Q&A: Portfolio Adjustments, Starting an Ice Vending Business, When NOT To Use A 529

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0:57Hey everyone and welcome back to the Rich Habits Podcast question and answer edition brought to you by public.com. These are our Thursday episodes where we sit down and answer your questions as if we were in your shoes. Your questions are asked to us via Instagram DMs at richhabitspodcast, emailed to us at richhabitspodcast at gmail.com, or sometimes you guys ask us questions in the Spotify comments and they're interesting. So we share them on these episodes, but nine times out of 10, it comes from email or the Instagram DMs. So Robert, I'm excited. These episodes are a blast. We've got a lot of cool questions, right?

1:32We've got questions about some side hustle work. We've got questions about what to do with some proceeds after selling a home, some questions about, you know, investing on the behalf of children or during the 529, how to kind of navigate that as well as a couple of questions from some younger folks. Oh, and then Finally, our last question about rates coming down and some portfolio changes that we're making right now. That'll be a good one to answer as well. Yeah, I mean, personal finance is personal. That's the hill we live on. And I just love these episodes because we get to hear these questions right from the audience and really try to help everybody out.

2:06And, you know, there's a lot of overlap for people because we all have issues. We all have blind spots in our finances. And that's why these episodes are so important to the audience. I love doing them for sure. Well, I think what's fun about these episodes is you might not have a specific question that gets answered because we literally get hundreds of questions asked to us every single week. But maybe bits and pieces of other people's answers and questions, right, could apply to your situation. So we're hoping that these episodes continue to provide value to as many of you as possible. Now, before we get started, I think it's really important that we make sure everyone understands this reality.

2:42Investing toward your financial future is the only way you'll ever be able to retire. So if you want to stop trading time for money in your 9-to-5 or hourly job, you need to have a nest egg growing for you over time. And the easiest way anyone can begin investing towards their future is on public.com. They make it incredibly simple to build a multi-asset portfolio, including ETFs, stocks, bonds, crypto options, and more. They also offer industry-leading yields of up to 3.8 % APY for your emergency fund. And for a limited time, you can earn a 1 % match on all IRA deposits, IRA transfers, and 401k rollovers, which means it's$1 ,000 in free money for every$100 ,000 you rollover into their platform.

3:26I know you've got an old stinky broker that your dad's dad's dad was telling you to use back in the 19-whatevers, right? Like, ditch that stinky broker, use Public. You're going to love it. and fund your account in five minutes or less. All you have to do is head to public.com front slash rich habits to claim your 1 % match today. Paid for by public investing, full disclosures in the podcast description. So our first question comes from Sarah H. Sarah says, hi, I've been listening to your podcast on Spotify and I find a lot of value in your Q &A episodes. So I'd love your opinion on my situation.

3:57My name's Sarah, I'm 19 years old and I make between 2 ,500 and 3 ,000 a month from my serving job. I have$3 ,500 in a Vanguard brokerage account, all of which is in the S &P 500. I'm also putting about$200 from every paycheck into this account. I have another$5 ,000 in my bank account that I want to take a little bit more risk with. I've been looking into buying an ICE vending machine to make some passive income and eventually grow into more of a long-standing business. I would also like to purchase a duplex and do some house hacking sometime in the next 5 plus years, but I've got nothing set up for that just yet.

4:33I don't have the$20 ,000 to$60 ,000 to purchase an ice machine and I'm not sure I'd be able to get a loan to even finance something like that. However, I do have a decent credit score in the mid-700s. I don't have many expenses, but I do have an expensive hobby that I'm not willing to give up. I'm a skydiver and a biker, and skydiving takes up a good portion of my income. I spend at least$500 a month paying off my parachute. I've got about seven more months of that and another$200 to$300 per month depending on how often I jump out of airplanes. The parachute payments are interest-free, so there's no need to pay it off sooner.

5:07Other than that, I don't have any debt. My question for you is, should I be spending less on my hobbies in order to save more for my investments? What are your thoughts and opinions on this ice vending machine business? Would someone like me be able to get a business loan? Should I even consider that or maybe try and pay for something like that out of pocket? Or should I completely forget about the ice machine and just put it in stocks and save for a house? Robert, what a cool situation that Sarah is in. I've never met like a skydiver that does this so often. So shout out to Sarah here. But I'll let you take a first stab at this one.

