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Should You Pay Off Debt Before Investing? Here Is The Real Answer.

**Should You Pay Off Debt Before Investing? Here Is The Real Answer.**



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Should You Pay Off Debt Before Investing? Here Is The Real Answer.

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come one come all number of lovers cuz we got you covered today when to pay off debt fast and when to invest it's Brian Preston the money guy what's so often we get this question hey should I pay this off should I invest should and we give you all kinds of rules of thumbs and we give you all kinds of sayings and give you all kinds of you know God's remarks today is about the numbers today is about actually putting the rubber to the road to say when should i when shouldn't I and why does it matter look I love that we have diversified we started off as a podcast we moved into YouTube but this thing dirty little secret it is turned into the the YouTube comments has turned into something that kind of occupies a little a big portion of this brain it's your version of social media and you debt Crusaders I mean y'all think all debt just bad debt and and I try to give you some logic you know nope no then I'm like you know what we need to give them some numbers let's do they need to go to see some numbers cuz you can't argue with the numbers so let's kind of load them up with with how this is cuz there's the thing about debt that is one of those things where it I always tell people you have to think about it as a dangerous tool yeah it can be a knife it can be a chainsaw it depends upon really how scared you need to be with this this tool that's in there because and here's why debt is so important is because debt has a profound impact on your credit score and credit scores you know that that's what's gonna come your insurance premium rates that's what's going to talk about you know how much you can afford about big life purchases in the future like are you gonna be able to get that car you go be able to get that future house are you gonna be able to get your utilities approved I mean it's amazing what happens so like I said I know you guys think that we are just totally just whipping on this dead horse right now because our comments section has been alive with all you guys just like debt stinks get it the heck out of here but here's what I know these are fine airy people that think everything black-and-whites right I know the older I get the more I figure out the world's pretty daggum great I just make sure that no older you get the gray or you get is that what I just heard I am getting a little gray I'm not a Silver Fox not really not yet but I am rose there's a lot of gray and then what happens when you understand how the financial world works she owes a lot of things pulling on your wallet that cash flow that comes into your wallet monthly there's a lots of things pulling on that it's um it's you know it's not all debt yeah but the portion that is debt some debt is more punitive than other dish right so you can't treat everything is the same and then don't forget that you need me saving for the future that 15 to 20 percent that needs to be saving for the future and emergency reserves there's a lot of things pulling on you so we want to adjust it and I think one thing that's really interesting right you just said this you know not all debt is the same believe it or not and if you've listened doesn't really any amount of time you know this not all dollars that you save towards your army of dollar bills are the same some of them can do a lot more for your army than others and you have to kind of understand that so that you can make really wise decisions around how you approach that so if you were an analytical person or you just want somebody to put this conversation to bed here's what we're going to cover today on whether you so you can make better decisions on when you should accelerate paying off that vas versus let that army of dollar bills work for you we'll be covering credit card debt yep we're gonna be covering student loan debt oh really because you guys give me lots of feedback on that we're gonna be talking about automotive loans and debts on vehicles and then the last one of course mortgage debt and I can't wait to load you guys up with some data on that one love it so let's kind of let's just jump into this thing bow let's talk about credit card debt credit card debt so this is the thing I think this is a binary decision we are not one of these financial people that you know personalities out there it says all credit card debt or credit card use is bad right I do agree because there are some people that we think a lot of that are anti all credit cards and I completely three with them we are consolidated and on the same page that credit card debt is horrible you should not have any credit card debt it is official no-go zones because think about this the interest rate the average interest rate was funny as when we did show prep on this I had interned Daniel I said I know because I just did this recently the average interest rate is seventeen point three percent on credit card right and then Daniel is creating these great you know do you know slide yeah and I when we went in there look that's it 1776 incas yep they just updates got up and then Austin who's also one of our interns goes did you see the did you see the number and I was like oh my gosh only in America is the average interest rate 1776 we just made it through July 4th and now that's horrible I mean that really is if you think about what's punitive it is is seeing that when people pick on me about a 10 percent right of return with the S&P 500 if but they probably