Main Street Business

#507 Stop Choosing to be Broke with Jarom Bergeson

• Mark J Kohler and Mat Sorensen

Share episode

Could you imagine erasing $221,000 of debt in just 31 months? Join us in a special episode of the Main Street Business Podcast as Mat sit's down with Jarom Bergeson, a partner at KKOS Lawyers and author of "Stop Choosing to be Broke: A User's Guide to Money." Jarom's remarkable story of financial transformation—from drowning in debt to achieving financial stability—is nothing short of inspiring. Despite having a lucrative career as a lawyer, Jarom had to confront the harsh reality that smart financial decisions were essential to his journey.

Get Jaroms Book Here!
https://www.amazon.com/Stop-Choosing-Be-Broke-Users/dp/B0CP82Q62R

Schedule a Call with Jarom Here!
https://kkoslawyers.com/lawyers/jarom-j-bergeson/

Speaker 1:

Welcome everyone to a special episode of the Main Street Business Podcast. This is Matt Sorensen, so excited for today's episode I've got Jerem Bergeson. He is a partner in our law firm, kkos Lawyers, and he is also the author of Stop Choosing to be Broke A User's Guide to Money. I'm going to be interviewing Jerem today about his book, and Jerem has turned into an expert. That might not be the right word, but he's very good at talking about how to get out of debt, helping people with that. He even teaches classes internally to our own team here, and he's kind of been the person Mark and I will go to on these questions too. I mean, like I said, he wrote a freaking book about it. So, jerem, welcome to the podcast.

Speaker 2:

So excited to be here. Matt, really really appreciate the opportunity. Love talking about this stuff. Maybe more than I should.

Speaker 1:

Yeah, yeah. So the nice thing I like about this is Jerem's got a little personal experience with this too. It's not like he just geeks out on Dave Ramsey stuff, which not that's wrong, Right but he lived this himself and I've had a little bit of that too. I'll share some of my experience. But why did you write the book, Jerem? Why write a book about debt? You're a business and tax lawyer.

Speaker 2:

I know, I know, but you know what it sort of goes hand in hand a little bit and I really did live it right. I had this experience of living my whole life, adult life, not really paying attention to my finances, not looking at where I was not living intentionally, and I got to the point where I was 41 years old, been working at the law firm for about 10 years not quite at that point, about eight years, yeah.

Speaker 1:

And I was making good money.

Speaker 2:

You guys are making good money here. Yeah, thank you, matt and Mark. You know, really really love working here.

Speaker 1:

Jerem's a very efficient lawyer. He's very good, I love working here.

Speaker 2:

Jerem's a very efficient lawyer. He's very good, so you know, doing pretty well. But I got to the point I looked in August of 2019 and I was $221,000 in student loan, car, other crap, debt and I kind of looked at my net worth. I was 41 years old, doing pretty well. I had a negative net worth and I just was like I make too much damn money to be this broke. That's kind of where I felt like I was and I had to make a change and I went through. Dave Ramsey, to a certain extent, is my hero on this. There are some places where I definitely disagree with Dave. I'm sure we'll get to that?

Speaker 1:

Yeah, for sure.

Speaker 2:

But I got into that and the key was to start living my life, me and my wife. My wife would have done this a long time ago. She's a lot better than me on this and I just was reluctant. But making intentional financial decisions to change my, my way of living, to change my situation.

Speaker 1:

All right, so let me here. We're going to pause here, just so you I like, spilled my damn drink, that's all right, I'll cut it out. So, but also just so you know, if the image, if the video freezes, it's totally cool. Do we have like paper towels or anything? Okay, it's not too bad. But just so you know. If the video freezes on this Riverside, which always does, it doesn't matter. On the recording it's all going to be picking up, it's just the live. I don't know why they like I mean, we're on a fricking wired line here, so did it freeze for you? The video will freeze. The audio uses.

Speaker 2:

The video has frozen of you a few times and I that's sort of what I figured. I was just plowing through it.

Speaker 1:

Okay, thank you, I appreciate that. Yeah, it comes through fine on the here, I can get it. Yeah, I got a little. No, that's good. If we have that, that should be fine. No, I'm not using that. I made it in the trash can? This is about five feet out. Got her done Pretty good, well done, okay. Okay, sorry, zach, you're going to have to cut this, all right.

Speaker 1:

Okay, so I'll come in from your story then. Well, I think your experience is similar to a lot of business owners too, and even myself I had to go through this too. Is lawyers starting to make good money? And I had over $100,000, mostly in student loan debt. I had some credit cards too, maybe 10, 20 grand of that, but the vast majority of it was fricking student loan debt, and I had to go through my own strategy on tackling this. But we do run into so many business owners, right, real estate investors, and they're so focused on accumulating assets and they're just getting dragged down by this debt and they're not even focused on it, right, right, they're just not. And they want to call us and be like, hey, I want to max out my 401k, right, and they got a credit card with a balance on it, right, and I I've found that right.

Speaker 2:

It's hard sort of a biblical quote, right, but it's hard to serve two masters, right? It's hard to go full bore and be really good and really focused on investing when you're being dragged down by, especially, credit card debt. But credit card debt, car debt, student loan debt, that consumer debt that isn't helping you accumulate wealth. If you're trying to do both at the same time, it really doesn't work.

Speaker 1:

All right, well, let's dig into it. I got a little quote. Let me give you this. I told you I was going to read some quotes here. Let me read the last one I just got. This was pretty good. This is from Charlie Munger. Ok, ok. He says do you guys? Everyone knows Charlie Munger. This is Warren Buffett's partner author. I think Intelligent Investor was the name of the book. But he said smart men go broke three ways liquor, ladies, leverage, which is dead. And then Warren Buffett said it's funny. He said after Charlie Munger said this, he said I think Charlie just likes the alliteration the only answer is actually leverage.

Speaker 2:

Yeah, sometimes it's leverage for the other two L's, but yes.

Speaker 1:

Yes, I can get you into trouble there too, getting into debt. So, all right, well, let's dig into this and let's talk about want to. Actually, this might be working backwards a little bit, but, um, when should you start investing, right? When should you start investing versus paying down debt?

