RPF0695-Seven_Rings_of_Freedom-Spending_Liberty_pt_1_of_2
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00:00:15.200 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:19.120 | skills, insight, and encouragement you need to live a rich and meaningful life now,
00:00:23.920 | while building a plan for financial freedom in 10 years or less. Today we continue our
00:00:28.720 | 7 Rings of Freedom series. These are 7 specific actions you can take that will enhance your
00:00:34.320 | personal liberty as you work your way toward financial independence.
00:00:39.280 | Today is Ring #4, where we're going to talk about spending liberty, the value of being debt-free,
00:00:46.160 | and having some savings. By way of review, Ring #1 was Spiritual Liberty. I talked about how
00:00:52.320 | if you as an individual possess spiritual liberty, then no matter how difficult or constraining your
00:00:59.440 | external circumstances can be, you as an individual can live a life of peace and joy and contentment
00:01:05.920 | in the middle of those circumstances. Whereas if you don't, as an individual, possess spiritual
00:01:10.800 | liberty, no matter how externally great your circumstances are, you can be bound as a slave
00:01:16.400 | in the middle of those circumstances. That was show #1, where I talked about spiritual liberty.
00:01:20.560 | Show #2, I talked about Spousal Liberty. I talked about how much benefit I've received in my family
00:01:26.400 | and how much freedom I've enjoyed from having a stay-at-home wife and having a stay-at-home mom,
00:01:31.840 | and how that's brought tremendous freedom and liberty to our family unit and how we value that.
00:01:37.920 | So I talked about the value of Spousal Liberty. Show #3, I talked about Family Liberty. I talked
00:01:44.800 | about the value of home education, having your children involved in your family enterprises
00:01:50.080 | rather than institutionalized, and how that gives you tremendous freedom and flexibility in your
00:01:54.960 | lifestyle, and how much I've come to appreciate the freedom that comes with that decision.
00:02:01.520 | Now today we're going to talk about Spending Liberty, and here's where we need to introduce
00:02:05.360 | some of the more financial topics, because these topics are extremely important. I didn't exactly
00:02:12.560 | know what order to put them in. I don't think that these have to be done in order. I think you can
00:02:17.600 | pick and choose, and each person might choose different ones of these to do. But from my
00:02:23.920 | experience, if I were going back 10 years and I were approaching my life, and let's say that I
00:02:29.600 | were caught in a lifestyle of no liberty and I wanted to achieve liberty, this is the order that
00:02:36.560 | I would do things. So that's all I can say. Your mileage may vary, but this is the order that I
00:02:41.520 | would pursue these things. The great thing is, of course, that most of these are fairly simple.
00:02:45.520 | Spiritual liberty, that's a very quick process. Spousal liberty might take a little bit longer,
00:02:51.120 | but still I think it's primarily just a decision and a quick process. Family liberty,
00:02:55.600 | fairly quick. Knowing what I know now, if I woke up in a situation where I didn't have that,
00:03:02.480 | I would immediately move into that. Now this is the pivot point, though, where this process can
00:03:07.360 | take a little bit of time. And I want to talk about debt-free and having some savings.
00:03:13.520 | Now you'll notice that these – I'm going to define these words, but I want to talk about
00:03:18.160 | the value of being debt-free. There are some very compelling reasons for you to be debt-free.
00:03:28.240 | You say, "Well, Joshua, obviously I would know that. It's fairly clear." But I think the reasons
00:03:34.400 | go a little bit deeper than most people experience. It's been my observation that
00:03:41.360 | although many people would say they'd like to be out of debt, they just simply don't do what
00:03:44.640 | it takes to get out of debt. And they never experience the freedom of being debt-free.
00:03:53.120 | And so I want to talk to you and share with you, hopefully, some ideas that will help you to give
00:03:59.280 | a vision of it so you'd be willing to put in the hard work of becoming debt-free. The number one
00:04:06.400 | reason why I value being debt-free so highly is that if you don't owe anybody any money,
00:04:14.160 | you have total freedom in your future choices. If you're out of debt, you have almost total freedom
00:04:23.120 | in your future choices. You can make any decision that you want to make,
00:04:30.400 | even the most radical life-changing decisions, if you are out of debt.
00:04:36.480 | Immediately prior to recording the show, as an example, I was reading an article on how few
00:04:43.200 | Americans are choosing to marry and how many Americans are waiting until they've paid off
00:04:49.520 | their student loans in order to marry. Now, certainly you can consider whether you want
00:04:56.000 | to be debt-free when you marry. It's fine. I wouldn't. I would make the decision based
00:05:00.960 | on whether I wanted to marry or not, and I would make the money fit to that. But I understand what
00:05:04.720 | people are going for when they're saying, "I want to pay off these student loans."
00:05:07.760 | And I think it's a good example of how many people's lives are put on hold because of debt.
00:05:13.920 | You're told, "Go and take student loans out so you can get a good job," and people go and get
00:05:18.640 | a good job. But then what they do is they find that their life decisions are constrained by the
00:05:24.480 | fact that they owe student loans. Recently, I was talking to a student, graduated from university,
00:05:29.200 | got a master's degree, has $30,000 in debt, and isn't really sure what she wants to do with her
00:05:35.280 | career, isn't really sure what she wants to do with her life, but she's got this $30,000 of
00:05:39.440 | student loan debt hanging over her head. And it limits the fun of any decision she could make.
00:05:46.000 | She's totally free. She could go and live on an organic farm or work in a communal,
00:05:53.760 | a commune somewhere, or she could go to the big city and get a big job.
00:05:56.800 | And any of these life choices are available to her. She could go and build a big career,
00:06:03.040 | she could go and live in a van in the woods and write novels for a living.
00:06:06.800 | Anything is there except for the debt. And until she pays off the student loan debt,
00:06:12.480 | she won't have that total freedom of choice because she knows that she's got to go and service
00:06:17.120 | her debt. She's the kind of person who would do really well in some of those not so normal
00:06:23.200 | lifestyles, but she's stuck. She's got to go and get a job that's a high paying job so she can pay
00:06:29.520 | back her student loans. Now in her situation, she's not even, there's no marriage prospects in
00:06:34.800 | the future and not particularly interesting to her, but you could see how she's stuck because
00:06:40.000 | of her past decisions. If you don't owe anybody any money, then almost any decision that you want
00:06:47.520 | to make can be made. If you don't owe anybody money, you can change careers fairly easily.
00:06:55.600 | If I have somebody who is debt free and I'm coaching them and they say, "I don't really
00:07:02.400 | like my job, don't really like my work, I'd like to change to something else." I don't even have
00:07:08.080 | to ask about the financial impact. I just encourage them, "Go for it." But it's not so
00:07:17.440 | simple if someone is in debt because if you're in debt, you've obligated yourself to fulfill your
00:07:23.600 | word and pay back your debt, which means that you may or may not be able to afford it.
00:07:27.040 | Similar things about starting a business. If you're not in debt, you can start almost any
00:07:33.440 | business. Some businesses lend themselves more to a lean startup approach, some businesses you
00:07:38.720 | need a lot of money. But if you're not in debt, you can open yourself up to almost any business.
00:07:43.680 | If you don't owe anybody any money, you can work almost any job and have enough money to pay your
00:07:49.440 | bills while starting a business. So, it completely, radically frees up your future.
00:07:56.160 | If you don't owe any debt, you can make the most radical of life decisions and you can do
00:08:01.920 | almost anything you want. Decide that you're tired of living in Atlanta, Georgia, and the
00:08:08.720 | south of France is calling your name. If you don't owe any debt, if you don't owe any money,
00:08:13.680 | you can go to the south of France and you can find a way to provide an income for yourself.
00:08:17.760 | There's plenty of ways to work for room and board and to get a job and you can go live in the south
00:08:22.000 | of France. But when you have debt, it requires a whole different level of planning. I can't promise
00:08:30.800 | somebody with $100,000 of student loans that they're going to be able to service their student
00:08:35.200 | loan debt in the south of France. I can promise that person that, "Hey, you can go there and let's
00:08:40.800 | figure out a way for you to get room and board so you can survive and let's figure out a way for you
00:08:44.480 | to make a little bit of spending money. You can go do it. Let's make it happen fast, quickly."