because I know there's about 70 percent of the population that will tell you they don't have credit card debt but they really are carrying balances when you see that they might be paying 17.7 6% how do you ever get out away from that but don't don't take our word for because again we wanted to actually put numbers to it we wanted to have some metrics on there so what we said is that credit card debt is bad credit card use is not necessarily bad that's the line of saying that word wrong here's where you pull up the slide on the numbers I I was like my listenership needs some type of guidance to know what I'm talking about here and here's what I came up with back in the nineties there was a song that came out by Warren G okay called regulate ah and it had a quote our glue clip at the beginning from Young Guns it was a great quote I loved it was and that's right closed off with mount up but here's what the it starts off it says can't be any geek off the street got to be handy with the steel and here's the thing you need to know about credit card debt if you're not disciplined if you're not the best of the best with your money management you can't use credit cards you have to pay credit cards off every month yep if you're not good with the steal it ain't me no geek just off the street you can't use credit cards that's what the saw that's what if you want to apply this to the Warren G song and Nate Dogg I love we are talking about the fact that not anybody can use credit cards you have to be the best of the best with your money I know there's a lot of you guys out there and the money got family you get it you can use all the buying resources the extended warranties the price match it's just the convenience of credit cards but there's a whole nother group of the population just stay the heck away from this right and let's talk about why you got to stay away if you can't pay it off yeah so we thought it'd be really interesting to look at an illustration of what this could look like and so Brian we found that the average credit card balance in this country was a little over sixty three hundred dollars right true we know that the average annual percentage rate lot of people that have more than that though they're they're really good at 6300 I wish my debt was sixty three hundred because they got 10,000 20,000 30,000 dollars of debt and we know that the average interest rate is seventeen point seven six percent well here's what credit cards will allow you to do they don't they don't make you pay them off monthly they'll give you the option to pay less than that amount hey don't worry just give us twenty five dollars or three percent of your house than whichever is greater whichever one's greater so we said Oh someone operate under that assumption and they bought a $6,300 thing and they put it on a credit card and they only paid the minimum amount either twenty five dollars or three percent which everyone's greater how long would it take for them to pay off that I was shocked about realize we were nice to the credit card companies because we actually used three percent cuz that's one of the things God in some bank rate I know there's other books out there in the personal finance space that have done the same analysis but they use two percent as the required minimum payment on their credit card but you can see using three percent being generous to the credit card company or to you the credit card holder it took almost fifteen years it was a hundred and seventy six months to actually pay off the credit card debt that that thing that you bought that only should have cost you six thousand three hundred fifty eight dollars ends up costing you over $12,000 almost doubles the price of that person if you want to be disgusted like I said other financial people have talked about using 2 percent because there are credit cards they have used 2 percent of their minimum payments it would take you over 22 years to pay it off so the question is okay when does it make sense to prioritize paying off credit card debt always always if you have high interest punitive debt get that knocked out from the gay a one start there get rid of it only people that can use credit cards or regulators they can mount up if you can't pay off your credit card every month just it's no go you can't do it and here's something just to keep in the back of your mind when Chris Hogan did that research on millionaires with Dave Ramsey 73% of millionaires do not have credit card debt not a stroke look we work with a lot of very successful people how many people that come in as prospects what they're telling us about all their credit card debt just don't see his don't see us right so if you struggle with credit card debt this is your first probably indication that discipline and just being good with money as a struggle for you you got to get that financial household or you know in order before so you can move to the next step of being successful in wealth building okay Brian so there's the whole camp of people says hey run that's not me I know that I don't need credit card debt I know they don't need to go rack up consumer debt but I also know that I should invest in myself and some yourself man that is a great thing that has reached into the soul of America and has driven up a lot of student loan debt actly right and here's it I want you guys know I think education I love I think everybody out there and this is something I try to pass on you know when you become an intern or you start working here what do we do both we load them up with we get on some books we have some lot of books I don't recall a required reading material but it is highly encourage reading material I want you to be a student of life that's why we have this is our virtual