Aaron Nannini (02:16):
I was at that sense where I thought you really had to be born into wealth, inherit money, win the lottery to be successful with money. I was just completely off. And so once I started educating myself about that, I realized that wasn’t the case. And so I got out of the paycheck to paycheck trap. I started to automate my money. I started to invest and I just noticed my life was getting better overall. And so I would then start to see people who were making similar mistakes as I was back in the day. And I was just kind of champing at the bit to help them out. But as you know, it’s really obnoxious just to help someone with money unsolicited. And so I didn’t want to do that. And I kind of went on for another year or so, and then I’d always wanted to write a book.

Aaron Nannini (02:55):
So I thought, you know what? I want to help people. And I also want to write a book. I can kind of partner these two things and put it into one. So I started to write and a couple of years later, I had a book and was ready to go.

Robert Leonard (03:06):
Over the last decade or so, which I’d argue is still relatively new, behavioral finance and this idea that emotions and psychology play a huge role on our investing and just general money management has become a lot more mainstream. Why is that? Why is behavior and mindset so important when it comes to money?

Aaron Nannini (03:28):
It’s huge. I think they feed off of each other. With mindset, you really have to understand that you can’t be good with money. That money is not just some pie in the sky concept of people who are born into it or who won the lottery. And so once you can get your mindset under control and realize an everyday person can do this, that’s where you can start to control your behavior. And I think your behavior dictates everything because knowledge without action is just knowledge and it’s almost entertainment. So that behavior component is so huge because that’s what I also call taking action. So it’s the mindset and then having the behavior and being able to do that. So I always look to what your why is. And so once you can figure out what your big why is, you can start to dictate your behavior around that and start to improve your financial behavior.

Aaron Nannini (04:13):
And I think it’s become so mainstream or so popular over the last 10 years just because people are evolving and educating themselves. And then also too with the opportunity for people to blog and podcasting, there’re so many more opportunities for education. And I think when people start to educate themselves, they realize these are old money myths and it’s not true anymore. And the everyday person really can do well with money. They can invest just like other people. They can get out of the paycheck-to-paycheck cycle and they can make their life better.

Robert Leonard (04:42):
Since the majority of the audience, not all, but the majority is millennials, I often get asked how to manage the dynamic between living for now, that whole “YOLO idea” versus saving for your future. People generally want to enjoy their time now, but they also want to be secure in their future. What is value-based spending and how can it help with this dilemma?

Aaron Nannini (05:07):
I think value-based spending is the number one thing to help with that because I like that too. I love that saying, and I definitely want to live for the now. And I’ll give you an example. I go on a college football trip with buddies every year and I spend a pretty good amount of money, and I highly value that. So that’s something that I’m going to continue to do. And so value-based spending is basically determining what you value and then spending on that. And what you don’t value, you kind of throw away. And when people go look at their life… And I have people write down what they really value and they find out a lot of times their spending is not congruent with their values.

Aaron Nannini (05:38):
So as an example, if someone values time with friends, time with family, just free time overall and they realize they’re having car payments 7, $800, they’re working a bunch of overtime just to make those car payments. They realize their life actions or their behavior doesn’t align with their values or their spending values. So that’s where it changes. So I think you can really do both with value-based spending. I think you can do everything you want to do. And I think too, that you can also invest, you can save and save for the future.

Robert Leonard (06:07):
One of my personal favorite books of all time is The Millionaire Next Door. I’ll put a link to it in the show notes for anyone that’s interested in picking up a copy, but I still vividly remember reading that book. I remember I was sitting around a campfire. I went camping one weekend and I read the whole book and I can still see it because I love that book so much. One of the main concepts in the book was this idea of “keeping up with the Joneses.” For someone who hasn’t heard of the saying before, explain what it means and tell us what you mean when you named a chapter in your book, Don’t Compare Yourself to the Joneses Because the Joneses Might Be Broke.

Aaron Nannini (06:45):
Yeah, exactly. And I love that book too. I’ve read that a few times and I cite that book throughout mine as well. I would highly recommend it just like you to people. I think that’s one of the top personal finance books. So I put that chapter in keeping up with the Joneses because money is a really funny thing in that people can fake money. Whereas if I’m a great softball player, there’s really no faking that. I go to the field. People can see immediately that I can hit, I can catch, I can throw I have to run, but if I’m not a good softball player, it’s pretty easy to spot that I’m not good. Whereas with money, I can completely fake that. I can go finance a really expensive car. I can find a super expensive house. I can finance a bunch of things and make myself look really, really wealthy.

Aaron Nannini (07:22):
And so to the outside, they’re looking at me at the stoplight, or they’re looking at the car parked in front of my house and they’re like, “This guy’s really made it.” Where really I’m playing by different rules because I’m in a bunch of debt. I’m not able to pay my bills. I’m daily stressing about money. It’s out of control, but on the outside, I’m giving that appearance of being wealthy. And so I think we’re playing by different rules and we’re trying to keep up with the Joneses. A lot of the stats say that so many people are in massive credit card debt. They’ve got huge car loans and they’re really struggling with money. Those rates are up and a big part of that is from money issues.

Aaron Nannini (07:54):
And so one of the big reasons I have that chapter is just because it’s a different set of rules. And so when you compare yourself to others, you don’t know their situation. You don’t know what rules you’re even playing by. It’s a different game for different people.

