Strategies for Funding Large Expenses Effectively

Navigating large expenses effectively requires careful consideration of options like cash, liquidating assets, or home equity loans.

### Four Big Ways to Pay for Large Expenses: Cash, Investments, Home Equity, and Asset-Backed Loans
* 💸  Paying in cash is the most advantageous way to cover large expenses, **eliminating liability, ensuring liquidity, and promoting deferred gratification**.
* 📈  Liquidating brokerage assets can be a viable option, but it's crucial to consider **tax implications**, **long-term vision**, and the potential impact on **retirement savings**.
* 🏡  Borrowing against home equity, especially for home improvements, can be effective, but caution is advised to avoid using it for **lifestyle expenses or debt consolidation**.
* 💼  Asset-backed loans, borrowing against investment portfolios, can be a suitable short-term solution, but should not be used for **long-term financing or lifestyle upgrades**.
* 🏦 " We don't want you to use home equity lines for lifestyle. You should not be **borrowing against your portfolio to live a higher standard of living**.
* 🏡 " This is why you have a financial planner. We have all kinds of banking relationships and others where we can actually, in this moment in time, **do a loan that will be secured by your investments**.
* 💰 " There's a reason we created the tool of **know your number** so you can actually figure out and answer that question without a financial advisor: **Am I ahead of the curve, behind the curve, or right where I'm supposed to be**.
* 🏦 " If you're not actually paying down these debts, if you're not actually decreasing your overall debt load, what you're doing is you're **building a house of cards**.

Hey, let's talk about the four big ways to pay for those large expenses. I am so excited about this because we live in a unique time right now where a lot of folks are recognizing there are big expenses coming their way. Maybe there are weddings or other things like that, or maybe you've decided that now is the time to do the home renovation or the home project that makes more economical sense for you right now. But then the question comes, Okay, how do I pay for it? What's the most effective way to pay for a large expense? Well, this is one of those things where I love that we get to share the craft with you. One of the big things we get to do for our clients is we help them navigate how do you handle these big life expenses. You mentioned, you know, buying a house, but it also could be cars, it could be college education. There's all kinds of things that are going on, and by the way, this is why you've got to subscribe to our channel. We're going to actually go

behind open up the curtain, tell you how we think about things as financial advisors, so you can apply this to your own financial life. So, make sure you get in there. We found out about 60% of our audience just drops in, watches, listens. Go ahead and make sure you subscribe. But jumping in, this is to the craft part of this. I feel like we, one of the things I love about being a financial adviser, it's like our own little fixer-upper show. People come to us with the before, with the goals, the objectives, and in a short period of time, with a little bit of planning, we get to send them out the door with a better way to kind of think about how you navigate these big financial decisions. And I love that we get to share that today. And when it comes to making big purchases, there are right ways to do it, and there are wrong ways to do it. We're going to go ahead and level set just like right out of the gate. Here's what we don't want you to do.

when it comes to making a big purchase, whatever that may be in your world, we don't want you to do it with credit cards. Like, go ahead and just remove that from your mind. We know that right now the average credit card interest rate is 20.71%. So, when it comes to paying for a big vacation or a big consumption decision or a big whatever that thing is, credit cards are not the answer. We're totally fine if you want to use credit cards and they're part of your personal financial journey. Credit card use is okay, but credit card debt? No way, no way, no way. The other thing I want to focus on is, yes, we're going to tell you the how you make the purchase, but just because you can doesn't mean you should on everything because there's a cost. Every incremental decision you make has an opportunity cost, and we want to make sure we give you the mindset stuff so not only do you navigate the analytics, but you also navigate what are the things you should and should not do when

you're navigating how you handle debt, as well as cash and all the other things with these big large expenses. The way that you're going to be able to decide between which method do I use is going to depend on, okay, what's my unique timeline. Is the thing that I'm buying an appreciating asset or a depreciating asset? Is it a lifestyle decision, or is this something we need? And so, we're going to walk through each one of those and when and where they're best utilized. So, Brian, let's start with the very first one. I think this is maybe our favorite, if you don't try to have favorites, but this might be our favorite when it comes to making our large purchase. If you can, if you have the ability, we think that probably the best way to pay for large items is just using cash, saving up for it, and paying cash in full. Yeah, this section is sponsored by Captain Obvious, because I'm sure a lot of people are saying, Of course, if we can pay cash for it, we would pay cash. But I