classroom so you should be investing yourself but there's two bad trends that are totally destroying what used to be I used to call student loans good debt it was kind of like mortgage debt student loans they were both in that good debt column because you were investing in you it was an appreciate but here's the two things that are totally ruining this the rapid increase in cost of education we did a slide recently where I went to UGA you went to UGA in turned Daniel graduated from UGA what I was shocked is every year I mean you it's almost like a train schedule you could set your clock to it the University of Georgia has increased their tuition by 7% per year this bread go up at 7% of your new pay raises go up 7% no but some cost of education at University of Georgia like clockwork has been 7% per year you can understand how compounding is actually working against you that's when it comes to student debt so that's very scary the second thing is and you guys have called me out on this because when I'm doing shows and I'm talking about student loan debt and I've talked about historic low rates you guys who have student loan debt like Brian what are you talking about what you're talking about Willis I mean that says one of those things cuz you know that your student loan debt is probably like 6.8% yeah yeah and I had somebody in just two weeks ago that they had five student loans and they did have a few that were like 3.8 mm-hmm and they had a few that were in the fours and pause and then they had like one that was 6.8% and I was like wow there is a vast difference between a student loan is at 6.8% and a 3.8 percent debt I mean those are night and day so when I tell you on which you should prioritize I'm paying off versus investing you have to think about it you have to you have to do it so we need a system we need a system for our audience to kind of know because we also know look when you're in your 20s and 30s you want to make sure you're investing in yourself by building an army of dollar business that can grow so you're probably now you're at this deliberately pay off student loan debt to invest in a Roth IRA the order of operations turns into a big question mark so we thought okay well let's make a flow chart right let's make a decision matrix around how do I approach knowing when do I build my army of dollar bills versus when do I pay off my student loans now I love this because it let me in both me and bow show off in multiple ways first you get to flex and show that you've got some fancy definitions that you know with your CFA yeah is that we try to come up with a system that said okay what is we want to take an account that you're young so remember the way we've always talked about our assumptions when we do these type of illustrations 20 year olds should be swinging for the fences on risk especially because they're dollar cost averaging so even if we have volatility volatilities actually a good thing so our twenty and thirty year olds is because buying into down markets is great it's but I think you can probably even in down markets because you're buying into cheaper and cheaper you could probably expect in the long term of looking at your saving career you probably could if you're thinking about the sp500 make around ten percent yeah I think that's reasonable when you're in your 30s you have to start dialing the wrist down maybe you got kids it's nine percent yeah by the time you reach your 40s it's probably eight percent because once again you're adding more diversification taking a little more risk off the table by the time you're in your 50s it's well we'll get to that but we can you have student loan debt it doesn't really come into play that much so that's our number and then though this is where the term equity risk premium what is that yeah so equity risk premium is essentially the additional return you get for taking on more risk in the financial markets so if you're someone out there who knows that you can go and get X percent risk-free whether that's in cash or seasonally that Treasuries you can go get two percent risk-free if you can go out and invest in something like say the S&P 500 and go get 6% you would say that you have a four percent equity risk premium so I said okay well if we're gonna give folks some rules of thumb we need to think about this because the risk-free rate changes over time right so it's not always a four percent risk-free rate it's not always a two percent but we were able to find on average that the risk-free rate stays fairly consistent it's somewhere between three and a half to five and a half percent so we went conservative yep we did four percent we did four percent and so we said very easily if you think about you're someone who can make 10% on your investments in your 20s in your 20s and you have a risk-free rate of 4% that means that your equity risk premium would be six percent above that so that's what if you have student loan if you're in your 20s and you have student loans that are charging you more than six percent you probably want to focus a lot of your resources on paying that off early right if you're in your 30s because we're all as we dial down that return just a little bit if you take the nine percent minus the four right now if you're student loan rates are greater than five percent go attack those things by the time you're in your 40s is probably around four percent and you notice we stopped there it's because I don't want you to have if you have student loans in your 50s it's not doing this wrong so you've got to be out of student loan debt in your 50s because roses you get closer to financial independence I won't you debt free I just want to make sure that while you're in your 20s and 30s and that army of dollar