Q&A: I'm Stuck in an MLM, Tactically How to Start a New Biz, & Buying vs. Leasing a Car

26:00But Michelle, get that handled right away. And anyone else out there, do the same because you just want to make sure, especially for new business owners, that you're protecting yourself. 100%. I didn't even think about the loan side of the equation because I don't know if Rowe does like loans like that. It's more like a software than it is like a bank that does like loans. So I don't know. Yeah, definitely got to check out Chase Bank for sure. I actually have a Chase Bank credit card for my business. So there we go. Rocking and rolling. Good question, Michelle. Our next question comes from Maria.

26:31Maria asked on Instagram, I've been following your podcast since the very beginning, and I'm so glad you guys are doing so well right now. You deserve every single thing coming your way. I wanted to know your opinion about this. My company offers a Roth 401k and a match 5 %? Should I focus on maximizing that or should I just contribute up to the match and open a Roth IRA and put the rest of the money in the Roth IRA? Robert, I'll let you answer this one. I know this is one of your favorite questions and I'm going to let you dig in too. But yes, we believe that every person on the day of their 18th birthday, their parents, instead of buying them whatever they're going to buy them, should get them right in front of the computer, get the Roth IRA opened and take that money in cash and put it into the Roth IRA, into that basket of index funds and ETFs that we talk about.

27:22That should be the first thing that you do the time, the day you turn 18. But Maria, you're past 18, you're up and running, you're crushing it. You definitely want to get the Roth IRA open. And we always want you to just pay up to the match for the Roth 401k, and then everything else go into the Roth until you max that out. And Austin, I'll let you give away the big, big tip that we love to say to everybody. Yeah. So the phrase that Robert's alluding to is match beats Roth beats taxable. And here's why. If you are starting from scratch, right, you're at net zero here and you invest 5 % into your Roth IREA Maria.

28:02You are now having that 5 % that's invested plus a 5 % match on your money, which is a 100 % return on your investment. I don't care who you are, getting 100 % return guaranteed is a really, really cool thing. And we definitely want people to be taking advantage of those matches and those 100 % returns. So that's why we think definitely up to the match so you can get that return. However, the reason why we want you to just go up to the match and not beyond the match is because a lot of people's 401ks, unfortunately, do not have autonomy, which means they can't choose their own investments. Their employer bunches them up with all the other employees, puts them in some target date fund that might be like 30 % bonds for some reason and a bunch of underperforming international stocks and whatever else, right?

28:51And now you have, you know, for example, Robert, I was, I meant to share this on the podcast. My friend Chris, he's got$38 ,000 in his 401k, he called me and he's like, hey man, can you look at my investments? I said, yeah, no problem. Sure. I looked at it and they had him in a target date fund that for the last five years, I can only see five years of history, he underperformed the stock market by half, literally every single year. And this guy's 25 years old. He doesn't need to be 20 % bonds, 30 % bonds, right? So Maria, that's what we're trying to allude to here, right? You get thrown in these target date funds and your 401k underperforms.

29:25And so people say, oh, let me just put all my money in my 401k. I'm going to be rich when I grow up. It's going to be awesome. Like, yeah, you're contributing a lot of money, but the money that's in there is not invested properly, quote unquote, which means you might be sitting in some underperforming funds that don't make sense to be sitting inside of. And so instead, we want you to take that money and put it in a account that you have full control over, the Roth IRA, and then start buying the ETFs and index funds that we talk about, VOO, VGT, QQQ, VTI, MOAT, right? Things of that nature, SPYI, some of these income funds are great.

30:00So that's what we want you to do, right? Up to the match, max out the Roth. And then if you do have autonomy over your 401k and you're rocking and rolling over there, then sure, invest more into it because you can choose where the money gets invested so you can keep up with the market. But if you don't, we're going to go match, we're going to go Roth. And if you still have more money, that's when you open up an account on public.com and you buy those same ETFs that we talk about, but you do it over there. Because even though it is not tax advantage, the profits you're going to make over time by being in the right funds is way going to overextend the quote unquote losses you're expecting from a tax perspective, right?

