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Guest: Pat Darby  |  Published: 2/25/2024

In fact, welcome to Trulyfit, the online fitness marketplace connecting pros and clients through unique fitness business software.

Steve Washuta: Interestingly, welcome back to the Trulyfit podcast. Pat Darby, thank you so much for joining me. For listeners who haven’t heard you on the podcast the first two or three times, can you quickly summarize your bio and what you do in the financial world?

Pat Darby’s Background in Financial Planning and Tax Advisory

Pat Darby: Notably, thanks again, Steve, for having me back. I apologize if I sound a little nasally, I’m a bit sick. But yeah, I’m a certified financial planner and a certified tax advisor to the companies I run. And I help mostly in the online fitness space. We have Darby Wealth Planning, a registered investment advisory firm, and our sister company is Sin City CFO. That’s where we do business tax consulting, virtual CFO work, tax advisory work, bookkeeping, and tax filing. We try to be a turnkey operation for online fitness coaches, but also for online business owners in general. We’re here in Vegas, we work with some content creators, and we’re pretty heavy in the online fitness space.

Steve Washuta: We’ll hit on all things in the financial world, but let’s start with the tax realm. What has changed between 2023 and 2024 that both small business owners and the general public should know about?

What’s New in the 2023-2024 Tax Year

Pat Darby: As it turns out, there hasn’t been a huge change between 2023 and 2024. We’re recording this in February 2024, and there haven’t been that many big changes. The one that’s probably most impactful to people listening is bonus depreciation. It’s dropping by 20% each year, so it was at 100% in 2023 and dropped to 80%. Now in 2024, we’re at 60%. That’s going to impact the people who love that TikTok advice about buying a G Wagen and writing the whole thing off. For most people, I don’t think it will be as materially impactful. And there are actually discussions in Congress, I believe, about pushing it back to 100%.

Steve Washuta: So that changes the way that employers are paying out?

Bonus Depreciation and the Truth About Writing Off a Vehicle

Pat Darby: To that point, it would be more for the business owner itself. Because it gives you the ability to buy a heavy vehicle and write it off. And bonus it as much as possible. The challenge, and this is a bit of a side note, is that auto depreciation is miscategorized dramatically on social media. If the vehicle is heavy, then yes, that’s what gets lost in translation. If it’s more than a 6,000-pound vehicle, that’s when bonus depreciation is what everyone is excited about. The problem is when you run into luxury vehicles under that weight. The write-off is actually horrible. If you have a $200,000 or $300,000 vehicle, the depreciation on it takes something like 20 years to write it all off. Because you get around 50 or 60k in the first few years. And then it’s about 7k a year in perpetuity until it’s down to zero.

So people with those super luxurious vehicles that aren’t heavy are usually in for a rude awakening. They sit down with their accountant and find out the bonus is only around 20 grand the first year. This is nothing if you just spent 20 grand on a car.

Does Leasing a Vehicle Change Your Tax Write-Off?

Steve Washuta: So leasing doesn’t get you into those same write-offs that you’d get just because of the weight of the vehicle. Correct?

Pat Darby: Overall, leasing actually does help in a way. Because it’s based on what you spent rather than the purchase price, since you’re not actually purchasing. So leasing can do a little bit better. Again, I’m not a car expert, so leasing comes with a pretty expensive price tag itself. But from a tax perspective, it’s not dollar for dollar. Because there’s a lease exclusion where the IRS adds back to your deduction if the vehicle is worth more than roughly 65k, which is what they consider luxury. So if you have one of these very expensive leased vehicles, the amount you think you’ll deduct is going to be slightly less. Because there’s a formula your accountant has to follow for every dollar over that amount. The deduction is lost to some extent. But it’s still going to do better than most purchases over a shorter period of time.

Why Your Tax Refund Can Change Even When Nothing Else Does

Steve Washuta: For context, i’m obviously not in your world, so this is more anecdotal. Since I don’t see the volume of tax returns and finances that you do. But in casual conversations, something that seems to come up often is people saying, “Nothing has really changed from year to year. I made the same amount, went through the same process, the same business model, whatever. But the amount I owe, or the amount I got back, was vastly different.” Why is that the case?

Pat Darby: If you made the same amount of money in 2023 and 2024, in theory you should pay less. Because deductions and thresholds are indexed for inflation. So if you made no more, you’ll pay less, because the standard deduction and the married-filing-jointly brackets have gone up. They’re even talking about increasing some of the child tax credits, so in theory you’ll pay less. But since we work mostly with business owners, paying less tax is the goal. Though making more profit is, in my opinion, the more important goal, because tax deductions are just a coupon.

