50. Change your family's financial tree w/ Adam Carroll

Up everyone. This is Niyi Adewole, host of the Ekabo Home Financial Freedom Mastermind Group. This group meets virtually every Wednesday at 7:00 PM Eastern, and the members of this group are committed to achieving financial freedom well before the traditional retirement age. So in this podcast, you are gonna get VIP access to the conversations we have about different forms of investment and creative ways to get your dollars working harder for. And you originally worked to obtain those dollars.

​ Happy woman greeting and talking on video call - May 9, 2022: spent the past decade studying in human behavior, particularly as it relates to personal leadership and personal finance. He is internationally recognized. He's a financial literacy expert. He's the author of four Amazon bestsellers and a two-time Ted Talk speaker with nearly 6 million views on YouTube.

And he's also the creator of Broke, busted, and Disgusted, a documentary that's aired on CNBC Adam, thank you for joining us tonight. It is such an honor to be here. I love I love forums like this and formats where the dialogue is real. The questions are live, like, let's dive in. I'm, I'm super pumped. Hey, come on now. And there's a lot to digest and kind of break down.

And first and foremost, before we even get into some of these accomplishments and, and some of these techniques, I definitely want to talk through, especially four of them that I have listed here. Yeah. Now, did you get into this space? Right? It's, it's not something that we're taught growing up, right? Yeah. Personal finance and and financial literacy. What drew you to this space? Two things very candidly. One was, I was a debt statistic when I graduated from college.

So I had 30 some thousand dollars in student loans. I had eight grand in credit card debt. I was upside down on my car. Literally nothing was really going my way financially when I graduated from college. And I met a woman my senior year in college who candidly became my wife, but she gave me some great advice. She said, get rid of your debt or I'm going to get rid of. and it was harsh and I wasn't ready for it, but it was exactly the message I needed. So that was, that was number one.

She was really the first person that kind of put me in my place financially. And then secondly, and this is really at the heart of what I think everyone should be looking for. I met a gentleman when I was living in Denver, Colorado, and I had a job that was kind of a, it was a, it was a nowhere going job, dead end. But I, I had the opportunity to meet all these business owners and this gentleman kind of took me under his wing and he said, Hey man, you seem like you have a lot going on.

Go read Rich Dad, poor Dad. And then when you're done with that, go read the cash flow quadrant. And then when you're done with that, go read The Richest Man in Babylon and the Wealthy Barber and thinking Grow Rich and how to be a billionaire. And he was giving me this whole list of books and every time I would go read one, which would take me a day or two, I'd reach back out and I'd. . Okay, Jim, I'm done. What, what now? And Jim Aber was his name.

He was my first financial mentor, and this was a guy who had, when I met at me, he was probably in his mid to late fifties. I was in my mid twenties. and he owned a yacht. He had a oil and gas business. His wife had a, was a PhD in, in she, I think she was a chemical physicist or something. And they had massive amounts of money, but he was just like wanting to invest in people.

And so that, for me, that conversation with him kind of led me down the path of really getting intrigued by financial litera. Adam. I love it. I love it. I love it. And a couple of the books that you mentioned are sitting at the top of my shelf. They're ones I recommend. No doubt, no doubt. You talk about Rich Dad, poor What? Oh, and on most of our shelves, right? That, that are into this topic. Like these are the first ones we cut our teeth on.

And then you figure out like a, a switch is flipped and you just start going down this rabbit hole. Try to figure out how to, how to build wealth and live like live life on your own. Absolutely. Absolutely. And you know, one of the things that it, it brought me some laughter, but it's true. Sometimes you need that moment where you just snap out of it and somebody in your life encouraged you to take that next step.

Yeah. And so you mentioned reading these books, getting the mentor, but you were still at that point, close to a hundred K in debt if I did my math correctly. Yeah. So how did you start to even make a dent on that and get out of the. Well, two things really occurred in my, in my early twenties, early to mid twenties. Number one was someone gave me a piece of advice, and it was, it was probably Jim or one of his friends, but I said, what is the true secret to building wealth?

And one of them said, you need to create a spread between your income and your expenses and let that ride as long as humanly. and essentially what they were saying was always live on less than You make, but they said it's, it's about how much you, how much you make, how much you spend and keep that growing over time for the longest amount of time possible.

