taken that quarter million and had invested it, now we're talking about half a million dollars of additional capital that would allow you to retire early. I guess what Robert and I are saying is you've done a great job and you've done a really great job of laying out your decisions and methodically thinking through this next process of your life, whatever choice you make, just make sure you understand how much it's going to cost you and net capital, right?

13:00Leaving your bank account every single month and year and over that time period, as well as what that money would have looked like if it was invested over that same period of time. Yeah, I agree. And another way to look at this, and it bothers me a little bit, is you're going from 600 to 1.2. So it's a pure double in house cost. Okay. And so as Austin alluded, that's going to be a pure double and more in your monthly income. So I don't know if you've made a bunch more money per year since 2019. If you had great, then maybe you can afford this home. But why not look at an$850 ,000 home that's got a yard?

13:34You're going to still be able to find these pre-construction deals right now in almost every market where you can get that buy down to save you some money. So those are my thoughts. Tell us more about it in the school community and we can talk through it further, but that's where I'd be in this situation. So our next question comes from Zachary T. Zachary says, Hey guys, I'm 30 years old and I've worked for a dog boarding facility since I was a junior in high school back in 2011. We were a small business at the time, but we've since grown to six locations all across Alabama. And I'm really excited about the growth.

14:06I worked my way up in the company to an okay salary of$76 ,000 a year as a general manager. The owner is a good guy and in May of 2024 my dream came true and the owner sold me 15 % of the operations of a single store through a seller financing deal. I'm not paying anything out of pocket for this deal which is amazing and paying the loan back to him with the distributions of my 15 % equity in the business which means I'm also not reaping the rewards of being a part owner just yet. At the rate of my distribution so far I'll pay him back over the next 18 months. The cost for my 15 % of profits was$78 ,000 and the balance is now down to$58 ,000.

14:44I'm eager to figure out how to buy more equity in this business because I believe there's going to be more opportunities in the future. However, here's my problem and my question. I have a lack of cash. I've got$12 ,000 in my simple IRA,$16 ,000 in my Roth, and$7 ,000 in a high-yield savings account. My monthly mortgage is$2250 and I split this with my wife who also makes a$70 ,000 a year salary. We have zero credit card debt and our car is completely paid off. Our credit score is north of 800. Is there a creative way that we can get a$50 ,000 loan so I can perhaps get some more skin in this game?

15:18I can maybe ask my boss for another deal like the first one, but I'd prefer to have some leverage with cash on my end. I'm okay with taking on debt because I think this will do well in the future, but I want to know your thoughts. Robert, this is definitely down your alley, so I'll let you kick this one off. Yeah, Zachary, great question. And let's back up a little bit. It says here that you paid$78 ,000. You're paying$78 ,000 for your 15%. So I would like to understand without knowing it right now, maybe down the road, what multiple was that figured at for owner's discretionary income per year?

15:52Because it looks like to me, if it's just a one-to-one, you're paying on basically a million dollars or close to a million in revenue. I think it's like$880 ,000 in profits for the year for you to pay for that. So that's number one. I would want to know before you try to get more equity, are you getting a good deal? Generally in a business like this, you're going to want to base the equity multiple on a multiple of owner's discretionary income, which could be a 2X multiple, a 3X multiple of the profits of the business. That's number one. Number two, there are a lot of ways you can go get money.

16:28And I wouldn't take it from what you have nestled away now, because we always say before you go out and start diversifying too much, you want to get that 100K base built and you're not there yet. So in my opinion, you could go to Chase Bank, get a credit line, get a high balance card, something like that to free up. Maybe you can find 18 months, zero interest on$50 ,000. But At this point, I think you should stay put with the 15%, look maybe down the road later for more, or like you said, go back to the owner if the deal is right for you and say, hey, I'd like to up my equity percentage to 25%.

17:07What would that look like with you given the current numbers of the business and all the work that I've done? Because you can also play the sweat equity game a little bit here and say, hey, I've worked really hard for years at this location. I've done a great job for you, and I just want to be rewarded for that. What does it look like if I wanted to get 10 % more? I really like that. And just to piggyback on that, you know, Zachary, I think that you and your wife might have a money problem just by the verbiage that you've used, right? You guys talk about how I split that 50-50 with my wife. She makes$70 ,000 a year.

17:42You know, you don't split your mortgage with your wife. You guys have a joint bank account, and you pay for your mortgage out of your joint bank account. You guys are married. You're not roommates that you split your rent with 50-50. Do you guys also share the mustard? Who buys the mayonnaise? That's not what marriage is. So Zach, I also want to encourage you now to think about as you invest toward your future, not just think about it as me, me, me, but think about it as us, right? You guys are married. And the second thing I want to call out is you're making$146 ,000 a year as a combined salary for your household.

18:15Household income of, let's call it$150 ,000 a year of a salary. Now, of course, you're going to take out taxes and insurances and things like that, benefits. So you're probably around this$110 ,000,$115 ,000 take-home pay range, which is just north of$9 ,000 a month. I don't understand how someone who is taking home$9 ,000 a month with a$2250 mortgage, which is very reasonable, does not have$20 ,000,$25 ,000 in a high-yield savings account. And then also perhaps maybe tens of thousands, if not hundreds of thousands of dollars now going forward invested to build your base. You mentioned you're 30 years old.

