Pay Down Debt or Invest? - Expert Edition Episode 4

Have you ever wondered which you should do first? I ask our resident CFP his advice. I also share what I feel is my biggest money mistake in paying off my student loan debt. His response might surprise you. 

About our expert:

Dr. Jay Zigmont, CFP®, and his wife are Childfree and live in Water Valley, MS. He has a Ph.D. in Adult Learning from the University of Connecticut and is a CERTIFIED FINANCIAL PLANNER™ and Childfree Wealth Specialist. He is the founder of Childfree Wealth, a life and financial planning firm specializing in helping Childfree Individuals and the author of “Portraits of Childfree Wealth”.

He has been featured in Fortune, Forbes, MarketWatch, Wall Street Journal, New York Times, Business Insider, CNBC, and many other publications.

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TRANSCRIPT:

[00:00:00] Naseema: We are back with Dr. J and we have a hot topic for you today. So we're gonna talk about whether to pay down debt versus invest, and this is one of the leading questions I get, and this is something that. I have a personal story around that is near and dear to my heart. That is one of the things that I classify as one of my biggest money mistakes.

So we're gonna get into it, but I wanna just welcome you back, Dr. Jay. Hey.

[00:00:29] Dr. Jay: Hey. I, you know, you had meant, you had like, gimme a hint a while back about this story you got mm-hmm. and I gotta hear the whole thing. But I have a feeling this is gonna be a fun discuss.

[00:00:40] Naseema: I think it's gonna be a fun discussion and one that a lot of people can learn from, and I'm actually interested in learning because these expert episodes are really me learning alongside my audience.

And so let's dig into it. Let me tell you my story and I call this my $80,000 story. Okay? So as you know, when I started off with my finances, I was a big, and I like to say , you shall not be named fan, also named, known as Dave Ramsey. And I was attracted to Dave Ramsey because, you know, not because of, you know, him being this white evangelical Christian, but because he helped so many people.

And the debt free screams just really got me because I saw people in More debt than me with that made way less than me, accomplished some pretty crazy things in a shorter period of time. And I'm talking about usually paying off massive amounts of debt on two over two years on average. And so I was like, if they can do it, I can do it.

And so I went. Head first into, you know, the baby steps and so I'm a nurse in Northern California and at that time I was working two jobs, so I was grossing around $230,000. In California, I have to say this because, so that, so in real

[00:02:03] Dr. Jay: world that's like, you know, $50,000, you know, oh my god, California,

[00:02:06] Naseema: what people say that , you know, I'm right.

Say that. No, it's not right. , I,

[00:02:12] Dr. Jay: I'm in Mississippi, if you make $230,000 in Mississippi, you'd be in the top 1% of salary in, in the state.

[00:02:18] Naseema: But yeah, that's not the case here. It's pretty, yeah. The property level for a family four in the San Francisco Bay area is well over a hundred thousand dollars to,

[00:02:27] Dr. Jay: to give you a contrast, the median income for the state of Mississippi is 45,000.

Ooh out. Okay. So when I talk about it being $50,000 elsewhere, I'm sorry, it kinda is close.

[00:02:40] Naseema: I'll put it into perspective. So my mortgage, which obviously was my biggest dispenser in that time, was about $4,400 a month. Childcare about $2,000 a month. My student loan payments about $1,900 a month, so I mean like, and 1900.

The student loan payments are independent of where I lived, but you know, all those other expenses are gas and all of those kind of things we're a little bit cheaper back then. And before I had an electric vehicle, but you know, those things factored in cuz I had an hour commute. Right. And then, you know, I live in California, so I gotta drive a luxury car.

Duh, .

[00:03:13] Dr. Jay: And it's required with your avocado toast in

[00:03:15] Naseema: one hand. Of course. So anyway so $230,000, which, and I was in Student loan debt. After both of my master's degrees, I came out with like $180,000 in student loan debt and I was on public service loan forgiveness cuz the hospital now I work at qualified for public service loan forgiveness, but it is income based.

And so my payments, like I said at that time, were $1,900 a month. . So I don't know if you've had to deal with loan service. I know you came outta school with no dad. But dealing

[00:03:50] Dr. Jay: with loan service. Cause I was smart about my college. All

[00:03:52] Naseema: right. Seriously. Right. And, and the thing is, is that, Kudos to you, but not everybody.

No. I wasn't taught how to, I wasn't taught that. And I feel like a lot of things you would think are common sense, but for me, I was told to get through school by any means necessary. And when you go to a school or a financial the financial aid office, they don't teach you , this is actually what you can afford.

They. Take out these loans and I think a lot of people need to understand that yes, you came from a different, , kind of like, first of all, you were a millionaire before you went back to school. So let , we already talked about that, but it's a kind of different money mindset. For me, I was taught you go to school by any means necessary and you kind of figure it out along the way.

And so yeah, student loans are what was offered for me and I thought that's what everybody did. And so I mean, I. College at 17. I never had seen those numbers before. And so when I'm signing these commitments to this financial aid, I thought that's what I was supposed to do. And it didn't dawn on me how they could affect me for the rest of my life.

So I'm gonna give myself a little grace, even if you don't, Dr. James . No, I,

[00:05:01] Dr. Jay: no, I, I'm hating on the college system. I'm not hating

[00:05:03] Naseema: on you. No. Horrible. And I think, oh, what's the book that people should read about student loans and how it works? , I think we need to highlight that because people don't I think underestimate that.

