539 | The Pros & Cons: Taking Out a Loan

Chris LoCurto 0:00
Three big things you need to consider when deciding whether or not to take out a loan. Is there ever a time for that personal or business that is coming up next?

Welcome to the Chris LoCurto show where we discuss leadership and life and discover that business is what you do, not who you are. Welcome to the show, folks, I hope you're having a fabulous day, wherever you are. Now, if you followed me on this show for more than a couple of months, then you probably already know what I'm going to say about today's topic, which is taking out a loan. Now here it is the short and sweet answer, say it with me. Don't take out a loan, don't go into debt. It's crazy how much debt robs you of your options going into debt is one of the biggest mistakes you can make for yourself, your family, or your business. Now, I know a lot of you out there right now are completely disagreeing with me or going Well, Chris, you just don't understand. Oh, yes, I do. I have worked with an incredible number of people who are just more savvy than me with how they use debt, and how it's not affected them. And they're doing so good with it. And so listen, I'm not trying to say that you can't ever go into debt. I'm just saying, it's not the smartest thing on the planet. And especially over the last cheese, I don't know, 15 years, how many times we've seen people in debt just lose so much. Because they weren't so savvy with it. They didn't really know what they were doing, although they thought that they were. So as we go through this, I'm not saying I'm just gonna say I don't do it. I haven't taken out debt in 22 years, I haven't had a debt that I had taken out for 19 years, or something like that. So I've helped a lot of businesses and a lot of folks learn how to actually do better by leveraging their cash and getting themselves out of really bad sticky situations. So we're gonna go through this, we're gonna go through some things to think about. So if you are just totally against what I just said, just stick with me.

Just listen to some of the things that I need to share. You're always going to do better, you're always going to have more options. If you're not leveraging debt. I promise. Why? Because then you'll have cash well, but if I took out debt, then I can have options right there. No, what you have is financial handcuffs, the thing that you just took debt out on, you're now paying on for a very, very long time. So and for any of you young folks out there, oh, my young folks that are listening to this, please, please listen to me. If you're 1920 21 years old, here's something I can promise you. No other 1920 21-year-olds know how to handle their finances really well. That's not true. There are some that have actually been through incredible teaching. So there are some that have great parents that have been through great programs like Financial Peace University, so maybe they actually have a decent idea. But one of the things that is absolutely driving me nuts today is how many young folks are making some of the craziest financial decisions, because somebody else their age, told them, it's what they needed to do. Not seeking wisdom, not seeking somebody who knows what they're talking about somebody who has life experience, but instead, somebody 19 years old, gave them advice on what they should do about their finances because they saw it on tick tock somewhere. Please stay away from that advice as much as you possibly can. So now, now that we got all that out of the way, let's kind of dig under the surface a little bit. Alright. So since everyone's situation is different, whether we're talking about a personal loan or a business loan, for real estate or to consolidate debt, there are a lot of factors to consider. So rather than just say, Don't do it, I want to help you understand how to think about loans. So even if you're not wrestling with this question at the moment, you may run into someone who is dealing with it or in a few years, you may actually be in a situation where understanding this comes in handy. So let's get started. So first things first, is it a business or is it a personal loan? So let's be super clear about business versus personal loans. If you own a small to medium-sized business, then your business debt and your personal debt can easily get mixed up. Now it can be hard to see where one ends and where the other one begins. Now, depending upon whether or not you run a business clean, you know, if you run your books super clean, this may be a big problem for you. It can affect you, personally, the way that you're running your books, right? When it comes to business debt. It's any money that you've borrowed in order to start your company or keep it moving forward or to take the next step.

