Speaker 1: Welcome to Had the Money. I'm Joel and I am Matt,
Speaker 1: and today we're talking using debt to build wealth with
Speaker 1: Tom Anderson. That's right. So virtually all conventional wisdom out
Speaker 1: there points folks in the direction of paying off their debt,
Speaker 1: right like debt is dumb. That's the line that you'll
Speaker 1: hear after listening to the most personal finance podcast for
Speaker 1: no more than thirty seconds. It's the mantra. It's the
Speaker 1: driving force behind many money experts out there. But our
Speaker 1: guest today wants folks to take another look. He wants
Speaker 1: them to reconsider debt. And Tom Anderson he's the author
Speaker 1: of the New York Times bestseller The Value of Debt,
Speaker 1: and he's actually written multiple books on using debt in
Speaker 1: order to build wealth. But while most financial planning experts
Speaker 1: are only looking to grow assets and to decrease liabilities,
Speaker 1: Tom advocates for the strategic use of debt. And that's
Speaker 1: what we're talking about today. So Tom, thank you for
Speaker 1: joining us on the podcast. Hey, thanks, Joel and Matt.
Speaker 1: I really appreciate it's a pleasure to be hearing. We're
Speaker 1: glad to have you Tom. And the first question we
Speaker 1: ask everybody who comes on the show, We want to
Speaker 1: know kind of what they like to splurge on. Wow,
Speaker 1: they're saving and investing and thinking about their future. What
Speaker 1: is it that you like to splore? John? We call
Speaker 1: it the craft beer equivalent because Matt and I we
Speaker 1: like craft beer quite a bit. What are you literally
Speaker 1: drinking one right now? Yeah? So what's your craft beer equivalent? Tom? Wow?
Speaker 1: I like that craft beer plan. That's a good one.
Speaker 1: I would say that my splurge is a couple of
Speaker 1: years ago I started getting into sailing, and so anytime
Speaker 1: you do that, and it can be a very expensive
Speaker 1: and nice splurge, I try to keep it under control
Speaker 1: by just doing it as a share. So I'd have
Speaker 1: a boat share that we enjoy with our family a
Speaker 1: whole bunch. Oh nice. So are you paying for access
Speaker 1: or do you have an actual boat that you have
Speaker 1: some sort of equity belts up into. How does that work? Oh?
Speaker 1: It's actually a really neat program. We should do a
Speaker 1: separate show on it. I'll just give you the quick overview.
Speaker 1: So you do. There's um eight families share it and
Speaker 1: what they have is at the months in Chicagos where
Speaker 1: I live. So you have made June, July, August, and September,
Speaker 1: and each day has two spots, and you have this
Speaker 1: auction every year basically, and you allocate the shares, so
Speaker 1: you get to go out about thirty times, but you
Speaker 1: basically only have about an eighth of the expense, so
Speaker 1: it works. It's a little bit more than that. But yeah,
Speaker 1: you don't have to worry about the maintenance, and it's
Speaker 1: just a great, great, great program, and you don't have
Speaker 1: to worry about all the pain and the things about
Speaker 1: owning a boat. So yeah, that's the way to get
Speaker 1: out of the nail. Then owning a boat completely on
Speaker 1: your own and everything, all the headaches that come with
Speaker 1: that are all on you. But when you share it,
Speaker 1: it's yeah, you get to distribute that mess. Yeah. Well,
Speaker 1: I mean, even like we've got a friend out in California,
Speaker 1: and I mean when they were living out there, they
Speaker 1: were they were part of like a boating club or
Speaker 1: something like that, and they were they were spending a decent,
Speaker 1: decent amount of money. But I still got to think
Speaker 1: that you're winning one of those clubs is still a
Speaker 1: more affordable way to go out out on the water
Speaker 1: rather than actually purchasing a boat. And then having to
Speaker 1: what is it you pay for a slip that's at
Speaker 1: the right term, I don't know. Yeah, but there are
Speaker 1: all those expenses associated with it. But that's really cool,
Speaker 1: uh and I guess with you being Yeah, in Chicago,
Speaker 1: there makes a lot of sense to get out on
Speaker 1: that lake. Yeah, it's a short season. And the nice
Speaker 1: thing is, I mean the average user only gets uses
Speaker 1: seventy percent of their spots, so I mean it's a
Speaker 1: lot to get out there twenty times and you get
Speaker 1: thirty spots and the remaining open spots you can end
Speaker 1: up using and they kind of go into a lottery system.
Speaker 1: So yeah, it's it's great. I can't imagine who'd get
Speaker 1: out more than that. Nice All right, Well, let's shift
Speaker 1: gears and instead of talking about boating, let's talk about debts.
Speaker 1: Like generally, yeah, you talk about just how debt, how
Speaker 1: it gets a bad rap. It seems like anti debt hysteria.
Speaker 1: It seems like it's running rampant, and on its face
Speaker 1: it kind of sounds like an odd take. But why
Speaker 1: is debt so often misunderstood? I think debt is so
Speaker 1: often misunderstood because a lot of people have a bad
Speaker 1: experience with it, and there's a lot of bad debt
Speaker 1: that's out there. So first of all, it is absolutely
Speaker 1: not my view that all debt is good debt. Essentially,
Speaker 1: I think there's some debt that's good debt and some
Speaker 1: debt that's bad debt, and debt that's good debt should
Speaker 1: be evaluated thoughtfully, and debt that's bad debt should be eliminated.
Speaker 1: It's it's really about that simple. Yeah, So this is
Speaker 1: going to be a nuanced conversation here, which I'm glad.
Speaker 1: I think what Matt alluded to in the intro when
Speaker 1: he said that a lot of people say debt is dumb,
Speaker 1: that is not nuanced, right. That is one particular take
Speaker 1: that tries to say that debt is a nail and
Speaker 1: it should be pounded, you know, anytime like that. It's
Speaker 1: really just like a one size fits all kind of
Speaker 1: way of viewing the world. But you're also, yeah, you're
Speaker 1: not talking about taking on debt to spend lavishly through
Speaker 1: out there and by ridiculous things that you can actually afford.
Speaker 1: You're talking about taking calculated risks, right, very much. So
Speaker 1: this is absolutely not about buying things that you can't afford.
Speaker 1: So this is just about making strategic decisions with when
Speaker 1: you should be using low cost debt and when you
Speaker 1: should be choosing to pay down that debt versus when
Speaker 1: you should be choosing to emphasize things like liquidity and
Speaker 1: flexibility and just building up your savings. And we're gonna
Speaker 1: get to all of that. But so as a quick example,
Speaker 1: like skipping retirement contributions, I've oftentimes we're faced with a
Speaker 1: question here on the show where folks are like, do
Speaker 1: I pause my retirement investing in order to pay down debt?
Speaker 1: Do I take money out of my retirement accounts in
Speaker 1: order to pay down this debt? That's often a question
Speaker 1: that folks are wrestling. We literally had a listener recently,
Speaker 1: Tom who said, Hey, I've got a sixteen percent debt,
Speaker 1: but should I take my contributions out of my rothira
Speaker 1: to pay it off? These are the kind of questions
Speaker 1: that we're getting regularly. Yeah, it's it's one of those options.
