Episode: 316 - The Good Debt Myth: Why Rethinking Debt Is Essential
Subscribe to Simplify My Money
We've all heard the phrases: A mortgage is good debt. Student loans are an investment in your future. You have to take on debt to start a successful business. But what if these commonly accepted financial beliefs aren’t as solid as they seem? In this episode of the Debt Free Dad Podcast, Brad Nelson and the team challenge the concept of "good debt" and why it may not be as beneficial as we’ve been led to believe.
Is There Such a Thing as Good Debt?
For years, financial experts have categorized debt into two groups: good debt and bad debt. The idea is that good debt is used to finance assets that will appreciate in value or generate future income—such as mortgages, student loans, and business investments. But the reality is far more nuanced.
Rather than viewing debt as good or bad, it’s more useful to consider whether it is tolerable debt—debt that may be necessary but can still come with significant risks.
Let’s break down the three most common forms of so-called “good debt” and why they may not always be the best choice.
1. Is a Mortgage Really Good Debt?
A mortgage is often labeled as good debt because homes typically appreciate in value. However, this assumption isn’t always true. Many people have faced situations where home values dropped significantly, leaving them owing more than their house was worth.
Hidden Costs of Homeownership:
-
Market fluctuations: While home values generally rise over time, economic downturns can cause housing prices to plummet.
-
Ongoing maintenance: Homeowners spend tens of thousands of dollars over the years on repairs, property taxes, and maintenance.
-
Interest payments: A 30-year mortgage means paying more in interest than the home’s original purchase price, essentially buying the bank a second house.
How to Make Homeownership More Financially Sound:
-
Opt for a 15-year mortgage if possible.
-
Keep housing costs below 25% of your take-home pay.
-
Save at least 20% for a down payment to avoid costly PMI (private mortgage insurance).
2. The Student Loan Trap
Student loans are marketed as an investment in your future, but they have led to a national crisis, with U.S. student loan debt exceeding $1.7 trillion. Many borrowers enter college believing that their degree will guarantee them a high-paying job, only to graduate saddled with debt and struggling to find employment.
The Realities of Student Loans:
-
Debt without a guarantee: Many graduates struggle to find well-paying jobs in their field, making loan repayment a lifelong burden.
-
Changing career paths: Many people switch careers 10-15 years after college, leaving them stuck with debt for a degree they no longer use.
-
Limited financial flexibility: Student loan payments can delay homeownership, entrepreneurship, and even retirement savings.
How to Avoid the Student Loan Trap:
-
Start at a community college and transfer to a four-year university.
-
Work while in school to pay for expenses without borrowing.
-
Consider trade schools or certifications that offer high salaries without excessive tuition costs.
-
Live at home or find alternative ways to reduce living costs.
Avoiding unnecessary student loan debt can provide financial freedom much sooner than taking on large amounts of educational debt with uncertain returns.
3. Should You Go Into Debt to Start a Business?
Starting a business is an exciting journey, but many entrepreneurs take on massive debt before proving their business model works. This often leads to financial hardship if the business does not become profitable quickly.
The Reality of Business Debt:
-
High failure rate: Statistics show that 50% of businesses fail within five years.
-
Debt doesn’t guarantee success: Borrowing money does not ensure profitability, and many business owners end up with substantial financial losses.
-
Entrepreneurship isn’t for everyone: Taking on debt for a business venture requires careful planning and financial discipline.
How to Start a Business Without Debt:
-
Start small: Test your business idea before taking on major expenses.
-
Use personal savings: Avoid financing with credit cards or loans.
-
Seek mentorship: Utilize free resources like local business development centers.
-
Keep personal and business finances separate.
Taking a slow and steady approach to business growth without debt can greatly increase long-term success while minimizing financial risk.
Final Thoughts
Debt may sometimes feel necessary, but it always carries risks. Instead of assuming debt is a good investment, weigh the long-term consequences and ensure you're making the most financially responsible choice. Building savings and making strategic financial decisions will always be a safer path to financial freedom.
