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Debt: Is It Helping You or Is It Hurting You? with Michele McFie and John McFie

We are talking about an incredibly important subject and that is debt. We're talking about debt with John and Michele McFie.

The reason why this is an incredibly important show is because a lot of times debt is seen as a bad thing. It's a four-letter word. When in fact debt is neither good nor bad, it's just how you leverage it to make it one of those things. Is it helping you or is it hurting you? Oftentimes, many people think about debt is bad. Stay away from it.

Michele is the matriarch of this incredible family of folks that are money-minded. She is what they call the "Wonder Woman" being a mother of eight and running a household of ten. She got her start as a primary school teacher. One of her greatest gifts I believe is organizing the chaos and complex subjects and making it simple so that everyone can understand. Then you're going to meet her son, John. He is a numbers guy and you need a great numbers guy on your team, on any team to make sure that it all aligns up.

You should know this about John, at fourteen years old, he was developing spreadsheet models and software system. That's the kind of guy that I want on my team helping me make financial decisions. We're going to talk about and tackle debts. If you're in debt right now, bad debt that is, what do you do about it?

We discussed a principle in The Richest Man in Babylon. If you haven't heard about that, you're going to love this concept. It's very powerful concept that can help you get out of debt. It's a little counterintuitive or a lot counter intuitive, so you're going to want to hear about this. We're also going to break down all this debt conversation, Snowball, Tsunami and Avalanche. We're going to talk about that in which one is the best, which one is good for you. We're also going to transform this conversation and not just be focused on debt essentially, but how do we take this idea and create sustainable wealth. Be sure to read the four steps to sustainable wealth.

Dustin
A promising young man graduates college and meets the love of his life. They both graduated but they've got six figures in debt, which isn't uncommon. It gets more interesting because they want to start a family. These folks are in love. They want to start a family and they do. They have a baby. The challenging thing is mama wants to stay home now and raise the baby, which every couple, every mother has that right to want to do that. However, they are now over $300,000 in debt. How do you help them in this scenario because to me mama can't stay home with baby because they're just so far behind? What do you say to this couple?
Michele & John
We have a lot of couples that fall into this area where they do have these debts,$300,000 just student loans, not even counting for a mortgage. We've added baby to the picture and mom wants to stay home or in some cases dad wants to make sure someone stays home and maybe his income is less. He makes that decision but counseling them? It depends on everyone's situation. There's no one thing I could say that would be right. This is something we have to look at strategically to make sure that we're getting the debt paid off, but also that we're living and taking care of our kids. Those things that we care about that we get to live our life taking care of that rather than just paying the bills.
Dustin
What do you say to that? I know you're more on the technical side.
Michele & John
It's a horrible problem and people have it across America. You add up all of the student loan debt in America now, it's over $1 trillion. It's closer to $1.5 trillion. If you divide that out, we were looking at the debt in the Las Vegas Valley. With that amount of debt, it's over $9 billion just in the Las Vegas Valley alone based on population. You could buy the Raiders both the team and the new stadium that they're building in Las Vegas. You could buy the Golden Knights hockey franchise and their stadium in Las Vegas. You could buy the Wynn Hotel or build your own for$3 billion and put your own name on the top of it. You'd still have over $1 billion leftover. That's the type of burden that Americans are facing with student loan debts. It's horrendous. Maybe you didn't want to think if you're not in a student loan debt yet, what are some ways to avoid that?
Dustin
I want to ask this question. Why are we as a society so debt-friendly or racking up so much debt? What's your take on this?
Michele & John
There's a variety of reasons. For one thing, it's given out so readily. As soon as you turned eighteen, you're getting offers for credit cards. I don't know how many people have said to me, “I never understood how a credit card worked. I knew that I had this set amount that I could spend.”That starts a spiral downhill.
You might think it's free money, but it's not.
Dustin
I remember in school it was four free t-shirts and the next credit card company came with five free t-shirts. That's what it was and in college to me, it was, "I'm going to get these credit cards because I'm getting some free shirts, which I desperately needed."
Michele & John
We translate that to education. Loans are given out for education, now education costs rise. Instead of checking ourselves and saying, "Can I work alongside getting my education to decrease how much I need to borrow? Am I focused on this is what I need to do?”A lot of people go through their education and then don't get the job that they thought they were going to get. That presents a problem. Some debt is good. There are good kinds of debts, but some is not good. Somehow along the way in society, we forgot to be making those important valuations and deciding for ourselves what kind of debt can we take on and what kind can we not.
Dustin
I want to definitely talk about good debt and bad debt. What could have been done from the parental standpoint? Maybe I'm the kid in college acquiring now this debt, what advice do you have for both sets of people in this equation?
Michele & John
I have one, rather than going to college and changing majors all over like most people do, why not get a job in the field that you think you're interested in? Get paid to pick your major that way. Move around a little bit and decide what it is that you like and then get the education that you need. Maybe if you don't need a formal education to do so many jobs that are available out there, maybe you jump right in. You’re ahead of the game, you don't have any debt in starting out behind eight ball.
Dustin
That's smart. I always favor experience. Michele, you're a parent or you've got kids that are coming up and they're having these conversations and maybe they're a little behind the eight ball in terms of helping their kids out. Not everyone has to do that, but I'm saying should the parents choose that want to help their kids go through college? What do they need to do to avoid this situation for their kids?
