Is financial freedom really possible for you? It is IF you question EVERYTHING that was taught to you from “financial experts,” including paying off your debt and saving in retirement accounts. Find out from our host, Chris Miles, why those people NEVER find financial freedom merely by paying off their debt and saving everything they have. Listen now!
Chris Miles Bio:
Chris Miles, the “Cash Flow Expert,” is a leading authority on how to quickly free up and create cash flow for thousands of his clients, entrepreneurs, and others internationally! He’s an author, speaker, and radio host featured in US News, CNN Money, Bankrate, and Entrepreneur on Fire, and he has spoken to thousands getting them fast financial results.
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Why Would Financial Freedom Be Impossible For You?
I want to talk about why financial freedom is going to be impossible for you. This was inspired by a post that’s on Facebook. Let me preface it by saying this, every once in a while, I get people asking, “Is there hope for financial freedom? Is there hope that I can have the kind of life I always dreamed of? I’m even in my mid-50s or 60. Is there hope?” The answer is, “Yes, there’s always hope.” I even told that to somebody who is in their mid-50, “There’s always hope, but it’s going to require you to shift the way that you see money, retirement, and everything.” Even if you’ve heard me before, sometimes it can require a bigger shift in your mind and in your understanding of what you’re currently doing.
The Traditional Advice
If you go by the traditional understanding, but I think that every financial advisor, every financial expert, every person out there is telling you to do, they’re telling you to pretty much do the same exact thing. Aren’t they telling you to pay off your debt and once you get that all paid off, start stuffing away money into your 401(k) plans or whatever possible retirement plans that are in there for you? Insert that proper thing, but it’s usually the same old stuff.
It’s, “Pay off your debt, save for retirement and save as much as you can for as long as you can. When you get to retirement, take out as little as you can.” They even tell you to take as much risk as you can. That feels all great and dandy when the market is doing great, but then when the market goes down at tanks, then you feel like crap, then you feel like you have to spend the next 5 to 10 years catching back up or in the last many years now, it took people about 15 years to get back to where they were.
I’m even seeing people come up with numbers in the last twenty years. They’re like, “I’ve made a whopping 3.5% or 4% of return in the market. If you do what they’re recommending and you do it, how they recommend it and you come from the same perspective that they do, which is in a perspective of scarcity, in a place of gambling and doing things that aren’t in your best interest, then yes, financial freedom will be impossible for you.
Financial freedom is not a state of how much is in your bank account or wallet. It’s a state of mind. It’s even a state of being and who you are. Many people will tell me, “If you do this, you’ll become financially free.” For example, there’s a post on Facebook that one of my friends did. I follow this guy like crazy. I adore the heck out of him. I love his stuff. It was interesting. He made a post that was inspired by the book he was reading called The Millionaire Next Door. I used to completely buy into this book’s philosophy. I have the goal to buy that INFINITI like they say because they say, “Wealthy people live just next door like everybody else.”Financial freedom is not the state of your account. It's not a state of how much is in your bank account or how much is in your wallet. It's a state of mind and being, a state of who you are. Click To Tweet
They were doing their study. They said, “Millionaires live in middle-class neighborhoods. They drive INFINITI or other cars. They don’t drive the Maseratis, Lexuses, Mercedes or things like that. These people drive average cars. Sometimes, they drive pickup trucks and they live cheap. They only make $70,000 a year and stuff like that.” The rent of this book is way out of data because I read this when I was the first financial advisor living broke in an apartment that was only rented for $650 a month.
I remember this book and following the advice in this book will not work. There are some good points. It does bring up that not all millionaires are consumers. The problem in this book is that they bring up the philosophy that somehow, by being cheap, not spending money, not enjoying life necessarily, but by just being average in everything you do, basically by having a very consumer savor mentality where you put away all the money you can or don’t nickel and dime everything, then yes, you will become a millionaire.
Financial Freedom Versus Becoming A Millionaire
Becoming a millionaire and financially free are two very different things because I have people that are technically millionaires that I work with and their asset is total over $1 million. They are millionaires, but they don’t feel like it. These people have lots of money to save every month. Their cashflow is great. I’ve got people got $1,000 a month they can put away and they’re still not financially free. When I talk about financial freedom, I define it not as being debt free because that’s definitely not financially free. I’ve seen a lot of people be debt-free and still feel broke.