And so when I heard that, my wife and I had this discussion and we were newly married and I remember reading the book, A Smart Couple's Finished Rich by David Bach, and in that book it said men and women have different risk tolerance. So women generally speaking have a lower risk tolerance than than men do. And I knew in my marriage that I had a very high risk tolerance and my wife had a very low risk tolerance.

And so David Bach says, ask your your significant other, how much do you need in savings to feel safe and secure at any given point in time? And that morning, one morning I asked my. Honey, how much do you need in savings to feel safe and secure and without skipping a beat? Now keep in mind, we were 25 or 26, she goes $30,000, and I thought she'd hit the Listerine too hard that morning. You know? I was like, you're outta your mind if you think we're gonna keep 30 grand sitting on the sidelines.

And we didn't. I mean, there was no way we, we even thought about having 30 grand at that moment. and she goes, you asked me. That's how much I would need to feel safe and secure. And so we decided that day that we were gonna do things differently. And how we were gonna do it was we'd live on one income, it happened to be hers cuz she was making more than I was.

But we would, we would limit our lifestyle expenses so we could live on her income and blast away all of our debt every single month with the second. Knowing that on the back end of that, if we knew we could live on one, no matter what happened, one of us was always gonna be gainfully employed. Right? And so two things really occurred. Number one, we blast away all of our debt in like 24 months. At the end of those 24 months, we add 3,230 $500 a month in discretionary income.

It took about eight or nine months to stockpile 30. . And from that point forward, she's like, okay, you can do whatever you want. And at that point I knew that whether it was entrepreneurship speaking, writing books, doing movies, whatever it is we wanted to do, she would be supportive of because the fear of not having enough had been removed from her because there was money sitting there. And so it was, it, it was a huge decision on our.

But it was the most worthwhile decision I think we've ever made. And on our refrigerator there was a reminder. And the reminder was, if you do for two years, what most people won't do, you can do for the rest of your life. What most people can't do.

Hmm. And we lived, we lived according to that, and even to this day, it's like we get into a project, we are right, all right, for two years, let's just do what most people won't do and we will, we'll be able to do for the rest of our life what most people. and, and Adam, that is the key. And a lot of people say that they want something, but their actions speak differently, right?

Yes. Like it's not actually that hard to, to make serious progress toward financial freedom, toward generational wealth. Yes. But you do have to be willing to make that sacrifice. Totally. I can tell you that me personally and a lot of people that are on the line here have been doing things called house hacking, right? Where you're Yes. Living in your house, you're renting out portions to, to help cover that, that large expense. And I know that you.

To the masses about trying to cover your two largest expenses. I know one of the things that you just mentioned, and you didn't call it by its name, but the method that you created. Do you mind just speaking a little more to that and how you work to eliminate the largest expenses in your life? Yeah, this is one of my favorite topics because I think there is a, there, well, first of all, we are raised in a banker's business. And we're taught it from a very, very young age.

And the banker's business model says if you want to buy something large, larger than you have current cash flow for, then simply go to a bank, ask for an amount of money. They'll tell you how much the payments are and over how long a time you're gonna pay it. And we dutifully make those payments without ever questioning. Who that actually is advantaged.

And, and, and one thing came up in conversation with a, a friend of mine when we were talking about debt and debt service and banks and the banking business model. And they said, when you realize, when you come to realize that you as the le, as the borrower are, the bank's compound interest vehicle things begin to. right?

So if we borrow money from the bank and we dutifully pay everything the way the bank tells us to, doing it the right way, you know, according to society, the banks will make massive fortunes. And for the last five to seven years, banks have had record profits. And so we started questioning, not necessarily like vilifying the banks, because that's their model and it works for them, but what if we use the bank's money against. How, how would that work and what would it look like?

A, to not have some of our greatest expenses, but b, to be able to deploy, borrowed money against borrowed money and save massive, massive amounts in the process. And, and I'm gonna explain what I mean by this cuz it's, it's a little bit of a mind scramble when you first hear it. So ne I want to ask you a question that, that like, tease this up when you get paycheck.

My assumption is they probably go into checking and they might sit there for a little bit and then some of that money gets deployed elsewhere. But where, where might most people send money? You know, if they've got, they've got a paycheck, they pay their bills, there's a little bit or maybe a lot left over. Where does that go? And you're talking about after the bills? I'm talking about after the bills. After the bills to, that's a good question. Anybody in the crowd?