Michele & John
It's good for parents to come alongside their children and work along with them, evaluating the expenses and evaluating the options for what to do. Maybe the parent is part of that. Some parents want to pay part of that expense or all of it. There should be communication about what it's going to entail even if they can't afford to pay for it. Having some open discussions about how this expense should be handled. Ideally there some very young parents and very young children reading, you can start working with your children talking about finances even in simple ways. For example, you were talking about going to the zoo with your son. Everything he saw, "I want to do that. I want to do this." Those are all good things but sometimes we have to make a choice. That's true for all of us. We can't go have ice cream, cake and pie. We have to make a choice. Maybe it's smaller portions of each of those or maybe it's just one item. We need to teach our children those things very naturally all along the way. Even in non-financial decisions but especially in financial decisions.
Dustin
You were telling me a couple of the stories of folks that you've come into contact with. One of the things that surprised me because I had no idea there was a whole system or a game for this and that is where my mind goes to. I want to bring this to people's awareness. You were talking about a particular person that came to you that was saddled with debts and they were struggling. An option was essentially to lay low or be lazy is how I attributed to my mind. If you are, the government rewards this activity or this action or this is how you qualify for a program. Will you walk us through a little bit of what this thing is that exists? That if you are saddled with some crazy debt, there is a way out? Let's talk about the even greater conversation at hand.
Michele & John
There is income-based repayment. When you go to make payments on your student loans, they can look at your income and they can base your payment amount on your income. The less you make, the less you have to pay. However, while you're making those low payments that interest is still accruing so your student loan balance is increasing all that time. They say that after twenty years that loan is forgiven.
Sometimes 25, maybe ten years if you're with a nonprofit organization.
“Fine and dandy. Twenty, 25 years, I'm going to get this loan forgiven,” but then that all becomes income in that year and that means it's taxable income. You owe taxes on that money. You exchange student loan debt for a tax bill.
When you're talking 25 years, you're talking big compounding on that loan balance. If you've been making minimum payments less than the interest, that interest is compounding big time and over double.
Dustin
Thank you for bringing that to my awareness. This is why you guys are in the situation and I'm becoming that way because maybe the compounding is even more, but what I hear is who wants to go through life earning like no amount of money? They can game the system to get out of the student loan debt. I have to appreciate it because I haven't been in that situation where they've got this big burden. They only see that as the route, but I would feel so stressed out knowing that I have to make a certain amount of money and didn't like do nothing.
Michele & John
I'm a mom. I hate this because I'm always wanting my kids to do their very best to challenge themselves and to see what they can accomplish in life. I hate this because it's telling people, “I'm going to limit myself. I'm just going to barely get by so I can get this forgiven.” Sometimes they get this idea but then in twenty years, “I'm going to kick in and I'm going to go for it.” I don't believe that's true because a body that's in motion stays in motion. It's easier that if I'm going to sit down for the evening, if I'm going to check and see if people in the room want a cup of tea before I sit down. If sit down and then if someone wants a cup of tea, it's going to be much harder for me to get up. I'm just going to let someone else do it.
Zig Ziglar used to tell the story about training fleas. You put fleas into a glass of jar and you put the lid on top. The fleas will jump and jump. They'll hit the lid. They can't get out of the jar. Pretty soon you come along and you notice they're not jumping as high. They have programmed themselves and condition themselves not to jump out of the jar. You can come along you can take the lid off that jar. The fleas will never jump out again.
Dustin
It doesn't blow my mind that there is a system for getting out of this. I agree with you 100%. They are so impactful in a negative way.
Michele & John
The key is you’ve got to get a good system to get out of debt and start implementing some methods where you can create more income in the business that you're in or maybe you want to create other sources of income. Those are important things.
Dustin
I definitely want to get into that. Some of us have debt whether it's student loan debt or regular debt and so I thought it would grab attention. I want to get into the conversation of good debt and bad debt because this is at least in my mind about that debt conversation. How do we leverage good debt? How do we get rid of the bad debt essentially? John, you have some thoughts around that?
Michele & John
I will say one more thing on the student loans before we move on because if you're reading this, you have student loans out there and you're on income-based repayment. Don't feel bad about that. Maybe it is a short-term cashflow solution. Maybe you can use the income-based repayment to boost your cashflow in another area, but don't use it as an excuse to stay where you are income-wise. Use it as a steppingstone and get out of that income-based repayment situation. Start paying them off as quickly as possible.
Dustin
That's a good clarification. I appreciate that. John, I want you to get into the difference between good debt and bad debt. Traditionally, I've heard debt is bad my whole life. We should avoid it like the plague. Walk us through good debt versus bad debt.
Michele & John
A bad debt is something that's taking money out of your pocket on a continual basis. Good debt can be leveraged so that you can use access to money to go and save more money or make more money somewhere else. That's good debt.
Dustin
Let's make it real for people. A car is questionable because a car can help me go drive to a job or if I'm a real estate house flipper, I can go drive to the houses and look at them. What do you classify a car is?
Michele & John
A car is a living expense, the same thing for your mortgage. If you didn't have a mortgage payment, you would have to rent. Maybe those are classified more as lifestyle items. The things that we would consider bad debt are credit cards. You spent the money on lifestyle. It's gone. You're a slave to making those payments. That's bad debt.