Debt-Free Versus Financial Freedom
In fact, people who are most passionate about becoming financially free and being debt-free are the ones that aren’t financially free. They have debt. They think that somehow debt free will bring them financial freedom. When they get there, they’re like, “That was awesome. Now what? Now I’m at zero.” That’s the kind of thing that happens. By becoming “debt-free,” I’ve never seen anyone truly become financially free, which to my definition is where money no longer becomes the reason or excuse that you do or do not do anything or, in other words, when money no longer dictates what happens in your life.
I’m not saying value like you were looking at value for something. For example, I go grocery shopping, especially here in California. The bills are way more here with my food shopping that is back in Utah. When I’m looking at stuff, if I’m going to pay a higher price, I want to make sure I’m getting more value. Wouldn’t you? That’s one thing. When you’re saying, “I don’t want to buy this because it’s more expensive,” not because it’s better, but you want to go with the cheaper option because it’s cheaper. That’s where you will never become financially free.
If you’re just paying off your debt because somehow you think debt free will make you financially free, the problem is that most people think that debt-free means they don’t have to pay expenses anymore. They don’t owe anybody anything. The reality is that in your life, you always owe people money. You will always be paying taxes and maintenance for that house and keeping. You’ll be paying for insurance on the house if you’re wise with yourself. If you’re doing those kinds of things, being a proper steward, you’re always spending money.
What will happen is you’ll say, “I freed up about 20% to 25% of my expenses overall, but I still got expenses. I still have the other 75% to worry about.” When people realize, “That’s not necessarily doing it,” this is where there’s this total delusion. It’s not even an illusion. It’s a delusion to believe that just by saving lots of money and by paying off all your debt, you will become financially free because I have been working with those people that have been doing that like good little boys and good little girls. They’ve been doing all of that to a T. They still say, “I’m missing something. I still feel like I have to work every day and I have to do this.” Part of that is the change of perspective.
Some people that I’ve worked with have the ability to retire right now or soon, like within the next few years, while others might take 5 to 10-plus years. It’s case by case. It’s interesting that the shift has to change. This is booming back to my friend on Facebook. He’s saying, “Do you realize a $150,000 mortgage over 30 years at a 3.92% interest, you’ll pay over $105,000 in interest?” He’s like, “That’s $105,000 you’ve wasted.” I came back. I said, “I love your stuff, but contrary to this point, you’re always paying interest, whether you’re paying it to a bank or cash for something that is now taking away your ability to earn interest on that money.”
For example, you pay cash for a car. If you just pay outright cash for a car, you have no interest paid to a bank, but you now have lost that ability to earn any interest of that money because now you put into a car, which in most cases, it’s a depreciating asset. Whether you finance a car, pay interest, or use that money, you’ve lost the ability to earn interest. This interest is called lost opportunity costs. This will apply differently to every single one of you. Every one of you has lost opportunity costs to some degree if you use your money, cash and try to be “debt-free” in this example. For some people, it’s absolutely great.
If you’re a horrible spender and you don’t do anything with the money anyways, you consume it, then yes, you should be debt-free because you’re not going to do anything wise to the money anyways. You might as well not put yourself in a harder position with the bank. If you’re someone who more likely than not want to be a steward, not just a saver because even savers could do better, where you actually create real wealth and cashflow, you’re not just saving money to accumulate and then hope you can live off the interest someday, which will require millions of dollars to even have a middle-class lifestyle. No, you’re saying, “I want to be a steward. I want to create real results. I want to create actual retirement now. What else could I be doing with that money?”Most people think that debt-free means they no longer have to pay expenses. The reality is that you always owe people money in your life. Click To Tweet
That’s always the question you should be asking. There have been many times I’ve looked at my debt situation and there are times I’m tempted to want to pay off every single penny of loans and debt that I have. Some of it was like, “I got to pay this off. It’s the best rate of return I can do.” There are many cases of people I’ve worked with where we do pay off the loans. In fact, there have been a few clients we said, “For you paying off your loans at the best rate of return. It will be even a better rate of return than even trying to pay down or try to go and invest even like in real estate.”
The reason being is that we could still short-term be able to create something because we free up so much money with the debt that it creates much more cashflow than real estate would. That’s what I’d have you consider. Maybe you try to pay off that car loan of $10,000, and it’s at $400 a month. What if you were to put that $10,000 somewhere else? If you put that to a $50,000 real estate property, you’re looking to make a couple of hundred dollars a month. That’s if you have a renter. If you knew you could make more money by paying off that car, then you could be investing it. You could take $10,000 and maybe invest it into your business if you’re a business owner, for example.