Speaker 2:

right. So my, my rule of thumb is that you really don't start investing until you have paid off your non-mortgage debt. Right, you don. You don't have credit card debt, you don't have car debt, you don't have student loan debt. Now you can focus on investing. Now, one caveat to that, one exception to that, would be possibly right. When I went through my journey, I turned off all investing and for two and a half years, my wife and I were, we were just laser focused on paying off that $221,000 of debt. That's how long it took us. How long 31 months, two and a half years, all right.

Speaker 2:

Got it. Yeah, so we, we really attacked it.

Speaker 1:

By the way, jerem did drive a the first year model Prius. How old is that? Do you still have it?

Speaker 2:

I still have it. I just bought with cash a new car back in January, but I drove a 2009 Toyota Prius until January of this year. Not sexy. I don't look cool anyway, but you never look cool in a Prius but that was a sacrifice that I was willing to make to get out of that debt, so we were laser focused on that. Now what I and this is in my book one exception to that would be right I turned off 401k. I didn't contribute to the 401k here at work during that two and a half years.

Speaker 2:

Even though there was a free money match even though and that is my exception right, while you're getting out of debt, right, if you've got a pile of debt you need to get out of, then it's okay for you to contribute as much as you need to to your 401k to maximize your match, but then I would turn it off. So either turn it off completely, if you're a madman like me, or go get that free money, right, go get sometimes that 100% return, but don't invest more than that until you are out of consumer debt.

Speaker 1:

So give me the financial reason. Why that? Why? Why would I cause? Everybody gets so excited about investing and they want to start working on their net worth and they think, well, I need to score points over here on the asset side. I need to start investing and start growing my assets. Get my money working for me. We're always talking about that. Give me the argument on why I should not even have investing on my roadmap yet.

Speaker 2:

So the reason I would put out there is when you invest I'm going to call it investing when you invest in paying off your debt, you know your rate of return. Your rate of return is guaranteed. It's your interest that you're not going to pay. So if you've got a 15% interest rate on a credit card which would be a good rate these days 15, 20, 25% interest, which would be a good rate these days 15, 20, 25% interest when you invest in paying off that debt, if it's a 20% interest card, that's a 20% rate of return and it's guaranteed. You know what it is.

Speaker 2:

There's not any risk when you invest in the stock market, when you invest in real estate. That can be amazing. That is the way we build wealth in this country and I want people to do that. But there is risk involved, right, I'm going to carry this debt and I can outperform it in the market or with real estate. You might, but you might not. So let's go get our guaranteed rate of return by paying off our debt and then let's, let's take a little risk, let's go out and invest in in real estate, in the stock market, whatever it is.

Speaker 1:

Yeah, I, I like that little mindset shift in the language you use there about paying down the debt is in is actually investing that? That is, you're taking that cost on your you know, on your balance sheet sheet. That's weighing you down every month. That requires an allocation of your income, right? Dave Ramsey, too, one of the awesome quotes is, like the greatest way to get wealthy is to take control of your income, right? If you're paying the debt, that income is not available to make investments in the future. So you are, in fact, investing by paying down the debt, and I love that. You know the rate of return you're getting.

Speaker 1:

Well, let me, let me just try to get specific on this. I think the high interest debt is easy, right, obviously, the credit cards and the stuff like that. That makes sense. It's really hard to beat that in the stock market, even in real estate a 15%, 20% rate of return, and so let me focus on paying down that debt. But what about like a car loan or something, or a debt that's like it's not excessive? Okay, I didn't buy like a lamborghini, you know. Maybe I bought a toyota camry, I don't know. I had one of those that didn't knock. Anyone has a toyota camry, but like a nice car, but not like ridiculous, and I got a 6% loan on it, right. Do I pay that off? Because, I'll be honest, I'll bet a lot of people that are saving and investing, that have a decent net worth still freaking, get a car loan Right.

Speaker 2:

My answer to that would be no, no, and I don't yell at people too loud when they've got reasonable car debt right At a low interest rate for a reasonable car for good transportation. I personally don't want to borrow money to purchase a depreciating asset. That's where I come from. On this, people will buy too much vehicle. People will overextend themselves on an auto loan. I want to save the money. Let interest work for me, not buy the car for another six months or 12 months and then go pay cash.

Speaker 2:

There are people that disagree with me, but that depreciating asset is the thing right. I borrowed money to buy something that's going to go down in value. I don't want you to borrow money to buy something that's going to go, and we know cars are going to go down in value. Don't borrow money to buy something that will go down in value or something that you're going to consume a vacation, clothes, food. There's no reason to borrow money in those situations and if you have in the past, let's clean it up and get rid of that debt and start looking forward to what you're going to buy next, what you're going to do next, where you're going to go next, where you're going to vacation next, instead of constantly looking back and paying with interest for stuff you already did, stuff you already bought.

Speaker 1:

Love that. I want to get to debt here, and what's good debt when you should have debt? Let me just stay on the car loan thing for a second here, because I do think this is kind of on some of the bubble stuff, so to speak, where it's like different people differ I probably am different than you. The rule of thumb I've kind of done just for myself was if there is value to the car for transportation like you said, I have to have that transportation and if I can get reasonable debt on a reasonable car where I'm not overpaying I'm not buying some luxury car or something that's excessive, some luxury car or something that's excessive but I need, there is a certain cost to the transportation. Whether I get a loan to cover that cost or whether I'm putting cash out that could otherwise be invested, there is a cost to that transportation that I need, and so I've always been like the Toyota Camry, for example.

Speaker 1:

I had one of those. I got a loan for it and it was, you know, the auto dealer had incentives on low rates and everything like that. I think it was like 2.9% or something at the time and and I was like, okay, I'm going to go get a loan for this, even though I could have bought it with cash. Now the car I have now very expensive car, I don't want to say what it is, but it's a nice car. Okay, I'm going to think over like a hundred K or something like that. And, um, even my wife's the same. She's got a very nice car. But we bought, we paid cash for those Cause to me it was a mindset thing of if you can't afford to buy that a hundred K car or more with cash, you don't deserve to drive it. You haven't earned it yet. You're just want you know. So I was like, if I want to indulge myself with that, I better freaking be able to pay cash for it.

