RV (00:02): One of the things that we love to do from time to time is grab clients from our community who have an expertise relative and relevant for our entire community. And that’s what I’m doing today with Rob Luna. So he is a B B G member. We’re, we’re very proud of him. He has his first book that just came out that we’ve been working with him on, it’s called Close Your Wealth Gap. The book is out now, it’s from Wiley, but Rob has two different MBAs, one from UTS D L a, and one from Singapore, which I love Singapore. He also has an advanced management program degree from the Wharton School, so the Wharton Advanced Management Program. And he sold his wealth management practice a few years ago. So he worked with lots of celebrities, sports stars and sold that and now runs the Rob Luna Wealth Academy. He’s the c e o of Real Talk Holdings. And he’s been on national tv, I think like every week for over a decade. So he’s usually on Fox. If you’ve ever seen making money with Charles Payne or Cavuto Coast to Coast or mornings with Maria, he is often there. And anyways, I said, Rob, we gotta have you on the show to talk about some tax strategies and some financial stuff for personal brands. So buddy, welcome to the podcast. Hey, RL (01:24): Thanks for having me, Rory. I appreciate it. RV (01:26): So I would love to start with tax strategy because we just helped our ninth B b G client grow their revenue more than a million dollars a year since becoming a client. Wow. That’s happened nine, nine times. And it all sounds great. And then what happens is they go, oh, whoa, like They, they get this rude awakening of like, taxes are a real thing. Yeah. RV (01:54): And they’ve never been pro, you know, like formally trained on it and have no idea. And then it’s like these huge, these these huge bills. And so, and a lot of, like, the cool thing about personal brands is you can draw pretty high income. It’s very scalable stuff. You’re speaking fees, consulting, you know, courses, memberships, you can, you can have these really big years, but you don’t have many expenses if you don’t have a lot of people and stuff. So I know that you’ve done a lot of tax planning for folks. What are some of the things that you think that personal brands specifically that don’t have huge staffs but might have large incomes, what are some of the things that they sh that we should be thinking about that maybe we’re not thinking about? RL (02:34): Yeah, well, I mean, I think the first thing, Rory, that you talked about that you need to be thinking about is tax planning and making sure that you’re understanding all that money is coming in, that tax consequence is gonna build up really quick. And working primarily with professional athletes over my career. A lot of them come to me a little bit too late, and the realization that there’s hundreds of thousands of dollars and sometimes millions of dollars in taxes that are due is really quite alarming. So I think the first thing is trying to sit down with somebody and doing projections at the beginning of the year. Hey, what do I think’s gonna come in? What do the quarterly projections look like? And make sure that you have an account that you’re setting that money aside so that it’s not a surprise at the end of the day. RL (03:15): The great thing about today where everyone’s complaining about interest rates going up, so the economy’s slowing down. The good thing about that though is that account you could put that money into and money market accounts earning like five, five and a half percent right now. So it’s not a horrible thing. So number one thing I would say is just make sure that you have your arms around what does revenue look like? What do your general expenses look like? And when you take revenue minus expenses, that’s usually your tax liability. Second thing, what I would say though is what people should start looking at is how do I put together a retirement plan? RV (03:51): Okay, so hold on, hold on the retirement thing, because I want to go there, I want to go there, but I wanna come back. I wanna come back to the, the money they’re, they’re setting aside. It’s interesting you mentioned the money market accounts. That’s what, that’s what we did, right? Yeah. So first thing is like all the cash in the money market accounts, that’s a really positive side of the, of the, of the interest rates going up. If you’re loaning money, it’s a good time. Like it’s a good time to be, you know, exactly. loaning money to people. So I think there is how much should someone put aside is the big thing, right? That’s the question, right? So if you’re, if you’re a, if you’re a football player or you know, you make a million dollars a year, what, how much