So here's the deal. Your name is probably on the line, like, literally, right? So unless your business is bringing in over a million dollars a year, most of your business debt will be considered personal debt. Now, you can challenge the daylights out of that, but understand the concept of what I'm talking about. For most of you out there, taking out a loan on your business is actually a personal loan. So if you don't believe me, then ask some questions. Right? If you've signed for a loan, did you sign the loan in your name? Who will those loan sharks come after? If you don't actually pay the loan? Is it going to be you? It's going to be somebody else? It's going to be you personally, will you lose any personal property? If you don't hold up your end of that loan deal? Well, if the answer to those is, yes, it was my name. They come after me. Yes, there's some personal property, I will lose. Guess what, folks? It's a personal loan. And no matter how many savvy people out there, tell you, you got this. This is easy. You don't have to worry about doing something like this. Consider how much of you personally is going into this debt. Yeah, but Chris, I've got a fail-proof idea. Uh-huh? I've heard about 4000 of those. I've watched people that I love dearly lose in their business, because of fail-proof ideas. I've seen people close their doors because of fail-proof ideas. This is such a good idea. This is this thing's amazing. I've seen it folks, I've done this for decades. I've helped a lot of people. The key is, it's heartbreaking when somebody is so egotistical, and arrogant to believe that they cannot fail. It's a terrible place to be, I've been there before. I've had missed it. That's why I have this business.

This business is teaching you a lot of my mistakes, a lot of the dumb that I've done, right of having made stupid decisions, having put myself in bad situations, and leveraging myself in bad ways. That's why I don't do that stuff anymore. Because I've learned better ways to do it. Right? So when you walk into a bank asking for money for your small business, who are they going to ask for a signature? And if you can't repay, they'll come for your home, your personal assets, whatever it is, because you might have that loan in your name. So don't get duped into thinking, Oh, well, it's for business. It's not personal. No, it's, it's let's be real. This is a personal loan. Now, let's deal with the first reason that people take out a loan or a line of credit. One of the biggest reasons is that people might seek a loan to purchase real estate. Now I've been there, I've done that. I get it. I don't anymore. I don't buy the stuff I buy, I pay with cash. Now I've been you know, you spend a couple of decades without having to put money into debt. It's amazing how much money you end up with.

It's amazing how much money you have, right? You have patients instead of I've got to have everything now I need to have, you know, the amazing stuff, I got to compare myself to the people next door. If you have patience, you don't go after comparing yourself and keeping up with the Joneses. It's amazing how much money you have. Another incredible thing is when you actually stockpile money, it's really difficult to give it away to that million-dollar house that has all these fancy things in it that you're probably not even going to know how to use that you're just buying that house to impress people with when you think about spending a million dollars cash, you really reconsider whether or not you need that much home. Do you need to impress people that much with your home, same thing with a car right? But let's take a look at real estate anyway. So more than any other asset that you can buy. Real Estate tends to be one of the safest investments that you can make. Now, with that being said, there are a lot of people that lost a lot of money by buying high before the bubble burst and I know there are a lot of folks that lost a lot of money but technically, over the long haul real estate tends to be one of the safer investments because it should continue to go up in value. The price properties that I own, I bought them years ago, much lower prices, they all went up, they all dropped a little bit during those, you know, the bubble explosion processing came right back up again. So, it tends to be a really good safe investment. On the other hand, you really can't afford to make large purchases or even investments until you slow down until you think until you plan until you figure out the best way to grow your business or your family nest egg, right? You have to slow down.

So what I would recommend is when you are financially ready to make a purchase of this size, that means that you've got your financial ducks in a row like you've actually done smart decisions, you've gone through something I will always push Financial Peace University, it is a fantastic program for you to go through. If you've not gone through that, take your family through that. Take your kids through that for love, and help them to understand how to handle their finances. So some of the stuff I'm going to be giving you out of here is stuff that's taught in that program, right? Certain aspects, like how you do real estate. So assuming that you've got your financial ducks in a row like you, you're otherwise 100% debt free, right, you've got three to six months of an emergency fund saved, and you can make a good downpayment of 20%, or more, hopefully, so that you get rid of PMI, right after those things are in place. If your mortgage is less than 25% of your take-home pay, the money that you take home than a loan in real estate might be an option. The best idea, of course, for me is cold, hard cash. One of the things that I have told people for the longest time, especially young folks, you got a young married couple that's like oh my gosh, we have to go buy a house, we had to do this, we have to do this, here's what I'll tell you to buy the absolute smallest thing you possibly can get that in five years, you're about to kill each other. It's so small, that five years from now, you're like, not two years, not one year, I don't want you to buy something so small that you're about to kill each other in one year. But in five years from now, you're like, Okay, I can't do this anymore. You will have if you take out a loan if you're following all these steps, I'm telling you and you have taken out a loan, you'll have most of that paid off, if not all of it, you will have done it, if you're staying out of debt doing things correctly, then there's a really good chance that thing is small enough, and the debt is small enough that you've got most if not all of it paid off.