Speaker 2:

I love that. I love that mindset. That absolutely makes sense. And there's a couple rules of thumb I want to throw out on cars too. Right, living absolute is sort of what I do with cars. I'm not going to borrow money for a car, and that's me A rule of thumb I've seen out there I didn't make this one up, I can't remember where I saw it, but if you're going to borrow money for a car I really do like this Put at least 20% down, don't finance it over any longer than three years and the payment should not be any more than 8% of your take-home pay.

Speaker 2:

If you can fit in that box, then I'm okay with it. I don't love it, I'm not going to do it, but that's responsible. That is responsible use of car debt. The other one and this is I did steal from Dave Ramsey is don't have more than 50% of your take-home pay invested in things that go down in value, things with motors and wheels that go down in value. So cars and boats, trucks and fifth wheels, all that stuff no more than 50% of your take-home pay going towards that. Okay.

Speaker 1:

All right, love it. All right. Let's move forward onto good debt, then. So talk to me about good debt, and let's talk about even your home too, here, for an example, because that gets into that. Most people think that's good debt, but there's different approaches on people on when they pay it down versus just pay the minimum. So talk to me about some of the good debt, right.

Speaker 2:

So a home is one of them, right, and even this is the one place Dave Ramsey will allow people like he gets that choice. But where he's okay with people getting a loan is to buy a reasonable home. But there are similar rules of thumb, right. If you can put 20% down and avoid private mortgage insurance, that's ideal. 20% down and avoid private mortgage insurance, that's ideal, yeah. But there are other programs that can make sense and you want to try to get rid of that mortgage insurance as quickly as possible. So put put down I like putting down at least 10%. 20% is ideal and then make sure that that that that payment is no more than about a third of your take-home pay, right? Otherwise, you're house poor, right, and you might have a nice place to live, but you have no money.

Speaker 2:

This is where credit card debt happens with people that make good money. Is they make good money. They can qualify for a loan that is more than a third of their take-home pay in terms of the payment. They do it. But then they also want to take the vacation, they also want to have the nice car, and they get in this cycle of debt and they build credit card debt and they roll negative equity from one loan to another on their car and you get in big trouble.

Speaker 1:

Yeah, car, and you get in big trouble. Yeah, let's let me on the home. This is my own personal experience on the home and how I've tried to do it is. I mean, the home is there's again kind of like the car. There is a certain cost of housing whether you're renting or buying a home, and I know in some areas of the country it doesn't make sense to buy a home but, like here in Arizona, a lot of times it makes sense. The cost to rent versus the cost to buy is not that different. It's weird now because interest rates are high and we had huge real estate prices go up, but this might come back at some point and be a little more stable. So, but for people who want to own, let's say I well, let me just give my own little tip on this.

Speaker 1:

I always think of a house as like forced investment because, like Grant Cardone is like you should never buy a house. Why would you buy a house? I was speaking at the Squad Up Summit in Orlando and he's on stage the morning before I was and he's like yelling at everybody for owning a house and telling them that they're stupid. For owning a house, you should invest it in cash flowing real estate and that the house is like this sunken asset. Well, there is a certain cost of housing and you're going to pay for it one way or the other, whether you're paying someone else's rent or you're paying your own rent and paying down and having appreciation of the property mortgage pay down.

Speaker 1:

But I do think that a home is like this forced savings and it's like a lot of people you know, when we're doing people's estate plans and clients, it's actually a nice opportunity to kind of see a big cross section of America. And where do they actually have wealth? Well, a lot of people have built it up over their home in 10, 20, 30 years and that was a forced savings where they had to put money in. Yes, they had to cover repairs. Yes, they had to improve the home, but it was improving value. It went up over time. They got a lot of that money back. It wasn't just like a lost cost, and so I do think it's just obviously like lifestyle. You may want a home for that or live in the right neighborhoods or something like that, but I do think it's this forced savings.

Speaker 2:

What do you think about that? I love that concept that the home is forced savings right it is. It's forcing you to put money towards something that over the long term, is going to go up in value, that you've got value there that you can sell and downsize down the road. You can do home equity lines of credit. I want to talk about when those might or might not make sense. They're not my favorite, but they can make sense in certain situations where you can tap into that money. So I totally agree with the concept.

Speaker 2:

I think there are extremes, right. There's the Grant Cardone extreme of buying a house is dumb. Why would you do that? I don't agree with that. There's also the extreme on the other end that says if you, no matter what, if you can buy a house, you should. You should never rent. Right, there are times where renting makes sense. I go through this in the book. I won't go into great detail in it here but there are times right I'm only going to be here for a short time or just different times in life where, okay, renting at this point, until maybe you're more settled, makes sense because there is risk that in the short term your house may not go up in value.

Speaker 1:

Yeah, yeah. Also, I think people that might be a little more transient, or like, if you're not going to be in a house for five years or so, just the cost, the transaction costs and everything of it. It doesn't make sense. I don't think to buy Right, right, and there's a difference between the Home.

Speaker 2:

Depot, right where you go in and you have to buy everything to fix your house or pay somebody to fix your house and the apartment depot, which is just a bunch of people standing around going. I don't have to do anything, right? The landlord's got to figure this out, so yeah that is a perk.

Speaker 1:

That's definitely a perk. I've been on the other end of that way too much as a landlord and I'm like damn it, this is on me. I did have one tenant I love that was a contractor and he would just when there was something wrong he'd just fix it and send me the receipt for what he bought and just like reduce his rent and it was like so easy and he was like super cheap about it. I was like this is the best. Um, all right, well, let's, let's talk about rental properties. Then let's kind of tie that um, because that's an income producing asset. If I can make sure the property cash flows, I want to get debt on it. I want to leverage my purchase power. I don't want to save up all the cash to acquire that.

Speaker 1:

Is that?

Speaker 2:

good debt Absolutely, can be Right and is one of those places Right. So where I am your home right, a responsible home loan where you've put about 10% or more down, I think that's good debt. No-transcript in their 60s or 70s, um, so that that that is difficult. So I'm okay with using leverage. I want people to be responsible with that. I don't love.

Speaker 2:

An example of what I don't love and I know there are people that do that are okay with this and it can pay off is I borrow, right. I take a home equity line of credit and use that as the down payment to go, then go get the regular mortgage loan on a piece of rental real estate where I'm 100% leveraged. I don't agree with that. I think there needs to be some amount of actual cash in the deal where I don't owe this to anybody and if all heck breaks loose I can get out of it and I'm not underwater. You know, 20% down, I think is a good rule of thumb. I personally would be even a little bit more conservative than that. I know some people wouldn't. Maybe 30, 40% down, but but that is good, that is, and it hurts sometimes to say it, cause I love Dave, that is that is good debt.