should we be putting aside in the tax account, roughly speaking? RL (04:39): Yeah, like, like it’s a progressive tax code. So the lower first part of your earnings is gonna be taxed at a lower rate. The last part of that’s gonna be at a higher rate. And that’s why I said what you should try to do is get an estimate of what do you think revenue’s gonna be, review that quarterly to get an idea of what is gonna be left. And so if it’s a hundred grand, obviously that’s gonna be a small liability. If it’s a million or $2 million, it’s gonna be larger. So that’s kind of the more factual thing. If I needed to give a number, I usually tell people back of the napkin, put about 25% away, most high net worth people are gonna kind of fall into that effective rate of what you’re actually paying of about 25%. You’re usually pretty safe there. RV (05:18): Mm-Hmm. or, and you can move to Tennessee like you did and not or Florida or Texas, and have no state income tax. And that’s like a big, you’re gonna make tons of money just by moving from California to Tennessee like right away. It’s, RL (05:32): It’s, it’s crazy. You know, I, I did pre-ex exit planning for clients for 20 years, but because I had an unsolicited offer, I didn’t do it for myself. I wound up selling my business in California then after the fact move to Tennessee. So that’s another major thing. If you’re ever gonna sell that business or bring in o other owners into the business, be in a no state income tax state. RV (05:53): Yeah. Are you are you familiar with, I think it’s, it’s Act 22, the Puerto Rico? Like we, we RL (05:59): Always , RV (06:00): We always know when one of our friends is about to sell their business in like four years ’cause they moved to Puerto Rico. And the are you familiar with it? Do you wanna explain to everybody what it is? Yeah, I, RL (06:11): I don’t know the exact of it, but essentially there’s almost zero tax if you move to Puerto Rico. It’s something ridiculous. Like 3%. Yeah. RV (06:19): Three or 4%. RL (06:19): I never had any clients or I personally wasn’t interested in spending that long in Puerto Rico, so I haven’t dove into it, but it is, if you’re somebody who wants to do that, extremely attractive alterna alternative. RV (06:28): Yeah. It’s a, it’s a real thing. Like we actually looked at it like, like we, we had young kids and we’re like, gosh, if we were gonna do this now, it’d be the time to go. But you have to live there for a few years and establish Nexus and like, you can’t fake it, but it’s, if you move there, I think it’s like 4% flat tax no matter what you make. And so people will do that then sell the company, pay the taxes, and then, you know, move back or whatever, which you’re not really supposed to do. That’s not the nature of it. But so, okay, so revenue minus expenses 25%. So I like that. Just a rough number. Yeah. RL (07:01): You, you RV (07:01): Wanna have something you don’t wanna get caught with, with nothing. So then I think retirement planning is a big bucket for entrepreneurs. And I think, you know, most entrepreneurs, especially if you came from the corporate world, you know, you kinda like have money set aside into a 4 0 1 K or something. You don’t really understand how it works and then you start your own business and they’re not really aware of what are the things they can set up for themselves. And a lot of those I think are under retirement planning, like the really aggressive tax saving strategy. So, so yeah. Dive into that. RL (07:38): Yeah, so look, I mean, I think you could still do a 4 0 1 k and I know you have a lot of clients who are, you know, have their individual brand, they might have 10 99 people that they’re using. So you could actually even set up a solo 4 0 1 K by yourself. You could do a profit sharing component to that. And so look, you know, a lot of people are surprised. They’re thinking, oh, there’s like a $22,000 limit on the 4 0 1 k I wanna put away more. Well, that’s where the profit sharing comes in. And so if you actually sit down with an administrator based off of how much revenue you’re putting in, you could add a lot more money to that. And so that’s something like you wanna, again, plan out at the beginning of the year, what does my year look like? Because if you start doing profit sharing, there’s some administrative costs. RL (08:20): If you think you’re gonna only be putting 15, 20 grand a so of 4 0 1 k, you can open up at Schwab, you can open up just about anywhere for virtually nothing. The great thing about having control of your own 4 0 1 k is you can invest in things like index funds that are super cheap. You don’t have to have this specific plan list that your group give, that your company gives to