Speaker 1: But you often will say that folks are being short
Speaker 1: sighted if they skip out on those retirement contributions in
Speaker 1: order to pay down some of that debt. How might
Speaker 1: that actually end up happening. Yeah, so let's lean into
Speaker 1: that listener had asked and kind of think about that
Speaker 1: question just a little bit. So first of all, let's
Speaker 1: say that let's just go to the extreme, because I
Speaker 1: think we can set the table with an example that
Speaker 1: we would all agree. Let's say that you are in
Speaker 1: the fortunate position that you got a mortgage when rates
Speaker 1: were really low, and your mortgage is let's say three percent,
Speaker 1: and let's just say that it's tax deductible, and today
Speaker 1: there are bank accounts that in your checking account you
Speaker 1: can earn you about three to four percent. So if
Speaker 1: my after tax mortgage is about two percent, I think
Speaker 1: in this environment we would say, hey, I don't know
Speaker 1: that I want to rush to pay down that type
Speaker 1: of debt. Does that kind of simple example start by
Speaker 1: making sense of maybe that would be a form of
Speaker 1: debt that we wouldn't want to rush to pay down
Speaker 1: for sure? Yeah? Yeah, yeah, I mean so basically, I
Speaker 1: mean you're talking about capturing the spread here, right, And
Speaker 1: so is there I guess, is there some sort of
Speaker 1: threshold is in your mind? Is there a minimum sort
Speaker 1: of spread that you would want folks to see before
Speaker 1: they are considering something like that, or is it more
Speaker 1: on an individual basis that you want folks to consider that.
Speaker 1: This is absolutely about capturing the spread, and this is
Speaker 1: exactly where the conversation is fun to have. So, first
Speaker 1: of all, if we can start by saying, hey, some
Speaker 1: debt might be good debt, and I should be thoughtful
Speaker 1: about paying that down. And an example of that would
Speaker 1: be if I had a mortgage at two percent or
Speaker 1: a student loan at three percent, that's already then people
Speaker 1: are being thoughtful and saying, well, hey, maybe that might
Speaker 1: be a good form of debt. Let's just jump to
Speaker 1: the other end, and then we'll come in the middle,
Speaker 1: which is where your question is. If I have a
Speaker 1: credit card debt running at twenty five or thirty percent,
Speaker 1: if you pay that down, you get a guaranteed return
Speaker 1: of twenty five or thirty percent. So nothing delivers that
Speaker 1: type of return. So obviously things like credit card debt
Speaker 1: or anything over twenty percent we can very quickly agree
Speaker 1: is bad. So if we just set these field goals
Speaker 1: here essentially, of like let's say two percent is good
Speaker 1: and twenty percent is bad, we now can talk about
Speaker 1: the middle. So then I think from there the preference
Speaker 1: is to be toward the lower end. It's more likely
Speaker 1: to be good, and toward the higher end it's more
Speaker 1: likely to be bad. So you can look at this
Speaker 1: in absolute rates, or you can look at it and relative.
Speaker 1: So I like to think about it like, any debt
Speaker 1: that's over ten percent, if I kind of call that
Speaker 1: the midpoint, is going to be more toward the bad category.
Speaker 1: So that's going to be most forms of consumer debt.
Speaker 1: But any debt that's going to be kind of under
Speaker 1: the seven percent range, I think it's going to be
Speaker 1: more toward the potentially good category. So that might be
Speaker 1: things like mortgages, it might be things like student debt.
Speaker 1: And between seven and ten really depends and is a
Speaker 1: little bit more personal, but I think it can require
Speaker 1: a little bit more analysis, and it's a fun area
Speaker 1: to talk about. Yeah, And one of the things you
Speaker 1: just talked about kind of with mortgages, it's not just
Speaker 1: the interest rait that you're paying, but there's also potential
Speaker 1: tax benefits, so you get from holding onto that mortgage.
Speaker 1: And I think you've said that it's a mathematical fact
Speaker 1: that debt can increase or turns and reduce taxes, which
Speaker 1: is a bold statement, but you're definitely right on the
Speaker 1: reducing taxes part. But yeah, is that a big part
Speaker 1: of the reason to consider holding onto debt as part
Speaker 1: of kind of your overall money strategy. Yeah, and a
Speaker 1: lot of tax things have changed recently, and you know,
Speaker 1: the original book came out ten years ago, but there
Speaker 1: always are different tax benefits, and well that's a part
Speaker 1: of it. I think you can almost even set the
Speaker 1: tax part aside and call that like kind of gravy
Speaker 1: and say, look, if on average, if your investments can
Speaker 1: earn you know, forget ten percent, let's just say they
Speaker 1: earn eight percent, and let's just say that your debt
Speaker 1: cost you know, six percent, then you're capturing a spread
Speaker 1: of two percent, and that can add up to thousands
Speaker 1: and thousands of dollars a year, can add up to
Speaker 1: hundreds of thousands of dollars over a lifetime. Right. So
Speaker 1: it's like a very high level sort of view here
Speaker 1: anytime you approach debt, like there obviously have to be
Speaker 1: seen guardrails in place, right, And so I'm talking for
Speaker 1: about about your your five tenets of a strategic debt philosophy.
Speaker 1: You kind of share what those tenants are, the kind
Speaker 1: of explain how it is that we could use those
Speaker 1: tenants to implement some debt in our life in order
Speaker 1: to build wealth more quickly. Yeah, So I think the
Speaker 1: first thing is is that you really just want to
Speaker 1: be thoughtful about what applies to you, and so you
Speaker 1: want to start by taking a holistic view and looking
Speaker 1: at the big picture. So that's where it starts. So
Speaker 1: when you're thinking about these different pieces, you want to
Speaker 1: start with the big picture. What are the things that
Speaker 1: I'm trying to accomplish. So this is a part of
Speaker 1: a broader philosophy. And so the first thing is that
Speaker 1: we want to be looking in a big picture sense,
Speaker 1: and I think that what that means is you want
Speaker 1: to be looking across kind of your complete financial plan.
Speaker 1: So the next part of this next tenant is to say, like,
Speaker 1: once you're looking at the big picture, to explore thinking
Speaker 1: and acting like a company. So when you think about it,
Speaker 1: companies have a CFO, and what a CFO is They
Speaker 1: actually design the balance sheet of a company. They choose
Speaker 1: how much debt that should have and how it should
Speaker 1: be structured. So if you think about a company that
Speaker 1: you like or admire, like an Apple or a Google,
Speaker 1: they have debt which they choose to have because of
Speaker 1: the liquidity, the flexibility and the tax benefits associated with
Speaker 1: that debt. They could choose to not have it, but
Speaker 1: they actually choose to have it. We'll kind of explore
Speaker 1: that a little bit more. But it's an interesting thing
Speaker 1: where I think we can learn not that we are companies,
Speaker 1: but we can learn from the ideas that they're doing.
Speaker 1: Does that make sense? Yeah, well, I mean, just to
Speaker 1: interject real quick, you said that we're not companies, but
Speaker 1: I should be thinking of myself as like the CFO
Speaker 1: of my own finances, And I like what you said
Speaker 1: as far as the debt that companies take on. It's
Speaker 1: an intentional decision, right, Like, like you said that they're
Speaker 1: designing that, and unfortunately, oftentimes in our lives when we
Speaker 1: enter into debt, we're not doing it on purpose. It's
Speaker 1: something that we're sort of we're being sold quite literally goods,
Speaker 1: and it's something that we're more or less falling into
Speaker 1: as opposed to strategically choosing on purpose. Yeah. Yeah, yeah,
Speaker 1: it's actually lean into what you're talking about just a
Speaker 1: little bit. See, if I'm a company and I don't
Speaker 1: have the right debt ratio, then someone like a carl
Speaker 1: Icon gets crabby with me and they come in and
Speaker 1: they buy me and they lever me appropriately. Right, So
Speaker 1: all companies have this like pressure by shareholders to kind
Speaker 1: of have the right type of a debt philosophy. But
Speaker 1: people tend to either have way too much debt or
Speaker 1: they're completely debt averse. And I think that there's this
Speaker 1: optimal middle ground where very few people actually happen to
Speaker 1: be and those that are actually are there by luck
Speaker 1: more than a strategic choice. We just start out with
Speaker 1: way too much debt and then we go to way
Speaker 1: too little, and I think there's this balanced ground that's
Speaker 1: somewhere in the middle. Yeah. Yeah. You also you talk
Speaker 1: about being open minded and then verifying what works, And
Speaker 1: I think that being open minded is probably really important
Speaker 1: because Matt and I we sometimes find ourselves in this
Speaker 1: interesting place as personal finance podcasters where we talk about
Speaker 1: using debt strategically and we talk about the differences of
Speaker 1: good debt and bad and we'll get pushed back sometimes
Speaker 1: from the anti debt community and they're like, no, no no, no, no,
Speaker 1: all debt is bad. But the reality, especially when you're
Speaker 1: talking about the mortgage rates. That's the perfect example right now.
