BiggerPockets Money Podcast - 149: Listener Finance Review: Knocking Out Debt to Start Investing

Episode Date: November 2, 2020

Nick Groover is 25, with a young daughter and a fiance, looking to make changes to his finances so he can start married life off on the right foot. He has some debts he'd like to knock out so he can start investing in real estate, and potentially start a business. He just got a promotion and a raise, and on paper is doing pretty good. But Nick needs to start budgeting, because a dollar here and five dollars there is eating up his overage, so there is very little to save. In today's episode, Scott and Mindy sit down with Nick to go over his current financial situation and use their life experiences to suggest easy wins to help pay down his debt, start saving for future real estate purchases, and start investing for retirement. Nick's in a good place right now, but following Scott & Mindy's suggestions should help him get money out of the way so he can go on to lead his best life! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Dave Ramsey Mobile Expense Tracking App - Waffles On Wednesday Check the full show notes here: https://www.biggerpockets.com/moneyshow149 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 149, where we interview Nick Groover and review his financial situation to see what tweaks he can make to further himself down the path towards financial independence. I followed the Dave Ramsey approach a little bit by saving up a little bit of money for a little nest egg. And then that was my plan was to go smallest, the largest, just because I think that would, that's just the best approach. And like you said, I mean, either way, you know, that's the way to be. do it, I think. So that's my plan. Yeah. Hello, hello, hello. My name is Mindy Jensen. And with me, as always, is my financially savvy co-host, Scott Trench. Minnie, thank you for always calculating a new introduction for us. I really appreciate it. Scott and I are here to make financial independence less scary, less just for somebody

else, and show you that by following the proven steps, you can put yourself on the road to early financial freedom and get money out of the way so you can lead your best life. That's right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, start your own business, or simply get your financial house from order. We'll help you build a position capable of launching yourself towards those dreams. The contents of this podcast are informational in nature and are not legal or tax advice, and neither Scott nor I, nor Bigger Pockets, is engaged in the provision of legal, tax, or any other advice. You should seek your own advice from professional advisors, including lawyers

and accountants regarding the legal, tax, and financial implications of any decision you contemplate. That's right. That's Middy's way of saying that everything you're here today is for entertainment purposes only and not to be trusted in any format. So with that, let's go ahead and bring in Nick.

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for parenting perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful as its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BPMoney. Nick, welcome to the Bigger Pockets Money podcast. I'm so excited to have you today. How are you? I'm great. Thanks for having me on the show, guys. This is awesome. Today's show is a little bit different

than our normal shows in that we are reviewing Nick's finances. Nick is a listener. And we're seeing what jumps out at Scott and I as maybe an easy win or something to tweak just a little bit that can give Nick some leverage in his financial journey. Nick, can you give us a bit of background about your financial situation and what challenges you're facing? Yeah, yeah. So started out, you know, graduating high school. I've always worked since I was 16, got a job. And I was starting to save a good amount. I'd suppose probably 50% or more from the get-go. And that lasted. shortly after kind of go through like a young life crisis, I guess you'd say, where I didn't know what I wanted to do, you know, just trying to find my path.

And so I ended up quit my job and used all that savings in probably about two months. Planned on traveling. That didn't work out. Really just spinning on a bunch of dump stuff. So from there, I got back into working. That's kind of when it kind of just, I haven't been saving. You know, I got into vehicles, and that was a big no-do. I got really into vehicles.

Probably had seven or eight since I was 16. Half of them were new. So big no-no there. And, yeah, so now I'm, you know, I'm 25, just turned 25 on Saturday. And I'm ready to take this a lot more seriously. I've got a little baby girl now. She's nine months. I'm getting married in 2022.

So I want to start it off right, reset. Well, that's fantastic that you're thinking about this now. I know a lot of people your age aren't considering this at all. What is your job now? What is your income now? Yeah, so I work for a, it's actually a Peterbilt dealership for truck parts. So I'm in outside sales for truck parts. So I just ride around shops.

And I'm bringing in, right at about 3,600. with a commission. That's a commission included. Is that per month? That's per month. Yes. All right. And before we get to expenses, because you could you give us a little high level about like what are your kind of like long-term goals here? Are they kind of to begin saving? Are they to work towards financial freedom towards investing? What are some of those kind of big goals you have? Yeah. So long-term goals, I'd say my big goal is, I'm a big goal is, I want to hit financial freedom before I'm 40. That's my big goal, which I feel like is very attainable.

But just for time freedom, that's really my big goal, whether that's, you know, real estate, investments, however that ends up coming about. That's the ultimate goal for me. Okay. Great. Could you walk us through kind of your assets and expenses? Yeah. So, bought a house about a year and a half ago. So I do have a mortgage, and I did.

that is one thing I did right is we bought this house as foreclosure and we do have some equity in it. So that's, you know, that's always good. But I've got a truck that's my name about, I owe about 10,000 on it. What kind of truck is this? This is a 2007 Ford F150. Okay. Yep. And before then I had a little Volkswagen diesel, got great gas mileage, but we ended up

starting a cutting grass on the side this past year. And so I made a truck. So that's why I have the truck. But anyway, so I've got that. I've got a water filtration system that I owe about, we paid about $10,000 for, which is a lot, I know, but our water was really good. Two questions here. Are you continuing to earn income from the grass cutting side, side hustle? So it's slowed down a lot to where we're about to stop just from the season changing. So that's

about to stop indefinitely, you know, until next year, next spring anyways. Okay. And is, are you, do you have any considerations of like, like, how much are you able to make from that that side hustle on a regular basis? Do you have any estimates for that? Yeah. So it actually started off pretty good. We

I say we bring in after net net, after everything, gas and everything. We'll probably 300 bucks a weekend we can. And the only thing we're just trying to side, because I work during the week, and then we're working on the weekends, so it's very extraneous.