30:40It's okay to pay taxes. That means we made money, Robert. I think the biggest takeaway here is that most people think a 401k is a retirement strategy. And although it's better than nothing, you have to realize this one mathematical problem that we have. If you don't have autonomy and you're not beating the benchmarks and keeping up with the S &P 500 or beating it, you're leaving so much money on the table. So just envision this from simple math. Let's say like Austin said, his buddy's target date fund was doing half of the returns of the S &P 500. So if you were to look at it that way, not even half, if you said you left 3 % on the table and that was for 20 years, you'd be leaving 60 % gains on the table over 20 years by just leaving everything in those target date funds and not trying to optimize your gains through diversity and having these other accounts like the Roth IRA.

31:39So just keep that in mind that you want your money to work as hard for you as you work to get it. And it starts by understanding the different ways to invest it and making sure you're optimizing your gains everywhere you can. I couldn't have said it better myself, Robert. I just did some quick math over here. And let's say you had$100 ,000 invested. And that$100 ,000 over 20 years is going to return 12%. That is$1 ,089 ,000 of hypothetical portfolio value, right? So you've made essentially a million dollars of profit, of growth on your$100 ,000 investment. Now let's say it was only a 9%, right?

32:19That 3 % difference. Your million dollars that we just talked about is now only worth$600 ,000. So you went from$1.1 million to$600 ,000 because you're leaving money on the table by investing into underperforming funds. Now, you might be like, whoa, I'm in the green this year. I don't really pay attention to this stuff, but it feels great because I'm making money, right? That's what Chris thought. Chris is like, dude, I made 14 % last year. How great. I said, bro, the S &P did like 27 % last year. What do you mean 14? Like, you do not want that, dude. So if there's one thing that you take away from this episode, Maria, it's that one, you need to know what's in your 401k.

32:55And two, if you don't, you better go figure it out tomorrow. Now, before we jump into our next question, I want to remind everyone that at public.com, you can earn 5.1 % APY with a high yield cash account. There are no fees, no minimums, just an industry leading 5.1 % APY on your cash. And with up to$5 million of FDIC insurance, your money is absolutely secure. So go to public.com and start earning 5.1 % APY straight up with no strings attached. It's an industry-leading interest rate with no fees, period. Public.com. This is a paid endorsement for public investing. 5.1 % APY is as of June 17, 2024 and is subject to change.

33:41Full disclosures in the podcast description. All right, Robert, our next question comes from Samantha. She asked this question on Instagram. Samantha says, I'm 28 years old and me and my husband are trying for our very first baby. I would love to be able to work less and stay home more with our future baby. So here's my situation. We have$65 ,000 in a high yield savings account earning 4 % and I put$400 a month into a Vanguard retirement account. Any advice on what more we could do for some passive income or to get extra money per month that will allow us a little bit more flexibility from work and double down on our freedom?

34:15I'll kick this one off, Robert. Okay. So first off, congratulations that you guys are working toward your first kid. That is so, so exciting. You know, you mentioned how you've got 65 ,000 in this 4 % high yield savings account. That's great. Go earn 5.1 % on public if you want instead. But if you're really focused, Samantha, on passive income, Robert and I are big, big, big believers in the NEOS funds, right? They have ETFs like SPYI and QQQI that pay anywhere between 12 % and 14 % annual yields on your money. Which means if you took all$65 ,000 of that and parked it into a 50-50 split between SPYI and QQQI, you would make, let's call it 13 % on your money or over$700 a month in passive income.

35:06It's about$8 ,500 a year, which is incredible. And again, the way that these are taxed as a return of capital, 95 % of that income that you make is tax-free. So you do not have to pay taxes on that. It's called return of capital. Google it. Go check it out on Investopedia. It's a really, really cool tax classification. You're looking to, you know, make an extra$700 a month. Maybe that is the freedom. Like, I don't know what your specific circumstance is. It's a pretty broad question here, Samantha. That's the first thing I would be doing, right? I'd take my existing money over here that is just parked making 4%, and I'd start having it make me 13 % per year, assuming I was already focused here on this passive income and I do have a little bit of a nest egg somewhere else.