18:50Maybe you guys are newlyweds. Maybe you both are new to making six figures as a household. But this goes back to what we're talking about in our episode on Monday, right? Living paycheck to paycheck, there's 63 % of people that make over$100 ,000 a year that are living paycheck to paycheck. I'm not saying that you guys are living paycheck to paycheck, but only having$7 ,000 saved doesn't look very good on the surface. So just make sure before you get into all the semantics with trying to own equity in the dog grooming business and doing all these different things, to Robert's point, that you go out and you build your base first.

19:23I need you to max out that Roth IRA every year. I need your wife to be maxing out her Roth IRA. Maybe she does have a retirement account at work. It's time for her to invest up to the match with that. You guys have money left over. Maybe it's time to beef up that emergency fund to$15 ,000,$20 ,000,$25 ,000. Whatever, let's call it six months of expenses are for you, should be saved in an emergency fund. There's a lot of things that you need to do and worry about, in my opinion, before you go out and say, I want to go own 15 % of a dog grooming business. And I want to add one last thing. And Austin, that was a great breakdown.

19:55One last thing, Zachary, is this. Right now, you're getting your payments made by your distributions of the business, correct? That's the way I understand it. But you don't know how those numbers are being calculated at this point. Are you seeing monthly P &Ls? Are you seeing quarterly P &Ls to know what the actual profits are and if, in fact, your distribution is correct? That would be my next question for you to make sure you understand. Because what happens when you get to the end of the train ride? You're paid off. You own your 15 % free and clear. And then all of a sudden your distributions go down to$500 a month because the profits weren't really ever there.

20:33And so you have to keep in mind, you need to understand those numbers of the business. But I agree with Austin. I'd stay put on the 15%. I would work really hard to get your expenses in order so you guys can start socking away more money towards retirement. Because the number one thing we are always going to the hill that Austin and I are going to live on is making sure you have that$100 ,000 base first before you diversify too much. Because we don't want to see you living paycheck to paycheck down the road. I love it. I mean, straight from this email, right? My problem is a lack of cash. You guys take home$9 ,000,$9 ,500 or so per month.

21:09There is no lack of cash. There shouldn't be. You have no credit card debt. You have no car loans. You have nothing else debt that you had mentioned here, but your mortgage. It's like, figure it out, Zach. We think you guys got this here. Just time to buckle down and get that figured out. You're 30 years old. It's time to make those moves. So as a quick heads up, time may be running out to lock in your 6.6 % yield at public.com. When you invest in a bond account on public, you can lock in your rate until 2028. But with more potential rate cuts on the horizon, you might want to act soon. Discover how you can lock in a 6.6 % yield until 2028 using the new bond account only at public.com forward slash rich habits.

21:45So our next question comes from Thoy V. Thoy says,

22:07Good question. How does someone with no money retire in five years? They don't, right? Just to be blunt here. So I think the first thing I would do if I were you kind of helping, you know, coach your mom financially through her next 5, 10, 15, 20, 25 years in retirement is to set expectations. Unless your mom is making a quarter million dollars a year and she can sock away a couple hundred thousand of that every single year that we don't know about, that's great. And she can retire in five years, right? She'll have a million dollars in five years at 200 ,000 a year and you guys are going to be fine.

22:39I just don't know if that's the situation here and I'd argue it's probably not. So being more realistic, here's what I would do. Yes, at 55 years old, you absolutely can invest toward the Roth IRA, especially as you think about, you know, we don't know what taxes are going to look like in the future. Robert and I always say that. And because of that, we choose the Roth IRA for our retirement vehicle of choice because we pay taxes today and up front. Therefore, we can enjoy our profits and our capital gains over our lifetimes tax free. That's the joy of the Roth IRA. Because she's over the age of 50, your mother is able to now contribute$8 ,000 per year toward the Roth, which is$1 ,000 more than everyone else.

23:18It's sort of thought of this like catch up amount of money here. So$8 ,000 a year. If I was in your mother's shoes, I would absolutely do everything I could to start maximizing my Roth IRA contributions of that$8 ,000 per year over the next, let's call it 5, 6, 10, 15, 20 years. That will likely increase as well. We've seen that in the past. So maybe that'll increase to$8 ,500 or$9 ,000, maybe even$10 ,000 one year. Who knows? But what I'm saying is absolutely start investing in the Roth IRA. If she has nothing at all saved, I would probably be aggressive. But then I would also consider the time horizon of the investment.

23:56So back to this idea of setting expectations. You cannot retire at 60 years old unless she plans to live off of rice and beans for the rest of her life. I did the math for you. and$8 ,000 a year invested until your mother is 72 years old, which is the first year she has to start taking those required minimum distributions out of her retirement accounts, that$8 ,000 per year for that 17-year period of time is going to be about$430 ,000 starting from scratch. That's a pretty decent nest egg to retire on. I mean, it's not perfect, but you mentioned she has no debt, so that could be a really cool thing to generate some income for her.

24:34Let's call it maybe$2 ,500 to$3 ,500 a month of income. But yeah, all in all, there's a world where she can have a comfortable retirement. Let's call it in her early to mid 70s by maxing out the Roth IRA, taking advantage of that tax-free income in her 70s and later on in life, but also to reimagine what retirement might look like. We talk about this all the time, Robert, how people think retirement is sitting on a beach, drinking Mai Tais and listening to music. When in actuality, retirement for a lot of people is passion projects and maybe doing some consulting for things that they're really, really passionate and excited about, right?