Ron Caruthers 0:00
Today we're going to be talking about debt. So, particularly when there may or may not be a economic downturn, and things are getting weird out there early. This is a great time to talk about how to best manage your debt. What the differences between good debt and bad debt is, it's gonna give me a great chance to go into Dave Ramsey rant, which I have not done in a long time. One of the happiest days of my life was getting blocked by Dave Ramsey on Twitter. Anyway, man, what's going on? Are you still at the W down in South Beach? I am. It's quite beautiful. To be honest. So it's, it's nice. I can't I can't complain. I'm not gonna lie. If any of you guys have never stayed at a w.is hands down my favorite hotel chain. I mean, I we have a conference every year at the Ritz down in Orlando, and we get it for like stupid cheap, like a couple $100 A night. And one of my greatest joys when that happens is looking up to see what the going rate is for the hotel that night if I just checked in and I'm like, that's up to 900 But But as great as the Ritz Carlton is I love the W Sr. Great Hotel. Yeah, so upgraded. upgraded me to something like ridiculous sweet. So I've got this whole thing. And then I've got I'll just show you real quick because the views the views, not bad. I mean, you know, a little ocean view out there. So no, not bad, but it's a long time. It's too dang hot today wing, windy to sit out there, but I'm just inside here. But ya know, it's actually a fun Hotel. Yeah, I agree with you, like, the Ritz Carlton is really nice, but it's really quiet. You know, and the W is going to be banging the whole time. Like everything, there's always music going on. There's your bar, just, you know, 10 bars here. And they're all like on point. And you know, a lot of fun stuff pools great. So right on the beach. So we'll get to the one here or what used to be the W in San Diego, my buddy actually built upstairs. I don't know what it is. Now it's on D street. But my buddy, they actually had a stand bar. Like you actually there's firepits. And you take your shoes off and have your feet in the sand, even though you're like eight blocks from the water. So anyway, we're talking about debt today. Yep, The Good, the Bad, and The Ugly. So we're in an interesting time right now, because interest rates are starting to rise for the first time in basically a decade. In fact, I'll tell you guys an interesting story, because my son is in the middle of possibly buying a place in Austin before he starts law school. And he's really getting an education on how mortgages work, and things like that. I'll tell you some of the details about what we're chatting, you know, without telling you guys where he's gonna live and stuff. Although if you're walking around Austin, Austin, he is six foot seven, and he's in East Austin. It's kind of hard to miss. But anyway, so we're just going to talk about some things to think about, particularly as we go into recession, potentially. I mean, some are saying we're already there. But, Tom, where did you want to get started today? Was there anything in particular on your mind that you felt the need to discuss and share? So I think some of this was kind of the genesis of this is I so so often hear business owners, just so anti debt, and I think we're raised in that perspective, that concept of like debt, being a tough one, you know, like, all pay for things in cash, I could hear when I was waiting for you to let me in. I could hear you say, like, you're gonna go on a Dave Ramsey rant, but I think we hear a lot of that is, yeah, we hear a lot about, you know, pay everything in cash, don't put anything on credit cards, and there's a certain amount of like, positive to that type of stuff. But but as we get as I know, are a lot of our audience is entrepreneurs. You know, I have people that I knew who were hesitant to get an eidl loan, or to, to ever get any kind of lending and get stuck, because then when they need it, they can't get it. Right. So that's one of the things I wanted to talk about. But I think it's just interesting to talk about debt and to understand how the really wealthy people use debt to their advantage. And some of those people become wealthy because of using debt to their advantage. So I think it's just an opportunity to explain that and go through some of those scenarios. And I'd love to hear your thoughts on all that and, and just kind of talk through it because I know my mindsets changed a lot about it over the years. And it's just I think it's a helpful topic for people.
So it's kind of it's kind of an interesting thing. Because first of all, you really have to stop and look at where do we get ideas from, like weird did the idea that that was bad come from in the first place, and it can actually tell you in this country where it came from. But before we get to that, I will tell you, there's an old story about a mom, who was with her daughter. And they were getting ready to make a Christmas ham. And they've cut the end is off. And the daughter asked the mom, you guys may have heard this, but the daughter has the mom like weird, why don't we cut the ends off? She goes, Well, honey, that's the way your grandma did it. And so she's like, Well, why did grandma do it that way? And she's like, I don't know, let's call her up and ask her. So they call grandma up and ask her? Because Oh, honey, I don't know. That's the way my mom did it. You know, years ago, we always cut the ends of the ham off, before we put it in the oven. And she's like, Well, why did your grandma do it? I don't know. Let's call her and find out. So they get great grandma on the phone. And great grandma goes, Oh, ha, the oven was too small to hold the whole harem. So we had to cut the ends off to get it to sit in. Now, you laugh, which Thank you, even if that was a token laugh. It's funny though. That is where so many of our opinions came from regarding that. So let's go back to. And really, so many of our ideas about retirement in this country, and money in general, have been formed over the years in things that have no basis in reality anymore. Because times have changed and rules of change. Let me give you a perfect example. When you go back to the Great Depression of 1929. So first of all, they outlawed alcohol. Everything went great for a while because everybody drank it anyways. And then you know, in 