Q&A: Making Extra Money, Opening a Bar, & Paying Down Loans

0:00In America, half of every dollar spent on brand medicines goes to entities who don't make them. While middlemen like PBMs and 340B hospitals drive up costs, Biopharma is investing$500 billion in new infrastructure and manufacturing here at home and helping patients buy medicines directly at lower prices. Tell Washington to end middlemen markups and put American patients first. Visit phrma.org slash middlemen. meet the computer you can talk to with copilot on windows working creating and collaborating is as easy as talking got writer's block share your screen with copilot vision to help spark inspiration and use copilot voice to have a conversation and brainstorm ideas or maybe you need some tech help with copilot vision copilot sees what you see let copilot talk you through step-by-step guidance so you can master new apps games and skills faster try now at windows.com slash copilot Hey everyone and welcome back to the Rich Habits Podcast question and answer edition.

1:04These are our Thursday episodes where we sit down and we answer your questions as if we were in your shoes, leaning on Robert's 30 years of entrepreneurial experience and my weird obsession with money. If you want to ask us a question, you can DM us on Instagram at richhabitspodcast. You can email us at richhabitspodcast at gmail.com. or if you happen to be a super fan of the show, you can always get your questions answered from inside the Rich Habits Network, our exclusive community for our biggest fans. There'll be a link in the show notes to learn more about that. We love these episodes and do us a favor, be very descriptive of your question and always include your age or ages if you're a couple because it helps us better define how to answer your question.

1:50So I wanna make sure we get that in there because we get a lot of awesome questions, But without ages and more of a background of the rest of your financial situation, it's hard for us to give you the most value. So always include the details and the age. One hundred percent. And as always, these Thursday episodes are powered by Public, the investing platform for those who take it seriously. We take investing very seriously around here and public allows us to do so. Because on public, you can build a multi-asset portfolio of stocks, bonds, crypto, options, and now generated assets, which allow you to turn any idea into an investable index using AI.

2:31If you're a public user right now, go play around with generated assets because it all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing year over year by 20 % or more, you can literally type in any prompt and let the AI do the work for you. It screens thousands of stocks, builds a one-of-a-kind index, and lets you backtest it against the S &P 500. Then you can invest in just a few clicks. Generated assets are like ETFs but with infinite possibilities. Completely customizable and based on your thesis, not someone else's. So go to public.com slash rich habits and earn an uncapped 1 % bonus when you transfer over your portfolio.

3:15That's public.com forward slash rich habits. Paid for by public investing. Full disclosures in the podcast description. So our first question comes from Kyle. Kyle on Instagram says, hey, guys, I just want to say I love your podcast. And I started listening to it about a couple months ago. And I've listened to over 40 episodes. And I'm really excited to be on this wealth building journey with you all. I'm 29 and I just graduated from graduate school and I have$219 ,000 in student loans sitting at around an 8 % interest rate. At 29 years old, should I still be putting all my effort into paying off my loans or should I take the lowest monthly payment possible, pay on them for about 20 years while also beginning my investing journey?

3:56I have a fiance and a child. We're currently renting for about$2 ,700 per month. You always say that you can't out-invest high interest debt, but I fear that I will be in my late 30s, maybe even in my 40s by the time I would start investing, having already paid off these loans. And it seems like it'll be too late to get into the markets. Thank you in advance. Kyle, what a sticky situation to be in. So the good news is you graduated from graduate school, which means you have a master's. You've got some sort of cool degree here that you can go put to work. And hopefully you're earning six figures out the gate, right?

4:30You pair that with your fiance, you mentioned you have a child, hopefully your household income is$120 ,000,$150 ,000,$180 ,000 a year because you went on to graduate school, you took on the extra loans, you listened to the podcast, which means you're smart. So you know that you're not just going to go borrow a bunch of money to be an underwater basket weaver, right? Something that's not going to pay you any money. You went to graduate school, you got the student loans, and so now you're likely earning 100, 120, 150 ,000 a year. In my humble opinion, if I were in your shoes, I would balance paying off this debt extra with investing extra, right?

5:07So like, for example, the framework we like to use when it comes to student loans is before you start paying down those student loans aggressively, have the same amount or more already invested in the markets, which means S &P 500, NASDAQ 100, you know, Roth IRA, 401k, bridge account, all that fun stuff. But in your situation, you're talking about student loans that are seven and a half, 8%, maybe 9 % interest, depending on the tranche of loans there. That's high when you ask me, right? High single digits. I don't like to keep that type of debt around. So if I were in your situation, here's what I would do, Kyle.