I, I think

[00:05:14] Dr. Jay: what you have to do with college, we'll get back to your regular story, is mm-hmm. , assume you can't use loans. You can find a way to go to college. A hundred percent. If you like a hundred percent loans are not an option, then you'll apply for scholarships. You'll work your way through it. You'll use things like modern states where you can test.

But the, the, the high, the, the, the university citizen's broken we're giving high school students a mortgage payment seriously,

[00:05:40] Naseema: and then expecting them to be able to figure it out. So that was me. So $180,000 in student loans. And by the way, I went to USS e, which the, a private school that is hell of expensive.

And for six year, from our undergrad and for grad school and for that program. I actually came out with only $40,000 in debt. It was when I went to the state school that was supposed to be subsidized, that they hit me over the head with a massive amount of debt. So I'm just put, I'm just putting that out there cuz you know a lot of people will hate on private schools, but they have a lot of funding and endowments.

That can make it so that you can go to school for almost nothing. Anyway, that's another, that's another podcast for another day. So follow Dave Ramsey. I was gung ho, like I'm about to do these baby steps. Learn zero base budgeting, mastered That took me about two to three months to do that. Get that down.

Then I was at Mon Death Snowball and I was like, I started really late. I started in my early, in my late thirties and I was like, I wanna be debt free by the time I'm 36. So this means. In order to do that, I need to put at least $6,000 a month towards my student loan debt. And mind you, I'm making, I'm bringing home about $20,000 a month, right?

Give or take. So $6,000 in relationship and like I told you what my other expenses were, it wasn't a stretch, right? It wa it was doable. It's a lot, it's very aggressive, but it was doable. But it came, that came from a mindset of me not even having $50 in my savings. But that shift from just following those steps, got me there in a relatively short period of a period of time, just a couple of months.

So I'm attacking my debt. And of course Dave Ramsey says that, you know, when you're paying off debt, you do not invest. And so I think I started investing when I was working at the hospital I'm currently working at that had a 4 0 3 . My other hospital had a 4 57. I wasn't. . I mean, this one had a, I mean, not a 4 57.

My other hospital had a 401k, so I wasn't investing at my other hospital because I was per diem there. But I was full-time at this hospital, and so in my 4 0 3 I was putting 10% in there. And when I started, you know, getting really aggressive, I was like, well, Dave Ramsey said you can't invest. So I stopped investing anything.

Well, so I had the potential at this company to be able to invest. The max of the 4 0 1. The 4 0 3 which it was 19,500. Okay. Plus a 4 57, which was 19,500. Mm-hmm. . And then, you know, when you factor in the employer match and then other places would have an hsa. I didn't, I didn't count that. Cuz we don't have an hsa, we have a fsa.

 So the, it took me about three years to pay off all my debt, which at the end of the day was close to a million dollars after I sold my house. But I stopped investing during that time. And when I added up, if I had instead dropped my taxable income. Right. Cause I'm in California. Oh, oh, sorry.

I missed the biggest part. The biggest part is if it was in my second year of paying off this debt I was going through a divorce cause I got married, abusive marriage, got divorced, had to file Mary filing separately, which basically wipes out any kind of tax exemptions you have. Are any kind of benefits you get from your taxes?

It wipes all of those things out and I have to pay the IRS $30,000. So not only wasn't I decreasing my taxable income, now I owe and, and not contributing to my retirement, I owed the IRS $30,000. So in these years I could have double pay. So almost 20, I'll just round it up for easy numbers, $40,000 into my, oh, I think it was $1,900 at that time, right?

So 19 five. Yeah. Cost. Okay, so 19 five times. 19 five. So in my 4, 4 0 3 4 57. And doing that for two years, let's just say it was two whole years, which I could have been contributing. That's $80,000, which I could have been saving. And dropping my taxable income. And then when I dropped my taxable income, then my student loan payments would've dropped.

Right? So mind you, I was on public service loan forgiveness and, but I was making double, triple payments at that time cuz but every, every time I made payments, my adjusted payment would kind of go down. But it started at $1,900 a month, right? And so I was meeting with someone when I first started this podcast, who does, you know, student loan refinancing.

He was like, well, if you would've just adjusted down your, and maxed out your, your retirement accounts, adjusted down your taxable income and kind of minimize how much you paid and not paid your loan off so aggressively, you could have saved this amount of money. And I think at that time that was 20 16 20 17, I You know, still had like seven years of the 10 year window of the public service loan forgiveness.

And so, you know, like in 2020 we kind of hit this area where people , didn't have to pay on their student loans. But those zero payments still counted towards. They're monthly payments, the hundred and 20 requirement, 120 payment requirement that you had to meet for your public service loan forgiveness.

And so I was like, I could have coasted those last couple of years with the last remaining bit of my debt and not had to pay. And so that's why. I say I made the mistake of not investing while paying off my debt and how it affected me and looking at the money that I could have just invested, not even looking at the growth.

 I think it was a big mistake for me. What say

[00:11:48] Dr. Jay: you all right, let me play with this. Okay. Course you gimme a lot here. I got some notes. Let's, we're gonna have come of this. Yes. So here's what I just heard. If you had a crystal ball and could look seven years into the future, It would've been better off for you to do the public service law forgiveness?

Yes. Okay, cool. So do you read tarot cards at the same time? I mean, like how are we looking at the future? Yes. By the way, what you could have done instead is seven years ago you could have bought a Bitcoin mining machine, made your own Bitcoin. And then made a whole lot more money. Yes. Facts. So are you mad that you didn't start a Bitcoin operation?

Seven years ago.

