Jan. 2, 2025
4. Why Debt May Be the Problem in Your Finances
Leveraging Good Debt to Achieve Financial Freedom
In this episode of the Energetic CFO Podcast, host Tiffany discusses the critical differences between good debt and bad debt and how to make informed borrowing decisions. Tiffany shares her personal journey with debt, using examples from her own life and real estate investments. The episode provides actionable strategies for leveraging good debt to increase income and achieve financial freedom, while warning against the pitfalls of bad debt. Tiffany also offers a free download for a bad debt reduction plan and outlines different debt repayment strategies. The episode concludes with a teaser for the next topic on building financial habits and routines.
Links Mentioned:
Bad Debt Reduction Plan Guide
Email Me at hello@energeticcfo.com
Timeline:
00:00 Introduction to Debt: Good vs. Bad
00:20 Host Introduction and Podcast Overview
00:57 Personal Debt Philosophy and Experiences
02:00 Real Estate Investment Journey
04:56 Understanding Borrowing and Lenders
06:18 Pros and Cons of Borrowing Money
07:36 Good Debt vs. Bad Debt
10:54 Debt Repayment Strategies
13:19 Final Thoughts and Next Episode Preview
Transcript
WEBVTT
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Not all debt is created equal.
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Some can be a powerful tool for building your wealth, while another one can lead you to bankruptcy.
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Two different paths.
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In this episode, we're going to explore the difference between good debt and bad debt, and how to make informed decisions about borrowing money.
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Get ready to take control of your finances and use debt to your advantage.
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Welcome to the energetic CFO podcast, where we empower you to take control of your financial future.
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I'm your host, Tiffany, an advocate for financial literacy and business success.
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In this podcast, we'll explore a wide range of financial topics from money mindset and budgeting to building wealth and achieving financial freedom.
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We'll break down complex financial concepts into simple, actionable steps so you can apply them in your own life.
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Whether you're a new entrepreneur or a seasoned business owner, this podcast is for you.
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Join me as we dive into the world of finance and discover the tools and strategies to help you achieve your financial goals.
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Let's get started! Oh, debt! I feel like it's a topic that can get people fired up.
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I grew up very much in like a Dave Ramsey type philosophy of debt is Not something we use.
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We use credit cards to get the points.
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But we pay it off each month and we work hard to pay off our mortgage as soon as possible, save a bunch and minimize debt as much as we can in our life.
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We pay cash for cars, you know, all of the things kind of like a modified Dave Ramsey and I love Dave Ramsey.
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I love watching him yell at people and just his reaction.
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And.
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I don't know.
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It's just good TV.
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When I'm like in a funk and just want to watch something to give me a little entertainment.
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I'll watch him or Caleb Hammer.
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He's hilarious, too.
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There's something about like people getting angry about money that just makes me laugh.
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I think it's because they're angry about someone else's decisions with money.
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Like, this has no bearing on your life.
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Why do you care so much?
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I know money can be such a passionate topic and I can tell you I would not be where I am today if it wasn't for debt.
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I mean, my parents, they, they lived the typical boomer slash Gen X.
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You know, we got different generations in their house.
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They worked corporate jobs, stayed with the same company for decades, got stock options, a little bit of pension money there saved and invested, paid the house off when I was in high school.
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And it was not a, you know, cheap house by any means.
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And they had a great life doing that.
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But I, I started on that path out of college and.
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Just realized if I keep on this path, like it's gonna take me 40 years or however long to reach these goals and I just knew I wanted a bigger life than that and When I met my husband Eric, he literally our second date was moving him out of his house like so romantic We met on match.
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com Started talking, went on a date that weekend, had a great first date and we just connected, you know, when you know, you know And our second date was at his house because he was doing like drywall repair to move out.
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And he wanted to sell his house but didn't have enough equity.
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He used a VA loan, literally paid 120 at closing, and had no equity because he had lived there a year.
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So his agent recommended he rent it out.
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And fast forward six months later, you know, we're getting a little more serious and I'm like, Hey, how's that?
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How's that house going?
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He's like, well, the guy's paid rent, but it's sitting in an envelope in the garage.
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And I'm like, what are you, what?
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So long story short, we, I helped him build that business up.
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We'll fix up the way he was managing that rental.
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And we realized we could achieve financial freedom and a lot shorter time by investing in real estate and renting it out.