00:08:47.920 | I can do that if they don't have any debt. You can't do that if you have obligations.
00:08:57.120 | So being debt-free gives you almost total freedom in your future. Now, this should be obvious. This
00:09:04.240 | should be sensible because after all, what is debt? Well, debt is a promise
00:09:08.720 | to pay a certain series of payments and money back in the future. Somebody gives you money and you
00:09:16.800 | say, "Thank you for this money. I'm going to use this money to do something that I want to do.
00:09:21.280 | It could be buy a new computer, could be buy a new car, could be buy a college degree. I'm
00:09:26.960 | going to use this money and I promise to make you a series of payments in the future."
00:09:30.800 | So it should be obvious that you have less freedom because you've made promises in the future.
00:09:37.040 | But it's only once people get into debt that they start to realize, "Hey, my future is pretty
00:09:43.120 | constrained." So I would encourage you as a financial planner, I have coached,
00:09:50.400 | I think I could say safely thousands of people at this point, but let's just keep it modest,
00:09:54.560 | hundreds and hundreds and hundreds of people. And you can't bring me a goal
00:10:01.200 | that I can't tell you how to achieve in a reasonable time if you're out of debt.
00:10:06.800 | But when you're in debt, some goals become much more difficult to achieve.
00:10:16.720 | Being debt-free gives you total freedom in your future.
00:10:21.360 | The next big benefit of being debt-free is that it removes almost all fear from the present.
00:10:30.560 | Being debt-free removes almost all fear from the present. Here's why.
00:10:41.440 | In order to have this total freedom, you often need to pair it with some frugal living skills.
00:10:47.280 | But a man who has the ability to live well on little,
00:10:52.640 | possesses a sense of confidence and a sense of ability and a sense of possibility about the
00:11:00.080 | future that somebody who has to pay a lot of money all the time just simply can't imagine.
00:11:07.840 | Those skills are important, but you can't employ those skills if you've already committed to a
00:11:15.600 | massive outflow. If you've already committed to an outflow, a monthly outflow of $1,500 per month
00:11:24.720 | that you have to pay, you can't apply frugal living skills to make that number go down.
00:11:30.640 | In theory, maybe some negotiation skills, you can renegotiate that to some degree,
00:11:34.640 | but you can't apply frugal living skills to it. You can make all the coffee you want at home. You
00:11:39.680 | can buy all the cheap on-sale food that you want at home. And at the end of the day, you still got
00:11:43.280 | to make that $1,500 payment out. But if you don't have any debt, if you don't have any guaranteed
00:11:49.840 | payments that go out from you, it removes almost all fear from the present. Because you can stop
00:11:57.200 | almost any financial outflow from your life except a debt payment. If you don't have any debt,
00:12:04.640 | but you lose your job, you can tighten your financial belt to nothing very quickly,
00:12:12.080 | or very close to nothing. If you don't have any debt on your car, and you lose your job,
00:12:18.480 | and you have no source of income, and you don't have a little bit of savings, you can simply park
00:12:21.920 | your car, you can drop the insurance from it, and you can let your car sit there. And now your car
00:12:27.920 | is no longer consuming money from you. You can turn your car expenses from normally, say, $300
00:12:33.600 | per month to zero. But you cannot do that if you have debt. If you have debt, let's say you have
00:12:40.080 | a car payment, you have to make that monthly payment. If you don't make the monthly payment,
00:12:43.360 | they come and take your car. And you may have to sell the car. So you could say, "Well, I have debt,
00:12:48.480 | and I could always sell the car." Yes, but if you sell the car, now you can't just turn it on
00:12:52.320 | quickly again. If you need another car, you have to go and buy a car. Whereas if you're debt-free,
00:12:56.320 | and you have a $20,000 car sitting in your driveway, and for some reason your cash flow
00:13:00.800 | drives up, you can park the car, drop the insurance, not put any gas in it, and ride a bicycle.
00:13:08.400 | Immediately, you can remove massive levels of spending from your life.
00:13:18.320 | What about something like having debt on a cell phone? You go and you buy a cell phone,
00:13:23.280 | and it's a $1,000 new cell phone. And you set it up on an Apple Pay loan. Well, no matter what,
00:13:31.760 | you've got to pay that monthly payment. If you don't, it'll be reflected on your credit payment.
00:13:37.840 | If you just simply pay cash for your phone, and if you use a prepaid phone plan,
00:13:42.080 | then if you run out of cash flow, and that $40 a month or $30 a month or $20 a month is a problem
00:13:47.760 | for you, you just simply stop paying your bill. And as soon as you haven't broken your word on
00:13:55.040 | anything, you just don't renew your prepaid contract, and boom, at the end of the month,
00:13:58.160 | you lose your cell service. But you don't lose the functionality of your phone. You can still
00:14:01.920 | go and use it at the local free Wi-Fi. So now, if your cash flow dried up, you ride your bicycle
00:14:08.800 | to the local library, and you use the free Wi-Fi to do your email and send WhatsApp messages, etc.
00:14:16.080 | Which, by the way, is one of the reasons why I find it very convenient to move communications
00:14:20.480 | away from phone numbers over to messaging platforms, be it Wire, Signal, WhatsApp,
00:14:27.200 | Facebook Messenger, whatever your... even iMessaging, whatever your messaging platform
00:14:31.600 | of choice is, it's very convenient. Because then you can just simply stop paying.
00:14:36.560 | But you can only do that if you haven't borrowed money.
00:14:43.840 | Now, when we move to bigger bills, I'm using some little ones, but if you move to bigger bills,
00:14:48.560 | like housing, things do become a little bit more complex. But it's a lot easier
00:14:53.040 | if you don't have a mortgage. Let's talk about if you own a house. If you own a house,
00:14:58.480 | and you have a mortgage on that house, if you stop paying the mortgage, fairly quickly,
00:15:04.160 | your mortgage company can foreclose on you and forcibly eject you from the house.
00:15:11.520 | Now, if you don't have a mortgage, you have additional layers of safety.
00:15:15.200 | It's not possible to remove all housing expenses, at the very least, unfortunately,
00:15:21.040 | in the United States. Although you can move to a country where you don't have
00:15:24.640 | property taxes, unfortunately, in the United States, you always have to deal with property
00:15:28.400 | taxes. It's impossible in the United States to ever own your house. But it's at least possible
00:15:35.840 | if you don't own a mortgage... sorry, if you don't have a mortgage, if you don't owe a mortgage,
00:15:39.600 | it's at least possible to not be kicked out of your house. Let's say that you own a $300,000
00:15:45.440 | house and you live there, and your property taxes are $3,000 per year. Well, if you don't make that
00:15:51.840 | $3,000 per year property tax payment, they are not going to evict you from the house. It's just
00:15:56.400 | simply a lien accumulates against the house. But at least you can live in that house and stay there
00:16:00.320 | for the rest of your life. So you're dramatically safer if you don't have a mortgage. It'd be nice
00:16:06.000 | if we didn't have property taxes. I'm not going to die on that hill, but at least they're not
00:16:11.760 | going to evict you. Now, you do want to be careful. This is one of the reasons why I don't
00:16:15.280 | like homeowners associations, because one of the most dangerous institutions is a homeowners
00:16:20.080 | association. If you live in a community, at least in Florida law, I'm not sure about every state law,
00:16:25.120 | but if you live in a community that has a homeowners association and you don't pay your
00:16:28.560 | homeowners dues, then they can foreclose and evict you from your house, even if you have no
00:16:33.840 | mortgage on the property. So I consider homeowners associations to be extremely dangerous from a
00:16:38.240 | financial perspective. It's like a mortgage. So be cautious about them. The point is though,
00:16:43.440 | that if you don't have a mortgage, you can at least stay in the house. And then if you need
00:16:48.000 | to do something dramatic to pay your property tax bill, you could do something fairly simple,
00:16:52.720 | like take on one part-time boarder, rent out one room of your house, and that could provide enough
00:16:58.080 | income for you to cover your property taxes. Or you're going to simply let the lien accrue on
00:17:03.520 | the property until your cash flow comes back in, and then go ahead and pay off the tax lien.
