Follow the simplest of systems that work a dream.
Paying down debts is one of the most freeing steps to taking back control of your life. The Debt beast can leave you locked in a continual struggle... but it doesn't have to be this way.
It's a topic we both love to talk about and one that should be taught in schools, and while we approach it slightly differently, it's amazing how we both end up with very similar outcomes and process.
Join Brett & Immanuel weekdays midday GMT to discuss the latest in Personal Finance tips, tricks and disciplines to supercharge your finances despite the crisis.
Check out Brett's my daily CoronaVirus Livestream 11am GMT time weekdays - https://www.youtube.com/c/brettspropertyrants
Immanuel is a property developer and personal finance specialist who authored the book - The 6 Steps to Financial Freedom Download your copy of his book at https://www.the6stepstofinancialfreedom.com
Hey guys and welcome back to personal finance rant so today I'm really actually excited because this is one thing I really love especially when people first start out. Because when people first start out on their personal finances most of the time the reason they're sitting down and talking with someone like myself or Immanuel is because, they have got themselves into some debt. At the end of the day if all you can focus on it is death that pretty much consumes you. For most people that is the way of life you know, but it shouldn't be. I think you know the sooner you can get out of the focus of debt, I'm not saying get out of debt, because actually you'll find successful people are in debt you know and probably a lot more debt than what you think, but it's the right type of debt and it has assets backing it and to be fair they've got strategies in which is income-producing and all those sorts of things. So the as you get more into this you realize debt is not a bad thing, but for most people it is. Because what they've done is they've got themselves consumer debt and I think you know the Rich Dad Poor Dad is a there's a great you know book for that to explain things about the mindset around that.
Welcome Immanuel, yes so today I'm quite excited how about you mate yeah I'm very excited because this is all about my book as well as yours about showing people how to get out of debt. You know my strapline for my book the Six Steps to Financial Freedom is talking about transforming debt into wardrobe before we get into wealth which is really quite important so you take away you do the transference from the debt and you create the wealth. And the other part that you talked about which is you know what's the difference between good debt and bad debt. And people that understand debt properly in business realize that the main difference between good debt and bad debt. Bad debt is anything that takes money out of your pocket. Good debt is anything that puts money back into your pocket. That's the real difference and people in business understand if you borrow money the money that you get back and compared to the interest is much higher than you're paying that's it.
And when you realize that you realize you can scale business in it. In fact, I find it quite interesting and it even tests my understanding or relationship with debt. Because most of my businesses I don't build on debt. I build them out of the cash flows and the profits and things like that. My property portfolio a little bit different but you know I've got mates of mine who have millions of pounds they've borrowed they haven't got a profitable business but they're continually borrowing money to grow the business. And the business is getting bigger and bigger and bigger and you know for me it's you know sort of slow steady growth and that's sorts of things. Whereas I find you know some people just have a totally real different relationship to debt. And they can handle that, and they do handle that quite well. But I think for most people you know we're not probably not going to get into the business type debt today.
We'll focus more on the personal type debt which a lot of times is the credit cards and the auto loans and you know all the store cards and things like that. Which are generally the ones you get in trouble with. But once you sort them out and you understand how they work you can actually turn a lot of these things into your favour. I use a charge card which is something that it's a credit card it's like credit card I own points on it and then every month I have to pay it down to zero. Which is the best type of card. And because of that, I put my business expending I put lots of expenditure on there and I get lots of points which pays for my travel a lot of my travel that I do. You know which is fantastic but yeah I mean it's this is I think debt is such a dirty word for most people but one of the things you need to do is you've got to get a better relationship with the word debt and I think that's I hope if you take something out of today besides some of the strategies we're gonna look at is actually you know about how to think about debt.
Would you agree that it's very much about mindset about mindsets about discipline and having principles all around debt. And when your mind in one of those three it's amazing how quickly you come out the other side and most things to do with money it's a game. Think of your money and your debt like Monopoly board game and the more fun you have the more money you make. And you know that's a common theme that we keep hearing through these sessions is treat it like a game and it's the best thing you can do you know it really is. I mean it's a serious game you know you've got to do that and you got to be disciplined and that that it's a game you know it's fun and when you're having fun it's great.