think a lot of people going quickly realize that there's more, but I do think it's important to let's do the low-lying fruit is because a lot of times people will say, Hey, I'll just finance this or do it. So, I think it's smart that we're starting off and we're saying, Hey, what are the benefits of paying with cash and how can we avoid some of the traps that a lot of Americans fall into? Yeah, the first benefit is when you pay for cash, there is no liability. You're not beholden to someone else that if you miss a payment or you get into hard times, they can come take that thing away from you or you're paying for an experience that happened in the past for many years in the future. There's no liability with it, so it allows you to buy something or experience something and then move on from that purchase. That's a big benefit of using cash. The other thing that um I think when it comes to you're figuring this out because we've you've experienced

this too. Bo is that big expenses or big purchases like a home buying a house. If you waited until you could afford it with cash, me the market would run from you. I mean, we went through this post-inflationary period. People were saving, being diligent. So, you do we get the question all the time is, well, if I can't pay cash or, you know, or I need to save up for the cash, when do I know it's okay to maybe lower my retirement savings or how do those type of things. We want to help you navigate this so you know how debt works, but you also know when you might have to take a moment in time to even lower your retirement savings. I love it. And so, not only do you have those benefits, but also when you have cash, it's purely liquid. It's also a thing that when you use cash, there are some natural guard rails in place that you cannot overspend. If you save for cash, you have your pocket, your bucket of money right there. A lot of times with

other types of debt instruments. You start thinking about it like Monopoly money, and you recognize that the cost of your project or the cost of your whatever it is gets higher and higher and higher. And the other thing that we love about cash payments is it allows you to exercise that deferred gratification muscle. It allows you to say, Okay, I want this thing, I want this experience, I am going to save for it. I'm not going to have it today or tomorrow or next month or in the next six months, but I'm going to put in the time to save up the cash to be able to eventually have that thing. That's a wonderful tool for you to have inside of your financial tool belt to create that habit of making really sound financial behaviors. But now people want us to get to how do you know 'cause you're putting a lot in there, but people still want to know you're asking a lot with a little 'cause a lot of our listeners and our audiences, they're in the messy middle, they're

short on time, they're short on money, they got kids, they got relationships, they got work responsibilities. How do you get it all in there? Because sometimes you're just not going to have enough cash. So how do we do this? Yeah, that's exactly right. Sometimes you have to make the decision, okay, do I reduce my retirement savings? Do I back down what I'm saving for the future to do something for today? And I think the first question you have to answer is what are your goals? Like, when you think about going to buy this thing, is this thing a realistic goal that you have that needs to come to fruition today, or is it a distraction? Is it something that's pulling you off track? And if you're willing to do that thing today, do you recognize the cost that you're going to bear for not having something in the future? Yeah, and also look, we're not misers, we're Financial mutants. So I do want you to make sure that I want you to live a disciplined life, but I do want you to make sure

you're taking time to build memories. You're doing, you know, every decade should have great memories, so make sure you are bedazzling your basic life. I don't want you to live that Miser life, but that definitely needs to go into the consideration. And then, if you are thinking about decreasing your retirement savings, you need to ask yourself, Okay, is this thing I'm doing right now, is this a lifestyle purchase? Is this something that's just going to increase lifestyle and it's going to be a short little win, or is this going to be an investment in the future? An investment doesn't always mean like rate of return, going to return money. There are times when you might say, Hey, my family needs this thing right now, and while it's not going to have a dollar return, it's going to make the quality of our life better for years to come. That would be an investment in the future more so than an experience today, and you want to measure, Okay, is the thing that I'm doing, is it worth me sacrificing

future retirement and giving you perspective. If you are going to trim down your savings and investment rate, you got to quickly make an assessment and do the homework in knowing, are you ahead of the curve, are you behind the curve, or are you right where you need to be. I think a lot of people just default to the easy answer, I'll just trim back on saving and investing because I need it this moment in time. I need this. Don't do that. Don't fall into that trap. I want you to actually do the homework. There's a reason we created the tool of know your number so you can actually figure out and answer that question without a financial advisor: Am I ahead of the curve, behind the curve, or right where I'm supposed to be? Don't skip those steps, okay? So, what should you consider before using cash? The very first thing is if doing so is going to require you to back down your retirement savings. There will be a cost, and here's something I think you should do, and it's going to insert an

appropriate amount of fear. I want you to go to moneyguy.com and download our wealth multiplier resource. We have a tool that you can play with, and I want you to see what every dollar that you put to work for you can turn into by the time that you get to retirement. And then you need to make the assessment: is this thing that I'm doing, is this thing that I'm buying, is this experience that I'm having, is it worth me foregoing that wealth multiplier? I need to answer that question honestly before you make the decision to back down retirement savings. The other thing is, because if we're paying cash for something, you run the risk that if you use too much of your cash, you cut to the bone, you actually get into your emergency reserves. And remember, the whole purpose cash is so important to your wealth-building journey. It doesn't just get one, it gets two steps in the financial order of operations with both steps one and steps four, because it's trying to help you protect yourself from making