But we may continue to do that, or I'm sure about that, because me and my fiancee do that. Okay. And then do you have any, like, where exactly in the country are you located? Is there, for example, is there a capacity to do snow plowing?

Not really. Now, it's more like, I'm in Alabama, right outside of Birmingham. So, no snow we get is really ice. Fair enough. So there's not as much need for this service in the winter, and there's not really a couple of, you know,

instantaneous ones that come to mind to keep doing that. Right, right. Yeah. Okay. And walk us through this water filtration system, $10,000 water filtration system. What's going on with that? Yeah.

So we were actually in Home Depot, and they had those little free water test packages. and I was like, you know what, I'm going to take one just to see it. We did it, shipped it off, completely forgot about it. We got a phone call saying they found something in our water. So the guy came and tested it and showed us all these tests and made us open up her eyes about how important water is. And we were told Alabama has the second worst water, I guess, treatment you'd say, in the U.S.

Don't know if that's true. Don't know if that was just a sales guy. But he sold us on it. So we ended up buying it and we paid like $11,11 a month for that. So it was kind of a piece of mind, really, since my little girl was being born. You know, I wanted to have good water, you know, you always want to have that. So that was kind of a gray area. I didn't know if that's a good or bad thing.

Probably bad thing. Okay. Well, let's keep moving through your expenses here. Yeah. So I've got those. Let's see. We've got some credit card debt. We have about, it's about 4,000 in credit card debt.

And then I've got a personal loan that's about 2,000. I use that to buy a lawnmower, actually, that I use for, you know, long cutting. And yeah, that's about it. Something that stuck out to me when you sent over your list of debts is that if you go by Dave Ramsey's snowball method, you would pay the smallest debt to the largest debt first. And if you go by the Avalanche method, you would pay the highest interest rate to the lowest interest rate first. And what is a little unique in your situation is the debts line up either way. If you go snowball or Avalanche, they're in the exact same order the entire way down, which is good.

You don't have to make a decision. That's right. Yeah. And just to recap that, if you're listening, you know, look, we've got the personal loan for $1,800 at $17% interest, right? We've got credit card debt at $4,000 at 12%. which is the next highest interest rate, then next largest amount. Then we've got the water filtration system at $9,000 and 11% or 9% interest rate. Then the loan, the truck loan at 11 grand and 8%, and then the mortgage at 83 grand and 4.37.

So in your case, if you're looking, for example, for help prioritizing which debts to pay first, to Mindy's point, you just go right down the list and you have an easy decision. So I'm sorry, I'm just kind of basically restate what it even said there. But I think it's very interesting in your case that that lines up so perfectly. It makes it so simple of a decision in a lot of ways to, in terms of the approach we could use, where you could, hey, any surplus dollars should go to that first personal loan first, then the credit card, then the water filtration system, then the truck loan, and then maybe the mortgage, depending on your philosophy from there.

Right, right. Is that something you've considered before? Is that, like, do you have a philosophy around paying those debts? other than kind of what we in Mindy have just described? Yeah, so I've kind of, you know, I follow the Dave Ramsey approach a little bit by saving up a little bit of money, you know, for a little nest egg. And then that was my plan was to go smallest, largest, just because I think that would, that's just the best approach.

And like you said, I mean, either way, you know, that's the way to do it, I think. So that's my plan, yeah. Okay, great. Can you walk us through your other kind of like your day-to-day expenses and lifestyle expenses? Yeah. And so I actually, so I just got promoted to outside sales and I've got a truck that I take home. So that was another reason why I'm contemplating doing the lawn care next year or not. Because if I don't, then I can probably get rid of the truck.

Now I do owe a little more than I should on it. So I have to figure out something there. But so yeah, I've got, so I don't have to worry about gas. Really, my only, I guess, variable, you know, expenses would be food is really my only thing. Because we don't, with a little baby, it's really hard to go out kind of thing. But so we don't really do that. Well, let's walk through your fixed expenses first because, you know, well, how much you spend it on food per month? So per month on groceries, we're probably spending about $250, maybe $300.

and then lunch for me, because more than my fiancé stays home, I probably spend, I try to do 50 bucks a week at the most because I'm always driving around, but I plan to cut that here soon. Okay, so you've got a $250 to $300 a month average for groceries plus another maybe $200 for eating out at lunch over the course of the month. That gives us about $450 to $500, kind of round a net, around there in food expenses. What are some of your fixed expenses that you'd say that

recur every month? So our power bill is really high right now, and we actually just figured out why. We just hired an AC guy finally to come out and look at it. So it's been running about close to 500 a month, but hopefully that will drop down to at least 300 somewhere in there. Our water bill is also high, but it ties in with the same problem. So hopefully that'll drop. been paying about $125 to $140 a month. And so hopefully that'll drop. And then, of course, our mortgage, taxes and insurance and everything is $592 a month. And then insurance, I'm paying about $115 a month on insurance.