Interestingly I think most people think you've got to get to zero debt before you can you know be free of that the Beast if you like. But what I find and when I sit down and put a plan out for people I find that actually within 30 to 90 days forgetting about that how much debt they owe it's a refocusing on having some savings, having an investment, having a plan that actually frees people's mindset and frees them from that the burden of the debt.
You know is that your experience too Mate? This is the real number bit, for every pound that you clear of your debt you automatically become wealthier. And people don't realize that so you become wealthier as you pay down your debt because you owe less so you have more. I'm assuming you pay it off the more money you have to then invest even further to grow your wealth even further set every pound you pay off increases your wealth.
There's some wisdom in that you know, obviously but it is amazing because people talk so much the debt is bad and that you know they shouldn't talk about debt and they shouldn't you know it's almost like it shoved under the blanket and it's something that you don't really talk about with anyone you just you know suffer it. That's probably the worst thing because actually as soon as you start talking about it and asking advice about it and reading about it you start to realize that there are ways to get rid of your debts a lot quicker you know and there you know there's strategies out there and yes you need the discipline to apply them.
You know it's funny I was reading a book called Atomic Habits and this is a couple of months ago and we're actually talking about it today on a call with my mate and one thing he talked about was it's not the plan that actually you need to focus on. Tt's the habits, it's the discipline it's what they're you know the change that you need to make and and and actually that's the same with his finances is it's the change to focus on not being the goal. You know the end goal yes might be to get out of debt but it's the disciplines all the way along that if you change those habits actually will mean that you don't ever have to go into debt again. Because far too often if you focus on getting out of debt, once you get out of debt if you go that's the old habits will you're gonna get back into debt again. It does come down to a lot of habits.
First thing I'll say is this and I'll just basically I'll show you I'll share with you this screen and basically this is right now if you want to learn about this process and the strategy and read some more about it. My book is more on property you know and you know basically insiders way to financial freedom with just four properties but the reality is there's a whole chapter on there about debt about getting the money that you need to get a deposit which is about getting out of debt you know one of those. And so that's a whole chapter. In your book there's a whole chapter as well dealing with this issue that we're talking about here and it was interesting because before we came online we were just chatting for the five minutes for and just like just running through what the I prepared the presentation and so I was explaining it and he's going well that's exactly same in my book or you know or it's it's similar you know this is a little bit different well that's a little bit different.
But it was basically the same concept you know and so totally separately we've come to the same result which happens so often you know on this one you know I haven't I'll be honest I hadn't read his book yet I know I should reality is I already booked yet but I keep as we keep learning about bits and pieces like that's the same thing I'm doing. You know so totally independent we've come at the same answer so you know there might be some wisdom in there and something that you can take control you know thoughts about.
If you want copies of those books you can go onto my website just go on a www.gladfish.com virtually every page has the ability to download my book free and on your website it's the 6 steps to financial freedom.com you can get it on there. The other thing is if you want to do the actual course you know Immanuel has his actual course on there for free, so you can go through each of the chapters in detail and you can sign up for the course there. So that's quite good if you're interested in going a bit further in that. That will be on Immanuels website.
Let pre frame this so we talked about last this week earlier about how to structure the pace you get it you take home pay what do you do with it? and one of my structures was you know 10% goes to the future, which is investment 20% goes to the past, which is debts yeah and then the 70% is on living and Immanuel has the 50, 10, 10, 10, 10, 10 it's going to various stages a bit more detailed, a bit more modern if you like because my way is sort of you know back in the olden days if you like. But it comes out the richest men in Babylon it's not mine it's The Richest Man in Babyton's but I think the interesting thing is that 20% yeah so what do you do with this 20% now you've got. And let's say your wage is 2,000 a month okay so that 2,000 - 20% is 400 so you've got 400 pounds or dollars or wherever you are to put towards your debt. So how do you divide that up?