1929, the market crashed. Another day, we will completely go into reasons for that, that market meltdown. But what happened at the time was when you borrowed on a mortgage. You the mortgage at the time was a callable instrument. And here's what that means. You would go to the bank, and let's say your house was $5,000. And you put $1,000 down and they give you a mortgage for $4,000. In that mortgage was a notice that if the bank needed your money, they could call the mortgage due on 30 days. And so when the Great Depression happened, and if you were in the second half of the year, that blows my mind, the whole first half of this year is going to blur. But we're only a few months away from Christmas. And if you guys watch Christmas movies at all, which I don't with the exception of Bad Santa, and bad Santa is the greatest Christmas movie ever diehards, a very close second, and yes, it is a Christmas movie, I don't care what anybody says. But there, It's a Wonderful Life comes on. And it's a classic. And if you guys haven't seen it, it's Jimmy Stewart. He's a bank manager, I think and he's going to kill him stop. And then an angel comes along and shows him what life would be like without him. But it's all centered around him trying to manage the bank runs that happened after the 1929 stock market crash. So even that was a family movie, it was almost like The Big Short, in that it really talks about economic events of that time. So here was the feedback of doom. Number one, mortgages could get called on a moment's notice. Number two banks back then, and today still operated on the principle that nobody's ever going to want their money at the same time. Number three, you can buy stuff in the market, you can buy stocks, on five to 10% down, meaning you can borrow 90% of it. And so what happened is all during the roaring 20s When the market kept going up, people were just taking any profit buying more stock, kind of like they did in the housing meltdown of the you know, what, before the meltdown of
Oh, 304050607, you know, 1518 20, almost 20 years ago. So if you guys weren't around, that's what everybody would do. Houses were going up so fast, just like they were now people are pulling their equity out buying another house pulling the equity out of the two now went up again, buying more houses. And one thing led to the crash that you saw me make sure I'm almost done here. So anyway, so here's what happens. As people went to the banks to try and pull money out to make the margin call when their stocks started to decline, which they had to do to keep their stocks from getting sold. Everybody did now want their money out of the banks at once. So now banks ran out of cash because they're only required to keep a minimal amount on hand right now, just like they were back then. And then they begin to go. What do we do? We've got these mortgages, we need to get to those guys and tell them you got to pay us you got 30 days you got to pay up. That here was the problem with that. Even if you had the money, it was at the bank, the bank didn't frickin have any more money. So people began to get massively foreclosed on on their homes. And that led to legislation. Number one, that people you're not as long as you're in good standing, the bank cannot call your mortgage to. And even if you get several months behind, right up until the moment of foreclosure, you can still bring that mortgage, current cure the foreclosure. And they can't take your house. And secondly, it led to a lot of our grandparents, not trusting or great grandparents, depending on your age, not trusting banks, and they begin to keep their money in the mattress, because the bank screwed them. And so and bankers still suck. Sorry, Dominic, you were one. My cousin goes by the handle bankster Slayer, but she's definitely one of the End the Fed people. But so when we look at debt, you have to realize so many people's visceral gut reactions to not going to have a mortgage get that thing paid off as quickly as possible. Dave Ramsey goes off with his, the debtor is slave to the lender, which isn't it, which is in there. It's in the Bible. But they really are not looking at the bigger picture and all those sorts of things. So anyway, that's my little rant. And so really, you have to understand that now. There are types of debt like the idle loans, the economic injury, disaster loans that are on 30 year notes, to where it's stupid, low interest rates, you can get a home mortgage, very inexpensive, right now, still all things considered, even though it's not as cheap as it was. And no one can come take your house as long as you as long as you turn around and make the payments and stuff like so anyway, I'll give you a chance to get a word in edgewise. Well, I drink some water. And by the way, good morning to my daughter and son in law we're on this morning. Sorry, the air pods and they're like, You need a mic. Yeah, well, can we can we do it on a computer? Now? And if you want to spend $1,000 Worth attack, you can you can like I haven't home, you can run it into your phone, but that's not enough. So yeah, I mean, I think the the piece that you brought up, I mean, it's so good to hear the history behind it. Because I think that's where a lot of us, I mean, I did laugh at the ham story, because it's just funny. It's just so true of how many things you know, if you that you get in life, and business ownership and anything that are off from our parents and their parents before and nobody actually knows any of the reasoning behind it. So I think that that's always fascinating to just think through that a little bit of where does your mindset around this stuff come from? I mean, heck, our parents probably freaked out when we left our jobs because they spent and started a company because they spent 30 years working with the same company, right? You would start there, get a gold watch and retire, right? Like that was yeah, we're in the freelance economy where nobody really stays, you know, for 40 years at a place anymore. We got a couple of interesting questions, by the way while we're on this. One was I think what happens if you don't make the payments, they start calling you a lot. They start sending you hate mail a lot. But here's the thing, like my son was looking at, you know, buying a place in Austin. And again, I think he's a little bit on the fence, even though he's got a place.