00:17:09.120 | So if you don't have a mortgage, you have tremendous safety and you can drop your
00:17:15.440 | expenses to almost zero. Now, what about if you're renting? Well, if you don't have a mortgage,
00:17:20.880 | if you're renting an apartment, one of the nice things is the time horizon of your decisions is
00:17:27.280 | much smaller. If you're renting an apartment and you need to go now, you can go now. If you need
00:17:32.800 | to move to a tent in the woods or to a camper parked on some government land, or if you need
00:17:39.200 | to move to the spare bedroom at your mom and dad's house or the garage or move into the mother-in-law
00:17:46.080 | quarters out back of grandma's house or something like that, you can do that. You can just simply
00:17:50.240 | leave the apartment. You'll probably forfeit a certain security deposit. You may break a contract
00:17:54.320 | and impose a fee, but it's a lot simpler to do if you don't have any debt. But if you have to
00:18:03.360 | do that when you have debt, it's a lot tougher. So I think that's enough examples. The point is that
00:18:09.920 | because you can stop almost any outflow except debt, you can remove almost all fear from the
00:18:18.080 | present. What about outflows that you can't stop? Things such as food. You can cut those things
00:18:25.200 | pretty deep if you've got frugal skills. If I had to, I could feed my family of six on
00:18:32.400 | one to two hundred dollars a month, if I had to. Now, I don't think we'd have the most varied diet.
00:18:39.920 | I don't think we would necessarily have the most nutritious diet long term, but we would do it.
00:18:46.960 | If I were in a situation, and let's say that I lived in the United States, I had no debt.
00:18:51.440 | Pretend that I live in a house that has no mortgage on it, no homeowners association,
00:18:56.960 | the only thing I have is property taxes, and I have no debt. And I go into dire financial
00:19:02.880 | circumstances. For some reason, my business fails, I'm disabled, etc. What would I do
00:19:07.120 | in that situation? First thing I would do, I would park the car or the cars. Assuming that I can't
00:19:14.240 | make money with them in some way, I'm going to immediately stop that liability. So I'm going to
00:19:17.840 | park the car, remove the insurance from the car, stop putting gas in the car, put it up on blocks,
00:19:23.600 | do whatever needs to be done, but I'm going to park the car. That removes a huge expense from
00:19:28.080 | many people's budget. Certainly limits their lifestyle and their mobility, but a bicycle
00:19:33.360 | can get me there eventually, or figure something else out. But maintaining that hundred dollar a
00:19:38.000 | month insurance payments is oftentimes expensive for people who are in dire financial circumstances.
00:19:43.120 | I don't have a house payment, so I'm going to be pretty good there. If I don't have the money to
00:19:50.720 | pay my property taxes, I'll let them accrue and they can put a lien against the property,
00:19:54.240 | but I'll just stay on the property. What about utilities? Well, I can change my usage.
00:19:58.000 | I can unscrew everything electric in the house, and if everything in the house that's electric
00:20:04.000 | is unscrewed, then my electric bill goes to practically zero. Now, obviously, I would want
00:20:12.000 | to maintain that ability, but because in many modern houses you can't live in them safely.
00:20:16.880 | You live in Florida and you turn off the AC, all of a sudden you start to have mold problems based
00:20:21.520 | on the way the houses are designed, but depending on the house, you could look at it. You know,
00:20:25.760 | turn off your air conditioning, you turn off your heater, and you put on a coat,
00:20:28.320 | you go jump in the pool at the midday, and you get a fan, or you open the windows, you do something.
00:20:34.400 | You don't use the lights at night or use very small lights, right? If we're getting, and I'm
00:20:38.720 | just being hardcore just for the fun of the thought experiment, but maybe I have to harvest some
00:20:43.280 | electricity from somewhere. Maybe if I'm riding back and forth in somebody's car, I
00:20:49.040 | charge my phone or charge a flashlight or a lantern or some batteries. I mean,
00:20:54.320 | you can harvest electricity from other places.
00:20:56.160 | Many ways to do that. I could give example after example of how you could live without
00:21:03.840 | electricity. You can do it if you have the right equipment. It makes it fairly doable.
00:21:08.720 | But you can build a solar oven to cook with, right? Build a solar oven to make your daily food.
00:21:14.880 | Now, I'm going to skip because it just gets too weird to do all the weird ways of living
00:21:21.120 | without things, but you could do it. You could drop your utility expenses from $100 a month to
00:21:26.000 | $10 a month by dropping your usage. Those things aren't debt. They're declines in usage, and so
00:21:31.920 | you could affect your usage. What about food? Well, I would buy some flour. I'd buy some oil,
00:21:38.320 | and I'd buy some sugar and some salt, and I'd be eating pancakes. I'd try to get some butter and
00:21:43.360 | things like that. I'd go to the food pantry if I could and try to do that to get some fresh
00:21:48.080 | vegetables or some kind of canned vegetables to supplement that a little bit. I'd get some rice,
00:21:52.960 | and we'd be eating rice and white flour. I mean, that stuff is so cheap, but at least our bellies
00:21:57.920 | would be full. Supplement some peanut butter and jelly and add some beans and a little bit of meat
00:22:01.760 | if I could get some from time to time. I'd be dumpster diving for food, depending on what
00:22:06.720 | context I was in. If you're in a rural context, then you can go and glean from the fields or go
00:22:14.640 | and wildcraft in the woods. There might be a lake that you could fish in if you're capable of
00:22:20.320 | fishing. If you're in a rural context, there's food available on the land. If you're in an urban
00:22:24.480 | context, there's food that's constantly thrown away. And so in either case, you could supplement
00:22:29.120 | your food and have food available to you. So in those dire circumstances, even the most dire
00:22:36.960 | circumstance can be overcome with debt, without debt, if you don't have debt. That gives confidence.
00:22:45.200 | To me, that gives me confidence because if I need, I can get a job and cover some money. Obviously,
00:22:51.920 | nobody wants to live without turning on their electricity. You don't want to unscrew all the
00:22:56.720 | light bulbs. And you can run a light bulb in your house at night for probably 50 cents a month.
00:23:02.080 | It's just simply not... Most of us are not at that scraping by level, but there are some of us who
00:23:08.000 | are. And so I think at least just having the skills or going through the extreme thinking to
00:23:12.720 | say, "How would I live on nothing?" is worth considering. And then on the business side,
00:23:18.960 | though, when you can cut your expenses so low, then it leads to more opportunities.
00:23:24.640 | I've read a bunch of books written by homeless people. I try to read their stories. I talk to
00:23:29.600 | them sometimes and you can talk to them. But I'm interested in the ways that people live on nothing
00:23:36.000 | and the ways that people generate income on nothing. It fits my radical personality just
00:23:41.440 | to go to the hardcore extreme. And one of the things I've observed is that there are so many,
00:23:46.640 | there's so much abundance where most of us live that if you're a person of skills and if you can
00:23:51.920 | maintain a sound mind and a sound body, even in one of those radical situations, you could do it
00:23:58.000 | if you didn't have debt. I could start a business at the library. The library system in many places
00:24:03.200 | have things like media studios. I could use a camera that the library has. I could use fancy
00:24:08.560 | computers that the library has. I could create media. I could build a business using the internet
00:24:13.600 | and the computers in the library every day. And the books are right there. Everything is there
00:24:17.520 | to start a business online. The books are there. The instruction is there. The computers are there.
00:24:21.440 | The equipment's there. Everything is there where most of us live. We live in a world of
00:24:27.120 | possibilities. I could go and do day labor and be hired out there. And so when you don't have debt
00:24:33.200 | and you say, "I've got to live on $1,000 a month," you can do that and pursue a dream. Whether that
00:24:38.480 | dream is a business, whether that dream is something else, the fact that you don't have debt
00:24:44.960 | means you have total control of your expenses. That removes fear from the present. To me,
00:24:53.520 | that's always been powerful. That's why debtlessness is worth pursuing, because it
00:24:59.920 | gives you freedom of choice. You can change quickly. You don't have to make a three-year
00:25:07.280 | plan unless you decide you want to. There's no reason to run away from a job if you don't
00:25:11.840 | want to. But you don't have to make a three-year plan. If you have a business idea and you say,
00:25:17.920 | "This is a business idea I want to do," or, "This is a place I want to go," or, "This is a thing I
00:25:22.160 | want to do," you can pivot quickly. I have found that sense of freedom, that lack of fear, to be
00:25:30.800 | so valuable in my personal psychology. I've found it to give me tremendous optimism over the future,
00:25:38.400 | to give me a sense of resilience, to give me a sense of unlimited possibilities.
