What To Do With $100k – Episode 030

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler, and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have my co-host and bestselling financial author, Kim Butler, with us. Welcome, Kim. Thank you, Todd. Glad to be here today. Well, today we’re going to be addressing the question of what to do with $100,000. And I mean, for some of our listeners, having $100,000 is a very serious issue. They’re probably later in their career, and that $100,000 took a while for them

[00:49] to accumulate, or maybe some of them just inherited it. I guess it really doesn’t matter. But we’re referencing an article in Money Magazine saying 13 things to do with $100,000. First of all, start us off, Kim. What do you think? Well, I am totally curious to hear what Money Magazine has to say about this, because I have frankly not had a lot of credibility coming out of there for a long, long time. So I think that will be fun to take a look at. And you know, it’s interesting. We have such a wide diversity in our client base. We have people that are accredited investors, which means million dollars of available money to invest. In other words, not in their home equity. And then we have people that are just starting to save $100 a month or less.

[01:41] So it’s a wide listener group we have, and we’re really grateful for that. But I think this will prove fun regardless, because it doesn’t matter whether $100,000 is a fairly easy check for you to write or just seems like more money than the world. This will be something for you to take a look at and maybe provide some different perspective and different perspective, different point of view. That’s always a good thing to have in our lives. Super. So number one, boy, this one’s kind of scary. It says to remodel your house. So it is suggesting that this is something you should think about or just something that you should do. The number one thing to do if you wake up tomorrow with an extra $100,000 is a remodel

[02:28] your house. Interesting. Well, I bet it’s because a lot of people think that if they spend 100 grand remodeling their home, then their house will be made worth about 200,000 more. And it’s a common thing that can happen. But I had a client just today say, wow, I really want to leave an inheritance for my daughter. I think I’ll just leave her a paid off house and homes are so physical. I mean, that’s a somewhat obvious statement, but they’re so physical and they’re so geographically based that, frankly, they’re a lousy thing to inherit. And they are, in my mind, not a good thing to call an investment at all. Now, I’m all for having some fun with the money, but really, remodel. Absolutely. And I believe it can improve the quality of your life, absolutely.

[03:21] But I think for an investment quality decision, I disagree, especially with being the number one thing. I completely agree that you may be able to customize the house and improve the quality of your life, just totally against the idea that this should be qualified as an investment. Questions, comments? Agreed. Homes are not investments. Homes are places to live. Quality of life is important. But our homes do not fit even our standard definition of an investment, which is double digits, no loss of principle, nor do they fit our definition of liquidity, the savings part of our lives, which is control and our little clue acronym control L for liquidity, U for use and E for equity. Yeah, you can borrow against your home equity, but spending 100,000 to remodel

[04:20] is no guarantee that your equity value will rise anyway. So, yeah, I’m going to challenge that one. All right. Suggestion number two and realize I’m reading this, so don’t come through the radio and hit me. Pay off your mortgage. They had to slide that in there, didn’t they? Well, the good news is we have a forthcoming book called Busting the Interest Rate Lies. It should be out in another month or so, and it’s going to go through this mortgage discussion hook line and sinker. But the absolute answer from my perspective is no, no, no, and no. And you’re right. I would love to jump through the microphone and scramble the messenger, but I won’t not for today. The logic is eliminating the monthly payment reduces the income you’ll need

[05:07] later in retirement. And the challenge with that is that you won’t need then to save the money because you’ll just absolutely let it get sucked into lifestyle. It’s a very easy thing to have happen even for the most disciplined of us. And it’s not something that we want to have happen when an opportunity rises for extra dollars. We should put those extra dollars to work, not into paying off debt, which then will relieve us of a mortgage payment, which will then just mean that we go out to eat more often. And the sad thing is, is address opportunity cost. It’s not like you have unlimited hundred thousands. These are just one one hundred thousand. So talk to us about opportunity cost. Sure. So opportunity cost is an economic concept that’s often missed in