those desperate decisions that put you in the ditch before your financial journey even gets to get a start on this, so make sure you're not draining your cash down to the level that you are getting desperate. All right, Brian, so one way that we can pay for large expenses is to pay for cash. There is another way that we think is also incredibly valuable. You know, we talk all the time about when it comes to building towards financial independence. We like to build three distinct tax buckets. We like to have our pre-tax dollars, we like to have our tax-free dollars, and then we do like to have those after-tax dollars. Well, one of the benefits of those after-tax dollars is we don't have to wait until age 59 and a half to get to them. We actually can get to them today. So does it make sense when it comes to large expenses to consider liquidating brokerage or investment assets to do so? Yeah, this is one I, and I love the, like I said, we got beyond cash. Now we're talking about how do you use some of the

other tools in your arsenal of financial things, and you're a diligent saver and investor. You have this taxable brokerage account. You can use this for what if you had the opportunity lifetime on a piece of real estate. You can use this for. You also save up for years for this goal of that your child is going to go to college. You can use this for education expenses. You have a time certain. You know when this is coming. You're going to be able to liquidate some of the assets for that. You think about a car. You know, maybe this is one of those things where not only we have emergency reserves, but there might just be a time where you get no more use out of a car, and you say, Hey, markets that are all-time highs, these are a good time. I could go liquidate, and potentially that's what a car is, a need and not a want, right? You also may be thinking, Okay, I'm going to do a home renovation, and instead of incurring debt, I want to use this for that, or there are other

long-term goals. Here's what we don't want you to think about: liquidating brokerage assets for very temporal things. So, like, you think about a wedding. Is it worth it to go sacrifice your future financial independence for a singular party? Now, that party is special, and it's important. It deserves some thought, but is the opportunity cost of robbing from your future self worth it? Same thing can be said for vacations or one-time experiences. Well, we love for you to do those, and we want you to experience those. We don't want you to experience those at the cost of being able to have future financial independence. So, you want to measure really hard before you begin liquidating brokerage to pay for those things. You said it best there both that we don't want it to be a moment in time, meaning like vacations, weddings. Look, and weddings are super important, but in a lot of ways, it is a consumption of a moment in time. You get the memories, but if you had to do it on leverage or debt

it's just not worth it, and that's why. But I do think everything on the left column. You think about the real estate, the car to get to your wealth-building tool, which is your job. That's going up, saving those type of things are going to be around for a long time and create a lot of value. So, that's what. Let's give them what are the additional things that you ought to consider when you're making this decision to liquidate. Yeah, the first one is, okay, are you liquidating money that was slotted for retirement? You know, we talk all the time about we want you saving 25% for the future, and that 25% is supposed to be for retirement, for financial independence. Well, when you think about the dollars that you're selling inside of your brokerage account to satisfy this big expense, are you actually robbing for your future self, or have you been a diligent saver who's gotten out ahead of the curve, and you've been having an additional savings rate, and those dollars are there to be used, and

If they are retirement dollars, the opportunity cost associated with using them today is incredibly significant. So, you want to make sure you recognize that and you make a prudent decision before you decide to spend those dollars. We already know we've done a lot of content where we show even traditional retirement accounts like 401ks. They're very leaky, meaning that when people change jobs, they have a tendency to go pull off of those assets. I worry about taxable investment accounts, brokerage accounts, your individual and your joint investment accounts that you allocated as 25%. These things are just, they probably, they have a lot of temptation to them that you like, Hey, there's an easy access point to make this consumption decision now. So, if the money is slotted for retirement and you're using it, this is a big red flag that maybe you need to measure twice and think about this differently. The other thing you have to consider is what's the long-term vision. You know, there's value outside of rate of return sometimes.

people will use these assets for like a down payment because maybe you want to start a family, and that's one of your goals, and that's something that you need to be able to plant your flag, and that's okay. That's where the goal today might be more important than the goal in the future. So, there is value outside of strictly the wealth multiply and strictly the rate of return. What you want to do, though, is you want to make sure that you are true to yourself, and you don't start convincing yourself, Oh no, no, this vacation is part of my long-term Vision, or This new car, no, no, I need to be in this new car. You need to recognize that there are things that make sense to sacrifice the future for, and there are things that do not make sense. So, you have to take that into consideration, and don't forget the tax consequences. Huge. I mean, it's common. You know, if you had a need for $100,000, and you had this in an investment account, you know, that's maybe worth