Speaker 1: There's a lot of our listeners who have locked in
Speaker 1: low mortgage rates of two and a half to three percent.
Speaker 1: Three and a half percent maybe right, and now when
Speaker 1: you can make more in a savings account like it,
Speaker 1: just you have to be open minded and be willing
Speaker 1: to change your trajectory a little bit based on kind
Speaker 1: of what's happening right now. But one of the things
Speaker 1: you talk about is the optimal debt ratio, and I
Speaker 1: think that's probably something worth kind of drilling down on
Speaker 1: a little bit, because it's obviously, like you said, some
Speaker 1: people have way too much debt. Some people have no
Speaker 1: debt at all. But yeah, talk to us about the
Speaker 1: optimal debt ratio and how we kind of figure out
Speaker 1: what that is in our lives. Yeah, So the optimal
Speaker 1: debt ratio is how much you're borrowing against the assets
Speaker 1: that you have. And so if I am, you know,
Speaker 1: buying a TV on a credit card, then a year
Speaker 1: from now, my TV is worth less and my credit
Speaker 1: card debt went from let's say it was a two
Speaker 1: thousand dollars TV, if I didn't make payments on it,
Speaker 1: that's I know, twenty four hundred dollars. What is worth
Speaker 1: a fifteen hundred dollars TV, and then my debt ratio
Speaker 1: would be upside down because I own more than I owe,
Speaker 1: and so that would be an example of a bad
Speaker 1: debt ratio, right, And that makes sense. The other side
Speaker 1: of this is, let's say that you own something like
Speaker 1: a house, which you know certainly can go down in value,
Speaker 1: but maybe over a long period of time, like ten
Speaker 1: or twenty years, might tend to go up in value
Speaker 1: a little bit over time. Then you want to think about, well,
Speaker 1: if this asset is going up in value over time,
Speaker 1: even if I keep my debt relatively the same, it's
Speaker 1: actually gradually falling. So if you even just make the
Speaker 1: base payments on your student loan or to just make
Speaker 1: the base payment on your mortgage, but that house is
Speaker 1: going up, your debt ratio is actually drifting down. And
Speaker 1: so companies look at this a lot. And what I
Speaker 1: like to kind of explore as a debt ratio of
Speaker 1: around thirty percent, And that's where people tend to have
Speaker 1: way more debt than that or way less debt than that.
Speaker 1: But it's a fun place to start the conversation. I
Speaker 1: think the maybe how it does we define debt, I
Speaker 1: think that can go a long ways and helping us
Speaker 1: to determine whether or not certain debts in our lives
Speaker 1: might be helpful, you know, how they might be able
Speaker 1: to help out our bottom line or not. We'll get
Speaker 1: to some of those different definitions, and we'll kind of
Speaker 1: talk about liquidity as well. We'll get to all of
Speaker 1: that right after this. All right, we're back from the break.
Speaker 1: We're still talking about using debt to build wealth. We're
Speaker 1: to have this conversation with Tom Anderson. And Tom, you
Speaker 1: have different debt definitions basically, and like I alluded to,
Speaker 1: Matt and I we talked about the kind of good
Speaker 1: debt versus bad debt, strategic debt versus debt that's gonna
Speaker 1: leave you kind of by the side of the road,
Speaker 1: bleeding and hurt. But you're clearly you're not talking about
Speaker 1: card debt is something that we should hold on to.
Speaker 1: But you have three different, like working definitions. Can you
Speaker 1: define them their oppressive debt, working debt, and enriching debt.
Speaker 1: I'm curious to hear kind of yeah, what those are
Speaker 1: for you. Yeah, So oppressive debt is where I just
Speaker 1: want to make sure that everybody on this call is
Speaker 1: completely aligned and that all of your listeners know things
Speaker 1: like credit card debt, debt that costs in my world
Speaker 1: more than ten percent, and clearly debt that costs more
Speaker 1: than twenty percent is oppressive debt. It is bad debt.
Speaker 1: And all of the conventional wisdom that you hear on
Speaker 1: debt is correct with respect to oppressive debt. It just
Speaker 1: puts you in a cycle that is difficult to break.
Speaker 1: If you're buying things that you can't afford, you never
Speaker 1: break through. And I think that a very solid fifty
Speaker 1: percent of America gets trapped by oppressive debt, perhaps benefits
Speaker 1: from conventional wisdom, and I just want to hit the
Speaker 1: table and scream, like oppressive debt is terrible. So working
Speaker 1: debt and enriching debt what are those for us? Then?
Speaker 1: So working debt is going to be things that we're
Speaker 1: talking about, like a mortgage. It's going to be lower cost,
Speaker 1: maybe a low cost car loan, which is not going
Speaker 1: to be a bad thing to buy a car rather
Speaker 1: than buying a car with cash. There could be reasons
Speaker 1: to use a low cost car loan rather than paying
Speaker 1: for your student, your school and cash. There can be
Speaker 1: a reason to have a school loan, or you're buying
Speaker 1: an asset that you're going to pay for over time
Speaker 1: or earn more money over time, that's going to have
Speaker 1: a lower rate associated with it, a rate that's typically
Speaker 1: you know, in the load of mid single digits. Those
Speaker 1: can be examples of good debt that should be a
Speaker 1: thought of much more carefully and can potentially add value
Speaker 1: to you in your life. That's working debt. And then
Speaker 1: the last type of debt you mentioned is enriching debt. Yeah,
Speaker 1: some people would say that's an oxymoron, So I'm curious
Speaker 1: to hear how you talk about that. The interesting thing
Speaker 1: is that when you think about billionaires, what percentage of
Speaker 1: them do you think borrow money? Oh? Most of them,
Speaker 1: all of them, virtually all of them, So that's interesting.
Speaker 1: Most of them and all of them. So we don't
Speaker 1: have great but it's approximately seventy percent of them is
Speaker 1: the best that can be discerned, but with trends toward higher,
Speaker 1: but it is very clear that the vast majority do
Speaker 1: borrow money. So why if you're a billionaire would you
Speaker 1: choose to borrow money, because of course you could choose
Speaker 1: to not have debt. So why are we seeing the
Speaker 1: affluent people in America the one percent that could choose
Speaker 1: to not have debt. Why do you think that they
Speaker 1: choose to have debt so they don't have to sell
Speaker 1: their assets and pay taxes on those gains. That's absolutely
Speaker 1: one reason that they do it is so they don't
Speaker 1: have to sell assets so that they don't have to
Speaker 1: pay taxes on the gains. But sometimes if you see,
Speaker 1: like you know, Elon Musk has many different businesses, but
Speaker 1: then he's sitting around and he's like, hey, I'd like
Speaker 1: to buy Twitter. So he wanted to fund that acquisition
Speaker 1: with debt by not selling his other assets, and so
Speaker 1: then he's constantly building up more assets. And you see
Speaker 1: this across the high net worth spectrum. These are enriching
Speaker 1: debt is when you could choose to pay cash for something,
Speaker 1: or you could choose to sell an asset for something,
Speaker 1: but you are making a strategic choice to use debt
Speaker 1: as a tool to buy it instead. You see that
Speaker 1: all the time and the high net worth market and
Speaker 1: the ultra high net worth market, and it is a
Speaker 1: strategy that the rest of America can learn from. So
Speaker 1: why don't they? So my question is obviously paying cash
Speaker 1: for everything, not taking on additional debt like that is
Speaker 1: going to be a more straightforward and simple path to take.