Dustin
I want to be clear too because going through this and learning this myself, it depends on what you buy because if I use those credit cards to buy a WealthFit course or any education. Not necessarily a bad debt because I'm making an investment in your education.
Michele & John
You ask the question, “How is that investment going to pay off?”Is the course that you bought going to give you what you need to get to the next level?
Are you going to enact the material in the course? We know the courses are good. They're going to be helpful. Are you willing to take the steps to enact that information? If your answer is yes as it should be, then that can be a very good investment that you're using credit card. If you're using it responsibly, that is not a bad debt.
It's an investment. Right here is where it helps to draw the distinction between saving and investing. Many people think that they're saving when they're investing and there's a difference between that.
Dustin
If I'm saving money, they think I'm investing because I'm getting half of 1% or whatever.
Michele & John
People put money away in their 401(k)s. They think they're investing or they're saving. They're investing. There's a risk to that. Any time that you're putting money where there is a risk, that is an investment. The definition of an investment is you're risking a loss. Everybody should have a secure foundation of savings that is somewhere guaranteed.
Dustin
Are you talking about I should have the old adage of six months a year of?
Michele & John
An emergency fund, that's part of it.
Dustin
What else?
Michele & John
Something that is going to grow for you sustainably that you have guarantees. That you can leverage to do other investments later. It starts out as a foundation of savings. You want to have a foundation. What if that investment that you make does go south? You come back down, but you only come down to your foundation again. You don't go all the way back to zero. That's the point of a savings system. Ultimately, we do move to investments. You always want to keep a strong foundation in savings.
Dustin
I'm curious because a lot of people have this. It's part of a lot of people's lives and it's a mortgage. Are you of the camp that a mortgage is good debt or is bad debt?
Michele & John
That depends. I'm going to use a personal real-life story. My husband and I were both at the old school that all debt is bad debt. We did have a mortgage for the first five years of our married life and we then sold our home and we paid cash for the next home. No mortgage debt. We thought we had made it, but my husband's business didn't pick up and start off like we had expected to. He said so many times he wished he could have reached into the walls of our home and pulled out the equity to put in the business. We didn't have a mortgage payment, but we were still having taxes to pay. We got smarter along the way and we realized that it wasn't so smart to completely pay our house off. There were some perks. There was interest deduction on taxes. There was the use of our money. It didn't all have to be in the house. We could still use the whole house as if we had it paid off. It didn't matter. We have money that's available to us to use in other ways. For instance, for putting into a business or to make investments that are going to create more money for us.
As we do further studies, it shows us that we have so much more potential for liquidity and profitability when we have more access to our cash. Do we think a mortgage is bad debt? No. If you didn't have a mortgage, you'd have to rent. There's still that outflow. If you're going to get a big large home or a mansion that is above your means, that's bad debt. The car example earlier, we need a car to get around but if you suddenly need a Lamborghini to go around and look at the houses you want to flip. I'm going to say that Lamborghini is not in your budget then that's a bad debt.
A question to consider here especially when we're talking about a mortgage, do you want your mortgage paid off or do you want the money that you could pay your mortgage off if you want?
Dustin
I want the money. In that case, Tom wanting to pull out of the house. He wished you could pull out of the walls. You could have done like a home equity line or gotten a mortgage.
Michele & John
That's what a lot of people would think. Because the business wasn't doing as well, our income was not where it needed to be to prove that we could pay off that loan, so we didn't qualify for the loan. I've met a lot of people in that position. Medical bills come along. They had their house paid off. They went to go get a home equity line of credit to pay off their medical bills. No, sorry, they didn't qualify for the loan.
Dustin
This is the Get WealthFit! show. I want to get to the wealth part of it. I want to help those that are coming into the conversation around debt. I've heard you say, John, that the key to getting out of debt is changing your money mindset. First, we should start with what is money mindset?
Michele & John
Sometimes we say that wealth is what you have when all your money is gone. Hopefully, you don't have to lose all your money to find that out. There are things that money can buy and there are things that money cannot buy. All of those things make up part of your wealth. We always want to use money as a tool to get the things that money can buy, but we have to also check up and make sure that we get the things that money can't buy along the way. That's part of the mindset.
Dustin
Michele, you had some thoughts here around mindset. In order to change where you're at in anything in your life, you've got to change your mindset. Is it one of those things where it's like Law of Attraction? If I say it's good to be true like, “I'm getting out of debt or I'm debt-free,” is it one of those things? What's the power behind this statement of changing your mindset?
Michele & John
I'm glad you asked that but if you wanted a yes on that, just think of whatever you want and it will happen. You asked the wrong person. We have to change our mindset in terms of how we talk to ourselves and how we think about our debt. More of a positive mindset about this debt that I have, I can overcome it. This is a challenge but I can meet it. Not just telling ourselves those things, but taking the steps and doing the things that need to be done to make it happen. Not just letting it happen, but being willing to let it happen and doing it, so it can't happen.
That's a good point because motivation is not permanent. A new mindset is not permanent. It comes for a little while. As soon as you make forward progress, you take an action that improves your progress towards that goal, now that provides further motivation to keep on moving in that mindset.
