Episode 124: What does financial freedom look like to you? (with Adam Carroll)

In this episode, we explore the intricacies of achieving financial freedom in the digital era with our guest, Adam Carroll. We discuss the changing dynamics of financial transactions and innovative strategies that have reshaped our relationship with money, making it seem less tangible and possibly affecting our spending habits. We also introduce the "Shred Method," a groundbreaking approach to debt management that offers a faster path to financial independence.

Highlights:

• The Illusion of Money in the Digital Age: In today's society, money feels less "real" due to the prevalence of digital transactions. This change in perception can influence spending habits, as people might not hesitate as much when spending digitally compared to using physical cash.
• The Shred Method: This new approach to financial management focuses on optimizing income efficiency, helping individuals avoid letting their money sit idle in checking accounts, and instead, using it in ways that foster financial growth.
• The Power of Compound Interest and Investment: Adam shares his experience of paying off a substantial mortgage in just over three years and the subsequent journey of building a significant investment portfolio through the strategic use of asset liquidity.
• Asset Liquidity and Future Planning: Emphasizing the importance of creating liquidity in assets and planning for future expenses as vital steps in avoiding debt accumulation and paving the way to financial freedom.

As we conclude, we reflect on the wealth of knowledge shared by Adam Carroll, highlighting the necessity to adapt to the changing financial landscape and utilize innovative methods for efficient debt and investment management. This conversation illuminates the potential of compound interest and the importance of flexibility in financial planning, encouraging listeners to make informed decisions for a prosperous future.

Join us in the next episode for more insights into shaping a financially secure future.

Links and Resources

• The Shred Method
• Money Mastery for Students 
• Winning the Money Game
• Green Oak accounting
• Therapy for your Money Podcast
• Profit First for Therapists
• Profit First Academy
• IG: @Adam.Carroll
• IG: @The.ShredMethod 
• TW: @AdamCarroll

Podcast Production and Show Notes by Course Creation Studio

Transcript

Episode 130: What does financial freedom look like to you?

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[00:00:00] Julie Herres: You're listening to Therapy for Your Money, a podcast about all things, money and finance for therapy practice owners. If you want to feel confident and in control of your financial life, then you've come to the right spot. I'm your host, Julie Herres. I'm an accountant and the owner of Green Oak Accounting.

[00:00:18] Julie Herres: My firm specializes in working with private practices across the US and my team and I have worked with hundreds of private practice owners. I'm on a mission to share all the best practices I've learned along the way. Because I want you to have a profitable private practice.

[00:00:33] Julie Herres: My new book, profit First for Therapists is available at most online retailers. You can get it in paperback, audiobook, or ebook as well. Go check it out.

[00:00:44] Adam Carroll: So let's 

[00:00:45] Julie Herres: go back to the beginning. I'm talking to Adam Carroll. Hello, Adam. Nice to have you on the podcast. Um, so we kind of jumped right in and we started talking about.

[00:00:55] Julie Herres: The shred method. So tell us a little bit, like, let's go back to the beginning. Tell us a little bit about you and the shred method. What is it 

[00:01:02] Adam Carroll: exactly? Yeah. Well, I've been a financial educator since 2004. Um, I started out, I graduated from college in the late nineties. I was a debt statistic. I had, you know, 30, 000 plus in student loans, nine grand in credit card debt.

[00:01:17] Adam Carroll: I was upside down in my car, you know, all the, the, the normal graduation stories. And then for the next two years, uh, my. Uh, newly minted wife and I lived on one income and blasted away all of our debt with the other. And it was so easy to do. It made me realize more people should be doing this and why aren't more people doing this.

[00:01:37] Adam Carroll: And so I said about in 2004, I wrote a book called winning the money game. And our goal was to go educate young people in high school and college about how to live life differently in their teenage and twenties teenage years and twenties in order to achieve financial success at an early age. And so that led me to speaking on 750 college campuses as a guest lecturer.

[00:02:01] Adam Carroll: I did a documentary on student loan debt called broke, busted and disgusted. And then I did a Ted talk that went viral, uh, at the London business school. And, um, that talk was all about a game of monopoly that I played with my children with real cash. And it basically sort of illustrated that we're living in a society where money isn't real.