Robert Leonard (08:06):
I’m not sure that there’s a lot of people that get to have the experience that I did. But reading that book is one thing. A lot of times hearing these concepts and thinking about them is one thing, and then you actually do it. And this happens with all kinds of concepts, but specifically for this one, it makes sense. You’re like, “Okay, well, I don’t want to keep up with them because they probably don’t have a lot of money.” And you get it, but then you actually experience it and you’re like, “Wow, okay. This is real.” And for me, the experience that I had that I don’t think necessarily a lot of people get to have is that I worked at a bank and I got to see people that would come in and they would look so wealthy. They’d have designer bag and I’d see that they drove up in a very nice foreign car or the newest phone or whatever.

Robert Leonard (08:45):
And I can’t even tell you the number of times that… I was a loan officer/member service rep at the time. And I can’t tell you the number of times that these people came into my office and were asking for overdraft fees to be refunded by me. And I’m like, “You just sat down with, at the time it was a brand new phone. It was like iPhone 8 or something. I saw you pull up in a BMW. I know that outfit you’re wearing is probably worth $1,000. Why are you having a $30 overdraft fee?” And so for me, it was like, just really cemented that idea of don’t try to keep up with the Joneses.

Aaron Nannini (09:14):
Exactly. And I think if you hadn’t worked at the bank and say you were just going in as a customer to the bank and you saw that person get out of their expensive car with their clothes, you’d be like, “Wow, this person’s really made it.” You would have been shocked to realize they’re going to go talk to someone about removing a $30 overdraft fee. It’s like, what?

Robert Leonard (09:30):
Exactly. And the bad thing about that is most people will look at them and think that that is success and that’s what they want. That’s what they strive for. But what they don’t realize is that that’s the complete opposite of what real financial success is. And if you can afford all those things, fine, but if you’re requesting for overdraft fees, then that isn’t quite it. And there’s a lot of people who try to look rich rather than actually be rich.

Aaron Nannini (09:54):
And if I’m a customer going to the bank and I see that person, I don’t know the rules of the game, they’re playing a different game. They’re giving that appearance. And I have no clue that they’re going in for that overdraft fee. Whereas you as a bank, I think as you said, a great advantage to be able to see that and realize, wait a minute, these people are kind of putting on a facade here and they’re struggling and they’re stressing.

Robert Leonard (10:11):
It’s almost, I don’t want to say poison, but I can’t think of a better word right now, but I’d say it’s almost like kind of poison how I look at those types of things when I’m out in public. I’ll be driving around with my brother or friends and family and they’ll be like, “Oh, that’s such a nice car.” And I love cars. So someday I hope to own a super car. That’s just something I’m super passionate about. Not for the flashiness, but I see somebody driving a super nice car and somebody thinks they’re super wealthy. And I’m like, “Yeah, they’re probably not all that wealthy.” 90% of millionaires drive a Toyota Corolla or something crazy like that. So it’s kind of like really just changed my mindset altogether.

Aaron Nannini (10:44):
Yeah. I was shocked when I read that book, The Millionaire Next Door, that the most common cars are, I think the Corolla or the Camry and I was like, “You’re kidding.” Because I had always assumed it was going to be Lexus or a Porsche or something like that. And that just wasn’t the case with all the data.

Robert Leonard (10:57):
I’d say that we’re not only fighting to keep up with the Joneses, but we’re also fighting against ourselves and how we think our life should be like. A lot of this is driven by wanting to keep up with the Joneses or just caring what other people think about us. But I think it’s also sometimes ourselves being our own worst enemy by believing that we, “deserve something because we’ve gotten a raise or a new job, or we’ve just done something good.” How do we fight back against lifestyle creep?

Aaron Nannini (11:26):
That’s tough because I think you see everyone around you who has all this stuff and you’re thinking, well, I just got a raise and I got a raise the year before and the year before that. So yeah, I deserve this. And so it is very easy to just let that creep in. And I think another component of lifestyle creep is what people would be shocked about is just not paying attention. So I call it mindless spending where it’s just, you got a little extra money in the bank, so you don’t even think about it. Maybe you renew a subscription to a certain magazine or you get a car that’s a little more expensive and you’re just not paying attention. And so I think once you get that intentionality, that’s how you really can avoid lifestyle creep. A huge way for me to avoid lifestyle creep is just to automatically pay myself first.

Aaron Nannini (12:04):
I know that’s kind of a personal finance cliche and you find that in a lot of places, but to me that’s just super effective. If you can allot a certain amount of money every month, pay yourself first, then whatever is left over is something you get to keep and you get to enjoy and do whatever you want with it. But that concept, a lot of people are really respectful. They pay their rent on time or with their mortgage. They pay their credit bills on time, but then they kind of disrespect themselves by not paying themselves first. If you’re working a job and you’re working hard, you’ve got to show yourself that respect to pay yourself first. I think that really helps eliminate that lifestyle creep.

Aaron Nannini (12:36):
To give a tangible example, if you get a raise of $100 a month, either save that entire raise or allot a certain amount, maybe you’re saving $75 out of that raise, and then you just keep living your life from there. So every time you get a pay increase, you just keep saving more and that’s going to really help avoid that lifestyle creep.

Robert Leonard (12:53):
Once you fall into the paycheck-to-paycheck cycle, it’s really, really hard to get out of it. However, if you can, it can make a huge difference on your future. And that’s why I want to help millennials who listen to this show either get out of the paycheck-to-paycheck cycle early in their life or really just save them from ever falling into it if they haven’t already. How can one avoid or get out of the paycheck-to-paycheck cycle?