35:45But Robert, do you have anything to add? Yeah, without total information so we have a complete picture of everything, I would also suggest figuring out a work-from-home business, that side hustle we talk about all the time. If you could add a side hustle in here that makes you even$1 ,000 or$2 ,000 a month additional to allow you to stay at home, and you could use those funds then to go towards your investments and your passive income through your portfolios, I think that would be another great way to be able to achieve what you want to achieve with the newborn and be able to be at home more. So I would look at some of these side hustles that you could do right from home to make extra money.

36:26And it might not have to be game changing money. It's just enough to supplement what you're trying to do so you can spend more meaningful time with your new child. And if you're looking for some inspiration there, I mean, Robert, we talk about TikTok shop all the time as a really easy side hustle. I've got a lot of friends making a couple thousand about doing that. They just go out, they buy a product and then they make TikTok videos reviewing it, affiliating it, things like that. anytime someone buys the product because of your video, you get to earn a commission. I've probably had hundreds of dollars of commissions paid out to people across the internet because I buy stuff on TikTok shop all the time.

36:58It's kind of embarrassing. Yeah. I mean, listen, Samantha, if you are looking to make an extra couple hundred, couple thousand, I mean, if I were you, I would just roll the dice on some TikTok shop stuff. Maybe something else to consider is I know they've got like remote call center support desk type roles. I know Apple is always hiring for those types of roles. So maybe do some research on becoming an Apple remote technician. I know AT &T's got some roles like that, right? There's a ton of them out there. So just get creative, right? And at the end of the day, I think, Robert, people make this mistake as they're like, oh, retirement is sitting on a beach drinking margaritas all day and doing absolutely nothing.

37:32It's like, no, but retirement does mean that you get to choose how you want to spend your time while still working, but maybe you're working and doing something that you really love, right? Maybe, Samantha, you love making content and making short little videos about baby products or baby clothes or maybe about your favorite Olipop flavor. Like, I don't know. But I guarantee you there's a way that you can make that content and share something you're passionate about on the Internet and be able to monetize it in a really easy way. That is not overwhelming and is going to help you stay home with a new kiddo.

38:02We could sit here for hours and talk about how we're living in the greatest economic time in history to be able to make money out of thin air. We talk about it all the time. We love clicking buttons, but there are just so many hundreds and hundreds of ways and ways we haven't even thought of yet to make money from home, make money from a beach, make money if you want to live the van life. So I think that's the next step there is finding another income stream that you can put towards this to help get you more passive income so you can stay at home more. Now, our next question comes from, and I hope I say this right, Anna Corelli.

38:36Anna Corelli says, perhaps you can help me with an irresponsible financial decision that I made. Family member recommended that I begin investing with a multi-level marketing shareholder service called Primerica. However, I want to invest wisely now, given your podcast has better educated me. So I've decided to transfer my Roth IRA of$13 ,000 in two taxable brokerage accounts of$33 ,000 total to Schwab. The problem is these mutual funds make my shares of stock non-transferable and any fractional shares would be liquidated by the delivering firm upon the transfer of the whole shares. Is it worth transferring these funds or should I simply stop contributing to the shareholder service with Primerica and start a new Roth and individual account with Schwab altogether?

39:22Is switching to Schwab the best choice? I understand that these are all loaded questions, so any guidance you can provide is very much appreciated. Robert, you love Schwab. Maybe talk Talk a little bit about why you like using them, and then I'll jump into some nitty-gritty. Yeah, I think Schwab is a great place to build from. Their user experience is good. Their customer service is good. Their slice service is great when you're buying fractionally. So I think it's a really good platform, and I think you're on the right track. And then there's just a few things during the migration of these accounts to look for.

39:53And Austin, I think you touch on those, and we go from there. Yeah. So as you think about sort of how these funds are non-transferable, that means that you bought into a mutual fund that is like exclusive to Primerica, which means they're making money on these fees. Just, oh man, they're probably robbing you, unfortunately. Or maybe some other fund that they've got inside of their ecosystem, but it's like a thing just for them. So what you want to do, first and foremost, you want to log into your investment account portal, sell all of the funds in the Roth IRA. You can do this. It's not a taxable event.