And now my fiance's vehicle is in my car. Yes, correct. Yep, yep, yep. And my fiance, her vehicle is in my name, but her dad, actually has a, you know, kind of a agreement with her. He's going to pay for her vehicle and insurance while she's in college. So that's awesome. But I don't have to worry about that.

Did I leave anything out? I think that's it. Okay. So I, you sent all of these numbers over to us earlier so that we could review them. I'm wondering, I want to talk about your truck insurance right now. That's your payment for your vehicle insurance, correct? Right. Okay.

You just turned 25. Have you reached out to your insurance company to let them know this? Because as a single male, I believe you've got the highest insurance in the world until you're 25, and then it should drop significantly. Also, you have a baby now, so I would make sure that they know that as well, because insurance companies discriminating it against young men and jack their rates up. But now that you're 25, you're all of a sudden responsible, and you should see a big reduction unless you have some sort of high risk,

activity or maybe you got a lot of tickets as a younger driver? I have not done that, but that is something definitely I will be doing. My insurance guy actually just started his own insurance place, so I didn't talk to him yesterday, but he hasn't said anything about that, so I have to ask them about that. Yeah, they're not going to keep track of it because they don't want you to pay lower rates if you don't have to. And another thing to do is shop your rate around. I was listening to the Clark Howard Show and some guy called it, and he's like,

hey, my rate is super, super high. And Clark's like, you should not reward them with loyalty because they won't reward you with loyalty. They'll just jack your rate up every single year. So shop it around. Maybe you can get that down a little bit more. Another thing to do with insurance is you can pay it every six months instead of every month. And that comes also with a deduction in total amount paid. So those are things to consider as you are shopping around your insurance.

Right. Do you have any, what, you said you have a small cash position, is that right? Kind of approximately how big is that cash position? Yeah, so it's, it's the Dave Ramsey typical. It's right out of $1,000. Great. Wonderful. And then do you have any other investments or sources of income that we haven't covered yet

or expenses? I do. I just looked at my list again for expenses. As far as income, I don't. But more expenses, I forgot about my phone bill. That's 183 a month. I've got TV and internet at 115 a month, and life insurance is $16 a month. Great.

All right. So when we tally this up, you know, when we look at the income, it sounds like you have $2,600 a month in base salary plus $1,000 in commission. So that's $3,600 a month. And your expenses, you know, including the $650, $660 in debts, plus the expenses we just went through leaves us with a total monthly cash outlay, if you will, of about $2,700. Is that right? Yeah. Yeah, that's about right. Okay.

So that situation, if we're looking at it, that leaves you about $900 a month, $800 to $900 a month in surplus. You know, we got a factor in taxes as well. So perhaps a big chunk of that is coming out in the form of taxes on that income. Is that $3,600 net of taxes or is that pre-tax? That is net. That is net of taxes. That's bring home. Yeah. Okay. So we do have $800 and $900 and surplus here. Are you finding that you're accumulating wealth at a rate of $800 or $900 a month,

or does that seem high? And maybe there's some other expenses or something else going on that's maybe having that leach out of your financial situation. Yeah, I think it's more of like a, it's, I know I've got that commission coming in, which is right around what you're talking about. So it's like there's all, always something that we're saying, oh, well, we can use that to spend on this or that, you know, it's just not being disciplined with our money is really what it comes down to. So that's the reason. Okay. So when we look at this expense profile, there's a lot of unbudgeted items or non-recurring items that are showing up on a month-to-month basis that are really kind of taken out of your

ability to save. Is that fair? Right. Correct. So look, I think, I think, I think the simple answer, Mindy, what do you think the simple answer to this challenge is? Well, I'm thinking to myself, first of all, this is the fiancé on board. And second of all, I see no budget. I haven't heard the word budget. I haven't heard anything about we sit down in budget or we sit down and talk. And I would say of the couples that are on our podcast on a regular basis, 40 or 50% of them at least have regular money meetings. where they sit down, they make it a point to discuss their finances, discuss their budget,

discuss what's going on. And, you know, a budget is really fluid. It's not a rock hard, you know, well, we said we were only going to spend $200 on groceries and you spent $204. Now we're going to, you know, our budget's blown. But having a framework for where your money is going is going to be so important. But even more important than that is having your fiancé on board. Is she on board?

She is. And I think this, doing this right here, will be even better. She used to be the spender of us too, but she's gotten a lot better. So she's definitely coming on board with that. Yes. What I would consider doing here, Nick, is first, I would consider some of these fixed expenses. You know, is there a way to reduce those in a regular basis? Is there a way to kind of like maybe reduce that 50 a week you spend on lunch to 25 by packing and lunch a few days more. Is there a way to, look, it sounds like you got an interesting issue with your power and water. Take care of those immediately because they're, they're, well, I guess now it's the

winter, so you may not be spending quite as much on the AC. So perhaps that bill will come down a little bit here. But, you know, make sure that you're in control of those and see if you can get into sense of a budget to the point where you are spending less than that base salary amount, because that can not be guaranteed. You may miss it some months, those types of things. And if you do get it, you can then begin applying a greater percentage of that towards these debts. If you can do that, then all of a sudden you're going to be saving at like a 15, 20, 30 percent rate of your income here. One additional trick there, too, I think as you sit down with your fiance and look through these numbers, is to think, and we've learned this from a number of folks in the BP Money Show, is to say, okay, great, you know,

we can't just live like hermits forever. But why don't we take two months? and just see if we can't knock out this personal loan of $1,800. Right. And that's $100 a month. And once we've knocked that out, let's celebrate. Let's go on a nice date. Let's go on a nice dinner. Let's do whatever that is.

