Personal Finance

NEVER be at the Mercy of Banks Again | Shuttered Line of Credit – What Happens?

 

…there’s an old saying, “A banker is somebody who will give you an umbrella when it’s sunny and take it away when it’s raining.”

Wells Fargo recently closed credit lines on their customers. Stick around to the end of this video, because we’re going to go over exactly what that could mean for their customers, for the economy, and show you a solution that will make sure that you’re never at the mercy of banks, the government or Wall Street again.

On July 8th, 2021, Wells Fargo announced to its customers that if they had a personal line of credit, they were shutting it down. Basically, if you had this line of credit, you’ve got to notice that in 60 days, Wells Fargo was going to shutter your account. Let’s go over exactly what that means.

Well, when your account is shuttered, it means two things. Number one, any unused portion of your credit line is no longer accessible to you. So you don’t have access to the unused portion. And secondly, they’re going to be getting a payment schedule for the outstanding balance that’s remaining. So how is that going to affect their customers? Well, it’s going to affect their customers in four ways. First and foremost, their access to credit has been limited. Secondly, their future cashflow is limited because now they have a payment schedule. Thirdly, because they had credit and it was shut down, that’s going to have a negative impact on their credit score. And all three of those issues are going to negatively impact their customer’s ability to obtain credit in the future.

So you could see how this simple shift from a line of credit to a term loan could have such a waterfall effect on these customers and not only their present cashflow position, but also their future ability to access capital. In the last week or so, we had the opportunity to speak with some of our clients and a lot of them asked “Is this even legal what Wells Fargo is doing? Are they even allowed to do this?” And the answer is yes, it’s written in the terms of their loan agreement.

You know, there’s an old saying, a banker is somebody who will give you an umbrella when it’s sunny and take it away when it’s raining. And this action by Wells Fargo only underscores the meaning of that saying. You see Wells Fargo is protecting themselves. They have it written into the loan agreements that they’re allowed to shutter or shut down those lines whenever for whatever reason. And by the way, it’s not only personal lines of credit, it’s home equity lines of credit that they can do this on. They can do it with business lines of credit. And not only Wells Fargo, other banks can do the same banks write documents on those loans. That’s why there’s all these legal documents when you take out a loan. Why? To protect the bank! But this should come as no surprise for Wells Fargo customers. In 2008 and 2009, when they took over Wacovia they did the very same thing.

They shut down credit lines for people, business credit lines. And I had clients call me and say, Hey, I’m in trouble. I’ve got to get a new credit relationship. I just got a letter from Wells Fargo that says I have 60 days to obtain new credit. Well, the ideal situation back then would have been to have control of their own pool of money so that they wouldn’t be affected when the bank decides that the bank wants to protect itself and they shut down your access to capital. So this is all part of what Nelson Nash referred to in his bestselling book, Becoming Your Own Banker. And in there, he has a chapter called the golden rule. And basically the golden rule, according to Nelson Nash was the one who has the gold makes the rules. Well, if you’re in control of your own pool of money and you’re making loans to yourself or to your business, you are truly in control of the process. So the question really becomes, do you want to continue to be controlled by the process and be at the mercy of the banks? Or do you want to be in control of the process? Again, the one who has the gold makes the rules!

Banks are really good at getting us to do what’s in their best interest and they do it under the premise that it’s in our best interest. And they’re so good at doing it, most of the time, we don’t even know what’s happening. And the perfect example of this is a 15 year mortgage with a low interest rate versus a 30 year mortgage with a higher interest rate. Let’s take a look at a solid example of a $250,000 mortgage.

So if our choices are a 30 year mortgage for third, for $250,000, at 4% interest, our payment is about $1,200 per month, a 15 year mortgage for 3.75%. And that’s how they entice us to do what’s in their best interests. They offer us a lower interest rate on a shorter term loan. Our payment will be about $1,800 per month. Now that’s a 50% increase in cashflow that we don’t control. And that’s cashflow that the bank now controls, but again, they have us focused on the interest. So with the 30 year mortgage, we would pay the bank $179,000 in interest with a 15 year mortgage, we’re only going to pay the bank $77,000 in interest. So here’s the issue, if the amount of interest paid is really in the bank’s best interest, why would they cheat themselves out of $102,000 of interest? Well, the answer that is, it’s not the amount of interest that’s paid. It’s how fast the bank gets it back. What the bank literally did by getting us to pay the loan back quicker, they increased their rate of return on the loan, the 30 year loan, they had about a 9.5% rate of return. And on the 15 year loan, they end up with a 13% rate of return. They almost increased their rate of return by 50%.

The thing is that with businesses, when they sell products, inventory turnover gets them more profits. And with the bank, they have a product to it’s loans. So the quicker they’re able to get the loan money back and then turn it over with a new loan, the more interest, the more profits that they’re able to make. Imagine how stressful it would feel if you had a credit line out for tens of thousands of dollars, and only had 60 days to secure new financing, to secure a new banking relationship.