Resources Mentioned
The Totally Awesome Debt Freedom Planner https://www.debtfreedad.com/planner
To learn how to take the stress out of your finances so you can breathe again, follow this link: https://www.debtfreedad.com/lwp-masterclass-opt-in-page-podcast
Connect With Brad
Website- https://www.debtfreedad.com
Facebook - https://www.facebook.com/thedebtfreedad
Private Facebook Group - https://www.facebook.com/groups/debtfreedad
Instagram - https://www.instagram.com/debtfreedad/
TikTok - https://www.tiktok.com/@debt_free_dad
YouTube - https://www.youtube.com/@bradnelson-debtfreedad2751/featured
Thanks For Listening
Like what you hear? Please, subscribe on the platform you listen to most: Apple Podcasts, iHeartRadio, Spotify, Tune-In, Stitcher, YouTube Music, YouTube
We LOVE feedback, and also helps us grow our podcast! Please leave us an honest review in Apple Podcasts, we read every single one.
Is there someone that you think would benefit from the Debt Free Dad podcast? Please, share this episode with them on your favorite social network!
Brad Nelson:
So we've all heard it before a mortgage is a good debt, or student loans are an investment into your future. But what if we told you that good debt isn't always so good? Now, today, we're challenging the conventional wisdom and exploring why you might want to think twice before taking on any kind of debt. Stay tuned.
Announcer:
You're listening to the Debt-Free Dad Podcast with Brad Nelson. Brad and his co-hosts experience the anxiety of living paycheck to paycheck before learning the fundamentals of financial success. They are now on a mission to empower regular people to pay off their debt for good and enjoy happier, less stressful lives. Keep listening for inspirational interviews, tips, tricks and practical advice to gain financial freedom.
Brad Nelson:
Hey, welcome to today's show guys. I am Brad Nelson, founder of Debt-Free Dad. I paid off about $45,000 of debt. I've been debt-free now for more than 11 years and I've also helped thousands of other people save and pay off tens of millions of dollars with the work that we do here at Debt Free Debt.
Amber Taylor:
And I'm Amber Taylor, and my husband and I saved and paid off $54,000 in just 20 months and we're living debt free outside of our mortgage since 2018.
Chris Hawkins:
And my name is Chris Loggins, and my wife and I started our journey way back in 2005. And we've now been debt free for 16 years, all the way going back to 2008.
Ryan Nelson:
Hey, my name is Ryan Nelson. My wife and I paid off $160,000 over eight years while we were raising three kids.
Brad Nelson:
Now, after listening to this episode, you, guys, if you're ready to take things to the next level, you're ready to break free from living paycheck to paycheck, you want to reduce financial stress, build your savings and finally pay off your debt for good, but maybe you're not really quite sure where to start. We've created some incredible free resources to help you get there, and I'll be sharing the details on how you get those later on in today's episode. So, guys, the conversation today is good debt versus bad debt. And after losing a home, I just got to say Amber, I know you put this episode together. I saw this and I was like oh yeah, this is going to be a good conversation, because mortgage is always a good debt. Well, not when you can't pay it, it's not fun anymore, and after losing a house. So I went through all this, so today is going to be a good topic.
Ryan Nelson:
Well, yeah, and from an education standpoint, I'm going to have some things to talk about today too, just because my kids went to college, I had a son who wanted to go away to college and we had this conversation about this idea of good debt. It's just, it's investing in myself, it is, but there's some caveats to that.
Chris Hawkins:
Interestingly enough, when I did my dissertation way back from 2008 to 2011,. I did my dissertation on what we should be teaching high school students about credit and debt and I had a panel of experts who were designed to help me answer that question. I had no input into this, but there were credit counselors, there were teachers who taught personal finance. There were credit counselors, there were teachers who taught personal finance, there were bankruptcy judges, trustees, college professors, a variety of different people on this panel and it was interesting. When we did this study, they as a group overall rejected the idea that there was even such a thing as good debt or bad debt, and we shouldn't even be teaching that there was something called good debt. So I think that the thing that they kind of if I had to summarize and I sort of agree with this is there might be one instance where we can call it tolerable debt.