And then let's start setting aside $50 a month each for our discretionary budget or, you know, items that we can, you know, a date night or whatever that is. And then begin attacking that credit card debt. Each time you do, you know, there's a way to make this, I think, a fun game. or to create a situation with your budget where you still have some discretionary spending and each person has that control over that additional spending. So you can still have some fun there, but that you're really disciplined on a month-to-month basis with knocking out these debts.

Imagine this situation, Nick. You're sitting here in a year or two from now, and you've knocked out your personal loan, your credit card debt, your water debt, right? that's $336 a month based on the numbers we got here, right? That is, you're just no longer paying anymore. Well, now, you know, you can continue paying the next debt and have $150 a month that you can spend completely guilt-free on those types of things. And then you think about like in the summers layering in additional use or, you know,

either getting more aggressive with that lawn-cutting business or using that to allow yourself some additional luxuries like saving up for that next vacation or those types of things with that additional income that you're able to generate outside of this plan. These are some of the things that strike my mind as I think about your position here and some of the ways that you can begin creating a template to achieve your goals here. Any reaction to that? Yeah. Yeah. No, I think that's great. That's my plan is to knock these out. And of course, we got Christmas coming up. So there's a few expenses that are coming up that I know I'm going to have to save for. But yes, that is my ultimate plan there is just to knock them out.

I hate that. And I've had it with me my whole life. Okay. You mentioned Christmas. That makes me think of that B word again. You and your fiancé, in order to have the most success for this Christmas season, should sit down in budget. We are going to spend $4 on the baby. Listen, give her a box and some wrapping paper and there is your give her a box of tissue.

She will pull every tissue out and that's her treat. Like she's nine months old. She doesn't need a gift. Which sounds so mean, but really she'll play with the boxes more than she plays with anything you give her. But make a budget for parents, for friends, for family, for whoever that you're going to give a gift to and try really hard to stick to that gift budget. You know, start now. look for things, oh, Bob would really love these gloves, or Jane would really like this beautiful necklace, and I found it on sale, and it's great. And, you know, start shopping now instead of waiting

till the last minute. Maybe you're not me. I wait till the last minute. I'm a terrible gift giver. So don't do what I do. Do what I say. But the budget is really going to help you not go overboard because, oh, it's only five more dollars. Oh, it's only ten more dollars. And then all of a sudden, you've spent a thousand more dollars on Christmas presents than you had planned or wanted to. The budget doesn't have to be a really negative thing. I think a lot of people have this connotation like, oh, we're on a budget, therefore I can't do anything fun. And if you'd love to give gifts, give really great gifts. Just make sure that you're staying within the budget that you set for yourself.

And you mentioned Dave Ramsey earlier. Dave Ramsey has this program called Every Dollar. And I think the slogan is something like give every dollar. a job so it doesn't go out and do its own thing. If you have a dollar coming in, you want to tell that dollar where to go. You don't want to let it spend itself because it will. It will so easily spend itself. And I like Scott's suggestion to try and get your day-to-day expenses, your monthly expenses down below your base salary and then using that extra thousand dollars to just throw at the debt. Because I truly believe you can get those three big ones.

done by the end of next year, or maybe even sooner. Once you start thinking about how you can save money, it can kind of become a game. Oh, I didn't spend any money at the grocery store today. Or I went in with a list and I stuck to my list. That's my huge problem is the grocery store. This isn't about me. This is about you. You said that your power and water, you figured out the issue and those should be going down.

I haven't been to Alabama, but I've been to the deep south. And boy, that air conditioning is really, really tempting to just crank way down. can you start cranking it up a degree? Because the difference between like 64 and 65 is no big deal, but the difference between, you know, 64 and 72 can be a really big deal. But once you get up there, it might not be such a hard thing to take. I know you have humidity and God love you for... I bet he's trying to go from 80 to 74.

I don't know. No, the thermostat setting. Yeah, I think that's wise advice. I think the key thing, again, is if you can get your monthly expenses down below your targeted base pay there, an after-tax base pay, and have that commission be the surplus that you're spending, that you're able to move towards that debt, I think you're going to be in really good shape. And that'll like, you've already proven really creative with your ability to generate $300 per weekend, in addition to on the side there. If you just do that, even part-time

throughout the year. You know, what? You do that 10 weeks. That's three grand. You're making immense additional progress towards paying down these debts and knocking them out one by one, which again reduces,

just gives you that much more clearance between your base pay and your expense load. Right. And just talking about you all makes me more excited about it, honestly. So hopefully I can come back maybe a couple of years and say I paid everything all. Oh, I think you can come back a lot sooner than in a couple of years and say you paid everything off. But like Scott and I are giving you advice,