bills can grow significantly and work hard for you that we take advantage of that absolutely don't miss here so we're not saying that you shouldn't invest in yourself we're not saying that you shouldn't even go have student loans because some of us are in a position where maybe that's the only way that we're able to go out there and get a college education and get a degree but if you are going to accumulate student loan debt when you think about retiring that you want to do it in the most efficient and effective way possible and I think there's gonna be some people who are watching this that are on the other side I mean they have not built up a lot of student loan they're looking for guidance on that remember we give the guidance that try to come out of college with your student loan debt being less than your first year's anticipated salaries if you can do that that will keep you from choosing because it's just like I have a daughter that's probably going into something with the Arts and I've had a conversation I said is it gonna bother you if you don't come out making great money she goes no I kind of understand that so we're going to make sure that her portion of participation in student loan debt and other things that makes them out yeah greater debt than what you probably will make in her first year out of school yep let's talk about auto loans okay perfect one I mean if I have to have a car in most markets if I want to get somewhere if I want to go have a job if I want to be a productive member of society I got to have a vehicle but maybe I'm young and I haven't figured out how to you know pay cash just yet I got to borrow some money so if I do I don't know when and how and how to approach that here's what I think about is interesting about vehicles but when we go speak at high schools what's the first if not second question we get well what kind of car do you drive what kind of car do your financial advisers you got to be like the rock I'm Bob right so that's the question that's asked and it's through you because there's all kind of stereotypes and then I can tell you when I was 15 or 16 years old I was so nerdy face a daydream that 25 was the age and insurance rates went down okay that's what you know that's yeah more is that we turned 25 your insurance rates go go down for men I was gonna go buy a Corvette oh of course cuz why wouldn't maybe a 25 year old dude now when I hit 25 now realize about the average age by the way for Corvette purchasers is actually in its 50s that's that but it's uh but you know because I think what happens the same they happened to me I was 16 that was a dream right turn 25 I was like Corvette yeah I got a family you know I got a wife we're not a Corvette so but here's the thing I think is interesting since this is a status thing in society somehow it's crept into the fabric of America that cars are status and right that's a way for you to flex flex yeah yeah but is it really a good use of money when this is the stat I found on CARFAX calm is roughly 20% of the value of a car just turns into paper in the first year of ownership it's it's sort of I believe outside of food I was trying to think about something else that you purchased it just decreases in value so quickly it probably had to be something like a boat or a cam yeah it's I mean it's something but cars are horrible uses of resources when you think about a fifth of their value just completely disappears almost after you pull it off the pond right yeah so you know the ideal thing when you're talking about will cars how do we look at this the ideal thing is just to pay cash yeah if we know it's depreciating you how do you keep yourself from going underwater the ideal answer is to pay cash but I would I like giving that advice is let's just pay cash but I also know I've been 20 before I've been 25 before where you know I wasn't getting paid completely what I was worth because I was getting an education at work plus I was putting in my time so that you know income could go up and you know you get married you get a mortgage you know like I just don't have a lot of money laying around but I gotta have good dependable transportation to get me there what what's do you have some rules for me can't pay cash so we came up with some rules for people who can't pay who cannot pay cash that makes me sound smart no I think I like I like it when you use the word to say Kate it definitely brings out can we make sure you're Jane it makes its way into the show notes also thank you but you can see and we talked about this before is that we want to come up with some some tested rules that protect you from getting underwater but also making sure your eyes aren't bigger than your wallet and then you also something with concept we talked about don't price yourself outside of happiness that's right by just buying something to flex yeah and so what here's what we put together this is non luxury vehicles if you're looking at BMWs if you're looking at Tesla's Mercedes Mercedes Audi this is not the slide for you we're talking about Honda's Toyota's we talk about getting you from point A to point B where you know when you put the key in or push the button its cranking that's right so this is what we're talking about you go put down 20% you're gonna amortize you go calculate your monthly payments as a three here am Rosie 36 months now I'm willing to let you actually take the 48 month offer but you're planning on making those payments on a three-year basis right yeah just do it because that way you never get underwater with this asset and then a depreciating asset and then your car payment should never exceed 8% of your total income oh that's a great breast that means that I can go out and buy a car it still has a car payment