Let see what this, let me see what Shelton said. Where's that? Money? Bills. Bills. You said bills? Mine goes mostly it's housing cost and then, you know, maybe Too fun. Let's say fun. Yeah, it goes too fun. And, and entertainment. Yeah. Yeah. And, and it does depend on the person. There's another answer here. The f for most people, if there's extra.

The, the, the geniuses, the gurus out there who have written books and have talks and, you know, do speeches and are on TV and radio, they will say, well, you need six to 12 months in living expenses in the bank. They'll tell you it needs to go to investments. But for most people it goes to Costco, target and dining out. , that's where the money goes.

Hmm. They'll go spend it on random things because it's in the account and we see it there and we're like, oh, well I have money, so I'm just gonna go out with my friends tonight. And I'm, it's okay. I spent 40 or 60 or a hundred bucks, no big deal. And we started questioning if the money is sitting there, does it mean that we should be using it or could it be used in a different way, a more efficient manner? Right. And so here's, here's ultimately the question.

, if you had to leave your home in the morning on a Saturday at 8:00 AM to go to the grocery store and you got your groceries and you came back home knowing that you're gonna go to the post office at, around, you know, noon or two or whatever time in the afternoon, sorry, you guys, would your would you leave your car idling in the driveway the entire, the entire day, the entire morning? No, you wouldn't. Why? Because you're burning gas. Yeah, yeah. Burning gas, it's inefficient.

It's hard on the environment, hard on your engine, all that, right. Yet, what we do as consumers is we get paid. Let's say we get paid on a Friday. . We spend a little bit of money on Friday and Saturday, and then it sits there Sunday, Monday, Tuesday, Wednesday, Thursday, maybe even the next Friday, Saturday. We might use a little bit from here from time to time on a debit card, but it literally sits there idling in our checking account for a significant period of time.

All the while, the inefficiency of that money sitting there is the cost of our. . It's the cost of our mortgage or our car loan, our credit cards. What, what have you. And so thi this ultimately is how the shred method works, is our goal is to create efficiency with your income. Because your income should do four things. And this is worth noting. If you're taking notes or wanna write this down or capture it in your phone, your income should do four things. It should pay your expenses.

Most people, it does this, it should eliminate. . For most people it does not do that very well. You should be able to build wealth with it, and you should be able to do good and have fun, do good, and or have fun, right? Or both. So there's four things. Pay your expenses, eliminate debt, build wealth, do good, have fun. And most people do two of these really, really well. They pay their expenses and. Have fun. Have fun. That's it. That's right.

They pay their expenses and they have fun, and they wonder why 20, 30, 40 years down the road they wake up and go, gosh, I didn't build enough wealth. I still have all this debt sitting here, and I maintain. The reason that this is occurring is we're living in a banker's business model and we're following the advice of certain gurus who have made their tens of millions of dollars publishing candidly. Not in investments, not in, you know, buying real estate.

They're, they're literally making millions in publishing and that's pretty much it. So these gurus are saying, put six to 12 months, let's say 12 months of living expenses in the bank for someone making six grand a month. Right? $72,000 a year, roughly, or maybe even it's 90 or a hundred thousand for that matter.

But after taxes where it's 70, 72 grand, and their expenses are $5,000 a. , it would take them five years of putting away their discretionary money every single month in order to come up with 12 months of living expenses in the bank. And I got to a point in my life where I was like, does this make sense? Does it make sense to have six or 12 months, the 30 grand that my wife was asking for? Does it make sense to have that there when I know full well what I'm capable of going out and making?

and it wouldn't take me more than a month to replenish my income, maybe two. So I really need more like two or three months on the outs know, at the outset. And then I started asking, do I really need it there or do I need access to that money? . So the money being available is sitting in a money market or, or a, a savings account, or you're safe at home, but having access to it might mean it's in your cr it's in a home equity line of credit.

It could be that it's in an insurance policy that you can borrow against. It could be in a whole variety of different places, but there is a more efficient use of that money than just sitting in a checking account or a savings account, and. I'm gonna pause here, but this is the, this is sort of the core of shred and then I can talk about logistics knee, if that's, if you're interested.

