Q&A: Going Broke Paying For College, Outsmarting Term-Life Insurance & Living Abroad

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0:57Hey everyone and welcome back to the Rich Habits Podcast question and answer edition. These are our Thursday episodes where you all ask us questions and we answer them as if we were in your shoes. You can ask us questions on Instagram at richhabitspodcast or email us questions at richhabitspodcast at gmail.com. We've got seven awesome questions teed up for this episode, and we can't wait to dig in. Yes, we love these episodes. You guys know it. And it's really been great to see these episodes grow and just really get so many of you engaged in getting these questions answered because personal finance is personal.

1:35Everyone is going through things. Life gets in the way, and we're here to shed as much information and light on things to help you guys figure it all out. So we appreciate you each and every week. Yeah, we are super grateful to have so many of you all come back every single week to listen to our normal Monday episodes, our Thursday episodes, which is this one, and our new Friday episodes. If you've not yet tuned into a Friday episode, they are all about breaking down the biggest headlines and happenings impacting you and your money. So be sure to tune in to those. Now, before we get started, I think it's really important that we all make sure we understand this reality.

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3:33I want to know if I'm balancing my retirement and rental property goals in the right way. I'm 33. I work in federal law enforcement and I make about$120 ,000 a year. My goal is to retire after 20 years of service at age 51. Currently, I contribute 7 % to my TSP, which has about$30 ,000 in it. I also have a Roth IRA with$63 ,000 that I try to max out every year, a traditional brokerage account with$12 ,000, $10 ,000 of cryptocurrency where I dollar cost average monthly, and I have a 457B from a previous employer with$70 ,000 in it. On the debt side, I own a home with a 2.9 % interest rate and a$1 ,500 a month payment.

4:13I recently bought a car with a$500 a month payment, owe about$25 ,000 on that at 4.5 % while also having$5 ,000 of credit card debt. My main goal again is to retire at 51, but I really want to get into rental properties over the next one to two years. How do I go about doing that while also balancing retirement investing? This is a really good question. And I will let Robert give our anonymous listener his first take. Well, you definitely have your base built at 33. So we'd love to see that. I like the fact that you're interested in getting into real estate sooner than later. So that's good as well.

4:48And I just want to make sure you understand though, if you're going to get into real estate in the next one to two years, make sure you're not depleting the base. We wanna make sure you're thinking ahead, getting extra money set aside in a public high yield savings account or whatever vehicle you wanna use to make sure that money is there, but also defining your buy box so it is within your price range and your budget range overall because you don't wanna deplete your base. You've done such a good job at 33 years old. We wanna keep it that way because so many people, they build up the Roth, They build up the traditional brokerage, and then all of a sudden they have their high yield savings built up.

5:26They go buy a property and they take from all of those accounts to buy the property and they're back to zero. Because remember, investment properties, everyone should own them, but they are tying up your money for the long term and there is no liquidity. So keep that in mind. Keep crushing it. But that is what I would watch out for, and that is how I would handle it. build up another fund that is going to fulfill your needs for the buy box you've set aside for yourself to get into real estate. So as it relates to what to prioritize next, the first thing I'd prioritize is getting rid of this$5 ,000 of credit card debt.

6:00Obviously, high interest debt, can't outinvest it, no reason to keep it around. So if you have an emergency fund of three to six months of expenses, which you should have, use that money, pay off the credit card debt, and then build that emergency fund back up to that three to six months of expenses. If you don't have an emergency fund, love the idea of cashing out the$12 ,000 in your traditional brokerage account and the$10 ,000 of cryptocurrency. That's$22 ,000. You can use$5 ,000 of that to pay off this credit card debt and then the other whatever's left there after taxes to start your emergency fund.

6:30Again, three to six months of expenses is where we like to be for that. Now, a couple things that you need to consider, in my opinion, as it relates to what Robert said for wanting to get into some rental properties. The first one is make sure, as what Robert said, as you begin to prioritize building up a down payment for these rental properties, that the numbers make sense to begin with. I just watched a video pretty much detailing why real estate right now just doesn't make sense. I mean, there are some people when you think about, you know, the median home in America is $410 ,000. So I'm assuming, you know, you'll probably be somewhere around that range.