Speaker 2:

Right, there is good debt and that is debt that is productive, right, it's helping you build wealth.

Speaker 1:

Yes, I think a lot of the other debt we've talked about car loan debt, credit card debt, a lot of consumer debt that's not productive debt, that's like destructive debt. Right, that's holding you back. But if you can get debt that can push you forward, I think it makes sense. And I think too that it really depends on the property itself, like what is the purchase price of the property? Are you getting a good deal in acquiring it? Are you buying it right? Does the property have very strong cashflow, even if it is 90, 95% leveraged? If it cash flows in a very, very positive way, even at that debt level, then I can still see you buying it. The fact of the matter is property is 100% leveraged. That cash flow are hard to come by that cash flow in a strong way. You might be cutting it pretty thin. It depends on where rates are at, but usually when rates are low then prices are high. So now you're paying high. So it can be tricky. But I kind of like to also just look at what's the performance of the property but be realistic about it.

Speaker 1:

I think a lot of clients and we've both done the 10,000 consults they're always like. They always look at the glass half full, the rose colored glasses. They're not thinking of the AC unit that goes out and is 20 grand. They're not thinking about a tenant being out for six months before it's rented. They're just not putting that in and they're just looking at it all positive, positive, positive and how much money I can make on it. So, because that's when debt kills you, that's when, like Charlie Munger, warren Buffett are like that's how you lose in real estate. Right, the only way you lose in real estate, like real estate is a business that doesn't. It's always going to be there. There's always going to be people needing to rent properties. Right, but the way you lose and where people go upside down and totally wash out in real estate is debt. Right, that's it. The business model is solid right, right, well, and?

Speaker 2:

and. Debt is a tool, so is a power saw. I don't know how to use a power saw, right, I suck at that, so I'm going to hurt myself, right, because I don't know how to use it. If you know how to use that and you're using it responsibly and using it for a really good asset and you're smart, then it can absolutely right that power saw is a great tool and you can get the job done quicker and better and more efficiently. But it can also it can also hurt you, so you have to be. It's not leverage, leverage, leverage, leverage and and pay the piper later. Just be responsible, as, as you go through it, I think there is an absolute balance it's like with so many things in life, right, there's a balance that, dave, you know. All cash purchase, that extreme on this one probably doesn't make a lot of sense, but so does leverage, leverage, leverage, a hundred percent I don't think that makes sense either.

Speaker 1:

Yeah, what about buying businesses? And we've had lots of clients buying businesses. We're doing a lot more of that right now. I got one client right now I'm talking to tomorrow on buying a business and there's debt, whether the seller is financing or they're getting an SBA loan. But that's a. Again, you can run the numbers. The property is going to cash flow. The bank is not going to lend you the money unless you can demonstrate that when they get paid back, I mean that's an asset income producing what's Jerem? Say no.

Speaker 2:

I'm good with that. Again, it's the same thing. You've got to do your homework and you can never become a hundred percent sure, but you know. You know that you're buying a business that has a great opportunity or that has a great track record or has things that you know you can go in and improve so that it's going to do better. Buying a business just to buy a business, that's another place where people lose their shirt. I love my dad right, my dad's great, but my dad did this with. We love to play golf and in the late 90s he bought a Las Vegas golf and tennis franchise and it didn't work out right, and so my dad is in great financial position now, but for a few years, right when I was in my 20s and he was in his 40s, it was a tough road to hoe for him because you know and he did his homework, but there's a lot of risk there yeah, there's risk, absolutely, and that and he had debt, right, I mean that was he.

Speaker 1:

He was like that's what you get. You kind of get stuck in the deal, really. You can't just like walk away and so, but there's also risk if you invested your money in it, right, you invested your money in and you lost it. Debt is one of those things. Though, that the bank is not going away and that is, I think, one of the Dave Ramsey things I think he's really hit very well is that burden of debt. I mean you had that, and let's go back to that. Just from your experience, like, how does it affect someone? I mean, and what's your own experience on this of, like, the burden of the debt versus getting to that point where it is paid off?

Speaker 2:

Yeah, it's amazing, right, and so for years. Right, I graduated from law school in 2008, and I started this journey in 2019. In the intervening 11 years, I didn't feel the burden of that debt because I completely avoided it. I didn't think about it, I didn't want to know, I didn't look at the statements, I didn't really know how much debt I had until lightning sort of struck and and my the light turned on in my life and I looked at those things.

Speaker 2:

So you're either going to do one of two things You're going to, you're going to bury it and not think about it, and then it just comes to a head, or it does burden you, right, once I knew how much I had it was, you've got to be kidding me. Right, I'm going to pay student loans at this rate until I'm 55 years old. There was just that became completely unacceptable to me, right, and so you, you get this sort of energy, this intensity, and Dave Ramsey talks about this. He talks about gazelle intensity, right, running away from that debt like a gazelle runs away from a cheetah, right. So you're gazelle intense and I love that. But I only think that will take us so far, so fast, and it only took me so far, so fast you know who else is pretty intense in that transaction between the gazelle and the cheetah.

Speaker 2:

The cheetah the cheetah's got to eat, right, so the cheetah is intense too. I want people to be gazelle intense about running away from their debt, but I also want people to be cheetah intense about running towards what you want. Why is being out of debt and building wealth? Why is that important to you? Is it because it allows you to have the freedom to go visit your grandkids or your kids? Go live where you wanna live? Right? What are you? What's the why? Why are you doing this?

Speaker 2:

And that's that's what started to drive me is I want to be able to enjoy my grandkids when I get to that age and not have to worry about paying freaking student loans? Right, I want to. I want to be able, in my case, to serve a mission for my church and not have to worry about the finances involved in that. I'll have to worry about them, but not to, you know, to have the freedom to be able to do that, to do that. So that that's important and that's what you have to be motivated by. Is not I just got to get away from the debt? What are you running towards?