Aaron Nannini (13:21):
I think that’s such a huge part of it for me too. And that’s one of the reasons I wrote the book is the paycheck-to-paycheck cycle is so devastating. And I agree with you, the sooner you can get out of it, the better. So I think for me, the best way to get out of it is kind of what I mentioned before of automating your finances and then paying yourself first. So if you’re in that paycheck-to-paycheck cycle, it’s for a reason, it’s because you keep buying things and maybe you’re not being intentional with your money. And so if you can invest, let’s say 10% of your money right off the bat, eventually you’re going to be out of that paycheck-to-paycheck cycle because your money’s just going to exceed that.

Aaron Nannini (13:55):
So if you’re making, I don’t know, $4,000 a month after taxes, eventually you are going to save enough where you’ve got 5,000 in the bank, 6,000, 15, 20,000. So you get out of it that way. I agree with you wholeheartedly. That’s such a hard thing to get out of once you’re in. And I really like what you’re doing with the younger people and trying to prevent that in the first place, because if you can prevent it, you never have to get out of it.

Robert Leonard (14:16):
In your book, three of the middle chapters are about debt, bad debt, credit cards, and good debt. We’ll get to credit cards in just a minute. But before we do, I want to talk about bad debt and good debt. How do you define these two types of debt?

Aaron Nannini (14:31):
So for me, bad debt is any kind of consumer debt. So that would be like credit cards, it would be car payments, anything used to buy something that’s not an asset. I kind of go back one after the other really influential books for me was Rich Dad Poor Dad, where he talks about assets and liabilities. And even though that book was written a long time ago, I think a lot of it is still really, really relevant. And so anything used to buy liabilities to me is bad debt. Anything to buy an asset is a good debt. So that would be an example of income producing real estate where you’re in debt, but you’re getting paid on a monthly basis by a tenant.

Robert Leonard (15:04):
When I had the opportunity to sit down and chat with Robert for the show, Robert Kiyosaki, he was telling me the same thing. He said, “I love debt.” That’s what he told me. He said, “I love debt.” And I was a little perplexed at first. And he said, “I love debt that other people pay for,” is what he said, because he said, “All my real estate is leveraged. I have millions and millions and tens and hundreds of millions of dollars in debt, but it’s all for, like you said, assets that create wealth and cashflow that cover its own debt. So I’m not actually paying the debt myself.”

Aaron Nannini (15:33):
Exactly. Maybe you had a similar experience, but when I read that book for the first time, I almost had to read some of those chapters again because it was so far removed from anything I had learned. I didn’t really understand bad debt vs. good debt. And so when Kiyosaki was talking about that good debt and having other people pay off your assets, something just kind of clicked in me. And I read it again and again, and it made so much more sense. And so I went on to read his other books too, but yeah, that’s such a great point.

Robert Leonard (15:58):
The way I feel about Rich Dad Poor Dad, the book, is a little bit different than I think most people. I think it’s a good book. For me, it wasn’t quite as good as I think a lot of people love it. And I understand why a lot of people do, but for me personally, I like tactical books, but that book was great in terms of theory. And it helps people get in the right mindset. But for me personally, I tend to like books that are almost like tech books where they say do this, and then do this, and then do this, and then do that. So there’s books that I read and I have to go back to so much because I’m like, okay, I remember I covered that, but I don’t remember the steps. So I go back and refer back to it and I actually implement what I’m doing. Whereas that book is a little bit more theory.

Robert Leonard (16:35):
I think it’s a great book. I do love it, but I don’t know if a lot of people say what was the most influential book to them and a lot of people say that book. I wouldn’t put it in that category for me, but it is a good book.

Aaron Nannini (16:45):
Yeah. And I think for me, that was a book I needed at that time. I wasn’t even ready to do some of the tactical stuff. My mindset was so far off. I wasn’t even ready to get close to the tactical. So I think at the time when I read it, I was just like, I had such a poor background in personal finance and investing in general. That’s really what I needed. If I read it now, maybe it would be a little more obvious than… I think I’ve transitioned like you to more of the tactical books. But for me, that was just something I needed at the time.

Robert Leonard (17:11):
Did you have consumer debt at the time?

Aaron Nannini (17:14):
At the time I had a little bit. I was usually pretty good about avoiding that, but I still had a little bit. For the most part, I was able to pay it off. That’s one thing I did well in my 20s, but yeah, I did have a little bit and I got a car loan and I didn’t really understand that at college I should not be buying a new car. That concept was just like, well, automatically you’ve got a good job out of college, you should go get a car. You should get a nicer apartment. And that’s where that lifestyle creep and inflation kind of moves up. And I think you’re coming from that knowledge base of you’re looking at buying assets and avoiding those liabilities. And the sooner you can get started with that mindset, the better.

Robert Leonard (17:46):
I actually made that same mistake when I graduated college. Still to this day, that’s my number one money mistake. Thank God it wasn’t massive. It was only 10,000 bucks, but I bought a foreign car right when I graduated college. Actually I think I was still in college, but that was my biggest money mistake. And it actually haunted me for a few years after because I kept rolling the negative equity over until I could eventually pay it off. Thank God for me it was only 10,000 bucks, the negative equity was like, I don’t know, two, three grand. So it’s not like I didn’t go out and finance a $50,000 Porsche that I’m rolling over 18 grand in negative equity, but still nonetheless, it was a good way to learn that money mistake early on.

Aaron Nannini (18:18):
Yeah. And I think that the good thing about making money mistakes is that when you get a little older, you’ve got the mindset right. And so you’re not going to make those mistakes. So out of college, yeah, I definitely made some mistakes too, but fortunately, they weren’t huge mistakes like in hundreds of thousands. And so I learned those lessons and I can move on and not make those mistakes again when the stakes are a little higher.

