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 podcastwith John Browning. Build your life as a relaxed and unedited conversation with financialexpert in number one Amazon bestselling author, John Browning Jones, the founder ofGuardian Rock Wealth and serves clients across the United States. John's the author ofthe book build a life, not a portfolio, a guide to your financialfuture based on your personal values, which you can purchase on Amazon, orstay around to the end of today's show and I'll tell you how to geta free copy mailed right to your door. I'm Michael The lawn, your hostfor the next few minutes as we chat with financial expert and business ownerJohn Brownie. Well, good afternoon, John Browning. How's Your Day goingtoday? Sir? He's going pretty good, just going better than all about aweek ago this time, but I can more about that later. Ohokay, all right, I do want...

...to hear about it, but I'vegot a a interesting thing happened. We were shopping the other day and lookingat prices and of different things that we were looking at. Right, everythinghas a cost and it I heard something the other day and I want totalk to you about it because it deals with finances and in planning retirements andeverything is is somebody said, yeah, but you've got a factor in thecost 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? Howmuch does that cost? What's the price of debt? How does that factorinto things? It's really, really important, and I talked about this all thetime, especially with especially with younger folks, but surprisingly even with somefolks who have a few years under their belts. And what I when Italk about debt, especially if I'm given a speech or if I'm up infront of a group of people, the way that I describe it is thatit's kind of like fire. Okay,...

...okay, Oh, fire can warmyou. You can potentially use fire to cook, you can use fire tomake 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 veryuseful. So it can be useful. But, as I found out abouta week ago, fire can be very destructive because I had my very firstever grease fire. Oh No, yes, destroy the microwave above the above inbut everywhere. I mean we have spent hours just cleaning up, butit could have been a much worse wow. Right, yeah, it's worse ata man. But May then was it destructive? And what I wasusing it for was constructive. But it got out of hand. Okay,using it to cook some dinner, and for decades this is worked just finefor me, but in this particular case...

...oil got too hot and it caughton fire. Okay, so, even if you've been doing something for yearsand years and years, it can turn destructive. Right. That's kind ofthe way I view debt, is because it can be used in some veryfew 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'snot that I completely disagree with that. I think for for many people thatis the best course of action. But think about debt as it's kind oflike 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 workingagainst you, against you, yeah, for you. So the reason thathe said that is that compounding interest,...

...compound interest is not just like youget to double your money, but it builds exponentially. It's like that beamshow. 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 dollarlevel and very few people ever got that question right or the question before thatactually either. But it begins to get exponential and it's great when you're theone 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 bankbuilding 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 otherside and it's amazing to me. You know, we've got you knowright 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 andtwenty one percent, I think. And when you think about that, youask what the true cost is. So let's just do a little real quickmath, a simple math, simple maths without the calculator. Here are mypain here we go. One, two, yeah, we're going to keep aseasy, 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 itup before and it is about nineteen percent as the average credit card interest right, which is wow anyway. So nineteen percent, tenzero dollars. If youpay it off just over ten years, just once a month, you're goingto pay it off to zero and ten...

...years that's going to cost you aboutTwenty 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 betterbe worth twenty twozero to you. Yeah, pay it off that way and usethat kind of debt. Wow. So in that as not scenario andagain a reason why you should reach out and talk to John. It's notfinancial council. We're given here advice, but I've got a question. Solet'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 mortgageover here, but I have a home equity line of credit because I havesome equity, and let's say that's at five percent interest. So it mightmake sense in a certain situation and to take a homemchity line of credit that'sat five percent to pay off my credit...