Speaker 1: Is that the main reason is that why it is
Speaker 1: that folks tend to think, all right, I'm just going
Speaker 1: to focus on paying off my mortgage. I'm just going
Speaker 1: to focus on completely eliminating all forms of debt that
Speaker 1: I have, as opposed to looking at it a little
Speaker 1: more strategically. Is it because folks aren't thinking about it strategically, Yes,
Speaker 1: it's because people aren't thinking about it strategically. And as
Speaker 1: you move up the net worth spectrum, you get more
Speaker 1: and more advisors, and those advisors tell you about the
Speaker 1: benefits of the strategies of using your balance sheet in
Speaker 1: a holistic way to kind of maximize is your long
Speaker 1: term net worth? You really these high net worth people
Speaker 1: are like little companies, right, with lots of different advisors,
Speaker 1: and they're thinking about things strategically. And that's what I
Speaker 1: think that we can do as well, is that there
Speaker 1: are times when you could pay cash for something, but
Speaker 1: you instead, or you could pay down your debt, but
Speaker 1: you choose to make a different decision. And it's when
Speaker 1: you're making a different choice, you're choosing to invest rather
Speaker 1: than pay down debt. You're choosing to buy an asset
Speaker 1: that you're making a strategic choice, and that's where I
Speaker 1: think we can learn. Yeah, it makes me think of
Speaker 1: the one time, the one time that I bought a
Speaker 1: new car. I bought a Nissan Leaf and I chose
Speaker 1: to get financing for the car because it was zero
Speaker 1: percent for five years. And so it was one of
Speaker 1: those things where normally I would one not buy a
Speaker 1: new car, or two if I did, I would pay
Speaker 1: cash for it. I would, and I had the money
Speaker 1: I could have, but it just made sense when someone
Speaker 1: saying zero percent and it was something I was going
Speaker 1: to buy anyway to make that choice and allow that
Speaker 1: debt to kind of free up my cash to do
Speaker 1: better things. And but one of the things that you
Speaker 1: say too, you say that whether debt is good or bad,
Speaker 1: it depends on your resources relative to your needs. And basically,
Speaker 1: like where people are at in their financial journey should
Speaker 1: influence how they think about and incorporate debt. Right, So
Speaker 1: how should people think about, Hey, I'm on you know,
Speaker 1: I'm just getting started in my personal finance journey. How
Speaker 1: should I think about debt versus someone who's years and
Speaker 1: years into investing and saving and paying down the worst
Speaker 1: kinds of debt. Yeah, so we're all at different points
Speaker 1: on the journey, and you've got a lot that kind
Speaker 1: of combines here. So let's use your example of the
Speaker 1: car for a second. Over time. Of course, it's nice
Speaker 1: if you can capture the spread, and it would be
Speaker 1: great if you could earn let's just say six percent
Speaker 1: and your cost of your car loan was four percent,
Speaker 1: then you know that's nice. But early in your journey
Speaker 1: and thinking about your car, what I think is actually
Speaker 1: more interesting and more important is you said that you
Speaker 1: had the cash and you could have paid for it,
Speaker 1: but you were attracted to the zero percent. Did I
Speaker 1: hear that right? Yeah? Well, I was planning I get
Speaker 1: in the carney where there were some tax federal and
Speaker 1: state tax incentives, and so it was like, okay, this
Speaker 1: is the time to pounce. The overall cost of that
Speaker 1: car is low. Normally I wouldn't buy a new car,
Speaker 1: and then boom, sugar or cherry. On top was the
Speaker 1: fact that I could get a zero percent loan. So
Speaker 1: I love the decision that you made there. I just
Speaker 1: think it was perfect. And one of the biggest reasons
Speaker 1: I think it was perfect is it left you with
Speaker 1: the money in the bank that you would have had
Speaker 1: in the car loan. Otherwise. You see what happens is
Speaker 1: because you had that money in the bank, if you
Speaker 1: when you lose your job, you can't get the money
Speaker 1: back out of the car. It's so important that we
Speaker 1: have a cash reserve and that we have liquidity. And
Speaker 1: so when we're looking at these different phases, some people
Speaker 1: are so focused on paying off debt, any form of
Speaker 1: debt at any rate quickly. But once you pay it off,
Speaker 1: if I pay off my student loan, I can't get
Speaker 1: that money back. If I put down one hundred thousand
Speaker 1: dollars on my house, I can't access that. If I
Speaker 1: lose my job, I pay off my car. The only
Speaker 1: way if I can get that money back is to
Speaker 1: sell my car. And that's why we get into this
Speaker 1: liquidity trap. And it's actually liquidity that creates crisis in
Speaker 1: people's lives. Yeah. Although note and a recent talk you
Speaker 1: mentioned the intersection of a crisis that you were facing personally,
Speaker 1: the intersection of that with what the market was doing
Speaker 1: at that point in time. Can you share that that
Speaker 1: story with our listeners. Yeah. So, in at the time
Speaker 1: I was living in Cedar Apids, Iowa, and the sixth
Speaker 1: worst natural disaster in the history of the United States
Speaker 1: up to then was in Cedar Appids, and the Cedar
Speaker 1: River just leaped out of its banks and provide. It
Speaker 1: was a huge amount of flood damage, and my office
Speaker 1: was destroyed, and it was in an area that wasn't
Speaker 1: supposed to even get wet. The county kept all the
Speaker 1: court records in the basement of the building and didn't
Speaker 1: even move them because this is a site that it
Speaker 1: shouldn't get wet it And so you know, when that happens,
Speaker 1: you need money right away. And natural disasters strike everywhere, hurricanes, floods, tornadoes,
Speaker 1: it's you never know, you know what it's going to be.
Speaker 1: And insurance can certainly be helpful, and it was helpful
Speaker 1: for me, But insurance doesn't say, hey, you need a
Speaker 1: lot of money right now. I'll just send you a
Speaker 1: check and you send back the rest. Like you need
Speaker 1: liquidity to get through you know that scenario, and you
Speaker 1: need it before the insurance is there. The timing of that,
Speaker 1: if you caught it was in two thousand and eight
Speaker 1: and coming right into the financial crisis, And so if
Speaker 1: my solution would have been well I'm going to sell
Speaker 1: my assets at this point in time, that would have
Speaker 1: been devastating. I just needed to get through a terrible
Speaker 1: period that was already you know, my life upside down
Speaker 1: and my business under fire. Just having access to money
Speaker 1: is what really matters, and that's what can be access
Speaker 1: to money. A line of credit can be accessed to money.
Speaker 1: Cash in the bank can be access to money. But
Speaker 1: people just don't emphasize enough having liquidity, and they instead
Speaker 1: prioritize paying down debt at all costs, And I just
Speaker 1: I don't understand it. Yeah, So liquidity puts you in
Speaker 1: a position of power in a lot of ways, right
Speaker 1: where you can make different choices as opposed to having
Speaker 1: no cash in the bank or no access to funds.
