Q&A: Scammed by Insurance, Investing Rent Money, & Using Checking Accounts

0:00Hey, everyone, and welcome back to the Rich Habits Podcast question and answer edition brought to you by Public.com. These Thursday episodes are all about answering your questions in real time. We find a bunch of questions that you guys ask us via Instagram DMs at richhabitspodcast or via email at richhabitspodcast at gmail.com. We pull them all together. We pick the most random ones we can, and we try and answer them here on the show every single Thursday, and we have so much fun doing it. I love these episodes. I say it every week because I feel like it really expands our minds into, you know, we always say personal finance is personal.

0:36And when we answer these questions, we're really digging deep on all of these crazy different topics around finance and business and mindset. So these episodes are just a blast to make. They are. And again, these are kind of like off the dome. We don't really pull too much together here. We review a couple of them if we have any like lingering questions. But this is Robert and I's raw thoughts. But Robert, before we jump into the episode, it's really important that everyone understands the reality that if you ever want to retire, right stop trading time for money you need to have a nest egg that's 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 access to industry-leading yields of up to 3.8 percent apy for your emergency fund and for a limited time you can earn a one percent match on all IRA deposits, IRA transfers, and 401k rollovers.

1:36That's$1 ,000 of free money for every$100 ,000 you rollover into their platform. So if you have an old 401k that you haven't really looked at in a while, or it's on a stinky broker you don't like using, roll it into public, get your free 1 % match. Fund your account in five minutes or less by heading to public.com front slash rich habits to claim your 1 % match today. Paid for by public investing and full disclosures in the podcast description. So our first question comes from Mandy. Mandy says, Hi, all this is Mandy. I love your show. And I like to get some clarification on a question. A couple episodes ago, you mentioned direct indexing and that everyone that owns VOO should direct index into the S &P 500 instead.

2:17So I was wondering, do we go and sell our VOO or maybe even our QQQ in our portfolios and start direct indexing it. I've got about$100 ,000 in VOO, QQQ, VGT, things like that. So should I put all$100 ,000 into direct indexing? Do I do half and half and keep some ETFs? What do you guys think? So Robert, great question, right? We had Stephen Sykes from public.com. He's their chief operating officer on the show recently to talk about their new direct indexing product. And it's awesome. So essentially with as little as$1 ,000, you can begin to direct index some of your favorite indices. They've got over 100 indices over there.

2:54Go check them out. Now, what is cool about direct indexing is, again, instead of owning an ETF, right, like VOO, who then goes and owns the S &P 500, which means that you don't have any control of those underlying 500 names. You're just kind of tracking their performance. By direct indexing, you go and you buy the 500 names directly yourself in your broker. And by doing that, it allows you to automatically tax loss harvest. Why that's important is when names come down a little bit, other names move around, volatility, whatever, you can take advantage automatically on public.com what these moves do to a portfolio to say, hey, you know, we had some volatility in April of this year with the Trump tariff tantrum.

3:35You can now maybe take advantage of some of that volatility by realizing losses that then offset capital gains in the future. For example, Robert and I indirect indexing in the past for the last maybe, I think it's been about 15 or 16 months, Robert. And since doing that, we've tax loss harvested just about$2 ,300 against the initial$20 ,000 invested, which by the way, is now worth about$26 ,000. So we realized a 30 % increase in the portfolio as the S &P went up. We tax loss harvested about$2 ,300 along the way, and it's all automatic, all cool stuff. And so public is now offering that same service.

4:12So what would I do in your situation, Mandy, I would probably stop buying net new shares of ETFs and just take that new capital and direct index it instead. I'm not saying to go sell your shares of VOO or QQQ because that would be a taxable event. I don't think that's smart. Just keep rocking and rolling. Long-term capital gains are your friends here. But net new capital, I think, should be deployed toward a direct indexing type of protocol or strategy, allowing you to take advantage of those tax-lost harvesting efforts. Yeah, I think your breakdown is perfect. Any net new capital, I would put in the direct indexing, but any capital that you currently have in VOO or QQQ, I would leave put.

4:53Now, if I was starting from zero and I had$100 ,000, I probably would break it down and maybe do 50, 60 % VOO and then the rest in the direct indexing. Because keep in mind, direct indexing does have higher fees. It does have some little things that are different. But overall, I think it's a great strategy to have both. But all net new capital in this instance, I would definitely agree with Austin. Put it into the direct indexing. Now, our next question comes from Emma G. Emma says, hey, Robert Nossen, I hope you can settle a debate. My friend and I follow your strategies. We have our brokerage accounts, fully funded emergency funds of$15 ,000.