7:06If you end up doing the house hacking thing or getting one of these like duplexes or triplexes, it'd be much more than that. And you can put a lower down payment into the mix. But let's just say you are going to put 20 % down on this$410 ,000 median home in America. That's$100 ,000. Pair that with about $20 ,000 a year of interest, another$4 ,000 a year of taxes, another$4 ,000 a year of upkeep, another$2 ,000 a year of insurance. I mean, you now have to really, really think about the opportunity cost of tying up well over$120 ,000,$30 ,000,$40 ,000,$50 ,000 in that first year against what that money could make in the markets or perhaps NEOS funds or different real estates, maybe a REIT or something on the stock exchange or whatever else that exists out there for that passive income that I'm sure you're looking for.

7:52Now, again, real estate is one of those long-term things. So maybe you're over here thinking, hey, I don't care about the first couple of years. I care about the next two or three decades. I'm only 33. I want to retire by 51. So I'm looking at this as a two decade play, which very well could make sense and could make a lot of money by then. You just got to make sure you run those numbers and you're not shooting yourself in the foot. Now, whenever you think about how do I now save for this down payment, you want to invest up to the match and you want to make sure to get the free money, right? And you want to make sure you're maxing out the Roth IRA.

8:21Those are the bare minimum things you need to be doing. Any money above that needs to go be set aside for this down payment or invested or something so it can grow for the next two, three, four, five years as you sort of save for a large down payment there, call it five, 10, 15, 20%, depending on how much you want to buy. Tens of thousands of dollars is likely what that will be, right? Make sure you don't stop the Roth IRA and you don't stop getting the free money, but everything above that, save for it. And that's how you should be saving for it. I love this breakdown, Austin. And the only thing I'm going to click back with is start small.

8:50So many people think they need to go out and buy some big fancy property. I do it in Ohio all the time. There are homes in Ohio for under$100 ,000 that make great rental properties. You can go in and buy them for$80 ,000, put$30 ,000 into them, rent them for$1 ,200, $1 ,300 a month. So just make sure, like I said, and Austin alluded to, know your buy box, stick within your buy box and prepare ahead of time so you don't deplete any of the retirement accounts. So our next question comes from John L. This is a good one, Robert. It's very in-depth and very thorough. John's 53, lives in Colorado and has been working in IT for the last 28 years.

9:29He's married, has two kids, with one finishing up college this fall and another one starting next week. He says he's becoming an empty nester and they've just finished paying off the first college, but will be funding their son's tuition of$15 ,000 per semester for the next four years. Historically, they've spent their money on experiences in travel with their children, and they've got to visit all 50 states with some foreign countries. They even lived in a foreign country for a few years. During that time, he says they didn't invest much, but they did manage a budget on one salary, so they'd live off one salary, spend the other.

10:00John says he currently makes a little over$100 ,000 in his current position and works for a government entity after being laid off two years ago. His wife now makes$20 ,000 a year in her current part-time job. They have$210 ,000 in a traditional IRA,$4 ,000 in a brokerage account, and he also has$25 ,000 in his pension. John says he has$1 ,000 in a high-yield savings account, a few hundred bucks in some equities and crypto. John also says he's tried some options trading but wasn't very successful. He says, I'm in the process of starting a side hustle, doing some vending machine work to start bringing in some passive income and hope to scale that over the next few years.

10:32We have a car coming off lease in September, which will free up$330 a month. Paid cash for our other car, which is worth$36 ,000. When my son leaves for college next week, I'll drive his old 4Runner. Our mortgage payment is$800 and our townhome is about$180 ,000 left on the mortgage. John says he wants to focus on minimizing expenses so that he can retire gracefully over the next decade or two. Robert, I feel like we see this a lot. You know, they're in their 50s and they enjoy. They enjoy. John enjoyed the last 20 years of his life, right? From 33 to 53. I mean, it seems like living off one salary, spending the other, just having a good time.