Amber Taylor:
Oh, tolerable is a good word. I like that, tolerable yeah.
Chris Hawkins:
Under the right circumstances.
Amber Taylor:
Right, right, and I mean good debt's typically defined as like borrowing money to invest it into something that will increase in value. Right so, like your house, your education, those are the classics. Maybe starting a business, that kind of thing, right so, could it be? Yeah, but I like the word tolerable.
Chris Hawkins:
Obviously, you mentioned the one instance that I could make. An argument is tolerable and that's home purchases, but it's got to be under the right conditions.
Brad Nelson:
Yeah, and see, that's where I messed up. And, amber, I know you have this in the notes, but talking about, like I know, right now, the real estate market. If you're listening to this real estate market just keeps going up and up, and, up and up and up. But there was a time not too long ago where that wasn't the case, when the whole housing bust happened back in. What was that? 2008 through 2011.
Brad Nelson:
That kind of housing market kind of took a dip and unfortunately I ended up buying a house in 2008. So I bought high and then the market went down and the home lost value. I ended up getting divorced and the home was worth less than what we owed, which is unheard of in this day and age. But there's that feeling that something like a mortgage, you're never going to lose on it because obviously your home is going to continue just to appreciate and grow in value. And sadly I didn't experience that. So I felt the sting real quick and so it was like almost immediately, like that whole idea of a mortgage is always safe. It ain't like in that situation. So I guess my point is there's never a guarantee.
Chris Hawkins:
Yeah, I had that same experience. We bought our house. Everything seems to be around 2005, 2008. Well, I bought it in 2005. This was our second home and it was the market had been going up and up and up. And when we turned around and sold it in 2013, I sold it for less than I paid for it, but fortunately more than what the mortgage was. So I did walk away with a little bit, but you're right, homes aren't always going to go up in value. Well, and it's not just that too.
Amber Taylor:
You got to be careful that you're not going into a home and now you're house poor because you bought something too big. Right that maybe the payments are. You can afford the payments, but it's everything else that came with it that came crumbling down and now you're like oh my gosh, either you got a seller or now you're foreclosing right.
Chris Hawkins:
Yeah, and what happens is a lot of people. They will say well, a home is an asset, right, assets are defined as something that I own that has value, and so I will buy a very expensive home and my guess is it's going to go up. That's their theory, their thought, and so I can increase my net worth that way. And the problem is they end up putting all their money into a home when it comes time for retirement. They have nothing to retire on and you've got to sell the home to get the equity out, just so you can retire and live on. So you never really get the benefit of the home. But you put all that risk and I think that's where I'm going with. This is the risk of buying a big home with a big payment, with the idea that it's going to go up in value and if it doesn't, you're going to suffer all for the idea that I'm going to get some benefit that you really don't get. I hope that makes sense.
Ryan Nelson:
Well, I mean, a house is also a very large liability for a lot of people as well. It's not like we've owned this house for 10 years. We bought it before the housing market went up. If we sold it right now, yes, we technically would make a bunch of money, but what a lot of people fail to see is, like, over those 10 years, what money did it cost you to maintain the house? To like we, our deck is literally fault. We don't even go on our deck right now because it needs to be replaced, like the dog goes out, but we don't like to walk on it because it makes the dog.
Ryan Nelson:
So we've had tons of quotes on it and it's going to be probably 10 to $15,000 to replace it. Wow, and just that alone. And if I add up all the things that we've had to do over the course of the last 10 years with this house, all that stuff to me gets subtracted from what you make. This value, this perceived value of it's going to go up in value. Yes, it will go up in value, but you're also over. However long you stay there, you're going to stick a ton of money into this Cutting, but you're also over.
Ryan Nelson:
However long you stay there, you're going to stick a ton of money into this cutting grass, buying all like just all the things that go into maintaining a house. Like, I'm not saying that you will not make money, but I don't think it's as cracked up to be as what everybody says. Like, oh, you're going to make all this money. Yes, if you buy a house and you never touch it and you never, you just it's just perfect. You win the lottery by never having to do anything to it. Yes, you could maybe make out, but I do think if I really subtracted everything, it's probably half of what I really made of all the money we stuck into it and all the upkeep and all the things we've had to do over the past 10 years. It's not this much money, because I've already outlaid all that cash to do all these things.