5:30We have maxed out Roth IRAs, we've matched our 401ks, and we have our bridge accounts. But here's where we have a conflict. We don't know how much to keep in our checking account at the end of each month. For example, at the end of the month, I like to bring my balance down to about$3 ,000 and then invest any amount of money above that figure. But my friend keeps$10 ,000 in her checking account and invests anything above that. My argument was that even though my$3 ,000 might seem a little high, since we have credit cards that can cover immediate purchases until I pull funds out of my emergency fund.

6:02She thought that$3 ,000 might be too low. So I think it's too high. She says it's too low. What are your thoughts? Thanks in advance. P.S. My newest toxic trait is multiplying all my expenses and my friend's expenses by 70x because you guys say that every dollar invested in your 20s turns into 70 in retirement. Best episode you published hands down. Well, thank you so much, Emma. We really appreciate that. That's so funny, Robert. That is a toxic trait. I love it, but I'll take this one first. Here's my take on this. And people get this wrong. Most people get this wrong. They feel they have to have all this money in a checking account to make it available like all their other money in a high yield savings or their brokerage account or whatever it is, is unavailable.

6:48and it always bothers me because I always say you wanna make your money work as hard for you as you work to get it. So in this instance, I think you're both somewhere in the middle. I would say instead of 3 ,000, I would up it to five and instead of 10, I would come down to five because I think that's a great sweet spot where you have some cash on hand so you feel comfortable. But always remember for those of you that are sitting on 50 ,000, 100 ,000, 200 ,000 in your checking account, you're leaving money on the table. You don't need that much money. I can go to my brokerage account right now and in two to three hours get$100 ,000,$500 ,000, whatever I need for something that would come up.

7:26So don't let that much money sit. I agree$10 ,000 is too much. I would park it all at$5 ,000 and then that way you'll be safe and everything will be great. Yes. Well, I just logged into my bank account. It's November 3rd when we're filming this right now. So the month of October has wrapped up. I've paid off all my credit cards. I've done everything like I do on a monthly basis here, right? and I've got 4 ,400 bucks in my checking account. So that's my real number, my real kind of like what I do on a month to month basis. Is 3 ,000 low? Not really. I mean, if you want to have three, that's fine.

7:57Is 5 ,000 too high? No. Is 10 ,000 too high? I'd argue yes, right? I think once I get above like the 5, 6, 7 ,000, then I'm like, okay, wait a second. I need to like put this money somewhere. So it's growing for me. It's not just sitting in my checking account. So yeah, I'm kind of right in the middle there. 4 ,400 bucks is what I've got in my checking account. We just wrapped up October, just paid my bills, paid everything normal. I haven't paid myself yet for the month of November. But that's what I got in my checking account. I think it aligns right with what Emma says at three and what Robert says at five.

8:25So a general framework that I like to think about here is about one and a half months worth of what I would make on a monthly basis, right? So like say, for example, you're someone that you're Ireland, and you're making about four$5 ,000 a month, I think it's totally fine to keep four, five or$6 ,000 a month in your checking account any given time. Like that's like just a good place to be. Now, if you are someone who's making a whole lot of money and you're really saving and investing a lot of it, sure, like make sure that you're not putting aside too much. But Robert's general framework here of 5 ,000 at the end of the month, obviously I follow that.

8:59I'm very close to that. 3 ,000. I've had months where I'm around three as well. I'm a little bit more aggressive on those months. But at the end of the day, as long as you aren't having thousands of dollars more that could be saved, that could be invested, right that's genuinely eating a hole in your pocket thanks to inflation you're going to be just fine there's no like perfect rule for it just don't be too cash heavy yeah i remember my ex one time she wanted to see all of my bank accounts and i show them freely and she's like why don't you have any money in your checking accounts i'm like why would i and she's like oh well my parents always keep a minimum of a hundred thousand dollars in their checking accounts in case of emergency, I go, that's what an emergency fund is for.

9:39I want my money to be active and you have to make sure you're always deploying it. Yesterday, I had a little bit of extra capital that came into an account and I was like, what am I going to do with this above the threshold that I like to be at? And I just moved it around, put it into public.com, moved some other things around. And now I feel good again because my money is working as hard as I work to get it. Now, our next question comes from McDonough. McDonough says, hi, Austin and Robert. I'm a big fan of the show and really appreciate how you break down real life financial situations with clarity and perspective.