you. So you can invest just in about anything you want. And you’re gonna get a dollar for dollar deduction on anything that you put into that every year. RV (08:50): Yeah. We, we talked we don’t have a lot of financial people on, but we, we had someone that talked about like self-directed IRAs and things, and that was one of the cool, the cool benefits was like, you have a lot more control over what you’re investing in. Right. And then, and then this profit sharing plan that you’re talking about, like we, we had a defined benefits plan, like a cash balance plan. Is that an example of one of those? Is that what you’re talking about? Yeah, RL (09:15): You absolutely could have a defined benefit plan. The, the challenge with it is, you know, and the benefit of being a solopreneur, or maybe you have one or two key employees is you can’t discriminate with those. So when you’re just the only person, you could put a ton of money into them, but when you start building 5, 6, 7, 8, 10 employees, you have to incrementally share the wealth with them and it gets not as attractive. Right. That’s when people start to look at things like insurance policies and things like that for savings. RV (09:40): Mm-Hmm. . So, you know, obviously, I mean, still always maxing out Roth I r a if you’re eligible or doing a traditional I r a and then doing a conversion to a Roth, I guess at the end of the year RL (09:55): Or or a, for a Roth 4 0 1 K, there’s no income limits. So that’s one of the nice things where traditional, and you could put I think it’s 22,000 traditional I r A, you can only put 6,500 and you have to be under 228,000 as a couple where there’s no limits on a Roth 4 0 1 K. So that’s something, again, sit down, talk with your planner, whoever you work with, you could actually do a Roth 4 0 1 K, which is kind of nice if you don’t need that deduction because anything that grows in there, you put 22 K that grows to 300, 400 K in 20 years or more, that’s gonna be tax free, not just tax deferred. RV (10:29): Yeah. And that’s interesting. So if you’re doing, there’s limits to the Roth I r a, but you’re saying there’s not income limits to a Roth 4 0 1 K? RL (10:37): Exactly, exactly. That’s something you could do as an individual also, RV (10:40): But you gotta pay the taxes now, but then it grows forever. And that’s like, RL (10:44): Yeah, I, I mean think about it this way, okay, it’s after tax dollars, you’ve already paid taxes on this, but 25 K grows to, you know, 400,000, the taxes coming out of that would typically be a hundred grand. So if you think about $25,000 deduction, what do you get for that? You know, something about like five grand, six grand, so you’re foregoing a five grand deduction for a hundred thousand dollars deduction later on. You know, that’s the challenge with financial planning in general. It’s just like eating well, , you have to think, take a look at the longer term impacts, but it’s those small decisions and sacrifices. If you make now when you’re forties, fifties, sixties, you’re able to reap the rewards of those RV (11:23): Mm-Hmm. yeah. So then you got, you, you got IRAs 4 0 1 Ks, that’s, and that’s kind of like pretty, pretty standard stuff. Yeah. You go take, take care of the, take care of the basics. Yeah. Once you’re maxing out IRAs, 4 0 1 Ks, obviously you can be investing in your own business and you’re getting deductions on whatever expenses, but you don’t wanna be wasting money. RL (11:52): Right. RV (11:54): Money. And then at some point it’s the conversation seems to switch to over to investing. RL (11:59): Yep. RV (11:59): To go, okay, I have my business. And this happens a lot with personal brands like speakers are a good example of this. We have a lot of speakers who they can make a really high income, you know, they’re knocking down 15, 20 grand of speech. They’re getting that, you know, 30, 50, a hundred times a year or 30 grand of speech, 30 times. I mean, they’re making seven figures in speeches, but well, covid happens, you know, they’re in trouble. It all goes straight to zero and you go, you’re probably can’t sell a speaking business. It’s not, it’s really a job. It’s, it’s a very, it’s a great job and a high paying job, but it’s not a business you could sell. And so we’ve talked to folks to say, well, if you have a high income source that really isn’t a business that you can sell, then what you wanna do is just draw the income off of that and put it into something that is a sellable asset. Which is really, I think where in investing kind of comes into the conversation. RL (12:57): Yeah. It’s, it’s, it’s super important. And if we have time at the end, I’ll give you three more tax tips we can come back to that are really quick