Well, guess what? That means that you now have equity. So after that time period, I suggest doing the same thing. Again, what's the next step, we're not looking for your forever home, we're not looking for your dream home. We're talking about 10 years here, folks, take the next size that you can handle for about the next five years and you know, when you get to the end of that five years, you're ready to kill each other because it's been five years and the family has grown and all this stuff and do the same thing. So what you've done now is you've rolled over the equity from that first home into that second home, you've got that equity in there, and you still don't have a massive loan, at the end of 10 years, you're going to have a large chunk of change that you can put down on your forever home. The funny thing is at the end of that timeframe, you're not going to be looking for the 7000 square foot house, you're not going to be looking for the $2 million house, you're going to be looking for something because you will have realized, oh my gosh, we don't need all of that crap. You're going to be looking for something and going this size is a great size. It's a great forever home. This is what we can raise our family in which at this point, maybe halfway raised, you know, you're making decisions so that you are not taxing the living daylights out of yourself and losing all of your options. Now, some of you out there going Oh, Chris, that's just ridiculous. Oh, okay. Don't follow it then. But understand those that do, they are able to do whatever they want to when their house is paid off. They're able to go anywhere. Well, I don't want to wait until I'm 40 Before I start traveling, Oh for the love. I'm 53 years old, I can go anywhere I want to. I can go anywhere, I can do anything. I can actually spend money when I go. I don't have to do the bargain basement travel. I can do whatever I want to because I haven't been taking out debt. I've been stockpiling money for decades.

So hopefully you're understanding what I'm saying here. For those of you that are like I can't wait that long to have my forever home, then I would definitely check your motives, I would definitely check what is driving that, that you can't, I'm not saying go buy a piece of junk house, I'm saying buying something small enough that you can live in for five years, but you're ready to get out of it and five years and your mortgage is way low, you've done all these other pieces. So enough on that. If you do those things, then you will be surprised at how well that's going to work for you. So the cons are that most people aren't prepared financially before they take out a loan, they take on too much risk and way too fast. They can't manage the extra load, but also they take out a bigger loan than they can safely afford, which happens all the stinking time in becoming their own landlords, which now you are when you do this, they pay all the taxes, all the repairs, and then they lock themselves into something before they are financially ready to handle it. And like clockwork, surprise, surprise, Murphy's Law kicks in on the unprepared and everything hits the fan. Oh, I'm just buying a house. No, you're not. No, you're not you're inviting Murphy into your life. Because what's going to happen is, the AC is going to break. And oh my gosh, I remember the days when AC units were affordable. Now it is insane how much it costs to put in a unit that's going to last you 10 whole years, right? The amount of money you spend on a roof, the repairs that have to happen, the taxes that you have to pay the new curtains that you have to buy the new furniture and stuff, and the amazing TVs that you've just got to have to fit that house.

Believe it or not, you're not just getting a loan for a house, you're gonna be spending a lot of money on stuff that you're not prepared for. So let's talk about preparedness. Before we move on to the other types of loans, let me say this about financial preparedness, you're never going to arrive at complete financial independence. That's called being in debt. That's, that's the only time you don't owe anything is when you're no longer here. But you can prepare yourself for the inevitable the logical the foreseeable. Proverbs 22 Three says, and listen to this. A prudent person with insight foresees danger coming and prepares himself for it. But the senseless, Rush blindly forward and suffer the consequences. For folks, you are not a victim of your choices. If you senselessly rush forward into a really bad decision, then those consequences are from your actions, the choices that you've made. Right. So notice the progression here, prudence, and insight leads to foreseeing and preparing. Most people get a credit card because they want to be prepared for an emergency. This is not how you prepare yourself financially for an emergency. being financially prepared for big purchases is part of growing up handling your assets and liability is immaturely and planning for the future. The senseless and immature do not do this. I remember, in the early days, it's funny, I never get calls, I haven't gotten calls for almost 20 years, from people trying to get me to take a credit card. Because I would say I would stay on the phone and