Here's what I was telling him. Number one, they can evict you in Texas, you can get evicted faster than you can get foreclosed on, because of the federal protections. Now get I have we are not well, I can't speak for Dominic because Dominic spends $1,000 on tax so his voice sounds a little bit better on his computer stop. So I would not encourage spending frivolously meaning Hey, don't buy a place that you really don't think you can afford I mean live within your means. You guys know the story I live in a much smaller house than I could reasonably afford number one so nobody moves back in with me. Sorry, Justin tail if you're listening to this. But secondly, I don't need all the space and I live in a good neighborhood. You know where I liked my neighborhood and when I lived in a couple million dollar house. Yeah, my neighbors were okay. There's some good ones there. But there was also some really snobby ones, and I just kind of like living with normal people. But so while we don't encourage you to spend recklessly on this, if you You fall behind, you've got several months, and there is a complete legal process that you can go through to get yourself out of foreclosure up until the moment that the house is claimed by the court. So they've got to send you notices and court hearings and all kinds of stuff. And it's some states like Michigan. I think it's Michigan. I mean, you've got a year for you've got to gear to get your house back out of foreclosure. I could be wrong on that. Don't quote me on it. And then someone else there's another question. And there D I don't know that I can get back to if you want to scroll down? And how do you build equity if you if you have so many loans and can't make the payments? So let's talk about building equity. Dominic, do you have anything you wanted to chat about for a moment? Now? That's good. I mean, as Dominic pointed out, he did kind of hog last week. So we'll make me do a little more of the work this week. But you haunt season one, so that's okay. You I intend to hug season two. I know. You know what, I when I was getting my private pilot's license, one of the things that they said and by the way, I actually found out they're so desperate for pilots, that I would actually probably be if I wanted to be, I could be an air transport pilot in about 18 months, and they work you well, they weren't good enough. Anyway, I'll bore you guys with that another time. But if anybody's thinking about being a pilot, they are hella desperate for pilots right now. And it's really it probably takes a couple of years before you'd be flying, maybe up to three before you're flying for a major regional airline. Back to this, one of the things that they asked me was, what, as a private pilot, what maintenance can you perform on an aircraft? And my answer would I'm gates like a six hour examination? I mean, they work you threw two hours in the air for hours on the ground and grill you and everything from whether to charge. So my answer was nothing. And the guy's like, well, that's not the right answer. And I'm like, yes. I'm like, There's nothing. There's literally nothing that I would do on that airplane, and then get in that airplane and go fly on. And on the pilot and command on the right. No way. I'm flying in an airplane that I worked on, and the guy starts laughing He goes, alright, that's the right answer. My point and all that is this stuff I can explain. I think fairly well. There's a lot of stuff I can't do. Okay, back to building equity. So my son is looking at a place right now and has the bank willing to give him an interest only loan for 30 years at a fixed rate. That is seven tenths of a percent lower than what he would have if he took a regular 30 year with you know amortized loan where you're paying, not just the interest, but the principal as well. And his comment was, what do you think it sounds too good to be true. Now, we read over the rules of why they were giving him this loan, he needed a cosigner for it. And there were some other restrictions. So they're not offering this to everybody. But my point, what I told them was, I would take that loan so fast, and I would do it, it was seven tenths of a percent higher,
I'd still take that low. Why? Because now, the houses to answer whoever asked that question about building equity over the short term, who knows what's going to happen to the housing market? Right? Are we at the top? I don't know, we'll know. We'll know after the fact. But over time that house is going to appreciate in 1015 20 years, it's going to be worth more. So it's going to build equity. Regardless of having a mortgage not having a mortgage. The house doesn't know if you have a mortgage on it or not, number one, number two, he's like, Well, I'm gonna send those extra payments to the bank. Just as if it was a 30 year loan, I'm like, I wouldn't do that. He's like, Well, why and I'm like, if you ever need the money, base, not gonna give it back to you. So instead, if you're disciplined enough, turn around and put that money in a side account, let it grow. And by the way, even if you amortize that payment over 15 years, meaning if you took the difference between the interest only and what the 15 year amortized loan would be and put it into a site account, which likely will earn more than the interest rate on the mortgage over time, then you will have enough I've run this math hundreds of times you'll have enough money to pay off the house in 13 and a half years anyways. So you're still saving a year and a half on the 15 year payments. But the point in all that is is there is more than one way to skin a cat. So on the home mortgage, which we'll move off of it, we'll start talking about leveraging assets and buying and things like that. On the home mortgage front, my recommendation is always put the least amount down that they'll let us turn around and finance it for the longest period possible at the lowest interest rate they'll give you and then be disciplined with the payments and put that money somewhere else. Because that is how you grow long term equity that you control. The minute you give that money to the bank, above and beyond the minimum minimum amount, they now have control of it. And the only way you my son or anybody else is going to get that money back is by having to ask the bank for the privilege of using your own money. So I'm gonna let you talk for a second while I live inside because somebody of course have to mow their lawn this morning. So hold on. Yeah, I was wondering. It sounds like you had a gigantic beetle flying by your ear there. Anything guys right over there? Hey, it's got to be done. But normally, they're not there on Fridays, and normally they're on Saturdays. Alright. Do you say something smart? I'll be right back. Oh, yeah. Smart. Yeah. So. So Lindsey, I saw your question. Hey, Lindsay, good to see you. We'll get to your question here. Because I am curious what Ron's opinion is on that around parking eidl money. There may be some limitations on that one specifically. But we'll we'll chat about that when we come back. But I think the point that we've talked about on this show a few times we got if you guys missed it, we had season one, we actually had a really top notch mortgage lender or lender on on the show. I can't remember what episode I want to say it was like episode 10 ish around around that area of season one which by the way, just to do a quick ID well with Ron is out. This is the make more Keith Moore Show, where we talk about all things money. So Ron is typically the expert on the keeping more through taxes, tax savings, you know, tax strategies, all that kind of stuff, I typically focus more on the make more side of it. But quite frankly, we run businesses for a long time. And we do all the aspects of making and keeping money. So it's really about just chatting with you guys and helping you out. And with that. So if you have questions, by the way, drop them in the chat. And we've had a couple so far, we try to get to all of them. If they're a little off topic, we may move it to another episode. If you want to catch all the back episodes there on, you know, everywhere you listen to podcasts, or you can go to make more key for show.com. And it'll take you there too. So but yeah, I think mortgages. That's an interesting topic all the time is like, I think my mom, you know, was always like, well, how fast can I pay off the mortgage? And if I were to ask her, she'd be like, well, so I wouldn't be in debt. Right. But it's interesting, because then she's got tax problems every year, and she doesn't have the mortgage write off, which is one of those nice, pretty nice mortgage write offs, right. So it's, it's one of those things where you can use it to your to your advantage. So, you know,
