Flipping the Script on Debt and Financial Management

 
 
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Flipping the Script on Debt and Financial Management

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When most people think about debt, they think about it as something to avoid at all costs. It’s the big financial monster looming over your shoulder, generating worry and fear that keep you up at night.

That might be true if you are overwhelmed by bad debt (Ex: student loans, high interest credit cards, etc.), but that doesn’t have to be the case with ALL types of debt.

In this episode, we talk about how you can manage — and even add to! — your debt in ways that can actually improve your financial situation. If you take a logical and responsible approach, debt doesn’t have to be the monster that the mainstream media makes it out to be.

You’ll learn how to:

  • Tackle your debt problem by increasing revenue, not living like a pauper
  • Leverage short-term debt to generate additional income that can pay down existing debt AND continue to pay you indefinitely
  • Plan for managing your debt if you are looking to retire or expect a pink slip from your employer
  • Negotiate better terms on your current debt or ask your debt holder to write it off entirely

References and Resources:

Transcription of This Episode

Welcome to the Red Pill Retirement podcast where we give you the raw, unfiltered truth about retirement planning in the modern age. Pensions and 401(k)’s are quickly becoming a thing of the past, so we’re here to share resources and recommendations that will help you create the retirement lifestyle you’ve always dreamed of. If you’re ready to take control of your financial future, we’re here to help. Let’s get started.

Welcome back to the Red Pill Retirement podcast and we have another great discussion with Mr. Ian Bond for you today. Today, we’re going to be talking about a topic that can be a bit polarizing. I think if you look at the mainstream media and popular opinion, a lot of people are going to tell you that debt is something to be avoided at all cost. It’s the 800 pound gorilla in the room, the thing that’s looming over your shoulder and keeping you up at night because you’re concerned about whether or not you’re going to be able to continue to pay down that debt indefinitely.

Although those feelings aren’t totally unfounded, my conversation with Ian today is going to shed some light on the fact that debt doesn’t always have to be a bad thing. It doesn’t always have to be the villain of the financial sector. In fact, it can be leveraged in certain ways to actually give you the short term capital you need to accelerate the growth of your business and not only pay back all of the money that you borrowed but reap the benefits of increased monthly revenue indefinitely going forward in the future.

Today’s conversation is going to be all about how to leverage debt responsibly for the benefit of your life and your business. I think it’s one that you’re going to really enjoy, so I don’t want to hold you back from it any longer. Let’s get into my discussion with Ian about debt and entrepreneurship.

Hey everyone and welcome back to the show. My name is James Sowers, and I’m joined as always by Mr. Ian Bond. Still in Dubai for now, but Ian, I understand that you have a trip planned. What do you got going on in the next couple weeks?

Well, we’ve got a family trip. We’re scheduled to go to 5:00 first thing tomorrow morning to Kuala Lumpur. We’re going to spend a few days there. Then we’re going to head up to a colonial town of George Town in Penang. It is about a four-hour train ride up from KL to George Town and spend some time at a resort there.

Then the first week in September is the third annual Empire Flippers Retreat. That’s one of my most favorite events to attend. You’ll find me there at the end of the first week of September. I’ve got quite a good few weeks coming up.

That’s kind of like a mastermind retreat for a bunch of website owners and members of the Empire Flippers audience to get together and just kind of talk shop and have some fun on the side and talk about business.

Yeah. I love what they do, because if you go to a big conference, generally you listen to the speaker. Then after the speaker speaks, you go out and you grab a doughnut like coffee and you hang out with the people you know. With this, it’s a mastermind and they flipped it. Everyone gets to know everyone. We all keep in touch after it’s over, so it’s marvelously additive to building relationships. I know a bit I think about my little slice of e-commerce role, but there’s such a broad cross section of people that it’s just amazing to hear what’s going on. It’s only a short plane flight away from here.

Right. That sounds like an amazing trip to round out the summer, head into fall. It sounds like it’s going to be about two or three weeks. What I love about the fact that you’re taking that much time off is that’s basically what we talk about here on this podcast is how to structure your life and your business and your retirement planning around what you want it to be and not living within the box of the 9:00 to 5:00 and you get two weeks off per year.

