DARRIN T. MISH: Good morning and welcome to the IRS Solution Attorney Show. I am the host Darrin T. Mish, the IRS Solution Attorney.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell. Welcome to the show and good morning.
DARRIN T. MISH: Good morning.
KATRINA MADEWELL: How’s it going, Darrin?
DARRIN T. MISH: Wonderfully. I’m excited about today’s topic. We’re not going to be so tax heavy today.
KATRINA MADEWELL: I would say not. But it’s a fun topic. We were talking about this before the show. I could talk about it all day long.
DARRIN T. MISH: It’s near and dear to my heart. The topic of today’s show is 11 Ways to Stay Motivated When You’re Getting out of Debt.
KATRINA MADEWELL: Why do you say that?
DARRIN T. MISH: Like everyone else, I’ve found myself in debt at various times in my life. It can be demoralizing. Sometimes it just feels debilitating. You’re like, all I can do is afford to pay the minimum payments on credit cards, why bother? It has a tendency to cause you not to focus on what you’re trying to get out of life.
You feel like you’re toiling away to pay interest on credit card payments. It’s near and dear to my heart because you think about what I do and helping people with tax problems. I help them get out of debt. It’s what I do all day.
KATRINA MADEWELL: It’s just a debt to the big hairy, scary monster called the IRS.
DARRIN T. MISH: The scariest monster. I’ve done it myself. I’m not going to sit here and say I’m completely out of debt. I’m in a good place. I’ll share some of the details on how I did it myself. In focusing and deciding to make it happen, I was able to make some of the bigger dreams in life come true.
KATRINA MADEWELL: I think it’s a good comparison and contrast, especially since we’re the same station that Dave Ramsey airs on. I think it’s neat to point out some of the differences. Are you familiar with the debt snowball and how he teaches it?
DARRIN T. MISH: Not really.
KATRINA MADEWELL: I am. We host it in our office so I’ll talk about some comparisons as we go along. We’ll both share. I, too, have been in the position where I’ve been in debt and couldn’t make my payments. I think that’s why I’m ultra-conservative. There is a fine line and balance. I drive a lot. I live in the car.
I’m probably in the car more than I’m in my house. It’s the nature of the beast with my job. I had a 10-year old car. We have several cars and we’ve put a lot of miles on them. But at some point, you have to say this is not making sense anymore. We took it to the dealer because it was making some noise. We thought we already had it fixed. It was going to be at least $3,000 just to open it up and get in there. And I was like, not on this car, it’s too old.
DARRIN T. MISH: Especially vehicles, it becomes a point of diminishing returns where it’s going to cost more to keep this jalopy on the road than it is to buy a new car. I had a 1969 VW Camper Bus back in the 80’s. I lived in Southern California and surfed. It was a really cool vehicle. And it was paid for. But at some point, it became so expensive just to keep it rolling. I wish I had that car still. It would be really cool to have now.
KATRINA MADEWELL: And you’re chasing good money after bad. At some point, it doesn’t make sense. Dave Ramsey preaches, don’t buy a new car ever. Always let somebody take the new car depreciation, buy it a couple years old, and basically let someone else take the hit. It’s not an asset, it’s never going to appreciate. It will always depreciate to the point where it’s not worth anything. Except for the rare exception of classic cars. Even then, it’s more of a liability than an asset.
I told you we were looking at a three or four-year-old car, but when you look at the rate the bank wants to charge you for a used car, even with good credit, you’re in the low three’s, four’s, which is good by today’s standards. Or, you can finance a brand-new car, get a fantastic deal, get a trade in you couldn’t get anywhere else from the dealer, I thought. For me, it made sense at the end of the day. It was less than $100 difference, 0% interest, why would I write a check when I can borrow Toyota’s money for free?
DARRIN T. MISH: That makes sense. Today’s show is 11 ways to stay motivated when you’re getting out of debt. It’s based roughly on an article I found on a smart guy’s website. His name is Scott Alan Turner. He does the Scott Alan Turner Show. His website is scottAlanturner.com. Scott’s a self-made millionaire. He got out of debt.
He’s a self-made millionaire who teaches his site readers and shows listeners how to become financial rock stars and get out of debt faster, save more money, and retire rich. It’s a little different than Dave Ramsey. When I read this article, I was struck by how much it resonated with me. I thought our listeners would benefit from it as well.
KATRINA MADEWELL: I like the idea because I think there’s a fine line between being so frugal you don’t spend any of your money while you’re here on this planet. So what, you have a big pile of cash, what’s that going to do? You have to live while you’re here. So, there’s a fine line between eating dog food when you’re retired and living for the moment.
DARRIN T. MISH: I’m a proponent of you need to enjoy life while you’re here. That doesn’t mean every expense needs to be extravagant. You don’t need to drive a Rolls Royce or have a private jet.
KATRINA MADEWELL: You still need to save for a rainy day.