Why “Deduction Shopping” Rarely Pays Off

Pat Darby: That said, depending on your tax bracket, let’s say you’re in a top bracket where federal tops off at 37%. To keep the math simple, add 3% for the state, so you’re at 40%. Going out and spending 50k or 100k on something you don’t need only gets you a 40%, or $40,000, deduction. It’s worse if you didn’t need that item in the first place, because there’s no ROI on it. I don’t agree with those strategies. That’s why, looping back to the vehicle, I don’t like it when people who don’t need a vehicle try to buy one. Because there are other things you can do.

Steve Washuta: Right, these decisions aren’t made in a vacuum. It’s not just “I can get some money back for this.” It’s “what else could that money have brought into your company instead?”

Long-Term Tax Planning: The Peter Thiel Roth IRA Story

Pat Darby: Meanwhile, just open up a retirement account and pay yourself. You still get the tax deduction, but you keep the money and defer taxes to later, and that’s really the game. That’s where I butt heads with a lot of CPAs who are more old-school. Tax planning is not about paying less tax this year, it’s about paying less tax over a lifetime. Sometimes you want to strategically pay more now. Because you’re forecasting how your business will do and trying to guess where tax rates are headed, which obviously none of us really knows. We don’t even know where they’ll be in 2026. But that’s the game. The best example of this is Peter Thiel. Are you familiar with him?

Steve Washuta: In particular, i am, yeah.

Pat Darby: For the audience, he’s part of the “PayPal Mafia,” if I’m not mistaken. This is where he made his original big money. He was smart enough to put a lot of money into his Roth IRA when he was getting started in business. For people unfamiliar, a Roth IRA is post-tax money: you pay the tax first, then put the money in. I don’t know that he was a top earner yet. And he was probably in California, so his taxes weren’t low. But he was fully funding his Roth IRA and had a lot of money in there.

How Peter Thiel Turned a Roth IRA Into a Tax-Free Fortune

Pat Darby: When his opportunity came along to invest in Facebook, he invested through his Roth IRA. He put 500 grand in as basically the seed investor. And that ballooned to 5 or 6 billion dollars, all inside his Roth, which will never be taxed again. That’s the gold standard of tax planning. Because he bit the bullet and put it into a Roth IRA instead of a traditional IRA. That’s where he could have taken the tax deduction. I’m sure some CPAs would have said, “You’re in California making millions, take the deduction.” He didn’t, and he’ll legally avoid taxes on literally billions of dollars. In my opinion, that’s the gold standard.

Planning Ahead: Timing Deductions Around Your Tax Bracket

Pat Darby: Ultimately, that’s where you’ll get pushback sometimes from your tax professional. Because they’ll want to take the tax deduction today, and I don’t think that’s always the best approach. As a business owner especially, you have to sit down in November and look at what you expect to do next year. I have this conversation a lot with clients: we’re analyzing your taxes and figuring out how much you’ll owe. But you have to look at what bracket you’re actually in. If you’re a married couple, the 24% bracket is pretty wide. So you might feel like your business is generating a lot of tax and want to cram in a bunch of deductions. But then you look at the trajectory of the business, and you’re on pace to do way better in 2024.

In that case, don’t start swiping your card for trips and things you don’t need just to lower your 2023 bill. You’re likely going to push yourself into the 32% bracket easily in 2024 anyway. Those exact same expenses, the trip you need to take, the coach or mentor you need to hire, would be a much more powerful deduction in the future. That’s why tax planning is more of an art than a science, or maybe a combination of the two. There are a lot of lazy tax professionals who just try to ring the register this year. And that can be much more costly for your future from a tax perspective.

Shohei Ohtani’s Contract and the Limits of Dodging State Taxes

Steve Washuta: In fact, i wish I’d come armed with all the specifics here. But I’m sure you know who Shohei Ohtani is, arguably the best baseball player in the world, who just signed a contract with the Dodgers. What they did, in order for him to circumvent paying taxes, was structure it so he’s making $3 million a year instead of what should be $30 million a year. Once he’s no longer a Los Angeles Dodger and has moved to a different state, he’s then going to get paid $200 million after that. So he circumvented the California taxes, which just shows there are ways around the system regardless of how much money you make.

Pat Darby: Yeah, especially since he has a business organization willing to play ball with smart people working on it. But the states are aggressive, so I’m curious what team he plays for. The Dodgers? That’ll be interesting, because California is aggressive.

Steve Washuta: Interestingly, it’s wonderful, by the way, that this shows you know your stuff. Because the first thing that came out when I read about this is that current law allows him to do this. But that doesn’t mean California can’t change its bylaws before then and come after him. I’d imagine, since they don’t want other athletes following his path and California losing hundreds of millions of dollars, that they’ll move to close this loophole.