You meet those people that seemed to be up all the time. We're not always going to be up all the time. There are going to be times where we get a little bit discouraged about where we're at. That doesn't matter if we have a lot of debt or a little debt or maybe we're out of debt, but we're trying to move to that next level. Sometimes we feel some discouragement and it's okay to acknowledge that but then not operate from that. We have to quickly get back into thinking about the things that we can do and be grateful for the wealth that we have and then our ability to create additional wealth. That's important. There is that Law of Attraction that you're talking about, being grateful and truly being it. Not just saying that you are.
Dustin
What do you say to that person that is stressed to the max? Maybe this is an area of $300,000 in debt. They've got a kid. There's a motion you can feel in a situation. Someone living under a pile of bills and can't see the light. Maybe they're reading this and maybe there's a little flicker of light. What do you say to them? You’ve got to change your mindset when all they can see is credit card bills and debt staring them in the face. What do we say to this person?
Michele & John
I like to come back to the 10-20-70Principle. Look at your income. Your income it's100% of what you make. We need to divide up your income, 10% should go to savings. A lot of times those people that are so overwhelmed by debt, they're not saving anything. They will even tell me, "I can't." I say, "No, you've got to start saving. That's going to be your way out." If you get paid on a daily basis and you're providing service somehow then saved on a daily basis. If it's a weekly, weekly basis, monthly, same thing. You can even save it in an envelope in your dresser drawer and make it easy for yourself. Start saving and measure your progress. No more than 20% goes to your creditors and then 70% to your living expenses. Once we start making that evaluation then they can begin to see or maybe they need us to begin to see along with them where is it then they need to make changes in their expenses. How they're paying things out? It's a quick way to map things out and to start to create a plan to get out of debt and to get into a better financial position.
Dustin
The 10% if someone is in debt couldn't someone save massively. Wouldn't that money be better served paying down that debt so interest doesn't accrue as fast or is this more about just building that pattern of always doing 10%to savings?
Michele & John
The 10% to savings, I want them to prove to themselves that they are worth at least 10%. They'll get into that pattern of savings. They will carry their shoulders back a little bit straighter because they have not spent every dime that came in. That's an important first step. As time goes along, we can show them how they could use those savings to help them get out of debt. It's not bad to have an emergency fund either that set aside. We will show them how they could even have an emergency fund with setting aside their 10% because otherwise, an emergency comes, what are they going to do? They're going to go deeper in debt. Let's be a little proactive on how we're handling this whole thing. That mindset of knowing that you haven't spent everything. That you've saved something for yourself, that is key right there too.
Dustin
Michele, tell me if you've had a client or you've had an encounter with somebody, what if the 20% doesn't pay all of the creditors? Has there ever been that scenario and what's the advice you have for them?
Michele & John
When we get to that point, if 20% doesn't cut it for creditors, we have to look at good debt versus bad debt. We're not going to put the mortgage in the 20%. We’re not going to put the car in 20%. We may not put the student loans in 20%. We're going to see what our manageable amount is. If we are still over the limit on that 20%, then we're going to have conversations with those creditors. We're going to lay out our plan. We're going to be very transparent with them, what we make, where we're at and we're going to see how they will work with us.
Dustin
I'm very curious about where does the charitable conversation come in, in this 10-20-70? Some people are brought up religiously to tithe, to give a percentage. Some people just subscribe, “I need to give back. I need to build that in.” In the 10-20-70, is that a living expense? Where's that 10%? It's a living expense.
Michele & John
It comes out of your living because that's what you believe. That is part of your life saving expense, your lifestyle.
Dustin
It's funny that there are weather-related terms and I don't know that I know them all yet. I'm still collecting them. There's the snowball and the avalanche and maybe even a tsunami. I'm curious what do you subscribe to what methodology?
Michele & John
We're talking about getting out of debt. We're getting a plan. We list out all of our debts. How do we tackle those to start paying them off? There are different strategies on how to do that with Snowball. A very popular one that you mentioned. That method is espoused by gurus out there like Dave Ramsey where they say you go after the lowest balance first. You'll have the payment, you get that one paid off. You have the payment from that one, you can Snowball it and move onto the next debt and pay that one off faster. It gathers momentum just like a snowball as it gets bigger. That's one option. Another option is the Avalanche method where you go after the highest interest rate first. You try to smother your debt. That's where the Avalanche term comes from.
You're trying to smother all of this debt, but you better hope it doesn't end up smothering you. What happens with the Avalanche method, it might take you a long time to pay those debts off because you're going after the highest interest rate, they might have some pretty high balances too. What happens if you get three months in and you get a cashflow crunch? There's no relief. You have as many required minimum payments as you did before. That's a downside of the Avalanche method. The Tsunami method I've heard of that one little bit. It has something to do more with the emotional side, doesn't it?
Dustin
I think so. They all have their pros and cons. I'm curious, do you subscribe to any one method? Do you have your own? Is it a case-by-case? How does it work?
Michele & John
It is a combination. The Snowball, you have cashflow on your side and flexibility. You get an emotional boost when you pay off one of those debts. Mathematically, it's not the most efficient. The most efficient way mathematically, just look at the numbers and go after the Avalanche method. That's not always the answer either. We usually find that a combination between those two will give you the best results overall.
