Latest / Money Grows on Trees / #349 - Watch Me Live Eliminate Thousands In Debt

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#349 - Watch Me Live Eliminate Thousands In Debt · Money Grows on Trees

• 0:00
  Debt isn't as complex to eliminate as people believe. Most people think
• 0:03
  paying off debt is just about cutting back on coffee and hoping for
• 0:06
  the best. But the reality is there is a specific order and strategy
• 0:10
  to eliminating debt that can cut years off your repayments and
• 0:13
  save you tens of thousands of dollars in interest. I'm Lawyer Jay
• 0:16
  Ross, seven-figure investor and entrepreneur, and I've helped thousands of everyday Aussies, Americans, New
• 0:20
  Zealanders, Kiwis, Canadians. to get out of debt and build real
• 0:23
  wealth. And in this video, I'm going to sit down and live walk
• 0:27
  you through exactly how to eliminate debt step by step from
• 0:30
  a real life example, so you can see the process in real time
• 0:34
  and apply it to your own situation and learn these lessons. This is
• 0:37
  financial education live. All right, so if you're listening
• 0:40
  to us on Spotify or Apple podcast, then you
• 0:44
  wanna head to our YouTube channel where I've got a visual here, where I can walk you through
• 0:47
  exactly what we're doing and it'll just make it more effective, but you can listen in, but
• 0:51
  again, head to our YouTube channel, hit the subscribe button and come and check out the visual
• 0:54
  aid I'm using to go through this episode of live financial education
• 0:58
  in real time. So what we have here, on the screen as you can see
• 1:02
  is basic net worth statement and income statement. And I think this is a very
• 1:05
  important first step to say is that if you want to get your finances under control, you
• 1:08
  have to understand two things. One, what is your current net worth? Meaning
• 1:12
  what are your assets minus your liabilities? What could you tangibly
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  say and put your hands on in terms of net assets? This
• 1:19
  is also how you look at the value of companies as well. And of
• 1:23
  course, the income statement, which is how much money is left at the end of the month?
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  You get your income, monetary expenses equals your savings. And so the
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  old saying goes, income minus ego equals savings. So these
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  are the two most important things to look at in your own personal finances. So
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  net worth, income statement. So in this episode, we're talking about eliminating debt.
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  So what I've decided to do is take a real life scenario of
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  someone who has actually filled this out. Someone
• 1:48
  at random filled this out. These are real numbers for them. I
• 1:52
  thought it would be cool just to go through this and explain
• 1:57
  to you as to how I see this entire financial snapshot
• 2:02
  and how in about two or three moves, this
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  can completely transform this person's financial future. So
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  that's cool. So let's look. All right. Assets we've got here.
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  No business, but family home, $950,000. No share portfolio,
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  no other investments, which is very typical. Retirement funds
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  of $77K, which is also pretty typical. Car,
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  $27,000, fairly typical. Home and contents, just another thing on home and contents. It's
• 2:27
  not really worth that much. Like if you were to sell it and fire sell it, you'd probably get
• 2:30
  half of what you think it's worth. And RRSP, which is actually retirement
• 2:34
  funding, which is, this is a Canadian person, so there you go. Some
• 2:39
  retirement savings there. So that's the assets. Now the total assets is a
• 2:42
  million dollars. A million dollars in assets. Not unusual at
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  all, by the way, with inflation or what's happening in asset prices. And
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  we can see a lot of that's the family home, which is also very common that they have
• 2:53
  most of their assets, if not all of them, locked up in their family home. Now,
• 2:57
  looking down at liabilities. Let's check this. We've
• 3:01
  got business debt, which is very interesting considering there's no business.
