E37: Outside The Box Thinking That Will Make You Successful

She’s Holly, and she helps people find financial freedom.

Holly: He’s Nate. He makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Nate: All right, Holly. This is I think is going to be a great episode, and something that rings true with us and our podcast, for sure. We’re trying to be outside the box in a lot of things, but there’s reasons why we’re outside the box. Things inside the box, typically, people don’t always find success just doing the average things and the normal things. You end up with status quo finances if you just do the status quo.

By the way, Holly, we’re going to get into a few things, but I don’t want our listeners to think that we’re only talking about a few things, but we’re just trying to help people use their imagination and see ways that they can utilize money they may not have thought before, and we’ve got a few examples, but that doesn’t mean that they’re going to be held to that.

Holly: I think the key there, Nate, is for you guys, as listeners, to really understand that these are just a couple examples. We could pull more examples, but we want you to start thinking of just things that are familiar that we really don’t often think about what we’re actually doing. It’s just what everybody else is doing, so we do it, and one of our first examples is just the 401K. Most of us do a 401K, not because we necessarily believe in it, but because everybody else is doing the 401K that you work with, and they’re doing it most of the time because of a company match or something like that, but honestly, start asking the question, “Why are you actually putting money into a 401K, and is it a program you truly believe in?”

Nate: That’s one of the main points if you get anything out of this podcast, is that just because something is familiar does not always mean it’s the best. Just because the 401K is familiar doesn’t mean you have to use it and doesn’t mean that it’s the best tool for you to do what you want to do, and as Holly said, many times I know people, we get plugged into a 401K when we first have a job. Most financial advisors, financial salespeople, promote 401Ks because of how they get paid in them, obviously. We may have a podcast about that sometime, Holly, but that’s one of the main reasons that advisors come to companies and try to institute 401K packages like it’s a great thing. I’m not saying it’s terrible, but what I am saying is many times we just get plugged in and that’s what we get familiar with. Since we’re familiar with it, we don’t really think outside the box of other things to do. It keeps us in the status quo.

So what I want to say right now and many times, by the way, as Holly alluded to, was there was this match, typically, if you’re an employee, your employer typically matches some of your contributions. I just want to bring this to the forefront. I’ve got some other things to say, too, Holly, but I’m gonna give it up to you, ’cause I’m talking for a long time. But what I wanted to say was, just because you may choose to do something else with your money and lose the match, does not mean you can’t be successful. The match, in the grand scheme of things, I’m telling you guys, is not going to be all that important over the grand scheme of things, especially if you get good at doing something else.

Holly: And I think, Nate, that we often get caught up in that, the match philosophy. To me it kind of is like when you get a coupon for $10 off, but you have to spend $20 do get the $10 off. So, you go out and you buy something you didn’t necessarily need, but you did it because you got $10 off, and I can’t let that $10 go. Well, the same is true of a match. We think because they’re matching we’d better do this is, instead of actually asking ourselves the questions of, is this best for me, or does this actually help me achieve financial freedom, and really actually help me control my money and our lives moving forward and our legacy that we’re gonna leave.

Really the reality is that a 401K … Hear us out. Neither one of us is saying it’s bad. But ask yourself why are you doing it, and do you know how it benefits you, because I will ask you this question as listeners: Have you ever seen anybody that actually became wealthy or was financially set because of what they put in their 401K? The answer should be no, for many of you. You see people going back to work and chances are they were 401K individual.

I talked to a lady at Noodle Company the other day. She’s a 68 year old lady, retired. She was a W-2 employee, put all her money in 401K and matching, and now she has basically gone back to work in order to have enough money to live on. She said, even to me, she did everything right. I was just talking to her, oh, why are you working? She said ’cause she has to. She absolutely has to be working in order to be able to live. Yet, she did everything right in her mind’s eye. She put the money in the 401K, and I think that’s the question. Look around you and see the older people that are working, honestly, going back to work. I just asked her, like, was she lonely maybe. I thought maybe she’s gone back to work ’cause she just wants to do something or be productive or this or that. But she said she really, honestly was doing only because she couldn’t make ends meet with what she’d put away in her 401K, and taxes and stuff like that and just the cost of living.

Nate: Yeah, I agree. I’ve spoken to many people who are in a similar position, where they feel like they’ve done “everything right”. That’s a common phrase. You just said it, and I’ve heard other people verbatim say that: “We thought we were doing everything right.” It turns out it wasn’t enough or some extenuating circumstances took it away. What we’re trying to get at is, I know a lot of people who really want to get involved in creating passive income. They may be in their 30s and their 40s, and a 401K is not good until the day you retire, and you certainly can’t really use it free of penalty typically before you’re even 60. So, they’re young in the grand scheme of things, they’ve got ideas for how they can produce passive income and some wealth goals, and so they’re really excited maybe about real estate or cryptocurrency.