DARRIN T. MISH: Although, if you want those things, you should have them. If you can figure out how to afford them. I do have some friends that do those things and I think it’s neat.
KATRINA MADEWELL: I just looked at a property yesterday in a pilot community. A lot of people of their Cessna’s at their house. I love those properties.
DARRIN T. MISH: In Scott Alan Turner’s article, the first thing he said was you need to get mad. Do you have any thoughts?
KATRINA MADEWELL: Yes. I think that anything in life, you’re not going to make a big change until you hit that tipping point. Until you get to the point that you’re so mad that you paid “x” amount of interest. I don’t carry any credit card debt, so I don’t know, but I imagine the rates are probably 20-25%. That’s what I’m hearing. Is that right? Some are lower maybe?
DARRIN T. MISH: I do have some credit card debt, especially on the business side. It’s stabilized anywhere from about 8%-15%. But there were times when I had some in the 29-30% range.
KATRINA MADEWELL: That makes me want to throw up. I can’t do that.
Motivation Tip 1: Get Mad
DARRIN T. MISH: That’s a lot of money. Especially if you’re looking at a strong five figure balance. Going back to the point of, you got to get mad. I’ve gotten mad financially twice in my life. One time was when I had a bunch of student loans. I was looking at them and I could see how much interest was going out. I literally put the student loans in a spreadsheet. Student loans were different than credit cards. They all had different rates. So, I put them all on a spreadsheet and I started savagely attacking the ones with the highest rates. I paid them off first. I think it’s kind of what Dave Ramsey says.
KATRINA MADEWELL: It’s a little bit opposite. He teaches to knock out your smallest to largest balance, regardless of interest rate. In some instances, that makes sense. I think the point he’s trying to make is it’s a debt snowball.
DARRIN T. MISH: He’s trying to get you some momentum and velocity. Whereas I just looked at the pure math. I’m a little bit of a math guy.
KATRINA MADEWELL: I look at the numbers too.
DARRIN T. MISH: I looked at the math and knew we had to get rid of the high-interest rates one. Once you get used to the new higher payment that you self-impose then you can keep that going, you can snowball there. You start attacking the lower interest rates ones. The second time I got mad, was I went through kind of a tough time business wise and personal with finances. I had a lot of credit card debt. Again, I was feeling hopeless. I was feeling demotivated
I talked to a coach, and the coach said you can take care of that. You just have to devise a plan. That kind of snapped me out of that stupor. What I did was put all the credit card debts in a spreadsheet. I got a simple software program for free or $5. I put all the debts in there, put all the balances, interest rates, minimum payments, then I devised a plan to get them paid off faster. One of the things I think happens to people is if you have multiple credit cards.
Let’s say you have 10 credit cards and are just making the minimum payments. It gets lost on what you’re trying to accomplish. You’re just trying to keep your head above water. I would suggest that most people could do a little bit better than JUST the minimum payment. One way or the other.
KATRINA MADEWELL: Like you said, when you get mad, you combine that with, hey I’m paying attention to this and I’m going to get laser focused on this. I’m going to get rid of this, I’m sick of it. I’m wiping it out. Even talking about 8%, which I think was the lowest one you mentioned, when I look at that, I think I want to be the girl that lends money and gets that 8% return. That’s how my mind thinks.
DARRIN T. MISH: For sure. The banks love folks who just make the minimum payment. That’s a cash cow. All that interest is what keeps the banks going.
KATRINA MADEWELL: You’re either going to get so mad that you’ll do something about it, or you get sick to your stomach and bury your head in the sand. Which is what a lot of your folks do when they come out with these tax debts.
DARRIN T. MISH: Oh, yeah, it’s possible to bury your head in the sand for years. I’ve had people who’ve never gotten their heads out of their sand. They die there.
KATRINA MADEWELL: I think you have to do something. If it’s so overwhelming that you can’t do it and you really are that financially upside down. Talk to an attorney, maybe your best resolution is bankruptcy. It’s not forever. It wipes off after 10 years. You can rebuild after bankruptcy.
DARRIN T. MISH: Most people’s credit, if they do the right thing, they can have credit in two years.
KATRINA MADEWELL: We have seen people with high 600 credit score after bankruptcy.
DARRIN T. MISH: We’re not talking about bankruptcy on the show today, but I’ve seen many people over the years and it’s obvious that it’s the clear answer. You need to wipe this out, clean slate, start over. It’s not something to be ashamed of. The government passed the law for a reason. You can get yourself so buried that there is no way to pay your debt.
KATRINA MADEWELL: That’s how our economic system works.
DARRIN T. MISH: If banks are going to make credit easy, then they’ll have to go through some bankruptcies.
KATRINA MADEWELL: We have to take a quick break here at the IRS Solution Attorney Show. We’ll be back in just a minute.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell. Thanks for sticking with us through the break while we talk about 11 ways to stay motivated when you’re getting out of debt.