Dustin
It depends on the scenario that you're in. All the factors at play so it's hard to give a one-size-fits-all solution here.
Michele & John
It sure does. In the course we're doing with WealthFit, we laid that out so that you can look at the debts that you have and you can know how to apply these different methods to your own debts.
Dustin
I know you're a numbers guy. You get your way around a spreadsheet. How does emotion play into you because sometimes people are so numbers-driven?
Michele & John
That's an important part because you can't make all decisions on a spreadsheet. There is an emotional component to this. Generally, what we find to be the most effective is you take your emotions out of it. You look at just the numbers. You decide what's best based on the number, then you bring the emotions back in. Do you want to change anything now? You know this is best with the numbers. Is there something that you have to change about that to make your life better? That's where the emotions come in.
Dustin
I'm curious to ask you about rentals because this is something that I have. In this particular situation when you're looking at the money that's coming in, let's say it's not in a business so rental income from properties because we have a lot of real estate investors that live into this. When you're looking at the 10-20-70, are you counting rental income? How does a more complex situation factor in to 10-20-70 all the debt stuff that we're talking about? John, how does that play in these more complex scenarios?
Michele & John
We usually look at the personal income when we're talking about 10-20-70. For investors, they're often investing in real estate through some business structure. On the business structure, it's a little bit different, it depends on the type of business. The 10-20-70, it's a guideline. It's not a hard-fast rule. Some businesses you're going to have more cashflow or be able to put more into savings than others. Some you're going to have a greater percentage that's going out to expenses. There's flexibility there. It's a guideline.
Dustin
Michele, what are your thoughts?
Michele & John
I would say the same thing. The 10-20-70 is a guideline. It's called a rule, 10-20-70 rule. That's a good way to think about it when you're first starting out. As you start adding other components such as the real estate income, we can let that be more of a guideline and guide us through the process. Also somebody who doesn't have debt, what did they do for the 10-20-70 rule? Do they add it to all their living expenses? If they will put it more towards their savings, then they will have a better opportunity in the future and more opportunities for investment as well. We've got some flexibility. We have the 10-20-70 rule. We've got some flexibility. One time we had a client that said he hadn't been saving and we said, "You’ve got to go save 10%. Go away, do it for a couple of months. Come back. Tell us what happened." He said, "I couldn't save 10% but I could save 8%.”“That's a great place to start. Then we can move on from there. You’ve got to start somewhere. Strive for that 10% but there again, it's not a hard-fast rule.
So many people, they go away. They say, "How could I save 10%?" We say, "Try it. Challenge yourself." Many of them come back and they say, "I didn't even miss the money." It's amazing how that happens.
Dustin
You attribute that if you don't have that in place, you don't know. When it is in place, people find a way to budget around it or not get that Starbucks latte or whatever it is. They don't miss it.
Michele & John
We never tell people to give up their Starbucks latte or whatever it is. Who knows that might be their piece of heaven on Earth? It is amazing how people come back they say, "I didn't even miss the money. I found the way to make it work."
The easiest way to pay something on a monthly basis like a gym membership is to have it drafted from your account. You don't even know. You need to set in motion a way for you to save this automatically. That's paying yourself first.
Dustin
I do want to give a little love here to one of the books that I read early on and I know you guys are big fans of it, The Richest Man in Babylon. This is where this rule comes from. I like that you defined it as depending on your situation. This isn't carte blanche to do whatever you want with the numbers and the rule. More that it's a guideline and as you evolve you know the numbers may change and you do what you can in the early stages. I want to make this more about than just debt because this is Get WealthFit!. You have identified four steps to creating wealth. One of them encapsulates debt. Will you break those down for us, the four steps to creating wealth?
Michele & John
There are four steps. We have the first one is you need to protect what you have. The second one is you need to save and that's to be differentiated from investing. The third one is you need to eliminate or manage the debt that you have. You don't have to eliminate the good ones. The fourth one then is to invest. Most people get these backwards in life. They want to go out and invest. They hope to find an investment that's going to pay off good so then they can eliminate debt. With what they saved from their debt, hopefully they'll finally have enough to save money. When they get around through the protection part, try to protect what they have made, it's oftentimes too late if they didn't get squashed by something else along the way.
Dustin
Talk about protect then, starting off with that one. Let's say someone doesn't yet have a substantial amount of money or a great deal of assets to protect. What do you mean by that?
Michele & John
You have to protect not only what you have but also what you are building. One of the ways that we do that is with whole life insurance.
Whole life insurance, that is an asset in itself. It's an asset purchase. When we're talking with someone who maybe doesn't even have enough money to do that or extreme debt. In some cases, we just need to even do a term life policy, which is very inexpensive. It's not an asset purchase. It's a temporary thing. It's like renting. You don't build any equity. You don't build any equity in a term policy. For pennies on the dollar, you can have protection for your family. If something happens to you, the debt is gone plus they have money to live on. It's hard enough on two incomes in a family or one income that's gone and now that other person is faced with how am going to take care of the family, let alone debt. For pennies on the dollar, you can get that kind of protection. I say pennies on the dollar, but we're talking less than a latte a day. You can have a substantial life insurance policy that could wipe out your debt and take care of your family when you're not there.