You’ve got all these people excited about all these different assets, and they’ve got great ideas to do it, and they fit their mentality really well. Then you also talk to them and you find out they’re still contributing to their 401K. You’re saying, well, why are you contributing to 401K whenever you’ve got all these other ideas and ambitions. They’re like, well, I just didn’t want to lose the match or something. That’s very typical of what I hear.

I’m just thinking, guys, come on. I know for a fact that if you got your hands on the money you could achieve your goals much quicker than socking the money away in the 401K. You’d be able to buy more property sooner, get more passive income sooner. The 401K is not actually helping you achieve what you’re wanting to do. It may be time to say, well, just because I lose the match that doesn’t mean I won’t be successful with money. I’m gonna go out on a limb and say you might actually be more successful by getting your hands on the money and taking ownership of it and using it to buy things and achieve things that the 401K doesn’t do for you very well. Just because it’s not familiar doesn’t mean it’s not good. Just because it is familiar doesn’t mean it’s the best.

Holly: I think another point, Nate, is think about this. As you’re putting that money into a 401K and it’s being matched, you’re giving them strong dollars today. You’re giving them the power of that dollar in today’s dollar, yet you’re exchanging it to use it whether it be 10, 20, 30, 40 years later to think it’s the same dollar. We have been taught that dollars and numbers are the same. I’m gonna tell you, you might be putting your maximum contribution into your 401K, and it’s being matched, but those dollars over the lifetime of when you actually get to use them are gonna be much weaker. While you put it in there, somebody else was using it. All you’re doing is taking your money and parking it and giving it over to somebody else to use and control, instead of you being in control of that. It doesn’t make sense to me.

We all know we’ve grown up where, hey, it used to be three cents for a piece of bubble gum or five cents. Now it’s like they say, the Snickers bar packaging is actually a smaller Snickers bar, and it costs more money, but by the packaging it makes it look bigger. So, think about the way they’re packaging the 401K. Hey, give us your good dollars today, and we’re gonna give you weaker dollars in the futures. It’s not gonna buy the same stuff. So, you might have put $200,000 dollars in or $50,000 dollars in, but when you actually can use that money it’s not gonna be the same dollars, and it’s gonna be less and less for you.

Nate: Exactly right. As Holly said and I said, we’re just trying to give you ideas to say it’s okay to break out of the box. We’ve got a couple more points to make on a couple more ideas to share with you. But we’ll do so after we hear from our sponsor in a quick break from Living Wealth.

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Holly: Welcome back to Dollars and Nonsense. Today we’re talking about ways to think outside the box in order to breed succuss or financial freedom for you and your family. We just finished up talking a little bit about 401Ks. The main point, if you just caught us, is these are just a few examples. There’s a lot that you can think about in your own life, but Nate was just sharing recently with me what one of his friends did in regards to putting money into a 529 program for college versus other options. I just thought it was really amazing the way they thought outside the box in order to provide for education and not tie up their money in an actual program.

Nate: Yeah, it is a great story, and I wish more people would think like this. I love when people think outside the box. Really what happened was, you know, everyone here listening has probably heard of the term “the 529 plan, the college savings plan”. That’s very familiar, a very familiar tool if you’re wanting to save some money up for college, most people have opened one at some point and put money in it to save, and that’s familiar. But just because it’s familiar doesn’t mean it’s the best.

I had a friend who was kind of a poster child for that, where him and his father instead of funding a 529 plan, they actually used the money that they had set aside to have him go to school, and they went out and they purchased property with that, a single family home, with that money that needed some work. The son, his full time job was going to be, essentially why he was going to school, was going to live in that home and learn to fix it up. The goal of this, of course, being that he wouldn’t have to pay room and board necessary for the school, ’cause he could live on his own. That actually wasn’t very much cheaper, but he could also learn life skills of how to be a home owner, essentially, and fix up a home and produce value where there wasn’t very much. So, during this timeframe, of course, he’s fixing up the home, making it look beautiful.

When it comes time to graduate, they will actually sell that home and recoup all the money, maybe he borrowed money from the government to go to school or maybe the dad just fronted him the money, was gonna get repaid. Either way, their goal was gonna be, of course, to sell the property, this beautiful fixed up property, for much more than they purchased it for to recoup almost all, if not all, of the cost of going to school. On top of this, he was also not just living in it by himself, he found a couple of other roommates to live in the house with him. So, they were paying him rent instead of paying the school rent to stay in the dorms. They were getting passive income while he was going to school that they could use to pay for it.