That's you know that's what we're going to look at now and I think you know so you mentioned 10% debt destroy so maybe just explain that. So I try to make things quite simple for people so 10% is quite easy for most people to understand so10% of your income if your average income is 2,000 you aim to put 200 pounds a month towards your debt. And the first thing people always say is I'm finding it hard to live on my existing income. How the hell am I going to find 10% saving from my income already? So I love those sort of challenges and I talk to my book and how to make those different saving and we'll go through that where it's 10% or 20% how you can make those savings immediately from your current expenditure to allow you to make that we both called the snowball payment. To accelerate the payment to reduce their debt so we'll cover that as we go through.
The first thing you need to do is get a piece of paper out or get on an Excel spreadsheet or something like that in a sheets on Google. And what you need to do is write down all of your debts. So in one column write down all your debts as you can see on screen. So the column one is the debt you know where is it? Is it a personal loan, is it you know auto loan, is a credit card, is it a store card is it a mortgage? put your mortgages in there as well, all debt if you put it in there and there is there's a lot of method in this strategy. But there's also a lot of once you recognize they say you know you can't manage what you can't don't measure. Well by putting these things down all of a sudden it's in view you can focus on it. You can come up and solve it so that's the first thing write down the debt.
Then write down in the next column all of the balance is owing okay. And then the next column the interest rates that you're paying. Now you might have to go out and get your statements and lots of stuff it is worth doing. Because once you do this you can start to see how effective it is and how this snowball effect that we'll talk about is that happens. Then the third the fourth column now is the minimum monthly payment. Now that's not the monthly payment you normally may you know that you might make if you make overpayments and all that's just the minimum you need to make. What we're going to do is we're gonna work out which ones you pay the minimum on the absolute minimum and which ones you put extra money too. That so that's where that debt destroyer payment Immanuel's thing or where any extra money you've got goes towards that.
So then all you do is you take the balance owing so in this case we've got the Cuddle personal loan 8,712 and it's a 6.9% interest rate for this for right now forget about the interest rate okay all you do is you take the balance owing and divide it by the minimum monthly payment yeah. And that's gonna get you a figure and if you do that for all of them you're gonna end up with is you'll end up your smile personal loan down the bottom will have 22 you know the XYZ credit card is 21.7 the SA mortgage will be 208 okay and you and you can see those numbers there now what you've done by doing that you're now all going to do is go to the lowest number. Now the lowest number, in this case, is X Y Z credit card so what you're gonna do is you're firstly gonna pay the minimum on all of those cards okay. So basically you make the minimum payment because you're gonna have to do that to keep you credit intact and you know the banks can I require that. But if you've got extra money and whether that be through decreasing your spending or maybe you know because remember this is in my case 20% of your income is going towards this. So in this case 2,000 that says four hundred yeah although in this case the actual figure that comes to I've added it up the minimum monthlies are what were they 1,340 now let's say you earn three thousand pounds a month okay so three thousand pounds a month sorry it would be no thirteen hundred and fifty-three hundred forty is that but let's say had fifteen hundred to spend okay so 1500 was your twenty percent alright so then what you do is you take 1,500 - for 30 and 40 which is in minimum monthlies and then your 160 leftover so that one hundred and sixty you then add that to your XYZ credit card and pay it off.
Now one of the key things with this is you do not keep spending on the credit cards. So you've got to get these and if that means you go to your freezer and you put it in a glass of water and you freeze it in the fridge. You used to be able to do this in the old days before you had these defrosting ones but I used to be able to grab the credit card and rub it against the fridges wall the wall of the freezer and it would freeze the edge of the thing. Whatever get rid of it don't spend on it. because this fails will fail dismally if you don't maintain not paying not using credit cards.