[06:01] discussions around personal finances. We hear about it in the business world. We hear about it in our economics class and high school and college, which we’ve all forgotten, but opportunity cost is what happens when you do something like take a hundred grand and pay off your mortgage. You now have lost the opportunity to invest those dollars for the rest of your life. And it’s a critical thing to measure. It’s one of the seven principles of prosperity is measuring opportunity costs. So in paying off a mortgage, the illusion of more control, the illusion of a quote, good investment is there. And it may be appealing. And especially when places like money magazine and banks and brokerage houses recommend it, but it is not the best financial

[06:47] strategy at all because you lose control of that asset. You don’t control the equity in your home and the opportunity costs, which says that you could invest that a hundred thousand in investment that earns double digits with no loss of principle. All right. Suggestions three, four, and five are by a franchise. Interesting. A franchise for a business. Now that’s fun. So for a lot of people, a franchise can be an awesome way to get into the business world. I know for myself, however, I’m not very good at following rules and franchises have lots of rules. That’s part of their value. Actually is the structure or the process or the system that’s there, which is proven, of course, you think McDonald’s or the ice cream store

[07:37] that has the special little marble slabs. What I’m thinking of with the, you know, cool, the ice cream on the marble counter thing, et cetera. Those are systems that have been replicated and work well. But if you’re an entrepreneur that likes to run your own rules, create your own show, provide your own value and get paid what you want to get paid, a franchise is not a good route to go. And then the other thing to think about is if a franchise is really doing what you want with the money. So is what you want with the money, a business that you have a job in now that you need to spend every day at that’s awesome. That’d be a great use of it. If it’s not, you need to be running from that suggestion.

[08:18] And when it comes to suggestion of franchises, I’m not sure there’s a whole lot of franchises out there for a hundred thousand dollars, are there? Uh, not very many. I would say that would be a minimalistic one. You know, maybe a little dog washing trailer or something like that. But hey, that’s how you want to spend your days. There’s nothing wrong with that. All right. Suggestion number six, tack another degree on the wall. Really? As in like go back to college or get a master’s or something. Yep. Well, um, okay. So I have two kids in college and I am totally up for the right kind of kid going to college and the right kind of adult. We don’t have to limit it to just children, but a degree does not put

[09:14] income in your family’s household. And if income or increased net worth is something that you’re looking for, I would strongly encourage you to consider alternatives. Uh, there’s a book out there that I love. It’s like 40 things to do instead of going to college. And it has fabulous ideas of ways to really build on your education because we absolutely want to be getting education every single year in our life. But I’m not sure that a degree is the best way to do that, especially for most adults. Got it. And if it’s in your passion and along your dream and serves your purpose, that makes a difference than, you know, when we looked at the franchise, we’re actually purchasing someone else’s dream, someone else’s system, which may or

[10:08] may not be a bad thing, depending upon how much it isn’t aligned with you. And especially when we start talking about this degree thing. So many times we look at the degrees based upon the income that they generate, not upon the problems that they solve or how much satisfaction we get from participating in them. Don’t we? Absolutely. And satisfaction, happiness, those are things that we want to be looking for in our lives. And so each person has to look at this for themselves without a doubt, but I will readily admit that this is not how I would choose to spend any of my hundred thousand. All right. Are you ready for number seven? Yes. Buy an annuity. Oh my, okay. Well, we’re just doing really well here today.

[10:53] So annuities are interesting. They’re not my favorite. And many people have heard us talk about this, but just to be clear, they’re probably talking about deferred annuities, single premium deferred annuities, where you put the money in and then it’s locked up till you’re 59 and a half. So I believe that that is problem number one, but they also, they, the insurance companies, the people that sell the annuities tend to call these investments. And so to me, an investment again, double digit, no loss of principle. And annuities are typically not able to do that. Most annuities are either fixed and they’re earning probably around six, 7% right now, or they’re variable and they have the opportunity to earn double digits, but they can lose principle.

[11:37] Now, some of them do have a variety of floors available and this can get very confusing and also very misleading whereby the floor may be there, the protection, if you will, of the downside only in the event of death, or maybe it’s reset every seven years or so, but basically to be in a variable annuity, you have to be a fan of the stock market and we’re just not. Prosperity economics and our work within the various investments that we like to use that are alternative to the stock market just doesn’t allow us to be pleased with the stock market. There’s so many better alternatives. And then to combine the stock market with all of the things that an annuity purports to have, which are basically death benefit oriented

[12:22] things, you’re so much better having a separate life insurance policy for the death benefit that you want and then your investments outside of that completely differentiating investment from insurance. And Kim, I understand you brought a gift for our listeners today. We have an ebook that’s available and it speaks a little bit to these alternative investments that I’m referring to and our thinking around the seven principles of prosperity and it’s called financial planning has failed. It’s available at partners. The number four prosperity dot com slash ebook that’s partners for prosperity dot com slash ebook. And we welcome you to grab that. It’s about an hour read. And I believe there’s an audio version there as well.