So, instead of having to find a job in a conventional sense while going to school, he was able to work on this and essentially graduate pretty much completely debt free. I say that ’cause I’m not gonna give away his full circumstance, but essentially debt free from going to a decent university by thinking outside the box. They were able to not only be debt free but essentially recoup all the money to where it didn’t cost them any money to go to school, after it was all said and done, instead of most people who just put money in the 529 plan and spend it and it’s gone. They were able to put the money that they would have normally paid just directly to the school into the property, borrow money, pay that off, and recoup all their money. It was very outside the box, but I find any time you can try to think outside the box you have a big shot at being much more successful than everybody else.

Holly: I think too, Nate, one of the things is he learned a life skill. He learned how to basically flip a property or improve a property and learned some skills along the way while going to school, and some life experiences while going to school, and the benefits of that. Not only did he not have to get a job, but they actually were able to benefit from this. That’s just one example of outside the box thinking with a 529 program. It’s not that it’s a bad idea or concept. If you’re not gonna save the money, then maybe it’s the best thing for you, but you have to realize when you put your money even in a 529 program it limits you on what you’re able to use it for, and it also can hinder even your kids and their financial aid in going to school. So, just because everybody else is putting it in a 529 program doesn’t mean, hey, I need to jump onboard and do that. Maybe you need to ask yourself what you can do.

I mean, I’ve talked to parents who basically based on projected numbers and stuff, what they would have to put into a 529 program to pay for their kids’ education, even over the next 10 years, is basically we can get you to half what it will cost for you to go to college at a state school. I think that’s sad that they would be putting, you know, $300, $600 dollars a month if they have two kids in, but basically it will only pay for half their kids’ education 10 years from now. Maybe find a different way of doing it, or maybe there’s a better program or solution out there to generate income to be able to go to school. They also created passive income in this example, like Nate shared. I think that’s just brilliant. They gave their son a life lesson, and the ability to create income while he was going to school. Maybe it helped pay for the education. I don’t know, but I just think they thought outside that box and said let’s do this instead.

I know even where I live in California, I live near military and there’s always new recruits coming in, and a dad actually bought a house that his son lives in. Basically every six to nine months when new recruits come in, there’s new roommates in the house. That’s how he affords his living and to pay for the rent and stuff and the mortgage out here, was to buy a house and have other people pay the rent.

Nate: So once again, we don’t want to be locked up in this is the only way to pay for school, but we’re just trying to jog your mind. You could say, man, I don’t think there’s ever gonna be a way I can afford to send kids to school. Well, there probably is a way. It may not be the familiar way. You may not be able to store up enough money in a 529 plan to pay cash for every year that they go to school. That may not be possible. But if you use your imagination, you may be able to think of a way that you can make it work. We’re just trying to give you ideas to do so.

Holly: One of the things just in talking to you guys, is don’t be afraid of what you don’t know. Like, hey, I don’t know much about the 529 or I’ve only heard about the 529. Explore other avenues and do your own research. Don’t be afraid just because nobody else is doing that, that you’re wrong. That might be best for you and your family. So, do your research and ask those questions. Don’t fear what you don’t know. Actually find out the information so you can make an informed decision.

Nate: Absolutely. I think that’s a great point. We really only had one more idea, you could say, to talk about today to help people just think of ways to use their imagination. That has to do with a HELOC, or a home equity line of credit, and borrowing money from the bank and being able to use it. Typically, in society we’re told not to borrow money, of course, and that’s actually one of our mantras, Holly, with infinite banking, is trying to help people get out of debt. So we’re fully on board with that.

However, there can be times when it makes sense to use other people’s money, whether it’s a HELOC or other ways. A lot of people are so locked into trying to get to where they don’t owe anybody anything, which is a good goal, but you may be letting the nickel hide the dime. There may be ways to use the bank’s money to make a profit. That’s what we’d like to share. I’ve got a couple ideas on how to do that. A lot of times it does use a HELOC.

Holly, do you know why would somebody use a HELOC in the first place? What are some benefits you could say to borrowing money at times?

Holly: Well, I’m gonna say I like one thing you say a lot, Nate, is we’re typically taught we only borrow money when we need it. It’s okay to borrow money when you don’t need it, because if you’re only going to borrow money when you need it that’s probably the wrong time to do it. The reality with the HELOC, one thing is if you can get an interest only HELOC, which I love, in that fact, is the fact that it’s low interest rates right now, and if you can take that money and put it into a place that you can earn higher interest that what you’re borrowing it at then you’re making money right off the get go. But really interest only reduces your taxes, ’cause you get to deduct the interest for the mortgage from your taxes, so that’s benefit.

I think the other benefit is that we only think we can use a HELOC for … I can only use it to improve my home. Actually, it’s money that’s there for you to use. It’s not doing you any good just sitting there. So, if you’re not gonna borrow it and use it, somebody else will eventually borrow it out and use it. It’s money sitting there for your house and appreciation and all that, and it’s use it or lose it, kind of. If you don’t use it, somebody else will.