If you try to take them both at the same time, your boss is going to give you a little bit of a glare. I think you have succeeded on designing a lifestyle and building a business around that. I love that you are putting that into practice and we’re not just talking about it in theory here on the show.

I will tell you this all honesty that one of the great things about working abroad is that you generally get six weeks of paid vacation. In 38 years of working, I started in 1980, this is the first time I’ve ever taken three weeks off continuous.

A matter of fact, working in the States, if you took off more than two, you were looked at. It’s very much frowned upon. My last two week vacation, I had conference calls every morning and it was at the end of August. Same time of the year. End of August. Conference calls every morning because we were looking at capital markets transactions. It didn’t even feel like a vacation to be honest.

I think the take home message for the folks listening is if you’re in that job right now where you’re trying to take vacation and you’re still handling conference calls or responding emails from the boss or the rest of your team while on vacation and supposedly being unplugged, there is a realistic outcome where you can make a transition into a place that has more freedom, more flexibility to do the things you want and less of the things that you have to.

Absolutely. It’s absolutely amazing to me, because the other thing that I didn’t mention is that your leave, as they call it, sacrosanct. No bothers you, so it’s wonderful.

I love leading with that message. I think that it transitions neatly into what we’re actually going to talk about today, because we do talk about a lot of these unconventional approaches to business that actually improve your quality of life and still allow you to be successful as an entrepreneur and as a professional. What we’re going to talk about specifically today is something that people have a standard perspective on that may or may not be founded in reality.

The world changes and things change, and today we’re going to be talking about debt, which is often perceived as this 700 pound gorilla in the room. It’s looming over you shoulder. It’s breathing on your neck. All the debt that you have just keeps you up at night worrying about, “How am I going to make these payments?”

You’re looking at your credit card statements or your financial statements and you’re saying, “Wow, I do have a lot of expenses.” Maybe to pay down this debt, I don’t have an income to balance that out, but we’re here today to tell you that, that doesn’t have to be that way if you manage it in the right way. It doesn’t have to be a liability. It can actually be an asset.

I know that you have some thoughts on this related to your no nest egg retirement plan and the philosophy behind that. Maybe we’ll kick off with your personal thoughts and experiences around debt and then we’ll get into some specific examples.

Yeah. First of all, this is the most common topic that I talk to people about when I’m having my first Skype consultation with someone. For baby boomers and for Gen Xers, it really comes from our parents and our grandparents. My grandparents, my grandfathers were born a couple years either side of 1900. My parents were born in the early 1930s, so just after the crash and in the middle of the depression. Then they went through the World War II.

1914 is when Henry Ford implemented the eight-hour workday and they moved from having children in factories working 14 to 16 hours to having a very regimented eight-hour day. Then the industrial age and all of the things like pensions were born. They became ingrained in how we think about not only our retirement but all of the other things kind of debt issues.

I would tell you that far and away, the horrible secret is that if you have a debt issue or a debt problem, you have no one to talk to. It’s almost like you have a scarlet letter on your lapel. Gen X and baby boomers get into debt issues many different ways, but it is a very, very unhealthy relationship that Gen Xers and baby boomers have with that because it’s never talked about.

First thing you have to do is get … If you’re in a debt mindset where you are overwhelmed by debt, you are undoubtedly in a scarcity mindset. And that means that you’re not thinking strategically at all. And you need to get out of the mindset and start to think strategically and kind of think about yourself as being a mini bank.

One the one hand, you have debt and the other hand, you have assets or potential opportunities. There are times when you shouldn’t pay down debt immediately or you can think about it because you may want to hold cash or because you may want to invest in things.

Sometimes with people that I talk to, it can take several conversations to get people around that level. Now, I’m not addressing the people that are in a monthly burn rate situation where they haven’t been able to rate their financial position. If you’re spending more money that you’re bringing in, the first thing you obviously have to do is get it to a point where you actually have some monthly savings. Once you have monthly savings, you have opportunities. You have options.