Speaker 1: But maybe a slate of zero debt. But let's talk
Speaker 1: about maybe a few examples. For instance, if you own
Speaker 1: a home having a helock, right, that's one way in
Speaker 1: which you could have potential liquidity. How else have you
Speaker 1: seen like middle income folks using debt intelligently, Like what
Speaker 1: are the methods, what are the paths they pursue for that? Sure? Well,
Speaker 1: so one of the most simple things that I don't
Speaker 1: understand why a lot of people don't do. But it's
Speaker 1: having a credit card and not using it. There's a
Speaker 1: lot to that. I mean, that's just interesting to pause
Speaker 1: on right or you using it and paying it off
Speaker 1: every month. So if you have a credit card and
Speaker 1: you can access you know, five or ten thousand dollars
Speaker 1: if there was an emergency, But the second that you
Speaker 1: start to carry a balance on a credit card, you
Speaker 1: now if there's an emergency, you have two problems. You
Speaker 1: owe that huge interest rate on the balanced, you can't
Speaker 1: repay it, and you don't have access to as much credit.
Speaker 1: So there's so many bad things about carrying a credit
Speaker 1: card balance. That's just a huge place to start. Don't
Speaker 1: carry a credit card balance. You avoid appressive debt. You
Speaker 1: have access to credit, and that's just it's kind of
Speaker 1: base one. Number two would be a home equity line
Speaker 1: of credit. Rather than using the home equity line of
Speaker 1: credit for the home improvement project, imagine that you have
Speaker 1: access to the money that you could borrow in case
Speaker 1: you're in an emergency. This is what CFOs of companies do.
Speaker 1: All companies have access to lines of credit and bad time.
Speaker 1: So that's the first job. If I'm president of a
Speaker 1: company and you're the CFO. It's a set up a
Speaker 1: line of credit, and if you didn't, I would fire you.
Speaker 1: So a whole equity line of credit, a credit card,
Speaker 1: a personal line of credit, setting them up and not
Speaker 1: using them as a fabulous defensive strategy. I mean, bottom line,
Speaker 1: there are massive amounts of folks who might go through
Speaker 1: those initial stuffs, but then they don't hit pause, they
Speaker 1: in fact use them, and I think that's the biggest
Speaker 1: problem here. Like I think from a psychological standpoint, the
Speaker 1: biggest hurdle is for folks to have is to have
Speaker 1: a table lined with a bunch of different pies that
Speaker 1: smell and look wonderful, but they're told don't touch of
Speaker 1: those desserts. It's having that cash available to them, and
Speaker 1: they're thinking, man, I would I would really love to
Speaker 1: be able to do something. It takes some of those
Speaker 1: lines of credit, but I'm currently not in a situation
Speaker 1: that calls for that. I think that's the biggest difference
Speaker 1: between you know what it is that you're advocating here
Speaker 1: versus the more mainstream conventional wisdom of completely eliminating debt.
Speaker 1: There's that psychological side of things where folks like you said, Jell,
Speaker 1: where folks don't have that discipline is to say no,
Speaker 1: and that is the fifth tenant is what you have
Speaker 1: to as we were talking before, you have to verify
Speaker 1: what works for you. But obviously, mathematically and logically it's
Speaker 1: better for someone to have access to money than not
Speaker 1: have access to money. So my view is that you
Speaker 1: should have access to lines of credit and that that
Speaker 1: will be good for you because it protects you in
Speaker 1: a bad time. That is right out of the CFP book,
Speaker 1: the Certified Financial Planners. I mean, this is what you
Speaker 1: should do. But you are absolutely right. A lot of
Speaker 1: people can't handle having access to the credit because then
Speaker 1: they will spend it. But you're spending money that you
Speaker 1: don't have, so that is of course a terrible idea
Speaker 1: and not what we're talking about today. Yeah, so obviously
Speaker 1: we're seeing you mentioned savings accounts rates in the three
Speaker 1: to four percent range, which is nice to finally see.
Speaker 1: We had a bunch of years there where the best
Speaker 1: you could expect to earn will be half a percent,
Speaker 1: And so I guess I'm curious, did like near zero
Speaker 1: rates on savings make you feel any differently? There was
Speaker 1: a whole contingent of people who would say cash is
Speaker 1: trash and put your money to work for you in
Speaker 1: the market, and liquidity became less of a concern. Or
Speaker 1: did you still feel the same way about liquidity even
Speaker 1: at the time when savings rates were pretty abysmal. First
Speaker 1: of all, I'm always a fan of liquidity, and so
Speaker 1: there's so from a liquidity perspective, you want to have
Speaker 1: access to lines of credit and you want to have
Speaker 1: a three to six month cash reserve, and those two
Speaker 1: things of conventional wisdom are absolutely completely right. So having
Speaker 1: some cash and having some debt just kind of like
Speaker 1: back to that car examples, not necessarily bad. You don't
Speaker 1: always have to have a positive spread. If you had
Speaker 1: some debt that was costing you a little bit more
Speaker 1: than you were earning on your cash, that's not necessarily
Speaker 1: a bad thing because you benefit from the liquidity. So
Speaker 1: then when you look at interest rate environments in two
Speaker 1: and thirteen when the book came out, let's just say
Speaker 1: that interest rates were at zero on cash, and borrowing
Speaker 1: rates were sometimes zero on a car, but typically higher
Speaker 1: in a home. So well, why if cash is at
Speaker 1: zero and my home loan is at four percent, your
Speaker 1: value of debt idea is a dumb idea. Well, of
Speaker 1: course we can look at that now and say, look
Speaker 1: over the past ten years, anything that you owned has
Speaker 1: gone up a lot in value, and cash rates are higher,
Speaker 1: and if you locked in those low rates, of course
Speaker 1: that looks like it was a great trade. A famous
Speaker 1: economists said that interest rates are neither good nor bad.
Speaker 1: They're a function of the environment at any point in time.
Speaker 1: So you don't want to be looking at your debt
Speaker 1: relative to just your cash. You want to be looking
Speaker 1: at it relative to everything that you own. And so
Speaker 1: you know, if stocks go up at inflation plus three
Speaker 1: to four percent over time and you're borrowing at rates
Speaker 1: closer to the inflation than over time, these strategies add
Speaker 1: up to it just a tremendous amount of value. So
Speaker 1: you have less stress and you're making more money when
Speaker 1: you're embracing these ideas. Okay, yeah, all right, So Tom,
Speaker 1: we've got a couple more questions to get to you
Speaker 1: with you about debt using debt to build wealth, including
Speaker 1: we want to talk about what if you've already got
Speaker 1: debt on hand, how do you know whether that's a
Speaker 1: debt that needs to be eliminated or one that you should, yeah,
Speaker 1: keep around. We'll discuss that right after this. All right,
Speaker 1: we are back and we are talking with Tim Anderson
Speaker 1: still about using debt in order to build wealth. And
Speaker 1: just before the break, you're talking about interest rates. How
Speaker 1: different rates, whether or not they're good or bad, isn't
Speaker 1: necessarily the case. Oftentimes you have to look at your
Speaker 1: own personal situation and along those lines, like what about
Speaker 1: the psychological reality of debt? Right, because different folks have
Speaker 1: different preferences as to what it is that they prefer
Speaker 1: in their own lives. And there's a lot of folks
Speaker 1: out there who find it hard to sleep at night
Speaker 1: having debt hanging over their head. How do you talk
Speaker 1: to your clients when they get nervous about keeping some
Speaker 1: of those smart debts just around longer in their lives. Yeah,
Speaker 1: So often what we tend to do in America is
Speaker 1: we take on a whole bunch of debt early in
Speaker 1: our life, and then we spend a long number of
Speaker 1: years racing to pay that debt down. And then we
Speaker 1: wake up when we're fifty and we feel like we're undersaved,
Speaker 1: and so then we try to save for fifteen years
Speaker 1: and then we want to retire, and that mathematically just
Speaker 1: doesn't work. I mean, it works if you're going to
Speaker 1: save basically twenty five percent or more of your income,
Speaker 1: but if you're not going to save at a very
Speaker 1: aggressive rate, that strategy is flawed. It is why a
Speaker 1: lot of people wake up and they feel behind, and
Speaker 1: it's why people don't feel on track. If you take
Speaker 1: on too much debt early at too high of a cost,
Speaker 1: and then you spend all your time paying that down
Speaker 1: and then you wake up and try to save, the
Speaker 1: math doesn't work. So I don't think that you should
Speaker 1: sleep well with that strategy because it's a mathematically flawed strategy.