that no one talks about. But yeah, that’s the thing, Rory, I think what you just said is what people fail to realize. When you build a business, an entrepreneur, you’re looking to do one of two things, either number one, build a business that’s an asset that you can later on liquidate and reap the rewards of that asset that you build. As you mentioned though, even brands like Tony Robbins take, I mean, at the end of the day, will it be worth something because he is been able to scale that? Absolutely. Will it be the value that you can get ha if has his name not being attached to it? Absolutely not. And so for smaller influencers and things that people are still making a million, two, $3 million a year, they need to create their own backup contingency plan and exit strategy from day one. RL (13:47): So if they’re making a million bucks, they can’t be living off a million bucks because a lot of, you know, look, there’s a lot of influencers, especially today, people that are hot right now today that are very similar. I equated to the world I worked in to athletes. Yeah. You know, they’re making this very big money for a short period of time. They make the mistake to think that it’ll go on in perpetuity and they’re not taking some of that off the table every year, putting it into a portfolio that eventually grows to a size where the distributions are large enough to support their lifestyle. I call that work optional. That’s what they need to start thinking about from day one is how do I invest in assets that aren’t necessarily gonna knock the cover off the ball, but are gonna be able to pay me a consistent, steady rate of income that I can live off of in a short period of time? RV (14:33): Yeah. That, that is exa it is really a good parallel. It’s like, it’s the more realistic version of a, of an athlete is exactly, RL (14:39): You RV (14:40): Know, personal brands and you get these huge brand deals are speaking. So so what is that? I mean, is it basically real estate and stock market? I mean, is that pretty much what it comes down to? Are there other investments that you’re seeing like, hey, these are things that people can, should do? RL (14:59): Yeah, so it is, it’s a, it’s a great thing. Look, if you’re 5, 10, 15 years away, obviously you wanna have some things in growth types of assets. And so when I talk about just stocks are simple for people to understand, Amazon, it’s a great long-term stock, it’s done really well, but the only way you can make money on Amazon is to buy low and sell high. It’s not paying a dividend or any income stream. And so what I would say is, because especially for some of your audience that’s out there, they have enough cash flow to support their lifestyle now. And so what I would say is focus on those assets that are gonna pay a good income. The great thing today, one of the safest out assets out there, fixed income bonds, you could buy good high quality long duration bonds for 15, 20 years and lock in a six, six and a half, 7% return. RL (15:47): A lot of people say, well that’s not great. Tell you rule of thumb, most financial advisors will tell you the magic number you could pull off of your portfolio is about four to 5%. So if you can lock in six to 7%, those same rates, Rory two years ago, were one in 2%. So we’re talking about opportunity. Today’s the day you just said it, you wanna be a lender, not a borrower. So I would be b I would be a buyer of credit, meaning you’re lending out versus borrowing today. Buy some of those good high quality bonds, treasury bonds, good high quality corporate bonds. That’s one way to do it. That’s one asset. And then you also said stocks, you know, I talk about high quality dividend paying stocks. The nice thing about stocks is they pay dividend stocks, they pay you an income, but if you buy the right ones, I talk a lot about this in my Wealth academy, like Proctor and Gamble for example. RL (16:38): They’ve given you about a, it’s about a 4% dividend now. They give you that dividend every year, plus you get the growth of the stock. And for Proctor and Gamble, even though stock prices go up and down, their dividend for 65 years has increased year after year after year. So you’ve gotten a raise every single year by owning that. So by fixed income, by dividend paying stocks, I like real estate also, but you wanna make sure it’s high quality, not very leveraged real estate you know, a lot of people are buying very highly leveraged real estate and you have to refinance those in a market like today doesn’t work out. So if you could buy things without leverage that are cashflow. Makes sense. What I really like that a lot of financial advisors don’t talk about are boring businesses that you