00:25:43.520 | I look at the world and I say, "There's almost nothing that I can't do."
00:25:49.440 | And being out of debt is a key, key part of it.
00:25:54.560 | Now, what else? Being out of debt gives you total control over your income.
00:26:00.640 | When you don't have debt, then whatever your income is, you can just simply allocate it as
00:26:07.440 | you like. And what happens is that most of our desires are fairly modest. But when all of your
00:26:16.320 | income is pre-committed, even your modest desires sometimes become difficult to indulge.
00:26:21.760 | If you've got a median income of $4,000 or $5,000 per month, but you have no debt,
00:26:27.920 | you can fulfill on a regular basis almost any impulse purchase that you'd like to make.
00:26:35.360 | Want to buy a new barbecue grill? Buy a fancy $600 smoker? No big deal. It's a tiny fraction
00:26:41.360 | of your income. Want to take a trip? Spend $1,500 on a nice vacation? You can do it.
00:26:49.280 | Want to spend $5,000 on a nice vacation? You can do it. You need a few months probably,
00:26:52.800 | but you can do it. Need a new car? Well, you can buy a new car or another car, right? You can buy
00:27:00.720 | a couple thousand dollar car any month that you want to. Need to buy a new set of tires? Well,
00:27:06.800 | it's a thousand bucks. And a thousand bucks for a new set of tires for a lot of people
00:27:11.680 | is a lot of money, but not when you're debt-free, even if you have a median income of $4,000.
00:27:15.600 | $5,000. And so when you don't have any payments and you have the ability on a monthly basis to
00:27:24.160 | have full control over your income, it makes a lot of things really doable for you.
00:27:30.400 | What about kids' college education? Let's say you're a median household earner,
00:27:34.560 | but you can make a plan to where you're debt-free, completely debt-free, including
00:27:39.600 | your mortgage, and you earn $5,000 per month, but you've got three or four or five children
00:27:47.120 | and you want to help support them in a college education. You can do that. If you don't have
00:27:53.280 | any debt, you can easily commit a thousand, $2,000 per month to college educations, which is more
00:27:59.680 | than enough, if they're frugal in their college choices, more than enough to simply pay for
00:28:04.960 | college educations, thus perhaps helping your children avoid debt. As long as everything else
00:28:11.120 | in your life is in line, you can adjust everything else down as long as you avoid debt. That ability
00:28:16.640 | to have total control is really, really fantastic, because when you have total control over your
00:28:21.760 | income, it gives you the ability to make the decisions in the present that you believe are
00:28:28.720 | right, and you don't have to spend a lot of time thinking about them. You don't have to spend a lot
00:28:32.720 | of time worrying about them. You frankly just have less buyer's remorse. The times in my life where
00:28:37.920 | I've had the most buyer's remorse is when I have borrowed money to do something. Let's say that you
00:28:43.520 | want to go on a trip, and you say, "I'm going to go to Egypt and see the pyramids of Egypt,
00:28:49.520 | and I'm going to spend $5,000 on it." You put the $5,000 on a credit card, go to Egypt and come back.
00:28:56.560 | You're probably happy with the trip, but if a year later you're still paying off the balance
00:29:00.800 | of that credit card, the trip starts to feel a little bit more sour. Whereas if you just simply
00:29:08.960 | pay the $5,000 out of your cash flow, even if you come back and you say, "You know, that was a little
00:29:15.280 | bit more money than I would have liked to have spent," that regret is fairly short-lived. Then
00:29:21.600 | you say, "It was a nice time," and you start saving for your next goal. When you have total
00:29:25.920 | control over your income, even if your income is modest, you generally have choices. Now, certainly,
00:29:34.160 | we're all going to have some bills, and so it's hard to get always to the point where you have
00:29:38.640 | total control. In addition to no debt, you also want to just simply balance the commitments that
00:29:45.600 | you make. It's nice to have modest rent payments if possible where you live. It's nice to have just
00:29:49.840 | a modestly priced lifestyle. But no debt gives you total control over your income. In any given
00:29:55.840 | month, any given week, any given day, you have the ability to make the choices that are best for you
00:30:01.920 | right now. I, in addition, greatly value the sense of personal independence that comes with being
00:30:13.440 | debt-free. Many people complain about their job, their work. Some people feel like they're being
00:30:20.960 | abused at their work. If you don't have any debt, and if you have those frugal living skills that I
00:30:26.800 | described, the ability to live on very little, and if you have a little bit of savings, of course,
00:30:34.160 | it makes it easier. But if you don't have any debt and you're being abused, you stand up,
00:30:38.320 | you walk into your boss's office, you say, "I quit," and you leave.
00:30:42.960 | I'd like to see you give some notice. I'd like to see you keep your options open. One of my goals
00:30:50.640 | that I encourage people is try to make sure that anytime you leave a job, they'd hire you back. But
00:30:54.720 | if you're truly in an abusive job situation you're being taken advantage of, you walk out.
00:31:00.880 | Or what about if something is happening at your workplace that is morally wrong or ethically
00:31:08.320 | questionable? You don't have to think too much about it. You simply stand up, you say, "This is
00:31:16.560 | wrong," and you leave. And you might walk right into a newspaper reporter's office or publish it
00:31:23.680 | immediately online. You don't have so many obligations. But those are the kinds of decisions
00:31:29.200 | that are a little bit harder to make if there's going to be a cascade of bad consequences in your
00:31:35.680 | life. If you've got a mortgage payment of $2,000 a month, and you've got a student loan payment of
00:31:40.560 | $1,500 a month, and you've got a car payment of $500 a month, and you've got $30,000 on a credit
00:31:45.040 | card, you know that if you get up and you walk out of this job, there's a good chance that all
00:31:50.960 | those things will collapse. You know that there's a good chance if you stand up and you say, "No,
00:31:55.920 | what you're doing in this company is wrong," and you walk out of that office, that you might find
00:32:03.920 | yourself on the street without a car, with the creditors calling, behind on everything.
00:32:10.320 | It's a lot harder to do the right thing that you should do when you know in your personal life
00:32:18.000 | everything can collapse. But if you're out of debt, you know you can go and get another job.
00:32:25.600 | You know you can live on nothing. And there are so many people who I think would be more willing
00:32:31.360 | to speak up for what is right, even though there's a risk for them if they were out of debt.
00:32:38.000 | There are so many people who sit when they know they should leave because they're in debt,
00:32:43.360 | and that's not a way to live. One of the most important things for you to maintain
00:32:51.360 | is your self-respect, your personal integrity, your ability to look yourself in the mirror in
00:32:58.320 | the morning and be proud of the man you see in front of you. You can't be proud of yourself
00:33:06.080 | if you're not doing the right thing. You can't do that if you're sacrificing your integrity on a
00:33:12.160 | daily basis. And it's a lot easier to stand up and say what you believe to be right, what you
00:33:23.120 | know to be true, if you know that your life is not going to collapse around you.
00:33:31.040 | Important. In addition, being completely debt-free helps you to avoid the moral hazard of debt.
00:33:42.400 | One thing that many people wrestle with is, "Is it wrong for me to borrow money? Is it immoral
00:33:49.520 | for me to borrow money?" Now, as I've wrestled with that question, my answer is no. Usually,
00:33:56.800 | a lot of Christians who wrestle with that question, they do it based upon a comment that's
00:34:02.160 | written in the Book of Romans where Paul says, "Owe no man anything except love." And there are
00:34:08.400 | some people who take a very hard-line stance and say that that means don't owe anybody any money,
00:34:14.240 | and so thus, no debt. I sympathize with that position. I don't personally believe that that
00:34:21.520 | one statement, when looked at in the totality of commentary on debt and borrowing money,
00:34:26.480 | etc., in the Scripture, is enough to say that it's morally wrong to have a series of time payments.