5:37Yeah, I love the entrepreneurial mind and I really appreciate the thought process. But I'm going to go back to the basics. I think Sarah is putting the cart ahead of the horse. I think she needs to get that base built. Keep putting that money away every single month. When it comes to should I cut back on these expensive hobbies, not just hobbies, expensive hobbies, the answer is yes. Because until you get the base built, if you're always in a situation where a lot of your money is going out the door for these hobbies, we want you to have a great quality of life, but we also want to make sure you're not a Walmart greeter at 75 years old.

6:14So I think she should dial it back a little bit, get that parachute paid off, get more money going into the brokerage account to get more money working while she sleeps, and then revisit. Or if she's not going to listen or anyone else out there that has expensive hobbies like cars or motocross. I raced motocross early on in my career. Very expensive hobby. Get a side hustle that pays for the hobby. So those are my thoughts. Those are the options, but we just always want to see all of you get the base built first before you start going in all these different directions. And then maybe the ice machine can come later and you might find a better, more profitable side hustle to make extra income without so much investment.

6:58Because remember, buying the ice machine is the easy part because you can go get a loan. You can find a lot of different ways to get the money, but finding the right place to put it and getting it all hooked up and it being profitable is the difficult spot unless you live in a very, very high tourism area and you already have a spot selected. So be careful out there with that one. My head goes a couple different places off the rip, right? So the first question I have for Sarah is that's exciting that you're 19 making$2 ,500 to$3 ,000 a month with your serving job. How do you plan to make six figures by the time you're 29 or 39, right?

7:34Like what's your career path? Because I'm sure you don't want to just be serving tables and waiting on people as a lifelong career. So one, are you in college? Are you in a trade? Are you trying to fit like what's your next step? So the serving job is just a means to an end until you start your like long life career. So really want to encourage you to think about that. And maybe, right, instead of the, oh, should I spend less on my expensive hobbies? Maybe that means pulling down some funds from the expensive hobbies to then allocate to getting a certificate or an associate's degree or something else that's going to allow you now to earn more money, right?

8:09Where the expensive hobbies are just expensive hobbies. Like they're not like nothing, I guess, like monetarily is going to come out of them, right? Just fun experiences. That's where my head goes first. Next, you make$2 ,500 to$3 ,000 a month. I'd love to see you off the rip just investing 15 % to 20 % of that. Call it$450 to$550 a month. So if you're investing, let's call it 500 bucks a month in your Roth IRA, which you said you've got 3 ,500 in a Vanguard brokerage account, all of which is in the S &P 500. I hope that that is sitting inside of a Roth individual retirement account on Vanguard's platform.

8:40If it's not, you should put it into a Roth IRA on Vanguard's platform and then start contributing 500 bucks a month to it every single month until you've maxed it out at 7 ,000 a year. Do that all the time. Absolutely. So that's like your bare minimum. Step one is like serving job, max out Roth IRA. Now, if you still have money left over and you want to rock and roll and do more, you know, expensive hobbies after you've invested 15 to 20 % of your income, I'm cool with that. I think that's totally fine. You're young. Enjoy your life. Just make sure that you are one being forward thinking. I know you're young, right?

9:16You're still in your teens. So you don't have to think so much about your career. You're too young to even understand, you know, what you enjoy, even in my humble opinion. So I hear you on the serving job, but do not make the mistake of forgetting about how important investing can be at such a young age. You know, we made this episode recently talking about how to 70X your money. Every dollar invested in your 20s turns into$70 in retirement, right? So every time you put$500 in this Roth IRA, it turns into$35 ,000 upon 65 years of age. $500,$35 ,000. So just make sure that you understand, yes, hobbies are fun, rock and roll, enjoy your life, but not at the expense of a nice retirement in your 50s, 60s, and 70s.

10:04And I want to click back one more time because I had this happen recently and she got back to me about what she did as the outcome. And in this instance, it also applies. You could also take, instead of getting a side hustle or cutting back on the expensive hobbies, pick up one shift a week and whatever you make on that shift, that is your extra investment money because that's money that is found money without going and get a second job. I told this to a nurse. She was struggling and she said, hey, I work four or five days a week and I'm barely getting by and I'm only able to put a couple hundred dollars away a month.