$200,000. Don't forget to take into account the taxes because to generate $100,000 of net proceeds after you've paid your taxes next April, or you plan to pay your taxes, you might have to sell $125,000 or at least have the $25,000 to pay the taxes 'cause you're going to have to pay ordinary income tax rates on anything that's like fixed income. You're going to have to pay Capital Gains, assuming you owned it for at least a year, on anything that's appreciated. And then don't forget all the other components of the income and other things that were created through the time that you owned these investments. Don't forget taxes. All right, so if you are someone who's thinking about doing this, then you're going to be hit with a question, Okay, how do I do it? What's the most effective way to use and to liquidate these broker assets? And there's really two options. You can either sell it all and generate

the cash today or you can dollar cost average out of your position. And so when might it make sense to sell at all? Well, if you need the money now, if you come up with some opportunity presents itself, or some expense comes up and you need the cash today, well, then it might make sense to go ahead and liquidate immediately so that you can take advantage of that. Now, the downsides are what if the Market's in a bad spot? What if the Market's been? What if this is a 2022 type year and you're having to sell at a loss? That's less than ideal. Or if you have to sell today, what if this was a high-income tax year and you have to sell and you have a lot of big embedded gains? You might have a higher tax bill than you would have preferred. So that's one option. But if you do have some time, I think the second option is the one that I like. Well, I was just goad like on selling it all. What I like is

like if you had a purchase that you knew was coming up in, say, February, but here you are in October when you realize you might be able to sell half, you know, in October and then another half in January, February. You could do it in a way. This is a great segue into why dollar-cost averaging out works, but if you had to sell it all at once, it does really push up that tax bill. So, but walk them through because I think a lot of people don't think in these terms. You've even been a great coach to me, and I'll share an example in a minute. Just like you can dollar-cost average into your investments, there's nothing wrong with using this as a tool to go dollar-cost average out of your investment. Yeah, for example, let's say that you know you're going to need these dollars in the next 3 to 5 years. Rather than selling everything today and just having it sit in cash, there's nothing wrong with beginning to slowly move it to cash over time, just like you buy into the market.

you can sell out of the market on an unemotional, systematic basis. Now, the downside is it requires planning ahead. You have to be able to think through this purchase and has to be far enough out that it justifies a dollar-cost averaging strategy. And if the market continues to go up, you might miss out on some gains, or if the market goes down, you might participate in those losses. What we like about dollar-cost averaging, though, is it removes the likelihood that you're either going to be 100% right or 100% wrong when you sell it all. You might time it perfectly, or you might do it at the world's worst time. Dollar-cost averaging, in our opinion, removes some of the emotion, and whenever we can remove emotion from financial decisions, oftentimes that's a big win. Also, but I want to give you credit, this is a financial mutant tip. Whether it's sell it all at once or even dollar-cost averaging, I'll give you a personal share. I had a piece of property that came available in

the State of Florida that I wanted to buy, and I immediately did the math like a good financial mutant was. I said, Hey, the closing is going to be in 3 months. I immediately figured out I'm going to need this sum of money from my portfolio so I don't drain my cash all the way down for emergency reserves and so forth. But I came and talked to you, and you said, Hey, wait a minute. I think you might be falling into a little bit of a trap. Is that you're accounting for you need this money tomorrow, and you're going to raise your tax liability by selling it all right now. You're like, 'Aren't you going to be able to save some money to maybe lower how much money is needed for that purchase?' And I was like, You know what, you're right. That three months, I bet I could save this sum of money. And I was able to minimize and lower the tax bill. I still had to sell some, you know, I did the prudent thing because I wanted to

make sure the money was there, and I didn't want to have the fluctuations of the market that 3-month period. But I was able to probably save myself $15,000 worth of taxes because I basically led the ball to where I was going to be and saved during that period. So, that's a powerful Financial mutant tip that I think a lot of people don't pay attention to, the timing. A lot of us skip that. We immediately think, Hey, I'm going to need this money right now. Don't forget that you might have some time that has value for saving and other purposes as well. All right, BR, we've talked about paying in cash, and then we've talked about liquidating brokerage assets. Well, both of those assume that you have resources ready and available to satisfy the cost of whatever this big expense is. Oftentimes, that's not the case. Oftentimes, people say, I don't quite have the resources available. So, what other options are there for one of the LGE, one of the most common options available.