5:42I'd say, cool, I'm 29. I need to get invested. What does that mean for me? That means bare minimum every year. My name's Kyle and I max out my Roth IRA. I max it out for 2025, it's 7 ,000. For 2026, it'll be 7 ,500. But I need you, bare minimum, to be investing and maxing out that Roth IRA. And any money above that maxing out of the Roth IRA, if you want to use that to pay off these student loans a little bit more aggressively, I'm here for it. But I'm not going to pause my investing to focus on the student loans. I'm not going to do that at all, because you're not going to have these off for maybe three, four, five, six years.

6:20$219 ,000 at 8 % interest, I mean, they're going to grow, man. So if I were you, I would say, listen, I'm maxing out that Roth IRA. I'm going to make sure I retire a millionaire, right? Because you're going to have 35, 40 years of investing ahead of you in this retirement account. Encourage your fiance to do the same thing. And every dollar above that$7 ,000 this year or$7 ,500 invested next year, get that$219 ,000 of student loans paid off. 8 % interest is no joke. Definitely. I love this take because you talk about this a lot. And I think it's very important for everyone to understand. We want to make sure you have money compounding and growing over time while you're paying off the loans.

6:58That's why we don't want you to just spend years taking every dollar you have paying these loans off because then you don't have anything growing for you. So I really love this take, and I think that is the move. Get the base built, continue to invest, at least get the Roth maxed out every year, and then rock and roll, pay down those loans, and you'll be off into the races in your 30s. Now, Robert, what's your perspective about them renting at$2 ,700 a month? How I would lay it out is I'd say I would like to see y 'all pay off your student loans before you, you know, really think about buying that home.

7:35So think, you know, five years from now, six years from now, it'll make a lot of sense because I'd imagine at$219 ,000 of student loan debt, that monthly payment's like$1 ,500,$1 ,800,$2 ,000 a month. Like that's a mortgage payment in some parts of this country. So that's my take. But Robert, what's your take on sort of their renting situation and how they should approach buying that first home? Yeah, I agree with you. I know they have a kid, 29 years old, all of that. But I do feel it makes sense to keep renting for a while longer to get that base built, whether it's two, three, five years. Because so many people think that the American dream is graduate from college, start paying on the loans, get the good job, buy a house.

8:16but the problem is if you never take the time to set yourself up for the future and get the compounding effect working for you financially, then all of a sudden you just have this really high debt to income ratio and you don't have the money to put aside for the future. And the longer period of time you can be investing towards your future, the greater compounding effect can help you. And that's why I think you're spot on here. I would keep renting$2 ,700 a month might seem like a lot, But for a family, a smaller family, I think it's fine because they're going to have a nice place. And in most areas, it's cheaper to rent right now around the country because you don't have everything that goes along with owning a home.

8:58And I just don't like to see people bury themselves in home ownership debt because they look at owning a primary home as a good investment. But it really isn't unless you live in a high capital appreciation area. So I love the renting part and I would keep doing that and build the base. renting buys you time right renting allows you to focus on other things before you go come up with 60 80 100 000 for a down payment i'm a firm believer that everyone should you know own real estate in their lifetime because it's adding to a well diversified portfolio but i agree with robert in the sense that renting is cheaper right now statistically speaking with these interest rates right these interest rates on mortgages are in the six and seven percents depending on what kind of loan you get, your type of credit background and history.

9:44And to be quite honest with you, you look at the median house here in America at 450, you put call it 20 % down, not only you're having to come up with about 100 ,000 of cash, but you still have a monthly mortgage payment north of 25, 3000 a month. Jeez Louise, right? How is that affordable? So to our friend, Kyle, you're in a great spot. Focus on maxing out that Roth, right? Getting money invested, you and your fiance, then every dollar above that, go pay off this debt. 8 % that interest is no fun. Our next question comes from Alex S. Alex says, Hey, Austin and Robert, my wife and I are in a special place.