10:40I said, pick up one extra shift because it's a high paying shift and just pretend it doesn't exist. invest all of it. She said it changed her life. She picked up Sunday. She gets paid time and a half or whatever it is. And it's just an incredible journey. So look within sometimes because you can find more money right in front of you. I think that's a great answer. So our next question comes from Jeremiah. Jeremiah says, hi, Robert and Austin. I stumbled upon your podcast six months ago and I wish I found it sooner. I love how you talk about every aspect of finances and how to build wealth. A little background on me as I'm 44 and my wife is 39.

11:13We have our forever home near Orlando, Florida on acreage with a monthly mortgage payment of$36.50. I make a base salary of$200 ,000 with commissions typically around$60 ,000 to$80 ,000 per year along with money as a veteran around$4 ,000 a month. Thank you for your service, Jeremiah. My wife makes$60 ,000 per year and we have just over$400 ,000 between both our 401k accounts. Currently, I max out my 401k annually, and my wife contributes 10 % with her company matching 14%. This gets her about half of the way toward maximizing annually. We also have a stock account with just over$40 ,000 between index funds and crypto, and sometimes we like to trade options.

11:54We have about$35 ,000 in a public.com high-yield cash account that equates to three and a half months of our current bills, so this is our emergency fund. Next year, I should hit some additional metrics and get$260 ,000 of company stock. Going forward, I would expect between$25 ,000 and$100 ,000 in company stock annually. So here's my question. We're in the process of selling our rental property and want to use the profits to do a couple things. We don't currently have a garage and we have limited space in our house, so we want to pay cash to build a garage. In addition, we would re-roof our house to help lower our homeowner's insurance by roughly$7 ,000 a year, along with paying off our SUV.

12:35The projected savings between the insurance, the SUV payment, and a few other items we're paying off, like braces for our kids and our air conditioner, is around$2 ,400 per month. We want to take the savings and use it to max out our individual IRAs for each of us annually. In addition, we want to take$100 per month for each of our three kids to start funding stock accounts for them. Does this make sense, or is there something else you might suggest we do? Jeremiah, again, thank you so much for your service. You guys are in a good situation, but then after reading the last part there,$2 ,400 in payments of debt that you guys are doing, I guess$500 of it a month could come from.

13:11Yeah, so$1 ,900 a month of payments. That's a lot of money. You guys want to figure out the budget stuff. You guys might be a little over your head here, but I do like this plan regardless. So here's what I want you to do. If you want to take off some of this money from your rental that you're selling and use it to redo the roof, which I think is probably going to add value to your home regardless. So redo the roof. You're also going to pay off an SUV, which probably has a decently high interest rate, depending on when you got it. And then also pay off the braces, your AC unit, stuff like that.

13:38Like, that's great. I'm down for that. Assuming you take that$2 ,400 per month and you start actually investing it like you said, right? The whole thing about, like, the argument around paying off debt quickly and paying off debt early versus not, the only reason you would do it, right, it's always predicated on if you're taking that monthly payment and making it work for you, which it seems like you would be doing. So taking that$2 ,400 a month, you're 44, your wife is 39, that's going to be worth millions of dollars in retirement, assuming you keep that momentum. Now, here's what I don't want you to do.

14:08You guys mentioned you've got, you know,$35 ,000 in a high yield savings account for an emergency fund. Where was this$35 ,000 when your AC went out? Where was this$35 ,000 when maybe you realized your kids need braces or whatever, right? Some of them say like, just make sure you understand what some of these things are used for, right? We're not saying to use an emergency fund on whatever you want, but if your AC goes out and you don't have the money for it, like that's what the emergency fund is for, right? If your kid goes to the emergency room and you've got a$6 ,000 bill, that's what the emergency fund is for.

14:40Not going into debt to keep it around like a pet. So I'm down for you to do this. I think it sounds like a decent way to use this money. you already have hundreds of thousands invested you're getting another quarter million in company stock later like so you're going to have let's call it 650 to 700 000 already in the markets here you make a ton of money things are going to be great but just please be cognizant of just what i feel from a vibe here from your lifestyle inflation i just feel like you guys are kind of in this oh we make a lot of money i got the commission my wife's doing this like we're investing all the things cool therefore we're going to have 4 000 a month in payments and go into all this debt and like whatever.