40:29It's a retirement account, right? Turn all of that mutual fund money into cash. Take the cash, call up Schwab and say, hey, what do I have to do to transfer an old Roth IRA into you guys? I want to transfer out of this random Primerica account into Schwab. They're going to tell you they'll need some account numbers. They'll tell you what to, it'll be, they'll walk you through it. They'll hold your hand. It'll be easy. You're going to wake up and maybe a week from now, the 13 ,000 will have automatically left the Primerica account and it will be in your Schwab account. It did not come to your bank.

41:03You did not touch the money, right? That's not what we want to do. That is a taxable thing by doing that, by letting them do it for you. It is non-taxable and you're good to go. Now you've got the Roth figured out. Next are these taxable brokerage accounts here. Same deal. I mean, I'm assuming they've got you in these funds to rob you from an expense ratio perspective. True. They probably underperformed. So I would just sell them anyway, right? I would sell the funds. Maybe you're up 20 % depending on how long. Maybe you're up 10%. I don't know what your situation is. I don't know how much profit you've made or lost there.

41:34So let's just assume that you've made$3 ,000 or$4 ,000 of profit over the last five years or less. Who knows? Maybe it's much longer considering how much money it is. And so just make sure that you're setting aside 25, 30 % of whatever that profit that you made, and you put it in a high yield cash account on public so that when it's tax time in 2025 for calendar year 2024 in April, right, then you have this money set aside to pay your taxes on that money. So I would just set aside 25%, maybe 30%, just extra conservative, be careful, never want to get an unexpected tax bill. And then you'll be able to just pay it off and then take this money.

42:16You can actually sell it. You can have it hit your brokerage account. You can actually sell these mutual funds and withdraw the money because it's a normal taxable account. And so once you withdraw the money to your bank account, again, that's when you pull aside that 20%, 25 % of profits. And then you can deposit this now to Schwab, which will allow you to invest into the ETFs that we know and love, VOO, VTI, VGT, everything in between. Great answer. Very well covered. And I think to summarize it, I like what Austin said, because you're getting control of this and all of these funds, and you have a clear path for where you're going from a taxable position, and then also being able to have that autonomy to know and be able to, like we say, maximize your gains year in and year out by having a really good hold on what you're investing in and why.

43:10So we're so happy that you're following along the Rich Habits podcast. You're learning from us and we can help you through these sticky situations to give you our best guidance of what we would do if we were in your position. The alternative route is you could leave the money. It wouldn't be a taxable event, but you're still leaving so much money on the table because I'm sure these funds are charging you way higher fees than most. That's why we don't talk about these types of funds and underperforming the benchmarks of the market. So that's why I like Austin's takeaway. Get a clean start. Get this all dialed in and optimize your earnings for years and years to come.

43:50Really great question. Now, our last question comes from Cole. Cole says, hey, Robert and Austin, I was wondering if you could go more in-depth regarding leasing a car versus financing it. My situation is unique in that I bought a brand new car for$30 ,000. I put$10 ,000 down and I was lucky enough to be able to take a loan from my grandparents at 3 % interest for the$20 ,000 remainder. I was wondering if it would be smarter to sell the car, get$30 ,000, and put it into index funds that you and Robert mentioned and then lease a car at$199 per month. I would still owe my grandparents their$20 ,000, so I guess I would only be investing$10 ,000 into index funds, but I would now be saving$304 a month on my car payment versus$199 for a lease.

44:37Robert, what a crazy convoluted question, and we're going to jump into it here in a second. But something that I think is the only thing we really disagree on is the leasing versus buying a car. You are gung-ho on people should lease. I'm pretty gung-ho on people should buy. And I think it comes down to their preference, right? Correct me if I'm wrong here. But I think if you want to be driving a new car every three years or so, and you don't want to worry about maintenance, you don't want to worry about all these different things, and you do need for whatever reason, a new car every three years, leasing is probably the way to go.

45:17Where on the other side, if you don't care about driving a new car and you just care about getting from point A to point B, then financing a car is probably the way to go. But I would love to hear your perspective on why you like leasing versus buying. This is a really difficult topic to summarize in a couple minutes, but I'm going to give it a shot. Here's my takeaway after years in the car business, being in finance, in the automotive industry early on in my financial career. If you want to have a new car and you need a new car because you drive a lot or you're a public figure or you want the safety of it or whatever, the rule is kind of this.