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And we quickly realized there was no way we were going to drop hundreds of thousands of dollars to buy these houses.
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And we took on a strategy that was very popular at the time called the BRRR.
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So it's buy rehab or renovate rent, refinance, repeat.
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And the idea is you buy something and instead of flipping it and selling it and taking the huge tax it, you keep it, find a tenant, and then refinance it.
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And if you do it right and buy it cheap enough, don't spend a ton on the renovation, et cetera, You can have a house with none of your own money invested, and you have a healthy amount of equity.
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And that's what we did.
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Our third house that we had was a slam dunk and gave us a ton of cash, and we had a healthy equity position in it, and we were able to use that to fund purchasing more.
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And I can tell you, like, we, I would not be sitting here today if it wasn't for the leveraging of debt.
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But we make, we're very intentional about making sure we're using good debt versus bad debt.
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So I want to talk about that today.
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So if you're confused about debt and you're, you're not alone, like this is not a topic that I feel like is discussed often enough, especially around women.
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So let's break it down.
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You, let's start from the fundamentals.
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You start with borrowing money from a lender.
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And you know, I think a misconception is that a lender could also be a person.
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We have individuals that have loaned us a lot of money out of their retirement accounts and there's something comforting about knowing I can pick up the phone and call them if something happens.
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And we have done that.
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We, on our last project, it ran way over budget and over time and we ran out of cash.
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So we called one of our lenders and were able to get a, another loan on one of the other properties to help us pad that renovation.
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But it's really, it could be an individual, a bank, credit union, someone online.
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A lot of them sell to wall street, but you obtain money from someone.
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And in exchange, you agree to pay interest, which is a fee charged for that money.
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And a lot of times they will take collateral, whether that's your house, your car, whatever you're tying it to.
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And then you repay that amount plus interest over time.
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I think what people don't always understand is how that amortization works.
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And it's, it's crucial.
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That's a, that's a topic for another day.
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But learning the financial calculator is key to growing your wealth.
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It's changed my life.
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I've seen it change other investors.
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Well, if that's something you want to learn about, let me know.
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We can maybe do a masterclass or another podcast episode on it.
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So just drop me an email and I'd love to, you know, chat with you and see if that's something that would be helpful for you.
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So.
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Borrowing has pros and cons.
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You can use it to buy something like a house, like that you otherwise, I mean, who has the hundreds of thousands of dollars to buy a house?
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You could buy a car that it's stuff that you couldn't necessarily buy without cash.
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You can also use it to fund your business.
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We've done that.
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We've taken out loans to fund salaries as we're growing our businesses.
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You can use it to buy new equipment, hire new employees.
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It can be risky though, like you want to make sure that the, there's going to be a return greater than the cost of that interest.
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And I'll talk about that in a moment.
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There's also some cons and downsides to borrowing money.
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I mean, you're going to have a interest expense.
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You can get in a spot where you have more going out in that debt service than coming in.
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The US as a country is in a spot where our interest payments are getting so high that it's almost unmanageable.
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I think it's larger than like GDP or something at this point.
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I don't know exactly, but it's, it's an absurd amount.
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And then also if you don't repay, you could lose your house or your car or whatever is tied to it or suffer huge financial issues on your credit report, which could lead to paying even more in interest down the road.
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So having a good debt strategy is key.
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So, and this is something I think applies to both personal and business debt, but you want to make sure you're using it strategically.
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So I view good debt as something that you can use to increase your income and that's after covering the debt service.
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So paying the principal and interest.
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So that could be student loans.
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I mean, I know that's a whole debacle that we could go down.
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I think it's making sure you're using that degree to get something that will get you a profitable career that can service the debt.
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Your mortgage for your house, there's a lot of benefits to home ownership and psychologically and financially and making sure that you're not overspending on it, but having a mortgage can be very beneficial or like I've said, loans in your business, like our real estate has significantly increased our net worth and our income and we couldn't have done it without having a significant amount of debt, but we make sure when we're taking out debt to buy a property, okay.
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that the income from it will more than cover all the associated expenses, even the stuff that we can't foresee, and that debt service.
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So you just want to make sure that it's something that's going to produce more than it costs.
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Bad debt, in my opinion, is something that's used for consumption, for wants, for something that's not going to increase your income, that you can't use as leverage.
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So using a credit card to go on vacation.
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That's not going to increase your income.
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Payday loans, those are so bad.
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They, it's just a trap.