You're now putting 138 plus 160 towards that particular thing and look so if we have a look now you know what you're gonna see is you're gonna see the first one to pay off is a 21.7 the second one is the smile personal loan which is a 22 so what I do is I now have 3000 I'm now putting 138 plus 168 which is 298 okay. So let's say 300 per month so in ten months I've now paid that first credit card off. So what do I do now. I now simply go and I look I can either recalculate at that stage because we're another ten months down but it's likely to come out the same I then put that the ninety one that I pay off a small credit arm personal loan plus the two hundred and ninety eight extra that I'm not paying on the XYZ credit card I put towards the smile personal loan. So now I'm putting about four hundred a month to the smile a personal loan so it takes let's say five months to get rid of that now I've got that four hundred I now go to the third one so now we're talking the Cuddle personal loan which is at the top so I'm putting 250 plus now 400 yeah so I'm now putting 650 a month towards this and this is a snowball effect. And as your snowball you're gonna see amazing things happen and misses the fastest way to pay down your debts yeah might have you don't need add that.
Yeah a few things so first thing is human nature so human nature is when you pay off for debt doesn't mean you need to replace it with a new debt. So that's what often happens somebody clears a loan or credit card immediately replace it with a new loan a new debt because I think they think they have their money available. The beauty of the snowball effect allows you to accelerate your payments to become debt free so what happens in your example in both our example the total amount of payments that they're paying in total is around about 1,500 pounds a month. If you can imagine that 1,500 pounds a month and you not paying each and every year on debt that's 18,000 in a year you can buy things for cash. You can use that money to invest in, so it gives you the freedom and more importantly that the biggest step is the mortgage and people tend to forget about the mortgage and they tend to refinance on a regular basis and instead of you know clearing their mortgage well before their retirement age a lot of people now have their mortgage into their 70s. You know if you can clear your mortgage ten or fifteen years earlier by using this method and you have another eighteen thousand eighteen thousand pounds years to have to spend on yourself on your finance and your family to create a better life while you're young enough that's where it really comes into its own.
So that's why I'm really passionate about that so people understand it's not just the short-term but it really is the long-term benefit and how your life changes dramatically you become completely debt-free and much earlier age. I think it is I mean the number of people I've spoken to over the years who are so focused and so burdened by this debt you know and often its credit cards or auto whatever it is. And a lot of times its stuff they bought and for the day or two after it felt really good but then you know unless they bought something else is the next fix you know eventually they just end up in this debt burden and they don't know any way out.
And you know it's interesting one of the stories I've got is um so I used to have a 19-year-old worked for me and so taught this stuff and you know now around a lot of this because you know we talk a lot of this guys have worked for me in that a lot about this stuff and I trained this in my staff and I gave them to put that discipline place. And so she comes to me at 19 and basically said okay so I've got all this debt you know and she admitted to it and you know she was in the typical situation that you'd expect from a 19-year-old being given a and like by him you know most people's terms I think she had two grand worth of a credit card but for her at 19 that was a huge amount of money. You know so and she said I don't know how I can possibly buy a property. But interestingly you know I got her to track her expenses of 30 days gotta go through the whole process and she did it and you know what at 22 she bought her first house. At 22 now imagine how many guys are listening that are after 22 and you still haven't got your own house imagine would feel like to have a house with no debt at 22. It's an amazing feeling and when you start doing this and you know even when you start rolling and snowing balling that you know from 200 to 400 to 650 per month and you're like wow I'm paying this down so quick that's bloody exciting then it doesn't matter how much debt you've got because you can just see it going down and down and down and that you're on top of it it makes an amazing change.
You know anything to add to that so in terms of the suspending so this is what science is has shown that when we go to buy something the euphoria the endorphins that you get is at the point when you're shopping it goes down by over 80% after you've made the purchase. So if you want to get that feeling you go window-shopping you try the stuff on you have a look at it but leave your credit card at home you'll get the same feeling it's scientifically proven don't believe me research it look it up. That's what happens in terms of how we feel when we're about to buy something or look at something we get that feeling at that moment in time but when we go home how many times you bought something even used it right. So it's at the point of purchase was just before so that that's quite important people understand that part of the mechanism.
