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Episode 10 Transcript
How to Make Money by Saving Money
Welcome back future millionaires. Adrian Schermer and Rob Delavan here. Today, we’d like to jump into a topic that we’ve had some back and forth with comments online, mostly talking about people who are entering this process at a young age.
The best time to start financial planning was yesterday. The second-best time is now!
The bigger picture of what we’ve talked a lot about is earnings. We’ve talked about what you can accomplish with a certain level of earnings. But, one of the big caveats to that is obviously if you’ve got a load of debt, what do you do with that? How do you attack that? Whether it’s student loans, it’s credit cards, it’s an auto loan? How do you offset the damage that that can be doing to your total net income?
That’s what we’re going to jump into a little bit here today. You’ve seen this before, too, right? I mean, we get customers who make very little per year, and they qualify for a surprisingly large purchase price. And then we have the total flip side, which is a surprisingly large amount of people who make household income, well into the six-figure range, but struggle with debt. The world we live in right now is tough. There is a lot of encouragement to not just hustle but show how well you’re doing while you’re hustling. Leasing a brand-new car while you’re young, or having something to show off, or even avoiding student loan debt, which is one of the funny ones.
It’s just it’s an interesting concept. We talked before in a different episode about making $40,000 a year as the assistant manager of a fast food restaurant. They started at $12/hr. and a year or two later, they’re making $20 or more, which is totally doable with discipline and hard work. We just pick on fast food because fast food has a stigma, right? I’ve helped plenty of fast food managers buy homes.
There are many industries this applies to. It’s all part of that living deliberately. I mean, you got to find a career that can pay at this rate, that’s going to be a part of the process of making your way to becoming a millionaire. So, one of the things that we were talking about off camera was this concept of making $30K-$50K a year, or maybe dual income household. Regardless, you are out there grinding, and this avatar is of somebody who’s probably mid to late 20s, maybe early 30s just starting out. Let’s talk about two or three examples that they could be doing to literally make $5-$15 more per hour?
A Penny Earned Is A Penny Saved
It’s not just about money in, obviously at the forefront it can be. If you can increase the amount of money that you make per year, you will increase your wealth. That’s one way to move the ball forward. But the other way to move the ball forward, is building equity from owning a home. So, what are some other ways if you don’t own a home?
“Choose your expenses and make conscious choices about your expenses.”
We get people who come out of college, they get a good paying job, or maybe they get out of high school, and they get into a good job that pays $20 plus an hour. One of the first things they do is they go and rent an apartment by themselves. While that is great, you are giving up the money that you save when you have a roommate.
My wife and I, we were both working full time jobs and making good money. Yet, we didn’t get a house on our own, because we were in our 20s. That is one of the key times that you can really save. Push off having the house to yourself, the big yard, and the picket fence. Scale down your living and do what people all over the world do. Cohabitation is a pretty normal thing within human society.
So, if you’ve got a roommate, your roommates paying you $700 a month, that’s a good chunk of change. $700 a month comes out to $8,400 per year. Except it’s even more than that because this is extra money in your pocket. That’s including rent for the room, now you guys are splitting the internet, which is normally a cost that you have to absorb all by yourself, if you lie to yourself, utilities, keeping a fridge on all cost about the same for twice as many people. There’s lots of things that scale, and they don’t just double in terms of the bill cost.
“Hey there Spender! You should be a saver instead.”
Most of the people in this is this bracket are going to have some credit card debt, especially if you’re coming out of college. A lot of people end up stacking quite a bit of credit card debt, and credit card is something that upsets me deeply. I had terrible credit, learn from me, moving to an installment loan, not only brings the interest rate on that down into often 10% range, which saves you $2,000 a year as you’re chipping away at that debt. But it’s amplified, because you’re taking it out of a revolving debt, where it’s counting towards your utilization which has a negative impact on your credit score. So, when you move it over to installment, I personally paid almost nothing off. I went from revolving debts to installment debts and my score jumped by over 100 points. right. Then I went back and revisited those loans, and then they gave me an even lower interest rate. It can be dangerous cycle though, because if you go and you fill that card back up, you’re going to be in trouble. But if you do that, if you have the $10,000 debt already anyway, do the smart thing and get a roommate. Make an extra $12,000. Then go after your debt and go to the installment loan. Now that $12k becomes $14k right? One roommate could pay off $10,000 worth of debt per year for you. I’m not saying that this is a solve all for everyone’s financial problems. But there’s a lot of people who I talked to in this boat and they spend more money than they need too getting out of debt.
It’s all about the intentional living concept
When you’re doing something, you’re going above and beyond, especially at these lower tier jobs. Start tracking everything you do, it shows that you’re that type of person, you have that type of mindset. Don’t wait for someone above you to give you the reward, write it all down. Then when you get to your review, say I did X, Y and Z. If they don’t want to recognize that effort, go find someone else who will. Yeah. The next person you show that will recognize that, every time.
“Credit Card Debt Is Depressing.”
These companies are stealing money from people. If you owe $10,000 to Visa, at a 20% rate, they are taking $2,000 of your money every year compared to what you could do at a credit union, right? It drives me insane to see that money just washed down the drain. Let’s say you go buy a house at $250,000 with 3% down, that’s only $7,500. That’s a roommate for less than a year, not even a year’s worth a roommate, you can have 3% down on $250,000 for the home. Now, you’re not going to buy in the center of Portland, but you can buy in a lot of rural areas for that much money. We get 4% appreciation on average real estate is kind of like a rough ballpark number, right? So how much appreciation would you get on $250,000? 10 years later, you’re at 30-40%? Right? 4% of $250,000 is $1,000. So now you’re making $10,000 more a year, and your roommates helping you save another $10,000 plus per year. It’s now post tax income and here you are with a $20,000 raise and driving a used car that’s three years old.
At the end of the day, there’s no one size fits all
We encourage you to actually look at possibilities in your life and think consciously about the big things that can happen for you. This doesn’t just happen to people who have wealth, they had to sit down and make the conscious decision. When you have a plan, it can be a burden off your back. I talk to a lot of people who get stressed about money, and they wake up every morning with it bouncing in the back of their brain. It’s hard to shut off. Once you’ve got a plan, you don’t have to worry about that stuff anymore. It doesn’t mean your problems disappear but now you can say I have a plan. However, life still happens. Emergency medical bills, the birth of a kid that you might not have planned for or lose your job. If you make this conscious decision to stay on these roads, and stay focused it’ll get easier and easier to get back on track to creating wealth.
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See you next time millionaires.