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  $482,000 in mortgage debt, very typical, and not that bad, actually,
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  considering the value of the property is almost a million bucks. Going down here,
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  great, there's no forefollowing margin debt, no car debts, really good. That's a very unusual
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  thing to see, actually, no car debts, no car payments, personal. This is
• 3:20
  very interesting, and this sticks out like or dog's balls,
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  but personal loans of a hundred grand and
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  credit card debt of $150,000, which is unbelievably
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  high. It's probably the highest I
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  think I would have ever seen of someone who has any
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  credit card. That's the highest, that's high. Now it tells me too, this person happens
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  to be probably more so from either the USA or Canada, because
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  in Australia you would never be it on $150,000 income,
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  you can see there, you'd never get $150,000 with a credit card. You'd
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  just be denied, right? So in America, they tend to give out credit
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  cards a lot easier. In
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  North America, there's just
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  a different cultural experience where it's like, if you have money and you go
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  broke, that's okay. You'll be right here with some more money because it's a
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  financial center of the world. But in Australia, if you don't pay your debts, you become a pariah, you
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  become this on a leper. You
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  can almost not recover from that. Full recourse loans in Australia, they
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  will come after the debt until it's repaid or you go bankrupt in seven
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  years or three and a half years, depending on what you're doing, of getting back on your feet. Anyway,
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  I can just tell if someone's got that much credit card debt, they're typically from a North American residential
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  postcode. Now, that's pretty much it. So what we've got
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  here, it's not added up on the sheet, but we would
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  have around about 580, 680, 730, 750, 750K worth of liability. So if we take a
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  million and 80 minus 750, we're at roughly 330,000 of net worth. So in this, we put here
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  $330,000 net worth, okay? Now
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  you can see the biggest problems of these credit cards, like huge problems. Now what
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  will happen is with the credit card debt, the higher that is, the higher
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  the expense is on the interest side. Now there's no interest shown here incidentally,
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  but it would be there and it would be to the tune of about $22,000 a
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  year. I'll explain that in a second. Let's go to the income statement. We got here $148,000 after
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  tax. That's what's coming into the household each year.
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  Very typical, by the way, after tax dollars. So perhaps it's
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  a couple earning 100K plus each after tax. We're left
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  with this on both incomes, which is pretty normal. What's
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  interesting here is no other income. There's no dividends from shares.
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  There's no rental income. There's no bank interest. There's no
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  welfare, which is interesting, which is good. There's
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  no side hustle income. There's no weekend income
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  or evening income that I'm seeing here, which is also fairly
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  typical, but there's a huge opportunity there. Now,
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  looking at expenses, mortgage is usually the biggest. Petrol,
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  pretty big. I don't know why there's no car register, that's weird. Car
• 6:09
  insurance, quite high. Maintenance is very high. 8,000 a
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  year for car maintenance servicing is very high. Something's happened there. That's
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  unusual. Phone, pretty typical. Internet, typical. Personal
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  insurances, not
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  small, but it's a family, I would say. Groceries,
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  $1,000 a month, fairly typical now. Entertainment,
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  10K a year, pretty typical. And holidays, 10K,
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  pretty typical as well. Subscriptions, very
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  high. You see this a lot too. When
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  you first snapshot someone's, like if I was to ask you, what can
• 6:46
  you snapshot your monthly expenses or your yearly expenses? Subscriptions
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  is massive because they just incrementally increase over time without you
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  knowing. Now, it's not to say don't have any, but it's just to say be in
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  control of them. That's all. Just make sure that you're getting more ROI
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  than what they're costing. There's a small cost, you
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  just forget about them. So total is 99k. So if you look at this, 148 minus
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  99, that's interesting. It's inaccurate because out
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  of the credit card debt, we're gonna
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  have 150,000 at even 17% rate
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  is 25 grand a year. So straight away, you can add 25K a year
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  to that. And I'd say, not a personal 10%, you could
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  add 35,000 a year just in interest payments.
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  So if we were to do that down here, I'm not gonna do it now, but in that box, 35K,
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  you're at 135K. 148 minus 135, plus some interest that's not
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  on there, I bet this person's living paycheck to paycheck. In fact, you'd almost
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  guarantee it. Now, the
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  reason I wanted to do this one is because this credit card debt is obscene.
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  And at this point, you're paying $25,000 to $35,000. This is $250,000 of debt, of high-interest
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  debt. That's worth $35,000 a year in after-tax money you must use to pay that. So you've got to be earning $50,000 just
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  to service the interest, not even the principal. So
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  this is someone who is now officially, I would say, in financial crisis.