Absolutely. And, and, and I love how you broke that down and you put it down to such a level that I think everybody can understand and really get, take away some key nuggets and two things that you mentioned, the banker's game, right? When you do buy a house and go for a 30 year mortgage, , if you take the 30 years to pay it, the bank's actually gonna make more than your whole mortgage cost. Right. Especially now. It's known. Right? It's known, especially with the interest rates rising.

Yeah. That being said, you are being able to finance a home for a little bit less down than saving for the whole home. So that's totally, it's, it's double bo, double both. But when you think about that game, if you can flip the script and start to play it to your advantage, you can start to take the advice. They, they've credited this to Einstein. I don't know if he actually said it, but the eighth wonder of the world is compound interest about interest, right?

Over time, if you're able to invest in these different money markets or in real estate, you're going to make money over time. I understand. Cause inflation and other things are gonna bring your money up. Now, when you talk about the shred method, My eyes start to light up because what you're saying resonates with me and I know it resonates with our audience, cuz we're all trying to do some form of this as well.

Yeah. I can tell you that not many people that are joining these calls are paying five grand a month out of pocket. They're usually house hacking, doing things of that nature to make sure that they're saving that money toward other investments. Yep. But you mentioned the HELOC and using that as opposed to having a whole lot of cash sitting on the sideline, that's kind of burning away. And I know that's a major piece to this method.

Would you mind first explaining to those who don't know what a HELOC is, and then diving into how that piece helps with this method? Yeah, yeah. Happily. So, a, a HELOC or a home equity line of credit is considerate like a two-way street. Money goes in, money comes out, money goes in, money comes out. And another way to look at it that a friend of mine described it as it is like having a credit card, but the collateral is your.

So you can use the equity in your home, you can deploy that in any way, shape, or form. But the HELOC allows you, it gives you a certain amount that you're eligible to go grab at any given point in time. So for most lenders, they're gonna give up to somewhere between 90, well, it could be 85 or 95% loan to value.

So if you have a hundred thousand dollars property and you owe $70,000, You might be able to go get $20,000 on a line of credit because that would take you up to the 90% L t, v mark, right? And that $20,000 is simply the bank saying anytime you need up to 20 grand, it is theirs for the taking, right? It is there for yours for the taking. It is gonna be at an interest. That generally speaking, is gonna be tied to prime.

So right now, most HELOCs are gonna be in the like six to 7.5% range, which seems a little high, but there's a method to the madness. Okay. So while that number might seem high, we're actually, I'm gonna show you how we, how we bring it down a little bit. So the HeLOCK being a two-way street. Money comes in, money comes. Is different than a mortgage, which is more like a one-way street, cuz money only goes in, it doesn't come back out again. Right?

When you pay off, when you pay your mortgage, the bank is gonna keep that money. and the only way you're gonna get money outta your mortgage is if you either cash out refi or you sell the property. Those are the only two ways to take money out. But if you're building equity in your property and you have access to that through a line of credit, you can deploy any amount of that.

20 grand in this example, or in our case, you know, we have 150 to $200,000 available to us on a line at any given point in time. So when we find a good deal or we decide we're gonna invest in a syndication, or we're gonna put money in a high equity cash value life insurance policy, we're gonna do it through the line of credit, but we'll do it in like 50 or a hundred thousand dollars chunks. And when you do that, you immediately take advantage of compound. right?

Because the secret of compound interest is at the very end of compounding, you get those massive leaps, right? So our goal, candidly, through the shred method is how do we minimize the amount of interest we pay on the front end so we can maximize the amount of compound interest we get on the back end. I love it. I love it. And, and literally the method that you're using with that HELOC is very similar to what I'm doing personally.

I, and I know a lot of people on the line have heard this before, but my personal residents, I took out a hundred K HELOC on it last year, and I used that to invest with flippers that I know that are doing four to six month deals where I'll make more interest than I'm paying on the HELOC now, when I got it last year. at 5%. So it kind of hurt climbing to that seven and a half that you're talking about.

But the deal still makes sense to where, okay, I don't mind paying this interest cuz it's like I'm using a credit card to actually make money Totally. And then pay it off completely. And now I got the actual cash that I can deploy. Totally, totally. And you're using it the way that, and this is why I love masterminds like this, because the way you're using. Is strategic in terms of deploying it at probably a 10% over six months or five months or however long the, the hard money loan goes out.