DARRIN T. MISH: The first way we talked about was to just get mad and do something about it. Use your anger to motivate yourself to devise a plan and figure out a way to pay a little bit more to get yourself out of debt.
KATRINA MADEWELL: Shake the sugar trees, stir the pot, kick a hornet’s nest. Do something to create the momentum and energy.
Motivation Tip #2: Focus on How Your Life Will Change
DARRIN T. MISH: The second thing he talks about in the article is to focus on how your life will change.
KATRINA MADEWELL: There’s a lot to be said for that.
DARRIN T. MISH: When I was getting out of credit card debt, it felt like it was never going to end. We were never going to get another house. It just wasn’t going to happen. My credit was still ok, but I was mired under a ton of debt. Once I made a plan, it went pretty fast. I would say within 6-12 months, I had things much better.
One of the things I did was to focus on how my life will change. One of the things that I did was focus on how I wanted our life as a family to change. I wanted that property, I wanted to raise my kids in that atmosphere. A little bit safer. They can ride their bikes on our property. Some day they can ride our horses and stuff and you don’t have to worry about strangers. If there’s a stranger on our property, we have a bigger problem.
KATRINA MADEWELL: There’s a lot to be said for that. My approach is so different in real estate. A lot of people say I want to list my house. They show up with a listing contract, they sign it as fast as they can, they stick a lock box on the door and stand in the front yard that someone’s going to sell it. That’s most people’s marketing plan.
I start with the core reason of why I’m there. I won’t even take a listing unless I can dive deeper into what’s going on and why I’m there. Help them to understand where they’re going and get laser focused. There’s always something. There’s death, divorce, new baby. There’s some change that makes people want to move. For you, what was that change?
DARRIN T. MISH: The real big thing was, we wanted a bigger house and wanted some property. It really went back to some hogs, believe it or not. It went back to some pigs.
KATRINA MADEWELL: If we started there, I would say what’s important to you about raising hogs and pigs on your property?
DARRIN T. MISH: The first year the kids raised the hogs project, they did it at the school. There was some conflict with other people at the school. That was a negative experience, so that got me kind of mad. I was mad about the conflict. So, I was like, I’ll just buy a place for some hogs. The first idea was to just buy an acre someplace and put a hog pen on it. That wasn’t real practical.
It took me two years from the day I got mad about the hogs before we moved into our new place. It was 10 times larger than we were thinking. That was our motivation. I’m kind of teasing it, it was all about the hogs. The hogs were a symbol of a bigger role.
KATRINA MADEWELL: That’s what sparked the change.
DARRIN T. MISH: I needed to get motivated. So that’s what we did.
KATRINA MADEWELL: Again, that focus, if you can drill down, even if you don’t work with someone like me, but ask yourself, “What’s important about being out of debt.” And what would you do if you’re out of debt?
DARRIN T. MISH: I’ve been asking more people when they come in for initial consultations with me, tell me what your motivation is. This has been going on for twelve years, why are we sitting here now? Some people think it’s an odd question. A lot of people say I’m tired of it. It’s been going on too long. Or they say they want to buy a house in two years. Frankly, the people who have the stronger why’s are better clients.
KATRINA MADEWELL: I always ask them, what’s driving this choice? Why is now the right time to do this?
DARRIN T. MISH: I’m sure sometimes people say, I think the market is going to do this or that.
KATRINA MADEWELL: There’s always a deeper why. They might say that, but by the time we drill all the way down, there’s always a much bigger why at the end of it.
DARRIN T. MISH: I bet that helps you find them the ideal house.
KATRINA MADEWELL: It does. Because we know exactly what they’re looking for. They think, oh, I want this, but then really when you hone in on what exactly what this is, it might be a little different than what they thought they wanted.
DARRIN T. MISH: Scott Alan Turner in this article, talked about a writing exercise. What he says is to write down ten ways your life will change when you’re out of debt. I think that’s powerful. Some of the suggestions were, will you be able to work at a job you love?
For example, you might be in debt, and you have a job you hate, and you’re only at that job because you need the money because you’re in debt. I know a lot of lawyers who are in that situation. He says will you be able to pack up and go where you want to? That’s interesting too. If it were up to me, I’d spend several months a year in the Florida Keys, but it’s not practical given my profession.
KATRINA MADEWELL: It boils down to the freedom of choice.
DARRIN T. MISH: For sure.
KATRINA MADEWELL: If you don’t have debt or things that are following you around, you have a lot more options. You don’t have to show up at your 9-5 job.
DARRIN T. MISH: Just like if you have cash, you have all the options in the world. If you’re buying a house and you have cash, you have a lot more options than if you’re just prequalified.
KATRINA MADEWELL: There are people that could have just had a bankruptcy, but if they have cash, they can buy a house. One day out of bankruptcy program. If they have a significant down payment, 20%, 30%, they can buy a house. One day out of bankruptcy.