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  It's very bad. And what's caused it is
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  a behavioral pattern of using
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  a credit card and getting more to just buy consumer things, or
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  just make ends meet. Because a credit card is usually used
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  for, oh, we earned this much. We spent too
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  much. What are we going to make up the shortfall? Put on credit, put on credit, put
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  it. So it's this insidious additional compounding process
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  every month that happens because here's why, because these things
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  aren't addressed. That's why, and these things aren't
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  addressed. There's
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  a beginning of a simple fix. I believe there's
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  about 15 grand a year instantly salvageable
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  here, which is fascinating, which is not always the case. Whenever you
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  see, oh my God, the liabilities are massive like that, the first thing
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  you've got to look for, which is what a company does when it's in trouble too, is
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  you've got to look for what assets do we have that we can sell? Straight
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  away, that is the first protocol. If this particular
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  person sold their home for $950, paid out the mortgage, they'd
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  have about roughly $500,000 available
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  in net cash. They could easily clear
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  that and that, and they'd have $250,000 cash available. They could put that
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  into an index fund and get some income, and they'd be okay. That'd
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  cover half their rent probably. Maybe a quarter. So
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  that'd be okay. So you can do that. But the whole idea is once you sell
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  the house, then you've got no assets growing in value over time. And then you've got
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  security issues and blah, blah, blah. You've got a family, very important. So I
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  wouldn't suggest they sell the house, but what you can see if
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  the house is worth 950 on a bank valuation and the
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  home mortgage debt is 480, guess what? there
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  is room there to refinance this expensive 15% to
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  20% credit card debt, even if it's 15% across 250 for both
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  of those, because personal loans are pretty expensive too. I wouldn't say, let's
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  say 12.5% to be conservative across 250,000 is $31,000. just
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  in interest. So if these were to be rolled in
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  a refinance into their home equity, so they get the home equity, which is
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  roughly 500,000, use some home equity, so get a home equity
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  loan from the bank at 6% and use
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  it to pay the $250,000 in personal loans and credit cards, then
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  you're getting 0.125, you're basically cutting your interest in half. So
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  instead of 31,000, they're only paying 15,000 in interest. And
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  it's rolled up in their mortgage repayment. So you see the mortgage repayment would go up, by
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  about 15,000 a year, then we go up to 47,000, but
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  they'd save 15K in interest payments that credit
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  cards would be gone, right? So instantly 15 grand
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  better. Now at that point, they'd have to cut up
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  their credit cards and never use them again because they can't be trusted. It's a slippery slope and
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  they're just not to be, so you just never touch me. So that would eliminate a zero, zero.
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  The mortgage debt would rise by 250, so 482 plus
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  250, it'd be at 730K, still manageable.
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  It's on a lower interest of 6% instead of 15, and the mortgage repayments would
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  go up. So this particular expense total, would
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  actually fall by $15,000, which is about $1,250 a
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  month or $1,100 a month. It would put another $200 to
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  $300 a week in their pocket, which you
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  could then use as an example to then pay
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  off the business debt. quicker, get that
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  to zero, save the interest, and then you could start to load all
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  of those savings into paying and reducing that home mortgage debt
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  back down. That's
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  the first big move to make here. That's the first thing
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  to make. Beyond that, once that's done, then
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  it would be first and foremost, how do you ask for a pay rise at
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  work? That's the fastest way to get more money.
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  Give me a pay rise, give me a pay rise. Or shift jobs, get a higher pay rise,
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  because active income is the fastest to nail. Then while that's happening
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  too, I would say the investments can
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  only happen if there's free cash flow at the bottom here. So if there's no free cash flow, hard to
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  invest. What I would do is start
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  a side hustle. Now you can do things like you can even pet sit
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  dogs. Like I was talking to a student of mine yesterday and she goes, Lloyd, I just made my
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  first $800 pet sitting dogs. I'm like, that's so good, well done. Cause
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  my wife's made two grand at pop doing that. It's so simple. So
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  I get stuck into something like that or some sort of network marketing side hustle.
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  That's where we started and we in thousands of dollars a week doing that now still
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  goes 12 years later. You got to do something. So side
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  hustle is like hustle in the evenings. So your nine to
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  five runs your life and your five to nine builds your dreams or pays
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  your mortgage off or pays debt off, whatever. So that there has to be a
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  five to nine here and there's not one. And then beyond that, weekends
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  work like, and also when you're in crisis and you're moving
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  out of it, no holidays for the year. Bam, bam, just
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  nine. You just got to cop it on the chin, cop it sweet. Like you
• 13:31
  got to make some major changes. And so in the
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  groceries one is interesting. What you can do is instead of going to the shop
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  a lot, you shop once or twice a week. So
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  you don't waste food. So if you shop twice, you waste less food, but then buy
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  things on special, look for bulk and then shift $200 a month
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  out of that. And it changes the whole game by two grand. So it's
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  just incremental shifts and changes. This one's interesting. I don't know what happened
• 13:54
  to the car there, but that's unusual to do 8K. What I'd
• 13:57
  consider doing if there's no debt on the car is you could potentially take
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  27K, sell it, get a Japanese 10K out, that's 17K
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  released, and you could put the 17K into either starting
• 14:09
  a business, get going, or you could pay off this business debt, or you could just cut
• 14:12
  it again from your mortgage. But that's available, which is
• 14:15
  good. petrol, insurance, you'd go
• 14:19
  and readdress and look at, okay, car insurance is three and a half K. I
• 14:22
  can probably get it for two and a half. In fact, I did that the other day at Range Rover. Well,
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  this is over there. It's three and it was Suncorp quoted me three and a half K. I
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  was like, you're being a bullshit. Three and a half K. I went
• 14:32
  to RSCQ and I was like, hey, what can you do for me? And
• 14:37
  they did two and a half, a thousand bucks. Now for us, we happen to
• 14:40
  be in the shopping center. I'm like, ah, it's worth a thousand bucks. Let's do it. So
• 14:43
  you can cut that down by a thousand probably. Petrol,
• 14:47
  look, if you're getting serious about this, then it's
• 14:51
  not out of the question, I know it's very inconvenient, to stop using
• 14:54
  the car and take some public transit or cut it in half somehow. We're
• 14:58
  getting to the brass, this is
• 15:02
  where behavior change has to happen. I'd get a new quote on insurances. Try
• 15:08
  and cut entertainment down incrementally. and
• 15:12
  then definitely make a huge cut to subscriptions. Then that would
• 15:15
  just create a huge, a more decent, if you get a pay rise
• 15:19
  there, start a cycle that increases the income, cut, cut, cut,
• 15:22
  cut some of that, increase the free cash flow, goes back into paying off the
• 15:25
  debts, better keep the house, and
• 15:29
  they're in a, I would say a stable position, a stable position.