Chris Hawkins:
I think it's important to know we're not saying that you shouldn't buy a home. That's not the argument here. But, ryan, you mentioned all the extra costs, and one that you didn't mention and it goes along with the idea of debt is the amount of interest that you end up paying, particularly if you do a 30-year mortgage with interest rates the way they are now. If you make the assumption that you stay in that house for 30 years, you're going to end up paying the bank more in interest than what you paid for the home. So it's like I'm going to buy me a house and I'm going to buy the bank a house, plus some extra. And that's the thing you've got to think about is, even if it's a debt that we will call tolerable and that you go out and get, you've got to do it in a way that benefits you. That's why I always preach 15-year mortgages, you know, a 20% down payment, making sure your payment is not more than 25% of your take-home pay, so that you don't end up house poor.
Amber Taylor:
Yeah.
Chris Hawkins:
So there are a bunch of criteria that you've got to check off those boxes before. I would even agree that it's a tolerable debt and you've got to factor in the interest and you're right, the furniture and all the stuff that you've got to have. When you buy a house, you know closing costs, it adds up in a hurry. So it's a benefit and it can be a benefit. It could be a wonderful thing you've done correctly.
Brad Nelson:
And I think that's the point of today's conversation is opening people's eyes to that type of thinking. It's that you know. You even look at the home size, how home sizes have. Home sizes have nearly tripled since the 1960s. If you're buying some of these bigger homes, it is that, yes, in most cases, is it a good or is it a tolerable debt? We're using that, right? I think it can be, but you just have to be careful, because it's all of the additional things that you have to buy. It's all those secondary expenses that you tend not to think about that add up very, very quickly. So that was great.
Brad Nelson:
Let's talk about education. This is another one. Right, I know you got some stuff on this one, but let's talk a little bit about college and going to school. In fact, I recently just had a discussion with someone who's going to be on our show that works with medical professionals and doctors, and he says one of the things I would help them with is paying off their student loan debt, and he's like the amount of debt that these individuals take on is astronomical, and he's like what is shocking is that most of these professional doctors and the people that he works with, they deal with stress the same way that we do, and a lot of them have to take like medications to manage it all. So you know, is it a good investment?
Amber Taylor:
I went super conservative when I went to college. I had no idea what I wanted to be and I went into business and I was like, well, I could use this in my life. This will be good in my life, at least. Where I went not so smart was I opted to live away from my parents, so I took on loans to pay for my living expenses on top of my school expenses.
Amber Taylor:
And you guys, I literally didn't pay these off until I started paying off my debt. That was part of the $54,000. That was almost half of it. I just thought I was going to be paying for that for life. I mean, did it pay off? It's helped me in my business, yeah, okay, but it's a fine line.
Chris Hawkins:
This is something I spent 12, 13 years of my life when I was teaching, preaching, preaching to students that you can go to college without student loan debt, and over that time I think we crossed the $1 trillion in outstanding student loan debt, and over that time I think we crossed the $1 trillion in outstanding student loan debt and I think I haven't looked lately because I'm not teaching anymore, but I bet it's close to $2 trillion just in the last four or five years, and that is a burden that, unfortunately, way too many people are finding out after the fact was not a smart decision. But here's the problem, and I've said this on this podcast many times before we tell young people that if you want to get ahead, you have to get a college degree. And then there are those in their lives who will say student loan debt is good debt because it's an investment in yourself. And so these kids, they don't know, they've never been told and they go off to college thinking the only way to be successful in life is to get a college degree. And if mom and dad or grandma, grandpa, whoever doesn't have the money or I, don't get the scholarships that are necessary, then it's a good idea to borrow money. That's what they're taught, okay. And so they trust the people in their lives the guidance counselors, the teachers, their parents who are telling them that that's the formula. And then they go off and do it because they don't know any better. They don't know any different. Then they get out of college and realize, wait a minute, the world's full of college graduates and we're all competing with each other for jobs and I'm not getting the kind of job and the kind of income that was promised to me. And now I've got to pay back this loan. And they're finding out the hard way. And so we always talk about.
