Debt vs. Leverage – Episode 647

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. Today’s topic is debt versus leverage. The prosperity mindset shift. Now we’ve talked about debt versus leverage. We’ve explained this in other topics, but right now is a weird time in finances and a weird time in life. And we need to get grounded. I can’t think of a better person to talk with than you, Kim. Let’s take it away. Well, thank you. What a nice compliment. So what has caused the quest? Is there a jabber on the internet about debt and leverage or what’s causing this to come up again? Oh, absolutely. So I’ve talked with multiple, we’re talking business owners, people in the finance space and roll back the clock.

[00:55] And you used to be able to say, well, in six months, I think it could do this. In a year, this could happen here. And now people are like, I don’t know what’s gonna happen after lunch. That’s the overall sentiment. And then you’ve got the leverage portions, which was a couple of years ago, people were leveraging themselves to buy Bitcoin. And some people did well, some people bought at the wrong time. We’ve seen the crypto markets go crazy. People are thinking leverage there. People have done the same thing with mortgages. Again, like it’s all over the place. We’re in a different time and the past does repeat itself, but it also tends to kind of transform into something new. And you’ve always had a really clear perspective on this.

[01:50] Well, thank you very much. I think it comes from my husband, Todd Langford and his research on interest rates and seeing what has happened in the past as it has moved around in my own adult life. I started out at a bank. I saw interest rates in the late eighties when they were low. I saw them in the early nineties when they were high. I might have my decades off there a bit, but nevertheless, once you’ve seen the impact of both, and then of course I read and I read a lot about crypto. I have a absolute favorite Bitcoin author that I follow. His name is Dr. Safedina Moose and he’s from Jordan and he was a Columbia professor of economics. He writes very patiently and very legitimately about the Bitcoin space

[02:39] as it applies to the gold standard and fiat money and even things like fiat food and other things in the space around how we live our lives. Debt is something that you can have. So there’s a very important distinction between having debt and being in debt. Having debt is choosing to have a mortgage. Having debt is choosing to have a line of credit against your cash value of life insurance. Having debt is purposely using a credit card because it’s basically the only way to get a airplane ticket in a hotel these days. Being in debt is having more debt than you have assets to support. For example, kids come out of school and they’re in debt. They have student loans. They may also have credit card bills

[03:27] from travel to college. Now they are starting to earn an income and they need to climb out of being in debt. There are other times in our lives where that’s not as ideal. You know, if you’re in your 60s and 70s and I see this occasionally. This is not typically my clientele, but every now and then I’ll run into somebody that’s later in life and they’re truly in debt. And so that’s a challenge and okay, we can solve that challenge mostly by continuing to work and scrapping the idea of retirement, which is not a helpful societal construct anyway. So leverage, the idea of leverage. I’m just curious actually first, how do you define the difference between debt and leverage? So one, I see the two forms of debt.

[04:12] I see healthy debt, which is- Good debt and bad debt. Yeah, exactly. Something that, you know, like most personal residences, I see that as a liability. Then I see it as an asset. Now, if you have a piece of property and you put tiny homes on it, rent them out, now you’ve probably made it good debt. Leverage is, I don’t view it as a negative word. If I had to tip the scale, I would put it on the negative side in most cases because I view leverage as their speculative leverage. And then there is, call it my unique intelligence or unique gifts leverage. And when I find myself not being present, that tends to be a speculative leverage. Like, oh, here’s an opportunity of something. Sometimes that works out, sometimes it doesn’t.

[05:05] When I use my unique gifts leverage, most of the time that does work out. Well, I am gonna go on record. As a general rule, I don’t like people to borrow to invest and I get it, people like to do that. And I think if you have the capability and like you said, the presence and the special gifts or the experience in certain spaces, then of course you’re going to. Now, I’m not talking about like real estate with a debt on the property that’s not borrowing to invest. I mean, literally going out and getting new money to purchase something like crypto or something like that. Because of course, if people are buying businesses, they’re borrowing for that as well. But when you hear about people, gosh, I remember attending a strategic coach session

[05:52] this is 20 years ago. And the guy was so distracted because he had borrowed against his stocks in order to buy another investment. He was getting a margin call. And he was, yeah. He was absolutely freaked out and distracted. Well, so now he’s not only not getting the value of a strategic coach session, which he had paid for, potentially losing not one, but two investments. And it was a horrible, horrible situation. So it’s interesting just watching people as we’ve talked so many times, the best investment that people can make is in their own knowledge and their own capabilities and their selves. And sometimes that means their own business as well. When I look at our experience, a lot of our investments are in our own business

[06:33] because that’s truly where the biggest difference is gonna be made. And while yes, we have other typical investments, it’s a space that’s secondary for us. And so it’s interesting as people pursue their lives and use leverage strategically with purpose based on the value creation that their God-given talents enable them to do, then you can get drastic efficiency and opportunity and capability that pursues that. And then you have other people that they’ll think the car that they purchased is an asset or homes as a definite discussion. You could go the Kiyosaki way and say a home is a doodad or you could understand a lot of times when Kiyosaki and others make their little sound bites, they really don’t have all of the facts included.