DARRIN T. MISH: One of the other questions was, will you be able to work less? That can be a real motivator. Especially in my profession. You got lawyers that are working 60-80 hours a week, and they’re just doing that because they’re in debt because they had to have all the fancy stuff. They must have two Mercedes and $200 haircuts.
KATRINA MADEWELL: Doctors are also guilty of this. They are the high-income earners that have the most amount of debt. Between student loan and other debts and they fall into this trap they can never get out.
DARRIN T. MISH: I represented a lot of doctors, that’s true. He said, do you just want a good night’s sleep without stress and worry?
KATRINA MADEWELL: I can’t imagine you ever heard this from any of your clients, Darrin.
DARRIN T. MISH: Getting out of debt can do that for you. It can help you sleep. A lot of people spend a significant portion of every night worrying. My YouTube views on my channel, which is The IRS Solution Attorney, go way up at night. All night. That’s when all the viewing happens, is the middle of the night because people are freaked out and worried.
KATRINA MADEWELL: Going back to that, and thinking about what we said in the early part of the show. There was a time when Chris and I had a significant amount of debt and I remember that very clearly. I remember not being able to sleep at night. It was about the time when I had that little pickle with the IRS. It was everything at once.
DARRIN T. MISH: I just said this to somebody the other day that was going through a health issue, but I believe it’s very true, that is every challenge we go through in life, there lies an opportunity hidden. When we’re going through these tough times, when we’re going through these challenges and everything seems like it’s bad, sometimes it feels like there’s no light in the world and everything’s going wrong, your job as the person going through the challenge is to look for the opportunity. Look for the lesson.
KATRINA MADEWELL: Yes.
DARRIN T. MISH: You can look at it as God or the universe, but there’s some higher power that’s putting you through this challenge so you can grow. If you don’t grow your way out of that challenge, you’ve lost.
KATRINA MADEWELL: Going back to that same scenario, I believe that with all my being as well. Even though it was the worst possible time in my life, my lesson from that was I started my own business as 23. I opened as a correspondent lender.
What I learned from that whole experience is A – pick your partners wisely, and B – not all tax people are created equal. Part of the reason we got in that mess is that we had horrible tax advice starting up that business. In hindsight, my takeaway is, pay attention to the numbers, know what you’re looking at because you can get bad tax advice. We set up a brand-new corporation as c corporation. Who does that? Looking back now, from your profession, you’re like, yeah, that was dumb. I didn’t know. I was 23.
DARRIN T. MISH: In your situation, it was dumb. In some people’s situation, it can be brilliant. In that situation, it was horrible advice.
KATRINA MADEWELL: Yes. But, I learned about that. I learned the difference between an s corporation and a c corporation. You get very familiar with those things and you know what’s the best thing. You learn to ask better questions.
DARRIN T. MISH: We’re a little off-track here, but not all professionals are created equal, that’s for sure.
KATRINA MADEWELL: Without a doubt.
DARRIN T. MISH: If you’re in the hospital and you just got a bad diagnosis, you might want to get a second, third, fourth opinion. You might want to go to a specialist, you might want to go to the most renowned specialist in the country if you can afford it. I was talking to someone that has a rare medical condition and they were talking about going to the Mayo Clinic in Minnesota, I was thinking, yeah, Minnesota is a two-hour plane trip. That’s nothing when you’re talking about your life.
KATRINA MADEWELL: Yeah, in the grand scheme of things.
DARRIN T. MISH: You’re talking about the quality of your life. You’re right. I think, especially younger people, are preconditioned to kind of go along with authority. So, when you were 23, you got bad tax advice, you just kind of went along with it because you didn’t know any better. You thought this person must know, they know more than I do. Turns out, barely.
KATRINA MADEWELL: We have to take a quick break already. We didn’t even finish this. When we come back, we are going to jump back into the rest of this topic, which is focusing on how your life will change and 11 ways to stay motivated when you’re getting out of debt. We’ll be back in just a minute.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: And I’m your co-host, Katrina Madewell, thanks for joining us today as we talk about 11 ways to stay motivated when you’re getting out of debt. We got a little bit chatty in the first couple of segments. We have to get through this because we have some good information we want to share. There are a couple more points that we really should share which is focusing on how your life will change. We said to write down ten ways in which your life will change if you’re out of debt. But there was the counterbalance to that.
DARRIN T. MISH: Now write down ten ways your life will look if you don’t change. Keep that list handy. I would say to keep both lists handy, the do change and don’t change. Write it down. Don’t text it into your machine so that it’s on your computer. Write it down on a piece of paper and then put that piece of paper on a sticky note or something so you see it repeatedly. What will happen is amazing.
KATRINA MADEWELL: Even better, that’s a high percentage of people that are visual, write some papers that will go along with that. Get some pictures on what will go with the mess if you don’t get out of debt and get some pictures of what it will look like if you do. I guarantee you stuff will start to shift.
DARRIN T. MISH: It would be like the difference between a Toyota Corolla and a Lexus.