[00:12:29] Naseema: 10 years ago? No. I'm, I'm not mad to get, I'm not even upset about getting rid of those loans. Let's, let's

[00:12:38] Dr. Jay: do the math. If you bought a mach, if you bought a machine for two grand, which is one year month, one month payment back in 2015, that would've been probably millions of dollars if you sold up at the right time for Bitcoin.

How come you're

[00:12:50] Naseema: not beating yourself up about that? I don't know about Bitcoin, but my investment accounts were right in front of me and I stopped investing. And so, okay. That for me. Yeah.

[00:13:00] Dr. Jay: You got a math problem. That's, that's we call it mental model problem. Mm-hmm. , here's the thing. You're looking in the past and going, well, what if I had, you can't look in the past, so, alright.

Whether you like Dave Ramsey or not, you know, I, I, I'm also started with Dave Ramsey. I started as a Ramsey Preferr coach. But he talks about, look through the windshield, not the rear view mirror. You're looking through the rear view mirror and saying, I wish I had done things. All right. Knowing what you know now.

So let me give, let me mess with your facts a little bit. . If instead your public service loan forgiveness had hit the 10 year window in 2017 or 2018, most likely it would've been deni. The amount of people that got approved on the public service loan forgiveness under the last

[00:13:43] Naseema: president? No, but I was on p I was on public service loan forgiveness.

I understood. But

[00:13:48] Dr. Jay: even the people that qualified who got it, 120 payments, most of 'em were denied. Okay. So timing matters here. Mm-hmm. . Okay. Okay. Mm-hmm. . So you're using now Covid O So you're saying, I wish in 2016 I knew there was gonna be a nat, a worldwide pandemic. Mm-hmm. and that would've changed my finances.

Mm-hmm. . I want some of whatever you're smoking in California. Cause I mean it's not legal here. You know we got stuff , .

[00:14:15] Naseema: I don't smoke, but yeah, we do . But I

[00:14:17] Dr. Jay: mean like seriously, you're talking about what ifs and if you get stuck in the what if land, you will never make progress, right? The only thing you can do is, is work on your plus your own life move forward.

So let me pull apart a couple other fun stuff on this. You're right, you could have L lowered your taxable. Now here's the thing. That's a tax question, not an investing question.

Okay. Yes, yes. And well, you're student with six, 7% on interest on that.

[00:14:48] Naseema: I think maybe even lower , maybe like five or 6%. Six

[00:14:52] Dr. Jay: percent's kind of the, the average. Maybe just

[00:14:54] Naseema: use that average. Average, yeah. Okay.

[00:14:56] Dr. Jay: So you had $10,000 a year in interest being added onto that loan. So that loan, if you had gone to the public service loan forgiveness and the lower income would've been growing each month.

Now here's the thing, I can't guess what the heck the government's gonna do with student loans right now, and, and we're the courts and the, you know, forgiveness and the blah blah, who knows? Like, seriously, there's no way to know. So I can't plan on any of that. I can plan on paying off my loans. That's the only thing I can.

And that $10,000 is a tax-free, risk-free return of 10,000. There was no way you were getting that same return in the market. So I, I'm with you. I, I actually thought we're gonna go a different way and I can argue some of Ramsey stuff. But here's the thing, the argument you're making about, I should have used public service loan forgiveness cuz of Covid and it would.

Yeah, that's bs. Like, seriously, like, that's like, well what if I had, you know, landed on the moon? And, you know, like, it just, I mean, the, the hindsight of that is just you. There's no way I can tell you what your student loan's gonna be like in 10 years from now. Right. Anyone listening

[00:16:08] Naseema: now? Right. But even without, even without forgiveness, right?

It could be argued that, you know, I, I would've admit, I would've my payments would've been drastically lowered and I could have still been investing by paying a really low minimum because I'm reducing my ti my, I'm doing my mad reducing my Madi, right? , your loan

[00:16:27] Dr. Jay: payment would've gone down, but you, the, you would've never covered the interest.

So the total loan amount would be going up year over.

[00:16:33] Naseema: Now here's what Right? But then the premise of the public service loan forgiveness is at the end of the 10 years after the end, after the end of the 120 payments is done, you're done. Right. And that is the premise. That's

[00:16:46] Dr. Jay: the premise. They, they approve it.

Yes. In, in, in the previous administration, they approve less than 1% of applications. for forgiveness. Mm-hmm. , like people that have been in the program for 10 years didn't get it. Mm-hmm. , that's the problem with that equation. Mm-hmm. is you're hoping politics doesn't change. Mm-hmm. . So for those that aren't P S L F and are on the income driven repayment programs, those go up 20 or 25 years before you get forgiveness.

But that comes with a tax bill. You pay taxes on what's. So, okay, let's post part. Should you have lowered your taxable? Maybe. But here's the thing. The interest, you would've paid them. The debt would've offset it For people listening, your, would your advice be okay? Stretch out your, your student loans and invest.

[00:17:38] Naseema: I would say look at your situation and meet with your tax person, because like you said, it's a tax person. It's a, that's a tax question. Meet with a tax advisor, meet with maybe a student loan specialist that understands your exact situation because it's gonna vary state by state. It's gonna vary depending on your if you're married or not how you file your taxes.

Let's not forget I have to pay $30,000 in taxes. And that, and again, that was a unique situation.

[00:18:05] Dr. Jay: You had to pay $30,000 in tax cause you weren't have enough withhold withholding from your paycheck and you had enforced in the bill. Right. Facts. That's, and by the way, once again, no way I, can you come to me as a, as a cfp I'm not gonna be able to like, oh, she's coming up for a divorce.