Chris Hawkins:
If you're listening to this podcast, if somehow you're in a car with your parents and you're a teenager getting ready to go to college, you can do it. It is not N-O-T, not good debt, because it has to be paid back and it's going to deprive you of your ability to perhaps buy a home one of these days, to move, if you need to, for a career change, to start a business, to go back to graduate school, if you want to. There are alternatives to student loan debt. It may mean going to school five years, six years. It may mean, as Amber says, you've got to stay at home, or stay close to home, or you go to a community college to begin with. There's so many different angles. Do not accept the notion that the only way to go to school is with a student loan debt.
Ryan Nelson:
I had an interesting conversation. I play golf on my VR headset and meet all kinds of people on there. It's a lot of fun. And I had this younger kid, but it's just actually like just a couple of days ago and he was asking what I do and we were talking about debt-free dad. And he's like what's the best advice that you could give me or give someone like my age? And I said, if you're planning to go to college, don't plan on like financing it through debt, like figure out how can you go to college and figure out how to pay for it, how to do it debt-free. And he's like, well, did your kids do that? And I'm like, yeah, they went, they did two years community college and then they transferred to a local university, lived at home and worked and paid for it and graduated debt free. And it's just interesting because his response was well, won't that be a problem? Because I didn't go to a good school, you know, and nothing against this kid, that's.
Ryan Nelson:
But kind of like what you said, chris, we as a society have propped good schools up on and I can tell you I used to interview people when I worked at previous jobs. I can tell you how many times we ever looked at that and thought, oh, this guy went to this school. For most jobs probably 90 plus percent of jobs out there nobody cares. It's like literally no one cares. If you go on LinkedIn and read about it, nobody cares where you got your degree from. All it is is a check mark through an application system to say you have it. In most cases it is not something where, in a lot of professions where they're like well, he's, he went to this school, therefore he qualifies for this specific job. That is the case in some places, but not all. But that's just some of that wiring in people's brains where I have to go to this good school and pay this good debt to get this good degree, which will therefore transfer late to all this extra money.
Ryan Nelson:
And my kids didn't do that. They're doing great and, like you said, chris, it is possible and I'm proof of that. All three of my kids are going to graduate. They're all going to graduate with no debt and it's not fun. They don't get to have the cool college experience and they don't get to go away and have parties and finance pizza and all that other stuff. Yeah, great. But they are like leaps and bounds ahead of where other kids are right now when it comes to like finances.
Ryan Nelson:
And my oldest moved out, he's saving. He like finances. And my oldest moved out, he's saving. He's putting money in his in in retirement accounts. He's doing all these things that if you go on social media it says it's impossible and it's like this new world we live in is possible If you don't carry a bunch of debt. The old way was we could look like we were rich and have a bunch of money. This new way, and with the way things are expensive, you can still do it. You just can't carry all this debt anymore, can't have car payments and student loan payments and all these other payments and expect that that's going to be the case.
Ryan Nelson:
But also just my other point with this too and this is just over the six, seven years of all my kids going through the debt industry, I can't tell you how many things we got in the mail that are like it's an investment in your future, you should do it. When my son wanted to go away, he investment in your future, you should do it. And my son wanted to go away, he wanted to go out of state. We sat down and said what do you want to go for? This is what he wanted to go for. Okay, what's the likelihood of what's that job going to pay when you graduate? Well, it's going to be this. Well, I ain't paying for that. Then I can understand some tolerable debt. If you're going to go for something where there's a high likelihood you're going to make really good money pretty quickly after graduating. But he has a respectable degree, but it's a degree where you're going to come out and make 40 grand a year.