Yeah. I think you hit on an important point there, which is if you do have debt that you need to pay down, you really have two options. You reduce your expenses or you increase your income. And I think a lot of people will naturally focus on the expenses. They pull in. They tighten up. They say, “What can I cut?” Which isn’t necessarily a bad thing, but that is a bit of a scarcity mindset as opposed to you talking about we live in a world of abundance where really the better option probably is to increase your income.

There are multiple ways you can do that. You can get a raise. You can take on another job. You can do a consulting and coaching. You can buy a business. You can start a business, but that is an angle that when we’re talking about debt, I feel like a lot of people don’t consider is I can increase the income and handle the debt that way.

Guilty as charged. I’ve actually written that when the phone used to ping, because my wife was out shopping for groceries or whatever, it would literally send shivers through maybe because I was so overwhelmed by this debt obligation that I have.

You’re right. Look, you can only do so much on the expense side, but there are things you can do. There hasn’t been anyone that I’ve done a consultation with that I couldn’t come up with a half a dozen different things that they could do or that they should consider. On the flip side, raising your income, raising the revenue that you can bring in for your family is much …

… that you can bring in for your family is much … There’s many, many, many more levers that you can pull. So it’s absolutely … There’s much more that you can do. But in concert between the two of them, we have opportunities. We have options.

Right. And to hammer that point home, there are only so many expenses you can cut. You have basic living expenses. You need to eat. You need to get to and from work. Maybe you need to take the kids and get them cared for so that you can perform at your job. Whatever the case may be. You can only trim so much, and then you’re still in this conundrum. But as far as increasing your income, frankly, the world is so large. There’s seven billion people out there. There’s a way to make more money if you’re willing to put in the work and you have the skills and you find the right opportunities.

I think that ties to the next point that I think we want to talk about is there are different types of debt. If you are carrying a balance on a department store credit card that has a 20% interest rate, then yeah, that’s bad debt. Every single month, you’re just adding to the principle through the interest, and that’s something that is going to be an anchor for you and hold you back financially. That’s bad debt. But there is another scenario where you actually use short-term debt as an asset to increase income over the long-term and not just pay back what you borrowed, but have an ongoing revenue stream that can sustain you indefinitely going forward. What are your thoughts?

No question that the 20.99% APR debt is really horrible debt. I think probably most of the time, I’m talking to people that have student loan debt, to be honest with you. Let’s get rid of as much of the very high interest rate debt as you can. Now, when you’re dealing with student loan debt, there’s a myriad of different options. If it’s held by the government, they’re incredibly flexible, and there are things you can do. Again, the ability to have the option of holding cash versus paying that student loan debt off immediately is a really big option. You can put it towards other things.

The reality is get rid of that high rate debt, and then think of yourself like you’re a mini bank. You’ve got assets and you’ve got liabilities. The problem is when you’re in a scarcity mindset, you’re not there at all. You’re just putting the … You’re hoping to be able to make the next payment.

The other thing that I know we’re going to talk about is reaching out to your creditors to somehow restructure that, but there’s no question that you’ve got options that you can utilize when you’re in that situation.

Sure. I think that it’s important to explore those options, but I think maybe even more importantly, it’s you need to know that you don’t need permission to break free from the established thought that you have based on how you were raised or who runs in your social circle and how they’re managing their finances. The world changes, and if we don’t adapt with it, frankly, we get left behind. In a new world, debt doesn’t have to be a bad thing as long as you use it in the right way and you have intent and a strategy behind how you’re going to leverage the debt to increase your income or improve your business or start a business or something like that.

I can tell you that in 2013, when it became obvious to me that my expectations of where my earnings would be covered to after the financial crisis were not going to be there. They were going to be substantially lower, like half of what they were. That the feeling that I had literally every day of walking around was abject loneliness. There was no one to speak to. It goes back to the whole social stigma of debt. People don’t talk about it in their social circles. You certainly can’t engage colleagues at work and talk about it. Even my siblings I’m close to. You can’t. They don’t really understand. So that’s a really, really big deal and how you deal with it.