00:34:33.280 | Where I've come to in wrestling that through is that it's not morally wrong to make an agreement
00:34:39.600 | to borrow money from somebody and then to pay them back as agreed. What is morally wrong is
00:34:45.360 | to not pay them back as agreed because that is theft. So if I come to you and I say, "Will you
00:34:54.480 | please lend me $1,000?" It's your $1,000 and you have the ability to give it to me if you want to.
00:35:00.800 | It's your money. You can do what you want with it. And so as long as I'm not threatening you,
00:35:05.520 | as long as I'm not coercing you, I'm not pointing a gun at you and saying, "Give me $1,000," if I
00:35:10.160 | come to you and I simply ask you and say, "Will you give me or lend me $1,000?" and you have your
00:35:15.760 | $1,000, you have the ability to give that to me entirely free, thus it's entirely right, no moral,
00:35:24.480 | there's no moral problem here. And so if you give it to me and you say, "I'll give you $1,000,
00:35:29.280 | but starting one month from today, you're going to pay me, Joshua's going to pay you back $100
00:35:34.720 | per month for 10 months." Well, if I agree to do that and then I show up every single month and I
00:35:40.800 | give you the $100, everything is fine. This was our agreement, or let's say that you charged me
00:35:47.840 | some interest and so you say, "I'll lend you $1,000 and you pay me $100 for 11 months." And
00:35:52.880 | so I show up in the first month and I give you $100, second month, $100, third month, $100,
00:35:57.520 | fourth month, $100, thus everything is fine. Now, the problem comes in the sixth month when
00:36:05.920 | my child is sick and instead of being able to bring the $100 to you, I use the $100 to pay for
00:36:11.760 | medicine and a physician to check out my child. Well, now we have a problem because I have
00:36:20.800 | promised to return your $100 to you, but now I'm unable to fulfill my word. And so what I've done
00:36:29.360 | here is I've committed a sin of stealing from you because I said I would bring the $100,
00:36:36.640 | it's your $100, you owe it, and now I'm not able to pay it as agreed and it's a form of theft.
00:36:42.800 | Now, certainly it's a different form of theft, a less morally repugnant form of theft than if I
00:36:49.200 | stuck a gun in your ribs and just took the $100,000 and et cetera, but it is a form of theft.
00:36:54.720 | And so when I've considered the morality of the situation, that's my conviction, is that it's not
00:37:01.200 | immoral, it's not sin for me to make an arrangement with you where you give me $1,000 and I agree to
00:37:07.680 | pay you $100, but it puts me in a situation where I may commit sin in the future if I'm unable to
00:37:14.880 | pay. And since I don't know what the future holds, that's a significant risk. And that's why it's
00:37:23.760 | very important to be very cautious before you ever strike your hand in a pledge. Maybe one thing for
00:37:30.480 | me to have $1,000 and to say, "I'd like to borrow $1,000 from you, but I know in the back of my
00:37:34.800 | head that I can pay the $1,000 back." That's less of a problem. And so there's a lot less danger,
00:37:41.120 | let's say that I go and I'm looking and I'm shopping for a car and I've decided I need to
00:37:45.440 | buy a new car, I've got $100,000 in the bank, but the new car dealership will give me a better deal
00:37:51.280 | if I go ahead and borrow $20,000 at 0% interest, they'll give me a better deal on the car than if
00:37:56.400 | I just simply pay them cash. And I know that I've got the money in the bank, I know that thus I'm
00:38:00.880 | never going to wind up stealing from them, stealing the monthly payment, because I've got the money.
00:38:08.320 | That's less risky than if I have no money and I go and buy the $20,000 car and I just simply sign
00:38:14.800 | my name knowing that I have no money and I'm presuming on the future to have the income.
00:38:21.040 | So I don't see this as a black and white area, I think it's shades here that you've got to be
00:38:26.960 | cautious and prudent and conservative, but the farther you are away from that line, the farther
00:38:32.160 | you are away from ever borrowing money, the farther you are from ever breaking your word,
00:38:38.080 | from ever stealing from another person. Now, obviously you can renegotiate debts,
00:38:45.040 | sometimes you can renegotiate payments and it's always your right to forgive a debt.
00:38:50.160 | In addition, you have to deal with a contract. So for example, I'm much more comfortable
00:38:54.800 | whenever I, if I ever have to borrow money, although from a financial perspective, it's less
00:38:59.280 | safe. When I've lent money, let's go to the different perspective. When I've lent money
00:39:03.280 | to people, for example, one time I sold a vehicle to somebody and I agreed for them to make a series
00:39:11.440 | of payments. What I've tried to do is structure the contract in a way that we can avoid the moral
00:39:16.240 | hazard and it has simply made it clear that I would simply repossess the vehicle if they didn't
00:39:21.360 | make a payment. And that's the way that a lot of times that auto loans can be satisfied, is that
00:39:26.480 | they're just simply going to repossess the vehicle if no payments are made. So if I'm in a situation
00:39:31.920 | and I make a pledge, I make a commitment, I'm going to borrow $20,000 from you, I'm going to
00:39:37.120 | use it to buy a car, but I'm going to pledge this car as collateral for the loan, then I can feel
00:39:43.840 | morally clear where if I'm unable to pay it, they repossess the vehicle and thus maybe I come out
00:39:50.400 | the worst because I had equity in the vehicle, but I'm in a position where I've had a sense of,
00:39:56.080 | I've not stolen from somebody. The agreement that we made was for you to repossess the car,
00:40:02.000 | or the agreement was that you would foreclose on the house and thus when you foreclose on the house,
00:40:06.480 | if I'm unable to pay, at least I can walk away free and not wind up owing you money.
00:40:11.280 | So those, whenever, if I'm ever in that situation, if I'm lending money, I try to structure it in
00:40:15.920 | some way that I don't, that we can have an out that satisfies the necessary terms and that
00:40:22.480 | satisfies the moral difficulty. Then of course we need to come in and you talk about things like
00:40:27.280 | bankruptcy. And in the United States where you have bankruptcy laws, everybody knows those bankruptcy
00:40:33.280 | laws, and so things like bankruptcy laws, I don't view them as immoral because they're known whenever
00:40:38.400 | you lend money, whenever you borrow money. I think they're difficult and I think that that's where,
00:40:43.680 | as an individual, you have to question the intent of your heart. It's one thing if you, as an
00:40:50.160 | individual, are caught in a situation where you borrowed money, you took out money on a credit
00:40:56.400 | card, and then some series of circumstances happened and you wind up declaring bankruptcy
00:41:02.400 | because of these circumstances that were relatively unforeseen. That's different than my making a plan
00:41:07.360 | to intentionally defraud somebody. And I go and I build a big line of credit cards, and then I
00:41:13.200 | borrow hundreds of thousands of dollars in credit cards, and then I declare bankruptcy, but I've
00:41:18.320 | concealed or otherwise protected the hundred thousand dollars and taking advantage of the laws.
00:41:22.240 | Well now we've got a situation where it's immoral, not because it's illegal, well that situation
00:41:26.800 | probably would be, but not necessarily because it's illegal, it's just immoral. The intent to
00:41:30.800 | defraud is something that should weigh on your conscience. So I think there are ways to work
00:41:35.120 | through it in those situations, but the farther you are away from that line, the easier it is
00:41:39.680 | to maintain your integrity and to fulfill your word. And the most valuable thing that you possess
00:41:46.960 | is your word. And so word of caution to you, if you're ever in a situation where you wind up
00:41:51.120 | borrowing money, make sure that you create an out for yourself, or that you discuss what would
00:41:57.120 | happen so that you can satisfy your word. This is especially important with individuals. If I'm
00:42:03.600 | going to go and borrow money from somebody, I'm going to say, "I'm going to borrow the money,
00:42:06.400 | here's what I'm going to do, but if I can't pay this back as agreed, I want to talk about what's
00:42:10.640 | going to happen and how we're going to satisfy this to make sure that we can maintain our
00:42:15.360 | integrity in this situation." So consider those things. All right, by way of review,
00:42:22.720 | being debt-free gives you total freedom in your future. Being debt-free removes almost all fear
00:42:28.320 | or all fear from the present. Being debt-free gives you total control over your income. Being
00:42:34.160 | debt-free allows you to maintain your personal independence and makes it easier for you to keep
00:42:39.040 | your integrity and your good moral standing intact. These are compelling reasons, but what
00:42:47.040 | about some of the other sides? First, is it possible to avoid all debt? My answer is no.