Ryan Nelson:
We had to sit down and walk through like, if you take out $100,000 over the course of four years, this is what this means. I mean you're going to be living here for years. I don't want that and I don't think you want that. And I think we had to be the bigger people to sit down and walk through that with him. When stop propping this up of. You got to go to a good school. You got to go out of state and have that college experience. I mean parents are just as guilty, cause I remember when we told people this, parents were like oh, he's not going out of state, he's not going to. No, I don't want that, for I mean he can if he wants to do what he can. But I think he now sees he texted me like a month ago and said I'm very thankful that what you did for me, because I see people all the time that are my age or a little older and they're struggling because they went to school and thought it was the answer.
Chris Hawkins:
About the time our daughter got to college, joined the college. We were debt-free, so we were able to cash flow her college education. We were able to cash flow our middle child's education. We set them up. When they graduated from college, their graduation gift was a good, reliable, used car, so they didn't feel the need to go out and borrow money. That was our whole thing is we want you to graduate from college with no debt and feel like that you can enter life, enter adulthood, without having to go borrow money so that you can get your feet established.
Chris Hawkins:
But that came as a result of the sacrifices that we did. Our youngest he went one year of college, decided it wasn't for him, but he was debt-free. He didn't owe any money for that one year. And sometimes that's what we got to think about what if you don't finish? Okay, then you don't have the income necessary to pay the bills. But so we we made that sacrifice only because we did the things that we preach here on this podcast and we put our kids in the same position. And Ryan, I think that's what you're saying and my daughter now she's the oldest, she's 32. And I think she tells us often that she's appreciative of the fact that we helped her get through college with no debt and set her up to be successful, because we didn't want them to make the same mistakes that we did.
Chris Hawkins:
The other thing, though, is going back to this idea of a good school. This comes back to my teaching days, and you would ask students about college. Well, if I don't get in a good school, I'm not going to be successful. That certainly is something to think about. If I don't get in a good school, I'm not going to be successful. That certainly is something to think about. Just be careful in how you choose a school, because it's going to end up, like Ryan said, resulting in you probably borrowing money that you're going to have a difficult time paying back.
Brad Nelson:
Right? Well, I think the other thing, too is that kids, parents they look at education as that investment. But the other thing you got to think about, too is college is a short, short amount of time. You're there four or five, maybe six years, depending on what I mean. Obviously, you go longer depending on what you're going for, but as you go, throughout your life, you're going to change. That's the other thing you got to keep in mind, too is that if you go for a specific degree, you might find out 10 years later, 15 years later, that you don't want to do that anymore. It's just not what you love, it's not your passion.
Brad Nelson:
Life happens. There's lots of different reasons why you might have a change of heart, and then you still have all that student loan debt that you're locked into. And now you have to deal with the guilt of well, do I change careers? Do I take on that risk? It's a lot right. And, chris, you mentioned briefly just the whole idea of what if you don't finish too, because I've worked with a lot of people here at Deferredad that have student loan debt, that have no degree. So be very careful and this goes out to the parents the students maybe listen to this. Just be mindful and very thoughtful. I think you know, ryan and Chris, you guys brought up a lot of great stuff because you've been through this, so it's great.
Ryan Nelson:
Yeah, and the last thing I'll just add is, you know, for us, like we didn't pay for any of our kids' college education, we couldn't, we were kind of in debt. We didn't save, we didn't do the right things. So where we were able to help our kids is to provide them a place to live, and we were able to buy food and they were able to just stay here. But we did not pay for anything. Chris, I know you did and I think some people those are roadblocks people throw up like, oh well, you guys probably just had all this money and you paid for your kids. We didn't. What we did do is make our kids, from the time they were 16, worked and they worked through college and they worked part time and they were able to cash flow it by going local and living at home. And my oldest he's disappointed, he didn't get to have that same experience, but it's totally not worth $100,000 in loans. So you can say it was fun. That's an expensive fun to me.
Chris Hawkins:
The other thing I would say is and this is I tell everybody who asked me our kids paid for part of their school. Okay, we made them, even though we could have paid for all of it. We wanted them to have some skin in the game. We felt like that was helpful for them to realize they had their own money invested in this and it was going to help them get through and finish, if that makes sense. And it worked for two of the three. And I could have told you the third one. If he were standing right here now he'd tell you I've told him this. I'm not saying anything behind his back. I just didn't think he would make it through. He just hated school. But he gave it a try. But yeah, I think it's important. You do want to have your kids have a little bit of money in the game. Just don't let them borrow money to do it.