Robert Leonard (18:37):
Dave Ramsey, who is one of the nation’s leading personal finance authorities, very publicly and strongly talks against credit cards, which I actually agree with if and only if you’re paying interest on them. He says he doesn’t care if you’re paying interest or not. Credit cards are just bad news, period. Other personal finance experts agree with him because studies show that we spend upwards of 50% or more by just using credit cards than we would if we used cash, where do you fall in this debate? Do we use credit cards or should we avoid them?

Aaron Nannini (19:11):
I’m with you on this debate. I think if anyone is using credit cards and they’re falling into debt, then they should stop using them where they’re having to make their monthly payments. However, if you’re someone who every month is able to pay it off and that’s fine, I would say, go ahead and use the credit card. And I’ve heard that argument too that the stats say that when you use a credit card, you’re likely to spend 50% more or another amount. And I can see that as being true. And I’ve got a couple of ways to combat that. The first is with value-based spending. Really only buying what you truly value. I think that’s going to cut down on some of that 50% extra. And then another thing that I talk about is writing down what you purchase. So I think there’s a lot of power in paying cash because it’s something tangible. It’s something real that you’re pulling out of your wallet, giving it to someone else. And that kind of hurts.

Aaron Nannini (19:54):
It also hurts too if you use a credit card and then write down what you just purchased. So I think writing down has a similar effect of paying cash because it’s a form of accountability. There’s something real about putting things on paper with a pen. And I know it’s kind of old-fashioned and for the most part, I’m using computers and digitally on my phone, but that’s one thing I still do write down by hand just because it’s so powerful. So I think those two things are ways to combat paying extra on a credit card, but there are benefits to a credit card. I get a lot of airline miles from those and I choose to use a credit card for convenience and for those reasons.

Robert Leonard (20:26):
I agree that writing things down typically cements it more in your mind. But what I’ve found works for me is I use a software called MINT and every week on Thursday morning, I’ll wake up and I go through. It forces myself to categorize each of my transactions into different budgets that I’ve set for myself. And one, I’m going through every single transaction. So I’m seeing every single one and one, the more transactions I have to go through, the more time it takes me and I’m like, “Man, stop spending so much money so you don’t have to categorize so many dang transactions.” And then two, I’m also seeing like, oh, I spent money on this. I didn’t want to. I don’t really care about that. Why did I waste my money there?

Robert Leonard (21:01):
But then I can also look at it from a category level and say, “Hey, you went way over this budget this month. You need to kind of focus on that a little bit better next month.” So for me, it’s because I’m a millennial. I do like to write things down probably more than most millennials, but even just going into the software and being conscious about it and actually doing this every single week on Thursdays, it works really well for me.

Aaron Nannini (21:19):
Yeah, I agree. And it’s great too because it’s a form of accountability. And so I think when Dave Ramsey talks about using cash, he’s really saying, be accountable and that’s kind of the one broad stroke approach to use cash. And that’s that form of accountability. I think it could be confusing for people because I know that Ramsey works with a lot of people who are in debt and they’re trying to get out of debt. So he’s trying to simplify it as much as possible. So if he gives people like five or 10 different options of, instead of paying cash, I think it would be tough for people, but just that one piece of advice, pay cash. It’s easy to do for people and then they can move on and get out of debt. So I see why he says that, but like you, I don’t completely agree if you’re able to pay it off and you’ve got some accountability measures embedded into your life like a mantra of writing it down.

Robert Leonard (22:00):
I think he just paints a big brushstroke. And for a while, when I got into the personal finance space kind of as a content creator, I was very against Dave Ramsey because I didn’t understand where he was coming from. First thing I learned about was the snowball method and how he recommends paying down the smallest balance first. And to me, my background’s in accounting and finance. My MBA is in finance and accounting. I like the numbers. And so to me mathematically, it just didn’t make sense. Why wouldn’t you pay off something with the highest interest rate first? And so for me, that kind of hurt Dave’s credibility with me. And so I kind of had a tinted lens when I was reading his content. And for a while, it took a while for me to understand where he was coming from.

Robert Leonard (22:38):
And then I actually had a listener of the show reach out to me and say, kind of explained it to me. And it was great because it really changed my mindset where I understand Dave is coming from, he’s going to help probably 80 to 85% of people that just need what he is helping. They’re not trying to be really optimize everything. They’re just trying to do most of the things right. Whereas I think a lot of people that listen to this show are more advanced and they want to do all those little optimizing things that they can do to make things right for them. They’re not going to go into credit card debt for the most part, they’re going to actually use credit cards as a tool to get points and rewards and those types of things. So I think Dave’s audience and our audience that we’re talking to today is very different. And so we can give different types of advice to them.

Aaron Nannini (23:19):
I 100% agree with that because like you said, Dave Ramsey’s approach is kind of a broad stroke, it’s for people who, and I don’t want to just generalize as well, but in general, don’t have that great financial background and they got themselves in debt and they’re good people and they’re wanting to get out of it. And this is kind of the easiest method with these baby steps. And I think that’s why he goes that way. And I know earlier we talked about the behavioral component of finance or personal finance, and that’s a huge part too, because with the debt snowball, you’re able to get those quick and easy wins. And I think that’s very appealing for people, whereas you and I know that debt avalanche is more optimized, but if you’ve gotten yourself into that kind of debt and you don’t have that background that a lot of your listeners have, it is hard to try to pay off a debt that’s $15,000 and a high interest rate.

