How much does debt really cost?

ABOUT THIS EPISODE

Everything has a cost. Even your debt has a cost. Like fire that has multiple uses, debt can also be useful. It can be consturctive, but it can quickly out of hand. Listen to financial expert, John Browning, share about how a grease fire relates to your portfolio.  

Welcome to the build your life podcast with John Browning. Build your life as a relaxed and unedited conversation with financial expert in number one Amazon bestselling author, John Browning Jones, the founder of Guardian Rock Wealth and serves clients across the United States. John's the author of the book build a life, not a portfolio, a guide to your financial future based on your personal values, which you can purchase on Amazon, or stay around to the end of today's show and I'll tell you how to get a free copy mailed right to your door. I'm Michael The lawn, your host for the next few minutes as we chat with financial expert and business owner John Brownie. Well, good afternoon, John Browning. How's Your Day going today? Sir? He's going pretty good, just going better than all about a week ago this time, but I can more about that later. Oh okay, all right, I do want...

...to hear about it, but I've got a a interesting thing happened. We were shopping the other day and looking at prices and of different things that we were looking at. Right, everything has a cost and it I heard something the other day and I want to talk to you about it because it deals with finances and in planning retirements and everything is is somebody said, yeah, but you've got a factor in the cost of debt, and that really just stopped man like, Whoa, what, what do you mean? So they had to explain a little bit, because we always everything has a price, right, does how much? How much does that cost? What's the price of debt? How does that factor into things? It's really, really important, and I talked about this all the time, especially with especially with younger folks, but surprisingly even with some folks who have a few years under their belts. And what I when I talk about debt, especially if I'm given a speech or if I'm up in front of a group of people, the way that I describe it is that it's kind of like fire. Okay,...

...okay, Oh, fire can warm you. You can potentially use fire to cook, you can use fire to make things. You didn't making something out of metal or something out of, you know, glass. You can use it to shape things that are very useful. So it can be useful. But, as I found out about a week ago, fire can be very destructive because I had my very first ever grease fire. Oh No, yes, destroy the microwave above the above in but everywhere. I mean we have spent hours just cleaning up, but it could have been a much worse wow. Right, yeah, it's worse at a man. But May then was it destructive? And what I was using it for was constructive. But it got out of hand. Okay, using it to cook some dinner, and for decades this is worked just fine for me, but in this particular case...

...oil got too hot and it caught on fire. Okay, so, even if you've been doing something for years and years and years, it can turn destructive. Right. That's kind of the way I view debt, is because it can be used in some very few cases. And some people, by the way, disagree with me. They say just never used every and and they are you know what I it's not that I completely disagree with that. I think for for many people that is the best course of action. But think about debt as it's kind of like Einstein once said, the eighth wonder of the world is compounded interest. That's the reverse of that. It's it's that eighth wonder of the world working against you, against you, yeah, for you. So the reason that he said that is that compounding interest,...

...compound interest is not just like you get to double your money, but it builds exponentially. It's like that beam show. Do you want to be a millionaire? Or was that it? Where they ask you a question and each time amount that you won doubled. Yeah, and it didn't take very long before you got to that million dollar level and very few people ever got that question right or the question before that actually either. But it begins to get exponential and it's great when you're the one investing, but when you're the one adding on that debt to purchase something, it's a very different matter and it works completely against you. Right. Well, I think about that concept every time I drive by the new bank building down the street that's about seven stories tall, gorgeous, and I'm like, my money's in there and they're getting giving me right now like point, oh, three, two or one percent. How are they building that building? Well, they're on the other side,...

...aren't they? They're on the other side and it's amazing to me. You know, we've got you know right now, as we're recording this, the interest rate on, say, mortgages and even car loans are are pretty good. I mean from the store, from from what I remember there, and there and it's pretty well. Yeah, but credit card, that is still one thousand nine two thousand and twenty one percent, I think. And when you think about that, you ask what the true cost is. So let's just do a little real quick math, a simple math, simple maths without the calculator. Here are my pain here we go. One, two, yeah, we're going to keep as easy, we're going to use round numbers, we're going to say Tenzero, okay, and we're going to say I think I kind of looked it up before and it is about nineteen percent as the average credit card interest right, which is wow anyway. So nineteen percent, tenzero dollars. If you pay it off just over ten years, just once a month, you're going to pay it off to zero and ten...

...years that's going to cost you about Twenty Twozero, little over twenty twozero. So what's the true cost of debt? There? You've got it. So whatever you bought for Tenzeros had better be worth twenty twozero to you. Yeah, pay it off that way and use that kind of debt. Wow. So in that as not scenario and again a reason why you should reach out and talk to John. It's not financial council. We're given here advice, but I've got a question. So let's say I had a credit card that had seventy five hundred on the balance, okay, and I'm making maybe minimum payments or maybe more than that, but it's still kind of carrying a balance there. And I have a mortgage over here, but I have a home equity line of credit because I have some equity, and let's say that's at five percent interest. So it might make sense in a certain situation and to take a homemchity line of credit that's at five percent to pay off my credit...

...card debt and then pay off my house. That's it. I can understand that. Mass something like that would lower my cost of debt. That's where I'm going. The debt has a cost on either side, but I'm paying a lot less in interest over here if I did like a homemchrority line of credit then on a credit area. You Right. Am I thinking? Right? You are right, and that's that's actually an exercise that we go through and we do some financial planning with folks. Is that we rarely talk to somebody who has zero dad and doesn't have any at all, and there's often ways that we can work with their current debt to help them plan to get to that whole zero debt idea, and sometimes that does involve utilizing the equity that's in your home and a much lower interest rate. But then that's where you get into the non numbers thing and it's becomes a mentality issue. Yes,...