I think I love the idea of just parking that money because the cool thing is, even if you were to invest it in, let's say we go for the next couple of years was kind of a down market, your dollar cost averaging over the next couple of years to by throwing money in every single month. And you're gonna see and I mean, we haven't had correct me if I'm wrong wrong, but I don't think we've ever had it like a 10 year down period on the market, right? So it's usually come back, was it five, three years is the longest, okay, three years is the three years is the longest the market has ever declined historically, ever. 1929 30 and 31. Again, that great depression, and the Dow Jones, which was the leading indicator of that time, fell off the 80% 80%. But it came back it took a few years to get back. And then it turned around and went up from there, obviously. And then in 2000 2001 and 2002, the market dropped again for three years. But there were pretty valid reasons because we were in a huge bubble back then. And because of all the tech stuff that people were dumping money, and just foolishly 911 And I mean, we had a few of the initial fights in Afghanistan. And so I mean, we had a lot of there was a lot of outside factors in 2000 Yeah, so what's crazy is that we did have 911 in the middle of that we had but but really what you also had was people dumping money into companies that had no viable economic you know, again, I tell the joke, it's hilarious is long as it wasn't your grandma that this happened to but II funeral was the thing where you would drag The body down to the UPS store, ship. And they will take care of the barrel like, you know, the pitch I'm sure sounded great, but no one with common sense prevail there was like, Do people really want to hold their body unit or the bodies of their loved ones to the UPS store? I don't think so. So back to one of the points that you made real quick, oh, let's just go back to the markets. So they dropped 2001 two, and then by about 2006, seven, the markets were back to break even positive territory. And then of course, we had the markets drop again. But and we're in you know, this is whether you guys know this or not, this is the worst first half of a year for the stock market since 1970. So 52 years, this is the worst start. And again, there's some pretty valid reasons, and I'm not going to lay them all out Putin stores that you've got some some decisions being made that really, you know, don't seem to be helping the economy, we'll leave it at that. Where are places to put your idle money, you do have some restrictions there. Let me save that if you don't mind for another show, because what I really wanted to stay on topic on this one was, and we can even chat about it. I think next week, we've got Edie coming in to talk about college and getting money for college. And actually, I'll have a lot to say on that. Because Edie and I run a business together and have run businesses together for 15 plus years. And anyway, but we'll we'll work in some of the where you put your money. But in the interest of time, just for today, I want to talk about, again, the managing of debt on the business side. And Dominique, I think you probably got some stuff, some thoughts on that. And something Yeah, well, there. So it's interesting, because even in my mastermind group when we were talking about eidl loans and stuff when they were first coming out, and I was trying to help the group, like I had some SBA guys come on and talk through how you know how to get them and all that stuff. I had people like, oh, well, I don't really need it. So I'm not gonna get a loan. And I was like, yeah, it's the exact reason why you get the loan is because you don't need it right now. Right. So it's the thing the other part of it was eidl. I know congress.
The ideal it's burnt Hold on, burn this into your brain. Every one of you on this call. A banker Mark Twain said this, a banker is a fellow who will lend you his umbrella when the sun is shining and want it back the second it begins to rain. Truer words were never spoken any, some 130 150 years ago. So like Dominic said, You borrow and you set up your credit lines in your financing when you don't need the money. Because the minute you need the money, you are well and truly screwed. Because no one's gonna want to lend it to you. And it's the same thing with your home equity in your house, you put all those extra payments into it. And now you need it. You call the bank like hey, man, you know, I wanted to send this you know, like, I was just sending it, I didn't have to send it to you. And the bank answer is gonna be like, sorry, here's this form, fill it out and prove to us that you don't need this money and we'll be happy to give it to you. All right. Go back dig the well before you thirst that was Socrates famous quote, think it was Socrates. But dig the well before you thirst. Okay, back to you. Sorry about that. Well, and I think again, for business owners it's often that that thought process of like, well I pay for cash, I don't do anything I put stuff on credit cards, you know, for I get my American, you know, my, my airline points and my hotel points. But other than that, you know, I pay off my Amex every single month and I just collect the points and there is an there's there's obviously some advantageous sides to that but I think you're absolutely right, like making sure you have cash on hand making sure that the cash and if that means you use some debt to get to make sure that you keep cash on hand at some point you have to get you're gonna get to a point where you're gonna need it whether you know just because of market conditions your hell heaven sakes. I mean, I've told this story before some of you guys know that something like I literally started having headaches and thought I had pinkeye because I had a kid like a baby and I was like if something was to happen I got pinkeye go in and they found a mask behind my eye like in the months that it took to figure all that stuff out like my business almost went to zero like you know and it was doing really well before my health was was obviously not good it turned out fine wasn't cancer as well that'll short shorten the story but but the thing is, is like you just don't know and and the idea of like getting lending getting your loans in place getting equity, lines of credit in place when you don't need it is so critical. And the other part of it and we've Enron's talked about this. And when we had Matt had he said his last name is Shan Shan Shan Shan, Lian, big back channeling. So my family and he was on our show, I mentioned it before he was on our show of season one, I think, maybe Episode 910, something like that, and look it up. But if you guys go check it out, you'll find him. I mean, one of the things that Matt talked about is for entrepreneurs, especially this is a really, I would think this is a really good time. I'm curious what your thoughts are. But this could be a really good time before things get too crazy. If your business is still doing pretty well, you've got that things, work with your lender and work with your tax advisor, whether that's Ron or somebody else, work with your tax advisor, because chances are some of you filed extensions on your tax returns, you're gonna get all those done by October, all that good stuff. If you're trying to get some lending, you may not want to take some of those deductions. I mean, correct me if I'm wrong, wrong, but you may want to see some more income and prove to the IRS and prove to the lender that you're in good shape, rather than because, you know, most of us who own businesses, we love the tax advantages. And we try to serve zero profit or as little as possible most years. But if you're gonna go do some planning on some some lending, you may want to tie you may want to talk to your tax advisor. I mean, is that is that track with what you usually do is? Yeah, one of the questions we got in the actual question was, how do we use the market being down to advantage for taxes? And one of the things that you can do, I'll come back to your question in a moment, is you can't sell stock. And what you have to do is you cannot invest in the same thing for 30 days, it's called the wash sale rule. This applies to stocks and mutual funds does not apply to crypto. So you can sell crypto and immediately buy it right back because it's considered real property. I think whatever the IRS regs are on it, you can do it that way. So you may want to do some what we call tax loss harvesting, which is where you go in and sell up a handful of things. Those losses can offset other gains, capital gains, and up to 3000 a year can go against your current income. So some of my clients have, you know, income that goes you know, they have, they might be taking that 3000 for years. But hey, it's still something and it goes off your top rate. So it helps. Now as far as