We should change her tax withhold. No. Like, seriously. Like, there's no way to know that either. So I, where I'm going with this is, first of all, give yourself a little break seriously. And, and it wasn't an $80,000 mistake cuz your math is off a little. And what, what I would argue. . If you had come to me and said, Hey, I should be investing at least enough for my match in my four.

Yeah. Mm-hmm. , it's like, you know, the company says if I put 6% in, they'll give 3%. I could argue that and go with, yep. And then the rest goes to debt. Like seriously, I could ar, I could, I could buy that. My general advice is pay your debt off first, then go to investing. Cause here's the thing, if you had a credit card debt, let's use that one for example.

Oh

[00:19:01] Naseema: yeah. That's a whole I did not because I had a bankruptcy, so I didn't have any credit.

[00:19:05] Dr. Jay: Yeah, you missed that little step there,

[00:19:08] Naseema: in the story. That was from way back when we, well,

[00:19:10] Dr. Jay: you noticed that was a part of the story that, you know, so here's the thing. The reason why Dave Ramsey gets hate besides some of his politics and just who he is, that's a separate discussion, but is because he simplifies things and probably a bit too much, and that's okay.

Mm-hmm. . But here's the thing. If you got any consumer debt, credit card, car, things like. You gotta pay that off before you invest. Like that's like an almost absolute, because there's no way you're gonna beat 20% return on the market. Your credit card is 20% or more in it's inflation and it's going up. And by the way, I saw something the other day, somebody said some of the cards are as high as 30%.

[00:19:50] Naseema: Oh, the rates are ridiculous right now. That's crazy.

[00:19:53] Dr. Jay: Ridiculous. Ridiculous. Most, most states like top out at 26 or 20, like there's a max. So most of the credit cards have hit that max. Some states don't have that limit. So, okay, if I have $10,000 in credit card debt, I have $3,000 of interest being added each year, and they're like, oh, I'm making $50 minimum payments.

I'm like, that ain't even touching it. Like, that's right. So I think the hard part is we're on a podcast, we're talking to people all over the world. And this is us only advice, but my thing is I have to give general rules enough that most people follow. You would have to prove to me there's a reason why you should invest over paying your debt.

You know? Okay. You're trying to go down tax and the public service loan. Okay. All of those assumptions are valid. Assuming the public service loan forgiveness program stays, there's no guarantee of that. Yeah.

[00:20:46] Naseema: Facts. I mean, we see, we see what's happening to forgiveness and all of these things right now, like this, this student loan.

It's almost too overwhelming for me and I don't even have student loans. Yep. To even try to follow what's going on. And so I know if I still had those student loans, it would be anxiety provoking and so I am not, I am not saying at all that I regret paying off my student loans. Let me be clear. I just wish I would have optimized the path for.

[00:21:20] Dr. Jay: So here's the thing on the optimizing the path, the extra interest would've killed you cuz you would've never, you have to. The way it works with public service loan forgiveness is you have to either choose to pay the lowest, lowest amount possible, run it out 10 years, or pay off your loan. There's nowhere in between.

Yeah. You can't be kind of pregnant. You don't have to take under the other . You know what happens is people go, well, what if they forgive? And what if? Yeah, what if? Okay, sure. You wanna keep that student loan around, you know, and just like baby it, fine, but you're losing money. That's the hard part. You know?

I think if we ask this question, so we go to the bigger question of this discussion, should I paint down my debt or should I invest? Yeah, just pay down your debt. Now you're going, well, what about these corner cases? And okay, sure. You talk to a tax tax planner, certified financial planner. You work on a financial plan that says it's better for you to invest than paid down your debt.

Fine. But here's what happens. There's also a psychology problem. People are more willing to pay down their debt than they are to invest. The debt's hanging around your deck. Investing is, mm-hmm. Is, is for the future. Right. Debt you see now? Mm-hmm. , if I paid out my debt, the debt collector stopped calling it mm-hmm.

I stopped getting those bills in the mail. It's a behavior thing. Mm-hmm. , what happens is, I'm, I'm willing to guess, so you paid $6,000 a month towards your debt and once the debt was paid off, you put that $6,000 a month towards your. A

[00:22:51] Naseema: hundred percent right away

[00:22:53] Dr. Jay: you had the behavior in place. Exactly, exactly.

If you had, instead be putting a thousand dollars a month towards your debt, let's go with that number and 5,000 towards your investing. What'll happen is, oh, well I wanna take a trip. Let me cut back on the investing. Or I change jobs. Oh, I'm not gonna put as much now. And that's what, it's a human nature problem.

Right. You know, so getting outta the debt sets the foundation. And what happens is, every time, just like you, I was paying towards the debt. Now it goes to my investing. You know, it, there is an order of operations. The order of operations gotta get outta budget. I don't care how much money you make, gotta get outta the budget, by the way.

You can automate it. You could do a lot of different things. It doesn't have to be giant. You know, the, you came out of the zero base pile. That's the best. You know, every dollar has a job works, some people has two anals. So you could do something in between. Gotta get a bunch of. , gotta get outta debt, gotta have an emergency fund.

Those are kind of like the three foundations for everything else. People go, well what if I get a, I saw this one the other day. I get a, I get a. Life insurance policy and a home equity line to pay off my mor and I'm like,

[00:24:00] Naseema: what? Too complicated. Like, stop. That's like that, that that person trying to get to the fifth step.

I'm like trying to get to the fifth step.