Speaker 1: The alternate strategy is that you could build up assets
Speaker 1: early in your life. Invest This is not about taking
Speaker 1: the money that it would have gone to pay down
Speaker 1: debt and going to Disneyland or going voting, like we're
Speaker 1: talking about it in the beginning. It's about taking the
Speaker 1: money and saving it. And once you save it, you
Speaker 1: can either put it in cash, which builds up your liquidity,
Speaker 1: or you can build up your investments. But if you
Speaker 1: start saving and building up your investments early, you have
Speaker 1: more money growing for you for a longer period. Of time,
Speaker 1: and then you can pay down your debts later. So
Speaker 1: then what you happens is, let's say I wake up
Speaker 1: if I have two million dollars of assets and five
Speaker 1: hundred thousand dollars worth of debt, I'm a millionaire, right,
Speaker 1: I'm worth one and a half million dollars. That's better
Speaker 1: for me than having no debt and five hundred thousand
Speaker 1: dollars of assets. And that's where just a lot of
Speaker 1: people find themselves as they wake up with maybe I
Speaker 1: paid down my debt, but I don't have enough assets,
Speaker 1: and their dreams don't come together. My goals make these
Speaker 1: dreams happen. Yeah, I think that's really important. Well, one
Speaker 1: said that mathematically, it just doesn't work right to take
Speaker 1: that approach of not investing until you're just a decade
Speaker 1: and a half from retirement. But I also love what
Speaker 1: you said there too, And most people are thinking of
Speaker 1: debt as like that. People are taking it on purposefully
Speaker 1: to buy things that they can't necessarily afford. But you're saying, no, no, no,
Speaker 1: that's not what debt should be used for. Debt should
Speaker 1: be used to allow you to funnel that money into
Speaker 1: more productive ways, right, It should allow you to by
Speaker 1: keeping that debt in place, the money you would have
Speaker 1: put towards the debt you should save. And people are
Speaker 1: not saving enough money, and that is the problem, and
Speaker 1: that is why we have all this stress. That money
Speaker 1: is the number one cause of stress. People don't have liquidity,
Speaker 1: they don't have enough savings, and that's why so many
Speaker 1: people are in the personal finance realm saying it's a
Speaker 1: one size fits all approach and that debt should just
Speaker 1: be avoided like the plague, because they know that the
Speaker 1: reality for most Americans is that if they take on
Speaker 1: more debt, they're they're not going to use their extra
Speaker 1: ash to save or invest, They're going to use it
Speaker 1: to consume. So's that you're right, and that's just terrible.
Speaker 1: So how why is it the top one percent of
Speaker 1: America has a bunch of bankers and advisors that are
Speaker 1: saying to them, here's how you can use debt strategically,
Speaker 1: and then the rest of of America we say, well,
Speaker 1: you're not responsible enough to handle any of these ideas,
Speaker 1: and so therefore we're just going to tell you one
Speaker 1: size fits all all debt is bad, get rid of
Speaker 1: it as fast as you can, and mathematically, we know
Speaker 1: you'll be stuck. It doesn't seem to make sense either.
Speaker 1: I mean the difficulty lies in the fact that, like
Speaker 1: it makes me think of the charts that you see
Speaker 1: where the vast majority of Americans have the vast majority
Speaker 1: of their wealth tied up in their primary residence. I
Speaker 1: guess the advantage there is that when folks know that
Speaker 1: they're paying that they're paying their mortgage or in most
Speaker 1: cases just paying their mortgage, like it's a it's a
Speaker 1: forced form of saving and investing their money in a sense.
Speaker 1: I guess I just can't get past that psychological side
Speaker 1: of the equation because like, mathematically, like I told, agree
Speaker 1: with you, and so maybe I don't know. Maybe this
Speaker 1: is where this message isn't necessarily for everyone out there,
Speaker 1: because if everybody did exactly with you, know what you're
Speaker 1: saying here, like everybody would be smarter and richer. This
Speaker 1: is a message for folks who are either a little
Speaker 1: more disciplined or who can maybe be a little more
Speaker 1: rational in how it is that they approach money. But
Speaker 1: I think what we've what we've seen is that the
Speaker 1: majority of folks aren't very rational when it comes to
Speaker 1: their money. Like they make knee jerk reactions, they make
Speaker 1: purchases that they're not necessarily prepared for. They bring on
Speaker 1: debt into their life that wasn't necessarily designed or planning for.
Speaker 1: It was more of a, like again, something that they
Speaker 1: fell into and it's not something that they're able to
Speaker 1: continue servicing. So I don't know, do you have any
Speaker 1: thoughts or any advice for folks as to what approach
Speaker 1: maybe they should take, because on one hand, I totally
Speaker 1: hear what it is that you're saying here, But then
Speaker 1: on the other hand, just the statistics show that it
Speaker 1: seems that a lot of folks aren't actually able to
Speaker 1: take a more strategic approach when it comes to the
Speaker 1: debt that we have. Yeah, there's quite a bit to
Speaker 1: unpack there, so let's take it in our section. No,
Speaker 1: it's it's great. I think that the most important thing
Speaker 1: that we can accomplish in this interview is if somebody
Speaker 1: becomes more thoughtful that maybe some debt is good and
Speaker 1: some debt is bad, then that's a mission accomplished. And
Speaker 1: if they think, hey, I need to value liquidity, then
Speaker 1: that's part of the mission accomplished. Because it's hard to
Speaker 1: get into specifics for people. But then the next part
Speaker 1: of this is to exactly what you were saying. So
Speaker 1: let's say my mortgage is twenty five hundred dollars a
Speaker 1: month and I have three thousand dollars, and I'm thinking, well,
Speaker 1: I'm going to pay down more on my mortgage so
Speaker 1: that my mortgage is paid off earlier as I get
Speaker 1: closer to retirement. You can imagine somebody thinking something down
Speaker 1: that thought path, right, Yeah, so I'm going to be
Speaker 1: a good steward of my money by paying more down
Speaker 1: on my mortgage. My mortgage is paid off earlier. That's
Speaker 1: a hypothesis that someone has that that's a good and
Speaker 1: responsible decision. Anyone who is able to make that type
Speaker 1: of a hypothesis or that type of a thought process
Speaker 1: should equally be able to do the math on what
Speaker 1: if they invested the five hundred dollars instead of paid
Speaker 1: it down on their mortgage. And my simple thing that
Speaker 1: I would want people to do the analysis on is
Speaker 1: if you took that money and saved it and invested
Speaker 1: it responsibly over that same thirty year period of time,
Speaker 1: you'll have more money. You don't have to believe in
Speaker 1: much for that to be a better outcome for you.
Speaker 1: All right, So I'm curious kind of from a personal level.
Speaker 1: Two time, my parents there on the cusp of retirement
Speaker 1: supposed to happen next month, which I'm excited for them about,
Speaker 1: and they have still a mortgage that's at like three percent.
Speaker 1: I think they got about six years left on it.