Conversely, imagine having access to your own pool of money, so that when you got this notice, you can borrow against your pool of money, use it to pay off Wells Fargo or anybody else who calls your credit line and buy yourself time to obtain another relationship. In the process, while you’re using that money, you’re still earning uninterrupted compounding interest on the money you used to pay off that loan. Wouldn’t that be a great situation to be in?

If you’re ready to learn more about our process and exactly how it works, check out our free web course at tier1capital.com. It’s one hour and you could register right on our website.

And remember, it’s not how much money you make, it’s how much money you keep, that really matters.

Secrets of a Wealth Creator: How to Buy, Borrow, and Pay Smarter

Let’s face it, we all buy things and we will need to buy things our entire life. It’s not necessarily what we buy, but rather the way we choose to pay for them that can have a lasting impact on our financial well being. Especially those things we call Major Capital Purchases. These are things that cannot be paid for in full with our regular monthly cash flow. Certainly things like cars, vacations, weddings are major but a new set of tires for many Americans could be a major capital purchase as well. If you can’t pay for it in full you are going to have to finance it.

Let’s take a closer look at this with the graph below:

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The first thing I want you to notice is the black line in the center. This is the Zero Line, and represents the point at which a person has nothing or owes nothing. When you owe more than you have accumulated you are below the zero line. Unfortunately living above the zero line takes more than a good job.

Let’s begin talking about The Debtor (shown in Red)

The Debtor doesn’t have any savings or resources and is forced into borrowing. They borrow the money against their future earnings, and work toward paying it off and getting back to zero. They hope to have finished paying back what they owe before another need arises. They spend their lives working to pay for what they have already spent plus interest. The only way they can support their lifestyle depends on money they have yet to earn. This obligation on future earnings is one of the biggest problems with debt. It can be very depressing when you can’t see the way to even get back to zero. Another difficulty is that when you become a debtor to a creditor, you lose control. The creditor is then in control of your resources, not you.

The Saver (shown in blue)

The Saver, being well aware of the wealth transfers inherent in borrowing at interest, will postpone a purchase until they have saved enough to pay cash in full, up front. However, at the same time they make a purchase they also consume their savings and move back toward that zero line. A very precarious position indeed. A single unforeseen circumstance could lead to depleting their savings bringing them closer to the zero line. The saver constantly moves from having access to money and needing to save to get back to where they were before they had to spend their savings. They do not like to pay interest so the drain their accounts and kill compounding each time they do.

Paying cash seems to be the best way to pay for things because it avoids the necessity to pay interest but to pay cash you must also give up the ability to earn interest on those same dollars.

Another problem with paying cash is that first, you must save it which is not necessarily an easy thing to do. Depending on where you are saving those dollars, the government may also require that you pay taxes on the growth of that money. And when you do make a purchase not only do you consume those savings, but you also negate the ability of those dollars to earn interest because they have been spent. Many people choose to pay cash in order to avoid paying interest to a lender, which seems smart. However, the part that is often missed is that they are also losing interest they could have earned had they not had to pull dollars out of the account to make a purchase in the first place. But it’s not possible to keep the dollars in the account earning interest and still make the purchase, is it?

The Wealth Creator (shown in green)

The Wealth Creator utilizes a unique approach. They also save, but when it is time to make a purchase they use their savings as collateral to secure a loan, preferably at a lower interest rate than they are earning on their money.. Now, there are a couple of key benefits here. The first is that this strategy keeps you from having to deplete your savings to make a purchase. At the same time, it allows those savings to continue to compound interest without interruption. Secondly, while the Wealth Creator does pay interest on the loan, they can often do so at negotiated rates. As the loan is repaid, the amount of savings available to be collateralized increases proportionately until the loan obligation is met. Compound interest works best over time uninterrupted. Resetting compounding on dollars we remove from accounts that are earning interest is not an efficient purchasing strategy.

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We all want to make the most of the resources available to us; to be as efficient as we can be while also avoiding wealth transfers. Once a decision has been made to part with our dollars, it is permanent. Since we can never have those dollars back again, it makes sense to spend them wisely. To spend them in a way that fosters the creation of wealth, not the relinquishing of it. Let’s spend some time together to discuss how we might improve your purchasing efficiency.

 

 

Becoming the beneficiary of your own life insurance policy: How to use the living benefits

 

“You see, instead of becoming a victim of market volatility, owning cash value life insurance allows you to access that money so that you could actually profit from market volatility.”

 

There are two main types of life insurance. The first is term insurance, which has one benefit and one benefit only, the death benefit. Then there’s cash value life insurance, which has a death benefit, but also has several other living benefits. By taking advantage of these living benefits, we’re able to overcome the five financial challenges that we all face. 

It has often been said that there are two certainties in life, death and taxes. So let me ask you a few questions. Number one, do you think taxes are going to be higher in the future? Number two, do you think that with all that’s going on in our country, and keep in mind that we’re nearly $28 trillion in debt, do you think there’s a potential for taxes to go up much higher in the future? Now here’s the most important question. Do you want to pay those taxes? You see, after you pay tax on your earned income, the choice of whether or not you pay taxes in the future on that money is completely voluntary. 