can buy that could be run by other people. RL (17:26): I have a couple clients that do do that to supplement their income landscaping businesses, pest control businesses. If you can buy a business today with a good team in place that a lot of entrepreneurs don’t retire and play golf, but you can run from the sidelines, that’ll be your highest R o i sometimes 18 to 22% after paying that staff to run. And it keeps you mentally engaged. So start thinking about what are those assets I can build up diversification’s the key. I say buy all of ’em, real estate stocks, fixed income, private businesses, things that are gonna have a steady, predictable stream of income when you stop earning the kind of money, you know, that you might be earning today. RV (18:03): Yeah, the I love that I’m buying boring businesses is is is a great, you know, thing and there’s a lot of ’em can be super consistent and just, you know, you’re not gonna, you’re not gonna make yacht money probably. But you, you, I I, I like the way that you’re talking about, the part that jumps out at me of everything you said that I’m surprised I’ve never really heard is you said the magic number you can pull off your portfolio is 4%. So that, you know, I want to, I want to come back to that and kind of like where you said the work optional idea. Yeah. RV (18:35): You know, the way that I’ve always thought about it was like if you could have, you know, figure out what you wanna live off of every year and then figure out how much you need to have invested and then what percentage you’re drawing off. So if you had, if, if you had, you know, $10 million invested, you’re saying that 4% is the number that you would go, that’s what you could pull off to where the 10 million never disappears. It’s just throwing off 4% in perpetuity. That’s how you think about it. RL (19:04): Yeah, that’s exactly it. I mean it’s kind in a lot of financial journals, it, the number used to be 5% and then when interest rates went lower, everyone said no, that’s more to four. I still think there’s a lot of things you could do to where five, especially today, like I said, you can get t-bills at five and a half. I think five’s the realistic number, but that’s the number that, it’s a reality check to a lot of people. For example, you sell a business for 4 million or 5 million bucks. Okay, the people that sell a business for 5 million, or let’s use a an easy number for everyone, 10 million, the people that sell a business for 10 million bucks. And that could be a business that was doing 2 million net profits a year. You sell it five times earnings, that’s 10 million bucks that you bring in. Well, I just said you’re doing 2 million in profits a year. RL (19:44): So this is a business owner that was used to making 2 million. They now sell the business for 10 million. Let’s say they pay 20% in taxes because that’s a long-term capital gain. They bring in 8 million. Rob, I got 8 million bucks. A lot of them never had 8 million bucks in their hand because they were paying taxes. All these things, what does this mean? Well, if we use 5% times 8 million, that’s 400,000. They’re like, wait, like I have a million dollar lifestyle, 400,000 isn’t gonna cut it from me. I just sold this business that was cash flowing, $2 million and now you’re telling me all I can bring in is 400,000. That’s why you need to do this planning before, like I always tell people as entrepreneurs and startups have the exit in mind from day one, you want to be working right to left, understand where you’re trying to go so that it’s not a surprise and you can plan for that. But yeah, 5% on every million is only 50 grand pre-tax. So you gotta figure whatever you save, whatever you sell your business at, you got about 5% number that, because remember, you want to keep up with inflation as we’ve seen over the last two to three years. You gotta be able to raise that about three to 3.5% every year. So that’s all equated into that 5% number. RV (20:53): So then what would you do to prepare there? So if you’re saying like, okay, if you have 8 billion bucks invested, 5% off, that’s 400,000. You would either, you would either keep working, right? So then you’d, you’d either have a, you’d either have a, a job there or else you would, is there something you would do on the front end to sort of to prepare for that? Yeah. RL (21:15): Yeah. So that’s why someone comes to me, you the young entrepreneur, we, and it’s like a 15, 20 year strategy. Well we’re, we’re putting into that 4 0 1 k that defined benefit plan from day one. So we’re building our portfolio with some of the income that’s coming in. And so traditional financial planning is that go to work save, and then you have this lump