Amber Taylor:
Yeah, Now what about the third one of quote unquote good debt, which is business debt, right? Yep the fun entrepreneurial roller coaster of this is a fantastic idea. We're going to start a business.
Brad Nelson:
It's super exciting, but it's also super risky yeah, huge. Also, another area that I've helped a lot of people with got themselves into programs or whatever, because they wanted to start their own business and it didn't pan out or it wasn't what they thought it was or wasn't profitable, and now they have thousands and thousands and thousands of dollars worth of debt. So so this is what you got to be careful with and this one I struggle with because, being a business owner, I mean we're not most, for the most part, in online business, so it's low overhead. I work from my home. We don't have huge operational costs, say, like a business that has like its own building, and like builders and contractors and plumbers and electricians, like some of these businesses.
Brad Nelson:
You got your building, you got all your equipment, you got all your vans, you got your employees, and I can see that this debt, at least in my opinion, could be a tolerable debt. But I think, obviously, what makes it tolerable is the business going to be profitable with the debt right. You can't go so far to debt like you're not making any money because you're not going to survive and your business isn't going to survive, but will taking on debt like, for instance, I mentioned contractors or plumbers, electricians like if you could put four more vans out on the road with four new people and you can get way more business and become more profitable. And I could see how a business may take on debt and where it would be tolerable. It's risk but still tolerable.
Amber Taylor:
And I think it's important just to really do your research before you get into it and not necessarily start super big. Right, you're not going to start with a fleet of 12 vehicles for something that you're starting. You might start with one or two and do it yourself, and then, as you start to grow and build clientele and that kind of thing, then yeah, but you've really got to do your research and there's local resources in most places that it's going to help you create that business plan. Do the research before you actually jump into it.
Brad Nelson:
Yeah, I think you need proof of concept, especially if it's a new business idea. I guess it all depends on what kind of a business we're talking about. If you're starting with your own idea, make sure that the market wants it, because the market don't care, like it doesn't have feelings, it will steamroll you over and you get nothing back. So you just want to make sure, before you stick a lot of money or even debt into things, that it's actually going to be something that's profitable.
Chris Hawkins:
So for me, if you look at the ice cream shop, which we are closed now because of the winter, and I have the ability to do that because I don't have debt on it.
Chris Hawkins:
I pay cash for roughly the $80,000 worth of equipment and the modifications to the building that needed to be done. But again, that comes from doing this for so long. Right To be able to have the ability to do that. If I had less money I would have found a way to do it with less money. Now I certainly could have spent a lot more money to do it and would have had it available and I could have done it. But you're right, brad, I recognize that it's a risk and the cheaper you get into the business, the longer you can potentially make it. Now you have to be careful, making sure you have enough capital up front.
Chris Hawkins:
The business can lose money for a while for a year or two or three before it starts to become profitable, and unfortunately a lot of people don't do that.
Chris Hawkins:
So for me I think it can be personal debt. But the way I'm looking at this is use your personal funds to get the business up and running. Prove your concept, learn how to run the business, start small, keep it simple and then when you're ready to go. So, for example, for me the only way I would look at borrowing money for my ice cream business is maybe a building or something becomes available nearby and I might look to borrow money to buy the building, a little less risk, at least in the building part of it. That might save me a little bit of rent or at least put money in my pocket as opposed to paying it to a landlord. Then I find it as tolerable, if that makes sense, but certainly not to go out to buy equipment or more vans, more resources. It would strictly for me be defined as is it real estate that's going to help my business. Then, and only then, from a business perspective, not a personal perspective, can I see that as tolerable.