but also you're really close. Like you're not hopeless, which is a horrible thing to say. I don't need to say that word. But like you're so close. A little bit, just a nudge will really help. And I think budgeting is going to do it for you. Hand in hand with budgeting is tracking your expenses. And I have always been super old school notebook with a pen right by the door that I come in from the car so that I can write it down as soon as I get home. And the Waffles on Wednesday couple have created a mobile expense tracker that you can use. You create it through Google forms. And you just put it on the front page of your phone. And every time you spend any money, you just type it in there. And once you start tracking your expenses, you will see where the money's

going. I mean, track everything. Anything more than a dollar, track it. And you will, would be shocked at where your money goes. It's just so easy to spend. Oh, it's only five bucks. What does it matter? It adds up super quick. Yeah, Nick, I see a reality for you that is possible with hard work over a six to 12 month period where, look, if you can get that expense, those expenses below that threshold and incorporate your fund budget into all within your base pay and put that thousand dollars a month towards each of those personal loan credit card and water filtration system and then maybe make a big move with the truck as you alluded to earlier and figure out a way to use the company vehicle i mean all the sudden you're going to go from having $2,700 a month

in expenses to i think like 2,100 a month in expenses net and you know you think about the ways you can layer that in you can accelerate that with the extra side work as appropriate you know and making sure that you're still having an enjoyable life and spending time with your family here. But, you know, if you think about it, you can make $300, $200, 20 weeks in a row. That's $6,000, you know, 20 weeks out of the year. That's $6,000 that goes towards this. Two of that can be for the fun stuff, for that might be accelerating your debt paid out. And all of a sudden, I mean, you're in a completely different ballpark where you have no bad debts anymore.

And now you're able to put $1,500 a month towards building wealth, you know, stack. up for that investment property or that neck or putting that in your 401k or building out a you know a year of financial runways so you have a huge cash cushion to fall back on and a lot of good options there i i see that as a very attainable reality for you within a you know 12 to 24 month you know six to 12 month frankly you know in some cases 12 to 24 months i think even conservatively and i think that would be really that might have some profound lifestyle impacts for you Oh yeah, definitely would. Tax season is one of the only times all year when most people actually look at their full financial

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Okay, I think people will learn from this in your situation because it's real. I mean, lots of people have situations like this that they've fallen into or created, and I think you're not in really bad shape here. I think you've got a path to a big surplus. So I think it's going to be inspiring and motivating. With that, though, do you want to talk about your other options here? Yeah, yeah, definitely. All right. So, yeah, so one thing I've

kind of gotten into the past few months is looking at maybe buying a dump truck, which I know is it's a big expense, but there's so much work out here with a dump truck that it's just hearing the numbers from people that do it, it almost seems like a no-brainer in a way to really bring in some additional income. So that's one thing I'm looking at doing. My ultimate goal would be real estate, and I would use just the dump truck to use that as a tool, you know, to build up cap up to do real estate, you know. How much would the dump truck cost to purchase and how would you finance it? Okay, so a good used mechanically sound dump truck. You're looking at about four. to $50,000, and they're going to about $10,000 down is what they're going to want.

And there's actually a place I know he does in-house financing or you could just do a commercial loan to get it. That's your two different. Do you need a commercial driver's license to drive a dump truck? Yeah, so you actually need a CDL class B. It's not class A, so you don't have to get a school for it. Class B is like a, you do it online and then you go do like a driving test, just like you. would for your regular license.

Okay. Do you have that one now, or would you have to get that? And if you have to get that, how much does it cost? Yeah, so that is something I would have to get. I've heard varying different cost on it, so I'm not 100% on the cost. I want to say it's around 500 bucks. Okay. Okay. Okay.

I can ballpark that. Yeah. And do you know how to drive a dump truck? Never driven one. No. My thing was actually I would be hiring someone to, put in it to do it while I work my full-time job. Okay. Here's my initial reaction to this, Nick, is I think while there may be a lot of potential with this particular venture, I think that right

now, frankly, your position is one of relative financial weakness. You only have $1,000 in the bank. You're not, even though you appear to have the ability to right now at this moment in time, you don't seem to have the consistent pattern of accumulating wealth and paying down these debts on a regular basis here. I would really focus on the disciplined budget process here. I would pay down some of these debts. And I would think about building that reality we just talked about of maybe having $10,000, $20,000 in the bank there, having most or all of these personal debts, with the exception of the mortgage, paid off or in a much better place, refinanced to a lower rate, those types of things, and sitting and approaching this venture from that position.

So think about this. If you have that reality in place, I'm saving $1,500 per month on average and building that into my cash position. I've got $10,000 in my cash bank account. I've got no personal debt besides the mortgage. Now you're in a position of like, hmm, with my $10,000 in the bank, should I consider buying rental property or should I consider a creative business opportunity like this one, which may well be a great business opportunity. But again, I think it's just layering on a risk profile to your situation right now that I think could have, you know, could set you a very far back in the short run versus be, you know, all gravy from if you're, if you're approaching the investment from position of financial strength.