Aaron Nannini (24:01):
You’re not getting those wins and you’re not getting the positive feedback. That’s why I think he’s successful and why a lot of people do well with his program.

Robert Leonard (24:08):
Well, that positive feedback concept that you just mentioned is exactly what I discounted when I first started studying him because I didn’t realize… Again, I’m such a numbers guy. I typically didn’t think about psychology and emotions when it comes to money. I’m pretty hardcore with numbers. So I didn’t really think about how valuable the psychology piece of it is for Dave’s snowball approach. And I think he’s actually right. I think he hits the nail on the head when he says to pay down the small balances because you pay that off and it might not be financially the right choice if you want to optimize, but psychologically, it looks and feels great when you pay off that small balance.

Aaron Nannini (24:40):
You feel like you’re winning, right? And there’s another method too that I really don’t hear a lot of people talk about. It seems like it’s either black or white of the debt snowball or debt avalanche. I kind of like a hybrid approach too where maybe your first few debts, you use the debt snowball to get yourself those wins, pay off the small balances, just get that out of the way. And then as you get into your last three or four debts that you’re paying off, that’s where you really look to optimize because you’ve already had the wins, psychologically you know you can do it. You’ve had those victories. So now it’s time to optimize. So I think there’s nothing wrong with doing a hybrid approach. I never like just a black and white approach. I like to really think about it. So that’s a method I really encourage people to look up to.

Robert Leonard (25:16):
I like that strategy too. And I really don’t have a lot of debt personally, but I have some student loans and surprisingly, I do have a car loan, that’s by choice just because the interest rates are so low. But when I think about paying back debt, one of the ways I think about it, and I often struggle putting this into words, but it makes sense to me logically, but I’ll try to explain it in words is I try to pay down the debt that’s going to increase my cashflow the most with paying back the least amount of money. So of my student loans, there are maybe five or six of them all with different balances and different terms. And the car loan has a different term than the mortgage and my student loans.

Robert Leonard (25:50):
So sometimes maybe the interest rate isn’t the highest and it’s maybe not the lowest balance, but sometimes on a per-dollar basis that you pay off, you’re actually getting more cash flow back once that is paid off. So I tend to try to focus on the loan that I have the balance the smallest that I can pay off that will increase my monthly cash flow the most.

Aaron Nannini (26:10):
Right. You’ve got like a super-advanced knowledge of personal finance. And so I kind of look back into what the average American has and it’s not that knowledge base. And so I think everyone can get there, and that’s one of the reasons I wrote my book too is I was writing it for someone who was making the same mistakes that I was and kind of had that mindset. And so I want people to get from that to where you are now, where you understand all that, you can optimize, you can make decisions. You can really think about things. You’re really thinking about it and you’re getting optimized rates on your investments and on your debt pay off.

Robert Leonard (26:39):
One of the other debt payoff type strategies that I like, and I’ve talked about it on the show, have you heard of the term house hacking in real estate?

Aaron Nannini (26:48):
Yeah, for sure. I actually do it myself.

Robert Leonard (26:50):
Yeah. So do I. One of the things I have no idea if I was the one that coined this name or not, and there’s certainly not a lot of people that use it, but I call it student loan hacking where I have money that I could pay off a significant portion of my student loans or probably all of them. But instead, what I’ve done is I’ve bought rentals with that money and those rentals’ cash flow pay for my student loans plus some, and then once those student loans are paid off, I’ll have an asset that continues to pay forever. So I call that student loan hacking where rather than taking that money and paying it off, I’m building an asset that will pay for that stuff.

Aaron Nannini (27:22):
Absolutely. Yeah. And I think that’s a super optimized strategy. And I don’t know if I’ve heard of someone doing that specifically, but it’s just brilliant because you really are getting a lot more money off that and you’re having people basically pay your student loans for you.

Robert Leonard (27:33):
My total student loan payments are about 400 a month or so, we’ll round up a little and I bought a rental for 15,000 and it cashflows just about 400 a month. Well, the 15,000 was the down payment and the cash flow is just about 400 a month. And so if I have $50,000 in student loan debt, payments 400 a month and I can only put 15,000 down, now I just paid off my student loans, the $50,000 worth for 15,000 and I get to keep the asset. It makes so much sense to me. There’s risk. So I’m not saying it’s risk-free because there’s definitely risk. Tenants could not pay, it could be a bad property. There are so many different things. And then you have to pay the mortgage for the rental and your student loan. So there’s definitely risk there, but if you do it right, it can be a great strategy.

Aaron Nannini (28:15):
For sure. And I think if you’ve educated yourself and you’ve got that knowledge base and you know how to minimize that risk, it is such a great strategy because you can screen your tenants and there’s technology to do that. You can run their credit score, you can call their previous landlords. There’s a lot of ways to get great tenants. And I think a lot of people, especially when it comes to real estate, maybe they’ve had one property that they messed on, they’re like, “Oh, never again, never again.” But really, when you do it right, you can really minimize your risk. And yeah, you’re probably going to have something now and then especially the more properties you get, but you can definitely minimize that. And I think your strategy any day of the week is going to be just putting your nose down and trying to pay off that debt.