00:42:55.760 | It is possible to avoid all commitments of payment, but if we think about the full meaning of debt,
00:43:02.240 | it's impossible to avoid all debt. So I'm not saying that you can't buy a car without a car
00:43:07.280 | loan. Of course you can. I'm not saying you can't buy a house without a house loan. Of course you
00:43:10.800 | can. But at the end of the day, there's always some form of debt, even if it's temporary.
00:43:16.480 | For example, technically speaking, if we're going to think about this technically speaking,
00:43:21.600 | you agree to pay your electric bill after every month of usage. So you're using electricity today.
00:43:31.360 | Well, you now owe an electric company money for the bill. You can't avoid that. You can do
00:43:37.120 | prepaid to some degree. You can give them a deposit. There are things that you could do,
00:43:40.560 | but at the end of the day, there's always going to be some forms of debt. And that's not even
00:43:44.160 | getting into personal debt, government debt, some of the other obligations and things that are
00:43:49.040 | imposed upon you. So it's technically not possible to avoid all forms of debt, but I see debtlessness
00:43:56.480 | as a scale. The closer you are to zero, the better the results and the returns. The less, the better.
00:44:07.040 | But you don't have to get to zero to start enjoying the benefits. In a moment, we'll talk
00:44:12.480 | about good debt, bad debt, et cetera. But the closer you are to zero, the better. Because
00:44:18.800 | every step towards zero gives you increased levels of freedom. So let's use an example here.
00:44:27.440 | Let's assume that you are a deeply indebted family. You have a house mortgage, you have
00:44:35.920 | a car loan, you have student loans, and you have a credit card debt. You don't have a lot of freedom
00:44:44.640 | because you're deeply indebted, but you decide, "I'm going to make progress on this debt."
00:44:49.600 | And so the first thing that you tackle is your car loan, because you don't need a $50,000 car
00:44:57.120 | that you owe $30,000 on. So you decide, "I'm going to go ahead and sell the $50,000 car
00:45:01.440 | and buy a $5,000 car." Well, that gets rid of one payment. Then you take that excess payment
00:45:07.600 | and you use it to reduce your credit card debt. And so now you're left with simply your student
00:45:12.320 | loans and your mortgage payments. Then you get a new job offer. And the new job offer is going to
00:45:18.640 | pay you less money than you're currently making, but it has much higher long-term potential for you.
00:45:26.560 | And it's in a career direction that you're more interested in.
00:45:29.280 | Previously, you couldn't have taken a pay cut because you were pretty well maxed out. You had
00:45:34.880 | to make that car payment, you had to make those credit card payments. But because you sold the car,
00:45:38.720 | thus reducing your cash outflow needs by the amount of your car payment, and because you
00:45:43.200 | paid off or paid down your credit card debt, now you can take a reduction in cash. So you bought
00:45:48.960 | yourself freedom by lowering the amount of debt that you owed. So fast forward, you move into the
00:45:55.440 | new job and you're in a situation where you keep on paying and now you get rid of the student loans.
00:45:59.440 | So the only thing that you owe now is a mortgage on your property. But you decide, "This new job
00:46:05.120 | is not for me and what I actually want to do is I actually want to move to the south of France."
00:46:09.840 | Well, are you totally debt-free? No, you still owe a mortgage. But you can sell the house,
00:46:19.520 | pay off the mortgage, and then go. Or you can rent the house, pay the mortgage on a monthly
00:46:25.520 | basis, and go. And so even if you don't get to completely debt-free, every step towards lower
00:46:31.840 | and lower debt buys you freedom. Every single step of the way helps you. And so don't think
00:46:38.640 | that it has to be all or nothing. Think that there's a scale here. And the closer I get to
00:46:43.920 | complete debt freedom, the more and more personal freedom I'm going to enjoy. But there is
00:46:49.280 | a scale. The less the debt, the better. But you don't have to get to zero to start enjoying the
00:46:54.960 | benefits. Let's talk about some questions. Will you get lower long-term returns without debt?
00:47:04.000 | Or will you have less money without debt? For example, if you're going to buy a house,
00:47:11.840 | should you just simply rent for $1,500 a month until you can save enough money to pay cash for
00:47:18.080 | a house? Or should you buy a house and take out a $1,500 a month mortgage so that you can be
00:47:25.520 | building equity in the property over time? Well, I think the answer to that is pretty clearly that,
00:47:31.920 | yes, you will get lower long-term returns and/or have less money by avoiding all debt.
00:47:39.920 | If you put two exact circumstances together, circumstance one, person lived in a rental
00:47:47.440 | house for $1,500 a month until they could save, let's say they had $2,000 a month of excess cash
00:47:54.720 | flow. And option one is to live in a rental house for $1,500 a month and save $500 a month towards
00:48:01.040 | the purchase of a house. And option two is for them to get a mortgage of $1,500 a month and then
00:48:07.440 | put an extra $500 a month towards the pay down to the mortgage. The numbers every single time are
00:48:12.320 | going to come out in favor of the person taking out the mortgage. It's just simply going to result
00:48:16.640 | in their having more money in the long term through buying the house. The question is,
00:48:21.200 | are they going to have more freedom? I'm unconvinced the answer is yes on that.
00:48:25.120 | What you see, where you saw it most dramatically was in a time like 2008, where so many people were
00:48:32.480 | underwater on their mortgage that they just didn't have the ability to go where there was work. They
00:48:38.560 | didn't have the ability to go quickly. And so the job market had high-paying jobs on one side of
00:48:43.440 | the country, but people who were in a low-paying job often couldn't leave because their house was
00:48:48.880 | underwater and they couldn't sell it for what they owed and they couldn't get out of it.
00:48:52.000 | And so although I think you can make the argument that often debt will enhance your returns,
00:48:58.240 | debt will result in your having more money, I don't think you can make the argument that debt
00:49:04.240 | is going to lead to more personal freedom, which is why I said there's a scale here.
00:49:09.120 | The scale would be if you only had the mortgage, well, you can often rent the house out. So
00:49:15.200 | is it wise to always avoid all debt? I'm not sure that it's, I don't know, I don't think it's always
00:49:23.040 | wise to always avoid all debt. I do think that always avoiding all debt will lead you to higher
00:49:29.600 | freedom. Another way to think about it though is to look and say, are there things that I could do?
00:49:35.360 | So in that scenario, I said, which was very simple, you got $2,000 a month of cash flow,
00:49:39.360 | you could pay $1,500 a month of rent, save $500 for the house. Yes, you're going to come out every
00:49:44.720 | time better to buy the house if that's the only circumstance. But are there other things that you
00:49:50.720 | could do that would keep your freedom and move you in a different direction? Could you rent for $500
00:49:57.360 | a month while saving the $1,500 a month? Could you buy a house for $70,000 as a starter house
00:50:03.280 | so that you could avoid the debt while you're saving for the bigger house? And would somebody
00:50:08.800 | doing that come out in a better situation? I think a lot of times if you change those variables,
00:50:13.600 | somebody who's committed completely to avoiding all debt can often come out ahead, both financially
00:50:22.560 | and in terms of freedom. I can't make that argument if it's a direct comparison, but if you
00:50:28.160 | say, I want the freedom and I want the freedom to avoid the debt, but I also want the financial
00:50:37.840 | returns and I'm willing to change my lifestyle, to change the variables, I think you can create
00:50:42.800 | really compelling financial plans that work. And that's why I think people often miss the long-term
00:50:48.480 | planning opportunities. They often look and say, they undervalue the ability to move for a job
00:50:57.760 | quickly, to pivot. Example, let's go back to our $2,000 a month example. You're in option A,
00:51:04.080 | you're earning $50,000, but all of a sudden, if you can move right away, you can get a job
00:51:08.160 | making $100,000 a year. Well, I bet if we put all that into a financial plan and I could boost your
00:51:14.080 | income by keeping you mobile enough to move fast, you could do it. So just think about that and
00:51:19.920 | recognize that life is not only one variable. Your only variable is not either renting or buying a
00:51:27.280 | house. There are many variables and in the midst of those, you can find a plan that satisfies the
00:51:32.480 | circumstances of your particular situation. What about things like debt for investments?