Any reaction to that? What's your thoughts on that? Yeah, that's something me and my fiancee have talked about is we would definitely have that paid off before I even started, you know, doing that. That is, I definitely do that, yeah. And then why, for our understanding, why would you not run that business yourself, for example, like, do you think you'd have the ability to earn if you ran that business more than $3,600 a month if you operated that truck? it would be real close to it. The only reason I don't want to do it is just for stability reasons, to just stay with my job. And really, I know a guy who's about to do it right now,

so I'm really just going to see how it goes for him. Okay. Let him be my guinea pig, per se. How much is he paying, how much is he paying the operator of the truck? So most of them get paid off a percentage of what it brings in, whether that's per load or per week, It's typically 25% whatever the dump truck makes, you know. So it's right at normally it's $1,200 to $1,200 a week.

Okay. That the operator is making. And how many hours is this consuming? It's really up to the driver, but it's typically a normal 8 to 10 hour day. So 40, 50 hours a week. I mean, that seems like a very, very low wage to make less than $400 per week. on that. And to arbitrage that spread, what you're trying to do is say, okay, the truck's going to bring in

$3,600 a month in total income is what I heard based on what you say. And hey, I think it'll be real close to my current pay if I were to do that. And then I'm going to actually pay someone significantly less than that. And that's going to be my spread is kind of the business model. I think you're wise to watch your buddy experiment with this and learn from the lessons there rather than take the plunge with that big financing for now. You know, if it works, it works, then you're able to, you know, find, find an operator for that and pay them really, it appears to be close to minimum wage to operate that business,

that truck there. That could be the case. But I think you're going to have interest on that debt and payments on that debt. You're going to have insurance. You're going to have gas. You're going to have other types of things there and expenses that come with operating that. that I think your budgeting exercise for your personal life here and getting really disciplined around that, I think will really help you if you want to consider this investment thoroughly

because you'll be able to put all of those line items into your spreadsheet and say, this is how much I'm going to budget for gas, this is how much for insurance, this is how much I'm going to pay by employee here. You know, I'm going to contract them. I'm going to insure them. This is how I'm going to get the bids and the business. That's how much revenue I'm going to bring in. and there's going to be my profit margin, and is that worth the $10,000 investment that I'm getting

there, risk-adjusted? Those are all good things to think about as you're putting that together. Right. Yes, absolutely. Awesome. What are the other investing in income ideas? Well, I've never thought about it until I started listening to both you and Mindy, but starting maybe an index fund would be, I think, next. I do have a 401k, but I only put it in the minimum. so at least I get the free money. When you say the minimum, you mean the amount that your employer matches? Right, yes. Okay, so you do have a 401K and some matches there.

That's great that you're doing that in addition to those other things. Is that coming out of your paycheck? So when you said your salary is $2,600, is that after the contribution to the 401K? Yes, that's after. Yep. Okay. So that's just, that's the money that you're getting into your bank account. Is that $2,600 and then the extra thousand?

Right. Yeah. Yearly, I'd say I'm right at 60 grand yearly. So, you know, however that is broke down monthly. But net, $2,600 and a thousand dollar commission. Okay, great. And, you know, when it comes to index fund investing, I think, I think that's where, look, your debts right now are financed at 17%, 12%, 9%, 8%, and then your mortgage is at 4.4% will round. Right. So most of those interest rates are high enough where personally I don't like investing in an index fund rather than paying down an 8% debt even. The 9 and 12 and 17% certainly seem to be beyond that threshold where I wouldn't be investing in index funds rather than paying down that debt. I think that the debt rates are too high. So you have two options. If you're interested in investing,

in index funds, and you agree with that philosophy. One is consider refinancing the debt. Can you get a new credit card with 0% APR for 12 months and then make sure you pay it off before that 12-month period? Can you refinance your personal debt with a lower interest rate loan, basically, and maybe refinance it at 7%. Can you consolidate some of those things? You know, can you maybe take out a personal debt or a helock on your home, for example, pay. down the water filtration system, the credit card debt, the personal loan, and then begin paying off the HELOC at 4 or 5 or 6% rather than these higher interest rates. Have you considered doing any of that with your current debts? I have. The credit card is actually something that I did

consolidate. I had some other credit cards and I just consolidated them on 1. And it's a lower fixed rate. I mean, lower than it was. But I do like the HELOC idea. I didn't know exactly. what you would get percentage-wise, you know, typically on a heat lot. But how much, can we ask how much equity you think you have in your house? What's your house worth and what's the mortgage amount? Yeah, so the mortgage amount is about 83,000. I believe it's worth 115, 120, somewhere in there. Okay.

There may be some room there if you talk to your local bank or your, you know, mortgage broker or shop around a little bit to pull out maybe a $10,000 or $15,000. H-Lock based on those numbers potentially, which could be at a lower interest rate and help you consolidate some of that debt. Don't go out, spend that on the next thing. Use that to reduce your interest rates and those types of things, but that may be an option available to you. Okay, cool. Well, good deal. I'll write that now. Awesome. And I would do that. And then look, if you have a HILOC and a mortgage now at 4 or 5%, okay, now we can consider maybe investing in additional index funds or contributing more to the 401k

there because you might get a better long-term return on that than aggressively repaying your mortgage debt or those types of things. But that's where the decision begins to get a little bit more fuzzy. I think right now I think it's pretty black and white for me that it's probably a little better to pay off the debts than to invest in index funds. What do you think of Mindy? No, I agree completely, Scott. The Hivok. you're only going to get 80% of your home value over the mortgage that you have out plus the additional helac that you're getting. So you're not going to get a huge helock, but you can reuse that.