[00:02:23] Adam Carroll: Um, you know, everything is Venmo or PayPal or Zelle or, uh, at the very least Apple pay, Google pay, pay online. And you know, this, when people pay that way, there is a different interaction with money than if someone's handing over a 50 bill, which is very hard to do for most people, yet they'll click one click ship on Amazon for 47 bucks and not think twice about it.

[00:02:47] Adam Carroll: That one click is tempting, very tempting. And, um, and, and it, you know, creates this positive anticipation of that thing arriving at your door versus the 50 bill handing over. You know, triggers a pain sensor in your brain because it feels like loss. So I've been teaching money for a long time. And, um, I, I started a mortgage company in 2005 and learned a great deal about credit and debt and mortgages and lines of credit.

[00:03:17] Adam Carroll: And what I realized was we were refinancing a lot of people, but it just kept resetting the clock back to 30 years for them. So they would live in a home, maybe five or six years, they have refinanced twice. Many times in that amount of time, and they'd get to the closing table thinking they were gonna have a ton of money left over, and they would have none.

[00:03:37] Adam Carroll: They'd have a pittance right at the closing table after paying realtor fees and commissions and whatnot. And it just, it bothered me to the core and I started looking around what else, what else can we do to help this? Because the 2 greatest expenses we have in life are taxes and the interest expense on debt.

[00:03:56] Adam Carroll: And so, if you can minimize both of those, I know you and your team are very good at minimizing taxes and then on the work on the debt side, um, you know, there's really only a couple of ways to minimize the interest expense on debt. Number one is you lower the interest rate on the debt. And number 2 is you lower the balance that's being charged interest against.

[00:04:18] Adam Carroll: And so we started figuring out how to do that just like the banks do for us or with our money that allows them to build brand new 10 and 20 million dollar buildings all around us. And we started leveraging that as consumers and it was to pretty significant results. So tell me 

[00:04:38] Julie Herres: about the shred method.

[00:04:39] Julie Herres: Like what, what is it in a nutshell? 

[00:04:42] Adam Carroll: Yeah, it is a way to create efficiency with the income that you're bringing in. So for most individuals, they, they make money. It gets deposited into checking. And then once it's in checking, what would you say it does? It sits there and it makes no money. Yeah. Sits there, makes no money might make us feel comfortable.

[00:05:04] Adam Carroll: Like we like looking at a high checking account balance, but it also lures us into spending money unnecessarily or, or that we shouldn't necessarily spend. Um, and I've always said that lazy money or idle money is dangerous money because people who have a thousand dollars sitting in an account, they go, well, let's go out to eat or let's, uh, you know, let's buy that 400 kayak at Costco.

[00:05:26] Adam Carroll: Just cause. And you realize that you have a house full of stuff that, you know, you don't need, you didn't need, but you had money sitting there and it was just like, well, we're here. We might as well shop at target. Um, and so what we do is we help people reorient the cashflow. It does not require you to change your lifestyle.

[00:05:45] Adam Carroll: You can still go out to eat and go on vacations and all of that. It's just instead of it being sitting idle in a, in an account for days or weeks or months on end. It's constantly in motion, and as it's in motion, the goal of our software that powers this is to go after the higher interest expense debt, which would be amortized debts, like mortgages, car loans, student loans, et cetera.

[00:06:11] Adam Carroll: And when people use this for 12 or 18 months, they end up rapidly accelerating the payoff of their mortgage. And saving hundreds of thousands of dollars in interest that they would normally pay in the first 10, 15, 20 years of that pay down. So 

[00:06:31] Julie Herres: logistically, right? If you're not depositing your cash in a bank, where, like, where is 

[00:06:37] Adam Carroll: it going?

[00:06:39] Adam Carroll: Well, yeah, great question. So it's still technically going in a bank, but instead of going into a checking account, we're depositing it into what we call a shred account, which is basically a line of credit. And lines of credit allow us to put money in, but only if there's room in that line, right? Like, a line of credit is only ever going to be 0 or negative.