for my cars not more than 8% the car payment for a life is not more than a person is that way that would be nice but if you think about that would actually mean 16 percent of your money of your cash flow is going towards auto loans that's not what we're talking about we're talking I was a household I don't want that number to see so see oh so if I'm going to buy a new car but my spouse still owes debt on their car you gotta have to factor that into account you can't just start over because I remember I'm trying to protect you Society is already telling you this thing is your Flex vehicle to show everybody how well you're doing but it's actually an enemy to your financial statement in your net worth so we've got to give you the tools to keep this under check so that you promise yourself 10 to 15 years from now will thank yourself so that when you go speak to high schools and they say what car do you drive you really you guys got it all wrong right don't worry about what car I Drive you need to know how big my net worth statement is now here's the one aside and this is just because of the unique environment that we've just come through interest rates have been at a historical low level and the one on one point now a lot of our dealerships have offered exactly what you said point nine percent financing one point nine percent two point it becomes a little bit different when you think about the equity risk premium versus an auto loan because an auto loan is an automobile is a depreciating asset getting lower and lower value so we think that a nice rule of thumb of whether you should finance or should pay cash is less than three percent interest if you can go get a point nine one point nine percent loan yeah maybe you stretch it out over three years pay that off it's really more of a personal preference at that point the big key is to make sure that you stay inside the twenty three eight and then the last thing because we hinted at it but we didn't actually say it out loud and we have it on the slot if you're buying because there are a group of you they're looking at luxury vehicles maybe you're now like I am I'm mid-40s I've got a lot of the financial goals checked off and I see this nice shiny Tesla with all the gizmos in it the video games that they keep upgrading the fart sounds it makes all the funny things you know that that goes into making a Tesla experience a Tesla experience you can buy this car if you've gone through your checklist and you can pay it off same as cash twelve months so when you buy luxury cars I want you to treat it like you're paying cash and pay it off within twelve months absolutely love it so this brings to the final drumroll moment the thing that we've done asks money guys on we've mentioned in shows and we keep having people come back to us and I call them debt Crusader right these are people who have helmets on they've got their chest plate on and they are just beating us with their clubs saying you pay debt off no matter what I don't care if you got a three and a half percent mortgage I don't care if you have a four percent mortgage I don't care if you're twenty two years old you get out of debt completely before you start let that army of dollar bills work and look if you don't believe us if you don't take our word for it go look in the youtube comments go below you're gonna see it we'll even throw some up on the screen for you there are folks out there who just think no debt no way no how got to get rid of it so we felt like okay well if people really think that way we got to answer this we got to speak to about and I feel like it's friendly fire if you guys knew my personal life I'm not a person that loves depth I mean I don't pay off my credit cards every month all my vehicles are owned there's no student loan debt and then I have a mortgage that will be paid off within 10 years I mean I did is just and I've had by the way in my past I've had 15 year mortgages I've had 30 year mortgages I am all for pre paying your debt so I'm an ally of yours I'm not a person for this is friendly fire when you're beating on Brian the money guy or beau and it because it's just we're on your tide my biggest point and we this is why we want to bring up the numbers in a second is that when you're in your 20s when you're in your 30s there is a special special moment that you need to capitalize on remember we've done shows where we said a 20 year old every dollar they invest in themselves for the future could be worth $88 65 that is powerful because realize when you're 30 years old every dollar you can invest in yourself that has the potential probably turning into $23 there is a big slide from 88 to 23 you're still having a 20-3 multiplier factor is incredible but it's a lot different from that 20 year old so it breaks my heart when I hear a 25 or a 30 year old that says I'm not going to invest yet I'm gonna wait until I get completely out of debt and they normally set it up pretty well because if I get out of debt really soon I can save more for the future for a longer period of time that's exactly as I say I promise I'm gonna be disciplined I'm gonna put that money to work so I can invest even more in the future because I'll be debt-free that's what's presented and here's the second thing I think and this is wrong we actually had one of our Ramsey solutions family members reach out to us and say guys I love you guys but y'all didn't do Dave right because you got the baby steps all wrong okay because you made it sound like dave is telling you to pay off all debt and then invest we all know and I was right you know what she's right so stuff if you look at baby step number four these are Dave Ramsey 7-days Ramsey because realize Dave Ramsey is this layer of debt I mean we have