45:57Lease new, buy used. Because if you buy a new car and drive it off the lot in the first three years of buying it, you're going to lose 40, 45 % of its value right out of the gate. And because a car is a depreciating asset, you generally don't want to own it unless if you go to the dealership and you want to buy that shiny new car with the intent that you're going to drive it until the wheels fall off and you're going to keep it for 10 years, then go for it, buy it. But there's other parts of this equation that make leasing important and intelligent as a decision. In all the car people can come at me, but the math just doesn't math.

46:37Here's why. They're going to say, why would you lease a car? You're only renting it. And you know what? That's awesome. I want to rent it because guess why? For that three years, I take it in, they service it, They do everything. I get a cheaper payment by a lot. I don't have to put a big down payment down. Most of the time, zero dollars can be negotiated. So you don't have to put any money down for the lease. So you get a nicer car for less monthly payment and you keep all of your money in your bank account and in your investment accounts. That's one major reason I would never buy a new car. So that's one.

47:13Number two, because of the depreciation of a new car, why would you want to go pay retail, knowing that in three years, you're going to lose 40 % on that car. And then if you get in a situation where you have to sell that car, you have to deal with the negative equity. Nobody ever talks about this. You buy a car right now, let's say, and you're single. And then all of a sudden you fall in love, you get married and you have two kids all in three or four years, very reasonable situation. That car that you bought that was really cute and it's a two seater, or maybe it's a small four-seater, all of a sudden you need a minivan or you need an SUV and you've got to trade that car in.

47:52You've got negative equity in almost every situation. So guess what you have to do now? You have to take that car to the dealership to trade in on the other car you want to get. You have to pay the difference of the negative equity so that's more out of pocket to own that vehicle. So I'm not against buying vehicles in general, but I'm laying out the framework of the only time it makes sense to buy a car new is in that situation where you're going to drive it until the wheels fall off. Otherwise, mathematically and from an investment standpoint, I like the fact, like for me, I lease. If it's new, I lease because every two years or every three years, I hand them the keys, I grab the new one, and I'm out the door with no money out of pocket.

48:35So that's my takeaway. No, I think that's well said. And my perspective is I think on Unfortunately, even if it's buying or leasing, a lot of Americans make the mistake of buying or leasing too much car that they can afford, right? Yep. These are the same people that don't even have$7 ,000,$10 ,000,$50 ,000 invested, but they will lease a car for$700 a month or they'll have a car payment of$1 ,100 a month or something crazy like that. And so in my brain, and maybe this is just naive of me to think, but for me, it's like, okay, if I, and I just ran the numbers here on Kelly Blue Book, if I bought a brand new Toyota 4Runner in 2014, I drive a 4Runner today, which is why I use that car.

49:21And they hold their values pretty well. Yeah, you chose the one vehicle that doesn't depreciate on earth 40 % after three years. So way to cheat the system on my response, buddy. You're right. If I did like a Mercedes something else, it would be down 70%. Anything else is 40%, 45%. I drive good cars, Robert. That's what I just heard you admit. You do have good choice. Well, you're a smart guy financially, but carry on. For example, right, you go buy a brand new 2014 4Runner 10 years ago, and you would have paid$35 ,000,$40 ,000 for it. Today, with 150 ,000 miles on it, that 4Runner, according to Kelly Blue Book, is worth about$19 ,000.

50:00dollars. Over that 10-year period, you went down, let's call it 50, 60 % in value. But in my brain, it's like, well, you stopped paying off the car five years ago because you got a five-year loan on it. So for the last five years, you've taken that$300,$400,$500,$600 a month car payment, and you've been investing that money. That, in my opinion, Robert, and coming back to Cole's question here, is the differentiator between kind of having this mindset of, I'm always going to have a payment. Money's always going to be leaving my bank account for transportation. Or I get to a place where the only money leaving my bank account for transportation is my gas and insurance and, you know, casual maintenance that comes and goes because I bought a car, I paid it off.