A helic is a home equity line of credit. So you can pull those funds out, pay off the personal loan, pay off the credit card, maybe even pay off part of the water filtration system, and then start paying back the HELOC while still making the water filtration system payments, the truck loan payments, and your mortgage payments. But now your personal loan and credit card, all the money that you were paying towards those debts, is now gone. Or back in your...

How do I phrase that, Scott? All of that money that you were spending is now... They're refinanced. You can consider them refinanced because they're now part of your... The way it would work is... And I just did some simple math. Look, if your house is really worth 115, then that would imply an ability to get about 92 in total financing to get up to that 80% threshold in the dimension.

So that would allow you to pull out about $9,000. That could help you pay off immediately the personal loan at 17%, $1,800. Pay off the credit card debt. And now you've got another $3,200 that you could apply towards early paying that water filtration system. You still have the same amount of overall debt, but suppose that that he locks at 4% or 5% interest. Well, that's a lot better than paying 9, 12, and 17% interest on that other debt. And now your payments will be a little bit lower. It'll allow you to pay that off a little faster.

Okay. So that would be the perhaps tactic potentially to consider, given that. And then maybe you're also able to get a personal loan at a lower interest rate than 17% going forward. Right, right. And maybe that allows you to arbitrage the remainder of that water filtration, the truck debt to a lower interest rate. That'll depend on your credit score and a number of other factors if you're able to do that.

Something to explore. Yeah, definitely. Definitely will. And the last thing that I want to suggest before we talk about real estate is the truck loan. You said that your company has now given you a truck. Can you use that personally as well? or is that only for the job when you're going to the other truck distribution places? So they haven't really told me, but I just strictly just drive it for work and then I park it once it gets home.

Okay. Just to make sure. Okay. So yeah. Then I think the HELOC is really going to be a very powerful tool for you to knock out those two debts and then take the 225 that you were paying towards the personal loan and the credit card. and pay that towards your HELOC while you're continuing to pay off these other debts. And as you pay off the HELOC, then maybe you pull more out to throw at these higher interest rate loans. But I would definitely shop around for a HELOC, talk to your local bank, your local credit unions,

and shop around to a lot of them and see what rates they have for you and go with the lowest rate. And pro tip, continue to reach out to them. Once you've decided which company you're going to go with, call them and can't. up on top of the progress of your loan. I've heard a lot of people saying that they're trying to refinance or trying to get a helock and it's just taking forever. Well, the squeaky wheel gets the grease. Yeah, and we have a ton of local credit unions around here, so I'll definitely have my job

cut out for me. You said you bought your house as a foreclosure. Are there a lot of foreclosures in the area? No, not really. Okay. So that was just luck of the draw. Yeah, we got very lucky. We looked for probably a year and put in a couple different offers.

And then this one was on the market for like 15 minutes. We put in an offer. They also had like 20-something offers and they accept the door. So there you go. Yeah. So you wanted to get into more real estate. Do you want to do rentals? Do you want to do fix and flips?

Do you want to do another kind of real estate? Yeah, so long term, I really just. want to do buy and hold. Okay. You know, just just to get out of the day-to-day rat race, if you will. That's the ultimate goal for me. And your mortgage is $592 a month.

What could you rent that property out for? Yeah, so this one we could rent. I've looked and we could rent for about conservatively between $1,100 to $1,100, somewhere in there. Oh, my goodness. That's great. I'm jealous. Okay.

So I would say, once we get these debts knocked out, let's start looking at the market. See where the market's at. Start learning the market again because you haven't been in there for 18 months. See what houses are selling for and just keep your options open. I would get a down payment of at least 10%, maybe even 20%, if you're really, really ambitious. And start looking for your next primary residence and turn this property into a rental. The rental. Yes, it's something we've definitely thought about.

We played around with it because, you know, we actually thought about maybe selling it and using that to pay off our debt and just kind of resetting the button there. But I really don't want to get rid of it because the rental income could be good, you know. $400 a month cash flow. Well, I don't think you need to. I think that given what we just, like, like, it doesn't sound like it's super tight with your expenses here. It seems like it's something that's within your control with a budgeting process.

And again, the budget should not be a constraint. You should don't think of it as like, oh, this is constraining me and going to be hard and messy and a pain to adhere to. Think of it as freeing you because if you're living within the constraints of that budget, you're going to all of a sudden free up all of this cash every month that you're right now is going towards debt as a consequence of not having the budget previously, right? And we'll free all those things up. if you were sitting, if it was like hopeless and, you know, your house was 400 grand or, you know,

your mortgage was four or five times your annual income here and you had $100,000 in the home equity. Maybe we're having a different discussion about how you really need to harness that equity to pay off these debts because you got an unsustainable situation. But I don't think you have an unsustainable situation based on what you share with us today. I think you've got a very clear path to a sustainable situation. situation. And within it within 12 months, I think you could be at a position where you're basically have no no personal debts and are saving up for that investment within 12 months or sooner. So I don't think it's a significant delay there or really accelerates you in a meaningful way to sell as far as I am thinking through the situation. Right, right. And another thing I will add is as of right now,