11:08And I'm not saying, John, that having$200 ,000 invested at 53 is bad. By any stretch of the imagination, you'll still be able to retire a millionaire. We'll give you some numbers on that. But specifically, Robert, I want you to talk toward how in their current situation, working to ensure that the kids' college gets paid for, coming off a lease right now, they've got an$800 a month mortgage, right? What are some maybe strategies that John can implement to ensure that he's retiring gracefully in the next one to two decades? Yeah, what I see here, and I'm guilty of it, and a lot of people are, is John is trying to add income, but always by swinging for the fences with these entrepreneurial journeys.

11:47What I would rather see John do is get these retirement accounts built up further. Because can he get to be a millionaire by the time of retirement? Sure. But what happens if like the options trading, he goes and buys these vending machines, works them for a few months, they're not passive, he loses money, he sells them at a loss, then he's right back to ground zero. So what I'd love to recommend John and anyone like him in this situation is go out and get a side hustle. Go get a second job. Don't start a side hustle because then you're basically starting another business. And I'm all about entrepreneurship, but I'm not about telling people to be entrepreneurs if they don't have a big enough safety net going into retirement.

12:30So that's the key factor here. Don't think I'm changing my ways. I'm sticking to the entrepreneur lifestyle, but I don't wanna see John or anyone else go out and invest this money, invest the time. Two years down the road, they haven't done any more investing towards retirement because they're trying all of these side hustles. I'd go find a job. Maybe it makes$1 ,000,$2 ,000 a month on the side. Because with a government job, I'm assuming it's a nine to five. You have weekends off. So you have all this spare time to where you could go work somewhere else. Take that$2 ,000 a month. Put it all into retirement.

13:05And really set yourself up for financial freedom. I also, I really don't want to say this, but I think you might have to have a hard conversation with your son. and let them know, hey, I can't afford to give you$15 ,000 per semester for the next four years. I mean, let's think about that. That's$120 ,000 that you are gifting your son via college tuition, which is after-tax money, first off. That$120 ,000, you need that much more than he does, in my humble opinion. Let's say you can't afford the$120 ,000 and you can still afford to invest $1 ,000 a month after taxes toward your Roth IRA, your wife's Roth IRA, whatever here, combined as a household,$1 ,000 a month for the next 14 years until year 67, you will have just at$1 million, assuming an 8.5 % annual return, which includes that 2.5 % to 3.5 % inflation rate over the next, again, 14 years or so.

13:55If you can't afford to do$1 ,000 a month and you can afford to gift your son$120 ,000 over the next four years, which comes out to another$2 ,500 a month on average, assuming you spread it out over the summertime and the winter and things like that, That's a lot, right? We're talking about$3 ,500 a month after taxes on 120 ,000 a year salary. We're talking about$3 ,500 a month that needs to now,$2 ,500 of that goes to your son for his college and another thousand bare minimum needs to get invested for you to retire a millionaire in the next 14 years. And that is for a household bringing home$7 ,000.

14:31So if you can bring home 7 ,000 and literally 50 % of it can just get moved over and you can live off of$3 ,500 a month, I mean, you do have a low mortgage payment and your lease is coming up, so maybe you can. But if you can do those things, like that's how this all comes together. And my humble opinion, with only, what was it here,$1 ,000 in your high yield savings account, I don't see much of an emergency fund. I would be surprised if you guys don't have credit card debt or some sort of personal loan situation. Like it just seems to me like the numbers aren't going to shake out if you are choosing to fund your son's$120 ,000 of college for the next four years.

15:06I would say, you know, and this goes back to what Robert and I, I think we mentioned this on a previous episode, which was like, whenever the plane is crashing, they always say, put your mask on before you help other people put their mask on, right? Like you got to put your mask on, which means you have to focus on your own retirement, your own financial well-being. because if you don't, then fast forward 14, 15, 20 years, you guys, let's say worst case scenario, aren't able to invest anything over that period of time or maybe very minimally and you only have a couple hundred thousand or three, four, 500 ,000 in retirement, which it's not as much as you would like and maybe you're now a burden to your children financially and so that might have a weird rocky relationship because of it.