And we've talked about this before where I'm you know I have a thing I use a sleep test where it basically for pretty much all my life and it's it did increase over time but I used to have a $300 boundary where anything below 300 I don't mind going out and spending. I don't have to think about it it's guilt-free any above 300 I had to stop and I could do everything but by trying it on you know talk about it you know yes that's the one I want and you know that I mean sometimes these salespeople would think they'd had the sale because I was so excited about it and then I would have to go home and sleep on it and come back the next day to get it and it's amazing how much money I have saved in my life you know we're using that sleep test. That simple sleep test and having the discipline to do it then you sleep on it you wake up next morning think you know what actually I probably don't need it you know it's you know it's ego that wants me it was the excitement you know and it saved so much time so stuff like that it's really simple to do you know when you do that. And I agree go and act as if you know but most the time and I still do these days I had it I've got the camera which was not the camera we're using there's just one that's sitting back there now and um and it's you know it's HD it's not 4k but I thought I should upgrade to a 4k and there are these mirrorless ones and then there's this and it's like mirrorless is you know three grand for this one that I want to look at getting right get the DSL which is like 1600 or I can keep using what I've got and I sort of a sitting there going I'm at the airport I can 10% off for my travels but you know what in the end I was like you know what there's nothing wrong with what I've got it's perfect it's fine it's HD. you know and the stupid thing is most the time I'm sitting here looking at a Logitech you know desktop HD one and that's what I'm using. You know and it's not perfect and sometimes it doesn't you know do things correctly but it's so easy it's always attached you know and I think you've got to go through these things because part of the reason we get into the debt is because we don't make good decisions so it's good to deal with the decision side as well as having the structure to get out of this because if you don't deal with those decisions you end up just replacing old debt for new.
I have taken borrowed a mantra that I've used in somewhere else so it's about whether you have money when you don't if you limited in your resources and money then you have a mantra that goes like this can I afford it if the answer's no you don't buy it. Secondly, have I am I going to use it if the answer is yes or if it's known by and the third question is have I checked if it's cheaper elsewhere if you haven't said yes to all of those then you don't buy it. That's the first thing so if you're limited in budgets the first question is can I afford it? I'm not going to use it? have I checked if its cheaper elsewhere?
The other mantra, if you do have more disposable income, is you still say have I checked if it's cheaper elsewhere, first of all, if the answer's no you don't buy it am I going to use it the answer's no then or do I really need it the answer's no you don't buy it now if you're still not able to control yourself I do something which you've touched upon is you get the credit card you put it in a glass of water you stick it in the freezer. If you see something that you like by the time you come home if it's defrosted and you still really want it then you can buy it and all of those things are just giving you small disciplines to control your spending habit that's all. and you can make it fun at the same time.
I mean it's amazing I've been doing this for ages and I know you have to but it's amazing how many times you give examples and I'm like funny enough that's in my book, mine too. It's amazing and I guarantee if we got another four or five guys are in similar situations we would have the similar stories and part of that is because you know we probably read really widely and so we get a lot of diffused information towards us. But then the other side is we've taken a lot of that information to personalise it and make it our own and use it. None of the things we're talking about here I think that we don't do what haven't done or don't continue to do. I think the mistake a lot of people make is that they think that you get to a point where money just isn't an issue anymore you know that you don't have to think about buying. Actually I know lots of wealthy guys who went on spending sprees and we're dishing it you know it's 50 bucks tip here and you know let's buy another bottle of champagne while out drinking and you sit there and go I know his business it's doing well now but it's not doing that well and sure enough it might be two or three years down the track and all of a sudden you don't hear from them anymore. And then you find out that what happened was I was spending you know overspending. This is not something you stopped doing this is something you take forward with you well as far as I know your whole life.
I mean you're a few years older than me only a few but you know you're still talking about it so I imagine in a few years time I'm going to be talking about it and you know and in fact most of my mentors which are even older than you know both of us they still talk about it too. It's a lifelong discipline.