00:51:42.320 | Again, if we create two scenarios, scenario A is you're going to be an investor and you're going to
00:51:50.160 | invest using other people's money or scenario B is you're going to be an investor, but only using
00:51:55.040 | money that you've saved. Well, if everything goes well in both investments, the debt will usually
00:52:01.280 | increase your returns markedly. I can't go to somebody who wants to buy houses and say,
00:52:09.360 | "You're going to get better returns by not borrowing money." I just don't see any way to
00:52:15.200 | make that mathematically work. The returns are going to be better with borrowed money.
00:52:19.840 | But what I can say is if you desire the freedom of debtlessness,
00:52:26.240 | then you can adjust your decisions in a different direction. So for example,
00:52:31.440 | if I were speaking to somebody in the United States and they're thinking about investing in
00:52:37.600 | real estate in the United States, I have to advise them to use some amount of other people's money,
00:52:42.720 | just simply because the money is given away at basically free interest rates.
00:52:46.800 | And it is a robust lending market. There's tons of money available to do that.
00:52:51.200 | But the returns are also pretty limited because of that. So yes, the returns are possible,
00:52:59.520 | but the returns are often not nearly as exciting as some other place. Whereas if somebody says,
00:53:04.560 | "I don't want to borrow money because I want to keep freedom," I advise them to invest outside
00:53:08.560 | the United States. All of a sudden, if you move from the United States to a developing country,
00:53:15.280 | $20,000 in the United States is hard to get started in real estate investment. $20,000
00:53:19.920 | in a developing country can often make a big difference as a real estate investor.
00:53:24.240 | And often in a developing country, there just simply isn't the money available.
00:53:28.160 | And so you can make higher returns and you can start to boost your profits more quickly. So you
00:53:32.080 | can adjust your investment portfolio and your investment plans in a way that satisfies your
00:53:37.520 | desire for freedom. Don't ever think of it as just one variable. So my answer to the question,
00:53:44.800 | will you get lower long-term returns without debt? Probably. But will you maintain your freedom?
00:53:51.120 | Will you sleep better at night? In a lot of cases, yes. Best plan is probably some middle-of-the-road
00:53:59.040 | plan, but you don't have to view your desire for freedom as something that's automatically going to
00:54:07.040 | impoverish you. You can have both. What about good debt and bad debt? Is there good debt and bad debt?
00:54:16.640 | Usually when people talk about it, they would say that bad debt is for something like a consumption
00:54:23.520 | debt. A consumption debt would be you go and you put a new TV on a credit card. That's a
00:54:30.000 | consumption debt. And so they would say that's bad debt. You bought an asset that plummets in
00:54:35.520 | value the moment you take it out of the box and you put it on a credit card. That's bad debt.
00:54:40.400 | Whereas people say good debt is debt that helps you make more money. So it might be debt for
00:54:44.880 | student loans or debt for a new piece of equipment that you can leverage in your business or a house.
00:54:53.280 | That might go up in value. I think that that is a sound method of analyzing debt. I certainly think
00:55:00.880 | that one should never borrow money for a depreciating asset. That's simply foolish.
00:55:07.280 | It's consumption. It's foolish. And if something is a consumption expense, there's no way to make
00:55:13.120 | that a good decision. And that there is good debt. You can take debt and you can leverage it for
00:55:21.680 | increased gains, especially if you follow some of those rules. So you can use other people's money
00:55:27.520 | or use the bank's money to buy a house that you then rent out and make money on. That's powerful.
00:55:32.480 | And the results grow quickly. I frequently advise people to do that. It is certainly true that if
00:55:38.320 | you borrow money on student loans, that might work out because it qualifies you for a career
00:55:44.560 | that can be a very high earning career. If you look at this as some of the extreme examples,
00:55:49.680 | somebody who incurs large student loans for a medical degree, a law degree, or a fancy
00:55:54.960 | certification or credential of some kind that does later qualify them for a very high earning income,
00:56:01.280 | it works out financially in a lot of situations. But even in those situations, it does limit
00:56:08.800 | freedom. It does limit choices. I have counseled many high earning professionals who have been
00:56:17.600 | frustrated with how they're stuck because of their student loans. It's difficult. Let's say you've got
00:56:23.840 | two doctors who marry each other and they each have $300,000 of student loans and they're trying
00:56:28.720 | to figure out how do we do this. I've talked to a lot of people that want to make a different change.
00:56:32.800 | And so you will have to consider for yourself. What I would say is that there's probably some
00:56:38.800 | balance that would be wise to consider. Being somebody who prioritizes freedom,
00:56:47.360 | I can't imagine I would ever commit myself to a six-figure student loan. I just can't imagine it.
00:56:53.120 | I would do a military contract. I would go to medical school in Mexico. I would do a self-study
00:57:01.520 | legal license or something like that. Some way of avoiding the significant amount because what I've
00:57:07.440 | observed is oftentimes I don't like to follow through on stuff. And so if I did really have
00:57:12.800 | a lot of experience, maybe I went and worked as a paralegal and I said, "Yeah, I really like this
00:57:16.320 | legal stuff. I've been studying on my own. I'm really sure." Fine. There's a place for it. But
00:57:20.960 | anything you can do to maintain your freedom is going to... to minimize your debt is going to
00:57:25.280 | maximize your freedom. And I've known a lot of some people, I've talked to people again and again
00:57:31.040 | and again who say, "You know, I started this path and now I'm stuck in it." And what I despise as
00:57:39.120 | somebody who enjoys freedom is I despise that feeling of stuckness. Because when I'm stuck,
00:57:45.120 | my creativity dries up, my joy dries up. I just start to feel frustrated and it's a matter of
00:57:50.560 | getting out as quick as possible. I don't like that feeling. And so for me, I'm going to minimize
00:57:56.800 | the debt. So is there good debt and is there bad debt? Yeah, I think so. So what are some rules
00:58:03.120 | that you can do to put in place? Number one is that if you're going to borrow money, try to have
00:58:09.120 | an out. Try to have an asset that you can sell and try to make sure that you're conservative.
00:58:14.400 | So if you borrow money for a rental house, you borrow $200,000 but you buy a house and the house
00:58:19.680 | is worth $205,000 or $220,000 so we can pay real estate commissions. If you decide you don't want
00:58:26.960 | to be a landlord at some time, you're not generally stuck. As long as you've got a house that's not
00:58:32.160 | some weird monolithic dome that you can't sell, as long as you've got a cookie cutter house that
00:58:37.520 | you can sell and you can sell it for $220,000, then you can get out. And so you can get out
00:58:41.840 | fairly quickly. So if you're going to borrow money, try to make sure that you're borrowing
00:58:44.480 | money for an asset that's going to back it up. That's going to be one of your best ways out.
00:58:49.600 | If you're going to borrow money for a business, make sure that you're only borrowing in a way
00:58:53.200 | that you'll be able to sell it. It's one thing to borrow money for an excavator to start an
00:58:57.120 | excavating business, but you can always sell the excavator. That's different than borrowing
00:59:00.960 | $30,000 on credit cards to start a business that has no tangible value that you can't sell.