Speaker 1:

Yeah, I think that helps people stay focused and there's kind of a prize at the end of the road here. And I do think too, and I remember paying off my student loans and I want to talk about student loans here next. Actually, but that was my big anchor was the student loans. I think for you too. But that was like just the feeling of that think for you too. But that was like just the feeling of that. I mean, there was a certain amount of satisfaction that I did it, yeah, that I got it done and I paid it ahead of time and I got it done. But also just like the next month when I was like huh, there's not 650 going to. Wow, yeah, it's like this. I got 650 bucks to work with here here.

Speaker 2:

That money belongs to me now and I can do what to do with it.

Speaker 1:

Yeah, yeah. So that's a pretty awesome feeling, and then now I think it gives you more tools and resources to now start building the net worth and investing. But let's answer the student loan thing. I want to still come to paying off your home early. We want to talk about how much to put into your retirement account and how these things go, cause we all gotta make decisions about debt and what to do with our income, when to invest, when not, and I think there's a lot of great lessons here.

Speaker 1:

Jeremy, I've talked through this already a little bit, so I'm excited to hit those. But let's talk about student loans. Um, I got student loans. You got student loans. My income earning power is significantly higher than if I didn't get them. But I ended up coming out of law school with $135,000 in student loans. I maybe had 10 or 20 grand from undergrad, but the vast majority of it was from law school, and so people going to school, if they do it right, can have higher earning power. Is it okay to go get student loans? What's your from a financial standpoint? You know not that, jeremy needs to give you everyone permission.

Speaker 2:

Right, right, you don't need my permission for anything, but my thoughts on this are. But my thoughts on this are when it comes to an undergraduate degree, the goal should be and I'm like you, I think I had seven, eight grand of student loan debt coming out of my undergrad. I wish I didn't, but I did If you plan, if you work, if you are intentional about it and go in state right and go a little bit less expensive route, you can get through your undergrad debt free. And I really think that that is not. People don't think about that as an option. It's absolutely an option and I think that's where people should be. You should be striving for it, and if you end up having a little student loan debt, that's okay. But the goal is debt-free undergrad.

Speaker 2:

Then, when it comes to graduate school law school, medical school, whatever it is I like being really specific, because you can almost always get this information from the school you're thinking about going to. What is the average starting salary for someone that's going to graduate with a law degree or a medical degree or whatever it is, from this college? What's that average starting salary for the first year? I am okay with you borrowing that much If the average starting salary is $250,000 because you're going to be a doctor and you're going to a really good school, then $250,000 or so of debt makes sense because you're not going to get that degree. I mean you could save up and get the degree when you're 45, like I am, but you're going to have those years and years of increased earning potential. That is an investment right. That debt can be productive.

Speaker 1:

Yeah, because I think anybody trying to build wealth. I think the first point is you need to learn a valuable skill that people are going to pay you money for, right and your income like even the quote I gave earlier is get control of your income. Well, the more income you have, obviously you need to get control of it. Whatever it is, we see the broke doctors and then the broke whatever minimum wage worker we see them both and so sometimes it doesn't matter what the income is, but your ability to truly build wealth does stream from your income, I mean, unless you plan on marrying it or inheriting it. Right, that's not my strategy, I hope that's not yours. But, like, you've got to figure out how to increase your earning power and the right type of college degrees can do that.

Speaker 1:

So, but obviously the value of even an undergrad, an engineering degree, versus a humanities degree is very different, and you may want to go do a humanities degree because you like it and you want that education and that's your thing, and maybe you want to teach it or whatever, but no one values that. I'm just sorry. People just don't value that in the economy and pay you. So if we're talking about this from a financial standpoint and building wealth. That's a bad decision financially versus the engineering degree, which is well. People value that in our economy. They pay for that.

Speaker 2:

That is something that hundred thousand dollars of debt to get that humanities degree, because you'll never get out of that debt. Right, you're just not. You're not going to be able to make that up economically. You have to be thinking about, and there is this, there's this sort of way of thinking that's out there. That is education is worth it, regardless of the price. No, it isn't, it's not right.

Speaker 1:

You know who says that People that work in education.

Speaker 2:

People that are peddling the student loans right and the professors in the universities. Education is always worth it. It's not always worth it. Lots of times it is and I have in my book stats about hey, if you have higher levels of education, the statistic prove you're going to make more money. But it's not always worth it. You have to look at it as an investment. And what's the return on the investment?

Speaker 1:

Yeah, and I think that you just see that, even from the imbalance right now, the huge student loan crisis we have right now, that is just sinking down the next generation, the generation after ours, even more than what we had and we had. We both had six-figure student loans and so it's really going to drag them down financially. But I'm just, I think for everybody, it's like the economy is telling us that, the economy is telling us what they're willing to pay and what they value, and so saying education is worth it. There're willing to pay and what they value, and so saying education is worth it. Well, there is a certain at what cost? Right, right, and I know the universities hate that and everyone in that, the cabal of the student loans and everybody that's taking money out of that, they just want to tell you, don't worry about it, it's valuable. Um, I'm just saying the economy, from a financial standpoint, is rejecting that idea. So, let's well, let me just, I'll give just a couple tips for any parents out there, any of you younger.

Speaker 1:

This is what I did with my own daughters. I've got older kids out of college and we had to do this analysis. Now, both of my two older kids they're already through college and out of it. My youngest is just senior, finishing up high school. But my two older daughters both wanted to go out of state actually, and my oldest decided on her own. She's like I'm just going to go to University of Arizona. A lot of my friends are going there. I got a full-ride academic scholarship. I was like, great, it's in Tucson, it's cheap, knock yourself out, no student loan debt. She did a business finance degree, super proud of my kids. She graduated summa cum laude, got a great job. She did it all right.

Speaker 1:

My second daughter goes to also University of Arizona but wanted to go to UC San Diego. Got in and we looked at the cost. She's an out-of-state resident at UC San Diego. It was going to cost over 40 grand a year in tuition and housing to go there. Now I told her and she got a little bit of scholarship money there, but she had a full ride to University of Arizona. I told her I will help you with school, but not entirely.

Speaker 1:

If you want to go here you're going to have to be responsible for the student loan debt coming out of it and we calculated how much that will be. I think we calculated it to be about $60,000 or $70,000 by the time she got done with an undergraduate degree and she was actually shocked at what that would cost every month. So we just ran the numbers for her and I'm like this is going to be on you. I mean, I love you, but if you want that experience to go there, you need to pay the price for it, and I I don't think a lot of kids do that.