10:15We are 24 and 23. I make$3 ,500 a month. And my goal is to be a financial advisor. I invest$500 a month into my Roth IRA and everything extra goes into my bridge account. My wife makes$4 ,200 a month. She does not invest much. However, here's the special thing. She went through a lot and recently had a settlement of$700 ,000. We bought a house, we paid off all our debt and our mortgage payment right now is$2 ,100 a month. My question is, is it worth it to invest in a Roth IRA or should we just put all this money in a bridge account? And if we did do that, like, what do I do? I have$500 ,000 left and I don't know what to do with it.

10:54Wow. Well, first off, I am so sorry to hear about whatever terrible thing your wife went through to get a settlement of$700 ,000. I would assume that that was not a good experience. So I'm sorry to hear that. But Robert, I'll let you kick off this question. Yeah, same here. It stinks to have something bad happen, but looking past it, what should you do? I think you guys are in a great spot. Number one, definitely max out the Roths every year, both of your Roths. You have to get her to understand the compounding effect and the importance of the Roth IRA. Maybe pull it up on ChatGPT and say, hey, what are the benefits of a Roth IRA?

11:31I'm 23 years old. What are the long-term benefits and put in some scenarios in chat GPT or whatever AI you use to give you some idea. But to break that down, if you each max those out every single year, then take the rest of it, you're spot on, have the traditional brokerage account. We call it the bridge account. And you're going to build those as well. So if it's in her name or in both of your names, whatever you decide to do, you're going to build the rest of that money up in this traditional brokerage account, and you're going to diversify over a basket of ETFs like we talk about, the VOOs, the QQQs, maybe AIQ because you're young and you can take on a little more risk.

12:11Get those funds moving across a basket of index funds, and then you can look down the road to diversify further, maybe into some precious metals. Maybe you start looking at some real estate down the road. You could look at a small basket of crypto, maybe with some Bitcoin, some Chainlink and Ethereum, something like that. But just keep it simple. Don't overdo it because keep this one thing, very important thing in mind. And that is that$500 ,000 over the next 30 years will make you guys very, very wealthy if you don't get caught off guard and start investing in everything that you see your friends come to and all of that.

12:48If you stay focused and really have a plan with that 500K, you'll have millions and millions of dollars. to even early retire just because of this situation. And that is what I would do. Keep it simple, stupid, at least for the next five to 10 years. You took the words right out of my mouth. The first thing I was going to tell Alex here is to realize that you are not a anomaly. There are plenty of people in this world that win the lottery, that enter the NFL, that play pro sports, that sell their company, right? There's a lot of people in this world that have a windfall of half a million, one million, two million, three million.

13:24The stat is 78 % of former NFL players face financial distress or bankruptcy within two years of exiting the league. Two years and they're cooked, right? That's eight in ten. All I'm trying to say here, Alex, and your wife is I'm not trying to scare you. I'm not trying to intimidate you. I'm just trying to help you understand that you are not an anomaly and that there's going to be people that come out the woodwork and say, Hey, I got this business idea or, Hey, I'm a financial. I'm going to go put you in this or like, Hey, if you put your money here in this thing, it's going to turn into this.

13:54and like, forget all that. The boring strategies are the ones that are gonna work the best for you right now, my friend. I want you to put half a million dollars, you know, I put half of that in the S &P, the other half in the NASDAQ and forget about it for 15 years. Like that's how you gotta be thinking about this. Literally pretend that this money does not exist and you are now gonna be able to retire at 45 instead of 65 because at 45, from 24 to 45, right, have this half a million dollars invested and then maxing out your Roth on top of that, you'll have about$3 million adjusted for inflation.

14:31You can absolutely retire off$3 million depending on your situation. And so what I'm trying to say here for you, Alex, is I 100 % agree with Robert that there's going to be people that are going to try and do this and keep it simple. Tactically speaking, go to public.com. Have your Roth IRA for you and your Roth IRA for your wife all on the same. You've got to do a little joint account here. Maybe have her open up her own one, whatever you want to do there, but go to public, go open up that Roth, max it out. You got 500 a month. I want to see the actual 7 ,000 start of the year, every year, 7 ,000 boom next year, 75.