my fiance is staying home. She's also going to school. So in about a year, maybe a year and a half, she'll be done with school. So that's another income right there. Oh, man. Now, think about that, right? So if you could set yourself up, so when she's out of school, you've got a nice $10, $15,000 cushion or the down payment on a rental property. And now all of a sudden, you're saving $1,500 a month. And then you're adding her income into the mix. I mean, oh, my gosh, now all of a sudden you're off to the races. You could be saving $2,000, $3,000 per month, $36, $40,000 a year going into your, your wealth building portfolio and buy rental properties left and right or investing in stocks are both in those types of things. That's awesome. That is super exciting. Nick's going to be rich. No. Nick's going to be rich. He's going to be retired at 40. Woohoo. Nick, we appreciate you being

a guinea pig for this episode. I think this is going to be hugely helpful to anybody who's listening who's trying to just get over that hump because when you're inside the, I don't want to call it a hole. When you're inside the valley, it's kind of hard to see what's on the other side. I can see what's on the other side and you are like so close to being golden. This is, these little tiny tweaks are really going to just push you over the edge and really propel you to financial independence so you can go on to live your best life. Awesome. We really appreciate your time.

time today, Nick, thank you so much and we'll talk to you soon. Thank you, Nick. Scott, I loved talking to Nick. This was a super fun episode and I can see some really easy wins for Nick that will really help just jump him down the road. Yeah, I truly believe that someone that has a position like Nick's, you know, can make a really big debt and change in a very, in pretty short order here. I mean, I think he's got a path to, again, reducing some of the.

his fixed expenses and creating a budget that allows him to live with him just his base salary, and then harness all of that commission potential to prepaid debt, and then ultimately begin investing. And he's got a bunch of side hustle ideas and clear willingness to hustle and work towards it. So also, we described a couple of ways to refinance some of that debt to accelerate that position. So I think the guy's got a tremendous number of options in a good setup here. And I think that the root thing here is, again, just discipline with those one-off expenses. I loved, Mindy, how you brought in the Christmas shopping season because, like, we all try to get our budget house in order if we're just starting right now.

Then Christmas comes and you're like, you know what? Like, I really do need to get my mom something nice. Shoot, that's going to blow my budget here. Budget it. Put it in place and put a dollar amount and find a creative way to make something special for your, make it a special season for your family this holiday season. Yep, and budget doesn't mean you're giving up everything. I really do like the way that Dave Ramsey phrases it, you are giving every dollar a job.

These dollars right here are the job of buying Scott a gift. And that's all that, the only dollars that have that job. So I need to make sure that I find a gift that fits within those parameters. And, you know, starting a budget is a little difficult. But once you do it for a couple of months, it really just, goes fabulously. And you can see, oh, wow, tracking your spending. That's the other one. I know I've said this a ton of times, but it was shocking to me where all my money was going. And I could easily make changes, instantly make changes once I saw that. But it's so easy to be like,

oh, it's five bucks. Oh, it's 20 bucks. Or, oh, I just grabbed an extra thing at the grocery store. Yeah. Nobody likes tracking their spending. No, not a single person in the world enjoys the act of tracking their spending, right? If you want to be wealthy, do it any, okay, Mindy is the only person in the world who enjoys track and their spending, right? You know, but like, look, if you, if you can just take on the inherent burden that is accounting for your personal finances or accounting in general, knock it out, knock it out every month and stay disciplined. The, that hour that you spend, setting that up in the first month and then the 10 or 30 minutes per month after that that you spend will buy you years of your life, I think, in, in terms of

of downstream payoff and give you like if nick does that and is disciplined with his financial situation his lifestyle his outlook on life and ability to kind of control his destiny and get his financial house in order is going to be completely different this time next year if he if he's able to start doing that this month it's just it's just that's how it's going to be and it's going to save him so many hours of his life and um give him access to so much opportunity there I am super excited to check in with Nick in a few months and see where he's at and see how his story has changed and how his finances have changed. I think he's going to be doing huge things really soon. Absolutely.

Well, I'm hopeful for that. And look, you always caveat that with there's always life that gets in the way and things that happen with that. But I think that odds are, you're right. And we'll see him making some big progress in the next couple of months. Totally agree. Scott, should we get out of here? Let's do it. Okay, before we get out of here, we want to know what you thought of this episode.

When we first posted in our Facebook group, hey, would you like us to review your finances? We were not prepared for the overwhelming avalanche of people saying yes, yes, yes. So we want to know if you liked this episode, did you find it helpful? Were there questions you would have liked us to ask? Would you like to hear something like this again? Please let us know in our Facebook group, which can be found at facebook.com slash groups slash BP Money. And if you're not a member of that group, what are you waiting for? You listen to us, join our group. Okay. That's right. It's very fun. We're starting to see, like, people posting

something, there's like 50 responses of that. There are 300 likes for an achievement. So it's very fun seeing the group grow and all the discussion going in there. And yeah, please do give us that feedback. Yeah, we would love to hear your opinions. Okay. From episode 149 of the Bigger Pockets Money Podcast. He is Scott Trench and I am Mindy Jensen and we are helping you need Bigger Pockets. And thank you to Sally for that sign-off suggestion. Oh, that's fantastic. Today's show notes can be found at biggerpockets.com slash Money Show 149. Okay, Scott. You know what's going to happen? What? In 12 months, Nick is going to have some bigger pockets. That's our new sign off. Yeah. Sorry, I don't know why that seems so obvious. But anyways,

Moving on. Goodbye, everybody. Bye. Thank you for listening.