sum, but where you’re an entrepreneur solopreneur, you’re doing some of that. But the big point is when we look at 12, 15 years, you don’t have to save quite as much because you’re gonna get this lump sum injection into the portfolio that we’re gonna account for. So you do some saving along the way, but the number that really hits you there is that exit. But if you’re not saving for 15, 20 years, ah, only planning on that exit to come, that doesn’t work. RL (21:59): But there’s a combination where you’re like, a lot of times I tell people in, you don’t have to sell the business. Like I, I sold to a publicly traded company. You can do internal succession to where you have a great business, like I said, that’s making 2 million in that example, sell off to some junior partners. You can get outside funding for that, take some of that money off the table, but stay involved five, 10 hours a week and make the other million dollars. So it’s not an all or none strategy, it’s just understanding what are the options, what do they look like, and having extreme clarity and focus on what that is. So there’s no surprises at the end of the day. RV (22:32): Yeah. When you say, you know, sell off to junior partners and you can take outside money from that, you’re saying that basically they can take a bank loan to pay you out? Exactly. Exactly. Exactly. Um-Huh So yeah, RL (22:44): There’s a lot of, a lot of ways to exit, which you should be thinking about from the beginning of your business. And so sometimes it’s internal succession, sometimes it’s just strategic. You’re just selling to a business. If you’re a landscaping business, you’re selling to another landscaping business, you might creating this huge company where you’re gonna go public, whatever it is, just understand that because the way you prepare your balance sheet, the way you put your staff, your technology in place, it’s all gonna be different. I have entrepreneurs where that know from day one exactly the one, two, or three technology companies that they want to sell with. So what they try to do is emulate a model that’s very similar to theirs in a different category. So when they consume that company, it’s the same c r m, it’s the same point of sale system, it’s very easy. And so they get a higher multiple because of that. RV (23:29): Mm-Hmm. . Yeah. yeah, I love, I i I love that. So the, the idea right now of buying bonds is, is, is at least for the last several years, I guess maybe since 2008 or something, this has been like the best time ever to do that. And you’re locking it, you’re locking it in. Is that the same about annuities? Like it, what, what is an annuity and when is it a good idea to buy one? RL (23:59): Yeah, that I, and that’s the thing I talk a little bit about in my book. So annuities, insurance, these are one of these like really hot topic issues and, and I’ll, I’ll tell you why. I think they’re one of the most oversold overused products. Like a lot of insurance salesmen, you know, they, they’ve got a hammer in their tool bag, so everything looks like a nail. So they do get a bad wrap and unfortunately not everybody, you know, there’s not a, a barrier to entry. You don’t even have to have a high school diploma. You could start selling annuities or life insurance. That being said, like anything else, I think there’s a good time. I just said bonds, there’s a good time to buy bonds, there’s a horrible time to buy bonds this, and they’re gonna actually be in the same situation because as interest rates tick up, annuity guarantees look a lot better. RL (24:46): It makes sense because what do annuity companies do? What do banks do? They give you, just like we talked about, money market, a certain rate of return. They have to then take that money and get a higher rate of return. That’s just profit pro being a profitable business. So if a new, if interest and they wanna invest in safe things like bonds. So if insurance companies three years ago were giving you something, they had to get more, well the 10 year bond was like 1%. Today it’s almost six. So the benefits that are available with the annuities today are much more attractive. So annuity is an insurance contract where you hand the insurance company a hundred thousand, a million dollars and they give you a guarantee of a growth, a guarantee of a immediate rate of return for the rest of your life. That guarantee is always gonna be higher and more attractive when interest rates are higher. RL (25:36): So I would say I’ve been telling people to steer clear of ’em for over a decade. Now, today though, I’m not these one of these guys where it’s, it’s always this or it’s always that. Today though, there are some that are a lot more attractive. So it