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And they, they cost so much in interest.
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Yeah, I could go on a rant.
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I think they take advantage of people in bad circumstances.
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And it's really unfair the way that it's used.
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Taking out a loan on your house, like a HELOC or a second position loan, to buy a boat, like that is not a good use of the debt.
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But I have seen friends take out a, let's say 7 percent loan on their personal house.
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And then they go and lend it to us at like 12%.
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So they're making that 5 percent to put in their pocket or they can pay it on that loan faster and then have, you know, the capital to continue deploying.
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So debt is something it's, I like to think of it as the chainsaw versus the hatchet.
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Like if you're doing this with no debt, you're, you have a hatchet and that's Dave Ramsey's philosophy is let's just hatchet this with no debt.
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tree one hit at a time and eventually you'll get out of the position you're in.
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You can, let's say, cut the tree down and get on your way.
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With debt, you have a chainsaw and we know a chainsaw can cut the tree really fast, but it could also cut your arm off.
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So you want to make sure that you're using it appropriately.
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It is a tool, it is something to help you, but if you're not using it appropriately, it could, yeah, cut your arm off, cut you off financially.
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So It's really about having a clear plan, using a budget to make sure you're not overextending yourself.
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If you have debt, this is something I talk about in my financial clarity course, where you prioritize them and make a repayment plan that aligns with your goals.
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And it's, to me, it's not about getting out of debt as fast as possible.
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I know Dave Ramsey's philosophy is like, if you have to sell your house to get out of debt, then you should do it, in some instances.
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It's a little bit of an exaggeration there, but that's, you know, that's Dave Ramsey's philosophy.
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Also, on a side note, if I sound winded, for some reason, this pregnancy that I'm in right now, I'm right at my third, or third month, right into the second trimester, like, basic things are making me winded.
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So, sorry if I sound out of breath.
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I'm not running, I'm just sitting here, but yeah, I keep getting out of breath.
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So, there's that.
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So making sure you have a clear repayment plan and there's a couple different strategies.
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There's the debt snowball which is paying the lowest balance first and then you can take that payment and roll it into the next one.
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And then I don't remember what it's called.
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That's the top of my head.
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It's escaping me.
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But there's also the strategy where you pay the highest interest rates first and there's different philosophies on it.
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I think if you're a person like me who's driven by numbers, I'd rather pay the highest interest.
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But if you need that quick win of accomplishment, that's where the snowball comes in because it gives you faster wins.
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Okay, this one, you know, this well balanced, I paid off a debt.
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I've gotten one knocked off.
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So it's really up to you and your philosophy.
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I personally just, I look at the total more, but that's just me.
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I'm also a numbers nerd.
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So it's just finding the strategy that works for you, and that's something we talk about in the course.
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And then finally, have an emergency fund to avoid having to take out debt, bad debt, in the future.
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So having that buffer is so key and I know it can be hard to build.
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I mean, I have seen it in my own business and life and with clients.
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And there's also a philosophy from a mentor of ours that you need cash or access to cash.
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Now, I want to caveat that with, we are in a position where we have significant assets and a lower amount of liability.
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So we have a significant equity position or net worth.
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So if we had to take out a loan, it wouldn't throw us back.
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Yeah.
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If you're not sitting on a stockpile of net worth or equity, I would not recommend this strategy, but there is a strategy of not necessarily having the cash in your bank, but knowing who to call when you need the cash and being able to leverage the assets that you have.
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So I know this finance stuff can be complicated and complex, and it's all personal at the end of the day.
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And that's where you have to have the strategy for you and what works for you.
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Just because it works for us does not mean it will work for you because we're in a different place and We're different people and we have different goals.
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So Finding the strategy that works for you.
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So if you're interested in taking control of your debt Getting rid of some of that bad debt and you know uncovering.
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Is this the problem in your business?
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I have a free bad debt reduction plan to help you get started.
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So check out in the show notes and get that download What are your thoughts around good debt and bad debt?
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Do you think I'm totally off base and you know, you think it's all debts, bad or all debts, good.
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Let me know.
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Send me an email.
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Hello at energetic CFO.
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com.
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And the next episode, we're going to talk about financial habits and routines.
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And I can't wait to get into this.
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Like let's create some habits to set you up for success.
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Small steps, big rewards.
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Remember your future self will thank you.
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See you next time.
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Thanks for joining me on this episode of the Energetic CFO Podcast.