It is the lifelong discipline it is basic principles in hearing adhering to it like most things that you do on a consistent basis you know as you've talked before. I like to go to the gym on a regular basis I can't do that but I work out every single morning so it's a routine it's things that you do consistently you'll get the same results over and over again. And right it's you know a lot of the stuff that we do we've seen heard elsewhere we've made it into our own but the principles are the same so you know. One of the analogy I like to give when it comes to finance it to look about your health when you have something wrong with your health you'll go to the doctor you'll go to a specialist you'll ask for help to make your health better. But when it comes to your finances and your wealth people don't know where to go?
Well there's lots of people like you and me are there to help them get back on track where they need to be in the same way a doctor would give a pill we're giving the right advice and the right structure to get back to where they need to get themselves wealthy and healthy in their finances again. So those are the bits and one of the things I've talked about one or two my videos is that people treat their own finances like that River in Egypt, what's that River call it's called DENIAL they're in denial of their finances they're completely nog they don't look at their finances they don't look at it in the way that they should do and that's going to give it to people that don't eat healthily they're in denial they don't look at something and they don't get the results that they need to.
We just want to help people as much as came to make them understand and make finance is fun. It is fun and when you improve your finances you can improve all the finances around the people around you. Because you can show them.
I talked about you know stop being a victim get out of bed and what I mean by that is a lot of people have victim consciousness around you know their finances, in other words, you know what can I do I can't help but I'm not rich I'm not wealthy if I had this a life that's all victim consciousness. But then I talk about bed which is blame excuse and denial you know and it's interesting that you know you're saying denial well you know I mean no they're quick to blame something external to them for their misfortunes. They're quick to come up with the excuses as to why this is the case I mean I had a case this is probably two years ago where one of my mates has done it tough he called me up and said to me he said I you know I need to borrow ten grand because this has happened that happened you know this happen his business who's doing you know relationship it happens and I said that's fine I said well what I need is your income I need your expenses I need assets and I need your liabilities and I need six months bank statements and I'm happy to lend you the money and then he went on to a bit of time at about why I didn't need that information to give him me the line and it's kind of like and the reason and I asked that for any money anyone who asked me money. It's amazing that will filter probably ninety five percent of people out. Because what I'm asking to do expose their you know their issues they're not in their problems you know and a lot of times actually giving them the ten grand or whatever that is two grand or you know it's probably not for a beer or something like that's a bit more but the reality was if they're asking for loan I will ask them that because I want to see what their habits are. And having those things I can very quickly identify actually do you know what your issue is you spend too much money.
I mean one time when the guys sent it through and I could see every single day he was stopping leaving work and going via and what are called not bit fair yeah yeah I think it's better yeah okay and literally every day there was 40 bucks that he was spending. Now you might get actually that's not too bad forty bucks but when you think there's 20 you know 21 days in a month that adds up to a lot of money you know and here they asking me for a loan and yet they're betting that money but I'll tell ya the stories they can tell you about the times they've won but they can't tell you any stories about the times they've lost. So there's all this sort of stuff you've got to be really careful.
And that leads into just one final point that I'll make is that there are people that that will help you and there's a lot of have people that will help you and there's a lot of good people out there. But by the same token, there's also a lot of people that disguise, education, mentorship, support actually what it is is salesmanship disguised. You know so you actually have to be open to the fact that you know there could be an ulterior motive you know is the reason they're helping you or offering you help. I mean this happens all the time you know I used to see it all the time with the seminars where you know there'd be a free seminar and then the free seminar saves up to the weekend which would give you all the answers and then we go to the weekend you get to the mentorship group and that you know in vice versa. So you've got to be aware of these sort of things because you can end up in more deaths you know thinking that you're actually learning how to get out of debt yeah that's probably another topic for another topic.
Yeah but good mate I'm done how about you for any else I love this subject I love talking about this love helping people around this area. It's a fun area once you get to grips with it the fact that you and I have us you know so similar in so many different areas is just amazing. It just proves you were now talking about it those are the principles it's the same principles you know you and Singapore from Australia originally on but I'm in the UK but the way that we think the way that we act the way we relate around money around debt is identical.
So there are people send some comfort to know that these principles do work wherever you are yeah 100% and then they do you know so yeah now all right guys well thank you very much. Have a great weekend and we'll see you next week take care you guys say bye-bye