Speaker 1: I have told them to keep that mortgage around because
Speaker 1: the added flexibility that it gives them milk that six years. Yeah, exactly,
Speaker 1: Like I know. It may be in like the ideal
Speaker 1: of ideal worlds. You want more money in your retirement accounts,
Speaker 1: and you want a bigger Social Security check, and well
Speaker 1: wouldn't it be nice if you didn't have a mortgage either?
Speaker 1: But do you agree or disagree? Is it better to
Speaker 1: have the mortgage on hand and to prioritize keeping their
Speaker 1: assets growing for them and just kind of paying it
Speaker 1: off as agreed? Or how should retirees think about having
Speaker 1: paid off home? Well, first of all, congratulations to them.
Speaker 1: They're in the great shape and it's a neat conversation
Speaker 1: to be having. The best thing is if they've built
Speaker 1: up savings and they could choose to pay it off
Speaker 1: or they could choose to keep it, then you can
Speaker 1: kind of like ring a bell and say, you know,
Speaker 1: ding ding ding, right, I one, Now we are having
Speaker 1: a fun conversation. Should I pay off my house or not?
Speaker 1: And that's a need exercise. Look at the tail end
Speaker 1: of the mortgage. If it's at three percent, the math
Speaker 1: answer is sure, hopefully they should be able to earn
Speaker 1: a little bit more in other investments, and so keeping
Speaker 1: it would be the logic answer there. When the mortgage
Speaker 1: balance gets pretty small, though, if you do just pay
Speaker 1: it off, you have a huge cash flow savings where
Speaker 1: you no longer have to make that payment, and that,
Speaker 1: back to what you guys were talking about before from
Speaker 1: the psychological is just awesome. So once the mortgage gets
Speaker 1: pretty small, then I kind of lean towards, you know,
Speaker 1: paying it off. It's so at this point in time,
Speaker 1: I could vote either way on their kitchen table. I
Speaker 1: would just love the conversation and as long as we
Speaker 1: talked about it, I'd feel great with the decision that
Speaker 1: they made. And I would love for everybody to have
Speaker 1: the same opportunity to have the same conversation that they
Speaker 1: would have when they are sixty, sixty five or seven
Speaker 1: years old. What a neat thing to be able to
Speaker 1: do do I want to pay off my mortgage or note? Yeah,
Speaker 1: well okay, So on that note, you've talked about the
Speaker 1: difference between somebody who's maybe looking at a like a
Speaker 1: thirty year fixed mortgage at a little bit higher rate
Speaker 1: as opposed to like a five year arm where they
Speaker 1: might be able to get a killer rate. But the
Speaker 1: conventionalism goes, no, no no, no, no, you don't want a
Speaker 1: rate that's going to end up, you know, blowing up
Speaker 1: in five years. You want to go with the sure thing.
Speaker 1: You want to get the higher rate, but to know
Speaker 1: that it's fixed. But you kind of point out how
Speaker 1: there are multiple things that we need to consider, and
Speaker 1: I mean the likelihood of somebody actually staying in that
Speaker 1: home for thirty years. It's not super hot. It's so yeah, yeah, talk,
Speaker 1: I guess I'd like to hear your thoughts, just talk
Speaker 1: a little bit about maybe being realistic with some of
Speaker 1: the time frames that we are oftentimes facing. Yeah. So
Speaker 1: the first mortgage that I had was a thirty year fixed,
Speaker 1: and I feel like that should have been that was
Speaker 1: financial malpractice. I don't know, no one's in their first
Speaker 1: home for thirty years, and I was in mine for
Speaker 1: three or four, which is relatively common, and the right
Speaker 1: product for me would have been, you know, a five year,
Speaker 1: and there's no chance that I was going to be
Speaker 1: in where it was for that long of a period.
Speaker 1: So you are absolutely right. When you're in a thirty
Speaker 1: year fixed loan, you're not locking in interest rates for
Speaker 1: thirty years. It's only if you're in that property, which
Speaker 1: is what, as you both said, is very unusual, and
Speaker 1: so I agree completely. So I like things that are
Speaker 1: in the five, seven and ten year range. I'm not
Speaker 1: opposed to interest only mortgages as long as you're saving
Speaker 1: the difference and you're not doing that for payment, which
Speaker 1: I hope people in California or anywhere close to water
Speaker 1: or listening to, because a lot of people use those
Speaker 1: to get more house and that's not what you should
Speaker 1: be doing. I don't like a fifteen year fixed because
Speaker 1: I don't like the amortization and tying up the extra
Speaker 1: money in the home. I'd rather be building that up
Speaker 1: in a liquid portfolio. And I have been a pretty
Speaker 1: big advocate of the thirty year fixed when rates have
Speaker 1: been low. That has changed a little bit here recently, obviously,
Speaker 1: but for the past number of years if what a
Speaker 1: need opportunity if you're a little bit later in life
Speaker 1: and there's a chance that you'll be in the home
Speaker 1: for a while, to lock in the thirty year fixed.
Speaker 1: And I'm still not in any way opposed to it,
Speaker 1: because if you think you'll be in the home for
Speaker 1: a while, I think a thirty year fix could still
Speaker 1: be attractive. Okay, Tom, this has been a great conversation,
Speaker 1: and I mean hopefully it's at least wedded our listeners
Speaker 1: appetite to learn a little bit more about what it
Speaker 1: looks like to use debt effectively. Where can they go
Speaker 1: to find out more about you? And kind of the
Speaker 1: books you've written to check me out on Amazon you
Speaker 1: can find each of the four different books there. It's
Speaker 1: a Value of Debt and Building Wealth, the Value of
Speaker 1: Debt and Retirements, and the original one is the Value
Speaker 1: of Debt, another one out there on blockchain in the
Speaker 1: Future of Money, and would be honored for anyone to
Speaker 1: check them out. Very cool. We'll make sure to link
Speaker 1: to those books. Tom, Again, thank you so much for
Speaker 1: spending some time with us, and we really appreciate you.
Speaker 1: I appreciate you as a fun conversation. Thanks guys. All right, Matt,
Speaker 1: good conversation there with Tom Anderson about and I'm sure
Speaker 1: some of our listeners saw the title of this episode
Speaker 1: and they were like, Matt, jel just go off the
Speaker 1: deep end. But no, we've been talking about the strategic
Speaker 1: use of debt for years and that might make us
Speaker 1: outliers in the personal finance community. I don't know, but
Speaker 1: again I think it'll be a conversation we continue to
Speaker 1: have completely right, because, like like you said, on one
Speaker 1: end of the spectrum are folks who are avoiding it
Speaker 1: like the plague. But then on the other, obviously the
Speaker 1: other end of the spectrum, you want to completely avoid, right,
Speaker 1: folks who are taking on massive amounts of consumer debt.
Speaker 1: You don't want to do that. But this episode is
Speaker 1: mistically end by the way he talked about buying that mortgage,
Speaker 1: and he's like, if you're doing it just to be
Speaker 1: able to afford the property, no, no, no, no no like that.
Speaker 1: And if you're taking it on debt just so that
Speaker 1: you can afford the thing that you otherwise wouldn't be
Speaker 1: able to, that's a no no but lame product a mortgage,
Speaker 1: but a completely different heart yes, as to different way
Speaker 1: of using it might be, but yeah, this, I mean,
Speaker 1: this episode totally is for folks who are on that
Speaker 1: end of the spectrum of like, now, man, I'm paying
Speaker 1: down that mortgage because I'm getting after my finances. I
Speaker 1: like to optimize, which I'll go ahead and get to
Speaker 1: my big takeaway. And we kind of got to it
Speaker 1: towards the end of the episode there because I was
Speaker 1: kind of torn because I'm trying to figure out, how
Speaker 1: do you figure out I heard it, I heard it
Speaker 1: in your spe Yeah, like, like, how do you figure
Speaker 1: out if you are the kind of person who just
Speaker 1: wants to simplify and tackle it, you know, skin the
Speaker 1: cat that way, or if you're the type of person
Speaker 1: who can handle maybe some more complexity and optimizing it.