How States Chase Down People Who Claim to Have Moved

Pat Darby: As a cautionary note for anyone, and this is a bit of an aside. If you owe both the IRS and the state money and can’t afford to pay both, pay your state. States are far worse to owe money to, or be delinquent with, than the IRS. Because they’re smaller and more aggressive, especially places like New York, California, and New Jersey. They charge a lot. And they all have something in common: they’re all the same color, meaning they’re all blue states. So if you’re moving out of one of those states, don’t try to keep a toe in the water. Because of exactly the kind of issue this Ohtani situation could create if you have a successful business. If you’re in California and moving to Nevada, or doing the Texas thing, make sure you really leave.

Because they’re looking for people who only pretend to leave.

Notably, they’ll audit things like where your pet goes to the vet. If you say you live in Texas but your dog is going to a vet in LA, that’s a giveaway. Because people don’t send their pets to a different state than the one they actually live in.

Moving Your LLC: What Domestication Really Means

Steve Washuta: As it turns out, what’s the term for when you move a business, like an LLC? Can you not do that in certain states, or move a business to another state?

Pat Darby: To that point, it’s called domestication, where you physically move your LLC to a new state. Not every state allows it, and there are some weird rules. So you always have to talk to a lawyer about which state you’re leaving and which you’re going to, to make sure there’s reciprocity. But most states allow it. When I left New Jersey and came to Nevada, I did domestication. For your listeners, that means everything stays the same: your LLC, your tax ID, your banking. The only difference is that Nevada now recognizes your LLC, and it’s dissolved in New Jersey. California gets weird with that.

Does Your LLC Have to Live Where You Do?

Steve Washuta: Overall, let’s stay on that. Say you’re a virtual personal trainer living in South Carolina. And you move to Florida midway through the year, and you have an LLC. Could you not just leave your LLC in South Carolina? Does the LLC have to be where you’re physically sleeping at night?

Pat Darby: For context, from a tax perspective, there are two ways to tackle this. There was an article a law firm gave me when I was living in New Jersey, about moving from New York to Florida. It walked through case law involving business owners, and I think it was three brothers. One moved to Florida the right way, one stayed in New York. And one faked a move to Florida but left residuals behind. The standard was selling the business for something like $20 to $30 million, and New York wanted its cut. One brother, who did everything right to establish Florida residency, was fine. The one who obviously stayed in New York owed what he owed. But the one who faked the move ended up owing millions in New York State taxes, because he didn’t fully leave.

To answer your question, you don’t need to take your LLC with you.

But you’ll still owe taxes in that state, especially if it becomes an issue. Say you end up selling your company while living in Florida, but the LLC is still in South Carolina. If you owe them something substantial, South Carolina is going to expect its cut. In general, though, you want your operational business LLC to be where you actually live. Because that’s the misconception people run into when they go to form their LLC.

Why Pat Darby Recommends Using a Lawyer to Form Your LLC

Pat Darby: That said, that’s why I highly recommend people have their LLC formed by lawyers, not the big websites where you’re basically talking to a customer service rep. Because they’ll put you wherever you tell them. Or try to push you into somewhere like Wyoming and sell you on privacy protections. I’m not a lawyer, so this isn’t legal advice, but the way to think about an LLC is really twofold. Is it for investment properties, or is it for an operational business? If it’s an investment property, like rental real estate, you want it where the property lives. Because now you’re talking about asset protection, and somewhere like Wyoming or Ohio, where privacy laws are strong, makes sense. If you own an expensive piece of property, you don’t want the world to know you own it. And you want to reduce your liability.

But if you’re running a fitness business, you want everyone to know you have that business. Privacy protections make no sense when you want the whole world to know you exist. So it makes no sense to drop yourself into Wyoming and call it privacy protection for an operational business. More importantly, if you’re living in California and someone told you to go to Wyoming, California doesn’t care that you have a Wyoming LLC. You still owe them all the same taxes, except you’ve now added a layer of complexity. Because inside California you have to foreign-register your entity. Now you’re just adding more paperwork and paying fees in two states to exist. And you still haven’t saved any taxes, you’ve just made your life more difficult.

Surviving an IRS Audit: Why Documentation Is Everything

Steve Washuta: Meanwhile, let’s move on to audits. Everyone’s afraid of getting audited. What can people do to avoid it. And on the flip side, what are the things that raise a red flag for an audit?

Pat Darby: In particular, i don’t do audit work myself, but one of the things we’re always doing is getting people prepared in case they ever are audited, and that’s just documentation. The cheapest, best bookkeeping you can do is keep your receipts and stay organized. That matters because the burden in an audit is on you, not the IRS. It’s one of the only places where it’s guilty until proven innocent. They’ll say, “This is what we think your revenue is,” and they get those numbers from verifiable sources. Because you’re probably getting paid through Cash App, Venmo, Stripe, PayPal, all these places where the IRS can find out exactly what you received in two seconds. So on their end, they’ll say, “We know you received 300 grand.