...so you have to develop good habits. You can't just pay that off with your home loans that. Wow, my my payments are a lot lower and then go and spend money. I'm done, buy something else, right, yeah, but hit's that. It's so those financial moves, I guess that are I don't know if you remember, I used to take when I was a kid. We take vacations and I'm being the back of the car and I had this little Gizmo I to hold in my hand. This is way before computers, right, and it had eight little squares that you'd move around because the ninth hole was open, right, and so it was like a little puzzle that you moved around with your thumbs and it took a long time. That's how I think about what you do with finances and building portfolios, is you're moving all these little pieces of parts around going, okay, we can do this, but we have to do that because we you've got a picture. After you stay with and talk about somebody, they've kind of given you their goals, their vision, what they want. You're like,...

...okay, now what are all the pieces and how do we structure them to help you have a great life today, a great future in the in the great future, in the future. That's where it would be and and everything's that makes sense. That little analogy of that little puzzle thing your collar, of those I had so many of those things, yes, cube right to remember. Profs to you, Ye, Dude, man, about funcked out of middle school because of the perfect I did that a lot more to my homework. But yeah, so it's understanding that everything has a cost, even your debt, hmm, and you need to manage it well, well and leverage it sometimes, because you're right, there are sometimes to leverage debt when it's done properly right. You don't, most people don't know how to do all of that. Are even think of those rooms, and that's why I reach out to John at Guardian rock wealth. Is just really a great idea to have these conversations, because here's what happens to me, John, is...

...we're going along really well and then some some event happens. Don't know what it could be. I mean could be my car dying or or an opportunity or something, and I need to make a decision in a relatively short period of time. Right. But I don't typically factor in all of the equations or whatever, because I don't think that way. I'm like, Oh, yeah, here are to Ors, okay, yeah, let's go, whereas reach out to someone like you, if I had you in my corner, I could call you and say, he John, here's the situation, here's what's going on, what do you think? And then your brain kicks in and you in you help inform a decision based on a portfolio rebel where we are building because of the life I've told you I want to live today and in the futures. That does that make sense? That's that's exactly right. It's because it's not my decision to make, it's yours. But I can give you, just because I do it all the time and and I've done it for a long time and I've seen a lot of different scenarios, I...

...can give you more information than maybe maybe you have or think about things in a different way. But one of just just as an example. Right, logically speaking, if you had one piece of debt that was at, say, five percent interest rate and another piece of debt that was at a ten percent interest rate, generally speaking, I would suggest that you first pay off the one that's at ten percent. Right. What I have learned over the years it's that sometimes that's not actually the case for you person I'm talking to. What the reason that is is because they have there's a mentality issue there. So maybe that one that's at the at the lower interest rate is a lot closer to be being paid off. You know how much psychological satisfaction there is. You've probably experienced it, right, when you pay something off completely and your fears victory and you get to celebrate that in celebration. Frankly,...

...is really important for us as humans. So maybe it's not a logically it's the right but for you, Yep, maybe not. That's great. Yeah, what's some tind of stuff we talked about. That's very cool. So when Joe and I first got married, I've been right thirty one years, right, I brought in some debt and she's a bookkeeper account in type person. So she had one of those green ledgers, all of those goodteen column the Fifteen Column One, and she listed all of our all of our bills on the left and the months along the top. And the cool thing was at first it was like, oh my right, but what happens? We started paying things off and I could see the window going wound. Three months, will pay that one off. Okay, that's cool, celebrate. Okay, Oh, let's roll that money to the next it's hard to do that with electronics. I've never seen another thing like that and I always go back in my head to that paper thing to go, Oh, yeah, mark that one off, buddy, you're exactly right. Yeah, that is so cool and and people forget to celebrate. We need to live with joy and...

...celebrate little victories to keep that momentum up, because sometimes it's hard to get out of debt. It's very it's almost always hard to get out of debt exactly. It's project, it is, but it takes a plan and it really helps when you got somebody like John Browning in your corner guiding and directing you and helping you make those decisions so that you can get out of that you can live the life you want now. You can plan for a better life in the future, the life that the you want to live, but it's about having a life, building a life, not so much being focused on building the portfolio, because that's where we get off track sometimes. So, John Man, this has been a great conversation. Yeah, about debt. Everything has a cost. Debt has a cost and there are ways to use debt properly. There are ways to pay it off, but there are a lot of things that you can teach people. So let me just encourage your listeners to reach out Guardian rockwealthcom, reach out to John Browning and set...

...a zoom call with him, get a copy of this book, read it. It's really good, and see how he can help you and guide you down the right path to build a life, not just a portfolio. John, thanks for helping US understand little bit more about debt today. I'm indebted to you. All right, we'll see you next time. All right, by bye by money really is a big part of our lives and John Browning can help you and your family learn how to keep money in the proper perspective. It's important, but it's only a tool that can help you build the life that you want. If you like, John Emilie a free copy of his book build a life, not a portfolio. Go to John's website, Guardian Rock wealthcom, and click the contact to US link and send your request. John Will Mell a copy of his book right to your door absolutely free. Thanks for listening to building your life podcast with John Browning. Be Sure to subscribe to this podcast so each new episode will be sent to you automatically...

...when it's released. Have a terrific day.

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