especially to folks in today's market environment. What we've seen in housing over the past 3, 4, 5 years are home equity lines of credit or home equity loans that exist based off of the equity that you have in your primary residence. Well, this makes a lot of sense. I mean, if you think about if you're one of these people that has, I mean, the lion's share of people with mortgages are still less than 4%. Yep. And if you think about you're in a house and you're in a mortgage that's less than 4%, you know, current market rate is over 7% or around 7%. You're probably looking at your house going, Man, I love my mortgage. I even kind of like my house, but maybe it needs some improvement. So, a lot of people instead of resetting the entire, but selling the house and going and buying a bigger house or an improved house, they're making the decision instead of locking that entire loan up at 7%. Why don't I keep my 4% or lower mortgage? Go

at make an improvement on my existing home to make it my dream place or make it, you know, good for my family. But then that does have a cost. That rate is higher because of just what's happened, and I know we have some data on that. Yeah, what's really interesting is when we look at home equity lines, the median spend on new home renovations is up 60% between 2020 and 2023. So, 60% increase in the costs of doing home renovations. Well, a quarter of those, 23% of those renovators, are looking at HELOCs or other loans for improvements on big-budget projects. So, a lot of people are trying to figure out, Okay, I've got all this equity. I've not used it. I've not tapped into it. I might have liquid resources out there available. Maybe I need to consider using this. Maybe I need to consider tapping into the home equity. And we think that that's okay, but you have to be cautious. And the very first thing I think you have to do

is you have to recognize that not all home equity type products are created equal. We're talking specifically about home equity lines of credit, but when you start doing your research and looking, you may see there are other types of Home Improvement loans outside of just HELOCs. Yeah, I mean, let's go ahead and give you some terminology. There's home equity lines of credit (HELOCs), there's also home equity loans, and then there's private home improvement loans. And we want to kind of walk you through each of these. So, both if you look at the HELOCs and the home equity loans are both secured by your home. The bank is going to want to basically attach to that. If you don't make your payments, you jeopardize your staying in the house. A lot of times, the private home improvement loans, they might just be essentially lines of credit. That's right. They're not going to be secured by the house, but that probably is going to come with a premium, so be aware of that. Um, the home

equity line of credit. They're going to tell you the bank is going to give you a range. They're going to say, Hey, you're approved for this much expenditure, and you now have the ability to either write a check on it. You know, in the past, you could even use debit cards on it, whereas the home equity loan from day one, they're going to give you a loan. They're going to basically give you a check, whereas the home equity line is access to that money. And then the private home equity improvement loans is also going to be a set. But what does this mean for the rates on each of these products? Yeah, most often when you have a home equity line of credit, it's going to be a variable rate. So, it's going to move with some indexed or standardized rate, oftentimes it's going to be the prime rate, and depending on your credit in the market environment, plus or minus some basis points. With a home equity loan, oftentimes you can get a set rate. It can be fixed for some finite period of time, and the same is

true for private Improvement Home Loans now. As you can imagine, when you're investigating these at current market prices, the variable rate might be a little bit lower than the fixed rate, but there's going to be some risk. If rates end up going up, your rates going to adjust up. If rates go down, you'll get the benefit from that. So, when it comes time to figure out which one of these loans makes the most sense, it's going to depend on a number of factors. How quickly are you going to pay it back? Do you want a variable fixed rate? And do you have a definitive amount that you know you're going to spend? So, once you've decided the type of product, the type of loan that you're going to use, then you want to figure out, okay, what is it okay for me to use this for, and what is it not okay for me to use this for? And again, this is like a c and obvious statement. We love if you're going to use a home equity line of credit or a home

equity loan or a private home improvement loan. We'd love for that to be for Home Improvements. That's kind of what they're designed for, for the principal residents that you're doing this Improvement on. It's okay to borrow money against that because, in theory, you're going to pay it back, and that Improvement that you're making to the home will cause the asset to become more valuable through time. I wouldn't think of it purely as an investment, but you can kind of get your mind wrapped around it as an investment. So, for home improvements, we think home equity lines are great to use. Yeah, I was going to make the point, Bo, also a lot of people, I think CU, we've put out some things that historically things are a little unique right now because interest rates are up. A lot of people might be watching this and be like, Why didn't they mention Cash-out refinance? You know, I can get access. I could do. I could pay for my Improvement by going and refinancing my

loan. Well, it's back to the point that I kind of started off this segment with. If the majority of you have mortgages that are less than 4%, this allows you to at least only have the higher rates that we're dealing with in the market on just the Improvement. Whereas if you go and refinance the entire loan balance just to get the Cash-out refinance, you're now subjecting the entire amount of the loan to that higher rate. So, that's why this is for primarily Home Improvements, and you're trying to make the best of a pretty rough situation. And potentially with these variable products, if rates do come down, and we don't know, but if rates did come down, these products will reset automatically and start coming down in price as well. So, what do we not want you to use home equity lines for? Well, we don't want you to use it for lifestyle. Like, we don't want you to borrow money against the equity of home just to live a higher lifestyle. Because what you're doing, you're setting yourself up for not