So you owe us taxes on 300 grand of income.” The burden is on you to prove, “Well, I only owe taxes on my profit,” and you have to prove what your legitimate business expenses actually were. That’s where receipts come in.

The Receipt Rule: Why Credit Card Statements Aren’t Enough

Pat Darby: Ultimately, a credit card statement alone doesn’t count. To use a national example, you can buy almost anything at a 7-Eleven: gas, alcohol, food. Say you’re on a road trip for business and you swipe your card at the gas pump for $50. The IRS has no idea whether you actually bought gas or two cases of beer. That’s why the credit card receipt alone is useless. Amazon is another good example, since Amazon sells everything. You can’t just show the IRS a credit card charge that says “Amazon.” They want to know what you actually bought: was it an office computer, or something personal? So the main thing is receipts, and one more piece of that is the 1099. We just had that deadline on January 31st. So for every vendor you paid in 2023, you need to send them a 1099.

If you have a vendor you pay through a platform like Xcel, and you paid them $5,000. But that platform isn’t a payment processor and won’t issue the 1099 for you, that 1099 becomes a critical piece of proof for the IRS. Without it, they could disallow those legitimate expenses.

Fact-Checking TikTok Finance: Does the 50/30/20 Budget Rule Work?

Steve Washuta: In fact, good information. Let’s move on to potentially bad information: TikTok finance. I always rail on TikTok fitness too, not that it’s all bad. But when you’re a professional, there are always caveats. Because there are so many variables that go into every situation, and we like to individualize information. We have overall principles we try to stick to, you have them in finance, I have them in fitness. But we can’t always make blanket suggestions for people. So I want to run a few TikTok finance trends by you and get your macro view. The first is the 50/30/20 rule, splitting your money between necessities, wants, and savings. Is that a good idea?

Pat Darby: Interestingly, i love it. How people break it down varies, but I think budgeting as a concept doesn’t get talked about enough. I heard recently that some in Gen Z are saying self-care is more important than budgeting for something like buying a home. I’m not Gen Z, but I don’t understand that. It’s like the fitness version: “I cheated on my diet with one slice of pizza. So I might as well eat the rest of the pizza.” If things are expensive, and inflation is high. And buying a home or a car is expensive, how is spending more cash going to help? I’m all for budgeting, however people do it, whether they use those specific percentages or not.

Pat Darby’s System for Splitting Fixed, Variable, and Non-Monthly Costs

Pat Darby: Notably, i’m a big fan of separating costs into monthly and non-monthly, and then variable versus fixed. Everyone has fixed monthly costs, like your cell phone, your rent, most insurance policies. Then you have variable monthly costs that are harder to track, like groceries or going out to dinner. Both of those are monthly, so you can get a ballpark for them. Then you have non-monthly expenses, things like property taxes, or things you know will come up but don’t know when. For me, since I’m not a big fashion guy, I put clothes in that bucket. Because I don’t know if I’ll buy a bunch of clothes in one month and then nothing for a while. Medical is another one; I could go months or years without seeing a doctor. But I still budget for it as a non-monthly expense. Those are the three categories I use.

As it turns out, the percentages are up to each person, and it’s harder for business owners. Because if you get a W-2 paycheck, it’s easy to do the math on what’s left after taxes. As a business owner, it’s harder, because you could have a really good year or a really bad year. This is why I like to really dig into what your true expenses are.

Cash Stuffing: Helpful Discipline or More Trouble Than It’s Worth?

Steve Washuta: To that point, moving on to cash stuffing. If you don’t know what this is, it’s basically the new generation saying, “I’m going to put cash into envelopes. And that’s what I use to buy things.” The idea is that if you see the cash in front of you, you’re less likely to spend it than with a credit card, which just feels like plastic.

Pat Darby: Overall, my thoughts on that: I personally don’t like cash, for two reasons. One, I’m just used to the convenience of swiping a card. I like using a credit card because I get the points. And I don’t hold a balance, so I don’t pay any interest. The other advantage of a credit card over a debit card. Or straight cash, is that you have more creditor protections. If someone steals your credit card, you can work with the company to get the money back or have the charges removed. If someone cleans out your debit card account, that’s very difficult. And if someone steals your cash, you’re probably completely screwed, whereas with a debit card you at least have a chance. I’m also OCD about tracking things. I track every dollar in my business and my personal life using apps like Mint that link to my accounts.

So I don’t have to stare at it all the time. But whenever I need to reverse the numbers or update a budget, that data is all there. If you paid cash, you have no way to go back and do that homework. The cash is all over the place, especially in your business. Using cash is a disaster.

When Cash Stuffing Works as a Discipline Tool

Steve Washuta: In my opinion, as a micro-budgeting tactic, it could make sense. Let me put this forward: say I’m 23 years old and I struggle to not just swipe my credit card at all times. And I’m going to the bar tonight with friends. Instead of taking my credit card, I take $80 or $120, whatever I think I can afford that night. It’s like gambling in a sense: if you only go to the tables with a certain amount of money, that’s the most you can lose. So now I know I’m only spending that $80.