Speaker 1:

I certainly didn't, my parents didn't. It didn't go to college. My mom went back, became a nurse later in life at community college, but like they didn't go through that experience and so they didn't. So but I was also like I'm not agreeing to student loan debt. For you, that's a you think, and I think for parents, that's a huge financial mistake. We've seen that people that are in their fifties and sixties, that are broke, that had good incomes or businesses, are like what did you do with your money? We sent all of our four kids through college and paid for it all, and our kid it's like, really, and now you're broke? Yes, do you think a parent should be helping their kids with student loan debt? Right?

Speaker 2:

And so that's one of the things I talk about in the book too is do you have a moral obligation to pay for your kids to go to college? No, you don't. Now I want to help my kids do that. I'm saving to help my kids do that. Right now my oldest is 14 and my 14 or 15, nine and seven, so I'm getting close to that.

Speaker 2:

But you don't have a moral obligation to help your kids go to college, and I think setting healthy boundaries and making sure your kids know what those boundaries are is huge. And making sure your kids know what those boundaries are is huge. I've told my kids, like, if you go in state here in Utah, or if you go to BYU, which is cheaper for members of our faith, then I will pay your tuition. Right, you're going to have to deal with everything else, but I'll pay your tuition. If you go out of state or go private, you better have scholarships or you're going to take student loan debt and I ain't co-signing on your student loan debt. Parents don't do that and I don't want you to do that. So, having healthy boundaries and for some people some people think you know what Nope, my kid needs to do what I did, which is put themselves through school. I think that's okay too, but make sure your kids know what their boundaries are and what you're willing to do and not do.

Speaker 1:

Yeah, I think there's a Wall Street Journal article a few years ago of the guy that went to USC undergrad, usc dental school and grad and had over a million dollars in student loan debt. One person, over a million dollars in student loan debt. It was crazy and I guess there was about a couple hundred people or so they pulled all the numbers that actually had over a million dollars in student loan debt. Now a lot of them did have doctor before their name, yeah, so hopefully that was okay. Yeah, lots of people go to school for 10 years Doctors, tommy boy, okay, so, all right, I think we have student loan debt again. I think the good rule of thumb is look at the annual income that they that could be earned. Let's say, well, you could, I can make a hundred grand a year in that job or profession. Don't get more than a hundred grand total in student loan debt I can get. I'll make 60 grand, 50 grand out of college in that job.

Speaker 2:

Don't get more than 50 or 60k of total student loan and be willing to go, uh, part-time right, go a little slower, maybe work as well to mitigate that. I think that, yeah, you know, can be helpful yeah, awesome.

Speaker 1:

Okay, let's hit. Um, let's. Let's jump back to home for a second here, because let's say that I did get the mortgage on the home. I paid off consumer debt. I want to start investing, but I do still have the home debt. How much should I focus on paying down my debt on my home versus minimum payment, versus starting to go out and invest? I want to start investing. I want to start adding assets here besides just my home.

Speaker 2:

And I think paying off your home is something that's important, but it is after right. It's after getting out of all of your consumer debt. It's after saving for retirement typically 15% of your income towards retirement. It's after saving for your kid's education, to the extent that you want to do that or you feel like it's important.

Speaker 2:

Then at that point, paying off your mortgage becomes a good idea, but so does investing, buying income-producing assets. There is a balance at that point between investing in new assets and investing in paying off your mortgage. My rule of thumb I don't want anybody to go into retirement with a mortgage. I want you to have a paid off home where you don't have to worry about paying a mortgage on your house. The freedom of that when you go into retirement that I have lots of options with my housing because I don't have a mortgage is huge. So I tell people that's when the homework's due. Right, the homework of paying off your mortgage is due when you retire. Do what you got to do to get there. I'm a fan of paying it off a little earlier than that. Got to do to get there. I'm a fan of paying it off a little earlier than that but the homework is due when you retire.

Speaker 1:

Yeah, love that. I think that's a good for everybody. And we've seen it too, with people hitting retirement and still having that cost of a mortgage or cost of housing. And then you start looking at all right, well, we need to start drawing down your assets, and social security is barely making a dent in anything, by the way, so don't be counting on that. But if you have that cost off the table, it makes the rest of your assets in retirement go further. And I do think there's a psychological thing to it.

Speaker 1:

I remember one of my really successful clients tens of millions of dollars of net worth he told me. He said he remembered when he paid off his house and how it was. Just like this satisfaction. He was just like I just didn't have that nut anymore. It's just like weird. It was just like nice to just like I gotta pay the property taxes, yes, and there's a cost in the homeowner's insurance, but it was like man, every month there's just not something going out, that that that usually for most people is their largest single payment going out, that that's not there anymore. Yes, you again. You just feel rich. You just feel like I got this income that's didn't stay the same, or maybe I'm transitioning to retirement.

Speaker 2:

It's huge, it's a big difference, and if you do it early, then it's $1,500, $2,000, $3,000 extra a month that you can invest without having strings attached.

Speaker 1:

Okay, Now let's hit retirement. Everybody knows I freaking love that stuff and saving money, putting money in retirement. So you said 15%. Yeah, so 15% of your income needs to be going for retirement, right? I presume this is in retirement accounts or there are other assets that will be available to you in retirement. Yeah, only after that, or after that, I should say, is when you say then it can make sense to put more money to pay the mortgage down. So where are people doing? What should they be thinking of? Like I'm making a hundred K, either me or between me and a spouse, and you're saying put 15 K of that in retirement. Where should they start? Right?

Speaker 2:

What should they do? So I always want people if if they have a 401k at work right Put the money in your 401k at work, especially especially when you get a match right. You get an automatic rate of return there. Sometimes you're doubling your money, right? We talked about this a little bit earlier. You put that money in and your employer that's free money that they're putting in on your behalf in a tax advantaged account. So I always like starting with getting that, getting that match. So if you've got a 401k at work, go go get that match first.