Having long-term success, we also don't love using home equity lines for consolidation. There are other types of loans that, if you must, that you can use for debt consolidation. Because the problem is, if you have some outside debts, and maybe you have auto loan debt, and you have credit card debt, you have unsecured store debt, you have student loan debt, and fill in the blank, you have all of these types of debts. Well, all of a sudden, when you take out a home equity line to go pay off those debts, you've now taken some unencumbered debts and you've replaced it with encumbered debts, meaning that if you cannot make those payments, you could lose your home. So, we don't like you trading unsecured debt for secured debt. It puts you out further on the risk spectrum than you ultimately want to be. And we also don't love using home equity lines of credit for education to pay for student loan bills. There are other types of products that you can use that are a better fit to pay for education besides home equity lines.

well, this content will live for years to come, and I'm hopeful that the first three things you laid out: lifestyle, debt consolidation, education. I think a little perspective would help out if you looked at where prom is, 'cause a lot of home equity products are going to be tied to either prom Plus or prom minus, depending upon how important you are to your banking relationship. But you can see right now prom rates are at 8.5%, and when we did a little quick research, we found out that the typical home equity line product right now is a little over 9%, 9.17%. Expensive money. So, I think a lot of people in this moment in time, they're thinking twice about definitely lifestyle, debt consolidation, and education. But this content will live, and there's going to come a time where, I don't know where rates will settle down, once they start dropping them, maybe around five-ish, five and a half percent. I still don't want you to fall into the trap of lifestyle debt consolidation, and I think Bo, you just said a key thing, if

you were taking lifestyle choices and now jeopardizing the shelter that you actually are raising your family in. What are you doing? And by the way, I can speak from my heart on this because I fell into this trap. When you see those periods where you know home equity line rates were Prime minus, and here's Prime sitting right around 3%, you can see how very quickly money gets cheap to borrow money and feel like you can buy cars, you can pay for lifestyle, but guys, that is a mirage. It's an assault on discipline and you living on less than you make, and you need to really fight against that urge. All right, now are you ready for the money guy hot? Because this is the one that's going to get the Stones Throw at us. This is the one where the trolls are going to come out. We also, when it comes to home equity lines of credit, we also don't love using those for Real Estate purchases. Now, I know that this is going

to go against what hundreds of thousands of people out on the internet tell you because the whole strategy is you buy a house and you take out a home equity line. You buy another house, you take out another home, you buy another house, and you rinse and repeat and rinse and repeat. And while that can work and people will tell you stories, what it's ultimately doing is it's pushing you further and further and further and further out on the risk spectrum. And if you're not actually paying down these debts, if you're not actually decreasing your overall debt load, what you're doing is you're building a house of cards. And while that house of cards might stand, what you're worried about is when the music stops and they all come toppling down. And the very last one to fall is your primary residence, the one that was securing this pyramid that you built. I think if you don't have cash for the down payment, if you can't come up with that without borrowing more debt, then you might not be in the stage of your

financial Journey where it makes sense to begin your real estate Empire. Well, we're also talking about your primary residence, of course. Yeah, absolutely. It's like all things that you see, all the social media, there's always a little ounce of Truth in their stuff, but they skew it, they turn it into something that's not supposed to be. There will be a time in the future where interest rates are much lower, where there's nothing wrong if you have a rental piece of property that you go do a Cash-out refinance and probably use that Cash-out refinance potentially to leverage to expand your real estate investment Empire. But notice I said you did this on a rental property. This is your primary residence. It's back to this is the house that you're raising your family. This is the shelter for your family. Don't jeopardize this stuff. Yes, you might get lucky. There's a lot of people in real estate that use home equity lines, but are you trying to be good by managing risk as you navigate

this well. Are you just counting on Lady Luck to be what makes you reach success? And that's the thing that I tell people. You got to understand the relationship of risk with this walk towards building abundance and wealth for the future. And that's why I don't like you jeopardizing that primary residence. So let's talk about what to consider before using a home equity line or borrowing against the equity in your primary. We've already said this is the renovation, is the Home Improvement for lifestyle, to build significant equity, or is it for both? You know, lifestyle might be, Hey, I want to put a pool in. Okay, is there a reason that you're doing that? Does that make sense? Or is this something, say, Hey, we have unfinished storage, and if we finish the storage, not only will we be able to enjoy it more as a family, but this is also going to add to the value of the home. So you need to realistically assess, Are the improvements that I'm making going to meaningfully add value to this, or is it