10:10I'm 52 years old, married, and my wife is a stay-at-home mom. We have two boys ages 13 and 10, and here is our financial situation. We have 1.5 million in a 401k, 1.7 million in our bridge account, 1.3 million in employer stock with about 850 ,000 of that vested. $275 ,000 in the 529 accounts for our two kids. Our house and our cars are fully paid off and we spend about$10 ,000 a month on our living. With all the advances in AI in the current economic situation, I'm increasingly worried about a potential layoff. My plan is to work another three years or so, but if that becomes difficult, could I retire today and still maintain a comfortable lifestyle?

10:53Thanks again for everything you share. I really enjoy the show and would love your perspective on my situation. So Robert, I'll kick this one off. If you wanted to retire today and live a comfortable lifestyle, you probably could, but it'd be a little close, right? So let's say you have to take in roughly$150 ,000 of portfolio income that's then taxed as a long-term capital gain at 20%, just to be conservative, keeping you at that$120 ,000 per year in spending on your monthly expenses here on that credit card that you had sort of laid out for us. So you have to make$150 ,000 a year in portfolio income before taxes to sustain your lifestyle.

11:33The 4 % rule tells us you would need about$3.8 million invested into stocks and bonds, allowing you to take off that 4 % and never run out of money, right? Quote unquote, never there. So theoretically, you've got the$850 ,000 of employer stock. You've got$1.7 million in your brokerage accounts. That gets you to about$2.5 million, which is great, but it's not that$3.8 million. So could you retire today? You absolutely could retire today, but your spending would have to come down every month to about$6 ,800 because that would then keep you into an after-tax 4 % rule kind of range. range. Now you don't have a mortgage, you don't have a car payment, you're not contributing to the 529s anymore.

12:15Like, what does one spend$10 ,000 a month on today? Like I couldn't tell you, right? Having no debt, like what are you spending 10 grand on? Like, that's a lot of money. So like, oh my gosh, we have to like tighten our belts a little bit and raise our 13 and our 10 year old on just, you know, 6800 bucks a month, assuming no mortgage payment, no car payment, no debt at any, like everything says fully paid off. So I think you could do it if you needed to, but here's my advice work until you're 59 and a half let the 1.7 grow it'll probably double that next seven year period of time so now we're talking about three ish million let the 1.3 million employer stock grow as well maybe it's closer to two million over the next seven years let the 401ks grow that'll do you know let's call it now that's from 1.5 to two and a half or three million so let this money grow now you have three six seven eight million dollars in seven years from now when you can actually touch the money at 59 and a half.

13:09You are super rich at that point, six,$8 million. Oh my gosh. You are having a really good time. Everything's paid off. You go travel the world. You buy whatever you want to buy. You've made it. Congratulations. But I would work for the next three, five, seven years if you could, at least until you can tap into that 401k. But Robert, what's your take on this situation? Yeah, I think you killed it. They're doing great. They do need a little bit more money, so they need to keep multiplying and working a few more years. but here's what I would do. This is the only thing I would add. Everyone watching this episode needs to be concerned with what is AI going to do to their job?

13:42Is it going to displace their job? Is it going to change their job? And in this instance, you have time. At 52 years old, you could spend the next 18 months in whatever job you're in, because I don't think it shows what you do, and you could really get dialed in in AI to be the best at it at your company, in your division or whatever it is you do. And then there's a world where maybe you even make more money and don't have to worry about this displacement or worse, getting laid off. That's the only thing I would add. Everyone has to understand AI is here. It's happening. You can't get around it.

14:21So embrace it, learn it, and see how you can benefit from it rather than worrying about it, but also prepare like we're talking about in this question because if you do lose your job, You have to have more money than you anticipated because, you know, before AI, you probably thought you were on easy street for the next 10, 15 years at your position. That goes away with a lot of positions and a lot of sectors in business with the advancements in AI. So prepare, educate, and get ahead of it. I could not agree more. And I think the big thing that you need to consider here is having that honest budget as well that breaks down between the necessities, like the needs and the wants, right?

15:03I need to pay my mortgage every month. I need to put gas in my car. I need to buy groceries. I need like, I don't know what the ratio is for you on this$10 ,000. Like I live off of$7 ,000 a month and I pay a mortgage. I pay like a lot, like, you know what I'm saying? And there's a lot of fixed expenses in that 7 ,000. So again, you've got two kids I don't. There's a lot of things to talk through there. But I think at the end of the day, it's really important to say, if I do lose my job, how much of this 10 ,000 can I trim down so that if I do need to live off of my investments for a while or retire early, I can do that adequately at that 5 ,000, 6 ,000,$7 ,000 a month range versus this 10 ,000 and now you're sort of being reactive and not proactive.

