When you can make 100 to 300 percent more. In this episode, I'm going to answer the question
"When does it make sense to borrow money?" Now, a lot of people do not
think about what I'm going to share with you here in this episode. So, get ready, you're going to
understand some things and see opportunities that maybe you didn't know existed before.
So, my name is Doug Andrew and I've been very blessed in my career. I've been a financial
strategist for more than four and a half decades. And I've written 11 books so far. My 12th one is
about to be released here in a few months. And they've all been best sellers. But my very first
book was titled missed fortune because of the fortunes people miss out on when they simply
don't know what they don't know. Because you can't be aware of something you're not aware of.
In that book and all subsequent books, I've talked about this concept and help people to understand
when it makes sense to borrow money. A lot of times simpletons simply go, "Well, there's 2 kinds
of people in the world. Those who pay interest and those who earn interest." And I go, "No, no,
no. There's a third kind of person in the world. Those who learn when it's wise to pay interest
to make more interest." In other words, there's a difference between good debt versus bad debt. So,
I'm going to simplify this for you because this is a huge difference. There is such a thing as
good debt. It's what makes the world go round. It is the parable of the talents. This is where in
Matthew 25 in the new testament of the bible. Now, in luke 19, the parable of the pounds,
the most harsh words were spoken to that person that buried the talent. Harsher words than that
what were spoken to the woman taken in adultery, okay? And "Thou wicked and slothful servant."
You buried it? You should have at least put your money in an institution in the bank and with usury
made me some interest. Higher, okay? Don't just bury your talent. So, in this episode,
I'm going to show you that it makes sense to borrow money when you know you can earn
money greater than the net cost of borrowing because that's all banks do. If banks did not pay
interest, if they did not borrow our money, they would wither up and die.
The whole financial system would collapse. So, we need to understand how to become our own banker
and when it's wise to pay interest and when it's wise to borrow. And that's for good
debt. So, get ready, I'm going to delineate between bad debt and good debt next. Simply put
if you borrow money to consume, okay? That's bad debt. In other words in the summertime,
you can see home equity lines of credit for example darting all over the lakes in the
form of boats and jet skis. This is where people borrow money maybe using their house
as collateral or whatever to consume, to buy a depreciating asset like a boat. That's not smart,
okay? You're borrowing to consume. When you borrow to conserve, that's good debt. In other words,
you're borrowing to conserve your money, keep it liquid and safe and earning a return greater
than the cost of the funds. You're becoming your own banker. You're borrowing to conserve
not consume. Does that make sense? So, when we talk again about the parable of the talents,
what Christ was telling the people in that parable is you are given talents. And so when he
goes away on a trip for a while and comes back he asked the person that he gave 5 talents to,
"How did you do?" And he said, "Well, I put it to work." Now, somehow he put it to work
and so forth. But he doubled it. And he had 10. "Well done, good and faithful servant." And so,
he's going to be rewarded. The one who had 2 doubled it to 4. But the one who had one, "Oh,
well, you know, I knew that that were an austere man reaping where thou hast not sowed and so,
I buried a napkin", here it is. And he took it from him and he gave it to the one that had 10.
And ever since then, the crybabies of life have been saying, "Oh, then what has gits?" No, you're
expected to multiply your talents not bury them. So, when you understand the dynamics of money...
There's 4 things you can do with money. You can spend it. That's consuming. You can lend it,
okay? You can own with it or you can give it away. A lot of people think owning is the only
way to go or giving it away. That's good. But I own and loan on the same assets. I own property
but I keep that property liquid and safe by having the money not trapped in the property. I put it
over into my favorite instrument that passes liquidity safety and rate of return test with
flying colors. I call it the Laser Fund because laser is an acronym that stands for liquid assets
safely earning returns. And I'm going to share with you at the end of this episode how you can
read my most recent best-selling book The Laser Fund. It's 300 pages. I will pay for
the book and I'll show you how you can claim your free copy, okay? Now, in the Laser Fund,
I'm able to earn rates of return on my money that average 6, 8, 10 percent even though some years
I earn 16, 25, even 55 percent. Of the years, I may not make anything but I don't lose
because it's protected from market volatility. But folks, that's where I keep my serious cash.
So, as I do that, I have let's say, 100,000, a half a million. It's not where you begin with it
counts is what you end up with. I have many, many people who have accumulated a million,
10 million in their portfolio of Laser Funds. Let's just use a million and you
can extrapolate from that based upon how much you have. If you have one-tenth that,
you just take one-tenth of my example. If you have 10 times a million, you take ten times my example.
My million is sitting over here earning 8%, 10% sometimes higher. So, it's earning 80,000
or 100,000 a year tax-free. And it can sit there and compound. But anytime I want, I can take money
out of that and I can either withdraw it. But then it's not earning money or I can borrow it.
So, when does it make sense to borrow when I can earn a return greater than the cost of the funds?
The insurance company understands this. They will loan me my money at 2% and credit me 2. It's a net
cost of zero. But that's not what I do. I borrow it at 4 or 4 and a half or 5 percent. So, if I
borrow a million, why do they loan me a million? I don't even have to fill out a loan application
because they already have my money there. They're using my money as collateral. Do you
understand what I'm saying? If you had a million dollars on deposit at a bank, the bank would say,
"Well, you can either withdraw your million or else we'll loan you the equivalent of the money
but we're going to tie this up as collateral." Oh, they'll do that but see, banks will still charge
you 5 or 6 percent. But they're only crediting you on that money maybe 1%. That's not a good deal.
You're not making more than the cost of borrowing. With an insurance company, I borrow at 5.