Nate: I like what you said. A lot of times we feel locked in, but HELOC is just getting access to money. A lot of times people’s homes and the equity you have in your home may be your biggest asset. Maybe where the most of your money really would be is kind of stuck in this house. As Holly said, if we can find a way to utilize that money to make more money and keep it working, it can make a lot of sense. Not all the time, not in everyone’s situation, but it can make a lot of sense. As Holly said, most people wait to borrow money until they need money. The problem with doing that is typically the worst time to borrow money is when you need it, ’cause then you’re broke and you come into a bank and you’re at the mercy of them. But we’ve found that it actually can make sense to borrow money when you don’t need it, because banks love to lend money to people who are rich, who have money, who have income. They love making those loans.

A lot of times when things are going really well we don’t think about getting money, but that’s the best time to do so. If we can pull money out of the house and use it to generate income elsewhere, maybe buy properties or as something Holly teach, is you can actually use it to buy one of the banking policies that we teach about and have the cash values grow tax free. Many times, it’s even greater than what the interest you’re paying to the bank is. So, all you do is transition the equity out of a property into a policy where you can have more control of it and use it, make a profit on it, increase your legacy with a death benefit. It can be a great idea. It can actually make sense to borrow money sometimes.

The same thing would be the case with other things, too. You know, I know some people who pay cash for everything, and they think borrowing money is of Satan or something like that. I’m telling you it’s not a sin to borrow money. Sometimes it can actually make sense to do so if there’s opportunities that come available, that present themselves. Most people probably have one sitting in front of their nose, they just haven’t thought that way. So, if you can access money using your house as collateral, the money can be pretty cheap and it can be very convenient and it can make a lot of sense to let you get closer to your financial freedom point, your goals, financially. ‘Cause you can access a lot of money with a house that’s just sitting there and go invest it or use it in ways that generate income for you and appreciate better and get closer to your goals much quicker. I just think it can be a good idea, not to everybody, but it certainly can if you’re in the right situation.

Holly: Nate, and think the point, too, is that this is just one of those ideas. I had never until I heard you actually say, you know, we only borrow money when we need it. I’d never actually thought about it that way, but that is actually the truth of how we’ve been taught to think. What better time to borrow money than when you don’t need it? I used to just … I was doing what everybody else does. I’d get the home equity line of credit thing in the mail and, hey, you have equity in your house, you should do this interest only, and it gives you the rate, you know, you’re qualified for. I would just throw it in the trash or shred it.

Then I realized, wait, I don’t need the money right now, but I can use it to create passive income and to do more with life to be able to actually live, because we don’t need it right now, versus when you do need it, and then you don’t qualify for it. I mean, if they’re telling you, hey, come borrow money from us, think about it. They’re basically saying, we know you don’t need us, but we need you. What better way? Use somebody else’s money, really if you think about it, use somebody else’s money and borrow it at less than what you can get in a return. It’s an amazing concept.

Nate is brilliant at coming up with outside the box thinking. In that regard, the HELOC and the 401K and 529 programs that we discuss are just a few of those concepts to actually think about in regards to what am I doing that I do just because it’s familiar or because everybody else is doing it?

Nate: Yeah. That was really our last point we wanted to make as far as those three. Just trying to stir your imagination. There’s one more point I wanted to make. You know, a lot of people think that these tools are really helping them become wealthy, but it is kind of funky, you could say, that the wealthy sometimes can’t even use the tools that we’re using. You know, if you make a certain level of income you can’t even fund an IRA or a Roth IRA, typically. So, it is kind of funny that those are very commonplace, familiar tools for an average individual, but the wealthy people, they’re out of the income levels for those. They have to go look elsewhere to build wealth than the typical tools at time. They do, I would say, a better job than we do. Sometimes these conventional, familiar tools are actually what is holding us back from achieving real success with our finances. If we would think outside the box and try to take some clues from people who are wealthier, I bet you it would stir your imagination up, and you would do a lot better than you have in the past.

Holly: So, just to wrap up real quick with that. Think about the fact if the wealthy aren’t doing it, why aren’t they doing it. Or if the wealthy can’t afford it why is it so good for you, and it’s not good enough for them. I mean, that’s a good way of what Nate just said at the very end. You know, if the wealthy can’t participate in this program, then basically it’s not good enough for the wealthy but it’s good enough for you. Maybe that isn’t honestly the truth. Think outside the box. Look at what you’re doing in life and what you’re participating in. Ask yourself why are you doing it. Educate yourself, and try and find something that you can do that fits for you and your family.

Nate: Absolutely. Well, we’re pretty much out of time here, Holly, so we’ll go ahead and close it down. This has been Dollars and Nonsense. If you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/e37