Speaker 1:

Yeah, and a lot of 401ks. Everybody knows on the matches and this is even ours is a safe harbor 401k, a lot of them if the rule is they'll do a hundred percent matching on the first three percent. So if you make a hundred k and you put in three grand that's three percent of your income, that your salary wages from there they'll throw in a hundred percent match. They'll throw in another three grand, so you got a total of six, but it only cost you three. So that's where, like, you have a hundred percent return. When you put that money in because they're automatically matching, then what a lot of companies do, including us, is then the next 50%, the next 2%, you get a 50% match. So if I'm making a hundred K, I put three in, I got a hundred percent match. They put in three, I put in another 2000,. They're going to match that 50%, which would be a thousand bucks. So if I put in five grand, they're going to put in four grand and now I'm matching. That's an awesome rate of return. So I'm up to so, right there.

Speaker 1:

Let me just say this, let's just use as a good example here. Just everybody staying with it. You got a 401k work, one of you, or if your spouse, if you have one. So I put in my 5k. The company gave me four, so cool. I'm 9K up, but I only put in 5%. I got another 10% to invest. Where do I go next? Should I put more money in the 401K? When do I look at IRAs and other savings?

Speaker 2:

So for me it then becomes right because your investment options may be limited in your 401K. It may be. You know here's a handful of mutual funds that you can invest in, and I don't want to bad mouth mutual funds. They can be a decent spot to put some money, but they're they're not going to get you usually the big returns that you might want. So if you love and this is rare if you love your, your 401ks options for investments, then, yeah, put more money in the 401k at work.

Speaker 2:

If you don't, then I would start looking at something like a self-directed IRA, roth IRA Hopefully traditional is fine too but Roth which you get tax-free growth, right. Go, make contributions, you and your spouse, to the Roth IRA. If you make too much money backdoor Roth IRA, roth ira. If you make too much money backdoor roth ira right. And then you know you can invest in things that you know. That you know maybe you you're great at real estate or cryptocurrency or head of cattle, right, the sorts of things. Yeah, invest in that. Maybe you know better than a, than a mutual fund, what to invest in. That's where I would go next if, if you want to go outside of of what your, your 401k offers, which obviously a lot of our clients do yeah, and I think the we can always call it the matching out, you know.

Speaker 1:

So, uh, go get the match at your work 401k, if you got one, and then go outside of that and and then go to the iras and maybe drop the seven grand a year into your, into your IRA Maybe your spouse. You can do $7,000 a year If you're high income. Like Jerem said, you can still do the backdoor Roth IRA. Now, if I did that even just myself, if I got a spouse there, I got $14,000 in Roth IRAs. I got $9,000 in my 401K for that year, but it really only cost me. Let's see $19,000. For that year, but it really only cost me. Let's see $19,000. But I got let's see what I got 14 plus I got because I got the free match. So I got how do you do the math on that 14K from the Roth IRAs, 5K of my own money. So I put 19K in, but then I got another 4K, so 23,000.

Speaker 2:

There we go, All right, right, I had to work my way through that, so yeah and and that's if your investments are flat.

Speaker 2:

Right, you got that four thousand dollar rate of return or you know, not rate but the four thousand dollars of free money. Right, but all of that, hopefully, is going up in value, so the rate of return is exceptional. Yeah, in your, in your retirement account and I do want to say this quickly too right, most of the time you can make Roth, for people sort of don't understand a lot of times that a Roth is an option within your 401k. You can make Roth 401k contributions at work, get tax free growth there and then get the employer match which is taxable almost always.

Speaker 1:

But you don't want to do that is taxable almost always, but you don't want to do that. Now, why do you say 15%? Why do you like that as a marker and a percentage for people to put?

Speaker 2:

away. There's a lot of sort of time-tested life experience for people and research that goes into that. 15% tends to be enough to get you where you need to be in retirement without making you retirement poor. Right House poor. That's too much into my house. Retirement poor is well. I'm going to put 30% into retirement. Well then, you can't do anything now, right? So I want you to be able to live your life and take vacations and spoil your kids to a certain extent, right, or whatever you want to do now. So 15% is a nice number that usually will get you where you want to go in retirement but doesn't make your life suck in the meantime.

Speaker 1:

Yeah, yeah, and we have, you know, a lot of our self-employed business owners, right, we do a ton of solo 401ks and so they're doing their own 401k, which they're the one putting in the match. So it's not free money, but it is. I'm getting more money in a tax-preferred vehicle, whether I'm doing traditional or Roth. But and I always it's interesting because I'll talk to clients like, well, I want to max out the solo 401k, all right, what's your income? Well, I made $150K this year. Ok, that's about 40% to 50% of your income.

Speaker 1:

If you really want to max it out, by the way, are you sure? How are you living that? So, if you're really trying to max that out, sure, if you're making $300,000 a year, 15%, that could be $45,000. Those numbers, you actually see, make sense in the reality of what someone can actually put in. It seems to make sense. I like that as a rule of thumb. Now, of course, if you're listening to this and you're like well, I'm 50 years old, then I don't have a dime set aside, you're going to have to ratchet that up. Yes, and if you're in your twenties listening to this, you might start with five or 10.

Speaker 2:

Yeah, yes, right If you're in your twenties, especially right. I really started in my late 30s and then put it on hold and then I really ramped it up since I paid off my my debt. But if you're in your 20s, man, the the magic of compound interest is real right. So if you get some money in in your 20s, you are so far ahead of the game.

Speaker 1:

It is so smart yeah, um, all right, let's hit. Where's Dave Ramsey? Wrong OK.

Speaker 2:

So I think we've talked about a couple of them, right. One of them is that debt is always wrong. Yeah, Debt is usually wrong. It's not always wrong, right, yeah. So I think Dave is wrong on that. Income-producing assets, real estate, a business that you have vetted and you really feel good about, you want to be involved in those are times where debt can be good. Another one that we haven't talked about is Dave Wright. I think it's on one of his books. He's cutting up a credit card, right, and he said no credit cards ever.

Speaker 2:

And I kind of like the purity of that. I get it. I guess I get the purity of that. But there are rewards, there are cash back and miles and that sort of thing. So I never, right once.

Speaker 2:

If you have credit card debt, get rid of it immediately as soon as you possibly can. Credit card debt get rid of it immediately as soon as you possibly can. Number one once you've paid it off, you never, ever, ever, carry a balance on your credit card again. But if you want to use a credit card for your expenses and pay them off monthly, I'm okay with that and earn the rewards. I do a little bit of each. I kind of put fixed expenses on a credit card and then I use a debit card for everything else. But that makes sense, but it is another tool that you can get into trouble with.