[07:26] And so like on a home, if you add to the calculation, the fact that if you didn’t own the home, you would have to pay for rent somewhere, then in actuality, a home itself may not be that doodad that Kiyosaki refers to it. It’s gonna depend. And then as you said, if you’re able to put Airbnb’s on it or whatever other people do to have their homes potentially create income. If you run a business out of it, that changes the calculations. So it’s something I think as so much about personal finance is that you think about carefully, have a discussion with your significant other and make your own purposeful decision about how you’re going to view it, how you’re going to employ it, being debt and or leverage,

[08:15] and then go forward with that and understanding too that there’s different times in your lives where you might choose to be a little bit more aggressive in a particular form of this than other times of your lives, where your kids are, where your health is, for example, there’s lots of different things that shift that up. You mentioned a few things as you were talking about leverage and you’re talking about debt. You went into the business side and you mentioned how putting money into the businesses that we have is often, I don’t think you used the word predictable but I’m gonna use that word, predictable ways of having the leverage, if we’re taking on that leverage properly or debt work for us.

[08:59] At some point, we understand the cash flow and we understand, hey, for every dollar I put in, I get a dollar and a half back or five dollars back or whatever that is. How is it that you can help people that maybe have a small amount of experience or medium experience that they can get comfortable thinking like how you are and begin to build that muscle even stronger? Such a great question because that’s where so many of our young families are and it really just takes learning. And so figure out how you learn best. Do you like to read? Do you like to watch? Do you like to listen? And don’t be surfacey about it. So find a podcast that you like and listen to 20 of the episodes, not one. If there’s a YouTube channel

[09:53] or a book by an author that you like, read the whole book. Really get the wisdom that is there in whatever form it is that you like to learn and then go slow and start small. And I’ve used that mantra forever as it relates to investments to go slow and start small. Find the minimum of the investment or maybe find even a derivative, right? Like in Amazon, you can spend $10 these days and invest in some real estate thing. You can often find ways to get into deals in a smaller realm, but nevertheless, maybe your investment that you’re looking at, the minimum is 100,000. Well, great, do that if it fits for your situation. And go slow, right? Be careful. Don’t be rushed by false deadlines, either your own or others.

[10:41] And yet get involved because of course, we’re always gonna do a better job learning when we have skin in the game. Yes. Okay, I’m going to use a personal story of someone that you know and love and care about of using the example you just talked. You ready? Uh-huh. We’re gonna talk about Robbie. Ah, yes. All right. So let me give a little bit of context to listeners. Robbie is Kim’s son. And when Robbie was at Principia, the school you went to as well, Robbie developed the skill or we’ll even say Robbie probably had it. He made the skill better of being able to network with people and raise capital. And it helped out the school. So then Robbie found that he enjoyed that. And there’s another skill that goes along with that,

[11:35] which is real estate syndication. It’s a very similar skill. And Robbie learned about this because Robbie got interested in real estate. And Robbie didn’t go and buy a 100-door apartment complex as his first deal because you typically don’t do that. You learn by starting smaller. So I’m telling you this, Kim, because Robbie did something last week that made me smile. Robbie sent me an email because he and I had met months and months ago and talked about technology. And he goes, hey, what’s that AI tool that you use for making outbound phone calls? I loved it because Robbie’s email was just like Kim’s. It was like the subject line and it’s like, what’s the tool or something. We’re talking like five words.

[12:23] And so my response was, here’s the tool and then like a link. It was awesome because that is finding your skill. That is leveraging those talents. And that was how he got into doing bigger and better deals in real estate. That’s the case study. You didn’t know about that. You didn’t know about my emails back and forth with Robbie. But when he sent that, oh, smile on my face, seriously. Well, we’ve enjoyed helping your children and it means the world to me that you get to help ours because yes, it’s just so cool to see the growth that occurs, the focus, the shifting as they navigate their careers and the good, good work that these kids are doing. I mean, Robbie’s, let’s see, he’ll be 30 next year

[13:15] and he’s got a baby on the way and he’s married, bought and sold real estate and had amazing wins and amazing learnings, read failures. And I’m just thrilled that he reached out to you. And that’s hilarious that he did it with a cryptic email. Yes, I loved it. I loved it. So for you listeners, leverage comes in a variety of ways and debt is used to smart in your and the right relationships. There’s no debt, meaning if someone helps you out, it’s not like they owe you. And what it is is it’s a very hopeful, prosperous relationship. That’s what we’re doing here. So for all you listeners, thank you for tuning into the podcast. Hopefully found something helpful. If there are things where you’re like,

[14:05] man, I just need to navigate this tricky situation, send an email to helloatprosperitythinkers.com. That’s exclusive for podcast listeners. It’s inside of the show notes, but remember helloatprosperitythinkers.com. Thank you for listening to the Prosperity Podcast.