We worry about the plan that we had back from whenever and what the neighbors are going to think and what our social circle’s going to think. The reality is you’ve got to change with the times, as you point out.

I grew up in a neighborhood in the suburbs of Chicago and these big old homes that everybody had three, four kids back in the ’60s. As the kids left, the people never left these big old homes. We go back, and all the local schools closed. And so they never changed. Now, they didn’t have to, because they were in an era in the United States in the ’50s, in the ’60s, and even the ’70s where housing prices raced way ahead. And so those homes are fully paid off. By the way, the elementary school that I went to which was two blocks away had no cafeteria, because every kid went home for lunch. It was a different era.

Now, you have to … If your mental framework is from that era, I have a notion for you. Things have changed. You have to change. You have to survive. Don’t be a victim. Be a victor and change. Be the leader. There are lots of groups, including ours, where people talk about these topics online, because you just can’t go next door or to relatives or to work colleagues and have these conversations. So you’re absolutely right.

Right. Debt is viewed as a bit of a dirty word. People don’t like to talk about money in general for the most part, but they especially don’t like to talk about money that they owe to other people. Anybody listening at home, I think there’s an important point in here in that a lot of times, you see everyone else’s highlight reel, but you don’t see what’s on the cutting room floor. If you talk to somebody about their family, they’re going to tell you, “Oh, my son’s doing great. He got a promotion. He’s got a baby on the way.” They don’t tell you about the drama, and every family has drama.

In the same way, most people … In fact, I think it’s something like 80% of people, at least in the US are living paycheck to paycheck. So that guy next door that you think is doing great is probably just like you. Part of that is a discussion around debt, and people have debt. They have student loan debts. A lot of people are talking about that as the next big financial crisis or bubble that might burst here in the States.

The point here is you’re not alone. I think for the next two points that we want to make here during this episode are if somebody is carrying debt, some of that bad debt we talked about, what are some strategies that they can use to pay that down so that they’re in a position to leverage the good debt, to improve their financial situation or generate a runway or an emergency fund or start a business or whatever their plan might be individually?

One specific scenario I think we want to attack is someone who is carrying a bunch of bad debt. You touched on it. You can actually go to your debtor and you can negotiate with them different terms for paying that down based on your individual situation. So do you have any specific examples of that or stories of people that have done that with great success?

Yeah, absolutely. I’m glad you asked, because I do. I have someone that I know through this endeavor. He had a situation with one of the very large banks where they changed the terms on an unsecured line of credit, and it made his payments very, very tight. We’re now over nine years in an economic expansion. His job feels less certain to him. By the way, do not be paying down debt if you think a pink slip could be around the corner. Squirrel that debt away.

Anyways, he reached out to his creditor. This took a number of months. It took a couple of years for him to get to this level of having a constant dialog about where he was with his career coming in on retirement, being subject to a mandatory retirement. He renegotiated with his creditor, one of the large US banks. He was able to not only lower to pennies on the dollar a very substantial sum, but he was actually able to repurchase the note from the bank. Actually, a third party repurchased the note. A friendly third party repurchased the note, which means that the forgiveness of the debt, the amount that he will no longer owe the bank, doesn’t show up as W-2 income and he doesn’t have to pay taxes on it. So he literally saved taxes on $200,000 worth of what would have been phantom income, because he repurchased the note. But that took a lot of cultivation of the relationship with this major bank and the bank officer.

A lot of the banks right now, because we are late in the economic cycle. A lot of the banks are trying to get some of these suspicious loans off their books. They have the ability, particularly if they’ve written them down. They have the ability to just write them off, get on with their business. If you’ve managed it correctly, it’s actually an excellent strategy if you’re in a situation where you’re literally not going to be able to repay it without putting your family’s future really in peril. Look, he is an upstanding guy. The bank which he was negotiating with acquired another bank. Terms that were expressed orally back in the day no longer were subject, so a lot of things had changed. He wouldn’t aggregate his debt for a lot of moral and ethical reasons, but when it comes down to brass tacks of taking care of his family or paying off an obligation for which there’s all these cloudy and suspicious facts around, he went that route.