That's a great place to start for protections. Sometimes disability insurance fits into that as well if your family is dependent on your income. Most bankruptcies in the United States are not the result of a lawsuit even though we have so many lawsuits. Most of the time, it's just somebody in the family that gets sick.
Dustin
There are so many so many ways I want to take this. Let's start with protection. I want to own up to that. We talked about protection, now let's talk about savings. Break down a little bit of savings. Let's say I go out. I do what you subscribe to. I bought life insurance. I'm protecting my family. I need to save. What are some tactical ways I can do this?
Michele & John
Tactical ways you can do is we talked about putting money in an envelope, putting it under a mattress. Our specialty is looking at the asset of whole life insurance.
That's because the money under your mattress, money in an envelope doesn't grow. Inflation is eating away. It's shrinking it. If you can get a guaranteed growth on that savings while still secure, still accessible to you, that's what we're after and that's why we're using the life insurance.
We use whole life insurance because it is guaranteed. It’s got great guaranteed value. You'll build cash value. You'll build equity in that policy. You can access that cash value, that equity to use in your lifestyle or in your paying off debts or to invest while you still have a guaranteed growth on the policy, so an amazing thing.
It's a way to get both instead of always thinking either/or.
Dustin
This is where I thought the conversation was going, but I wanted to honor the steps. We keep coming back to whole life insurance. People have heard of life insurance. It's a thing that I buy and if I die, my family gets some money. They've heard of that. There are so many different nuances and variations of it. My understanding is there are two main categories of life insurance, is that true?
Michele & John
Yes.
Dustin
What are they?
Michele & John
That's term and permanent.
Dustin
Will you break those down for us?
Michele & John
Term insurance, there are a couple different kinds. There's one-year renewable term. A 30-year-old, if they're going to have $1 million of life insurance is going to be X costs. When they're 31, they're that much closer to dying, it's going to be a little bit more, 32, the same thing. We don't like thinking that our payment is going up all the time. They came out with the level term. That 30-year-old wants $1 million of life insurance for ten years. Here's the amount they'll pay every month. Maybe they decide, "No, I don't want it just for ten years, I want to make sure that I'm covered until my kids are grown. I want twenty years." The price is going to be more than that ten-year term. It's going to stay level for that whole twenty years. Twenty years past, the term is up. If you want life insurance, you're going to be 50-yearsold and your premium is going to be much higher. You were renting insurance during that time.
Term insurance is basically renting.
There's permanent life insurance and there's whole life insurance, which has guaranteed growth, guaranteed death benefit, guaranteed cash value and the premium goes for your whole life. There are different kinds of whole life insurance. Some whole life insurance it's just plain old whole life insurance. It does not build equity very quickly. We like to use high cash value life insurance. We're putting a rider on the policy that is going to allow us to build cash value in the very first year of the policy. That's the kind that we especially like. You have access to the cash value and all that good stuff.
Dustin
A rider to define for people is what essentially?
Michele & John
It's just an add-on feature to the policy and you pay for that separately. One time my husband, I remember he was talking before a group of people and he held up a piece of paper, he said, "This is like your life insurance policy." We were in a restaurant where he was speaking. He quickly grabbed a napkin off the table, stuck it behind the policy and he said, "If we staple this together, that's the rider." There are different kinds of riders, but that rider is giving us cash value right away. If you can take away that rider later, we can and we still have the policy.
Dustin
The rider allows you to put more money into the vehicle?
Michele & John
That's right. There are other kinds of permanent life insurance. I don't like them being called permanent life insurance because they're not very permanent. Those are universal policies. Universal life, there's indexed universal life, there is variable universal life. What they are is like that one-year renewable term that we talked about where the term goes up every year bundled with a side cash account. The theory is that if the market does well and this cash account grows, your premium will stay the same.
It will be paid out the cash fund, but there's that increasing expense because it's still based on insurance.
Dustin
What if the market goes south?
Michele & John
That's what happens. The market doesn't keep up with the cost of the one-year renewable terms. When you look at a universal life policy illustration, it shows the guaranteed values and the non-guaranteed values. The guaranteed values go to zero between the ages of 60 and 70. When you're closer to dying, there's no death benefit because it goes to zero. Your cash values go to zero. No matter how much you've put in the policy, it goes to zero. I don't like that. I don't think that's very permanent. They do give you the option to pay the premiums on that, but you remember those stair step premiums of the one-year renewable term it's going to be expensive. Next year, it's going to be even more expensive. To me it's not a very permanent situation, but that's the category it's in. Why? I don't know.
I want to say something here too because you have the guaranteed values. Everyone always looks at, “What the market does do well.” What if it's somewhere in between there? You're going to see the values, you’ll see them go up for a little while but then they'll come back down as the cost of that term insurance starts catching up behind the scenes. Even if your cash values don't go to zero right away between 60 and 70, they're headed down. That's not where you want to be if that's been your savings for your golden years.
Dustin
Let me ask you this, index universal and some of the other ones that you mentioned, are those the more fashionable ones in this category? It seems obvious a lot of stuff is driven by money and company profits and all that. I understand that, but why do you think they're so prevalent over whole or they are seen more favorably?