KATRINA MADEWELL: They’re both made by Toyota.
DARRIN T. MISH: One is not as nice as the other.
Motivation Tip #3: Stay Laser Focused
KATRINA MADEWELL: The third point is to stay laser focused. I think I jumped ahead when I said that.
DARRIN T. MISH: If you keep that list that’s going to help you stay laser focused. It’s not that hard. We’re talking 1% change here. If you just change 1% a day, in the course of a year, you’re going to have almost 365% change. Just get a little bit better every day. Make smarter choices. I would say if you’re going to Starbucks, and I don’t even know because I don’t drink coffee, but what’s a coffee at Starbucks? $7 or $8?
KATRINA MADEWELL: Five-ish. If you’re lucky, you get one for $3.
DARRIN T. MISH: Let’s say a triple mocha latte Frappuccino thing.
KATRINA MADEWELL: Yeah, he drinks Diet Coke. He has that one nailed.
DARRIN T. MISH: You might consider bringing your coffee. Making your coffee, it’s a whole lot cheaper.
KATRINA MADEWELL: Stay focused, chisel away. Do one activity per day that’s drive you towards your goal. Would you agree with that?
DARRIN T. MISH: Ask yourself daily, what’s my life going to look like when I get out of debt. When you start daydreaming about the peace, the freedom, the life you deserve to be living, you get a little bump. A little positive bump to make it through the day. If you’re in a lot of debt, this is a challenge that’s been put before you so you can grow and learn.
Motivation Tip #4: Review Your Goals Every Day
KATRINA MADEWELL: I promise there is a lesson. You might not know it right then. Number four on our list is, review your goals every single day.
DARRIN T. MISH: If your goal is to get out of debt, then you need to write it down. We’re already hit upon this a couple of times. You have to have that goal written down someplace so you see it repeatedly. The power of human psychology means that you’ll eventually work towards that goal. A couple times in my life I’ve written down big, hairy audacious goals for myself. I usually write down about ten of them. Big life goals, like a new house. That kind of goal. I’ve written those down. I haven’t even followed this advice, I don’t look at them routinely, I just wrote them down and put it on my keyboard tray. But the keyboard goes on top of it.
KATRINA MADEWELL: But it’s still there.
DARRIN T. MISH: A couple of years later I went back and looked at the goals, and I laughed. Because I had accomplished all ten of the goals and some of them I smashed.
KATRINA MADEWELL: But you didn’t even think about it. Can you imagine what would have happened if you’d looked at it every single day?
DARRIN T. MISH: Right, and you were fired up. So, when I was in debt, most recently, I looked at those spreadsheets every single day. On Sundays, I looked at them multiple times a day because I wanted to stay fired up. I wanted to stay mad. I wanted to stay laser focused so I could get it knocked out, and we did.
KATRINA MADEWELL: It’s proven that people that write down their goals are substantially higher chance of achieving those goals.
DARRIN T. MISH: There was a Harvard study that tracked students that set clear, written goals. The 3% of students who had written goals were earning, on average, ten times as much as the other 97% of the class combined.
KATRINA MADEWELL: I don’t doubt it. I’m surprised the number isn’t higher.
DARRIN T. MISH: Amazing. So, folks, if you’re trying to get out of debt, you have got to write your goals down.
Motivation Tip #5: Keep on Learning
KATRINA MADEWELL: Our fifth point in the 11 ways to stay motivated when you’re getting out of debt, is to keep on learning.
DARRIN T. MISH: There’s an abundance of financial blogs and articles you can learn from. They all have tips and tricks to saving more and spending less. The more you know, the more you’ll save and the faster you’ll get out of debt. The better you learn to control your money, the less likely your money is going to control you.
Motivation Tip #6: Do Little Each Day
KATRINA MADEWELL: This is Dave Ramsey exactly. They teach the zero-based budget model, which is, tell every dollar where it’s going to go before you even receive it. It’s right on point. Number six is, do a little bit every day.
DARRIN T. MISH: There’s that old saying, how do you eat an elephant?
KATRINA MADEWELL: One bite at a time.
DARRIN T. MISH: Absolutely. If you have an amount of debt, you have an elephant. That’s the bottom line. You have to eat it in small bites if you have to. You can get out of that debt if you just take a little bit of action every day. Like I said, if you were just improved 1% a day, eventually it would be monumental.
KATRINA MADEWELL: Number seven on our list, is find some support. it’s funny, you know I sell real estate. That’s my trade by choice. I’ve got referred by other people because I’ve helped them put together a debt snowball, helped them figure out how to get out of debt, help them find that focus. I’ve been referred to people to help them do the same thing. They think I’m a financial advisor, I’m like no, I can help you, but I’m not a financial advisor. Number seven is, find some support.