Robert Leonard (28:48):
Especially, there’re federal loans and they’re pretty low rate. I just don’t see how that makes sense to quickly pay them off when they’re so low and my rentals earning 35% cash on cash return when my student loan rate’s 4%, it just doesn’t make a lot of sense. And you mentioned tenant risk, which a lot of people poo-poo single-family rentals because they’re not necessarily super scalable and tons of different reasons. But for me, my business partner and I have kind of found a little niche in nice single-family houses where we just get amazing tenants because in apartments, you tend to get a little bit lower quality tenant because it’s an apartment, it’s generally not a family and that type of stuff. Whereas if you go to a nice single-family house in a nice area, good school district, we’re getting amazing tenants.

Robert Leonard (29:28):
We have very, very few issues. They always pay rent on time. They’re a family. They stay for a long time. It’s awesome. And it’s super low risk and we’re able to get some really good returns.

Aaron Nannini (29:37):
I’m the same as you. I like single-family myself. I’ve been really reluctant to move up into multifamily or anything like that for exactly those reasons because I kind of have a sweet spot of just getting a nice B class property with good schools around, a neighborhood where you could feel safe walking around at night, it just kind of feels great. And so for me, that’s my sweet spot. And it sounds like you’ve got a pretty similar sweet spot as well. And I’ve found too that with that sweet spot, I’m getting less repairs from tenants. I’m getting less vacancies. And so I can kind of run my numbers a little better and increase my cash flow with that.

Robert Leonard (30:08):
You talk about this concept of silent killers in regard to personal finance. Tell us a bit about this concept.

Aaron Nannini (30:16):
That really goes back to mindless spending, there’re so many people. And one of the silent killers I talk about is spending money while at work. And I see it all the time where people will be at work and maybe it’s out of necessity or just because they forgot, but they’re going to the vending machine or the food truck two to three times during the day. And they don’t realize they’re spending 10, 11, $12 on that. When if they brought their stuff from home, they’d be spending about $2. If you’re making $20 an hour and you’re spending 10 to $15 per day at the food truck or a vending machine or somewhere else, you’ve immediately cut your wage, your after-tax wages. So you’re not making $20 an hour anymore. You’re making more like 16, 17 an hour. So you’re creating a self-inflicted pay cut probably without knowing that.

Aaron Nannini (31:01):
And so if you just took a little extra time and were more intentional, I think that you can find snacks from home or drinks from home that are just as good as going down to the vending machine. I’ve heard the argument too that, well, that’s how I get my break and that’s what I want to do to kind of relax and get away from the desk. And I think you can still do that. You can still walk down to the machine and just not buy. You can go take a break. You can get away from your desk. You don’t have to go buy things to take a break.

Robert Leonard (31:23):
Thankfully for me, when we think about value-based spending, one of the things I don’t value is food. And it’s funny because a lot of my friends and family do, I personally don’t. I like eating a nice healthy meal and generally try not to eat crappy food, but I don’t really care what it is. It could be cheap, nice, healthy, whatever. It’s just not something I value, where I value other things. So for me, like work, I actually just retired from the corporate world two weeks ago. So I don’t have to worry about this now, but almost my whole corporate career, I never bought meals really, very, very infrequently. And I always brought food, but I’d always see my peers and my colleagues, a lot of them were buying food and I’m just like, “Man, that’s a lot of money every week.”

Robert Leonard (32:00):
I’d run the numbers and be like, man, if I did that, my sub every day is 10, 12 bucks a day. Chipotle is 12 bucks a day. Five days a week, you’re at 60 bucks times four weeks, you’re at 250 bucks a month. I’m like, so for me, it’s just like, it wasn’t something I valued. I just thankfully never fell in that trap. But I know it’s… You call it a silent killer, I know firsthand that it is for a lot of people.

Aaron Nannini (32:19):
And I had experienced that because I’m the same as you. I’ve always just brought my food and that’s been fun. But I witnessed someone who was doing this firsthand. And what he was doing is every day, he would almost literally complain about having no money four or five times a week. And I would watch him. And every day I talked to him, he’d have a coffee in his hands and he had a pastry from the coffee shop. I’m just kind of doing the math in my head I’m like, I think that’s six or seven bucks he’s talking about. He’s complaining about his money situation, and then a couple of months later, he comes up in a new car that’s completely financed. And I was thinking, and I didn’t say it to him. I was like, weren’t you just complaining about money? And so that kind of inspired me to write that portion of the chapter.

Robert Leonard (32:54):
I’ve spent a bit of time talking about cars and we have today and the impact they have on someone’s wealth. I actually had a great in-depth conversation with Jeremy Schneider back on episode 78 about this. But as always, I love to hear other guests’ opinions on the same topic. It gives both myself and the audience a potentially different viewpoint or speaks to us in a different way that makes it actually click. Sometimes you hear something, doesn’t quite click from somebody and then you hear the same thing from somebody else and it clicks. So I like to talk about the same concept from different people’s viewpoints. What is the shocking cost of cars and what are the myths of car loans?

Aaron Nannini (33:33):
The shocking cost of cars is a car is just not what you bought it for. People completely forget about the depreciation of the vehicle. So if you buy a car for, let’s say $20,000, right after you drive it off the lot, you’re losing like five to 10% of value. In that first year alone, you’re losing about 20% of the value. So you’re losing money on that. And that car is not an asset. It’s a liability. It’s something that’s going to get you from point A to point B. And a car to me, if you really value a car and you want that leather interior, you want the speed, you want everything that comes with a nice car, go ahead and get it, but just realize what you’re paying for. Whereas I think a lot of people buy a car and they’re not really paying attention to that fact. So it’s kind of mindless.