Maybe you invest in your business, that $10,000 save and makes you $600 a month. That $600 would be better than paying off your car. You might be better not paying off your car and putting it into your business to make more money there. I tell people all the time, “If you work with me and if I accept you in the program, it’s because I believe I can make that money back within a year.” In that case, if somebody try to do $10,000, I would hope that we’re going to find at least $800 a month or the equivalent of $10,000 lump sum somehow some way, whether it be recouped interest, tax savings, through debt, income-producing things, or whatever it might be averaging $800 a month or $10,000 that year. That’s getting to be even better than a car loan in that scenario versus the $400 a month.
It always comes back to cashflow. It doesn’t create for you because those create options. You might say, “I still have debt.” You do, but if you have $800 a month instead of $400 a month, couldn’t that $800 go and accelerate the way you pay off that car? Could you pay it off faster and now you have more versus, “I put that $10,000 into that car. I paid off that debt,” but now I don’t have $10,000 anymore. Now I’ve got to wait for $400 a month.”
Business Is Not For Everyone
It takes a couple of years to save up that $10,000. You had to get back to there versus saying, “Now we’ve got $800 more a month plus the $400 paying my cars. That’s $1,200 a month. I can pay that off within one year.” It’s all about what creates the most cashflow for you. The thing that shifted for me is, “What creates the most bang for my buck? What can I do to spend the least amount of dollars to make the most amount of dollars?” This is case by case because some people put $10,000 into their businesses and make nothing. They lose money. If that’s the case, you should either One) Reconsider what you’re investing in your business or Two) You should reconsider whether you should be in business. Not everyone should be in business.
Some people are just perfectly great working for someone else because if you’re a business and you can’t make good money, even after doing the things that you’re doing, if you have a hard time making money in your business, maybe working a job is the best thing for you and maybe there is more freedom there than it could be in a business where you’re stuck all the time. The American Dream and being a business, I’m a huge fan of the business. That’s one of the coolest investments you could ever do that creates a lot of value and can make great money, but it can also be enslaving because I have a lot of businesses I’ve worked with where even if they’ve made good money, they don’t feel like they have a lot of money.
We have to have them in a place where we can create more money or create other streams of income outside of their business as well. It always comes back to that cashflow. What can you create? What’s the best investment for you? When I say investment, it could be paid off debt, saving into a savings account, investment, retirement-type of vehicle, buying real estate or whatever it is. It depends on who you are.
I want to get to my point here on this whole interesting. He said, “$150,000 mortgage will cost you $105,000 interest at 3.92%.” I think that’s hilarious because I remember over ten years ago, when I was a mortgage broker, we were talking about how great interest rates were at like 5% or 5.5%. I’m going to raise “people” by 6%, so I wouldn’t overpromise. We try not to over-promise by quoting 4.5%. Back then at 6%, you were looking at $150,000 loan. You’re paying an extra $150,000. In my eyes, I’m thinking, “Relative to this. This is $45,000 plus cheaper than what I was showing people before.”
$105,000 over 30 years sounds like a lot. It sounds like you’re wasting $105,000. What if you had $150,000 to pay off that mortgage? I mean, wouldn’t that be the best case scenario? Wouldn’t that save you the most interest over time? Most of those people are quoting that. They’re usually trying to put extra payments towards a mortgage, which by the way, in almost every case, other than the horrible spender, the people that can’t stop spending money, great put into your house
For those that at least are good savers or want to be wise stewards, don’t put that money in your house because I learned that personally, the hard way. Throwing extra money in equity in your house only makes the bank feel better, but not you because that money’s not yours anymore. Even if you try to sell that house, maybe the market goes down or credit markets change, maybe all of a sudden, the equity you put in like what I did during The Great Recession, had tons of equity in a home and couldn’t get it back out because the recession was going on. I ended up losing that home. There’s no freedom until that home is completely paid off. I prefer people to keep money off to the side.It's a delusion to believe that you will become financially free by saving lots of money and paying off all your debt. Click To Tweet
Let’s say you did have enough money to pay off that home. That’s the best-case scenario. That would save you $105,000 of interest. Paying little extra payments every month doesn’t give you hardly any more freedom and doesn’t free up that much interest. If you run the numbers, it doesn’t do much. When I look this way, I’m like, “What if you had $150,000? You could pay off your home today, but you don’t. Instead, you’re going to say, ‘Nope, I’m going to pay that home the minimum payment for the next 30 years. I’m going to pay the full $105,000 of interest.’” What if the $150,000 was making money off to the side?