Motivation Tip #7: Find Some Support
DARRIN T. MISH: It might be your friends and family isn’t all that excited about you getting out of debt. When you try to get out of debt, those closest to you might react negatively. My comment about this is that, well, gee…
KATRINA MADEWELL: You might be the one buying all the stuff.
DARRIN T. MISH: Well, that wasn’t what I was going to say. If you have friends, friends are friends by choice. So, if you have friends that are not excited for you and the goals you have in life, you need to get some better friends.
KATRINA MADEWELL: There’s a book that references specifically, but they said five or ten people you hang out with the most are the ones you’re more likely to become. That’s your inner circle. So, if your friends are hanging out doing bad, illegal stuff all day, then that’s your circle of friends.
DARRIN T. MISH: Or even just bad, lazy stuff all day. If they’re not happy for you that you’ve decided to open a business or go back to school or get out of debt or anything you find to be positive, then I think you just need to get better friends. It’s not that hard. It can be kind of tough to think about getting new friends. You just need to associate with a group of folks that are more focused on what you’re trying to get out of life. I’m still friends with some of my buddies from way back in the day.
KATRINA MADEWELL: You can be, but they don’t have to be in your inner circle of friends.
DARRIN T. MISH: Yeah, they don’t need to be telling me that you’re thinking too big. I actually had one buddy who laughed, straight out laughed at me when I was in college when I said I was going to law school. He laughed and pulled out a phone book and said, this is the thickest part of the phone book was the attorneys. I said that’s ok because I’m going to be one of the best. That was my thought process all along. I had an opportunity later to kind of reconnect with him. He had begrudgingly admitted that I had done ok.
KATRINA MADEWELL: That’s funny, I love it. You’re chained to a circle of friends. Well, he lives in California, doesn’t he? Did you leave him behind? I knew it. Stay encouraged, find some Facebook groups, some personal finance blogs, Twitter chat, stay in that inner circle to keep you focused on where you’re trying to go.
DARRIN T. MISH: I have a philosophy that I try not to post anything negative on social media. The reason is, I don’t want negativity in my life. The last thing I need to be doing is emitting negativity. That doesn’t mean I always feel positive. By no means. Even many times coming here to do the show, I’m not feeling super positive after having been in traffic for two hours.
KATRINA MADEWELL: But when he gets here, he’s lovely!
DARRIN T. MISH: Sometimes you have to fake it til you make it. You have to adjust your attitude so that it’s positive. When you do that, when you’re faking that positivity, positivity has a way of coming back to you magnetically. It’s some magical universe thing.
KATRINA MADEWELL: If you remember awhile back, I did the 100 days of gratitude for social media. every day I posted something I was grateful for and I tried not to duplicate anything. It might sound crazy, but it was hard. Take the 100 days of gratitude challenge. If you’re not on social media, text it to a buddy. Something you’re grateful for every day.
DARRIN T. MISH: Put a note on your desk so when coworkers walk by people ask, what’s that?
KATRINA MADEWELL: you have 100 sticky notes on your wall.
DARRIN T. MISH: Yeah, that’s neat. I think it might be challenging to do 100 things you’re grateful for. But probably not. When you thought about it, it doesn’t have to be a huge thing.
KATRINA MADEWELL: I’m going to challenge you to do it.
DARRIN T. MISH: You can challenge all you want, I’m not sure I’m going to do it.
KATRINA MADEWELL: What? What are you talking about? We’re talking about this whole positive show, and you’re saying, “I don’t know if I’m going to do it.” I’m throwing you under the bus, come on, Darrin.
DARRIN T. MISH: Yeah, you sure are.
KATRINA MADEWELL: 100 days of gratitude. Maybe you can get your kid to do it with you; it’s summertime.
Motivation Tip #8: Find an Accountability Partner
DARRIN T. MISH: Another thing would be to find an accountability partner. Some people might not be familiar with that term. Find one of those positive people, the people that are supportive of you and your goals in your life and are supportive of you getting out of debt and just report back to them. I’m in coaching groups and mastermind groups and things like that and I’ve been in a lot of mastermind groups. The ones I like the most, they’re the hardest because they have an accountability component and if you don’t show up and do the things that you basically promised you would, then everybody ridicules you and gives you a hard time. And I love that.
KATRINA MADEWELL: In my groups, they make you write a check to your competition.
DARRIN T. MISH: Have you ever had to do that?
KATRINA MADEWELL: No! I’m not doing that.
DARRIN T. MISH: How big a check?
KATRINA MADEWELL: It depends on the size of the group. Some are heavy players, some are not. I pay for coaching as well, and it’s probably way more than most people would. It’s questionable, but the whole idea is to help you get to the next level and have somebody hold you accountable. For what I’m paying that coach, they better hold me accountable if I’m not hitting those numbers.
Motivation Tip #9: Stay Patient
DARRIN T. MISH: You need an accountability partner. You may not have anyone in your personal life that can serve as that, and you might have to go online and get into a Facebook group or whatever. The next one is, stay patient. It took you years to accumulate the debt, and it might take you years to get rid of it. The other thing to think about is as you’re shedding the debt, almost by definition, your interest will go down and you’ll make more headway and you’ll have the snowball.