Michele & John
There's a lot of marketing around it. A lot of people want to participate in the market, but maybe with a hands-off approach. They don't want to know all about it and be able to be responsible about it. They could buy this policy, this life insurance policy, which seems fairly safe and we get the market too. That's how they sell it, but it just doesn't perform well. It transfers the risk from the insurance company back to the policyholder. The reason we buy life insurance is to transfer our risk to the insurance companies. This is going in reverse. You know people get excited about it. They want their product. The insurance companies continue to perpetuate it because it makes them a lot of money. We have people getting excited. They think they're going to get something exciting and the insurance companies making a bundle.
What the insurance companies are doing with variable products that money is invested in different accounts that are buying stocks. With index universal life, it's not invested directly in anything but the insurance company, the way they do that is they're buying options. If you want to be in the options market, our theory is go ahead and take the cash values from your whole life, go invest in the options market. You don't have the fees and the risk that the insurance company is transferring back to you in the IUL product.
Dustin
A sideline question here, do you recommend people get out of debt before making investments?
Michele & John
Generally speaking, we want to do the protect, save, eliminate debts/create liquidity and then invest. Sometimes we have to do some investment along the way to help us to get out of debt. Sometimes we invest in something so that we can gain more knowledge, more understanding, more skills so that we can create a higher income. We have to watch that ratio though of what we're spending because that does add onto our debt. If it's going to help us to get out of the debt, it can be a good thing.
The mortgage, like the student loans that we're talking about, some of those loans, those big ones, if they have a low interest rate on them, maybe you don't ever rush to pay those off. Maybe you do go out and invest before you try and track those ones down. Sometimes some of those big debts are like trying to eat an elephant. You might be able to make more somewhere else on a smaller scale, have all that add up and then you can tackle the elephant is fine.
Dustin
You are the creators of the Perpetual Wealth Code. I want people to know a little bit more about it. Would you break down what is this Perpetual Wealth Code all about?
Michele & John
The Perpetual Wealth Code starts with a system of saving, the 10-20-70 that we talked about. From there, you want to save at a place where you still have control over your savings. You can leverage it either to pay off debt or to make other investments that flow back to you.
Dustin
You said something that bears highlighting. You said, “Control over your savings.” If I'm putting my money into a 401(k), this is not control over my savings, correct?
Michele & John
How are you going to access it?
Dustin
I will when I'm 70-ish?
Michele & John
After 59 and a half, the penalty goes away. You're forced to access it after 70. It limits your options.
Dustin
You're not saying invest in that or controlling my savings is that you're talking about something else. You're talking essentially life insurance, correct?
Michele & John
Yes.
Dustin
I wanted to clear that up so people understood. If I'm parking money over here, but I can't do anything with it until a certain age or I'm forced to do something by a certain age. I don't control my destiny.
Michele & John
You want to get growth on your savings. You could put that money under your mattress, you would have control over it. It's not growing. In order to get the growth and the security at the same time, that's where we use the life insurance vehicle. I don't have any other vehicle where you can get both like that.
401(k)is not liquid for you to get to for any expense that you want, any time that you want and without certain strict guidelines about how that's going to come back in.
There are two sides to the Perpetual Wealth Code. There's one, the money management side. How to be a wise money manager with what you're doing whether it's paying off debt, whether it's investing or whether it's controlling your savings. The second side is the life insurance that helps us to accomplish all that better. It gives us a great ability to pass on the legacy at the same time, so that's why we use it.
Dustin
I'm glad you said that. I want to talk about something we haven't chatted about, which is tax implications. Legacy being a part of that if you want to leave money to your favorite charity or if you want to leave it to your family. We hear so much horror stories of a great deal of money being left behind only to be whittled away by whatever it whittles it away, taxes and penalties and Uncle Sam and however you want to call it. How does the Perpetual Wealth Code help with that conversation?
Michele & John
When life insurance, when a death benefits paid out, that is tax-free. That right there is huge.
No income taxes at all. It will go into your state if your state is over $11 million. They change it around. It is subject to state taxes not to income taxes.
There's also that you hear of the person that gets an inheritance and it's eaten away quickly. There again, remember I said I hope there were some young people that are training up their children on how to use money and building those relationships. Showing the values that are going to help them manage that money when they receive it someday. Even if you don't have the children that you think are going to be responsible with the money or you're concerned about a charity, how responsible they are going to be with that. You can make a trust. Have your trust be the beneficiary and then have the trustee designated how to manage those funds. Using whole life insurance that's perpetual throughout your lifetime. That coverage is in place. When the legacy goes on, you can perpetuate some of these things that you've started. Not that you're going to rule from the grave or the things you've laid out are you going to continue, but some of those values and the things that you've started are going to be able to continue.
Dustin
I want to move us into WealthFit Round. I want to get inside your heads a little bit more into the things that make you both successful in all areas. We are here talking about debt. We're talking about creating wealth as well. What is the guilty spending splurge that you like to treat yourself to when life is great? John, what would be the thing that you are into? You might call it your splurge, your little piece of heaven as you said it.
Michele & John
I don't know that I have a guilty splurge. I like purchasing an audio equipment or video production equipment for our studio. It's part of what we do.
Dustin
Michele, the same question.
Michele & John
He likes to go snowboarding too.
Vacation is not necessarily a splurge. It's part of life. It's a balance.
For me, I like to go on vacation. I like beach vacations, especially where I can go lay by the beach and lay there.
Dustin
Any favorites or any on the top of your head?