15:47So our next question comes from Zufan H. Zufan says, Hi, Austin and Robert. My husband and I recently discovered the Rich Habits podcast and our minds are blown. We really wish we'd found you sooner. Starting in March of this year, we purchased three indexed universal life policies with a combined death benefit of 7 million. Together, we're paying$3 ,800 per month in premiums. Eight months in, we've contributed about$29 ,000 in total. But after fees and deductions, only 21 ,000 of that has actually gone into the investment accounts. Each policy also has a cap on returns of 10.25%. Now, after listening to your Q &A episode where you discussed your views on IULs, we're realizing this may not have been a great investment decision.

16:30Our big question is, do we surrender the policies right now and accept the loss on what we've already paid? Or do we wait until the 12 months are up after the initial purchase where we can reduce the premiums to the minimum, which is$1 ,200 per month, and keep the policies alive. For context, we're both 29. My husband earns$220 ,000 a year. I earn$65 ,000. We bought an investment property earlier this year with a$200 ,000 down payment. We have a$275 ,000 mortgage at about 7%, currently renting for$3 ,000 a month. We've been paying down the mortgage aggressively, about$10 ,000 toward principal each month, and the balance is now about$200 ,000.

17:07If we free up money by canceling or cutting back the IULs. Would you recommend putting that toward a backdoor Roth IRA, paying off the mortgage faster, investing in a taxable brokerage account on public instead? Thank you so much for your insight. We really value your perspective. So I love this. I love that you guys are thinking critically about where your money is going. Robert, let's talk through it and let's explain to them with numbers, right? Facts, not just opinions here, facts on what could happen in their situation. So they're 29 years old. And let's say that instead of taking this 3 ,800 bucks a month in premiums to have a combined death benefit of$7 million, they just took the 3 ,800 bucks a month and they just invested it into the S &P 500.

17:51And let's say the S &P grows at about nine and a half percent per year from 29 to 67. You're talking about$17 million. That is your money that you get to now pass down to your children or anyone else you want to give the money to when you die, right? There's no like, this is your 17 million. Congratulations, right? That's what 3 ,800 bucks a month from 29 to 67 turns into. Let's say it's 29 to 65. It's still $14 million. So whatever you want to figure that out, you've got over 10, 12, 14, 15, 16, 17 million dollars of your money. Now compare that to the 7 million you'd have in this investment an account with a death benefit or whatever.

18:30Like, okay, so we're talking about twice as better by just keeping it in your own hands. You even talked about how you've already paid$8 ,000 just in eight months on fees alone, which I think is absolutely ludicrous. So you're such a saying now, hey, guys, do we keep the policy, keep paying the 1200 bucks a month, and then use the other, let's call it $2 ,600 a month and figure out what to do with that? Like, do we keep the policies in general? our answer, Robert, has always been no to IULs and yes to term life insurance. And here's why. What is the goal of insurance? What is the goal of life insurance in general?

19:08The goal of life insurance is to provide income in case someone dies, right? So now you've got someone in your family that you depend on. You said your husband earns$220 ,000 a year. If your husband passes way, you now don't have$220 ,000 a year. So what do you do? If you had a life insurance policy of$3 million or$2 million, you could take that$2 or$3 million, let's call it$2.5 million on average here, put it in the stock market, take out 5 % per year, and you now have$125 ,000 of annual income to add to your$65 ,000. That is how you now survive until you can figure out your now new situation without a husband.

19:49Life insurance is to supplement the income of the person who died, right? What if you can now self-insure, right? What if you already have so many millions of dollars invested that you don't need to have this lump sum? The two of you now already have so much money that if one of you dies, the other person can live off of the existing, you know, sort of nest egg that you've created. And that to me is what term life insurance does a great job of executing upon. So term life insurance says, hey, for the next 20 years, I'm going to pay, I think right now, Robert, I pay like$110 a month for my term life insurance.

20:26I have a$2 million policy myself. So it's like I pay$110 a month. If I die,$2 million goes to the beneficiaries and rock and roll in there. Then that can get the 5%. You know, we're talking about hundreds of thousands of dollars at that point. In your situation, you could do the exact same thing. For$110,$150,$200, whatever it is, it's a lot cheaper than$3 ,800, right? So now you've got this ability to have this massive nest egg in case someone dies. And then while you are over the next 20 years during the term, right, you take the difference there. So that$3 ,800 minus the, let's call it$200 a month, just to be conservative.