00:59:06.880 | And so in those situations, be careful. If you are going to borrow money,
00:59:10.880 | try to borrow money in a way that keeps more freedom. So for example, if you're going to
00:59:15.360 | borrow money for a business, I'd rather borrow money from my customers by pre-selling something
00:59:21.280 | than borrow on a credit card by committing myself to something else. I'd rather set up
00:59:26.560 | an arrangement where I pay somebody based on commission and profits rather than committing
00:59:31.200 | to pay salaries that I'm taking out from an SBA loan. And so if you think about the things that
00:59:36.560 | you strike your hand to, you can structure things in a way that keeps maximum levels of freedom for
00:59:41.840 | you. And when you're setting up loans and such, make sure that you clearly understand the creditor
00:59:53.360 | protection laws and bankruptcy laws that apply to you and use those laws to your favor. Make sure
01:00:00.480 | that you always structure something in a way that, "Hey, if I couldn't pay this, at least I would be
01:00:08.960 | able to discharge it in bankruptcy. If I can't pay this, at least I can sell the asset and not be
01:00:15.920 | owing a difference. At least there's a non-recourse loan if possible." Understand the laws and always
01:00:21.680 | set things up in a way where you're protected so you can maintain your freedom. That's why I teach
01:00:28.080 | so much technical financial planning, because if you can empower somebody with the knowledge of the
01:00:31.760 | laws, then you're in much better situations. It may not always be possible for you to avoid debt.
01:00:40.960 | You could be the most committed person in the history of the world to avoiding debt,
01:00:47.120 | and then you wind up with a medical emergency, with bills that aren't covered by insurance,
01:00:52.400 | and you wind up owing debt, owing medical debt. You could be in that situation. And again,
01:00:58.880 | probably every single listener to this show, you owe debt. Your governments have borrowed
01:01:08.560 | huge amounts of money from your children and grandchildren. They've done it in your name,
01:01:13.040 | and they're going to try to collect their tax dollars every single day to owe your debt.
01:01:16.560 | So you can't avoid all debt, but you can eschew debt. You can minimize debt. And the closer you
01:01:24.640 | get to zero, the more personal freedom you will enjoy. Very, very important.
01:01:32.480 | If... Maybe I'll do this at some point, but I want to do a show at some point called
01:01:38.320 | basically The World's Simplest Financial Plan. And I'll just simply tell you this.
01:01:43.280 | If I could give one advice to anybody, if you just simply avoid debt, you avoid the vast majority of
01:01:49.840 | problems that people... that worry people, that stress people, that wind up ruining people's
01:01:54.640 | lives. So avoid debt. The closer you can get to owing zero dollars, the more you will enjoy
01:02:03.440 | personal freedom. There is another component of this. You need to have some money and some savings,
01:02:08.400 | and that's also part of my fourth ring. So what I'm going to do is I'm going to end today's show
01:02:12.640 | here, and I'm going to talk about savings as a separate show, part two of this fourth ring.
01:02:18.560 | Because simply being out of debt, there are cases where, yes, you're debt-free, but having no money,
01:02:24.320 | that does actually get you less freedom. If you have $100 a month that you owe, you have a $10,000
01:02:30.880 | credit card debt, and you have $10,000 in the bank, and your credit card wants $100 a month
01:02:36.560 | from you. You have more freedom, more choices, more freedom of choices to have the $10,000 in
01:02:42.880 | the bank and simply to owe $100 a month in the credit card than you do if you have zero dollars
01:02:47.760 | of credit card debt and zero dollars of savings. There are things that you could do in the $10,000
01:02:54.560 | in the bank situation that you can't do if you have no savings. Simple example, you want to move
01:03:00.640 | for a job. Well, if you have $10,000 of credit card debt, but you have $10,000 of savings, you
01:03:05.200 | need to make a security deposit and a first month's rent payment on a new house to live. And you can
01:03:09.440 | do that if you got $10,000, but you can't do that if you have zero dollars in credit card debt
01:03:13.680 | without going back into credit card debt. So next, we'll talk about savings in part two of this show.
01:03:19.600 | Now, as I close today's show, when I did this show, I wanted to launch a... I want to do a
01:03:26.320 | course on getting out of debt. In some ways, it's obvious that there's nothing, there's no magic to
01:03:31.840 | it. You just pay extra on the debt. That's it. There's no magic to it. But there's a whole lot
01:03:37.040 | of techniques that in the years that I've gone in and out of debt, I've found and I've studied that
01:03:41.600 | can get much faster results. I'm not ready to launch that today because I'm doing the preparedness
01:03:47.040 | course. So I decided I'd go ahead and finish the series off and we'll launch that. But hopefully,
01:03:50.320 | in the next few weeks, I'll be able to launch that out. For today, remember that I'm teaching
01:03:54.080 | a preparedness course starting on Monday, February 3. So go to radicalpreparedness.com.
01:04:01.120 | And in the meantime, what I'll tell you is this. I've done a lot of consulting over the last few
01:04:06.640 | months. And many times, I have been able to do something. I'm able to do something now that I
01:04:14.080 | wasn't able to do when I was a professional financial advisor. And that is to give people
01:04:18.960 | a plan that leads to good financial results and good lifestyle results. And to have somebody leave
01:04:25.680 | a consulting call happy. It used to bother me when I was a financial advisor and all I had was a
01:04:31.520 | financial planning software. And people would come into my office and they'd say, "I want to
01:04:35.520 | accomplish these certain goals." And I'd put the numbers in and they never had enough money. They
01:04:38.960 | were never saving enough money. They never had enough money. And I'd put this chart in front
01:04:42.560 | of them about how much money they needed to save for retirement. It was just filled with red
01:04:45.920 | everywhere indicating a shortfall. And in hindsight, they would always leave my office less
01:04:51.920 | excited than they were when they came in. Part of that was my youth naivete, my lack of skill.
01:04:59.040 | But part of it is just the system, the mainstream financial system that says that the only solution
01:05:04.400 | is to save more money for retirement. I don't buy it. I'm done. I don't buy it. You should have a
01:05:10.640 | life now that you don't want to retire from. And you can have that quickly. And certainly, I used
01:05:16.800 | to tell people, "Get out of debt." Of course I did. There's lots of ways to do it. But what I have
01:05:23.440 | found is that now in doing financial planning for people, I can usually find a plan that results in
01:05:30.320 | pretty quick results. And most people leave a consulting call with Joshua feeling encouraged
01:05:38.240 | about the future. Even if there's some work involved, even if they know they got 10 months
01:05:42.080 | or a year of work, they leave encouraged. And I want that for you. So if you're in debt,
01:05:46.720 | keep your ear out. First, recognize that you're going to have to pay it off.
01:05:50.720 | You pledged your hand. You said you would pay it. So pay it. And there's not any secret other than
01:05:58.320 | making money, not spending it, and paying it in debt. That's what you're going to have to do.
01:06:02.720 | But there are some things that you can do. So keep an eye out for my course. I'm going to try
01:06:08.160 | to do it as a low-priced course. I don't like doing low-priced courses, but I want to do it
01:06:11.280 | on this subject just to help people who get out of debt. Because I would love to have thousands
01:06:15.200 | and thousands of people around the world get out of debt and experience the freedom that comes from
01:06:19.040 | being debt-free. So I want that for you. But in the meantime, reach out to me for a consulting call.
01:06:24.080 | Email me at joshua@radicalpersonalfinance.com. And I'll help you. I'll help you. I'll charge you for
01:06:31.760 | it. I'm not going to work for you for free. But email me at joshua@radicalpersonalfinance.com.
01:06:35.920 | If you need help and you can't afford my consulting fees, your best deal is join as a patron of the
01:06:40.800 | show. Go to patreon.com/radicalpersonalfinance and sign up there and join me on a Friday call.
01:06:45.920 | And on a Friday call, we'll talk through it and we'll work through your situation. So that's going
01:06:49.280 | to be your cheapest option as well. But do one of those things and make a goal that this is the year
01:06:54.720 | that you get out of debt. Once you experience the control of your income, once you experience the
01:07:00.960 | sense of freedom in your future, once the fear flows out of your present, you're going to have
01:07:08.080 | a major increase in the amount of your personal freedom. Set it as a goal. Make this the year
01:07:15.280 | that you get out of debt. If it takes you two years, it's still worth it. Make this the next
01:07:18.640 | two years that you get out of debt. And generally, you shouldn't need more than two years to get out
01:07:24.560 | of debt. There are potential situations in which you do, but the vast majority of people just need
01:07:30.160 | a plan that results in you're getting out of debt in less than two years and you can do it. So make
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