15:48So John, I guess what I'm trying to say here is please consider your situation when it comes to your son's tuition. If you can't afford to give him$2 ,500 a month or again,$15 ,000 per semester, so that's two semesters a year, $30 ,000 a year for four years. If you can't afford that, that's wonderful. In my humble opinion, you can't. I would much rather see that money invested to you and your wife's retirement, which if you did end up investing it, your$1 million would turn into$1.8 million, which is a much better situation to be in. Yeah, to me, the numbers just don't add up. The math ain't mathin'.

16:23All I can think about in my head right now is the song Living on the Edge. I think it's Poison or one of those bands because this really highlights the headline that we've been seeing a lot of the last couple of years that over 60 % of households making over$100 ,000 a year living paycheck to paycheck. And this is that situation. I just don't think the numbers shake out. I would find a way to get the college paid for by student loans and put some of the onus on your son. Because I just feel like Austin alluded to, you have to take care of yourselves first because there's no one else to do it for you.

16:59And also for your son, dad, I don't want to go$120 ,000 into student loan debt. What the heck? He shouldn't. He shouldn't go$120 ,000 into student loan debt. He should maybe go$40 ,000 to$60 ,000 into student loan debt, assuming he's studying something that's going to pay him$60 ,000,$70 ,000,$80 ,000 after his first year graduating. Your son can go to a community college for two years, take that associate's degree, lateral that into a bachelor's at a state-sponsored school. It did that at the University of Tennessee all the time. You go to Pellissippi Community College. You pay$1 ,000 or$2 ,000 a semester for classes.

17:31You're still living at home. Who cares? You're saving money. And then now you pay cash for that because it's a couple thousand dollars every semester. So for, I mean, that's 500 bucks a month, essentially. And then you go to the University of Tennessee, assuming you live in state. Now your state tuition is probably five to 6 ,000, I think is about where it was per semester back then, which, I mean, I graduated with about 20 ,000 of student loans because I was living in state. That's about what it was for me. So I mean, like there is a world where your son can absolutely go from 120 way down to like 30, 40 or 50, depending on how your son plays this game.

18:02Please encourage them to do some research into this. And please, I'm encouraging you to reconsider paying$120 ,000 over the next four years for college tuition. So our next question comes from PR. PR says, Hi, Robert Nauston. My name is PR. I'm 35. I work a regular nine to five job and I'm a big fan of your podcast. I'll soon receive$300 ,000 before taxes from my employer's acquisition, plus possibly an additional$120 ,000 from selling my apartment. My gross annual income is$250 ,000 a year. I live in a multifamily home, occupying one unit and renting out the others. My current portfolio is$200 ,000 of investments, 35 % in ETFs, 64 % in stocks, and 1 % in crypto.

18:44I have$80 ,000 in a high-yield savings account. I'm exploring ways to deploy the new capital to balance growth, diversification, and tax efficiency, possibly adding a legal ADU to my property, which could net another$1 ,700 a month after the mortgage, or by increasing my ETF allocation beyond 50%. I'm also wondering if I should lean into a more aggressive investment mix given my age at 35. Right now, the acquisition funds are sitting in a high-yield savings account earning 4.5%. I'd love to hear your perspective on the smartest next moves from here. I love this. I think you should completely chill on the rental stuff.

19:19You already have probably two, three, four units here, depending on how, you know, multifamily homes, let's call it, you know, two or three units, one, two or three units. So your real estate stuff's good. I don't, I wouldn't do the ADUs. I would take the 300 ,000 before taxes. I'd pay my taxes on it and then I'd put all of it in the ETFs. I'd get that much closer to that 65, 75, maybe 80 % ETF range. If you guys listened to Monday's episode, we talked about having the core satellite portfolio strategy. So 65 to 85 % of your portfolio is in these well diversified ETFs. Another 15 to 35 % is in single stocks and other diversified things.