15:20Y 'all should have more money invested making a quarter million a year in your mid 40s. It's cool that you're going to be investing more aggressively now. So like I'm not knocking you for it, but just be careful of the lifestyle inflation. I love that answer. You basically covered everything my brain could go to. And that was incredible. The only thing I would say is I see it every day when people get a windfall and the windfall would be from selling the property. A lot of times they don't have a full plan. It sounds like they have a pretty good plan here, but just always remember every dollar needs a job, whether it's the garage, the braces, paying off the SUV, but the rest of those dollars also need to have a job.

16:02And Austin's point about making sure the rest is invested and the new net money you get every month is invested, the more you automate all of that, the better off you're gonna be long-term because what I see a lot of people do, They get the windfall, they pay the things off, then they blow the rest of the money because it doesn't have a job. That's my only click back to make sure you guys fully understand this. And anyone else as well, make sure you're not just paying off debt because you want to feel better, but not having a plan with all the net new money you have every single month. That's right.

16:34It is so important now to say, okay, great. We paid this off. We paid this off. We paid this off. Now we have an extra$2 ,400 a month. That doesn't mean we can afford to go out to eat four times this upcoming month versus two or whatever. It doesn't mean you can go buy new things or spend this money. This money has a job. You've already decided that that job is to be investing it. Do the 529 for your kids. That's great. Rock and roll. Make sure that you actually stick to that plan because it's going to get real tempted. Oh, we can skip investing this month and just use that$2 ,000. We can go on that vacation we wanted.

17:09We could always do it next month. I don't know. Next month, you know, Christmas is coming up. I think that's where our Christmas money is going to come. So please just do not get complacent. 100%. I love the question. Great coverage, Austin. So, so good. So our next question comes from Johnny. Johnny says, hi, Austin and Robert. I've been really enjoying your show. I've been listening regularly for the past six months, and I've learned a lot from your discussions around investing and wealth building. I'd love your advice on what to do with the proceeds from Selling My Home. Well, here we go. Back-to-back home questions.

17:39Robert. So Johnny says, I recently bought a new primary residence and due to HOA rules, I can't rent out my old one. So I'm planning to sell it. After paying off the remaining mortgage and fees, I'll have$300 ,000 left. Here's a quick snapshot of our situation. We're married, 38 and 36. We have two kids and eight and a two-year-old. Our combined income is$200 ,000 a year. We both max out our 401ks, our Roth IRAs, and we contribute to our child's 529 accounts. We have no other debt besides our current home, which has a$265 ,000 balance at 5.5 % interest. My initial plan was to use$100 ,000 of this$300 ,000 to pay down our new mortgage so we can cut the balance from$265 ,000 to$165 ,000, invest another$100 ,000 into the ETFs and index funds you all talk about, and then keep another$100 ,000 as a down payment for a future investment property.

18:32Do you think that this is a smart allocation or would you recommend a different approach? Maybe even adjusting the split between paying down the mortgage and investing and saving for real estate. Thanks so much for all your time and all you do. I love the show. Robert, I'll let you chime in here, but I think for the$100 ,000 that you want to put into ETFs, go do that with direct indexing on public, right? Because if you do it correctly and you get those automated tax loss harvesting like Robert and I have been doing with direct indexing now for the last year and a half, right? We've tax loss harvested about 12 % of the original investment, right?

19:07It's about$2 ,400 on about 20K. And so if you are able to tax loss harvest 8, 10, 12 % per year on your$100 ,000 investment, you're talking about$8 ,000,$10 ,000,$12 ,000 of capital losses that you can use to offset gains elsewhere in your portfolio or offset your W-2 income up to a couple thousand dollars, right? So go talk to a tax accountant about that. But I just want to make sure that you understand if you have this windfall of taxable money that you have to invest, invest it in a tax-efficient manner via the direct indexing on public.com in the S &P 500. So Robert, I'll let you take a stab at the other 200 ,000 that they plan to allocate.