15:04So$7 ,500 in January, boom, invest it, forget about it. Don't worry about this monthly thing. Just drop it in, forget about it. The money you have left, I want you to just put it all right there into VOO and QQQ or VOO and VGT or, you know, whatever, good index fund and ETF we talk about here that's going to track 7, 8, 9, 10 % per year returns and forget about it. Because literally, if you do this for just 20 years, it's going to feel like a lifetime. Oh my gosh, 20 years, I promise you. Your 20s go by really quickly as someone who's turning 30 next year, which is nuts to think about. But all I'm saying here is you're going to look back and say, man, that half a million, it's already worth a million dollars.

15:44I can't believe it. And that million, you're going to be in your late 30s. Oh my gosh, it's worth$2 million dollars already? This is crazy. Like you are going to be set up for success as long as you do not fall for the, oh, I can go put it in this crypto. Oh, I can go put it in this laundromat. My buddy's got a real estate thing he's doing. Oh, my parents told me that I got to go put it in this because that's what their financial advisor told them to do. Like literally everybody's wrong except you in this situation and you need to follow the most boring tactics of S &P index fund, well diversified, that's just going to grow for you over your lifetime.

16:19Do not fall for anything else, please. Please, please, please, everyone out there that gets a windfall, listen and follow exactly what we're saying here. Because at the end of the day, the less people that know you have the money are going to be the less amount of people that come to you with the best opportunity of your lifetime. If you can invest this money now and forget it exists, don't talk about it, don't bring it up to your family, your friends, any new friends or anybody else, the less distractions you'll get. And also don't let your lifestyle creep up based on where that money is going because yes, over time, are you going to want to improve your house?

16:58Yes. Are you going to need new cars at some point? Yes. But don't live beyond your means because you have this nest egg because the goal is to let this nest egg set you up for life. And it will, if you follow what we laid out here today. So our next question comes from Caden M. Caden says, hey guys, I'm a big fan of the podcast and I've enjoyed listening for the last two years now. I was wondering if I can get some advice with what I should do where I am right now in my financial journey. For some added context, I'm 27. I have$120 ,000 in various financial accounts with Morgan Stanley, own a home, have a monthly mortgage of$2 ,000, and I have two roommates who pay that and some.

17:35I drop$200 a week into two separate accounts, my IRA and my bridge account and I make about$4 ,500 a month. I've got no debt besides this mortgage. I've got $75 ,000 worth of investments in real estate syndications. So here's my question. I've got $25 ,000 sitting in a high yield savings account as my emergency fund. However, I think it's too much. I don't need anything. I don't want anything right now. And I need to figure out what to do with this extra$10 ,000 that should not be sitting in this emergency fund. What do you guys think? What a cool question, Robert. I was just having this conversation with my friend, Jonathan.

18:08And he's a firefighter and he's talking about, you know, getting some extra overtime and what he's going to do after he pays off the truck. And, you know, his wife is expecting, which is really exciting. And, you know, they're trying to figure out the 529 stuff. And we were talking through some numbers and he was telling me that he has this mindset of like perpetually feeling behind with money because that's kind of how he grew up. He just didn't have a whole lot. And so he wants to ensure that every extra dollar, instead of enjoying it, he goes and invests it and tries to get ahead with his money as much as he can.

18:37and I think myself and a lot of other people I know in our friend circles have the same mindset not because either we grew up or didn't grow up but just we have sort of this relationship with money where we want to invest as much as humanly possible right we don't want to enjoy it we want to get the money and get it in the markets because we know what it can turn into over time but there becomes a point and I think Caden is kind of going through this himself where wait a second you kind of take a step back and you realize I've done pretty good hi my name's Caden I'm 27 I've got a hundred thousand invested.

19:08I'm house hacking, right? I'm doing everything right. I should start to enjoy this money. And I'm not saying, Caden, to go off the deep end here and go buy a brand new, you know, Ford pickup truck or some cool, you know, car you want, whatever, right? I'm not saying to do any of that stuff, but you know, Caden, maybe it's not the needs and wants. Maybe it's education. Maybe you want to take some of these, you know, online classes about something that's interesting to you, or maybe it's a new hobby you want to explore. Like maybe it's a place you've never been, or maybe you are a giver and your love language is gifting and you want to gift your parents a trip to Europe.

19:41There's a lot of different ways you can think about how to use money. So I would encourage you to, now that you're someone who obviously is very good with money, to think about now that I'm at this place in my financial journey where I don't have to feel, I can feel like I can start enjoying some of this. What does enjoyment mean to you? because right now they're just numbers on a computer screen. But how can you turn those numbers into smiles on your face and people around you that you care for? I love this takeaway. And this question is so timely because obviously with our 30-year age gap, Austin, I love this because I think back to when I was 27 and other people that posed this question to me.