19:55So in this situation, I would beef up that those ETFs to get closer to that 65 % at least. And then if you wanted to, if you sold some money left over and you were at that 65 and you want to get a little bit more aggressive, perhaps it means shifting out of individual stocks and into some thematic ETFs like AIQ or chat or KOID or some of these other thematic ETFs, or maybe you want to beef up some crypto via Bitcoin and have a long-term outlook on that. It's totally up to you on that one. But I don't think I would dabble any more into real estate. I love this take, Austin, and I think you're spot on.

20:29I would flip-flop this portfolio and have less individual stocks in my weighting and more ETFs, I would up and get myself in your position to five or 7 % of your total portfolio investable capital in cryptocurrency because for the long run, I think that's a better place to be. And just, I want everyone to understand, Austin and I love individual stocks, but when you're just getting started out, you're not a multimillionaire, you shouldn't be so heavily weighted in individual stocks. And the reason for that is you can't control what happens to those companies and those individual stocks like you can with an ETF.

21:08ETFs may have volatility, but not nearly as much as individual stocks. And if you pick wrong in an individual stock, you can deplete all of your money and pretty much go to zero if you pick wrong. And I'm not saying don't buy stocks. I'm saying just be careful. Have a higher portion of your portfolio in ETFs. Because even if you think back the last five years, if I had a heavy weighting in NVIDIA, I'm a genius. But if I did the same with Peloton, I'm an idiot, right? Because Peloton's down whatever 98 % on their stock price since COVID. So you just have to understand that is why we talk about ETFs and why we love them so much for people.

21:49And I agree with Austin. I would pause thinking about the ADU just because they do go down in value. I don't think you need the headache of having an individual renter on your property, another one. And I think you're just in such a really good spot. I would focus on what you're doing, make the changes to your weighting like we discussed, and keep rocking and rolling. Yeah, I mean, you make$250 ,000 a year. I don't know how long you've been making this much money, but go get half a million invested. Go get$750 ,000 invested, right? Once you have those big milestones hit, then you can say, yeah, maybe I do want to diversify to some real estate with an ADU, or maybe I want to be a silent business owner or, you know, something else.

22:29But like, I think people, especially high earners, they go, oh, I'm making 20, 30 ,000 a month here. I need to get sexy and smart and with my strategies. And, you know, I got to be able to do these things. And in actuality, it's like, no, just go put a couple hundred thousand more in the markets. Let it ride up for the next couple of years. Like, because it's so funny, Robert, I even, you know, I think about this for myself. The stock market since the bottom of like October 2022, what is it up? Probably 100 % at this point. Let me just look it up here. So VOO, since the bottom of 2022, just price action, not even total return.

23:00Price action is up 80%. And the NASDAQ, same deal, since the bottom of 2022 is up just about 120%, just price return, not even total return, including dividends. So it's like, okay, all I had to do if I'm a high earner was put money in the NASDAQ and in the S &P 500. And I had doubled it over the last three years, literally three years, where instead some of these people like, oh, I'm gonna go start this business. I'm gonna go write this angel investment check for my buddy, Bob, who's gonna start this app about cows and the milk. And so it was a really cool idea with like the farmers. And I thought it was gonna work, but it didn't work.

23:36I'm like, whatever excuse they can come up with to not just invest. And I think it's because the more money we make, the more inflated our egos get and the smarter we think we are, which makes us think like, oh, I need to do smarter, more sexier, riskier strategies to make money. When in actuality, the more money you make doesn't change how smart you are when it comes to investing nine times out of 10. And all you need to do is the boring stuff. Literally just park your money in these index funds and take your 200 ,000 in investments, BR, and grow it to 750. Take this$300 ,000 before taxes, pay your taxes and dump it all.

24:13I wouldn't dump it all. Dollar cost average it over probably a three to six month period of time because it will make up such a big chunk of your net worth. But regardless, dollar cost average it in this boring stuff and you'll double your money in the next three, five, seven years, mathematically speaking. I think that's an incredible take. We should just probably pause the internet for 24 hours just to give you the grace you deserve for that takeaway because we see it every day. In the Rich Habits Network, we see it every single day where people think that as soon as they make a little bit of money, they got to get fancy.