makes sense if you’re someone who wants some guarantees, you don’t want a lot of fluctuation, you don’t have a pension fund and you wanna replace that with something, a high quality insurance company might be able to provide you something that’s attractive versus taking in the risk of doing it yourself. RV (26:03): Yeah. Yeah. That’s, it’s, it’s, it’s, it is interesting. So on that note in terms of good times, bad times to do things, I want to hear something about, I wanna hear about debt. Yeah. You know, is there, there’s this, you know, when you’re building a personal brand, it’s like, it’s, it can be expensive. It’s like, I gotta build websites, I need graphics design, I need, you know, video editors, I need copywriters, you know, I need strategists, right? They’re hiring brand builders group that costs something. What’s your, that’s RL (26:31): Always a great investment, Rory brand builders group. So, RV (26:34): Hey, come on, come on. What, what is your you know, what, is there there good debt? Is there bad debt? Is it no debt? Is it sometimes debt? This kind of debt, that kind of debt? Like, just curious, I’m just curious to your debt philosophy. RL (26:50): Yeah, my debt philosophy is there’s good debt and there’s bad debt. I talk a little bit about those in my book. I think number one, I took debt, student loan debt, investing in myself with a plan of how am I gonna monetize that. My M B A, for example, I left within three months. I had one client that paid double , that I got my, from my M B A class, A classmate that paid double over the next two years in fees of what it cost to do my M B A. So what I would say is investing in yourself is an asset that you can monetize later on down the line. Everything that you just mentioned is essentially for someone building a brand, investing in themselves. However, you need people like your team to strategize of how am I gonna monetize this? We talked about this before, a lot of people with millions of followers, but they’re not making any money. RL (27:34): And if that’s just you and you’re spending money randomly, you’re never gonna get that back. So I believe investing in yourself, your brand, your business, and this isn’t traditional financial advice. I would, especially people under 40. I would say immediately start now, try building your business. Defer the 4 0 1 k, defer the real estate investments, the Airbnbs and everything everyone’s trying to sell you and invest in trying to make and build a business for yourself. That’ll be the best asset you do. So I would take debt there hands down. However, I wouldn’t take any credit card debt, you know, 25, 20 6% and that keeps going up. I always tell people when they’re ready to invest, if you first of all invest in yourself, have an emergency fund in case things go bad, but then start investing in credit card debt because we talk about eight, 10% rate of returns when you pay off 10,000 in credit card debt, that’s 25% rate of return that you’re giving yourself immediately. RL (28:30): So credit card debt is something that I wouldn’t have. Real estate debt. Makes sense. If it makes sense today at these rates on investment properties, it’s very tough. You’re paying eight, 9% on properties that are cash flowing, four or 5%. Not something that I would do. The idea is just understanding how interest rates work. ’cause A lot of, you know, the one thing I’m always talking to my academy members about a one thing in finance, if you can just focus on the correlation of interest rates, how they tie to investments, how they could tie to the economy. You’re gonna understand why I was telling people a year and a half ago, things are gonna get tough. Get your balance sheet right. Pay down debt. If you got lines of credit, pull that out right now, get everything fixed. Make sure you’re not taking floating rate mortgages because things are gonna slow down. RL (29:16): The Federal Reserve engineers recessions, booms by, you know, raising interest rates, lowering interest rates, and when you could see that well ahead of time because there’s a lag effect. They started raising rates year and a half, two years ago. We’re just now kind of seeing things slow down. Same thing. People are like, why is the stock market going up? Well, because they’re looking out a year and a half, two years when you feel the worst is the time to buy stocks when you feel the best is the time to sell stocks. But it’s not just stocks, it’s small businesses, it’s real estate in most assets. RV (29:48): Uhhuh. Interesting. That is fascinating stuff. So I want to ask you more about that, but before we do I just want, I just want to tell everyone so close, your wealth gap is out now, Rob Luna. You can get