Speaker 2:

So some people are just not credit card people because they spend too much, they don't keep track of it.

Speaker 2:

What I want to say on that is I'm fine with a credit card and building it up and paying it off every month, as long as it's within the framework of a budget where you are intentionally making decisions before the month starts about what you're going to spend money on during the month, and then you're tracking your spending so on during the month and you're, and then you're tracking your spending so that you know where you are. Tracking your spending is really easy on a debit card, Cause you see your bank account going up when you get paid and down with. With a credit card it's a little bit harder, so it's more work, and so I'm okay with it. But I also want I really am passionate about this If you come to the realization that credit cards don't work for me, you're not stupid. You're not unsophisticated. You're not missing out if you choose to live a life without credit cards. You're also not irresponsible by default if you use a credit card and pay it off every month.

Speaker 1:

Yeah, okay, I like that. And also I think once you have the, like I said, it's within your budget. You're using that card within budget, you know what you're spending it on and also you have your emergency savings set aside, because something can happen you could lose a job or you might be self-employed and hit rough patches. No-transcript at the St Regis flying first class was all paid with credit card points. There was no way in hell I would have paid that. I'm too damn cheap to have paid for that with cash because it was super expensive. But I kept racking up my points, knowing for this moment, that I was going to use it for that, and so there is value to that. And I think that's where I think one area where I feel like I can win. I can beat the credit card companies because now I'm strong enough financially and I can win their game, so to speak. Right right, so no, and it can absolutely work. Where else is Dave wrong? Anything else? I think those are. I'm giving you a forum to take shots at Dave.

Speaker 2:

Yeah, which I don't love doing. I agree with you Guy has done amazing.

Speaker 1:

I mean, we brought his name up a couple of times and we did the what's his course called.

Speaker 2:

Financial Peace.

Speaker 1:

University, financial Peace University. It's so amazing he's changed so many people's lives. But there is, I think he does, the shock and awe of some of this. Debt is always bad and for a lot of people they need to hear that.

Speaker 1:

Yeah, and for a lot of people. They need to hear that For a lot of people the simplicity of it and, I like how you said, the purity of it is I don't want to say it's almost like an alcoholic, like that they just can't handle it. They can't handle the alcohol, so they have to go cold sober, they're going to AA and they just can't freaking handle it. But I think that is sometimes people with the debt. They just and it takes decades sometimes for people to get out of it, years, yeah.

Speaker 2:

And, I think, another place real quickly. Dave doesn't really talk a lot about investing outside of retirement accounts. He talks about investing in retirement accounts and then getting your house paid off, and so you've got a big 401K or IRA balance and you've got a lot of equity in your home and that's how you become a millionaire. And there are people that are millionaires that way. But just being in a millionaire for a lot of people, right Having a million dollars socked away when you're 65 and saying I'm going to retire now might not be enough, right. And so if you want to have a bigger amount, you've got to be thinking about investing.

Speaker 2:

Once you've killed your debt and you're responsibly paying off your mortgage and doing those other things and you've got your emergency fund right, a credit card or a home equity line of credit is a really crappy emergency fund. I want cash, right. I don't want you to respond to an emergency by going and borrowing money and turning it into a crisis. So have a cash emergency fund, typically of three to six months before you. You know, right after you pay off your debt, that's next, and then now we're we're investing. So I don't think Dave talks enough about about investing beyond just retirement accounts. And I also I would love to sit down with Dave Ramsey and say cause Dave's like oh, I love real estate, but you got to do your 401k first or you got to do your retirement account first. Hey, dave, how about? How about real estate in your retirement account? Do you even know that that's possible, right? So I love the thought of self-directing and investing in things that you know outside of the stock market to grow your wealth even more quickly.

Speaker 1:

Yeah, love it, and I know you've got a chapter in your book on that, because that's where Dave does seem to leave off and your book kind of hits that too and like, okay, now I'm transitioning out of debt, how do I actually build wealth? What are the things that I do? So stop choosing to be broke. This is Jeremy's incredible book. It is really good. Jeremy's an excellent writer. A lot of our team has used that book. Clients have already been using it, so where can they get the book? Where's the best place?

Speaker 2:

Right now, the best place to go is Amazon. Right, If you go to Amazon and just put in Stop Choosing to be Broke, it's available there. I'm building my website where you'll be able to buy it there, and I'm going to have lots of additional content articles. People don't want to see my face too much, but shooting videos and that sort of thing that's going to be up on that site. But right now, Amazon, Stop Choosing to be Broke.

Speaker 1:

All right, and so the book was a 20 bucks. What?

Speaker 2:

are you charging yeah?

Speaker 1:

Okay, now, after you pay 20 bucks to get the book, what's the next thing you need to pay to get out of debt?

Speaker 2:

The next thing you need to pay to get out of debt is freaking attention, right? Pay attention, Be intentional about your finances. Make a decision every day, Right? Is it more important for me this month to be able to put three hundred dollars in my retirement fund or to buy Starbucks every day? That's probably not three hundred bucks a month, but whatever you know, whatever it is.

Speaker 1:

It is now Today's inflation Right.

Speaker 2:

It's ten bucks every time. You know every bucks every time you go, every time you go, right. So, if it's 30 days, what's more important? Be intentional about that and don't be afraid of budgeting right? People hate that word, it's an ugly word. Budget, right, it doesn't roll off the tongue, but that budget is so important. People talk about hey, I need to have my money work for me. Your money doesn't know what to do if you don't give it a job. So your budget is how you make your money work for you. Now, investing is obviously what people are talking about, but give your money a job, tell it what to do. It's your money, you own it. It doesn't own you. That mindset that's what changed for me in 2019 is I am going to tell my money what to do, and I've been able to do that for the last five years.

Speaker 1:

All right, Freaking. Love it. Jerem. Thanks so much for being on today. Thanks everybody for tuning in to another incredible episode, in my humble opinion, of the Main Street Business Podcast. We'll be back next week. Mark and I will be together. Actually, we're talking about estate planning. We've got our estate planning special coming up in our law firm, KQO Source. We're going to be hitting that, the importance of it, why you should have it. We'll see you next time.

People on this episode

Head Shot

Mark J. Kohler

Host