Michele & John
The warm tropical beaches are great. They are out there.
Dustin
Michele, what's been your most worthwhile investment ever?
Michele & John
It's not about money. It's the time I spend with my children, my family.
Dustin
John?
Michele & John
I would have to say the same. Spending time with our family. I don't have a family of my own yet. Mom and dad's family are our family. It's an amazing experience. We work together. We run a family business and it's just so much fun to work with your best friends every day.
Dustin
When you say family, let's define it. How many in the family?
Michele & John
I am the oldest of eight.
Dustin
Advice for those in the family business or starting one?
Michele & John
It wouldn't work for every family. You have to recognize that you're on the same side and work together.
Dustin
Michele?
Michele & John
I'm a team player and in my marriage that's true. Tom and I are very committed to each other. We love each other. We brought the children in. They're part of our team. We're working together. You want to get something done, you've got to work with great people. You’ve got to be willing to sacrifice your will for other people and sometimes that means a better product in the outturns. Team playing is important to remember even when you have family members. Treating other people like you want to be treated. That's the main thing.
Dustin
Fear and self-doubt often stop people from achieving their goals, what do you do, Michele, to overcome those feelings and what would you tell someone maybe that is feeling a little self-doubt? Maybe it's an investing or maybe it's doing a side hustle. What would you advise them when they encounter fear and self-doubt?
Michele & John
Talking to someone that you admire and respect. I have my own self-doubts about when I'm not good at or whatever. When I can talk to somebody else who says, "No, you are good at this or you bring this to that area." Someone who can see my strengths and share that with me, that's beneficial. Also the self-talk that happens, one time my sister and niece came to see me. My niece was two years old at the time. During the travel back there, people would say, "She's shy." They say that to my sister. A few days later, my niece didn't want to come out of the car to meet someone. My sister went to go get her and she looked at her mom and she said, "I shy." Truly every time I get behind a microphone or I go to speak, I have those little thoughts, those little words that say, "I shy." I have to overcome that. I have to realize that there are people that need the message that I have to share. When I think more about the people that I'm sharing with, they can be thinking about what is it that I have to share. When they realized that the benefits of what they have to share with other people, it overrides that fear.
The cross stick for fear, you can walk away from everything and run, or you can face everything and rise. You can either use fear as a stepping stone or you can let it turn everything. Failure can be a stepping stone. A lot of successful people failed a lot of times before they succeeded. It's always good to remember that. We hear all of this all the time. When it comes to your situation, sometimes it seems different. Sometimes if you can talk to other people, I have a great advantage being able to talk to my family, who would support our ideas. We can talk to each other and lift each other up when we're feeling down. If you don't have someone like that, listen to something. We listen to Zig Ziglar growing up. Check out his recordings. They're wonderful.
Dustin
Outside your family, who are your mentors and how do you get better yourself?
Michele & John
There is Zig Ziglar. Our family listens to him a lot. On a road trip, we put him into the car. There’s a lot of great information that we learned from him over the years. You have different mentors in different areas. You don't necessarily agree with all of them on everything but on different topics, you learn a little bit from everyone. Take what you like, put it into practice, but realize that you don't have to take everything. You realize everyone's a person. I've learned a little bit from a lot of different people.
Dustin
Michele, the same question.
Michele & John
My parents are my mentors too.
The same answer and we're faith-based. We believe in the Bible. We don't follow any particular religion. People often ask us with eight kids, are you Mormon or you're Catholic? No, we do believe in the Bible. We read the Bible and we try to enact it. I enjoy listening to different speakers who have ways of bringing that to light, shedding light in different ways than I've considered. I don't think I could say any one in particular, but sometimes I'll hear a motivational podcast or I'll watch a recording or a video or sometimes we'll have a family discussion about something in the news. One of us share something from the scripture that would apply to that and we talk about that. That's the way iron sharpens iron.
Dustin
Michele, I want to ask you this final question, looking back what's been your biggest defining moment? When I say defining moment, it would be when you came to a point in life and now looking back you have that clarity, but should you have made a different decision you would have gone way left or you made the decision and you went right. What would be that moment for you?
Michele & John
There was a time in high school I grasped onto the opportunity to graduate early. I went and shared that with a high school principal, he looked at me and he said, "You're throwing your life away." To me, that made no sense. I went for my goal. Always trying to do my best, that's a defining.
You graduated valedictorian too.
Dustin
I'm surprised by that advice.
Michele & John
As a sixteen-year-old, to have the principal look at me and say that he was disgusted with me, that took a lot of courage on my part to continue that direction. I haven't been afraid of what other people think of me. That's been defining. A lot of people are afraid of what people are going to think of them. They have to get over that and maybe because I was able to do that at a young age maybe that made it easier.
Dustin
John, where can folks continue the conversation, check out what you guys are up to and find out more about Perpetual Wealth Code?
Michele & John
You can look us up on YouTube, just type in Life Benefits or go to Life-Benefits.com. We have a lot of different information there.
Dustin
I truly appreciate you creating the course here for us at WealthFit, for being here and imparting your wisdom to the future generations and the people that are looking to make a big difference in their own lives and for generations to come. Thanks again big time.
Michele & John
Thank you, Dustin. It's been a pleasure.
Thank you for giving us the opportunity.

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