• 15:33
  And then really to build wealth outside that would be,
• 15:38
  the side hustle turns into a full-time side income and
• 15:42
  they keep these expenses low and they just progressively either
• 15:45
  pay off their home debt or put this into an index fund and start generating dividend
• 15:49
  income. And honestly, after that point, it's pretty much
• 15:52
  the same game. And you just, just
• 15:56
  grind your way through it. And that's sadly how it's got
• 15:59
  to go. We've all done it. We've all been there. So I think what's
• 16:03
  interesting about this is the assets have saved the day, which is why assets are so important, but
• 16:06
  they're just not been, it's not efficient. Because
• 16:11
  why would you have home equity there when you can just borrow at six and
• 16:15
  pay off debt of 15? You would in a heartbeat. In
• 16:18
  a heartbeat. It's very simple and straightforward, especially this size of
• 16:21
  debt. If this was a lot less, like 10K, I wouldn't do it. Because 10K, you
• 16:24
  can pay it off, right? But it's a huge amount. and then avoid personal
• 16:28
  debt and it's nice and clean. Pay the mortgage to zero, don't
• 16:31
  compromise the house, build side hustles
• 16:35
  and share portfolios on the outside, play that game for a long period of time, keep
• 16:38
  your costs low and you'll be experiencing a level of financial peace and freedom
• 16:42
  that most people don't have. But I hope that makes sense. This
• 16:45
  is how I'd approach this if I was this person, and it's definitely
• 16:49
  salvageable, but it just goes to show you how important it is to track your numbers,
• 16:53
  understand your net worth, your assets, your liabilities, income expenses, because they're
• 16:56
  the four big things. What's my income minus my expenses? Do I have free
• 16:59
  cashflow? If there's no free cashflow, drop expenses, increase income. Very
• 17:03
  important. Once you've got free cashflow, can it be used to pay off debt? Yes,
• 17:06
  perfect. And can it be used to buy assets? Perfect. So pay the debts off, build
• 17:10
  assets, and you start to then generate more income that goes into the income statement that
• 17:13
  creates more free cashflow and you build a wealth loop. And so this type
• 17:17
  of snapshot here, assets, liabilities, income
• 17:20
  expenses, the reason why it's so important is because without
• 17:24
  this, you can't make any decisions. And most people are stuck
• 17:28
  in financial prison because they've got
• 17:32
  analysis problems. They don't even have any analysis. They just have paralysis. They
• 17:35
  don't know how to make financial decisions because they don't have any data. So
• 17:39
  the whole idea of the data is not to do the sheet. I did my sheet. No,
• 17:43
  the whole idea is to have the data to then go, okay, this is what it's saying to
• 17:47
  me. This is the next move. And then you
• 17:51
  execute that move with violence, right? General George
• 17:54
  Patton said, an imperfect plan executed today
• 17:57
  is better than the perfect plan executed tomorrow. Okay. So
• 18:03
  do your numbers, then that'll dictate your financial decisions. So
• 18:06
  I hope this has been helpful. If you've enjoyed this one, pop a question below or comment below. I'm sure
• 18:09
  you can have an opinion on it. That's okay. This is why we're here on this channel to participate and
• 18:13
  talk to each other about it. But hopefully this has been educational for you and it encourages
• 18:17
  you to track your numbers. If you can't measure it, you
• 18:20
  can't manage it. All right, so hit the subscribe button if
• 18:23
  you've enjoyed this. Share this episode with a friend and I'll see you in the next episode
• 18:26
  of the Money Grows in Trees podcast. Thanks for listening to
• 18:29
  Money Grows on Trees. If you enjoyed the episode, leave a five-star review
• 18:33
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• 18:39
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• 18:43
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