just going to be something that's going to make it more enjoyable for me and my use of it. Yeah, this is, I mean, look, this is a hard decision right now because interest rates are so high. So, I would challenge you if you, because there's nothing wrong, you know, in this moment in time, and maybe you've made the determination to enjoy this decade. We need to improve this house so that we can live our best life. But I would put that under the filter of do this with the thought that how do I get myself back on track to saving for retirement. But be hard on yourself, be very regimented to say, Hey, if I'm going to do this improvement, I'm going to pay these higher rates in this marketplace right now. Can I pay this thing off in 3 years? Can I pay it off in 5 years? And if the answer, or maybe 7 years, you come up with maybe it's 10 years, I don't, but be honest with yourself and create a plan and don't deviate from that plan because

you are that incremental opportunity cost with every decision you make can be very expensive. I love it. How long will it take me to pay it back? And also, how long are you even going to be in the home? You do not want to do a major renovation if you're likely going to sell the home in six months, a year, two years. You want to make sure that if you're doing a renovation for you to enjoy, that you're going to be there long enough to actually enjoy it. And you want to understand what's the timeline for me to pay this back. All right, BR. So, we've talked about using cash. We've talked about liquidating brokerage assets. We've talked about borrowing against the equity in our homes. There actually is a fourth option that we've seen people use for large purchases, and this is what I don't think people are super familiar with. There are actually asset-backed loans where you can borrow money against your investment portfolio. So, that account that you said, Hey, I could liquidate the assets, and I could take

some of those assets and go buy this purchase. There is an option where you could say, Hey, instead of liquidating those assets and triggering those taxes, I'm going to borrow against the portfolio. That is an option that exists today. Let me tell you how this goes down because I deal with this all the time. I'll get a call from my client who's retiring and they're downsizing and moving to a smaller home. They'll call me up and they'll say, Brian, um, I'm going to need you to come up with about $600,000 from the portfolio. And I'm like, Whoa, $600,000. Okay, I can do it because you've been diligent, you've been saving. But you realized there's probably going to be a tax bill of about $75,000 when I place all these trades. And like, Oh man, that stinks. I hate that I'm going to have to pay $75,000. But I just

I don't want to go do a mortgage. I'm at retirement. Why should I go do a mortgage on this new house? It's like if there's only a way I could sell my existing home and then have those proceeds to buy. It's just the timing doesn't work because I'm going to sell this house here. I'm going to have all this money come in, but in this moment in time, I need this money so I can put the down payment or even pay for this piece of real estate. I'm like, relax, we got you covered. This is why you have a financial planner. We have all kinds of banking relationships and others where we can actually, in this moment in time, do a loan that will be secured by your investments. CU, you've been there. There is value to you being diligent and saving that banks will give you these loans, and a lot of times they're interest-only. We'll go through the details of them, but they are a blessing when you think about you just have a moment in time need is that you're going to sell this much.

bigger home to buy this smaller home, but you just need a bridge to get you, and so you don't have to make a desperate decision and pay all these additional taxes when you just didn't want to. This thing perk up because this is pretty exciting. That's exactly what we think they should be used for, them short-term Bridge loans where it's a finite time period, and you have extreme confidence you'll be able to pay it off quickly. Or we have used these when there's a large purchase, but maybe you want to spread out the tax bill over multiple years. So rather than selling all the brokerage assets this year and triggering all the taxes, you could do that for a portion, borrow for a portion, and spread that over multiple years. Those are viable use cases for using a collateralized or asset-backed loan. Here's what we don't want you to use them for. It's likely not going to be great for long-term financing solutions because the rates are not fantastic, OB oftentimes, and they're very variable. They go

all over the place. They're tied to one-month overnight lending rates plus some type of fixed spread, so they can be pretty expensive. Uh, and we don't want you to use it for lifestyle. You should not be borrowing against your portfolio to live a higher standard of living. So, you want to make sure that if that's what you're doing, if that's why you're using this, you rethink that CU. There are some considerations you want to make 'cause these loans are different than other types of loans. The first is you want to know what the capital call thresholds are. Obviously, the financial institution is willing to loan you money based on the value of your account. Well, if the value of your account is invested and it's in a stock portfolio or an equity-type portfolio, and the market goes down all of a sudden, that asset backing your loan becomes less and less and less valuable. Well, at a certain threshold, the bank will say, Hey, there's not enough money here to secure this loan. We're going to need you to either start liquidating assets or start depositing