[13:12] And take a listen or read and see what you think about some of our alternative investments. We’d love to know your feedback. All right, Kim, are you ready for number eight? Yes. Buy a Tesla. Now, I love Teslas and I love what Elon Musk is doing with his organization and his thinking and his total can do attitude. And I’m sure there’s some people out there that are ready to buy a car and a Tesla makes all the sense in the world because of their driving that they do and their capability as it relates to buying a car. You know, it’s funny, we have friends that absolutely believe they’re nicer vehicles. You can think Tesla, BMW, Mercedes, Lexus, what have you are for their business and can even be a business expense and very

[14:05] beneficial. And that’s fabulous. I agree with that kind of thinking. I understand that kind of thinking, support that kind of thinking. But for many people, spending that much money on a car is inappropriate in relation to the income that they’re making. So no right or wrong at all. Like I said, a huge fan of Elon Musk and what he’s doing. If a Tesla is for you and it’s time to buy a car, then let’s do it. But let’s maybe not pay cash for it. I think it’s always a good thing to take a look at again, that opportunity cost idea and think about where is this 100 grand best spent? Could I maybe get an investment that would pay me enough income to pay a car loan? And there’s car loans available these days for two and three percent.

[14:49] So we would do better investing our money at double digits and then paying the car loan at two or three percent and getting the vehicle that way rather than just plunking one hundred thousand dollars down on the car straight is an all cash deal. That single thing that you said, I think represents the prosperity economics movement to a T. Could we take the one hundred thousand dollars and create a cash flow stream that would make the payments on the Tesla versus walking around with a paid for Tesla? Elaborate on that. Absolutely. Well, I understand we may be talking about the prosperity economics movement in a bit here on future podcasts. And so we’ll talk about what it means as it relates to a movement.

[15:42] But the word move actually needs to be brought down to the individual level in your own personal finances. And that is because money should always be moving. And when money is moving, in other words, if it’s going from the investment to the car payment and then maybe to do other things as well, depending on what your capability is, you are getting better results with your dollars, whereas if you just take the hundred and you do the things Money magazine is referring to, like remodel your home or put cash down for a car, then that money’s stuck. It’s dead money. It’s literally sitting there doing nothing other than just providing that one thing, that remodeled home or that paid off car. We need money to move.

[16:28] And when money moves, when it goes from one asset to another, we use the verb through when it’s going through an asset, then it does lots of jobs. It gets lots of results. It’s just like anything that moves. It’s like blood in our bodies. It’s like water in a river. When those items are moving, they’re healthy, they’re substantial. They’re making a good impact and an impact on lots of different things. And that’s the results we want. If there’s one thing that I can compliment Kim on is that so many people need either more money, which indicates sacrifice or taking on an additional job or teaching the money that they have to do multiple jobs. And I don’t think there’s anybody in our industry who has spent more time

[17:16] and developed more ways to take their money to do more things than Kim Butler. And I would encourage you read the books, go to Partners for Prosperity, absorb what you can. And Kim is even willing to sit down and have a talk with you, aren’t you? Absolutely. We love helping clients. All 50 states do all of our work over the phone. And we have these results. We have great places to store cash and we have investments that are doing double digits with no loss of principle. Got it. Well, the next four are by a vacation home. The 401 condo idea instead of the 401k idea. Well, again, just like all of the things here, if a vacation home is something that you’re ready for, if it’s at a place where you can make good use of it,

[18:09] like a geographical place, if it fits in your family with what’s going on right now, there’s nothing wrong with that. But plunking one hundred thousand dollars down for the vacation home, or maybe that’s what the down payment is, depending on where you are in your financial life. If it’s all cash for real estate, then we’ve got the same problems that we’ve got all cash for a car and all cash for remodeling your home. You’re losing the opportunity to invest that money. And so with that, you’ll want to seek out investments that could then pay for the vacation home. And then if this is something that’s just down payment money for you. Well, that’s fine. If that’s where you are in your life, that’s what you want to do.