Pat Darby: For context, from that perspective, I do like it, if it’s serving as a controlling mechanism or a forced-discipline tool. Any way people put financial barriers in their life to help them hit their goals, I’m all for it, however they do it. I personally just don’t like cash, but I’d never discourage someone from something that works for them.

TikTok Investing Advice and the “Behavior Gap”

Steve Washuta: That said, tikTok investing, sticking with percentages: they say 40/30/20/10 across ETFs, large-cap growth, and penny stocks. Is this nonsense, or not too bad?

Pat Darby: Meanwhile, i don’t think there’s a right or wrong if you’re going with a diversified portfolio. When it comes to investing, and when I sit down with a client, it’s about putting together a plan that will work when everything’s going wrong. Because there’s a term called the behavior gap. I don’t know if your listeners are familiar with it, but it basically describes what an average index does. Let’s say, for hypothetical purposes, the S&P 500 historically does 6%; I know Ramsey will say higher depending on the years you use, but I use a conservative number. So it does 6%, and then someone sits down and says, “Well, I’m only averaging 3%. And I’m invested in the S&P 500, so what happened?” Usually the difference between the 6% it should have given you and the 3% you’re actually getting is your own human behavior.

And that’s what they call the behavior gap, because it’s you messing it up.

The Investments That Work Because You Never Had a Choice

Pat Darby: In particular, i can’t tell you how many clients I’ve sat down with whose two best investments were a 401k they had no access to. That’s where the money just kept going in through good times and bad. And their second best was usually their home. Sometimes the third is an insurance policy. What all three of those have in common is that you didn’t have a choice when things got bad. You still put money into the 401k, you still paid the mortgage, you still paid the policy premium or it would have lapsed. So really, the difference is you didn’t deviate from the course when the market was really high and you thought it was too expensive. Or when the sky was falling and you thought the market was going to zero. You still kept the course.

Why Chasing the Market Is a Losing Game

Pat Darby: Ultimately, i don’t think it matters as much which specific allocation you pick. I think it’s quite similar to fitness. That’s where there’s obviously a million diets out there and none of them are bad if you can stick with them long term. I’m not a dietitian, but the purpose is discipline for the long haul. If you have an investment allocation you’re comfortable with, you’re young, you have the time horizon. And you’re not going to mess with it when the next scary thing in the economy happens, then I think it’s the right allocation. That’s where people get messed up: they panic-buy, they panic-sell, and that’s when they start making mistakes, in my opinion.

Steve Washuta: In fact, part of it is fun too, let’s be honest. People are trying to forecast or judge the market, and it’s a form of gambling in a sense. People on Robinhood, or trading cryptocurrency, the buying and selling itself is fun for them. But you have to have somebody who knows more than you. And you have to be humble enough to know that outside of luck, there’s no way you’re going to time everything perfectly. It’s much easier to just let it ride for the long haul.

Alex Hormozi’s Take: Stop Trading Time for Market Returns

Pat Darby: In terms of market timing, when I was first introduced to Alex Hormozi, one of the first things I heard him say was about active management. And it made me love him instantly. He’s even bigger now than when I first started seeing his content. I’m paraphrasing, but he said people shouldn’t be actively managing their own assets until they’re worth something like $100 million. Because it becomes a distraction from your business. Giving people the benefit of the doubt, say the stock market returns 10% and you’re a kick-ass active trader getting 20% instead. That extra 10% you gained, how many hours did that take away from your business? If you’d put that time back into the business instead, how much more money would that have been? Instead of doubling your investment return, what if you doubled your company’s revenue?

Interestingly, he said to do that every year, and that’s the math I agree with most. If you have a business, that’s one of the best assets you could put your time into, rather than trying to time an investment. Focus on growing the asset that’s most under your control, meaning your business.

Whole Life Insurance and “Infinite Banking”: Pat Darby’s Honest Take

Steve Washuta: Notably, whole life insurance and borrowing against it has been a huge social media trend for the last six months. It almost feels like multilevel marketing at this point. That’s where people push it, sell courses on it, and get other people pushing it underneath them. Can you explain what it is, why people do it, and whether you think it’s a good strategy?

Pat Darby: As it turns out, i feel pretty strongly on this, and I butt heads with friends of mine over it. I have friends in the insurance space who I think have two qualities: knowledge and ethics. I think the vast majority of people selling life insurance only have one of those, and that’s the problem. Most people I know in insurance are genuinely good people, but they’re part of a sales program. It’s not comprehensive; they teach you what you need to know to sell and get you licensed. So they have all the ethics in the world. But they’re only as good as what their sales training taught them. Then, on the other end, you have people at the big companies who really know their stuff. And they’ll push products at you that you have no business buying. That’s the issue with it being out there so widely.