I'd kind of push back on them decently hard. And I'll never forget one time, one guy talking to me, he's like, You need a credit card for emergencies. I said I have cash. He goes, I'm talking about big emergencies. And I go, I have big cash. And he goes whatever and hung up the phone. And I just stood there laughing thinking this poor guy has no clue what that means. Like he can't even relate to somebody having the money to take care of big emergencies. So in his mind, he's just like, wow, you're just, you're stupid because you're not getting this credit card. There are other times I've been on calls with folks. And I'm like, Do you have a credit card? And they're like, Oh, yeah. And are you happy with how much debt you have? No, not at all. They have no problem. Second, Oral Law. Somebody? Do you have a credit card that again, is 20 Some years ago, I haven't had a phone call like this and forever. You know, do you have a credit card like no? Well, then what do you want me to have? That's a really good point. So I used to have fun those days. Praise God. I don't get those calls anymore. So to be blunt, most people just don't want to slow down to assess their situation to think about the future to plan because it's just too much work or because they're not good. Making the pleasure that they want. They want that quick pleasure. So think about this quote from Henry Ford. Thinking is the hardest work there is, which is probably the reason why so few people engage in it. Ford is the one who introduced the moving assembly line for producing a car.

So the production of car manufacturing, he's the one who introduced that, that process. Now imagine if he hadn't taken the time to think things through. If he hadn't slowed down, assessed the forecast, and engineered the plan accordingly, we'd still be churning out cars one at a time like idiots, right? Or until somebody actually came up with the idea other than Him. So don't get trapped in the same kind of lazy thinking. When was the last time you took Ford's approach to your financial assembly line? Mature forward thinking will also help to resolve the second biggest reason why people get along with cash flow. People get a lot of credit, in order to offset cashflow, fluctuations to offset seasonal slumps, and impromptu purchases. Folks, here's the deal. These things are predictable. When you think, assess, and use an accounting system. Why aren't people prepared for fluctuations, slumps, and unforeseen necessities? Because they didn't forecast? Yes, forecast beyond next week. Teach all the businesses 12-month rolling forecasts they didn't budget they didn't save. This is why they aren't prepared for what's coming. Now sometimes they want something new instead of something good. Or they just don't want to live within their means. After all, many times you feel like you've got to keep up with the Joneses.

Let me tell you, you do not the Joneses are heavily in debt. If you're trying to keep up with somebody who is debt free, and has assets, then I can promise you this, the best way to keep up with them is not to buy what they have, it's to go sit down over a cup of coffee and say how did you get here? What can I do? They will tell you don't try to keep up with me. I've been busting my butt for years to get to this place. Don't go out and go into debt to do what I've gotten, you know, get what I've got. Make smart decisions. And I'll teach you how to do that. If you actually will spend time talking to people who have actual money and can purchase actual things, what you will find is they are never going to tell you that you should go heavily into debt for anything. They are going to guide you to making smart decisions and removing a whole lot of you know emotional and financial handcuffs, a whole lot of stress, and allow you to get to a place of much more peace. As you've heard it said before, slow and steady wins the race, but it is a harder and longer race. What can you do to pay cash, rent, outsource, or buy used stuff? Oh, geez. I don't know why. A lot of business owners a lot of people have the hardest time buying new stuff. Goodness, if it works, and it's good. Get it right. until you can afford to pay for something you know for cash. Also, save up. Instead of doing these things what do most people do? Well, like Proverbs says, Those who are senseless rush ahead and write into debt. And it becomes a revolving door for them. They stay a slave to the lender for years. The bank gets rich, why do they get poor? They never get ahead. Many folks go bankrupt. And they feel like total failures. So yes, am I painting a doom and gloom? Yeah. Why? Because it's happening to so many people in this world. And it's avoidable. It's avoidable. I mean, it's just ridiculous how instant gratification puts us in the worst, stinking situations.