[00:24:08] Dr. Jay: Pay off your debt , then we'll pay off rest. Right? And, and, and if you said, Hey, I want to get enough for my match at 401k, yeah, that's fine. But realistically, 6% of your salary or whatever it is, is not gonna make a difference. , my, my guess is you probably actually worked a little bit more and made some extra money.

To get the debt gone. Actually, I didn't, you didn't, you already making, you were already making California money, so

[00:24:31] Naseema: you know, you were Yeah, I, I didn't, and you know, I went from being married and having some support to being, going through a divorce and all of that stuff, so I had to stay home more. I actually worked a little bit less, but because I was paying attention to how I spent my money and I had already had a couple of months of that behavioral change, I was able to still meet my financial goals.

Good.

[00:24:56] Dr. Jay: Yeah. I, I think when people say, Hey, well, I'm losing cuz I'm not investing, I go, yeah, you're losing because you, you, you just went out to e for 500 bucks last month instead of paying down your debt or investing and you're saying, I'm gonna put it towards investing. The truth is no, you're gonna put it towards stuff, just stuff you

[00:25:15] Naseema: buy or, I, I, I, what I see more often is just people just don't know what they're spending money on and so their money just disappears.

Right. , oh, I have $10,000 in my bank, just earlier this week. Where did it go? That just unconscious spinning that we are so driven to do just because it's just the way our society is set up.

[00:25:36] Dr. Jay: One click, you buy it and boom. And you don't need no friction. Yes. You know, and, and, and I think the hard part is for people listening to this, you could get to a, you get to a place where your yourself is so complex that you.

Hit the tax rules and all that fine, but you know what? You're gonna end up spending thousands of dollars with a tax planner or financial planner to to figure out a plan that gets there. And if you're already in debt, it's gonna be hard to find a thousand dollars to pay somebody to help you work on a plan that optimize it.

I don't want you to worry about optimizing down to the penny. I want you to worry about making progress toward your goals. You set a goal to get outta debt in three years. That's what matters. And you met it. Give yourself a, you know, pat on the back and be happy about it. Now, oh, I could have made money in the market and the market went up and I should have bought a Bitcoin machine.

[00:26:28] Naseema: I mean, and, and let me give myself some credit, is that, I mean, , because of those behaviors, like you said, when I, because I had those learned behaviors and because I knew how to allocate my money, that money I was putting toward emerge, my debt instantaneously went into, you know, my portfolio on building wealth and just in, you know, and by the end of that third year, I was already back at six figure.

Net worth, you know, and so, or not back, but I was there at six figures net worth because of those financial habits. So it's not like, I was just at Zero forever because of this. The decisions that I made, the trajectory of my wealth rules substantially just because of those, again, behaviors, what she'll hear again and again.

[00:27:16] Dr. Jay: Well, and I, and I think I'm reading your shirt here. It says, note to self, you were doing great . That's kind of the message I'm trying to give you, which is You're doing great. Yeah. Who cares On like, whoa. I could have optimized to a, if I looked back, look, everybody could have made decisions in hindsight.

You know, this is the Monday morning quarterback. It, I could have done this. Yeah, you could have, you didn't. You made other choices. Give yourself some grace. Be happy where you're at and make more improvements next year. You know, I, I think the hard part is just making sure you have that solid found.

Before you get, you know, fancy, you

[00:27:48] Naseema: know, I think people are just trying to get so fancy, so fast they skip over the basics. So let's bring it back and take me out of this equation because my story is not your average story. Right. But, you know, sharing, just to share that I feel like I made money mistakes on my path yet and still, and I, and I say it, In, like, I did it in spite of not because of mm-hmm.

I did it in spite of the mistakes that I've made. But I want just like, for your person, just like with the average debt, , you know, most people have. If people are coming to you like, okay, right now I just need to know, should I focus on paying down my debt or should I invest? What would your general advice.

[00:28:36] Dr. Jay: My advice is you pay off your debt minus your house. Now, everything else before you invest in general. Now by the way, you, you're talking about corner cases, there might be somewhere road, but you know what I find if you pay off your debt, it's a sense to have momentum. Like it's a momentum builder that gets you further.

And, and look at your, so, so here's, by the way, this one's gonna. Messed with your head, so I apologize. Here's what I'm gonna do. Add up all your debt. Figure out the interest rates you're paying, and figure out how much it costs you per year to have that debt. I'm gonna tell you right now, you're in for a rude awakening.

You know, we use that example, $10,000 credit card is somewhere around, you know, two to $3,000 a year in just interest. I did this with somebody the other day and we had done the math and they have a house and a few others. It was like, like $20,000 in interest. They were paying. I'm like, okay, so here's the deal.

You are working January, February, and March to pay your interest. Mm-hmm.

All of a sudden people are like yeah, that's not what I would do, because here's the next step. After you figure out how much interest, take how much you make per hour and do the math of how many hours you gotta work, you're gonna get a debt pretty quick. Yeah. I, I think the, the bigger message for everybody, Keep yourself from grace.

You made stupid mistakes in the past. We all did. Everyone has you know, you, we all are still making stupid. Because I'm sure the future me 10 years from now would go, why didn't you invest in blank? That, you know, who knows what it is? And I'm like, well, cuz I didn't have, you know, sima's magic cards here or, you know, crystal ball to know in the future.

But what happens is if you set the basics, so we're we're talking, you know this, this is gonna air in January or so, and they're talking about 2023 going, well, you know, it could be a rough year and people try recession and this and the other. Here's the thing, if you have no debt and you're on a budget, you're fine.