KATRINA MADEWELL: I tell people you didn’t get into a mess overnight, you’re not going to get out of it overnight.
DARRIN T. MISH: Are you doing everything you can do to further your goal of getting out of debt? If the answer is yes, then calm down, relax. Awesome, you have a plan. That’s one of the problems people have with IRS problems is they have a big problem, and they don’t even know how to formulate the basis of a plan.
Motivation Tip #10: Reward Yourself and Have SOME Fun
KATRINA MADEWELL: The last one our list is to record your progress.
DARRIN T. MISH: Absolutely.
KATRINA MADEWELL: Oh, wait, I skipped ten.
DARRIN T. MISH: You have to reward yourself and have fun, but make it reasonable. We talked about that in the first segment. It can’t be all spartan living, wearing loincloths and living in a grass hut. You have to have some reward. If you like eating out, go eat out once a month, but don’t go to the high-end steak house. Go to someplace more reasonably priced. We went to Chilis the other day and for $10 you got a great meal.
Motivation Tip #11: Record Your Progress
KATRINA MADEWELL: The last one is, record your progress.
DARRIN T. MISH: If you don’t record your progress, then it’s not going to feel like you’re making any progress. There’s a saying, what gets recorded, is improved. So, when I was looking at those spreadsheets, I still look at them, but when you look at those spreadsheets, you get motivated and see the progress. The software I use is cool because it tells you where you started out.
KATRINA MADEWELL: Then you can look where you came from. Have your emergency fund in line. Dave teaches 3-6 months’ worth of expenses. If you’re self-employed, six months. Or a job that’s volatile, absolutely six months.
DARRIN T. MISH: We talked a lot about Dave Ramsey today, but Scott Alan Turner at scottAlanturner.com was the basis of this show. I would encourage you to go check him out. He’s not quite as well known as Dave Ramsey. But check him out. He has a slightly different philosophy. I think more in line with what how I believe, and maybe, Katrina, you believe.
KATRINA MADEWELL: Yeah, we have to have that balance. But Dave teaches to put 20% down every single time and don’t take a 30-year note. I get people from his network, is that always the plan? NO, that’s not always the best plan.
DARRIN T. MISH: It’s not the best plan for everyone anyway. There are times when you want to reach. We bought the house that we bought because I needed to stretch. I need to stretch, so I can stay motivated and help more people.
KATRINA MADEWELL: You’re listening to the IRS Solution Show. We’ll be back in just a minute to wrap up the show.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show, I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell, thanks for sticking with us through the break. If you are just now joining us, this is 11 ways to stay motivated if you’re getting out of debt. We probably much wrapped up the show a little bit earlier. Some really good points. The whole thing is available on a podcast if you want to catch it there.
DARRIN T. MISH: You can check out the podcast at the IRS Solution Attorney show. You can also download the app at the app store, at whatever the Google store is called.
KATRINA MADEWELL: The Play Store.
DARRIN T. MISH: I’m not sure if people will get into my app will play anything, other than play the game of getting out of your tax debt.
KATRINA MADEWELL: We rarely get to our questions during the show. We have a little bit of time to get to one of our questions. This is from Shane. He wants to know; how do I know if I have to file quarterly individual estimated tax payments?
DARRIN T. MISH: There’s a textbook answer. The textbook answer is if you expect to owe at least $1,000 in tax after the current tax year after subtracting your withholding and refundable credits, then you’re supposed to make an estimated tax payment. The other thing is you only have to pay 90% of the prior year’s tax liability to be considered current with your estimated tax payments.
If last year you owed exactly $10,000, then you only have to pay 90% of $10,000, which is $9,000 to be considered current for estimated tax purposes. Meaning you won’t get the estimated tax payment penalty. This is one penalty I’ve always thought should be higher. The ES penalty is super low. I pay one every year because I don’t get it exactly right and it’s like $200 or something. It’s really small.
KATRINA MADEWELL: Why do you think it should be higher?
DARRIN T. MISH: I think if it were higher, it would encourage more compliance.
KATRINA MADEWELL: Ok.
DARRIN T. MISH: This is one area of the law where I think people could use some encouragement. They could be a little bit more interested. The payment of estimated tax payments is your ticket to freedom. Having that discipline to get some money paid in so you don’t get to April 15th and you have this giant tax bill and you don’t know what to do with it.
KATRINA MADEWELL: We talked about paying it quarterly and I know that was Shane’s question. I make tax payments monthly when I pay myself. If I got paid weekly, I would do it weekly.
DARRIN T. MISH: I encourage people to do it monthly. There are some people that I have to ask them to do it weekly because they can’t get their head wrapped around the bigger number.
KATRINA MADEWELL: I think if you’re self-employed, just do it when you get paid.