Yeah. I can already tell that this is a topic that’s probably going to have a part two, because there are some technicalities in there. Every situation is different, but the point that we want to hammer home here is it doesn’t hurt to put in a call to your debtor and talk about your situation and say, “Hey, I’m in a bit of a pinch right now. The way that things …”

Say, “Hey, I’m in a bit of a pinch right now. The way that things are structured right in currently are not working for me, so what are my options?” It doesn’t hurt to ask that and let them tell you what your options are. If you find somebody in your social circle, break the norm and talk to them about their debt and your debt. Odds are they might have been through a situation like that before. They might be someone like the person you just described who could say, “Oh, man. I cut my debt in half. I saved a bunch of money because I went and I asked these questions and I talked to these people.”

Yeah. James, I worked in banking for over three dozen years. Every bank has reserves against their loans outstanding, whether they’re credit cards, whether they’re mortgage loans, whether they’re unsecured loans. Every bank out there has estimated losses. Banks reserve against these things. So reaching out to them, which is for a lot of people something they wouldn’t even think about, is absolutely the best strategy that you can employ. Start the dialog.

You will find that if you have a personal loan, it’s a lot easier to reach out to them than if you have a credit card loan, but even with credit cards, there are lots of different things that you can do, but you have to have a dialog. So start sooner rather than later, because when your name comes up on the phone in the next month or six months from now, you don’t want it to be the first time. Particularly we’re late in the economic cycle, and if your company is going through a merger, if there’s downsizing particularly in the offing, if you think you might get a pink slip or if you’re going to be forced to retire. Any number of reasons, start the conversation early.

Yeah. There are options that you can refinance. They might even write off your debt. They might just lower your payment and extend the payment life cycle. There are a bunch of different options. The point is, ask the question. I think you just had a great segue into the last point we want to cover today, which is that situation where somebody thinks they might get a pink slip. Something’s not quite feeling right at work and there’s some transitions that might be on the horizon and they’re worried about possibly either being let go or laid off or fired. What you’re advocating for is don’t pay down that debt, but what would you suggest somebody does instead?

You hold the cash. I could be, and I’ve … In the No Nest Egg program, we talk about establishing a disaster fund. We talk about looking for a low cost place to live, the ability to downsize from your current run rate. I can tell you, I’ve been out of work a couple of times during my career and living in expensive payments. It takes nine months to blow through all your savings. So it doesn’t take long. So if you can squirrel the money away and not use it to pay down the debt, and if you can also have a plan and build a big disaster fund, and if you can also have a plan of someplace where you and your family can live at a much reduced rate. It could be family that lives close by from you or it could be another country where you can live for a fraction of what you live for.

I also have a friend who was given the pink slip. This was before the financial crisis. He took the opportunity to do volunteering work while the rest of the world was in turmoil. So in his CV, when he came back and started and the economy picked up, he looks like he did something that kind of the person on the other side of the table was jealous of. Had world travels, did volunteering work for a charity he believed strongly in, and used the time very wisely and saved a ton of money. I’m a big proponent of doing that.

One of the things I tell people to do is when you’re taking your vacation or your holiday, go visit a place you think that might work for you and your family where it’s much reduced cost of living, where you could spend some time and start to think about these things. What might make sense for you to do in terms of volunteering or alternative study or any kind of avocation that you might have.

Right. You’re saying hold the cash. Get yourself a runway or an emergency fund so that if the worst case scenario comes up and you do get laid off that you haven’t invested all that money into paying down bad debt. You have it available for you to start to explore alternatives and get yourself back on your financial footing. That ties into the previous point we just made. If you do lose your job or something like that, that is all the more reason to go back to your debtor and negotiate a change in the payment structure or pause the payments or something like that until you get back on your feet financially.

Yeah. Cash equals options. Cash equals options. All right? Give away the cash, no options. Think of yourself as a bank. Lose the scarcity mindset. Start to be strategic. But cash equals options.