Like seriously, you're fine. Cuz if it has a recession, getting money outta your 401k is not easy. Probably gonna come with a penalty. . But if I paid off my debt and I lose my job, I can cover my basic bills by picking up a side gig at working at McDonald's. I mean, mm-hmm. , you know, around here McDonald's actually pays 14 bucks an hour and pays the day you work.

Like you get the check that day.

[00:30:54] Naseema: Really? That's interesting. I

[00:30:55] Dr. Jay: didn't know that. Daily payment, it's a new thing, but my place is, I could pay my, my day-to-day bills doing that if I have no debt. So here's the thing on debt, it's just kind of one of those fun ones. Let's, and people go, well, what, what happens if, if it's something you need, like the roof is like caved in and there's water coming into your house, I'm okay with you using debt.

If it's something you want, like, Hey, I want this nice new pay cash tv, save up for it. Yeah. Okay. So I just had a reporter email me should, should I take out a personal loan to pay for holiday gift?

[00:31:35] Naseema: Gs. Are you kidding me? Gibs? My email back was, are you

[00:31:38] Dr. Jay: joke like, like I'm bashing the keyboard. Like, are you kidding me? And then, then the pop was, well, should I do it on a personal loan or a credit card? I was like,

[00:31:49] Naseema: no. Like just stop. Just stop. No, it's just stop.

[00:31:53] Dr. Jay: I mean, when I was growing up, we didn't have much money.

My mom, Big cookies, put 'em in a coffee, can remember the old metal coffee can wrap '

[00:32:00] Naseema: em up. My grandma did that. That was your Christmas gift. Everybody got a 10 of cookies. Okay.

[00:32:07] Dr. Jay: And there were certain cookies you looked for. I traded with my sis. You know these are the better ones, right? If

[00:32:10] Naseema: somebody got peanut butter, my uncle got peanut butter, my daddy got chocolate chip whi walnuts, like I remember these things.

Yes. And

[00:32:20] Dr. Jay: guess what? That had more meaning that if they had given, you know, your dad a $50 bill. Exactly. All right. My point is gotta cut debt outta your life. And you know what works best is cutting out cold Turkey. , when you're arguing about investment, you're not cutting debt out cold Turkey. Mm-hmm. , that's where Ramsey's got it, right. His saying is, you know, you don't see the inside of a restaurant unless you're working there. If you're still in debt, and he's. Like seriously. But that's hard for people.

[00:32:47] Naseema: It's hard. It's hard. But let me tell you something, there is nothing more freeing than getting debt off of you. Debt weighs physically, the, the. Impact of not investing, not so much, even though it's so great to see your returns grow. I'm not gonna lie, it is lovely to see my net worth grow, but there is nothing like that feeling of not having debt weighing on you.

you know, and so I a hundred percent agree with what you're saying because yeah, just experiencing both sides of the equation and knowing what it, I mean, and if you have that tangible feeling, then obviously it's doing something to you physiologically. Yeah. And a lot of people don't understand that.

And I think a lot of the mental health issues, and this is where we're gonna go back to talking about financial therapy, a lot of those things tie into. How money makes you feel and that makes you feel horrible.

[00:33:48] Dr. Jay: Yep. So, alright. Right. Let's get some tangible tips on how do I get outta debt since we're mm-hmm.

getting that solution. First thing is close your credit cards. Now I don't mean like literally close the accounts, you can actually go in the apps and lock them so you can't use them. Mm-hmm. . Now, by the way, when I ask people to do that, like they, they start shaking. They're like, I can't live without my credit card.

Well, guess what? You need to like if mm-hmm. if, if it's, if it's like making you literally. You need to stop it immediately. So we gotta stop taking out debt as the first step. Second is, I gotta get on a budget and I have to make paying off debt a priority. You talked about 6,000 a month. Not everybody's gonna be able to do 6,000 a month.

If you're doing 6,000 a year, you're putting 500 bucks a month towards your debt. What you're not doing is, well, any money I have left over is going to my debt. Guess what? You're not gonna have any money left over. Mm-hmm. . You have to make it a priority. And for those with families and kids, Everybody needs me on board.

Yeah. You know, I like putting it on the fridge or something. And we're all working towards this now. My own personal theory, I'd rather my life suck for a year or two than drag it out over 10. Yes. And and that's kinda where you were at. It's time to go scorched earth and just. Yep. You know, now on TikTok, they talk about cash stuffing.

Cool. The old schoolers envelope method. Same things. Yeah, same thing. But now it's fancy because it's cash stuffing . Okay, whatever. Go to prepaid debit cards. I don't care how you do it. Budgets are like diets. There's lots out there. They all work. What works best for you is the one that works. I don't care which app.

The first month I'm budgeting, it's gonna suck. The second month will get better. The third month will get better than that. , you know, now I'm at a point with my budget. I know where my money goes, but every once in a I go, oh, hey, I got paid today. Like, you know, like I, I, you know, I don't look at it enough to go, oh, you know, I know it's coming Friday.

Oh, oh, this is payday Friday. Like, you know, like, that's, that's where you wanna get to. Yeah. You want your money to be so boring. I, I really want you to get to, you're checking your money twice a year on your net worth and all that, and just kinda let it grow and do your thing If you're looking at it every minute, cause you're worried how I'm gonna pay my bills, that's not healthy.

Yeah. It's just not. So make debt, getting data pro focused, then we'll knock it out of the park with the investing. Mm-hmm. . But let's get that debt going first.

[00:36:08] Naseema: And I know there's gonna be some people that are just like, but I am check to check, how do I get ahead?