people I'll say quit using your credit card you got to pay it off monthly yeah and then you check with him and they are still spending a lot of money and they still using credit cards in the wrong way and then they go do financial piece and he puts them on fire sound believe me it really is amazing what he can do for them but so I want to make sure people cuz I think that's what happens Dave gets these people out of debt it feels so good cuz there is a psychological just release that I am debt free so if it feels so good to pay off my credit cards let's just keep this train rolling and right into paying off our mortgage debt that's not what Dave is telling you to do because if you look baby step number four is invest fifteen percent of income into Roth IRAs and pre-tax retirement plans let's say he wants for he want you to be saving fifteen percent early on in the baby stuff so that's after you get the one two and three we will talk about that an upcoming show but number four is you are gonna eventually start investing and then guess what number six six does come after four is because it's four which is invested fifteen percent of income into the future retirement accounts five is essentially do college savings for the kids six is pay off your home early so Dave does say start saving before you start to deck crew say ders once again friendly fire I think you're getting your order of operations messed up and we got the number so hit them with the facts buh I love that thing so here look at what tell them what we got here set them up so we're gonna talk about two different savers we're gonna look at two thirty year olds and they're both going to buy a house right they're gonna buy a house for $300,000 and they're going to put 20% down because they don't want to pay PMI primary mortgage insurance what's the good savers this is tell a to good save tale of two good savers they each have a four percent mortgage rate and that seems pretty reasonable given where we are today I think it's interesting the two guys what were the Nate was names you came up for him you you actually named darts case studies here right well I had one that was um what are those leisure leisure suit later Larry who's the boring saver and then we had um old the whole debt crusader alsa dashi yeah I mean the old stash my turtle stashes he is what I called him okay so this isn't what's gonna happen the guy with the stash he is gonna pay a hash McGee stash me that grew Seder he's a debt crusader he's gonna pay off his mortgage he's riding YouTube comments left and right the bronze an idiot for investing anything he is gonna pay off his mortgage in the first 10 years as quickly as he can so is gonna get a mortgage paid off in 10 years and he's gonna pay two thousand four hundred and thirty dollars per month on his mortgage and that's gonna have it paid off after it's paid off starting at ten years and one month he's gonna start investing two thousand four hundred thirty dollars a month and he's gonna do that all the way until he hits age sixty-five you know so he's gonna be invested he's gonna get that debt paid off he's gonna start saving more just like a lot of our debt Crusaders saying he is squeezing every opportunity he's gonna attack that debt that's his game plan to tack that debt and then after he pays off the debt we're just gonna save like no one else and keep that momentum going so then there is boring Leisure Suit Larry so what he's gonna do is he's gonna amortize his mortgage over ladies-man based upon that Leisure Suit here for sure he's going to pay off pay one thousand one hundred forty six dollars per month on his mortgage but he's going to invest the difference of one thousand two eighty four so if you just add those two up it equals what stashies mortgage payment was going look I will tell you I don't think the average person is probably going to be in their mortgage for all thirty rights but to prove our point we're just going to say that old Leisure Suit Larry here is going to pay his mortgage not a penny faster than though it is on his amorous ation schedule so this is gonna be thirty years but then he's and that math works out look at twenty four thirty a month which is the debt Crusaders gonna pay it off subtract that from the calculated amortization payment of 1146 you'll see that's where we came up with how much it's going to be invested a little under thirteen hundred dollars a month but remember what we said early is that the dollars you save are not equal early dollars can do more for than later dollars so this is what we assume they're 30 years old we assume that money they say when their 30s is gonna make 9% and then their 40s are gonna make 8% and their 50s are gonna make 7% and then their sixties are gonna make 6% so we didn't even try to stack the debt deck in our favor we're actually subscribing to exactly what we say is a realistic expertise here yep if we would have pushed this to the 20s a a 25 year old and pushed that rate of return up to 10% it doesn't get better for the debt Crusaders I will just go ahead and let that spill the beans on that a little bit buh go ahead hit them up with some more details so this is what we see if you look at the top illustration this is the debt crusader after 10 years they are mortgage free debt free debt free free and clear and then they start investing and they do a great job and because they are fantastic savers because by the time they get to age 65 they would have 1 million nine hundred fifty-four thousand thirty nine dollars yep which is fantastic it's a great it's a healthy portfolio they're going to be all right but if you're someone out there who's trying to optimize what you're doing look at what happens for boring investors so boring investor