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Remember, small steps can lead to massive rewards.
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By taking action, staying disciplined, and seeking knowledge, you can achieve your financial dreams.
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If you enjoyed this episode, please be sure to share, like, and subscribe.
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And don't forget to leave a comment with your thoughts and questions.
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Until next time, keep learning, keep growing, and keep thriving.
00:00:00.000 --> 00:00:02.100
Not all debt is created equal.
00:00:02.439 --> 00:00:07.469
Some can be a powerful tool for building your wealth, while another one can lead you to bankruptcy.
00:00:07.620 --> 00:00:08.519
Two different paths.
00:00:08.869 --> 00:00:15.560
In this episode, we're going to explore the difference between good debt and bad debt, and how to make informed decisions about borrowing money.
00:00:15.910 --> 00:00:19.609
Get ready to take control of your finances and use debt to your advantage.
00:00:20.649 --> 00:00:26.109
Welcome to the energetic CFO podcast, where we empower you to take control of your financial future.
00:00:26.420 --> 00:00:30.339
I'm your host, Tiffany, an advocate for financial literacy and business success.
00:00:30.940 --> 00:00:38.240
In this podcast, we'll explore a wide range of financial topics from money mindset and budgeting to building wealth and achieving financial freedom.
00:00:39.100 --> 00:00:44.609
We'll break down complex financial concepts into simple, actionable steps so you can apply them in your own life.
00:00:45.469 --> 00:00:49.380
Whether you're a new entrepreneur or a seasoned business owner, this podcast is for you.
00:00:49.810 --> 00:00:55.789
Join me as we dive into the world of finance and discover the tools and strategies to help you achieve your financial goals.
00:00:56.090 --> 00:01:01.200
Let's get started! Oh, debt! I feel like it's a topic that can get people fired up.
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I grew up very much in like a Dave Ramsey type philosophy of debt is Not something we use.
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We use credit cards to get the points.
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But we pay it off each month and we work hard to pay off our mortgage as soon as possible, save a bunch and minimize debt as much as we can in our life.
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We pay cash for cars, you know, all of the things kind of like a modified Dave Ramsey and I love Dave Ramsey.
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I love watching him yell at people and just his reaction.
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And.
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I don't know.
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It's just good TV.
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When I'm like in a funk and just want to watch something to give me a little entertainment.
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I'll watch him or Caleb Hammer.
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He's hilarious, too.
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There's something about like people getting angry about money that just makes me laugh.
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I think it's because they're angry about someone else's decisions with money.
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Like, this has no bearing on your life.
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Why do you care so much?
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I know money can be such a passionate topic and I can tell you I would not be where I am today if it wasn't for debt.
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I mean, my parents, they, they lived the typical boomer slash Gen X.
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You know, we got different generations in their house.
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They worked corporate jobs, stayed with the same company for decades, got stock options, a little bit of pension money there saved and invested, paid the house off when I was in high school.
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And it was not a, you know, cheap house by any means.
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And they had a great life doing that.
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But I, I started on that path out of college and.
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Just realized if I keep on this path, like it's gonna take me 40 years or however long to reach these goals and I just knew I wanted a bigger life than that and When I met my husband Eric, he literally our second date was moving him out of his house like so romantic We met on match.
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com Started talking, went on a date that weekend, had a great first date and we just connected, you know, when you know, you know And our second date was at his house because he was doing like drywall repair to move out.
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And he wanted to sell his house but didn't have enough equity.
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He used a VA loan, literally paid 120 at closing, and had no equity because he had lived there a year.
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So his agent recommended he rent it out.
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And fast forward six months later, you know, we're getting a little more serious and I'm like, Hey, how's that?
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How's that house going?
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He's like, well, the guy's paid rent, but it's sitting in an envelope in the garage.
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And I'm like, what are you, what?
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So long story short, we, I helped him build that business up.
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We'll fix up the way he was managing that rental.
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And we realized we could achieve financial freedom and a lot shorter time by investing in real estate and renting it out.
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And we quickly realized there was no way we were going to drop hundreds of thousands of dollars to buy these houses.
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And we took on a strategy that was very popular at the time called the BRRR.
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So it's buy rehab or renovate rent, refinance, repeat.
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And the idea is you buy something and instead of flipping it and selling it and taking the huge tax it, you keep it, find a tenant, and then refinance it.