if you're trying to do financing, one of the things that we do, and the banks do not like this, but we do it and if you notice, we talked about this on our podcast with Matt Shandling. And he got very uncomfortable very fast. Okay, moving right along. But hey, if you can file one return, and then you can turn around and after the bank has seen it, and pulled the transcripts, we can go back in for up to three years and amend it. And we're actually doing that today for a new client. Because she's real estate investor pulled some money out of her IRA, put it back in, but when she filed her taxes, reported the income. And so and then kind of forgot about it. And now first of all, we have to go in and amend that otherwise, she's gonna pay double tax on that money. But the reason that she wanted to show it was she needed that extra I think it was like 22,000 of income, she needed that extra 22,000 to get the deal closed, and then just forgot to go back and amend returns, she's gonna get $4,970. So almost 5000 from the federal government, and I think she'll get another 1000 from the state of California. So again, if you're in that investment window, you can turn around and file one return, hold back on some of the deductions, and then turn around and after the loans are secured, go ahead and claim those deductions, and look and banks not gonna like it. And I don't know that it rises to the level of, you know, anything considered that anything untoward. But I do know it is fairly common, by the way, we just saw bunchy jump on. This is the make more keeper Podcast. I'm Ron Carruthers of Bronto Crothers, he's dominant because real busy advisors both on Instagram and we chat about all things money, money, DEBT, TAXES, all of that. So anyway, that's kind of that as far as it goes to business. Let me tell you why. I think Dave Ramsey sucks. There's a lot of reasons and I'll only give you the top three or four. But, and by the way, Dave Ramsey is has some good advice if you are currently in credit card debt it and you're trying to get out of current credit card debt, the debt snowball the Debt Avalanche methods that he advocates is are are solid time tested principles, he didn't really invent them, they've been around the Debt Snowball is where you basically lay out all your debt and take the smallest one, I think with the highest interest rate, and you work that one down first and then take that payment, roll it over into the by the way, thank you, Marcus, take that payment, roll it over into the next smallest debt with the next highest interest rate. I think that's the snowball one, maybe the avalanche should just based on interest rates, and I can't keep it straight. But basically, the idea is, is right now you have $1,000 in payments, you're going to pick one credit card to focus on and you're going to pay 1100, the extra 100 is going to go towards that one. And then let's say you get it paid off and it's based payment was 100, and you're doing the extra 100. Now you're going to take that extra 200 and move it to the next credit card, roll that one down. And let's say that payment was 200 plus the 200. From this one, that's now gone, you're gonna roll it over to the next one. And pretty quickly, you can work yourself out of debt. That's great. Those are time tested principles. Now, I would encourage my clients to also be starting an emergency fund at the same time. Because if a transmission goes out, or a roof goes in, or somebody needs a surgery, we're gonna go immediately back to step one. It's like Chutes and Ladders, we're gonna go all the way back down to the bottom here real quick thing on that, because the other thing that happens in that scenario that makes it you definitely want to be putting some cash to the side is often you'll see when you start to pay down a credit card, if your overall situation isn't that great, which presumably many of you won't be, they're going to lower your credit limit as soon as you pay it down. So as soon as $10,000 in, you pay it down 876 They will track along with it. And down, right. And so your purchasing power disappears. So you better have nothing happens because it kills you because they're like, Hey, man, you're a customer, we made a lot of interest on you, but we don't trust you. Because next time you might not pay us back. So that's a great principle. Now, where where we get into beef with Dave Ramsey is, first of all, he's been on his show more than once, where guys have been like, Well, I think I'm gonna go to medical school, I Whoa, you're taking on a lot of jazz.
You know, Oh, you don't want to do that. And the debtor is slave to the lender and learn and look. There's good debt, and there's bad debt. If you're going to college, and you're taking on debt, for a 13th century bisexual, Japanese poetry Gender Studies degree I'm gonna go with there's not a big market for that right now in the economic workplace. And that is completely different than going to be an engineer and actuary. God forbid a tax professional, a doctor, a nurse, a pilot, all careers that pay above average salaries. And you are now you're investing. That's all you're doing. You're investing your time and somebody else's money that you gotta pay back. But you will be paying it with substantially higher earnings than without those degrees. In most cases. That's the theory behind it. And we're quick all most of those that you just mentioned are in major hiring deficits right now. So my god, like I said is they can't pilots, they can't find an island accountants they can't find and I mean, they literally there are not enough of these people around. So if you are spending money to get yourself get in debt, you know, the bad debt from Dave Ramsey to go into a job where you're damn near guaranteed a job coming out of college or putting in a six figure salary. You know, by and large, I mean, my buddy who's flying my first flight instructor, he's flying for American Eagle, and dude, they're paying him I mean, not not great, but we've got a client who's a captain he'll be making like 400,000 just from the airlines this year, because he worked his way through the system. You know, a lot of anesthesiologist don't make 400,000 So again, they there is there's really something to be said where that is bad advice from Dave Ramsey. Here's worst advice from Dave Ramsey. Is the rush to pay off your home as quickly as possible again, because when you look at what is why would I rush to pay off a three four or 5% mortgage and tie up all that equity? That is not earning me anything It is not giving me a tax break that I can't access quickly. Even if you put a line of credit on that house, you can turn around, and they can cut that line of credit just the same way that can cut down your limits on that. And it could have nothing to do with you. If housing prices dropped, they can turn around and cut that has nothing or you lose your job. Again, the banker will lend you your money when the sun is shining and want the umbrella back the minute it begins to rain, then the worst advice is did tells everybody they're gonna get a 12% rate of return right off the market average like, Yeah, but you don't build your plans on that. Because the average includes the average is different than actual rates of return once you factor in negative returns based on the way the money works. I'll bore you guys with that another time. But the point is, Dave Ramsey has really good beginner advice. If you are in debt, and you need somebody to smack you around, and smack the pumpkin spice latte out of your hand, if you're going to Starbucks five times a day, and blowing 20 bucks today at Starbucks, which you need to be paying to pay down your debt. Yeah, great advice. Beyond that, no, it just like once you learned how to ride a bike, you don't need the training wheels anymore. And there's a joke in there against the president. I'm not gonna go there. So we'll just gonna move right along. But yeah, you know, you when you were a little kid, and you went to the pediatrician, when you grew up, you went to a real doctor. Not that pediatricians aren't. But just adult doctors have different things that they treat than pediatrician started any pediatricians that I unintentionally offended. I really didn't mean to you guys know what I mean? I love you guys.