So you're making annualized 20% returns on the money. It's gonna cost you 7% or 6% or whatever it may be for five months or six months. Your money ahead on the back end of this. and, and that really is, the secret is it's not about spending, it's not a spending account necessarily, but it's an account that you use to strategically deploy to either minimize your debt or maximize your income, your, your cash flow. Yeah. That is incredible. That is incredible.

And there's two things that I really want to dive into before opening it up to the rest of the group for questions. Cause I know , I cannot be the only one whose mind's firing off right now. I know there's a lot of people on the line. The first is around the infinite banking and generational wealth. Right. Now you dove into this a little bit, but do you mind kind of diving a little deeper? I know you had a background.

, you know, a a mortgage provider and a mortgage lender in the past, and now you're trying to help people eliminate the mortgage and you've done it successfully. Yeah. But do you mind diving a bit into that piece? Yeah. Yeah, yeah, yeah. Again, one of my favorite topics because there's a, there's a lot out there. I mean, if you trust what is on YouTube or you're listening to Dave Ramsey, who's who, who slams this strategy over and over again.

I'm gonna give you sort of the foundational level of understanding and then go into a little bit of more of the the higher level stuff. So foundationally, there are two great expenses that we have in life. Number one is taxes, and the other is the interest expense on debt. Those are the two greatest expenses most people will have in their lifetime. And I'll give you a case in point. One of our clients came to us, they make about $120,000 a year. Pretty good.

In a, in a j o B they pay about 30% in taxes, right? So $36,000 goes out the door just like that. Meaning they would be left with about 84,000 bucks net after taxes. And they were excited about their, their job and how, how quickly they'd risen in the ranks in their company and were making this kind of money. And then we dug in and said, okay, let's look at your interest to income. And the interest income ratio is how much of what you're making is peeled off by interest expense.

So outta the $84,000 between a car loan, credit card debt, and a mortgage, this individual was paying $40,000 a year in interest. Pretty significant. So 84,000 was take home. 40 grand in interest means that person's living, literally living on 44,000 for the entire year, including many of their expenses, their, you know meals. Gas, groceries, all the, all, all the above, right?

And so it's one thing to make good money, but it's another to look at that and say, well, how would I minimize my tax liability? Number of different ways to do that. And what we do is we say, how do we minimize our interest expense on the debt? And so when we talk about infinite banking, this is the key. . Infinite banking is probably step, it's not probably, it is step two in what I call a 10 year freedom plan. Hmm. And in the 10 year freedom plan, step one is shred.

So when you use the shred method, the goal is for 12 to 18, maybe 24 months, you're shredding your debt, you're building equity in the properties that you own. Maybe it's your primary, maybe it's a rental property. But as you build equity, , the next step is to go secure your lines of credit.

And I say lines because you're probably gonna have a primary line of credit, like a home equity line of credit on your primary residence, and then you're likely gonna have a business line of credit or a personal line of credit that you might use for rental properties. Okay. And what we're doing is we're, we're shredding some of the debt to build equity in those properties, and I would equate equity with liquid.

. So when I have equity in a property and I have a line of credit that allows me to tap it, that's liquidity. Does that make sense? Absolutely. Yep. So that liquidity then needs a place to sit that we can access at any time and do so where we have full control over it. So this is where infinite banking comes in because, and again, I'll give you a case study. Let's say someone has a $300,000 mortgage. They get it down to one. And they'll do that.

Literally, most people can do that within 12 to 18 months as you'll be, you'll be down to one 50 in no time if you add a 50 or a $75,000 line of credit every, let me take, let me take a step back. In the first payment you're gonna make on the, on the infinite banking policy could be a $50,000 premium, as an example. And you're gonna do that one time and you're gonna do it right outta your, he.

So 50 grand goes into the policy and you immediately have access to, let's say 38 to 40 grand of it, right? So you could loan that back out again. You can pay down your line, you can go get more real estate. You can do whatever you want with it. But what we're gonna do six months later is we're gonna drop another chunk in. That's another premium payment into that policy, and it could be somewhere in the neighborhood of 50 grand again.

Now you have a hundred thousand dollars sitting in that policy. And that a hundred grand is the amount that will become the starting point for all of your future real estate investments. And the beautiful part about it being in the policy is you'll borrow it out a hundred grand, you'll go de deploy it, leverage it against some real estate, but you won't owe a payment on it because you get, you get to control when, how, and if it's paid.