[00:07:02] Adam Carroll: It will never have a surplus because of the kind of vehicle that it is. So immediately the mindset shift we have to make is we like seeing money in our checking account because it makes us feel safe and secure, but the line of credit, we actually want to be leveraging a little bit all the time, because if we're leveraging it, it means it's going after some of the debt that costs us a fortune.

[00:07:24] Adam Carroll: And so the way the system works logistically is paychecks get deposited into a HELOC, um, to make room for that deposit coming in the software says, it looks like you're going to get paid on Friday. Okay. On Thursday, let's send, you know, let's say that 2, 000 is coming in the system might say, Hey, on Thursday, the day before you get paid, let's send 2, 472 and 36 cents to your mortgage.

[00:07:51] Adam Carroll: And what it's doing is it's making room for your income to dump in. Right. And when your income comes in, it pays it off from 2400 to 400. And that 400 might be at 8 percent or 7 percent interest or whatever it is, but on a month by month basis, that's about 7 or less and hit 5 in interest. Right on that amount, and what we've done in making a lump sum payment to the mortgage is we have accelerated the payoff from maybe payment 1 to payment.

[00:08:23] Adam Carroll: 10 or 12 or 15, depending on how much we're sending. And when we do that, we avoid the interest on those 7 or 10 or 15 payments, which for most people is thousands of dollars. So we're, we're borrowing very, very short term bursts of money. We're paying it back with income, you know, and the, the Hewlett might go up in balance then, as we pay groceries and gas and, you know, kid expenses, but in 2 more weeks, we're going to have another income event.

[00:08:52] Adam Carroll: And that money is going to come in and it's going to pay it back close to zero. So this is the power of this is we're, we're basically leveraging short term bursts of money at simple interest, and we're deploying it against really long term amortized debts. So we talked 

[00:09:09] Julie Herres: briefly about, um, if you're running your budget, like right to the zero, right to the line, this is not for you.

[00:09:14] Julie Herres: But so who is this for? Like, who does who can this work? Well, for 

[00:09:19] Adam Carroll: certainly dual income families, it works great when you've got multiple direct deposits coming into your account. Uh, so, you know, if you've got a, a couple that are both working, it's great, particularly if they're spending less than they make.

[00:09:35] Adam Carroll: It's great for, for folks who have just bought or just recently refinanced their home, because in the first one to three years, ideally, but one to five even wor, uh, that would work. That's where we're gonna see the greatest savings, interest, savings by paying that down. Um, and you know this candidly, Julie, who we love to work with are folks who may have young kids.

[00:10:00] Adam Carroll: They're getting into their dream home and maybe it was a bit of a stretch, but they still have some discretionary money, but they're concerned, like, how are we going to afford college? How are we going to buy that car in 4 years when yours is 150, 000 miles? You know, it's those kinds of situations that as you again, spend 12 months using the system, it becomes very, very easy to see.

[00:10:25] Adam Carroll: Oh, it's simple. We just go buy it using this cashflow technique. The payments are all kind of absorbed in the system and you don't even notice it. So, um, as an example, my wife is very, very conservative. Grew up in a household that had next to nothing as you know, when she was a kid and as a result, she has a lot of fear.

[00:10:45] Adam Carroll: And lack feelings around money. And so it was always, well, how are we going to afford that? And where is this going to go? And, and, um, you know, college is 10 years away. What does that going to look like? And what we did in using shred was it, it eased all of her concerns about where some of those expenses would come from, because there was liquidity being built in the home, in other accounts.

[00:11:09] Adam Carroll: And, um, and, you know, slowly, but surely it just, the idea of lack sort of went away. Because the debt kept decreasing, the discretionary income kept increasing, and there was all this liquidity that we could draw from if we needed to. 

[00:11:24] Julie Herres: So how has this changed then, um, your family's financial life? 

[00:11:30] Adam Carroll: Well, you know, early on, we were pretty adamant about building 529 plans.

[00:11:36] Adam Carroll: And we put a lot of, a fair amount of money. I won't say a lot of money. We put a fair amount at, as young parents, as much as we could. And we did until we got to a point where I realized, you know, the, the, the money that we're putting in is definitely going to increase over time. However, what if we could cashflow this.