funds to get the collateral back up to the minimum threshold. So, you need to make sure you understand where the capital call thresholds are. Yeah, and you also need to understand does this impact your behavior with these accounts. Because it's not uncommon that the banks might put some restrictions on your access money out or using, you know, this money for other purposes because it is tied to it until you pay this loan off. You have another person that's kind of having a voice in your decision-making on that. And don't forget I mentioned this earlier. These often are interest-only. So, you're not actually until you actually go to start paying it off and hopefully when you sell the real estate or whatever that moment in time is. They're going to be building in the background interest-only and potentially it's deductible. But you just pay attention to the fact that I don't want you to get too comfortable because this is the last cautionary point. It's going to feel a little bit a little bit like

because you know it's an easier process than traditional mortgages, so it just feels so simple to make this some realize it. This is a big deal. It's debt. Debt is not less than ideal, but it is definitely a tool that you need to be aware of when it comes to our financial lives. Oftentimes, big expenses come, whether it be weddings or vacations or automobiles or home improvements. What we want to do is hopefully equip you to navigate those financial decisions in the best way possible. CU, we believe that there is a better way to do money, and one of the best ways to do money is to educate yourself on all of the options that are out there available to you. Hey, we got into the nuts and bolts on this one. This is one of those shows I love when we get to do mindset stuff. I love it when we get to do nuts and bolt shows to tell you, Hey, this is the way we have to think about money. All of this stuff, you can tell there's a passion for it, and that's

why guys you got to get in there and subscribe. You got to know definitely get in there because we have big goals. We're trying to get to 500,000 on our subscribers with YouTube. You can be a part of that. You can tell that our mission is true. We want you to be the best version of yourself. We're going to give you the abundance cycle fulfilled where you learn, apply, grow. We ask nothing of you until you reach a level of success. You go, Man, life has gotten so complicated. I need somebody to help me out. And this is why we're going to continue to love on you. So go check it out, money.com. We're going to load you up with all the resources, all the content. You got to stay connected by being subscribed. But guys, this is why there's more to money than it's just about. It's combining purpose. It's about building your Abundant Life. I'm your host, Brian Preston, Mr. Bo Hansen, Money Guy Team out.

4 Ways to Pay for BIG Expenses

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Paying for large expenses, like weddings or home renovations, can be challenging, but there are effective methods to navigate them.

Using cash to pay in full is the best option, as it avoids liability and provides financial freedom.

It's important to consider the unique timeline and nature of the purchase when deciding on the payment method.

Balancing Cash Payments and Financial Goals

Cash payments help exercise deferred gratification and build sound financial habits.

It's important to assess whether immediate expenses are realistic goals or distractions from future planning.

Liquidating after-tax investment assets can be a valuable option for covering large expenses without delaying access to funds.

Liquidating Brokerage Assets: Key Considerations

Liquidating assets from a brokerage account can be beneficial for long-term goals like real estate, education, or a car, but it’s important to avoid using them for temporary expenses like weddings or vacations.

Consider whether the money was intended for retirement and the potential opportunity cost of using it now.

Additionally, take into account the long-term vision and tax consequences of the liquidation before making a decision.

Strategies for Selling Investments and Managing Cash Needs

Selling investments may be necessary for immediate cash needs, but it can lead to losses or a higher tax bill.

Dollar-cost averaging out of investments offers a systematic approach to transition to cash over time, reducing emotional decision-making.

Home equity lines of credit or loans are common alternatives for accessing funds, allowing individuals to maintain lower mortgage rates while making necessary improvements.

Home renovation costs have increased by 60% from 2020 to 2023, leading many homeowners to consider using home equity for funding.

There are different types of home equity products, including HELOCs, home equity loans, and private home improvement loans, each with varying terms and rates.

It's important to use home equity for its intended purpose, such as home improvements, rather than for lifestyle changes, to avoid financial strain.

Caution Against Using Home Equity Lines of Credit

Home equity lines of credit (HELOCs) for debt consolidation can be risky, as they replace unsecured debt with secured debt, potentially jeopardizing homeownership.

The high cost of HELOCs, with rates over 9%, makes them an expensive option for lifestyle, debt consolidation, and education.

Using HELOCs for real estate purchases can push individuals further out on the risk spectrum, potentially leading to a precarious financial situation.

Using Home Equity and Asset-Backed Loans for Financial Decisions

Borrowing against home equity for renovations should be carefully considered, weighing lifestyle improvements against potential value addition.

It's essential to have a clear repayment plan and timeline, especially with high-interest rates.

Asset-backed loans against an investment portfolio offer an alternative for large purchases, providing liquidity without triggering taxes from asset liquidation.

Bridge loans are ideal for short-term financing needs, such as transitioning between homes or spreading out tax bills over multiple years.

They should not be used for long-term financing or to fund a higher standard of living.

Key considerations include understanding capital call thresholds, potential restrictions on access to funds, and the nature of interest-only payments.