So this is the beauty of infinite banking is imagine going to a lender and saying, can I borrow a hundred grand? And they go, sure. It's at a 5% interest rate locked. So in this environment, really good, good interest rate, it's locked. And then the lender says, oh, and by the way, you get to decide when the payments are made and even if the payments are made. So do you wanna make payments into it? Cool. If not, no big deal. But we are gonna charge you interest at the end of 12 months. Right?

It's powerful. It's amazing. It is. It's amazing. It's amazing. And, and we've used this over and over and over again and we're building policies like I have a policy on myself. We have a policy on my wife. We are starting policies for all three kids. When each of us has a, a, a bucket of money that we can deploy and we're deploying that either collectively together or individually. It's amazing how much cash flow you can.

when you're writing 50 and a hundred and $200,000 checks and you're making anywhere from 10 to 15 to 30% on some of these investments, and the risk is largely mitigated because they're syndications. They could be deals we're doing with friends that we know. You know, like one, one of the deals I do often is a good friend of mine owns a real estate agency, and from time to time you'll say, Hey, I need 30 grand. I'll pay you 10%. I only need it for four months.

I do that three times a. , that's a 30% return on that amount of money. That is pretty incredible. That's pretty incredible and And I know that there's a lot of nuances and things to this method. Yep. And so for those that are trying to learn more and kind of dig deeper, where should they go to find you and get in contact for some coaching and some help to really execute on this? Yeah. I love this question because the reason we exist is to create freedom for.

And so our, I have some of the, the smartest folks working for me that, that are on this team that have used the strategy of coach people through the strategy. The simplest place to go is the shred method.com, and when you go there, there's, there's a couple things that you can look at. Number one is there's a masterclass that's about 24 minutes long, but it goes through the math of how this works. And when you see the math.

Super eyeopening because really in, in all reality, this is not magic, it is math. So there's no magic bullet or, or, or magic secret sauce behind this. It's an algorithm and it's about creating interest rate arbitrage, and the system shows you exactly how to do that, watch the masterclass, and then secondly, go through the.

There is a calculator that will allow you to plug in your income, your expenses, your mortgage amount, and then it'll spit out how fast could you either be out of debt or how much could you save long term in terms of the amount of money that you're paying in interest ostensibly over time. So those are the two best places. The shred method, watch the masterclass, do the savings analysis, done and done. Adam, that's incredible. Thank you so much again for joining our group.

This is gonna cut out in like two minutes. Please jump back in cuz we're gonna open it up now to the rest of the group. Totally. But I don't want anybody else's question to get cut off. So I'm gonna ask the first one now, and it has to do around the monopoly and how you played it with your kids Yeah. In a different kind of method to teach 'em about life. Do you mind diving into that? Yeah, yeah. Happy to. So I, I realized.

I had spoken on hundreds of college campuses, and what occurred to me was the students that I talked to, they didn't know anything about money. The majority of them, their parents were still making the decisions. They were living off their credit card. They, they were living in, in kind of a, an abstract reality. When it came to money. and I was watching my kids play Monopoly one Saturday and they were living outside the rules.

They were like buying each other out of jail, loaning each other money to buy properties. And I kept going, guys, this is not how this game is played. And they were like, dad, it's fine. We just want to, you know, we want them on the board with us. And I started questioning, are they playing this way? Because the money isn't real cuz it's just slips of paper. So they were, they were about rolling the dice and moving pieces, but it wasn't about the lesson that was to be.

And so I added up really quick how much would it take in, in dollars to play the game. And it was about 1500 bucks in starter capital per person, 2,500 bucks in the bank. So I went to my banker on a Friday and I said, I need $10,000 in all these denominations of bills and I'm gonna take it home and play a game of Monopoly with my children. And so 10 grand on the kitchen table and it, they played the game Differe. They were more conservative. They were thoughtful, they made great decisions.

And it became the center of a TED Talk that I did at the London Business School back in like 20 15, 20 16. And Adam, on a complete side note, please invite me to the next Monopoly game. Yeah. Yeah. I'm all for it, for real. But wanna open it up to the group. Any questions for Adam? you mentioned policies a couple times. I assume those are life insurance policies. They are. Okay. Yep.