I'm Sitting On $55,000 I Can't Use

Brought to you by the EveryDollar app. Start budgeting for free today. I have a truck I just bought for my business. It's my third truck. I currently owe $55,000 on it and I have a pretty high interest rate. So I was wondering if I could let you guys know where all my assets are at and what would be the best way to just pay this off as soon as possible. What's the interest rate? It's at 13.7%. Man, why is your credit so bad? Well, I have a 750 credit score. I'm 23 years old, so I guess they couldn't really do any better than that. Interesting. Okay, are the other trucks paid off? Yes, sir. They are. Okay, do you have any other consumer debt? I have a zero-turn mower, but my payments on that are about $180 a month with 0% interest, so that's not very much for me at all. Okay, what's left on the balance? The mower or the truck? The mower. $7,000. Okay. All right, what's your income from this business? What do you actually take home? Well, it all depends on the project. Some weeks I could come home with $10,000 profit. Some weeks I could only come home with $1,000 profit. It all depends on the week. What did you file on your taxes last year? Last year was a lot less than what it is this year. Last year was about $68,000 total. I'm well past that now, and it's only July. Okay, so you might clear $100,000? I think so this year, yes. All right. And what assets do you have? So currently I have $32,000 in my business checking. I have quite a large amount of cash. And another thing I want to bring up is I have an index fund with about $100,000, and I wanted to see if it was possible to maybe... What would be the best way to pay off because I can't... It's not like I could deposit $30,000 into the bank all at once. Well, how much do you have in cash? You said you have a large amount in cash. Yes, sir. I have $55,000 in cash. Which is as much as that's owed on the truck. Correct. So why don't we just use that? I can't deposit all that much in the bank or else I'll get flagged by the IRS, they said. Well, I was about to ask you, how much are you holding away for quarterly taxes because you're running your own lawn business? Yes, sir. So that gets all deducted automatically with the accounting service I have. So they have all those numbers and stuff. I'm not worried about the numbers. Where's your retained earnings account? In my business checking. That's the $32,000? Yes, sir. So you've got... That $32,000 is basically if you clear $100,000, you're holding your 30, whatever, 5% that you're going to have to pay in taxes. That's what that money is for? It's not to repair the mower, repair the trucks, pay your guys? It is for everything. It is for everything. So whatever I owe in taxes will also get taken out of that account. Okay. George and I can't sit up here and tell you to continue to run an illegal business where you want to hide cash from the government and not pay them. 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I was only able to deposit around $10,000, the bank had told me. Okay. Because you don't want to report it to the IRS. Correct. Because you can deposit more than that. But the bank says, hey, we have to file a report if it's over $10,000. Correct. Yes. Sorry for the confusion. No, I understand now. Well, it's a hard question to answer because I would just deposit the money, report the income, and pay up my Caesars and then pay the truck off. Problem solved. The other route is to sell off enough from your index fund to cover it, knowing that you also have to cover the taxes from the capital gains. It's either short-term or long-term capital gains. Long-term, obviously more favorable on the tax side. But we're solving surface-level problems right now. There's some deeper issues. Like, why did we go into debt for all these things? Why is the mower not a big deal? Because here's the Ramsey principle. We believe that running your business completely debt-free and growing at the speed of cash is the wisest way to actually sustain the business. And the hard part for me is you literally have the cash on hand by four o'clock this afternoon to owe no man a dime. It's not like you're paying a million dollars in taxes to the government. I mean, at your income, it's not that big of a deal. Yeah, I understand. Okay. I think I just have to... I don't know what else I'm worried about. I would work with a CPA. Do you have one that you have for the business? I do. Okay. I would get in touch with them and figure out what are all the taxes owed. I want to do this right. I want to be completely debt-free and report all the income and just start clean. Real quick, George, you're better with a calculator than me. Will you figure something up for me? I can try. The $55,000 loan over seven years at 13.9%. Oh, boy. Now I got to pull up an interest calculator. I would love to know. Because here's what I'm... If you don't pull up 95 grand. It was going to be what? 95 grand is what you'll end up paying if you just make minimum payments. Okay. And that truck's going to be worth what? 15 or 20 by then? I mean, it'll hold a little more value. It's a dump truck. Okay. But the math you're avoiding, you're going to pay 13.9% interest. You're going to pay $40,000 extra to not pay 10 grand in taxes. Gotcha. That's just bad math. Like you're sitting on 55 grand cash. You're worried about the 30% or the 28% or whatever the government's going to take out of that. And so to avoid that, you're going to pay $45,000 on a depreciating asset or $40,000 on a depreciating asset. And it's going to sit around your neck like a rock over the next seven years. Yeah. I understand. And do you have a personal emergency fund for your own life? Yeah. Yes. Is that separate from all of this or is that part of the 55 cash? That's what my index fund is. That's kind of my... Okay. What I keep paving into eventually when I get to retirement. I did just open up a Roth last year, so I'm starting with that as well. Okay. Cool. You're doing a lot of good things. I'll give you another tip. For your emergency fund, it is wise to keep it liquid, three to six months of expenses liquid, which means not in a brokerage account invested in the stock market. Because as soon as you have an emergency, the market's going to take a dip 15% and it's going to gut you to try to take that money out. So just keep it in a high yield savings account, making 3.5% and then you can leave the rest invested. But I would take enough out to pay off all of your debts, get you the emergency fund liquid, and then move on from there to actually invest for the future, running a completely debt-free business. If you hate that life, call us back and you can yell at me. I'm fine with that. But I promise you, you're going to have so much more peace in your life if you simplify and focus on one thing at a time. Yeah. If you hate this, here's the deal. In four months, you can go take out a personal loan for $55,000 at 13.9% and put that money right back in your checking account. You'll be right in the same spot. But I want you to try running a business, running your life, and not owing another man a dime. And like George said, give the government their money and move on with your life. If you had a trillion-dollar business and you were moving stuff around, or you had a $300 million business and there was some true tax savings you could make with moving stuff around and moving it to this state, fine. That's great, good, and awesome. You're just not there yet. I'm not there yet. George isn't there yet. We pay our taxes and get on about our life. And I'll tell you, last year I paid so much in taxes, I had to call a buddy. I called a friend and said, I just need to tell one other human how much I wrote in taxes. And I told him, and he got silent. And he was like, oh, man. And then he was like, oh, that means you had a good year, though. And I was like, yeah. And he goes, well, okay, then get over your... I shared it with somebody, and then I got on about my life. You know what I mean? There's so much Instagram-y stuff about how to save on taxes and flip it and reverse it. Buy a G-Wagon and depreciate 100%. It's exhausting. So Nicholas, at the beginning of the call, you told me, hey, yeah, I got it, but it's 0%. I want you to start thinking bigger about your life. So instead of thinking how much down, how much per month, which is broke person mentality, think wealthy person mentality. How much? Let the sentence stop there. Not how much in interest, not how much down, not how much in payments. How much total, and can I afford it in full? And if the answer is no, then we need to pause. A little bit of delayed gratification, a little bit of patience. That's how you're going to build this business the right way, because there's going to be a temptation around every corner to scale and grow way too fast. And I don't want you calling back saying, dude, I'm way over leveraged in my business. Create your free every dollar budget today. The simplest way to budget for your life.