[00:11:55] Adam Carroll: And in going through shred, we have a calculator that will say, you know, if you had 500 extra, a thousand extra a month, how much faster could you knock out your debts? And, um, for us in doing that, we paid off a 260, 000 mortgage in 3. 2 years and not on crazy income. And then after that, we realized the power of how much, um, you know, how much power there is in the liquidity of your home and the equity.

[00:12:26] Adam Carroll: And then we started investing little by little, but it was like 25 grand at a time and then 50 grand at a time and then a hundred grand at a time. And when you do that, you get to the compound interest velocity point that Warren Buffett talks about, which is, you know, once you have hundreds of thousands of dollars, even 100, 000 in investments, you really start to see the power of compounding.

[00:12:48] Adam Carroll: And for us, the realization that the, the, the mortgage itself. Is like trying to run a marathon with a backpack full of bricks. And when that's gone, you can run really fast and really long. And so that's what we have tried to do with, uh, with our clients is just share with them, here's how this works and here's the power of it.

[00:13:11] Adam Carroll: Um, and to your point, it's not for everyone, but virtually anyone can do it. If they're following along the. You know, the steps that we lay out in terms of success. I'm 

[00:13:23] Julie Herres: curious now, if you paid off the mortgage and you said three, three years and some change, so then are you back to investing in this 529 or are you just going to cashflow college?

[00:13:33] Julie Herres: Like, what is the, what is the goal there? 

[00:13:35] Adam Carroll: Yeah, well, I now have two in school. Uh, two in college and one more who is yet to decide if that's what he's going to do. And I candidly he's, he's, he's going to be a sophomore in high school and he's really into coding and development and, um, artificial intelligence and machine learning.

[00:13:52] Adam Carroll: I don't even know that he will go to college. He may take a couple of certifications and jump right into Google or something. Who knows? Um, we 29s.

[00:14:03] Adam Carroll: Instead, we have sort of earmarked other investments that we think we can use more effectively than 529s. Um, but you know, once we figured out what we could do in terms of shredding our mortgage, our mortgage, just like you mentioned in 2020, when rates dipped super low, I said, you know, we can get. 200, 000, which is a fragment of what the home is worth, um, at 2.

[00:14:29] Adam Carroll: 875, why wouldn't we do this? And so we took 200 out and we put it in a syndication, uh, which is a real estate deal for those who are not, um, not in the know on that. And we own a little piece of a 350 unit apartment complex and in Arizona, and we get paychecks every month. Uh, that come from that and in three or four years, it'll sell and we'll get all of our money back.

[00:14:52] Adam Carroll: And then some, and in that amount of time in the, in the three years, since we did it, we shredded the 200, 000. And so this is what we do. We just wash, rinse and repeat over and over again. When rates dip, we refinance, pull a bunch of cash out, put it into something, shred that debt, uh, take the income from that investment and then do it all over again.

[00:15:12] Adam Carroll: And typically what happens is it, it gets more and more efficient. The more you do it. Um, but I will say the one thing that probably sets us apart from others is that, uh, we don't have the spendy habits, you know, in terms of there's no card at, um, we're not, we're not about going out and snagging luxury cars and having a, uh, an 800 or 1200 a month payment.

[00:15:36] Adam Carroll: It's just not us, um, we eat out, but we eat out maybe 3 times, 4 times a month. So it's not an everyday occurrence. And some of that for us has been our success is that we just tamp down our expenses, but it's to build a really big life for ourselves. So I'm a big believer in, in, uh, build a bigger life, not a bigger lifestyle.

[00:15:57] Julie Herres: Yeah. So I would, I would a hundred percent wholeheartedly agree there where, um, living within your means, like that's a really good skill to learn early and apply often, right. Especially for business owners. Like as you see the money grow in the business, it's really tempting sometimes for those status symbols, like, well, as a.