Aaron Nannini (34:12):
That’s one of the hidden costs. And also two got insurance. I ran the numbers on a really popular SUV from 2017, 2018. And I calculated that over the course of five years, that car with depreciation, fuel costs, insurance, costs someone $55,000. And $55,000 invested over a 30 year period, you’re in the millions of dollars at that point. So that’s one of those other shocking costs. I was stunned by it. I knew that cars were expensive, but I didn’t know just how expensive. And then going into the myth of car loans, I’m not sure how this whole myth got started. I think it was started by the car companies and with advertisements, but it seems like it was just kind of inherently thought about that when you buy a car, you get a car loan, whether you’re 18 years old or 20 years old or 60 years old, you get a loan. That’s what you do.

Aaron Nannini (34:56):
I think it doesn’t occur to a lot of people to pay cash for a car or just pay right out of pocket. And so that’s, to me the myth of the car loan. When I tell people that I pay cash for my cars, they’re like, “Well, how do you do that? Why do you do that?” Because they just think that’s what you’re supposed to do. And I was having a conversation with someone the other day too. And she was saying, “Out of college, I just thought I was supposed to have a loan. I didn’t really know better, but my next car, I’m actually going to pay cash for.” And I just think these myths were really just started by the car company to get you to pay a little bit more because I think if someone’s got five, $6,000, yeah, they can pay cash for a car and it’s not going to be as nice.

Aaron Nannini (35:28):
But if they’re able to buy a car for 25 grand and finance it, that’s a lot more appealing than buying that five or $6,000 car. In your situation, it sounds like you really highly value cars and you know finance, you know what you’re doing. And so you’re optimizing those payments and optimizing your purchase. Whereas the audience that I’m really trying to target is people who don’t understand that piece and just do it, just get a car loan because they thought that’s what they’re supposed to do and everyone else does it and that’s what you do.

Robert Leonard (35:57):
Yeah, I do value cars. That’s again, going back to value-based spending. One of the things I value is things with motors. [inaudible 00:36:03] bikes, that’s probably where I spend the majority of my money. Ever since I was probably, I don’t know, 14, I’ve had a picture of a Lamborghini on my wall. Not because I don’t care what that symbol means to other people. For me, it’s the performance and the quality of that car that are just amazing. And I’m 26 now. So 12 years, I’ve loved Ferraris and Lamborghinis, that type of car. And one day I want to own one, but I think your point is great in that for people who don’t value it, or again, going back to my student loan hacking example, I got a car loan once, it was 0.74% interest. The rate was 1.24 to everyday people.

Robert Leonard (36:40):
And because I worked at the bank, I got a half percent discount. So I just said to myself, “How can I not finance this money at 0.74%?” And so for me, again, like you said, I tend to optimize things. So I’ll take that money that I could have paid cash for the car with and I’ll invest it in something that provides a return that pays for the car itself. Where I think people fall into trouble is that they would… In that strategy, if they had cash to buy the car, rather than buying an asset to pay for the car and then financing it, they would spend the cash on something else that doesn’t produce any cashflow and they go on a vacation or whatever and then finance the car. So they’re kind of hurting themselves in two different ways.

Aaron Nannini (37:17):
I think you hit the nail on the head because you were consciously doing that and you actually took the money that you saved and you purchased an income-producing asset, whereas you’re exactly right. Other people are taking that money they saved and they’re buying something else. That’s where you get into that spiral of debt. So I think it’s a lot different for you versus myself back when I was in my 20s. I didn’t know that stuff like you did. And I wish I did because I think I’d be a lot further ahead right now.

Robert Leonard (37:41):
Well, even for me, when I was starting, I didn’t know any better. I made those same mistakes. I got car loans for cars that I couldn’t afford. I didn’t know any better at the time either. So I’ve definitely been there. I like to think that I’m past that now, but I definitely have been there. You mentioned the car companies bringing it up, but I think that’s definitely a piece of it. And you see those commercials all the time where 0% financing or this or that, they always have promotions around financing. So I think that’s a big piece. But the other piece, I think goes back to our conversation about keeping up with the Joneses and you see the Joneses driving a nice 2018 SUV, whatever it is, a nice car. And you think to yourself, well, if I finance this, I could drive that same car.

Robert Leonard (38:16):
Whereas if I pay cash, I’m going to drive a 2010 and not going to have all the bells and whistles and it’s not going to look very nice. So I’m not keeping up with the Joneses. And then I think it’s a cycle from there. Once you finance a car, it’s hard to get out.

Aaron Nannini (38:27):
It is. I agree. And I think conversely too, once you get out of that cycle and once you’re aware of it, it’s fairly easy to stay out of the cycle. As you said, you have to make that choice if you got where you’re going to be in that.

Robert Leonard (38:37):
They’re both self-fulfilling, they really are. If you’re financing it, it’s hard to get out of that because you have the loan payment. And then because you have the loan payment, most people can’t really save a lot of money on top of that. So then when you get to the end of your loan, maybe your car is a little bit older and you may need a new car soon. And so you haven’t had time to save up money to pay cash for the next car. And so then what do you have to do? You have to finance it. And then if you pay cash, you can save up cash every month because you don’t have a monthly payment and then you can pay cash for your next car, and your next car, and your next car and so on and so forth. So they really are both self-fulfilling.

Aaron Nannini (39:06):
Exactly. I’m just agreeing with you. That’s the cycle. And I think car companies know that after five, six years, the car is not as cool anymore. And that’s usually the terms of the loan too. So once that loan is paid off, there’s that temptation of there again, where you see your neighbor drive in that nice newer car that’s maybe brand new or a year or two old and you’re like, well, my payments are done. My car is six or seven years old. I’m getting a new one and I’m going to finance it again.