Definitely. We’ve covered a lot of great material today. I know that time just flew by. I’m sure we’ll be back for a part two, because we can talk about the different types of debt that you can take on, both good and bad. We can talk about some of the technicalities of the negotiations and everything. But I think that what we really want to make sure that everybody walks away with today is that abundance mindset. We don’t live in a world of scarcity. You don’t have to live in fear because you’re carrying debt. You can take action to pay down the bad debt and you can use good debt to increase your income and improve your overall position. Frankly, if you go about it in the right way, that kind of transformation can take place pretty quickly.

Ian, it looks like you’ve got some parting words for us.

I was just going to say the only other thing that I would add to abundance mindset is that you’re not alone. Gen X and baby boomers, the debt cloud that you’re walking around underneath, you’ve got to lose that as quickly as you can. Read some of the material on our blog. Join our community. You can’t be strategic when you’re worrying that every ping on your phone is your wife spending money on groceries and you’re upset. And I did that in 2013.

Okay.

I’m guilty.

I’m really glad you touched on that, because I definitely don’t want to forget about that, because debt can have implications for other areas of life. Your relationships, your health. If you’re stressed out about this kind of stuff, that’s going to not just affect your profession-

It was horrible. My wife called me a financial terrorist. She doesn’t happen to be here right now, but she called me a financial terrorist. That crock pot you bought, it’s going to lead us to financial ruin or whatever. It was horrible. It was a horrible mindset to be in, and I wouldn’t wish it on anybody. Literally, it was one of the reasons that I spent the time and put together the No Nest Egg plan. What we’ve tried to do is everyone wants to out-intellectualize everybody with their fancy retirement planning programs. Ours is really for is common sense for common people. It’s not highbrow, and it’s very practical. It’s the new economy. It’s the real world. It’s not the … The retirement planners, the guys with the whole alphabet after their names. They want to believe that they’re doing something that’s rocket science, and they’re not. I’m here to tell you they’ve worked for me in the past, and it’s just not the case. What we offer is real world solutions in the new economy that really work.

If you’re sitting at home and you’re feeling depressed, sad, overwhelmed, lonely about debt and its presence in your life, then we have the No Nest Egg retirement plan that you can check out. We’ll link everything up that we talked about today up in the show notes. Those will be available at redpilretirement.com. Of course, like I mentioned before, we’ll probably come around and cover this topic again, so you’re going to want to subscribe for updates. But in the meantime, Ian, I think we’ll have to call it there for today. We’ll definitely come back around to this, but until I talk to you next time, enjoy that trip with your family. I hope you guys have a blast and safe travels.

Thank you, James. I look forward to seeing you again.

Sounds good. Take care.

All right. There you have it. That concludes my conversation with Mr. Ian Bond about debt and the role that it plays in entrepreneurship and business building. I think what we really accomplished here today was disproving or otherwise invalidating the traditional view that debt is always a bad thing. It doesn’t have to be that way. In fact, it can be something that you leverage in the short-term to drive up revenues in the long-term without putting yourself at too much risk.

Three key takeaways we have for you today are one, just what I said there. You can use short-term debt to increase revenues and grow your business faster and more efficiently and then use those additional revenues to pay down the debt and mitigate any risk, real or perceived, that you might have had coming into it.

Second, if you’re planning on retiring soon or if you expect a pink slip, paying down debt is the last thing you should be doing. You should be stockpiling that cash. You should be giving yourself a safety net or a nest egg or a runway so that if you do make the retirement decision or you do receive that pink slip, you have cash reserves that you can float in the meantime until you can start a business or find a new revenue stream that can support you into retirement.

Then finally, most people don’t even consider negotiating with the person or the entity that holds their debt. In many cases, you can go back to them and explain your situation and negotiate better terms, whether that’s a lower payment, a better interest rate, a refinancing, or even writing off your debt entirely. Any of those outcomes can put you in a better financial situation than you might be in today.

So if you took nothing else away from this episode or if you enjoyed the conversation a little too much to take notes, those are three key takeaways that I want you to walk away with today and see how they might apply to your life and to your business.

We’ll wrap it up there. I hope you enjoyed the conversation today. As always, we’ll link everything up in the show notes that we talked about. Otherwise, we look forward to seeing you on the next episode. Take care and drive on.

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