Yeah, well, I mean, it's the it's the difference. This is the thing is like, when you do when you're brand new, you do brand new things, like you're, you know, you probably start to think about again, a lot of our entrepreneurs, our audiences, entrepreneurs, when they first started out, you know, they, they may start on this business, and that turned from their side hustle to a main hustle overnight, and they racked up some debt while they were there. And you might need to get a little bit of control of that, right, there might be some situations where you're gonna turn to evil Dave Ramsey in in Lerner like, Oh, crap, I gotta get some of that back, get that debt credit. Yeah, clear it out while I'm doing it. But I think anytime that, again, remember that and I've run talks about this a lot. Your mortgage isn't alone on your house, it's a loan on your income that secured by your house. And so by paying into your house, if something happens to your income, which can be any number of things, your business starts to do poorly, you get fired, laid off your health turns around whatever the case might be, if you anything, you have a material impact to your income, basically eliminates your ability to get that money out of your house. And so it's a critical thing to remember, for people like you just can't, you can't be without that. Now, if you're, you know, hell bent on paying your house off, then at least make sure that you have that. Let me let me ask you to run but my thought would be then you better darn well be putting also extra money into a cash account that you're super disciplined about not touching, if you're gonna do it, like we can't stop you no matter what, from doing it have a lot of cash, because if anything happens, you can't count on that equity. Yeah, let me put this another way. And again, we had a period where you can't even sell your you couldn't sell your house that, uh, you know, oh, 809 10, every banker ran for the hills, you couldn't get a loan. So even if you tried to sell your house, it was worth in California houses were worth 50% less than what they were third quarter of 2006. So you know, my house that's worth 900,000 Now, I think was worth valued at 225 in 2010. You know, the market just collapsed. And you couldn't you could only buy this house, if you already had the cash to buy it because the bank wouldn't lend you money on it. Because again, all the banks headed for the hills after all the dumb crap they had done, and oh, 507 leading up to all that. So yeah, and there's another thing. Another day, I will tell you guys the story of what led to all that because that was that crash was 100% Bill Clinton's fault. 100%. This isn't a D versus r thing. It was actually a well intentioned thing that Bill Clinton put in, but it turned and bid everybody on the app. And it was one of those academic things that sounded good on paper, but anybody with a third grade education, we looked at it like you gave us a bunch of words. That's a really dumb idea. I'll tell you guys that another day. Go ahead with what you were gonna say. And then we're gonna talk about how there's more than one way to pay off your house. But go ahead well, and it's so the other the other piece of it though, is Yeah, I was talking about things that can happen to you so that you like your income gets hit because again, it's a loan on your income, right? Not a loan on the house and, and you if something happens to you and you're screwed, but yes, also remember, if something happens to the banks, you're screwed, right? So if you guys remember back in that day, I mean, people were doing those revert neg Gam loans and you know, all these crazy stuff that was going on and it was all the banks creating all this stuff and your mortgage was getting sold every two days it felt like to some other lender and and who were even going to go to apply for that equity line and the banks tight the like brick and mortar banks tightened up overnight. I know because I was doing loans at the time. And we suddenly our rules overnight, we just got new, we were just like everything that had been approved the week before was declined that way, like it just changed over. Got it. You got it, there was no control. So then you had to go to like subprime lenders, and then you hear in a whole nother ballgame. Like it so much can happen there. So yeah, let's talk about some other ways that pay off houses. So here, here's another way and this kind of goes to lovely C JPS. Question, which is, what is the definition of a lot of cash because it does mean something different to everybody else? And I'm usually Luckily, I'm the one stand that like, well, you know, my client told me this was going to happen soon. Like, what what exactly is the definition of soon, these days to you? You know, they're like, I'm gonna get a big inheritance, like, what is the definition of a big inheritance these days? So anyway, back to two lovelies kind of question is,
everybody has to define that for themselves. As the bare minimum, you want to have several months of cash, the CFP foundation recommends six, I think that's a good number to ultimately strive for six months of living expenses on hand at all times. I keep closer to a year. Now, it's not just in cash at my bank, I use as you guys know, I for that money, I use cash value life insurance Max funded. And the reason, by the way, is twofold. Number one, they will pay me a much higher interest rate than the bank will, for the same vehicle for cash that I can lay hands on, I can get about 20 times the return. Now 20 times return is the backend when the banks giving you, you know, a quarter of a percent to half a percent. But I can get closer to seven, eight or nine with no risk in a tax free environment. And here's the other thing that a lot of people forget. Life insurance companies are not allowed to do the stupid shit that banks can get away with. So life insurance companies always have to have more than 100% reserves. Meaning they have to be able to pay out every single one of their policyholders in full and have money left over where the bank is required to keep about 10% reserves, meaning only 10 cents on the dollar. So we'll go on that another time. And one of our season one, I kind of talked about it, but I did it in Italy with the connection going in and out. So you guys can look that up on to make more keep more show. Dot make more cable or so. Yeah, make more KEEP your.com OR Spotify or Apple anything? Yeah. So just for the guys that are asking. There are several life insurance companies that do this. There are several that will pay in that six to 9%. And it is max funded cash value life insurance, we use it as the basis for a lot of our clients financial portfolios, will use it if they get a windfall, we'll use it in lieu of a 401 K. And granted, it's not the only thing we do. And if you try to call me the life insurance guy, we're gonna end up fighting, but because those are fighting words, but it's a tool. But anyway, let's go back for a moment to what is it another way to pay off your house? Well, the one way is the Dave Ramsey way right like to send all the money to the bank. But again, there's flaws in that. Here's another way. What if we got to the cash account back to lovely see JPS question, which is how much is enough? Well, what if we got an account that was equal to the balance on the mortgage? And then we turned around and told those guys, hey, why don't you send those guys a payment every month? My payment is $2,000. I want you to send them $2,000 on the first of every month and just set it up. Now you are no longer paying that mortgage, but you are having your cake and you're eating it too because you've got all the cash liquid over here, likely continuing to grow because it's earning more than what Your payment is over here. And I could do that till the end of time. And just be like, I've got my cake. I'm eating it. I don't make that mortgage anymore. And if you guys any of you ever read Rich Dad, Poor Dad, that is literally Rich Dad, Poor Dad 101. You go, number one, you get assets that account that paid for your liabilities. And what did he say? That's what the rich do. Where's the middle class, just try to get rid of the liabilities. And, look, we had a guy, Dominic, when you come back from your cruise, we'll let you have one of these shows where you get to talk more. But we had a guy, a client of mine, that's worth 20 million to 20, probably 25 million now. And he owes about $6 million in debt on that. He's a real estate guy. But you know, he does. Okay, he's got $5 million of just personal real estate that he lives in the two houses that he bounces back and forth between. And then And then about 18 to 20 million of, you know, portfolio that generates income. He literally came into my office one day and he's like, Rob, listen to this Dave Ramsey guy, you know, and he says, I should pay off all this debt. You know, like, what do you think? And he was furious. And I'm like,