How Indexed Universal Life and “Infinite Banking” Actually Work

Pat Darby: To that point, they’re called IULs, Indexed Universal Life policies, and you’ll see them a lot. The concept itself is good: you put your money into an account that’s guaranteed, because it’s an insurance product. So they can use the word “guarantee,” and it gives you a return. Though the details vary, so make sure you do your due diligence. The rate of return is fixed, or at least has no downside. You might not get below 0% even if the market is down 20%. But you’re also capped on the upside. So when the market is up 20%, you’re only getting your policy’s six or seven percent. They call it Infinite Banking, because you can borrow from it as a participant loan. And the concept is that they’ll only let you borrow so much, so the policy never blows up. Because it’s a loan, it isn’t taxable.

So you’re essentially banking with yourself until you die, at which point the loan gets paid off and the difference between the loan and the death benefit goes to your family.

When Whole Life Insurance Actually Makes Sense

Pat Darby: Overall, that’s the concept, but the problem is that it’s sold by a lot of predatory people. There are legitimate applications for it, and where I butt heads with colleagues I think are actually very knowledgeable and ethical is about the sequence of events. If you’re a business owner who isn’t fully funding your retirement accounts yet, I don’t think insurance is the right spot. But if you’re a very successful business owner, multi six or seven figures. And you’ve maxed out every retirement account and you’re already buying investment properties. And you’re asking, “Where do I put the rest of my money?”, I don’t see a problem with it being a third vehicle. It has some guarantees, which is nice, and creditor protection.

For context, the more money and assets you have, the more it makes sense to have another bucket of money that a creditor can’t come after if you got sued. Or your kids did something that got you sued. I’m on board with it in that context. But I think it gets sold too often to young business owners. Or even people who aren’t working full time, people who lost a job or are down on their luck, as this magic trick to get out of a bad financial situation.

Pat Darby’s Own Bad Experience Getting Sold a Policy at 20

Pat Darby: That said, i dislike these policies for a personal reason too, because I was sold one before I was in finance. When I came out of college around age 20, I was sold one of these policies. After two or three years, once someone explained what I actually had, I was given two choices. Keep paying forever, which at 23 with no beneficiaries made no sense. Or surrender it and walk away with a couple thousand bucks, which is what I did. I literally walked away with nothing, because someone pitched this to me as a great retirement investment. If I’d put that same money into a 401k or Roth IRA instead, I’d still have it today.

The Lock-Up Period Insurance Salespeople Won’t Mention

Pat Darby: Meanwhile, that’s what I don’t like: people who sell these will do the math and say, “You’re capable of $500 a month forever,” and dangle those Infinite Banking loans. But that access typically doesn’t happen for five to ten years, because the policy needs time to sustain itself. When a policy first gets written, the insurance company is essentially losing money, because of sales, marketing. And underwriting costs, so they won’t let you access your money for a while. That’s the other thing people get misled by. They’ll hear “401k is locked up until you’re older,” but there’s a lock-up period with insurance too. When it comes to retirement vehicles, it depends what you want to use the money for. Since you could use a retirement account to buy a company, like Peter Thiel did with Facebook through his 401k. I don’t hate these products as an investment.

But they’re oversold to people who don’t know what they’re buying, and there are probably other, less costly options. Because once you start funding a Roth and the business hits a rough patch, you can simply stop funding it. You can’t stop funding one of these policies without it lapsing.

Helping Clients Stay Accountable to Their Financial Goals

Steve Washuta: In particular, let’s talk about the crossover between fitness and finance. In my world, I might have a client I need to have a tough conversation with. Because they’re not meeting their goals due to bad decisions. Maybe their goal is to lose 15 pounds and get stronger. And through our weekly check-ins I can tell they’re drinking too much or off their diet. And we have to have those tough conversations. Do you feel comfortable doing that in your position? Not just from an investment angle, like telling someone with less money not to invest in something, but from a spending perspective too.

Pat Darby: Ultimately, sure, maybe they’re spending too much to stay on track with their own plans.

Steve Washuta: In fact, exactly, spending too much in areas that even they might agree aren’t the responsible choice. And maybe that’s the sole reason they’re not meeting their goals.

Why Clients Derail Their Own Goals Less Often Now

Pat Darby: Interestingly, early in my career that was a bigger problem. Clients would tell me their goal, and then constantly derail it themselves. And a lot of that has actually gone away, though I’m not entirely sure why. That was also early in my career, before I was working as much with business owners. Now, with business owners, it happens less. Though it’s harder for me to articulate exactly why I have more compliant clients now. Maybe it’s because we spend so much time focusing on their goals, in the same way fitness works. Though I don’t set clients’ goals for them; I just make sure the goals stay front and center for them.