[00:36:16] Dr. Jay: So, couple things on this. When people say Check or check, when I do budgets, I break things into four categories, must shoulds, coulds, and won'ts.

Most of the things you gotta keep your roof over your head. So like the house groceries are a must. Eating out is not a must. You know, uber eat is not, but dining out is a poison on most people's budget. But my wife and I included, that's kind of where we spend our money, but it's everything you have to pay to keep the roof over your head.

Minimum payments on your cards. If you don't have enough money to cover your musts, something's gotta change. Either you gotta move, gotta get a roommate, gotta get another job. There's nothing I can do. Like housing in California is stupid expensive. I have no clue how you do it on a standard salary. Like I just.

[00:37:00] Naseema: I, you have to be creative. You have to be creative. I mean, you saw, you heard me say I have a roommate, like house hacking is where it's at. , and people, you know, every place I live, I make sure I have a room to rent out to another nurse. And I love nurses because I have small kids. And so, you know, I feel safe around nurses.

Usually they're my coworkers, so I actually know them and they're background checked in their screen and they're never home because if they're here to work, they are working. Yeah. And,

[00:37:28] Dr. Jay: and I, I think that the reality check is housing is disconnected from reality right now. Yeah. There's like the, the all across the us the, the, yeah.

The housing costs are just so high. So if you can't cover your musts, something's gotta change. If you can cover your musts, everything else is on you. Mm-hmm. , because everything else are things you should spend money on or could spend money on. And now I don't want to get into the, well, you shouldn't go to Starbucks.

Look, okay, fine. You know, that's, that's an old tired debate. , but the reality check is you're spending money somewhere. Mm-hmm. , and you don't know where it's mm-hmm. . If you're living paycheck to paycheck, chances are your debt's so high, it's part of what's killing you. You know, you're paying interest on interest, on interest on interest, but you need to figure out if it's, can I not pay my musts or can I not pay everything?

The other way to look at wants versus needs. Needs basic groceries, need dining out, want. . If you can't pay for your basic needs, you gotta change something. Mm-hmm. , everybody else, you have room in your budget, you just don't want to, you know, maybe you need to cut out down to one streaming service instead of all three or whatever.

You know, like.

[00:38:35] Naseema: It does add up, but I, I think like the first thing that you hit on is that a lot of people try to cut out the latte factor. That's the first place that they go like, okay, let me cut out these small things. When it all actuality, why are you living in a three bedroom by yourself?

Like move to somewhere more affordable or have somebody else pay? R pay your rent or your mortgage because once you cut out those expenses, you have so much money to put towards your financial goals. And I think a lot of people overlook the big things. I mean the one simple thing that they can do versus like those micro daily decisions that, you know, you don't really make a big impact.

[00:39:17] Dr. Jay: Well, some people it doesn't. Some people it doesn't. Let's be real. Some people are spending way too much on a day, like for example, I'd like to see people, I like phone games, spending thousands of dollars a month on like the stupid, like in-app. Like, I like my gaming, but not thousands of dollars.

[00:39:31] Naseema: Yeah, that's not my worlds.

I, I wouldn't have even thought about that. Oh, no. But

[00:39:35] Dr. Jay: so when I'm looking at client's budget, the first thing I do is I take their take home, like actual money in their paycheck and then take their housing and see if it's more than a third of their take. . Mm-hmm. , if it's more than a third of their take home, they have a problem.

Mm-hmm. . Mm-hmm. now my way. Mm-hmm. , like 36%, 38. Okay. What? Yes. Whatever.

[00:39:53] Naseema: Yeah. If it's more

[00:39:54] Dr. Jay: than half your paycheck, you're house four.

[00:39:56] Naseema: My, and you know what? In California, that's like 60% people are like at 60, 70% Easily. Easily, yep. Because they, and they justify it. Well, it's California. I, I cannot afford to live in under a million dollar.

Well, you have to get creative or

[00:40:15] Dr. Jay: move. So one of my favorite, I, I said people to make my move.com. It's a website of towns that are paying you to move there. like, they're like, oh, you got a work remote? They're like, I'll give you $6,000 to move here and, you know, rent assistance and, you know, access to the university.

Right. Oh. Now, by the way, they're in the middle of nowhere. I mean, you know, let's be

[00:40:36] Naseema: real. They're not. Well, because yeah, we can talk about why that's an incentive for them. That's a separate discussion. But yeah, my point

[00:40:43] Dr. Jay: is they're like, oh, I live in California. It's expensive. Cool. What do you do? I work from home and as soon you said work from, I'm like, move.

Mm-hmm. to where? Somewhere else. Like by the way, I mean, except for like. Alaska seems to be real expensive. There's like a few, like Hawaii, like most states are cheaper than California. I'm just, I'm not picking on California. they are. That doesn't mean you wanna move to the other states, but . But

[00:41:09] Naseema: lemme, I'll give you an example of what I had to do for a little while just cuz my family situation is I moved to Reno, Nevada, which is a just a three hour drive for me.

But the cost of living was so drastically different. Instead of, like I said, I went from working two jobs six days a week to working six days a. And still being able to save and invest and do all of those kind of things. And I lived like, I wasn't slumming it. I was living in a gated community with golf courses, pools, jacuzzi, saunas, daycare, free daycare, all this kind of crazy stuff.

But it's just because I chose to move right across the border. And when I say right across the border, the California border was literally 20 minutes from my house. . Yep.

[00:41:55] Dr. Jay: Yeah. I, I think what happens is people go, you know, they say, I, I can't make my bills and I can't change anything. I'm like, okay, great.