Speaker 1: And what he eventually said, I don't know his exact words,
Speaker 1: but what he was saying was that, like, if you
Speaker 1: were asking the question, can I use debt more strategically
Speaker 1: in my life? Just the very act of asking that
Speaker 1: question put you in the camp of, oh, maybe you
Speaker 1: actually can handle it strategically because you are, by the
Speaker 1: fact that you're asking that question, you're thinking strategically, right,
Speaker 1: And so I think if you if you're listening to
Speaker 1: this and you're like, no, no no, no, no, I can't
Speaker 1: do that. But if you are finding yourself drawn to
Speaker 1: some of the other ways that you might optimize your finances,
Speaker 1: optimize your money, well I think that you possibly could
Speaker 1: be the type of person to think about your debt
Speaker 1: more strategically. You could be the person who might be
Speaker 1: more disciplined where instead of paying down that debt, you
Speaker 1: you're setting that money aside and you actually are actively
Speaker 1: investing that money as opposed to burning a hole in
Speaker 1: your pocket and you get sucked into just spending it. Yeah,
Speaker 1: So I think that can be just a good, real
Speaker 1: fun a good takeaway for folks if you feel like
Speaker 1: you might be on the fence. Well, he talked about
Speaker 1: the optimal debt ratio, which I think was good. I
Speaker 1: think my big takeaway too, though, was when he said,
Speaker 1: you're you want to look at the holistic big picture,
Speaker 1: and so you're right. If you had had the cash,
Speaker 1: the money to buy a home in cash five years
Speaker 1: ago when mortgage rates were at three percent or I
Speaker 1: guess probably like two and a half years ago, like yeah,
Speaker 1: there were really good rates on mortgages, then still you
Speaker 1: would want to have taken out the mortgage because it's
Speaker 1: in your long term best interest. And when you're looking
Speaker 1: at the big picture, now, boy, you feel super happy
Speaker 1: if you have a three percent sure mortgage rates. So
Speaker 1: look at the big picture and be careful about your
Speaker 1: debt ratio. At the same time, I think there was
Speaker 1: a lot to kind of digest in this episode, and
Speaker 1: it's our goal to have folks of all different stripes
Speaker 1: on you. We had ye jesse Me come on recently,
Speaker 1: and you know, he's pretty dead diverse. We've had Michelle
Speaker 1: Singletary and she was like, I don't think there is
Speaker 1: such a thing as good debt, And then you know,
Speaker 1: we want to interview Tom here, who says, I don't
Speaker 1: know there's ways to use debt to build wealth, And
Speaker 1: I think I fall somewhere in between, probably more along
Speaker 1: the lines of where Tom is. But I think it
Speaker 1: also needs to be said that it's different strokes or
Speaker 1: different folks. And there's folks like our friend Andy Hill,
Speaker 1: who paid off his mortgage even though it was super
Speaker 1: low interest, right because that was what was best for
Speaker 1: him mentally, And you kept referring back to that matter.
Speaker 1: I think that's just a really important part of the
Speaker 1: conversation and we can talk numbers all day long. But
Speaker 1: if it doesn't work for us from a psychological behavioral aspect,
Speaker 1: what are you actually going to do with your life?
Speaker 1: Because on paper you could say that it'll work in
Speaker 1: this way. And I'm sorry to interrupt, but from a
Speaker 1: business like, as businesses are processing this, you have multiple
Speaker 1: people who are sitting down together and asking these questions
Speaker 1: of the business. You have a board of directors, you know,
Speaker 1: like you've got the c suite. You have all these
Speaker 1: individuals who are trying and testing and they're all working together.
Speaker 1: Whereas as individuals man, it can be really easy just
Speaker 1: to be like, yeah, I'm not going to spend my
Speaker 1: money over there anymore, Like I'm not going to invest
Speaker 1: that instead, I'm going to spend it over here. It's easy,
Speaker 1: and it's easy to lie to yourself. Yeah. Yeah, it's
Speaker 1: a slippery slope. You're bouncing off the crew of other people.
Speaker 1: Isn't accountability? Yeah, when you are looking at yourself as
Speaker 1: an individual business right, like, when you're thinking about yourself
Speaker 1: as the CEO of your own finances. And there's a
Speaker 1: reason that our listeners, let's say they have student loans
Speaker 1: and the payment continues to be on pause, that most
Speaker 1: people aren't paying that those student loans off right now
Speaker 1: right because it's not necessarily debt that is the evil.
Speaker 1: It is the interest that goes along with it. And
Speaker 1: it's the interest that goes along with it. If you
Speaker 1: can't find something better to do with that money, it's
Speaker 1: and again, it's just a difficult conundrum, like there's not
Speaker 1: some sort of easy solution. Tom. I think gave a
Speaker 1: lot of good kind of ways to think through it though,
Speaker 1: so hopefull people can make smart decisions in their lives. Absolutely. Yeah,
Speaker 1: let's get back to the beer. You and I enjoyed
Speaker 1: this episode. A Hell's Lagger. This is by New Park
Speaker 1: Brewing out of West Hartford, Connecticut. This one was donated
Speaker 1: to the show by Matthew. Matthew, we appreciate you as
Speaker 1: well as these beers that you sent us. But Joel, Yeah,
Speaker 1: were your thoughts on this tasty beverage? Man one was clean, crisp,
Speaker 1: and delicious as refreshing. It really was light, not light
Speaker 1: in like a bud light kind of way, but just
Speaker 1: in uh yeah, like you said, it had all of
Speaker 1: those lagger like flavors going on. But yeah, refreshing and
Speaker 1: not overheavy. I enjoyed it. I really enjoyed the artwork.
Speaker 1: The artwork really reminded me of like my aunt, my
Speaker 1: great aunt, she used to do like this technique, this
Speaker 1: Scandinavian artistic technique called rosemalling, and it really so this
Speaker 1: looks like Scandinavian art to me. This is is that
Speaker 1: like sewing, like it's like painting, but it's like kind
Speaker 1: of God, it's like geometric flower kind of stuff going on,
Speaker 1: so or not maybe not geometric. Maybe that's it looks
Speaker 1: like this. We'll post and by the way, if you're
Speaker 1: curious what the can looks like, you can follow us
Speaker 1: on Instagram and how to Money pod, and Matt posts
Speaker 1: all the pictures of the beers we drink there. Well
Speaker 1: I do my best too, at the very least. You
Speaker 1: can find our show notes up on the website as
Speaker 1: well at how to Money dot com. And we'll make
Speaker 1: sure to link to to Tom's books as well, so
Speaker 1: you can look into that for sure. And we have
Speaker 1: done a couple of episodes, Matt where you and I
Speaker 1: we just talked about debt and how to pursue like
Speaker 1: a strategic debt plan in your life. Where you're not
Speaker 1: overdoing it, but where you're not also buying into that
Speaker 1: debt is dumb philosophy. We'll link to those in the
Speaker 1: show notes too, so people can go back and here
Speaker 1: maybe our unabridged thoughts on it too. So absolutely, yeah,
Speaker 1: if you find yourself wrestling with the idea and you want, like, yeah,
Speaker 1: from a principal standpoint, I want to get rid of
Speaker 1: this in my life. But I guess, truly what the
Speaker 1: question is at this point is can I handle that
Speaker 1: additional complexity? Will I do the right thing if I do,
Speaker 1: keep this debt around? For sure? Yeah, So that's gonna
Speaker 1: do it for this episode though, until next time. Best
Speaker 1: Friends Out, Best Friends Out.