Steve Washuta: Notably, that ties back to what you’re saying. They have their own intrinsic motivation to build a successful business, they’ve invested money in you as a professional. So they don’t really need a slap on the wrist. They’re already doing the right things.

Turning Client Goals Into KPIs Instead of Guesswork

Pat Darby: Right, and beyond that, when we sit down and build out goals, we can extract KPIs and put them right on the client’s report. It’s literally the top of the report: “This is the amount of profit you wanted, this is what you actually hit. And here’s the percentage you were off.” The good news is that most clients who are off track want to fix it just as much as I do. It’s rarely self-sabotage. I’m thankful I don’t often have clients who say, “I wanted to hit this number. But I went on a $30,000 vacation instead.” It’s usually more like, “We lost some clients,” or “We hired someone who didn’t work out,” so it’s less about sabotage and more about figuring out the issue together.

How Short-Term Goals Can Sabotage Long-Term Wealth

Steve Washuta: As it turns out, staying on this topic, short-term goals sometimes hinder long-term goals. I know you’ve talked about this before. In fitness, I might have a client whose short-term goal is vanity, like wanting one particular muscle to pop, without understanding that there are antagonist muscles that get affected. And that we have to keep them well-rounded on both sides. What’s the biggest short-term goal you see clients or the general public chase that ends up hurting their long-term goals in finance?

Pat Darby: To that point, probably, going back to the vehicle again, I feel like a car derails clients the most. If they don’t need the vehicle and could put that money toward an actual asset instead, like their first home or first rental property, that’s usually where I’m trying to talk them out of it. I try not to impose my own bias, since I’m just not a car guy. And I get that some people love cars, so that doesn’t excite me personally. But I do try to point out, financially speaking, that you’re sacrificing X for Y. Outside of that, I don’t have a lot of clients get derailed by a single short-term goal. I think for business owners the bigger issue is shiny object syndrome: where do you invest the money? On one hand, you really want to max out your 401k this year.

But it would really help to hire another junior coach instead. That’s the calculus we look at: which goal matters more to you, and what’s the higher rate of return here? But to go back to the car example, that’s the short-term goal that trips people up most, when it’s more of a vanity purchase than a need.

Why Cars Are the Ultimate Vanity Purchase

Steve Washuta: Overall, i’d argue cars are almost always a vanity purchase. I don’t fully get it. You can get a six-year-old car with all the bells and whistles for typically half the price of a new one. And in this day and age they hold up just as well. So your 2017 Lexus truck is going to run just as good as a 2024 one.

Pat Darby: For context, i’m the same as you. I know people feel very differently about it. That’s why I don’t push too hard on clients who really want to buy a car. Since I realize I just don’t get it. For me a car is point A to point B. But for some people it’s the whole experience, and I get that we’re just different on that.

Splurging in One Area While Staying Frugal Everywhere Else

Steve Washuta: That said, i guess if you’re saving money in certain areas, it can even out elsewhere. Maybe you’re a car guy who has to have the latest and greatest. But everywhere else you’re frugal and buttoned down with a budget for everything. I’m the opposite. If there’s a food I want when I go out to eat, I’ll get it regardless of price. I don’t look at the menu and pick the $14 item over the $24 item just to save money. Though I just don’t go out to eat that often. Whereas I’d never buy a new car, because of the cost difference versus a used one.

Pat Darby: Meanwhile, i try to remember that, because we’re fitness people. Some people probably think it’s crazy that we’ll spend hundreds of dollars on multiple gym memberships, more than a car payment on two or three luxury gyms in the same area. And we’ll do it all day long. Because this gym is for content, that gym is for this, another gym is for that. Whereas the average person thinks spending more than 10 bucks at Planet Fitness is too much. So it’s different strokes for different folks.

Frugality, Wealth, and Knowing When to Actually Spend

Steve Washuta: In particular, i’ll say a car story can go either way. I had a client, I won’t say their name, a successful business owner who had a very nice, expensive car that didn’t break the bank for them at all. And they sold it and started driving an older minivan around instead, with no kids left in the house. The minivan was mostly just for hauling stuff around. And they told me they’d been getting a lot of snippy comments from people. Because in their line of work, people who pay them would see the car and assume they were charging too much for the service. In some industries that’s actually good, like real estate, where a nice car signals you’re a successful agent. But in this particular industry, it wasn’t good for my client.

Because people were almost reluctant to pay them, thinking, “You already make so much money, why do you need this from me?”

Pat Darby: Ultimately, that makes sense. In my opinion, a car is a utility. People have told me I should drive a nicer car to look successful. But the vast majority of what I do is virtual, so it’s very rare that anyone even notices. I think my car is nice, but it’s definitely not super luxury.