DARRIN T. MISH: That’s a little bit simplistic. You pay yourself a salary, I know that because we’ve talked about it. But most real estate agents kind of live from closing to closing. I would say when they get that closing, that’s when they should pay their estimated tax payment. It’s not necessarily monthly, some agents don’t close a house a month. Some agents close five houses a month, or 20 a month. Most agents five houses a year if they’re lucky.
DARRIN T. MISH: There ya go. They only get paid every couple of months. Therein lies the problem.
KATRINA MADEWELL: We have to take Craig’s question. He wants to know if he can move into his rental property, live there as our main home, and then sell it without having to pay capital gains. I say yes because if they don’t have a primary, they should be able to do that.
DARRIN T. MISH: That is the rule. Now, caveat, which means caution. Because you always give me a hard time for saying lawyer words. The caveat is, I had better see good documentation on the fact that you’re actually living in that house. I better see your driver’s license changed, voter registration changed, school records, utility bills, all that kind of stuff. Make it easy for your lawyer to prove that you aren’t doing anything shady. That’s the point.
KATRINA MADEWELL: Back to what he said, he was asking if he could move into the rental property. If you do…
DARRIN T. MISH: Ok, but after 20 plus years of representing clients, there’s an underlying question here, can I get away with it being shady? That was the other part of the question. You can’t read it because you don’t have the same experience.
KATRINA MADEWELL: I don’t see that part of it.
DARRIN T. MISH: I’m just kind of kidding here. Most people that talk to me are fine and wonderful people but there is always some element of folks trying to get over on the system. All I’m saying is, even if you’re going to try and do that, just make sure you have good documentation. You might get away with it I don’t know. The IRS runs on documentation, we know that.
(train wreck sound)
DARRIN T. MISH: It’s about that time. It’s time for the IRS Train Wreck of the Week. This is the segment of the show where we talk about someone that came in and their IRS situation was a train wreck. This week’s example is no different. This gentleman has been a pleasure to work with. I’ve been working with him for almost four years. He was a non-filer and hadn’t followed a tax return since the early 2000’s. He was real estate investor and he was a flipper. You know what a flipper is, a flipper is someone who buys kind of junk houses…not necessarily always junky houses.
KATRINA MADEWELL: They buy them for cheap, fix them up, and make a profit.
DARRIN T. MISH: Yeah. He would buy junky houses, he would fix them, flip them, and make a profit. The problem with that is you need lots of documentations. If you fix them, you’re going to have lots of expenses and if you don’t file a tax return, the IRS is going to take the gross proceeds of the sale, go ahead and multiply that by the tax rate and that equals your tax bill. That’s what happened to this gentleman. He ended up owing $250,350 after we filed everything.
But one of the years was a substitute for return, where the IRS just added up all the revenue and multiplied by the tax rate, and they came out with a tax bill just short of $80,000. When he heard that number, he was freaking out. He was like, I didn’t make any money that year. That house just about killed me. So we filed an original return in that particular year and we got that $80,000 bill knocked down to about $250. That was a pretty big deal for him.
I think there were one or two other years that were like that. Where we filed original returns. There was at least one other where we knocked it down from a big number to a more reasonable amount. Then what happened is he still owed a fair amount of money, more than $100 grand to the IRS and he sold one of these houses.
One of these houses got ready to sell, there was a tax lien attached. When he sold that house, a bunch of the taxes got paid. He was fine with that in this particular scenario. Just recently, he still owed about $50 grand and we got him into an installment agreement that was pretty simple. And for the first time in the last 10 or 15 years, he’s current with the IRS.
He has an installment agreement; he has a plan, he doesn’t have to worry about the IRS anymore. He just has to worry about making that payment he can afford. He can pay this thing off right now if he wanted to, but he wants the cash more than he wants it to be paid off.
KATRINA MADEWELL: It makes me cringe thinking about just buying properties and not being prepared. It just makes me cringe.
DARRIN T. MISH: We’ve had extensive conversations about good documentation. It’s really important in that business that you have good records. Home Depot receipts fade.
KATRINA MADEWELL: Those thermal ones?
DARRIN T. MISH: You better have those things photocopied that you can prove them. If you think you’re going to leave them in a pickup truck for a year and be able to read them? You have another think coming.
KATRINA MADEWELL: Use Shoebox. We’re out of time. It was fun talking about 11 ways to get out of debt.
DARRIN T. MISH: Yeah, we had fun.
KATRINA MADEWELL: Thanks for listening to the IRS Solution Attorney show. You can check out Darrin at irssolutionattorney.com. And you have another one?
DARRIN T. MISH: Getirshelp.com is the main site.
KATRINA MADEWELL: A little easier. You can get him at 888-GET-MISH.
DARRIN T. MISH: Website: getirshelp.com; Podcast IRS Solution Attorney. App: IRS Solution Attorney. For this week, we’re out.
KATRINA MADEWELL: Bye.