...card debt and then pay off myhouse. That's it. I can understand that. Mass something like that wouldlower my cost of debt. That's where I'm going. The debt has acost on either side, but I'm paying a lot less in interest over hereif 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'sactually an exercise that we go through and we do some financial planning withfolks. Is that we rarely talk to somebody who has zero dad and doesn'thave any at all, and there's often ways that we can work with theircurrent 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 muchlower interest rate. But then that's where you get into the non numbers thingand 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'sso those financial moves, I guess that are I don't know if youremember, I used to take when I was a kid. We take vacationsand I'm being the back of the car and I had this little Gizmo Ito hold in my hand. This is way before computers, right, andit 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 aroundwith your thumbs and it took a long time. That's how I think aboutwhat you do with finances and building portfolios, is you're moving all these little piecesof parts around going, okay, we can do this, but wehave to do that because we you've got a picture. After you stay withand talk about somebody, they've kind of given you their goals, their vision, what they want. You're like,...

...okay, now what are all thepieces 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 analogyof that little puzzle thing your collar, of those I had so many ofthose things, yes, cube right to remember. Profs to you, Ye, Dude, man, about funcked out of middle school because of the perfectI did that a lot more to my homework. But yeah, so it'sunderstanding that everything has a cost, even your debt, hmm, and youneed 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 thinkof those rooms, and that's why I reach out to John at Guardian rockwealth. Is just really a great idea to have these conversations, because here'swhat happens to me, John, is...

...we're going along really well and thensome some event happens. Don't know what it could be. I mean couldbe my car dying or or an opportunity or something, and I need tomake a decision in a relatively short period of time. Right. But Idon't typically factor in all of the equations or whatever, because I don't thinkthat 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 youthink? And then your brain kicks in and you in you help inform adecision based on a portfolio rebel where we are building because of the life I'vetold you I want to live today and in the futures. That does thatmake sense? That's that's exactly right. It's because it's not my decision tomake, it's yours. But I can give you, just because I doit all the time and and I've done it for a long time and I'veseen a lot of different scenarios, I...

...can give you more information than maybemaybe you have or think about things in a different way. But one ofjust just as an example. Right, logically speaking, if you had onepiece of debt that was at, say, five percent interest rate and another pieceof 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 actuallythe case for you person I'm talking to. What the reason that is is becausethey have there's a mentality issue there. So maybe that one that's at theat 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 getto 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 talkedabout. That's very cool. So when Joe and I first got married, I've been right thirty one years, right, I brought in some debtand she's a bookkeeper account in type person. So she had one of those greenledgers, all of those goodteen column the Fifteen Column One, and shelisted all of our all of our bills on the left and the months alongthe top. And the cool thing was at first it was like, ohmy right, but what happens? We started paying things off and I couldsee the window going wound. Three months, will pay that one off. Okay, that's cool, celebrate. Okay, Oh, let's roll that money tothe next it's hard to do that with electronics. I've never seen anotherthing like that and I always go back in my head to that paper thingto go, Oh, yeah, mark that one off, buddy, you'reexactly 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 momentumup, because sometimes it's hard to get out of debt. It's very it'salmost 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 likeJohn Browning in your corner guiding and directing you and helping you make those decisionsso that you can get out of that you can live the life you wantnow. You can plan for a better life in the future, the lifethat the you want to live, but it's about having a life, buildinga life, not so much being focused on building the portfolio, because that'swhere we get off track sometimes. So, John Man, this has been agreat conversation. Yeah, about debt. Everything has a cost. Debt hasa cost and there are ways to use debt properly. There are waysto pay it off, but there are a lot of things that you canteach 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, geta copy of this book, read it. It's really good, and see howhe can help you and guide you down the right path to build alife, not just a portfolio. John, thanks for helping US understand little bitmore about debt today. I'm indebted to you. All right, we'llsee you next time. All right, by bye by money really is abig part of our lives and John Browning can help you and your family learnhow to keep money in the proper perspective. It's important, but it's only atool that can help you build the life that you want. If youlike, John Emilie a free copy of his book build a life, nota portfolio. Go to John's website, Guardian Rock wealthcom, and click thecontact to US link and send your request. John Will Mell a copy of hisbook right to your door absolutely free. Thanks for listening to building your lifepodcast with John Browning. Be Sure to subscribe to this podcast so eachnew episode will be sent to you automatically...

...when it's released. Have a terrificday.

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