you can see those lines don't it's not like it takes it to zero on the debt right ten years and then they start investing there's actually you start investing from day one yeah the debt slowly coming down very slowly because this person is not paying a penny extra on their mortgage which I don't recommend that but I'm just trying to prove my point very slowly paying down the debt but look at what happens with that compounding interest is that money as a 30 year old what it's making that nine percent right and then 40 year old ways making 8 percent and it just keeps compounding go you can see at the end of it and I don't want to give the full reveal until we go to the next slide so flip it over one more page look at this so we started this it starts off it after 10 years we got the debt Crusader on the left so sure enough 10 years into it he's debt-free but his investment balance is zero because he used every bit of his resources to get out of debt from age 30 to 40 years of age that 10 years he was attacking that debt that boring investor after 10 years his mortgage balance that started at 240 thousand dollars was now paid down to a hundred and eighty but he still got debt he still he does have debt but his investments is worth 250 grand if you look at the difference between the debt he has outstanding the mortgage balance and what the investments are worth he's 61 thousand dollars net worth if you take your assets minus your liabilities you see your net worth that's 61 thousand dollars ahead of the debt crusader what I love about this illustration is after 10 years if boring investor said you know what I'm just ready to be doing this mortgage he actually has enough and his investment account that he could write a check to pay off the mortgage well that's a good because I had some people one of those comments you posted up there somebody said I'm paying off my mortgage early so in case I lost my job I would I would you know I'm gonna be on an easy street because I'm debt-free I will tell you you're gonna feel better if you lose your job if you have a tank of money over here that you can go pull off of to pay bills with because the problem with mortgage debt is I hate that it's hard to get it out it's a one-way street unless you go open up a home equity line you got to go get more debt to get the money back out it's it goes in and then you basically have an army of dollar bills that instead of out there working for you and compounding and growing they're once again disassembling their their other gun they're cleaning their guns they're polishing their boots and they're going why am I locked up here in this house when I could be out there growing because remember the house that you bought there's $300,000 with two hundred forty thousand dollars of debt if it's appreciating at three or four percent they're both appreciated with your money listen it doesn't matter how much mortgage debt is on there the houses still appreciate him so let's go ahead and look at twenty years into it twenty years into it the debt crusader I give him credit he is saving and he's saving just like he said he was going to be he's very disciplined and now his his hard work has created a portfolio that's worth close to a little under half a million dollar it's four hundred forty seven thousand dollars but look at that boring investor twenty years into this he still has a hundred and thirteen thousand dollars a credit card I mean of mortgage but now his investments are worth seven hundred and ninety two thousand dollars if you took the difference between those two things you can see we come out ahead if you take the differ between 792 the 113 and then subtract that from the 447 the guy who is the boring investor is still two hundred and thirty one thousand dollars ahead of schedule here's what I think you're still just absolutely wonderful if after 20 years this boring investor said you know what I'm done with my mortgage debt I'm gonna write a check for one hundred and thirteen thousand dollars and pay it off he would still have more in his investment account balance and zero debt than the debt Crusader no this is better flexibility on his side so thirty years I thought this was interesting a year thirty and thirty years into it we know what happened thirty years now the boring investor he's paid off his 30-year mortgage so his investments are worth one point eight million dollars at this point the debt crusader is worth one point three we're looking at a four hundred and ninety three thousand dollar difference oh that's a that's a huge percentage of what we're talking about then weak fast forward to full retirement age at 65 35 years into it you can see the debt crusaders at 1.9 million the boring investors 2.6 this does not get better why does this matter you can just do some really simple math pull out your phone pull your calculator we talk about all the time that when you retire you can think about a healthy withdrawal rate depending on your age somewhere between three and a half to five percent three and a half to five percent of one point nine million dollars is very different than three and a half to five percent of two point six million dollars it could be a thirty thousand dollar a year difference on your cash flow around retirement that's huge if you just did a five percent withdrawal rate so guys I want you to be debt free I just want you to respect when you're in your 20s and 30s you're in a special period of your life from your the army of dollar bills the potential for them is tremendous I mean this works another way to if you're wasteful with your spending if you're not paying attention to set that army of dollar bills to save ten fifteen twenty twenty five percent of your money to work for you