That's 50 grand on the million. I don't have to write out a check for that. They automatically
deduct that out of what I'm earning on the million that I didn't withdraw. So,
some years, I've made 100,000, 10%. So, I make 100. They deduct the 50. And I'm netting 50,000
or 5% tax-free on that million that collateralized the million that they loan me. And I go out and I
make money in my business or whatever I'm doing. It could be in real estate or what have you.
This is why the money that I would normally be tempted to put into a huge down payment or to
pay off a piece of real estate, I don't do that because it's cheaper for me to borrow money in a
mortgage (let's say) at 6% interest tax deductible which is a net cost of 4 because of the deduction.
Right now, at the recording of this episode, I can borrow money at 3 at net cost of 2. So,
when does it make sense to borrow? Right now. I can't afford not to borrow money at 3% because it
only cost me 2. Every million I borrow at 2% from a banking institution, that's 20 grand a year.
I simply take and put it over in my Laser Fund. And if I earn 6, that's 3 times 2. That's 60,000
and it only cost me 20. But many years, I make 80-100 thousand. In 2017,
I borrowed out of my insurance policy at 5 and I kept earning 16 or even 25.
Many, many of our clients did that. This is the dynamics of money. You can borrow from banks,
credit unions, lenders. And you can do this. And then when you need money, you can borrow it out
of your own insurance contract at a low-interest rate and keep earning a higher rate than they're
charging you to borrow it. This is phenomenal that's when it makes sense to borrow money.
So, let me give you an example here and connect the dots. So, let's say that you borrow $150,000
at 6% interest and it's tax-deductible. That would be a net cost of 4. I can mathematically prove to
you that if you went over a 30-year period and you borrowed money for a piece of real estate,
150,000 bucks. And you paid 6% interest but it was tax-deductible and that cost of 4.
And if on that 150,000 that you borrowed, you earned 8, okay? And I've earned 8.2%
average for the last 45 years without even rebalancing. So, it's pretty predictable. Do
you know if you borrow a net cost of 4 and you earn 8 tax-free, the 8% tax-free is compounding?
Compound interest tax-free versus simple interest tax-deductible. How much more is 8 than 4?
100%. I'm making 100% but that's just the first year. Pretty soon at 8% my money is doubling every
9 years. So, in 9 years, the 150,000 has grown to 300,000. Now, 300,000 over here is earning 8% on
300,000. Now, it's way more than the net cost of 4% over here because this one's compounding. Do
you know if you do this over a 30-year period, you can easily accumulate an extra 1.3 million dollars
by borrowing at 6% tax-deductible, a net cost of 4, and earning compound interest tax-free at 8%.
Did you hear that? It's an extra 1.3 million. People say, "Well, that's 30 years." Well, it's
a 1.3 million that would go down the drain if you didn't do it. Now, the difference between arrivers
who understand this, the 3 marvels of wealth accumulation compound interest, number 1. Tax-free
compounding, number 2. And safe positive leverage, number 3. The ability to own and control assets
with very little or none of your money tied up or at risk in that asset, okay? But leverage without
liquidity is stupidity. So, I want to keep my money liquid. So, I'm putting it over there. Now,
thrivers repeat the process. It's not a one-off. In other words, if your home or your piece of real
estate is appreciating at an average of 7.2% which some areas do. That piece of property will double
every 10 years. Do you wait until it's worth double before maybe you separate that lazy idle
equity and put it over into a place that's more liquid safe earning twice as much as the cost?
No. So, I usually refinance my real estate properties every 3 to 5 years. And every time I
do that, I actually get on schedule to have enough money to pay off that house faster quicker than if
I had given the money to the mortgage company. But see, I put it over here because it's compounding.
And as the property goes up in value and I separate and put over here and it's earning at
least double the cost of the funds, you will add another million. Instead of having 1.3 million at
the end of 30 years, you'll have 2.3 million by repeating the process. Now, if you know how to
extrapolate from what I just said, listen. That was an example of if you borrowed $150,000 at 6%
tax-deductible, a net cost of 4. And you took that money and you earned 8% compound interest tax-free
and you repeated the process. So, that means if you have the ability to borrow 300,000,
it's double that. Instead of 2.3 million, is 4.6 million over a 30-year period. If you have
the ability to access $600,000 and you borrow it at 6 at net cost of 4, we're talking nearly 10
million dollars, extra dollars that you will not see if you don't do this. Other than that, I don't
have any strong feelings on this subject. But this is how money works. Or another way to look at it:
What if instead of borrowing at 6 at net cost of 4, you could borrow at 4.5% at net cost of
3? What if you could borrow at 3% at net cost of 2? And instead of making 8, you can make 10.
Dream. It's way more than I'm talking about. This is where multi-millionaires accumulate
their money over the long term. It's not get-rich-quick schemes. It is letting compound
interest tax-free. Grow your wealth over here while it's wise to pay lower interest over here.
Do you want to learn more? In all of the various books that I've authored,
written; I've shared this concept to one degree or another. Some of them I go into deeper depth.
But the first one I would recommend if you're curious is that you get your copy of this book.
Now, you can pay $20 for it on Amazon but I would love to gift you a copy.
Here's how you can claim your free copy. If you go to laserfund.com, LASERfund.com and
contribute a nominal amount towards the shipping and handling, I'll cover the rest of that expense.
And I will pay for the book and fire out a copy to you. It's 300 pages. 2-thirds of the book is
charts graphs and explanations. The other third is this one. This has 12 chapters with 62 actual
client stories and you'll understand why the laser fund is my favorite vehicle for this concept
so that I can borrow money at a low cost, put it here. But then when I need to use the
money out of here, I can borrow at a low rate and keep earning higher rates while I'm still
using the money for something else by using this concept that I've shared in this episode. So,
empower yourself. Claim your free copy and I'll see you on the other side of your wealthy future.