Look, Dave Ramsey's worth more than you, but but he got it by telling other people to pay off their stuff. Don't listen to him, You're doing just fine. He's talking about people that have credit card debt, and Dave Ramsey's audiences kind of middle America that makes you know, $40,000 a year, which is the average income in the United States of America. So anyway, just know that there's more than one way to pay off a house. Did you want to say anything dominant? You know, maybe maybe next episode, next season, maybe even five, we might let you get a word in a talk about noon. It's like almost noon over there. You're probably drinking already. ON VACATION coffee and water, though. I gotta say I went last night to this play. If you haven't heard of this place Poppy steak in, in South Beach. But I don't know if you're listening to this place. It's famous. They bring out in a five wagyu ribeye in like a suitcase and it's got dry ice and smoke. And it's a whole it's a shell. So anything that's the most thing I've ever heard. Oh, that's Peter Brown. So, yeah, it was it was a good Oh, damn. It was a good night. It was it was good night, but it was a long night. So. So somebody's heard of it. Well, Lauren potties. What wine Were you drinking with that last night? We did. Hang slowly. CJP the God of all of it. No, we started with some. There's the bottles still sitting here. We started here at the hotels and some some some champagne. Probably still in the in the bucket, and then started there. Yeah, we got some sort of like crazy French champagne. We had some chartreuse shots. I mean, the so these guys go to probably stay three times a week. And they invited me and it was it was awesome. But that that a fire that ribeye in that that bad boy, I had no idea. It's 1000 bucks. Perfect, stupid steak. But let me Yeah, it was pretty darn hot. So oh, the best thing I had last night was something called they called steak and eggs. It was tar tar with
oh my gosh, with the caviar on top of it was pretty. It was pretty excessive, but it was awesome. So anyway, um, but no, I'm not drinking. But what I was gonna say is I think a lot of this. This relates also in principle, that when I think about it, this relates in principle to not paying off the debt is also as a business owner. One of the great things about being a business owner is is make sure that you have like Get it Get your ability to get lending, get get your lines of credit, get stuff in place, like the eidl loan, we took it that 90% of its parked in a bank account right now. I didn't need it. I took it though. That's why exactly why I took it because I don't know when I'm going to need it. Right. So it's sitting in there now we did a couple things with it and some stuff kind of forward the business to shore it up during like right at the beginning of COVID. Because we were like oh man, let's just make sure right, because we didn't know and it's gone really well. So it's just it's basically just parked there. And it's but you can use lending like that as a business owner to supplement some of the cash because a lot of what business owners do is is when we go into these market conditions Ron and I screamed about this in the episode probably episode five or something. Last season, we scream from the top of the hills get cash is king right get cash Cash, have cash in the bank account. So some of that's actually stuff that you're putting to the side, right. So I think lovely CJP asked about that, how much money how much that should be. And there's that varies by person by person. But the other thing is, I consider all that eidl money that I haven't used, also supplementing my cash, because I can use it for other things. Now, there are some rules around eidl. Be careful, because the IRS is coming after that hardcore apparently this coming year, just mismanagement of eidl. But if you're using it for it's, it's not like restrictive rules, it's just like, you can't go buy NF T's with it, like, you know, but use it for use it for like business purposes. But that type of stuff. As we get into these marketplaces, businesses are going to fail, houses are probably going to come down, you're gonna get some opportunities, or you can hear runs, chickens, maybe it's the chickens come on sale. No, but you're gonna you're gonna have all these opportunities, your your competitor is going to start to struggle, and you can buy him. Like, it's an awesome opportunity. But this is the time to seize that. I don't think it's too late yet, but we're not far away from it being too late when the bait start to go not, we're not handing out money anymore, right? It's coming. And that's when you get you got to get as a business owner and apply that same principle as a business owner. Yeah, keep keep keep cash to the side, definitely have your own cash that's from another source. But like, take advantage of a line of credit get one? Well, you can and I know Lindsey, we didn't really get to Lindsay's question about how much a business owner should take as a as a salary, which we can chat about that a little bit more. But as a bit, yeah, totally day rates, different kind of subject for another time. But it's related in the sense of you, you want to make sure that your business is showing the right kind of profit to be eligible for and so you got to be really careful as a business to stay bankable is a term that that some people that I know use, and we did a lot of lending, they said stay bankable, right have, make sure that what you're you know, capital expenditures can be added back to your expense. So so that's a good thing, right? Or add it back to your income, I should say, those are good, but like paying yourself a salary, gotta be careful with paying too much. And there's other places where you just have to work with your advisors, work with your lender work with your tax professional, and do it, I would say do it now. Because a year from now, it might be too late to get money. And then in a year after that is going to be buying opportunities left and right. Possibly. I mean, we don't know for sure. But that's it. Yeah, I mean, we're headed that direction. So unless something changes, it's certainly all the signs are there, you know, of, of a bit of a recession coming up. And again, my motto has always been, I choose not to participate right now. So I'm going to do what I can to grow my business even more aggressively, will probably look to pick up a financial planning firm or to for somebody who's getting out well, if that book of business is down, because the markets are down, then I can pick it up at a lower price, because it's based on annual revenue that I would have at the height of the market. So we're absolutely going to start looking at that and to grow by acquisition, not just, you know, new client acquisition one at a time, rather acquiring the business. And we haven't gone into acquired a tax firm yet, but we might. So I think what I would say is in kind of beginning to wrap this up.