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And if you do it right and buy it cheap enough, don't spend a ton on the renovation, et cetera, You can have a house with none of your own money invested, and you have a healthy amount of equity.
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And that's what we did.
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Our third house that we had was a slam dunk and gave us a ton of cash, and we had a healthy equity position in it, and we were able to use that to fund purchasing more.
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And I can tell you, like, we, I would not be sitting here today if it wasn't for the leveraging of debt.
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But we make, we're very intentional about making sure we're using good debt versus bad debt.
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So I want to talk about that today.
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So if you're confused about debt and you're, you're not alone, like this is not a topic that I feel like is discussed often enough, especially around women.
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So let's break it down.
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You, let's start from the fundamentals.
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You start with borrowing money from a lender.
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And you know, I think a misconception is that a lender could also be a person.
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We have individuals that have loaned us a lot of money out of their retirement accounts and there's something comforting about knowing I can pick up the phone and call them if something happens.
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And we have done that.
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We, on our last project, it ran way over budget and over time and we ran out of cash.
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So we called one of our lenders and were able to get a, another loan on one of the other properties to help us pad that renovation.
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But it's really, it could be an individual, a bank, credit union, someone online.
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A lot of them sell to wall street, but you obtain money from someone.
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And in exchange, you agree to pay interest, which is a fee charged for that money.
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And a lot of times they will take collateral, whether that's your house, your car, whatever you're tying it to.
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And then you repay that amount plus interest over time.
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I think what people don't always understand is how that amortization works.
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And it's, it's crucial.
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That's a, that's a topic for another day.
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But learning the financial calculator is key to growing your wealth.
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It's changed my life.
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I've seen it change other investors.
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Well, if that's something you want to learn about, let me know.
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We can maybe do a masterclass or another podcast episode on it.
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So just drop me an email and I'd love to, you know, chat with you and see if that's something that would be helpful for you.
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So.
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Borrowing has pros and cons.
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You can use it to buy something like a house, like that you otherwise, I mean, who has the hundreds of thousands of dollars to buy a house?
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You could buy a car that it's stuff that you couldn't necessarily buy without cash.
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You can also use it to fund your business.
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We've done that.
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We've taken out loans to fund salaries as we're growing our businesses.
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You can use it to buy new equipment, hire new employees.
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It can be risky though, like you want to make sure that the, there's going to be a return greater than the cost of that interest.
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And I'll talk about that in a moment.
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There's also some cons and downsides to borrowing money.
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I mean, you're going to have a interest expense.
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You can get in a spot where you have more going out in that debt service than coming in.
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The US as a country is in a spot where our interest payments are getting so high that it's almost unmanageable.
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I think it's larger than like GDP or something at this point.
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I don't know exactly, but it's, it's an absurd amount.
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And then also if you don't repay, you could lose your house or your car or whatever is tied to it or suffer huge financial issues on your credit report, which could lead to paying even more in interest down the road.
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So having a good debt strategy is key.
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So, and this is something I think applies to both personal and business debt, but you want to make sure you're using it strategically.
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So I view good debt as something that you can use to increase your income and that's after covering the debt service.
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So paying the principal and interest.
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So that could be student loans.
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I mean, I know that's a whole debacle that we could go down.
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I think it's making sure you're using that degree to get something that will get you a profitable career that can service the debt.
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Your mortgage for your house, there's a lot of benefits to home ownership and psychologically and financially and making sure that you're not overspending on it, but having a mortgage can be very beneficial or like I've said, loans in your business, like our real estate has significantly increased our net worth and our income and we couldn't have done it without having a significant amount of debt, but we make sure when we're taking out debt to buy a property, okay.
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that the income from it will more than cover all the associated expenses, even the stuff that we can't foresee, and that debt service.
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So you just want to make sure that it's something that's going to produce more than it costs.
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Bad debt, in my opinion, is something that's used for consumption, for wants, for something that's not going to increase your income, that you can't use as leverage.
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So using a credit card to go on vacation.
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That's not going to increase your income.
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Payday loans, those are so bad.
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They, it's just a trap.
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And they, they cost so much in interest.
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Yeah, I could go on a rant.
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I think they take advantage of people in bad circumstances.
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And it's really unfair the way that it's used.
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Taking out a loan on your house, like a HELOC or a second position loan, to buy a boat, like that is not a good use of the debt.
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But I have seen friends take out a, let's say 7 percent loan on their personal house.
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And then they go and lend it to us at like 12%.