you're missing out on a huge opportunity to invest and let that money work for you so you can live like no one else while you're young but then live like no one else when you're older because you have true financial independence that's great what did we leave unturned yep oh yeah I think we net it look what and here's here's what we understand some folks just want to be debt-free some people they get close to age 65 for clothes to age six and they're gonna retire and they say you know what I've got the means I'm gonna pay off my mortgage okay if you put yourself in a position where you can do that it doesn't sacrifice your future financial security that's great we're not saying that you have to only pay off a mortgage in 30 years because frankly you're not even the situation where you're gonna do that yeah it's just a matter of getting your order of operations correct or getting your baby steps correct to make sure you're doing them in the right time in the right order you bring up a good point because I don't want to be a personal hypocrite when I'm doing something different and this ties in to Carter and I had a discussion Carter has been on the show before he's one of our associates one of his clients who's also money got family member was talking about paying down the debt early and I would say I think that there is a because this is the question Carter and I had a whole conversation on it and he told me that he had a client that was going to go ahead and pay down I said well what is he saving towards his future he goes oh he's a 25% I said well wait a minute if he's if he's already saving 25% I'm not gonna fault a person you heard like Dave and his baby step number four said he wants you saving 15% to retirement I would amend that and try to nudge that number up to 20 to 25% but I'm not gonna pick on somebody even though the numbers support what I'm telling you if you're saving 20 to 25% for the future and you're in your 20s or 30s I'm not going to fault you if you want to have the best of both worlds where your order of operations you're investing in that army of dollar bills in him in the future by actually investing money but if you want to come back and prepay that debt I get it I mean because there are some huge emotional benefits to being debt-free there's also you are dialing down your total risk to what's going on in the world with employment market so I get that just make sure you get this order of operations and that every dollar has a purpose I want you to be that good filled general that every dollar that comes into your possession that you're in charge it's you're responsible for that you actually maximize it if you put some thought into it and that's why I'm saying it's friendly fire we're on the same page we want you to be debt-free we just want to make sure that we get you there in the best most efficient way possible if you love this if you love the content that we cover if you love some of the deliverables or some of the slides that we shared make sure you go out to our website Monday guy.com give us your email address where's he gonna send some of these things out so you guys can see him chew on them maybe share them with family friends loved ones we want this to be something that's gonna be a tool for you but the only way to get it is you have to go to the website money guide calm and give us your email address we can okay these are gonna be the tools that get you to that next level and that leads me a lot of you guys you're watching these go and they really put some thought in this I can tell this is something that they cared enough that maybe we disagree but these at least these guys didn't use emotion they tried to give me some facts and figures guys this is what we do we love this is our online classroom where I want you to come learn a plaque grow become super successful we call that the abundant cycle because my thought is having these type of discussions with you where you getting stronger better and just having an understanding of how money works you're gonna reach a point where you go I don't like somebody to look over my shoulder this is getting so big I need somebody that's going to be my partner in this that's what you're gonna reach out to us that's the abundant cycle you give us a chance to pay it forward and pay us back for all these years of content by reaching out at a bound welkom or money guy calm and going to contact us we work with clients all across the country we love giving away free advice but we do hope that at some point we can take it to the next level and turn you from listener fan of the money guy show in to hopefully becoming part of the abound family love it guys we have a blast I this was so much fun I've been giddy I woke up at 4:30 this morning because I knew we were recording two shows today this type of stuff wakes me up not in fear but in excitement I'm like a kid waiting for you know Christmas morning and opening presents I love presenting this type of content to you guys because I just know there's gonna be some of you guys you go disagree with me but there's gonna be a whole nother group let's go say I appreciate that you put the numbers into it and maybe I'm thinking about this a little differently because I watched your show so that just warms my heart and I could not have done this we've been doing this since 2006 couldn't do it without you guys you guys are the rocket fuel that have motivated us and kept it going thank you thank you thank you so make sure you give us you know the thumbs ups subscribe for notifications on YouTube but then also just make sure you're telling your friends and family and we will keep the content coming I'm your host Brian Preston mr. beau handsome money guy comm will come to you again soon