Debt is a tool like any other tool, a knife can be used to perform surgery and make someone healthy or to cut your A $5,000 wagyu ribeye, so you don't have to not work and be used to shake somebody in prison. It'd be a good school or a bad school. And so it's the same with debt. View your debt judiciously if you're good using it to grow business to improve your income at one of those professions to acquire a competitor to grow business to expand. That's brilliant. If you're using it to buy assets that are necessary, like I have no problem with people getting car loans. Because a car is you know, yeah, you can use it for business you need it's a necessary expense going into debt for jewelry or watches even watches that appreciate that I would be like No, that's not a good use of debt, particularly if it's high interest. And one last word that I wanted to throw out is just something to think about what what is even the definition of true debt. Because having loans in place are not the definition of debt. My guy that has to $25 million in real estate against $6 million in notes. Is he in debt? Not really. Because he can sell that property, or couple of his properties, keep all the others totally wipe out the $6 million in debt. Same thing, if you've got a house, that's worth a million dollars that you own 400,000 on. Are you really in debt? I would argue no, because your house is worth more. And if we had to, we can sell it. And we pay off all that debt and still pocket money. So couple of things to think about there about what truly is the definition of debt. I did see some questions that came up, that we won't have time to get to D because I do have to run and you guys are now it's 1201. Over there in Miami Beach dominant, you are officially cutting into happy hour for Dominique. So anyway, what we'll do though, is we'll save those. So what about buy borrow die strategy for stocks, if you guys can just grab any of those, we probably won't get to him next week, because we're going to focus on college and careers. Brilliant show, if you guys have kids, you guys are gonna really like that information. And then when Dominic comes back the following week, because he's going to be on vacation next week. So Ed Sanderson of saris and IRS cocktails will be my co host for that week. Then we'll we'll jump in and answer some of those questions if you can grab them Dawn while I post. We have Yeah, awesome. Perfect. sent them to me. So I have them all on here. We will get to those. Lindsay, we'll get to your question. It's funny enough. I actually told Lindsay ago. Hey, bring it up on Friday. She had that question about so I was like, bring it up on Friday. If we can. We'll talk about it. We couldn't. So we'll we'll get to another sorry, Lindsay.
You're well, yeah. So no, I said, Great. I think that's a great show. I mean, again, if you guys are if you're watching this after the fact you have questions for us, shoot them in the chat. We think it's a great show. Well, heck yeah. I mean, why would we do it if we didn't think it was a great show? So but no, I think it was good. I think it was a good topic. It was probably the more appropriate way to put it. But I mean, I do think it's good show. But I think it's it's a good topic for people because this is the you know, everything right now it's a little bit up in the air. And I think people are getting real nervous about debt. But I think that last statement you made about it is really positive. But I think the other thing is, is you know, the final note I'll put on there is you gotta you just kind of everything in moderation. Right? Like, I think there's an element of that things also under there's everything in moderation in the sense of, you know, Yvonne and I talk about my wife, for those of you don't know, Yvonne and I talk about this all the time, like our house is in fancy, it's kind of, you know, like, similar to Ron's like, we have a nice property, we got an insane view, like our view is Brian's been there? Yeah, insane. But, but the house isn't anything special. And we think about going up the hill, you know, we could afford a much bigger house, but then you go, why, like we owe not very much on the house. It's worth a ton. I mean, what out? So where do we go, we go on vacations, and we do other stuff. And we invest in other things. And and, and then the goal right now is, hey, why sell this one, let's just keep it let's get to a point where we can then just down big down payment on the next one, right? Without dipping into this one, like, just live within your means as much as you can. And no, that's not all. You know, that's, it's both a trait statement and one that we hear a lot, but like, as much as you can, you know, just be Be careful. And yeah, going into data biowatch is probably not your best move, even if they're up, you know, because the watch market took an 8% Hit by in the last month. So, you know, I mean, everything comes down when the markets were socks. So that's, that's awesome. So lovely. Lovely. Yes, thank you kind words. We really appreciate that. So, alright, guys, we'll see you guys in a week. If you've got kids or thinking about going back to school, or thinking about career stuff, we're going to be talking about all that stuff next week with Ed Sanderson. And we will look forward to seeing you guys again Dominique, have a great time if you want to jump on real quick and say hi, cell service Wi Fi permitting great, we'd love to see you if you're too busy enjoying yourself. We will hold the fort down until you get back so well. I'll be on the island this big in the Bahamas. So I don't know if I'll be able to join but will the chicken chicken say hi? I see can't be let out though because I gotta get to the thing and we will chat. We'll do it again soon. Take care of you guys. All right, thanks, guys.
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