So I'll have this as a segue into the third reason that people seek out a loan or line of credit, which is debt. So let's talk about debt management. They're really in debt, and often just want some relief in the middle of a financial crisis. So taking out a personal loan is like trying to stop your boat from sinking by scooping out water with a bucket with holes. It's a ton of work and it's not going to get you anywhere. You're going to keep sinking. Why? Because until you fix the problem, no amount of patching the hole is going to help. The Habits remain the same and can even reinforce the thinking, well, we've got that sorted out. So why not go get a new credit card for the airline miles or for the hotel points, don't get me wrong, if you get those things for free, get them for free. Great, right? But if you're doing things going into debt, because it makes sense, because it's going to benefit you somewhere else, and you're not seeing how it's gonna affect you and continue to put you in this hole. That's a bad choice. It's a bad decision. So at the end of the day, financial problems are a human character and habit problem, not a money problem. So folks, hear me on this, don't leverage your future, over your present. That's called going into debt, right? Instead, learn to leverage your present over your future, we would call that a savings plan. So here's what I mean. Debt is simply a risk that you cannot afford yet. So you're essentially leveraging your future earnings to pay for something now, or in the present. That's just not good sense. The pro is that you get gratification now in the present, the con is that you are now tied to that outcome. You're a slave to that future expectation. You haven't learned self-discipline, and your character has not been strengthened. Now, I can tell you this, if you are, unfortunately, one of the sad situations where people have lost a lot, hopefully, your character will grow out of that. And if it does, then you're not going to keep making the same mistakes. Alright. So do not fall into that hubris category.

Or that even that arrogance category of believing you got this you're savvy, you know what you're doing. Take it from somebody who's been on both sides of this, both sides of this, somebody who has done it very well. It's not helping you out debt is robbing you of your options. Savings, on the other hand, is a risk that you are prepared to buy. You're basically leveraging your current income, you're tucking it away for now you're, you're doing something in the future. That is a good sense that is thinking properly that is assessing properly. The Pro is just the opposite of what I said a minute ago, you're free, and you're not tied to a future outcome. You're learning self-discipline, and your character is being strengthened. What is the con? No. Well, the con is that you are forced to think that you may have to plan that you may have to strategize that you may have to do without for a while that you may have to find another solution, or that you may have to become creative, gee, do any of those sound horrible? No, those are all good things. So you'll have to work harder for the outcome that you want without becoming a slave to it. If you've been a slave to debt, and a lot of you out there I know that are listening to the show are currently I can tell you this talk to anybody who has gotten 100% completely debt free. And ask them how it felt that first month as they walked through a home that nobody else owned. But then as they walked on carpet, I remember when I got 100% debt free, decades ago, what it was like to walk on carpet that I owned.

I walked through the house looking at everything going, oh my gosh, I own that wall. Nobody else owns up to me. What a great place to be. So that is all the time that we have for today. I hope this has helped you. I know a lot of you out there are probably processing pretty hard right now some of you might not be very happy with me. Understand my heart. My heart is not to hurt you. My heart is to help you. If it's something you don't agree with, spend some time thinking through it. Spend some time processing I'm perfectly fine with you not agreeing with what I'm saying here. But take a look at how many people have struggled and suffered because of debt decisions. And take a look at the folks if you don't actually have a personal relationship with somebody who's 100% debt free. Get one find somebody. Talk to somebody and think about that. Ask yourself this is a question I want you to ask. Do I know anybody who's 100% 100% debt free? If the answer is no who? Why not? If the answer is yes. Have you spent any time talking to them about it? Have you spent any time getting financial advice from the person who owns Everything that they have to have? Folks, as always, we hope that you take this information, change your leadership, change your business, and change your life. And join us on the next episode.