the book wherever, wherever books are sold, of course we’ll link up to Rob and his socials and website on, on the show notes and all that sort of stuff. The interest rate correlation thing is something I don’t, I don’t think I have fully understand. Yeah, RL (30:17): Right. RV (30:17): So can you just briefly walk us through super quick, like what the Yeah, because the levers, how the levers move. RL (30:25): Yeah, I’ll make it super simple, right? So let’s just think about student loans or credit cards. Let’s say a credit card for example. Well, so the Federal Reserve, you know, Jerome Powell is the chairman. This group basically dictates how high interest rates are so they can raise those or lower those. That’s the only tool they have. They have a dual mandate is full employment and inflation. So just think about that. The government, the Federal Reserve is basically trying to make sure that people are employed and that inflation doesn’t get out of control for obvious reasons, but they only have one tool and that is monetary policy, lowering and raising interest rates. And so when things get too hot, remember Covid, everybody was locked up, they couldn’t spend on anything. The supply chain was closed. Savings rates skyrocketed the highest we saw in 20 years, you couldn’t spend money on anything. RL (31:19): We had p p P loans go directly to consumers. So when the economy opened back up, limited supply, a lot of cash, that’s what’s created this inflation. And so what the Federal Reserve is saying, we can’t have inflation, that’ll kill the dollar, that’ll kill the economy. So let us raise interest rates is what they’ve been doing. They’re trying to engineer, not trying to engineer a recession, but nine out of 10 times when they do that, the history shows we go into recession eventually when they raise rates. Now think about that. When rates rise, what happens? It’s harder to buy homes because you had 3% 30 year mortgages before that same home. Now at seven and a half, 8% is 50 to 60% higher payment than you had before your credit card debt. We have a trillion dollars now in credit card debt in the us the highest ever. RL (32:10): Wow. So a lot of people have credit card debt. We’re a consumer driven economy, meaning people have to go out there and buy stuff for us to be successful, they have to buy your products, my products, services. And so what happens is people don’t have a lot of expendable income. If you had a thousand dollars in a spendable income and the price to pay, just the minimum interest on your credit card was $400 two years ago, maybe $400 on your student loan, you had 200 bucks left. Well now what’s happening is those interest payments for everybody who has credit card debt, student loan debt revolving mortgages, home equity lines of credit has gone higher. So the amount of cash they have to actually spend on things is lower. So their credit card payments have doubled without any increase in balances and everything else. So what they’ve done, the fed has taken that liquidity out of the system. RL (32:59): People can’t go out to eat, they can’t do all these things. The reverse happens when they lower interest rates. Now your balance is even staying the same. The payment you have to make is a lot less. You can now buy a lot more home. And so what they’re then doing is incentivizing people because there’s extra flow that they have. It’s just a perf you know, basically a cash flow analysis when rates go higher. Companies and people, same thing with companies. Most companies have floating rate debt. So their debt payments as a company were six, 7%. Now they’re 12, 13%. What does that mean? They can’t hire more people because they have an extra $200,000 in debt service. So when rates go up, the economy slows down. When rates go down, the economy speeds up. The stock market is a leading indicator, which means it’ll usually move a year in advance. So the stock market started going down the year before last. Now it’s basically starting to try to move back up to say, Hey, in about a year from now, we think things will be okay. RV (33:53): So rates go higher. That means cash that people have goes down. So their spending goes down. Yep. Rates go lower. They have more cash on hand, so they buy more stuff. So spending goes up. RL (34:04): Exactly. RV (34:05): Simple as that. Well there’s a lot here as you could tell, and we are out of time for Rob. We have gotten as much free financial advice as we could possibly fit into one podcast episode. Brother, thank you for being here. We’re, we’re so excited about you and the book Close Your Wealth Gap. Everyone check it out. And Rob, we wish you the best brother. Thanks RL (34:26): Man. I appreciate it, Rory.