Robert Leonard (39:30):
I would say probably most people don’t even get to the end of their loan before they get a new car. Two, three years old, I know for me, when I was first started, got my first car loan, I lasted maybe a year, maybe two years. And that’s where the negative equity came in because I was like, “Oh, I need a new car. I’ll just go finance it.” And then I rolled the negative equity in. And then I think a lot of people probably fall into that trap because cars are one of those things where everything looks great until you have it. And then you have it and the novelty goes away really quick. And cars are one of those things if you’re not passionate about them.

Aaron Nannini (39:57):
I 100% agree. It’s so easy to do. And I think there’s a term for that. Hedonic adaptation. So that’s basically your levels of happiness return back to their baseline shortly within a purchase. So your example there of six, seven months after the car, it’s no longer that awesome car that you love how fast it goes and the leather seats. It’s like just the same old car that is getting you to and from work. And so we have a way of returning to our baseline and then we want to get new things to kind of get those endorphins going again and get that excitement of a new car.

Robert Leonard (40:25):
Exactly. And when we get that new car, to get those endorphins, it has to be better than what we’re driving. Otherwise, it’s not going to do anything for us. And that likely comes with a more expensive car. And there goes that cycle again. Like I said a couple of times throughout the show, the majority of the audience is millennials. Definitely not all of them. I’ve had some people reach out that say, “Hey, I’m not a millennial, but I really enjoy your show.” So definitely not all. But I’d say the majority are. That being said, not everyone is married yet, but a lot of people are probably thinking about marriage or even just thinking about how they’re going to manage money with their boyfriend, girlfriend, whatever their situation is. You talk about how your most important money partner is your significant other. Why is that? How can we be successful in managing money with our partner rather than adding to the statistic that says money is the leading cause of divorce?

Aaron Nannini (41:14):
Yeah, it really is money. Those money facts are just such a huge component. And so when I say that is if you look at what your goals are and if your goals are to save some money, buy some income-producing real estate or some stocks or other type of investment, and then you meet someone who you love and they’re great, but their goal is really to consume, you’re pretty far off base. So you’re like a level 10 and your partner might be a level one or two. It’s really hard to go meet in the middle because you’re both pretty far away. And so that’s why I think it’s so critical to identify that early in a relationship. And I’m not saying like on the first date, you say, “Hey, so what are your money goals?” That’s not it at all.

Aaron Nannini (41:48):
But once you get serious, I think it’s really important to have those conversations because when you do get in a serious relationship or you’re married, your finances, whether you like it or not, and as much as you try to keep them separate, they are together. So if your partner is totally in congruent with what you’re doing, either way, you would kind of erupt. I’m very lucky myself. I’ve been married seven years now, and my wife’s kind of on the same page as me. She’s never been into debt or anything like that. And so it’s just super important to have that partner who’s on the right track. It’s really going to propel your finances forward. Whereas if you don’t have it, it’s going to hold you back. You’re going to have arguments. You’re not going to be on the same page.

Aaron Nannini (42:22):
And I think it’s going to be uncomfortable for you. And I know that you had cited that money is the leading cause of divorce. And I think, yeah, it’s those money arguments. They’re real, they’re big, they’re emotional, they’re impactful. And it can really damage your relationship.

Robert Leonard (42:34):
Back on episode 88, I had Erin Lowry on the show and we talked about this concept of managing relationships and the dynamic of money for probably an hour, maybe even longer. And it was a great episode for me. It really, really was insightful. So for anybody listening that’s interested in diving into this concept of how do we manage money with not only our partner, but siblings or parents, or just any relationship with people that we have that includes money, I highly recommend you go back and check out episode number 88 with Erin Lowry.

Aaron Nannini (43:04):
She’s great. I think she has a book out as well, right?

Robert Leonard (43:07):
Yeah. So she has a three-part series, Broke Millennials. And the third book most recently was about all the different relationships we have with people with money. Knowing what you know now about personal finance, what would have really jump-started your wealth-building if you had known it when you were just starting out?

Aaron Nannini (43:24):
I think two things that I would really point my finger at is my mindset. And I mentioned it earlier in the show, but my mindset was so flawed in just thinking that investing was for rich people that I was telling myself that I could not do it. And so I wasn’t looking for it at all. That was such a huge part because I was satisfied living paycheck to paycheck. I didn’t know any better. I wasn’t trying to improve myself or get better. Once I realized that didn’t have to be the case, my finances just improved exponentially as did my life. And then the other big thing I would look back at is I wish I would have bought more real estate when I was younger, especially when the market crashed back in that ’08, ’09 time period.

Aaron Nannini (44:00):
That was just like a gold mine to buy more properties. I had bought one property at that time to live in, but if I would have bought more, gosh, my finances would have been in a much, much better spot.

Robert Leonard (44:10):
Aaron, thanks for joining me on the show today. For those listening that want to connect with you after the show, where’s the best place for them to go?

Aaron Nannini (44:18):
The best place is CashUncomplicated.com. There you can find my blog. You can look to buy my book. So those are the best places. And please I’ve got a spot where you can email me, please reach out. I love to answer questions and hear about what your money mindset is and some of your successes and some of your challenges too. So please reach out.

Robert Leonard (44:34):
I will put a link to different ways you can contact Aaron below in the show notes as well as some of his resources. Aaron, thanks so much for joining me.

Aaron Nannini (44:42):
Thanks so much, Robert. I appreciate it.

Robert Leonard (44:44):
All right,  guys. That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro (44:51):
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