Ryan Nelson:
Well, and I think this is I don't want to be like a Debbie Downer on people if you're thinking about starting your own business, but I do think you know if you're looking for the advice out there and who's really who. I guess the question would be who out there is saying that business debt is good debt? And for the most part, the people you're going to find saying that are people who've been successful, right, right, and it can be the ones who failed, correct. I don't have anything really against business debt in the sense of if you have to do it and you got to keep doing it to grow and you're in it, you're doing the right things to run like a bigger, successful business. Sometimes you just need that. You can't save up enough money to keep growing a larger business, so I understand that.
Ryan Nelson:
But the reality is about. You know, and I just checked this right now, one in four businesses fail within their first year on average, and within five years, about 50%. So I'm not saying that you shouldn't borrow money for a business. We're not all cut out to be entrepreneurs and so sometimes you can get fed this excitement of this is good debt. I'm investing in my future, just like school loans.
Ryan Nelson:
And you go and you, like we've said, you know you spend a ton of money, you do a lot of probably over the top things that you maybe shouldn't, and you really get yourself in deep and then find out, like I'm not very good at this or I didn't really know what I was doing, you know. So I think that's, for me, is the danger that you have to be aware of is the people who are out there professing that business debt is good debt and you can't grow without it and you need it. They're all successful people who have done it, but for everyone that's successful, there's a whole bunch of people that have failed and they're not on TikTok telling you like, hey, I borrowed, you know, a hundred grand and I went out of business in six months and now I owe all this money. Like you don't hear all those stories. So just be aware of that side of the story when you're getting into these sorts of things. It's not all good.
Chris Hawkins:
And one quick thing to add there and this is me being a Debbie Downer is don't think about starting a business until you have mastered the art of managing your own money. Yeah so true.
Brad Nelson:
Yeah, it gets very complicated very quickly when you got a business, and then, if you're not managing your personal finances properly, it can be messy. That's great advice. All right, guys, if you're ready to break free from living paycheck to paycheck, reduce financial stress, build savings and finally pay off debt for good, but you're unsure where to start? Don't worry, We've got you covered. Simplify my Money is sent each Sunday to your email. Now this is your step-by-step roadmap to better financial control, and you're also going to learn easy follow strategies to manage your money effectively stress-free money decisions that will help you simplify your financial life. With proven tips that work, You're also going to gain the tools and the confidence to tackle your financial goals ahead. Sign up for Simplify my Money by clicking on the link at the top of the show notes the good things, all the bad things that may be.
Chris Hawkins:
Let's talk about that.
Amber Taylor:
Let's talk about that and that sound means it's time for the celebrations of the show. First we have christina, started off the year with a dent in the snowball, paid off small balance on one credit card $126.72, and paid $260 towards my bank account's overdraft.
Brad Nelson:
Awesome Way to go. Christina and Max cooked and ate meals at home or packed my lunch all week, sat down and did my first budget in months. It was scary, but I feel more confident and where I am going now. Glad to see you are back on the wagon, good job.
Chris Hawkins:
And Paige says that her biggest win was paying $350 towards her SCU loan.
Ryan Nelson:
Awesome and Sonia, I paid off a credit card and I'll also be picking up a part-time job starting in January and if I stay on track, I will be debt-free by this time next year.
Brad Nelson:
Yeah, that is awesome. She's been working so hard. And, last but not least, I'm going to do one more, brenda. She says I've paid off $38,600 and I've saved $1,800 in the last two years and 10 months. That's over pretty grand, which is incredible. Great job, awesome. That's a great win. As you can see, it does take some time, but, man, with some time and consistency, you can really make some great progress. So, congratulations to you, brenda. Hey, as always, congratulations to all of you guys who are taking a stand for your financial life and you're wanting better. Hey, we get that. Getting out of debt isn't easy, but with our help and with your consistency and discipline, we promise you guys, this will be some of the best work that you guys do in your entire life. Thanks for joining us on today's show and we will see you guys on the next episode.
Announcer:
Thanks for listening to the debt free dad podcast. Connect with us on Facebook, tiktok, youtube and Instagram. Just search debt free dad. If you found value in today's episode, please leave us a rating and review. We so appreciate it For resources, show notes and links mentioned in today's show. Visit DebtFreeDadcom. Catch you next week.