[18:54] Then, yeah, make it the down payment and get the mortgage on the other eight or nine hundred thousand or whatever that would relate to and go forward in that way. Super, super important that in all cases with real estate, we’re putting minimum down, which is usually around 20 percent these days and financing the rest, ideally in 30 year mortgages with fixed interest rates and not making any additional principal payments. Those are critical aspects that go with the most efficient way to handle a mortgage. And I’d just like to share a little secret about Kim Butler, when Kim Butler sets up her calendar for the year, her vacation time and her family time is actually scheduled first. So you’re not talking to somebody who believes that you sacrifice

[19:48] family time or quality time and work constantly. Another hats off to you for that. Well, thank you. You know, I have to pass that hats off to Dan Sullivan because he’s the one that taught the idea of free days, focused days and buffer days. And you’re absolutely right. The free days get on the calendar first, because if they don’t, then the free days can just disappear. And family time is very, very important to me. And we choose to do that in our own home. But many, many people do need a vacation home to make that happen. There’s nothing wrong with that. We’re big believers in getting both. In fact, we even call our house the House of And where we want to have whatever it is that we’re talking about.

[20:31] And the other thing that we’re talking about, we don’t like to think in terms of or we really want and to happen. And I encourage everybody to go about their lives, seeing if you can get both, whatever the two things are that you’re looking at. Let’s just see if we can figure out a way to get both. All right. We’re up to number 13, which is buy an indexed fund. An indexed fund. All right. Well, it’s a little vague, but we could go with the idea that, yes, if you want mutual funds, then an index fund might be the best way to go. And primarily, I’m sure they’re talking about an indexed stock fund. So that’s fine. Those are certainly more efficient than some mutual funds out there. But I’m not a big believer in buying investments that can get cut in half,

[21:21] like happened in 2008. And index funds can, even though they may not go down as much as other funds. I’ll never forget when a mutual fund wholesaler presented to a group that I happen to be listening to. And she was so proud because this was right after 2008. Her funds didn’t go down as far as some of the other funds. And that’s what she was advertising. I’m not OK with that. I have a zero percent risk tolerance. I’m not interested in losing money. I’m not interested in money getting cut in half. And if I had 100,000 brand new today, whether I earned it or whether it was handed to me, the last thing I would want to do with it is put it in a place where it could get cut in half. So are you saying it’s reasonable to expect to take

[22:09] a hundred thousand dollars, protect that principle? And if so, what type of interest rate could you realistically expect on that? Well, our rules always been low double digits. And last time I checked, that meant a one and a zero put together. So that’s the expectation. That’s the guideline that we seek is investments that can do double digits. So you can find real estate deals that do that. You can find bridge loans, hard money loans, mezzanine financing that does that. You can do life settlements that do that. There are certainly regular businesses that do that. And I’m sure there are some others out there. So we’d love other ideas on where people can seek double digit with no loss of principle.

[22:54] If you’ve got one out there, we’d love to know about it. I think the most important thing would be to be able to show you how to evaluate your own investments, as well as potentially some of the investments at Partners for Prosperity, so that you knew going forward the questions to ask. If there’s one thing Kim Butler has always said is that questions are more important than answers, correct? Absolutely. It’s where the learning comes in. So we’re good at the questions. We want to help you be good at the questions. And my favorite thing to do on the phone is Q&A time. All right. So one more time. Partners, the number four Prosperity backslash ebook. There’s some free stuff for you there. Anything you would like to add before we wrap up?

[23:45] It’s actually partnersforprosperity.com backslash ebook. That’s OK. It’s part of the learning, right? We have to get those dot coms in there. So, yeah, thank you very much. Partners for Prosperity dot com slash ebook, a 60 page book on financial planning has failed. Super. This is No BS Money Guy Todd Strobel for the Prosperity podcast, saying once again, thank you, Kim Butler, and take care, everybody. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review. Thank you for listening to the Prosperity podcast.