[00:16:19] Julie Herres: You know, the owner of a multimillion dollar business, I should drive a fancy car. I should look like this or whatever it may be. And like, it's, it's easy for the for spending to go up really quickly, 

[00:16:33] Adam Carroll: really quickly. And I, I, to add to that, you know, when I got started, I'm, I'm probably not too dissimilar from your listeners in that I have been an independent contractor for a long time, have not had a steady paycheck, and I don't know how long I wouldn't know what to do with one if I had one now.

[00:16:50] Adam Carroll: Um, but, you know, when I started. The income was, was up and down. It was all over the board. And I would guess some of your, your clients probably have some inconsistency in their income. And what I realized was that my wife just wanted to know, how much are you giving us this month? Like, what do we get? If you're going to pay us, how much is that?

[00:17:12] Adam Carroll: And I was struggling with it because I would have a really high months and then I would have nothing for a month or two. I'm, and I made my living for a long time as a speaker. So, you know, we, we had feast and famine times. And, um, I went into a bank one day and I said, what would it take for me to get a cash flow line of credit?

[00:17:30] Adam Carroll: Just something that, that smooths out the accounts receivable moments. And, you know, the woman gets on her computer and she's typing away and she goes, oh, oh, okay. Let me check. She says, oh, we could give you 42, 000 on the line of credit. And my mind was kind of blown, Julie, because up to that point, I thought the only way that I'm gonna have money is if it's in this account.

[00:17:53] Adam Carroll: And, and then I'm going to have to draw from that for my income. So if it's not there, I don't draw it, but as business owners, one of the things we want to do is actually treat ourselves like employees on a very stable, steady income. And so I just said to my wife, how much do we need on a monthly basis?

[00:18:10] Adam Carroll: And she'd say 3, 500. You have to put 3, 500 in, I don't care if it's 1, 750 twice a month or 3, 500 once a month. This is what we need all in. This is what the family needs. Yep. And so what I started doing was on the high months, it would pay back whatever the line of credit needs were. And on the low months, I would borrow against it a little bit to hit that 1, 750 or 3, 500 number.

[00:18:34] Adam Carroll: And over the course of a year or 2 years, I didn't touch it anymore. And I still have it. It's there just in case of an emergency. Um, but now we use it for shred purposes. So if the business owns anything, we run the income through there. We kick it back to pay the debt down. And it's just, it's almost like an evolution of understanding how to use that tool because a heel lock is nothing more than a tool.

[00:18:58] Adam Carroll: It's clear it's debt and there's interest against it. But if you learn how to use it effectively, it can be really, really powerful. This 

[00:19:06] Julie Herres: has been a really interesting conversation. I came in a little bit, um, cautious and I would say I still am, but I understand a lot better. And I'm like, okay, I think I can see where you're going with this.

[00:19:21] Julie Herres: This can. This can make sense for, uh, for a lot of people. Um, so if our listeners are interested in learning more about the shred method and all that entails, where's the best place for them 

[00:19:34] Adam Carroll: to find you? Well, um, very simply the shred method. com is the best place to go. There is a masterclass there.

[00:19:42] Adam Carroll: There's a number of articles that will teach you what you need to know about the system. Um, and we are more than happy. My, myself and my team to jump on a 20 minute call with anyone and run your numbers. And we just go through income expense, mortgage, car, car loans, student loans. And with that, we can say, based on these numbers, you will be out of debt on this date.

[00:20:04] Adam Carroll: If you follow the advice of the system and, um, some people go cool, done, let's go. And some say, I need to think about it. And we are a low to no pressure group where it's like, if it makes sense for you, great. But we're not going to chase anybody down because it's gotta be, it's gotta be right for you.

[00:20:23] Adam Carroll: Yeah. So, you know, let us help see what it, what it looks like in your situation, but the shred method. com is the best place. Wonderful. 

[00:20:30] Julie Herres: Thanks so much for coming on a 

[00:20:32] Adam Carroll: therapy for your money. Thanks for having me, Julie. Keep doing what you do. This is super important stuff. 

[00:20:36] Adam Carroll: Thank you. 

The information contained in this podcast represents the host and guest general opinions and should not be construed as personalized accounting and tax advice. Listeners should consider all facts and circumstances before applying this information and seek appropriate advice from an accountant, financial planner, lawyer, or other professional.

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