Then I can't help you. Let me, let's just be real on that. If you can't change anything, you're wasting my time and yours. But then I look at what they're doing. I'm like, how about changing this? How about doing that? They're like, well, I can't. I can't. I can't. I can't. Why? Well, because, and that's when it starts falling apart.

Well, you know, every one of one of those drive crazy. I deserve anything. Starts with, I deserve, like I deserve the better car. I deserve the,

[00:42:29] Naseema: that's where we have you deserve being debt, financial therapy. You deserve financial therapy. But I, I, I like to say that a lot of people are afraid of being uncomfortable, like temporarily uncomfortable.

But we'll stay in a position of being permanently uncomfortable because being. Our struggling with money is uncomfortable as heck. So you'll choose that existence of being permanently uncomfortable than like the two seconds of discomfort that is a little bit different from the uncomfortable that you know, that will cause you to actually have greatest financial success.

And people will choose that time after time. And again, that's the thing that we were talking about as far as financial therapy. What is making you stay in that place. Yeah,

[00:43:18] Dr. Jay: and, and I think. My challenge to you mm-hmm. is if you change nothing, you're gonna be in a worse place next year than you are now.

So what are you willing to change? That's, it's not, you're not gonna win the Powerball. Like getting a 5% raise at work is not gonna

[00:43:36] Naseema: change this. Nothing. Like,

[00:43:39] Dr. Jay: you know, if you don't change, you're gonna be worse off next year. Yeah. And I don't mean to be the, the downer, but like that's reality check.

[00:43:50] Naseema: No, but that's it. But that's it. And, and a lot of people think , okay, like I need, this big thing to happen in my life. No, just change something. .

[00:44:03] Dr. Jay: I have people that have magic numbers. If I make X all my other stuff, a hundred grand seems to be the real magic number to work.

[00:44:09] Naseema: That's the number, that's the number.

That's the number. And

[00:44:12] Dr. Jay: I'm like, where'd you pull that out of? Like, that's just a random.

[00:44:16] Naseema: And thousand dollars don't mean nothing.

[00:44:17] Dr. Jay: Okay. No. And it's not gonna get you out of debt. Mm-hmm. , there status sauce on there. 50 or 60% of women over $250,000 a year are still living paycheck to

paycheck.

[00:44:27] Naseema: I can tell you, as a woman that was making $230,000 a year with no savings, living paycheck to paycheck, it's real.

And I worked amongst women and people like. Every day. And, and these are the people that argue with me on social media about how hard life is and how they can't accomplish X, Y, and Z without even like taking the actions to make at least just one simple change.

[00:44:56] Dr. Jay: Yep. And, and since you said social media, if you see something on there, get you outta debt quick, the answer's.

Or Well, if you buy this, it'll get no, buying something is not gonna get you outta debt . I don't need to go any further on what somebody's selling on social media today, but I saw this like this, this scheme on home equity lines and pays off my mortgage and then this pay, and I'm like, what are we talking about?

But it sounded really good on social media. Like, it sounds so good. You need to 10 x this and do this, and I'm. Dude, no. You just need to start paying off your debt , like seriously.

[00:45:35] Naseema: Sometimes it's just those simple answers. It's just those simple things that we can do. But I think what I find is that people overcomplicate things all the time, all the time, where it can just be so simple.

And so that's why I love simple Pastor Wells just like you. Like it does not have to be hard. It can be really, really simple, and it can just be as simple. Paying off your debt, just choose one debt right now and commit to paying that off. And you'll be so much further ahead financially, like it'll change and it'll change your behavior so that when it is time to invest, you know what to do.

And you built in those behaviors. So I think we covered so much and I think people are really gonna benefit from this. I know I, you know, I took away a lot and I do feel a lot better, even though you kind of beat me up a little bit. ,

[00:46:31] Dr. Jay: my job is to patch on the back and kick in the butt.

[00:46:33] Naseema: I have to do both.

Oh, my telepathy, you know, you know I am a little bit, you know, psychic or psycho. Whichever one you wanna say. .

[00:46:42] Dr. Jay: do. Do you have the Powerball numbers? I mean, that's what I wanna know. Like seriously, I'm starting writing 'em down. Like I'll put two bucks on your.

[00:46:49] Naseema: I'm gonna, I'm gonna ask Big boy here, . Anyway, Dr.

Jay, it has been a pleasure and as always, just imparting such great knowledge and I know my audience will benefit from this. So I definitely appreciate you and will look forward to seeing you again on the show,

[00:47:08] Dr. Jay: Before you. Ask where to find me. I I gotta give you a plug for my website.

[00:47:12] Naseema: Always. Gosh, I'm so sorry.

Got it. But I'm gonna, I'm gonna, I'm gonna put it, everything is gonna be in shown up, by the way, but No, we need to plug your show and you're a hundred percent correct. Just ask, how do you find you? Yeah. Yeah. So, Dr. Jay, people wanna work with you. Where can they find you?

[00:47:28] Dr. Jay: I am not on the social media. You know, you're trying to get me to do this TikTok thing and the dancing and twerking and I

No, I, I'm old school. I got a website, child free wealth.com. You can check it out there. I think I have a social media somewhere under Child Free Wealth, but they tell me, I don't know. But hey, nothing else. You can come hang out with us here and we'll do some more topics.

[00:47:50] Naseema: Most definitely. So Dr. J will definitely be back joining us, discussing important financial topics that you probably didn't even know you needed to know.

So again, thank you Dr. J, and see you again soon.

Hey there I’m Naseema

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