21:04Now it's$3 ,600 a month. You can park in a brokerage account over a 20-year period of time, assuming you have absolutely nothing in this brokerage account right now, you now have$2.5 million, which is the exact amount of money you just insured yourself for. Congratulations. You don't need term life insurance anymore. You now have$2.5 million in a brokerage account. At 49 years old, you are self-insured, and now you can continue to grow your wealth. It's a common misconception to think that people can get rich with insurance policies. They think that insurance policies are investments and they're not.

21:39They're insurance. They're insurance, right? So just like understanding the difference between this is an investment strategy, which are real investments into a public brokerage account or a Roth IRA or whatever else, or this is an insurance policy that ensures that if I die, X amount of things actually happen. When you begin to combine the two, that's when you start paying fees. That's when you start, you know, get front loaded on the wrong things and they put you in the wrong things. It's just a recipe for disaster. So please, Zufon, highly recommend surrendering the policy, taking the hit on what you've paid.

22:14Call it a silly tax. Call it a stupid tax. Call it a I've learned my lesson tax. Whatever. We've all paid them. Robert and I certainly have paid them. And get rid of the policy. Take that$3 ,800 a month. Take$200 or$150, whatever it is. Get a $2 million or$3 million policy, term life insurance policy on you and your husband specifically. And then, Robert, I now want you to tell our friend here what they should do with the other $3 ,600 a month. Do you think that they should pay down the mortgage at 7 %? Do you think that they should pay down the mortgage plus then start investing, maybe half and half?

22:47How do you think about that? No, first, I love how passionate you are about this question. We haven't been asked about IULs in a while. And I just want to talk about this just for a quick second, because you crush that. And that is an IUL is not an investment. And anyone that sells you that it is, you should unfriend them, never do business with them again, and never trust them again. Because at the end of the day, if I invest in VOO in the S &P 500, and I invest$3 ,200 a month and then stop, guess what? That money keeps growing forever and ever and ever. And it compounds on itself. With an IUL, when you miss those payments, your policy ends, your money is gone.

23:26And on top of it, which was highlighted in the question, you are paying a ton of fees. And don't let them kid you. These are administrative fees, policy fees, but also really high commissions. So that is why I really struggle with people that sell IULs. I think it's really, really bad and they should not be able to sleep at night because it's not an investment and it's definitely not fair or sound for the person's financial future. And Austin, you did a great job breaking down the numbers. So to answer your question, Austin, I would do exactly what you said. I would not pay down the mortgage and pay extra on the mortgage just yet.

24:02And if I was going to do that, I would maybe only do that with$1 ,000 a month of the funds because there is a world where we start to see these rates come down more and more over the next two, three years. And you could be lowering your principal over time by paying extra, but I would still keep investing in the market because I think there's a bigger win there like you illustrated with your numbers, Austin. So that's what I would do. I like that a lot, Robert. I think at 7 % interest rate, right? I understand that you want to pay that mortgage down. And I think you should pay it down. It's really at that cusp where it's like, if it's eating at you, if you feel weird about having 7%, I'm not going to get mad at anyone for paying off a debt that's at 7%, so let's just be clear on that.

24:43But to the same point that I just made and that Robert did a great job of illustrating, which is like, if you are not putting this$3 ,800 a month into these premiums, what are you doing with them instead to ensure that you come out ahead on the back end in 20, 30, 40 years? That means you have to invest it, right? So go to public.com. Direct index it. That's what you do, Robert. You go to public, you direct index it. Now you're getting a double whammy. You got the money growing for you in the S &P and you're taking advantage of tax loss harvesting. Sounds good to me. So yeah, if you want to pay off the mortgage, you could do some of that.

25:16But at the end of the day, I would focus more on getting that money invested, growing this$3 ,800 a month into $1 million,$2 million,$3 million,$4 million by the time you're in your late 40s, early 50s, and then say, okay, cool. One, I don't need to have life insurance anymore. I'm self-insured. And two, oh my goodness, could you imagine if we had this money still sitting in these IULs, we wouldn't have access to any of this money? Because that's the thing. It's like, it makes to be so mad, Robert. If people want access to their investment account, they have to borrow it. Why do you have to borrow money that's yours anyway?