Remember that that loan was almost at 4%. What if you earned 3.5% on that money? You don’t even earn the same amount of money. You earn less interest on a mortgage. 3.5% on $150,000 over 30 years, you’ve made $271,000 of interest. You’re not even earning the same interest rate. I know you’ve read it on other episodes. I’ve mentioned this before. It is because it’s compounding. When you have a mortgage, it doesn’t compound because you’re paying down the balance over time. It’s simple interest. The interest decreases over time. That’s why you keep making more payments, more as a principal. In a compounding interest situation, when you story money and letting it grow, this is not even talking about like investing it actively. This is letting it sit there.
The 3.5% interest still makes you $271,000. We got to take out the $105,000 because that’s what it costs you on the mortgage. $271,000 is all yours because you still had to pay interest. If we net that out, you still made $166,000 in that same situation. That’s not even earning the same interest rate. What if you’re in 4% or if you’re pretty much earning the same interest rate? That number now is $336,000. That means now you’re netting over $230,000 of interest making almost the same exact interest and 4%, not a hard interest to hit. You can do that in very conservative funds, even some of the things that we teach, like how to utilize life insurance and things like that. The four percent cash rate of return is not hard to do.
You think about how that adds up. Most people are sacrificing their freedom to try to pay off their mortgages faster. They’re trying to pay it all off. They’re not even trying to use it. In some cases, this is like ridiculous. If you’re a spender, you can’t stop spending money, it’s uncontrollable, don’t do it. In this case, if you’re at least someone who’s a good saver or someone who’s a steward where you want to create the most from your money possible, this is something that can create the difference between having financial freedom and not. Numbers don’t make all the difference, but they do help.
Some people will say, “Yeah, but you’re in bondage for 30 years. You’re paying $707 a month on a mortgage.” What do they do? You’re always paying money anyways. There’s always a cost to your money. That’s $700. You’re paying that. I think that it’s a great investment to use the bank’s money to buy my mortgage or my house.
It’s much easier to buy a home now than when it appreciates because if you’re trying to save up all this money to try to put a huge down payment on a house, you’re losing even more money than somebody who’s just buying a house and mortgaging it because now you’re trying to chase after. By the time you save up enough money, you’ve already watched house prices climb. At least of the mortgage, you lock it in and now you’re paying it down. It’s inflation-proof. In fact, it helps when there’s more inflation to have a mortgage. Paying off your mortgage early is worse.
Creating Cash Flow
Do you see what I’m saying here? There’s a big difference. I’m saying 4% return. Obviously, if you’re getting higher returns, 4%, the numbers have become astronomical. Even if you’re in 6%, like all financial advisors say or a conservative “rate of return,” that’s $711,000, that means you still made $600,000 more than just paying off your mortgage. There’s always a cost to your money and freedom. I had somebody who say, “I don’t know if I should cash out money.”
Here’s another example of where not to do debt. In his situation, he’s like, “Should I cash out money for my mortgage equity for my mortgage?” He had a duplex. He was renting out half and then keeping the other half. He had that kind of scenario. What I love about that scenario is that he’s been pretty smart. He is renting out half of his duplex. He’s living the biggest half. He was renting out the smaller one. He was only paying net a few hundred dollars a month. I asked him, “What have you rented out your place? What if you’ve moved out and you had to get another place.” He said, “I’ll probably net cashflow a $1,000 a month.”
We looked at equity. If you have $300,000 equity in his house, then the question became, “That is $300,000. If we took out as a loan home equity line of credit will eat up all of his cashflow. I said, “Could we do some of that $300,000 and make more than $1,000 a month net?” The answer was the $100,000 at $300,000 investing in real estate like he was doing could easily make over $1,000, which is $105,000. You can probably easily make $1,200 a month in just doing that.
I told him, “Your best bet is not to cash out, refinance and move out. Your best bet is to sell that house set off.” It shocked him. He’s like, “Are you sure?” This guy is a very intelligent man. I’m impressed with what he’s done. He had two other rental properties that are doing great. I said, “Those rental properties are doing awesome for the amount of equity you have in them right now.” As he built more equity, he’s like, “You’re better off not to keep your home, but to sell it off and get the equity out of it, that $300,000 and going to invest it.
You will lose the income from that one home, but you’ll make more net cashflow wise, otherwise outside of that. It threw him off for a loop. I’m like, “That’s the deal. You can always move the equity to another property. You can do the same thing, but you could be in a better situation potentially” My point is that you never know.
There are always scenarios where you can create more cashflow with it. It’s case by case. I invite you to question everything you’ve been taught question, especially the traditional mindset, because you will never become financially free. Believe in the same thing of paying off her debt and say, “I’m running like a good old boy or girl would do.” If you want to create friends and freedom, do the opposite. Have a great week. We’ll see you later.