20:23And here's my take. Caden, you've done a great job. Anyone else listening that's in this scenario awesome for you. But this is also where a lot of people fall off the rails. They get some money together. They get that$100K base built. They've got some real estate investing. And how I know Caden could easily fall off the rails is by this line where it says$75K worth of investments in real estate and other things through various groups. That scares me because what happens is you start to feel invincible. You have this money burning a hole in your pocket. So you put 10 grand into this deal that a buddy brought.

21:02You put 15 grand into this deal and you put 10 over here again. And then all of a sudden you're super wide in your investment strategies and super diversified, but they're not really good diversification tactics. Now I can appreciate that he has the base built. He's crushing it at 27 years old, but this is where I would really double down, Be smart. Get this money into the things we know over time are going to be less volatile. Because I see so many people get this extra money. Maybe they're a high earner or they've just really been good at savings. And then they go too diversified and too volatile in startups and friends projects and all that.

21:40And they end up going backwards financially. So Caden and everyone else listening that's in your 20s that's crushing it, double down. Still have some fun with your money. still take some shots, but also make sure you're continually growing the base. Because you know what's cool with 120 ,000 at 27 years old is being 35 and having 400 ,000. So keep that in mind. Don't go too far off the rails and just keep crushing it, adding the diversification carefully and with a strategy and you'll do great. I think this really comes back to having that self-awareness conversation with yourself of, what am I doing all this for?

22:18Right? Like, why am I saving and investing? Yeah, I want to do it. So I'm not broke in retirement. And like, I actually have money. Like, sure, I get that. But for those of you like myself and like my friend, Jonathan, who are like squirreling away everything that you can and trying to get invested into the markets, it's like, what's that number? What's that milestone? What's that checkpoint? What's that achievement where you get to say, and Ireland's asked me this before. She's like, all right, cool. Like, yeah, like we're investing. weird. So like, what's the goal? When can we start going to like another vacation?

22:46Or when can I get a car that's not eight years old? Like, you know, stuff like that. And so it's like one of those things where like, you got to have that, you know, what is the number? What's that goal? How do you define success with money? How do you win with money? And then once you've defined that, okay, now I can take the foot off the gas. Now I can go on those trips I've wanted. Now I can upgrade the car. Maybe it's an upgrade in a house, or maybe it's a, you know, something you want to start giving more, whatever it is to you that makes you happy. But just know that numbers on a computer screen going up, it's not as fulfilling as you might think.

23:18One of my favorite memories from when we first met and started recording together is when you explained, and I'd like you to do that for a moment here. I think it's a pretty cool moment. When you explained how you reward yourself after a really good year, and I think that's what you're alluding to right here, is what are the milestones? Where do I go to that next level where I can take my foot off the gas a little bit and enjoy the money a little bit without feeling like I'm going backwards financially and living beyond my means? And I remember that story you told, and I really liked that because I've never really defined it in words, but I just always have that feeling where I'm like, all right, I've crushed it all year long.

23:58I've had a big year. I've invested well. A lot of things are going well. I'm gonna go buy a watch or I'm gonna go buy a car I'm going to go do whatever. So do you remember that story? And how did you define, because I thought you had it mathematically figured out, of how you reward yourself in these level up periods? Yeah. So what I do is for every$100 ,000 that I get invested in the markets, I have a guilt-free $10 ,000 that I can spend on anything I want as a way to just feel good about it. And so again, mine is$100 ,000 to$10 ,000. Maybe yours listing right now is every$10 ,000 you invest, you guilt-free spend 1000 or 20 ,000, 1000, like personal finances, personal figure it out.

24:38But for me, that was the ratio that made sense, right? Because, you know, I'm investing hundreds of 1000s of dollars a year in the markets. And, you know, I'm looking around, I'm over here, Ireland sometimes looks at me and she's like, we haven't done anything in like four months, like, I know how much you make, like, can we do like, what's going on here? Like these, you know, having dinner is fun. But like, can we go on a trip or do something? I'm like, yeah. So it's just like having that thing where you can feel good about the guilt-free spending of money, knowing that it comes from a place of strength, right?