50:43And yes, it did depreciate, but that$20 ,000 now it's worth is cool. Plus I've been taking that car payment over the last five years and investing that money where I would have just been paying that to the finance department via a lease sometime else. So I totally agree from your perspective, right? If you're going to do it new and you want to always drive new and you can afford, right? That's the big key here, Robert, that people forget about. If you can afford to drive new, then why not lease it? I get that. But if you are someone who has not yet built their base, maybe you still have high interest credit card debt.

51:18Maybe you are still working on your student loans or, you know, Whatever the situation for you might be, going out and buying a brand new car or leasing a brand new car is both a terrible idea for you. And so if you want to go get a car, go buy it used, go spend$15 ,000,$20 ,000, maybe put$3 ,000,$4 ,000,$5 ,000 down in the process. Bring your car payment as low as you possibly can. use it as a way to get from point A to point B until you can afford to buy a car that you deserve to be driving because you have hundreds of thousands of dollars investing and working for you in the markets while you sleep.

51:55I love it. I love it. I'm glad we got to cover that subject because it's one that's been argued since leasing came out. And coming from that business, I just feel that the math and the breakdown that we provided should bring a lot of clarity for everyone. And maybe we do a module on that for the Rich Habits Network, because I think it would be really important to illustrate it in a breakdown for the average car that people would purchase of leasing versus buying. I think it would be very helpful for people. Totally agree. And by the way, we've opened up the network to a select few of our listeners.

52:29We've got some really great feedback already. If you want to be a guinea pig of sorts and have access to our Rich Habits Network community before it comes out in mid-August. Send us an email, subject line, say network, and we will put you in there. We'll get you working with us here and get a little bit of feedback on the early days of hopefully what is going to be the coolest thing Robert and I ever built. So now coming back to Cole's question entirely, what do you think he should do? If your payment every month is 300 bucks and you bought the brand new car a couple of years ago, It means it's still a brand new car.

53:07300 bucks is a really cheap car payment. 199 is also a really cheap car payment. I have no idea where you're getting a lease at 199. But I guess it comes back to what you were talking about, Robert, of like, do you want to have this new thing or would you rather kind of buy it? And I don't know how old you are, Cole, but just kind of by looking at your profile picture here on Instagram, you're probably in your 20s. I don't know if you should be driving a brand new car that's$30 ,000. So, I mean, if you want to sell it and pay your grandparents back, take$10 ,000 difference there, whatever equity you still have, assuming you have some in your car, and you want to use that to start building your base and investing, I think that's a great idea.

53:45Especially, I guess, if you can get a lease for$199 a month, just make sure that you are ironclad in what is included in that lease. So what a great episode. I love these questions. They're getting more and more detailed. The audience is growing. We just have so many things to look forward to in the future, and I couldn't be more excited over the launch of Rich Habits Network. And just everything is amazing, and I just love being able to wake up every day and work on this stuff with you, Austin. And I just appreciate our audience so, so much for giving us all the five-star reviews and continually following along and remembering to take notes and take action.

54:23I'm right there with you, man. We've got 50, 60, 70 ,000 people that come back and listen to the podcast every single week. You guys continue to share it with your friends. We're super grateful. And we, I think, are just like a couple dozen reviews away from 5 ,000 five-star reviews on Spotify, which is crazy to think of. And don't forget, join us on August 8th at 4 p.m. Eastern time. We will be hosting a free webinar for anyone to come hang. And we're talking about angel investing, startup investing, pre-IPO investing, right? These are for the people who have built the base. They're ready to diversify into some sexier investments.

55:02Maybe they're ready to allocate five, maybe$10 ,000 toward investing in what might be the next SpaceX, the next OpenAI, the next Uber, who knows? But we have an opportunity to educate you guys on the biggest winnings and biggest losses that I've made in startup investing. Same here with Robert. We can't wait to dive into the nitty gritty and show you guys how you can invest alongside of us into the next big deals that we allocate a lot of our money to. We can't wait to open up this community to you guys and we can't wait to show you guys how to begin building wealth in some more interesting and sexy ways beyond just the index funds that we talk about.

55:39So there's going to be a link in the show notes below to join us and register for that free webinar. Again, August 8 at 4 p.m. Eastern time. Thanks.

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