19:50Yeah, I'm going to cover all of it and I'm going to start at the bottom. I like the idea of keeping$100 ,000 towards a future investment property, but I would not just let that sit in a bank account or even a high yield savings unless you plan to buy this investment property in the next year or two. Anything beyond two or three years, let's say your goal is in four or five years, I would get that money invested. Maybe give yourself some exposure to some crypto, maybe some precious metals, which are very hot right now, but get yourself some further diversity to make sure you are earning as much as you can with this money while still leaving it liquid enough that you can use it for the property down the road.

20:29Now to go back to the$100 ,000 that you wanted to pay down the mortgage with, you're right on that fence with 5.65 % as your mortgage interest. I personally would not put the$100 ,000 down. Yes, it lowers, you know, the balance you owe on it, but I just think you could put that money in the markets and make more with it and have that positive arbitrage in your favor. So that's me. If you feel good about it, I would maybe adjust that. I would put$50 ,000 to lower the total mortgage down and put the additional 50 then with the 100 ,000 in the ETFs. But that's my play because I don't mind 5.65 % as an interest rate.

21:09It's high-ish, but it's still a really good interest rate given what we can make in the markets. So that's what I would do. But I love the plan that you guys have. You're young. You can be a little more risk on. And there's a lot of money to be made right now through whether it's AI or crypto or some of the things, these secular growth trends that have been really popular the last couple of years. Yeah, the hard part about this is y 'all didn't let us know how much you already have invested, right? Because if you don't have that much invested already, then I would not suggest you pay down this mortgage aggressively because we want our money growing for us, right?

21:44Because debt can go to zero, but money invested can compound to infinity essentially, right? So like you just understand that. The thing is too, a$265 ,000 balance tells me that you already probably put down a couple hundred thousand dollars when you bought the home. So if I were you, I probably would skip the pay down mortgage faster section, which means you'd have 200 ,000 in these direct indexing, right? So like I would go that route. And then if you wanted to save 50, 75, 100 for a future investment property, just make sure that the numbers shake out. Make sure that you are sort of doing it in a way where cash flows on day one, things of that nature.

22:22But right now, I think that that dollar cost averaging this money into the markets over the next three, six, nine months, this 200 ,000 is probably the best bet. And when I say three, six, nine months, just by looking at these numbers, I'd imagine. So my rule of thumb here, Robert, and we've talked about this in the past, is if you're trying to invest a lump sum of dollars into the markets, if that lump sum makes up more than 20 or 25 percent of your total net worth, that's so much money of, you know, so much of your net worth tied up into a lump sum investment that I think you need to spread that out over several months.

22:56Because what happens if you go put that on, what was it, April 2nd or April 10th, right after, you know, or right before rather, Trump did the Trump tariff tantrum and now your$200 ,000 turns into$160 ,000 because it went down by 20%. You'd be pretty upset. But if your dollar cost averaged over the next 3, 6, 9, 12 months, that's a better way to think about it. So I would dollar cost average this$200 ,000 into the markets. I would absolutely take advantage of public.com's direct indexing to tax loss harvest this amount of money. I mean, we're talking now about tens of thousands of dollars in tax loss harvesting, which is really, really important.

23:29Before we get into our next question, listen up, folks. You can lock in a 6 % or higher yield with a bond account on public. But remember, your yield isn't locked in until the time of purchase, so you might want to act fast. Lock in a 6 % or higher yield with a diversified portfolio of high yield and investment grade corporate bonds only at public.com forward slash rich habits. So our next question comes from Leslie T. Leslie says, Hi, Austin and Robert. I love your podcast. Keep up the great work. I want to pick your brains on saving for my children's education. My sons are 10 months old and two and a half years old.

24:05I've heard a lot about 529s. However, my dad set up a joint brokerage account when I was 16, and it paid for my wedding, most of my professional school, and contributed to my first down payment on the home that I bought when I was in my late 20s. So from a personal standpoint, I feel like it has more flexibility to spend and allocate the money, but I want to hear your thoughts. Okay, so let's walk through this. So the 529 account, as you all know, it's essentially this brokerage account that you can put money into and invest in the stock market. And you can use those profits to pay for education related expenses, which means trade school, books, tuition, like all the things related to education, college, all the stuff like that, right?