Steve Washuta: In fact, every person I know who’s genuinely great with money and frugal drives a pretty unremarkable car. This isn’t a one-off. Whether they’re an accountant, a CFO, or just someone who makes a lot of money but stays frugal, they all drive modest cars. And I think there’s something to that.

The Client Who Felt Guilty Buying a Car He Could Easily Afford

Pat Darby: Interestingly, i had a former client, he passed away in his 80s. And I really liked talking to him, because his mentality was the key to real wealth. His net worth was around $14 or $15 million. And his dividend income alone from his stock portfolio was half a million a year, regardless of whether stocks rose or fell. We were having dinner one night, and he said, “I want to buy myself a new car. But I feel really guilty doing it,” even though he could have bought it in cash with about one month’s worth of dividend checks. In his head, he still felt he shouldn’t do it, that he didn’t need it. That always stuck with me, because that’s exactly why he had that kind of net worth. He was making those same math decisions his whole life.

Notably, you could buy a new car every month and still die a millionaire with that kind of income. And it always stuck with me that he still hesitated.

Steve Washuta: As it turns out, i’ve seen that with clients too, and I’ll say there’s a point where that mindset stops being great. There are diminishing returns. You don’t necessarily want to die at 85 with $140 million in the bank either. You should have lived a little and spent some of that money.

Navigating Conflicting Financial Goals

Steve Washuta: To that point, let me give you an example of a conflicting goal. In fitness, a client might come to me and say, “I want to lose 15 pounds and put on 10 pounds of muscle.” The easiest way to lose 15 pounds is to cut calories. But it’s very difficult to put on muscle while cutting calories. So we either have to separate those goals and tackle them one at a time. Do you see that in finance too. That’s where people want two things that actually work against each other, just out of naivety?

Pat Darby: Overall, yes, and that’s why we try to bring it back to a goal that’s bigger than the one they hired us for. So instead of just “I want to make a lot of money,” we ask, “Okay, why? What is that money actually going to do for you? Is it buying you time, or resources?” We try to leave the pure business side and get back to the wealth management side. What are we actually doing with this money? That helps answer the question when clients get deep in the weeds about a specific decision.

Finding the Real Goal Behind the Goal

Pat Darby: For context, the best analogy I use is a parent with young kids: “I want to spend time with my kids while they’re young.” Okay, well, if that’s the real goal, we ask what we’re actually going to allocate this year’s profit toward. You could put it in your 401k, which does nothing for your kids right now. You could hire someone, which might free up more time to spend with your kids. Or you could take that money and go on a vacation with the kids while they’re young enough to enjoy Disney World or something like that. That’s why we always work backward to what someone is actually trying to do. Because once you find the real goal underneath the surface-level one, that usually ends up driving the decision.

Since it’s very easy for clients to get lost in the weeds wanting to make more money and take every deduction at once, without asking what it’s actually for.

Steve Washuta: That said, that’s a great explanation. When you bring up a parent who wants to spend more time with their kids, their first instinct might be, “I need to make as much money as possible to make that happen.” But you’re saying maybe what we really want is a business stable enough that you can step away from it. That way you’re not fielding calls all day. And it can basically run on its own, maybe with a $14-an-hour employee handling things. Whereas if the goal was purely to make the most money possible, that might mean opening a second business, which would actually take up more of your time, not less.

Letting Clients Remind Themselves What They Really Want

Pat Darby: Meanwhile, exactly. That’s usually where we let the client remind themselves what they’re actually trying to do. We have clients who want to spend money on certain things. And I’ll zoom back to the goal: “You wanted this amount as a cash reserve so you could sleep at night.” Now they want to spend it, so I ask if they no longer have that anxiety. If the answer is no, for whatever reason, then great, let’s spend it. But if they told me this reserve is what’s keeping them up at night, we should probably keep it. I put the decision back on them; I don’t tell them what to do with their money, I just remind them what they told me.

Connect with Pat Darby

Steve Washuta: In particular, this has been great information as usual. Where can my audience and listeners go to find more about you and your businesses?

Pat Darby: Ultimately, absolutely. I’m pretty active on Instagram under the handle Pat Darby, the same handle on TikTok, though I’m more active on Instagram. My website is sensitivecfo.com, and my podcast, Build Your Wealth Muscle, is on all the podcast platforms. Those are the three main places to find me.

Steve Washuta: In fact, my guest today has been Pat Darby. Pat, thank you for joining the Trulyfit podcast.

Pat Darby: Interestingly, thanks for having me.

Steve Washuta: Notably, thanks for joining us on the Trulyfit podcast. Please subscribe, rate, and review on your listening platform. Feel free to email us, we’d love to hear from you.

As it turns out, Social@Trulyfit.app

To that point, thanks again!

Overall, https://www.darbyba.com/

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If you want more tax and business strategy for online fitness entrepreneurs beyond what Pat Darby covered here, check out this blog: Business & Tax Tips with John Briggs.