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So they're making that 5 percent to put in their pocket or they can pay it on that loan faster and then have, you know, the capital to continue deploying.
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So debt is something it's, I like to think of it as the chainsaw versus the hatchet.
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Like if you're doing this with no debt, you're, you have a hatchet and that's Dave Ramsey's philosophy is let's just hatchet this with no debt.
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tree one hit at a time and eventually you'll get out of the position you're in.
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You can, let's say, cut the tree down and get on your way.
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With debt, you have a chainsaw and we know a chainsaw can cut the tree really fast, but it could also cut your arm off.
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So you want to make sure that you're using it appropriately.
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It is a tool, it is something to help you, but if you're not using it appropriately, it could, yeah, cut your arm off, cut you off financially.
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So It's really about having a clear plan, using a budget to make sure you're not overextending yourself.
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If you have debt, this is something I talk about in my financial clarity course, where you prioritize them and make a repayment plan that aligns with your goals.
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And it's, to me, it's not about getting out of debt as fast as possible.
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I know Dave Ramsey's philosophy is like, if you have to sell your house to get out of debt, then you should do it, in some instances.
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It's a little bit of an exaggeration there, but that's, you know, that's Dave Ramsey's philosophy.
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Also, on a side note, if I sound winded, for some reason, this pregnancy that I'm in right now, I'm right at my third, or third month, right into the second trimester, like, basic things are making me winded.
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So, sorry if I sound out of breath.
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I'm not running, I'm just sitting here, but yeah, I keep getting out of breath.
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So, there's that.
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So making sure you have a clear repayment plan and there's a couple different strategies.
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There's the debt snowball which is paying the lowest balance first and then you can take that payment and roll it into the next one.
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And then I don't remember what it's called.
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That's the top of my head.
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It's escaping me.
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But there's also the strategy where you pay the highest interest rates first and there's different philosophies on it.
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I think if you're a person like me who's driven by numbers, I'd rather pay the highest interest.
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But if you need that quick win of accomplishment, that's where the snowball comes in because it gives you faster wins.
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Okay, this one, you know, this well balanced, I paid off a debt.
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I've gotten one knocked off.
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So it's really up to you and your philosophy.
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I personally just, I look at the total more, but that's just me.
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I'm also a numbers nerd.
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So it's just finding the strategy that works for you, and that's something we talk about in the course.
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And then finally, have an emergency fund to avoid having to take out debt, bad debt, in the future.
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So having that buffer is so key and I know it can be hard to build.
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I mean, I have seen it in my own business and life and with clients.
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And there's also a philosophy from a mentor of ours that you need cash or access to cash.
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Now, I want to caveat that with, we are in a position where we have significant assets and a lower amount of liability.
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So we have a significant equity position or net worth.
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So if we had to take out a loan, it wouldn't throw us back.
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Yeah.
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If you're not sitting on a stockpile of net worth or equity, I would not recommend this strategy, but there is a strategy of not necessarily having the cash in your bank, but knowing who to call when you need the cash and being able to leverage the assets that you have.
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So I know this finance stuff can be complicated and complex, and it's all personal at the end of the day.
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And that's where you have to have the strategy for you and what works for you.
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Just because it works for us does not mean it will work for you because we're in a different place and We're different people and we have different goals.
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So Finding the strategy that works for you.
00:12:53.809 --> 00:13:01.950
So if you're interested in taking control of your debt Getting rid of some of that bad debt and you know uncovering.
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Is this the problem in your business?
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I have a free bad debt reduction plan to help you get started.
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So check out in the show notes and get that download What are your thoughts around good debt and bad debt?
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Do you think I'm totally off base and you know, you think it's all debts, bad or all debts, good.
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Let me know.
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Send me an email.
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Hello at energetic CFO.
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com.
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And the next episode, we're going to talk about financial habits and routines.
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And I can't wait to get into this.
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Like let's create some habits to set you up for success.
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Small steps, big rewards.
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Remember your future self will thank you.
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See you next time.
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Thanks for joining me on this episode of the Energetic CFO Podcast.
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Remember, small steps can lead to massive rewards.
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By taking action, staying disciplined, and seeking knowledge, you can achieve your financial dreams.
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If you enjoyed this episode, please be sure to share, like, and subscribe.
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And don't forget to leave a comment with your thoughts and questions.
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Until next time, keep learning, keep growing, and keep thriving.