Which choice have you been making? And with that in mind, wouldn’t it make sense to build a pile of money that the government could never access ever again, as long as you live? You see, the living benefits of life insurance allow you to have that money grow on a tax deferred basis, and you could access it on a tax-favored basis via the loan provision. Finally, that money passes to a named beneficiary on an income tax free basis. Do you know of any other financial tool, financial product that could be that tax efficient and provide liquidity use and control of your money? 

The next challenge we all face is lower benefits in the future, you know, higher premiums, higher deductibles, and more out of pocket expenses. But, doesn’t that mean a lower standard of living for you and your family? Are you okay with that? Because I’m not. If there was a way to replace those expenses, when would you want to know about it? Before or after the benefits are lost? By using the living benefits of life insurance, you’ll have access to money to supplement your income when those benefits are lost, and still have death benefit to pass onto your family. 

If there’s going to be higher taxes and lower benefits, will that be enough to fix all the problems that are about to happen in our country? So how will our government respond? Won’t they print more money? When they print more money, doesn’t that cause inflation? You see, inflation is the third financial challenge that we all face. So what’s your strategy to overcome the effects of inflation? More importantly, when you’re retired, how are you going to overcome inflation? The living benefits of a life insurance policy provides multiple duty dollars. What that means is, the money can be accessed to overcome a long-term care event, a chronic illness event. We know that it can be utilized to supplement your income for anything. Finally, it can do all of the above on a tax-favored basis. 

That’s multiple duty dollars, and that’s how the living benefits of cash value life insurance can help you overcome the effects of inflation. So if there’s higher taxes, lower benefits, and the government prints more money, won’t that cause more and more volatility in the markets? Higher volatility in the markets is the fourth financial challenge that we’re all going to face. If there’s higher volatility in the markets and you make a mistake, can you lose some money? If there’s higher volatility in the markets and you make four or five mistakes, can you lose it all? 

Wouldn’t you benefit from a strategy that allows you to lock in your money when the markets are high so that when the markets go down, you’re in a position to access that money because your money wasn’t correlated to the market and you can profit from all the mistakes, errors, and blunders that are made in the market. You see, instead of becoming a victim of market volatility, owning cash value life insurance allows you to access that money so that you could actually profit from market volatility. 

The next challenge we all face is the challenge of outliving our income. If we retire at age 65 and only live till age 72, would we have much trouble planning for that retirement? But what if we retire at 65 and live all the way till 95, but run out of money at age 72, what would the rest of our retirement look like? And by the way, isn’t 72 the new 52? Aren’t 72 year olds doing what 52 year olds used to do? Do you have a strategy in place that could provide you with an income that you can outlive? By taking advantage of the living benefits of life insurance, you could provide supplemental income when all your other streams have dried up. 

Do you realize that most people view these five issues, higher taxes, lower benefits, higher inflation, greater volatility in the market and longevity, outliving money, as challenges. Here’s what owning cash value life insurance can do for you. What if you never had to worry about these issues ever again for the rest of your life? What if any time any of these issues occurred, you’d be in a perfect position to take advantage of it. Wouldn’t that be a great benefit to have? 

Do you know of any other financial products that can provide these benefits with certainty? Can a CD savings account, money market, IRA, stocks, or bonds provide you with these benefits? You see, the living benefits of life insurance can help us overcome these five challenges, and in essence become the beneficiary of our own life insurance policy. But then we still have the death benefit that goes to our family. So if I can show you how to be in complete control of your money until you take your last breath, but instead of leaving that money to a nursing home hospital or the government, you can leave that money to your family for generations to come. Wouldn’t you want to know about it?

 

 

 

What am I doing wrong financially?

“We focus on the lifetime capital potential tank because that’s where the greatest opportunity lies for you to improve the efficiency of your money, improve your cashflow, and ultimately increase the amount of wealth that you’re able to accumulate over your lifetime.”

 

Up until 1993, I was exactly like you. I was making great income, but I was living pay to pay. The reason I was living pay to pay is because I was doing everything by the textbook of conventional wisdom. I had a 15 year mortgage and was paying extra on the mortgage. I was maxing out my retirement account. I was paying cash for as many things as I possibly could, but embarrassingly, I had credit cards and I had to borrow money from my father in order to pay my mortgage. The reason my cashflow was being pinched was because of the things that I was taught to do by the so-called experts. 

There are two factors that can really pinch your cashflow. The first is an unsteady income. This could be whether you are a business owner and have a cyclical business cycle, whether you’re a sales person and commission comes when commission comes or maybe you’re an employee and you were expecting a bonus that didn’t come through. These things can really tighten up your monthly cashflow and leave you feeling stuck. 

The second factor we’re going to look at is when unexpected major expenses come up, whether it’s tuition for kids or an annual premium for insurance that you’re paying, or maybe you need new tires or car repair, or we all know how bad it is when your refrigerator breaks and you’re forced to go out and buy whatever’s available at the store. All these things could really leave a dent in your personal economic model and leave your cashflow feeling tight. 

So let’s take a look at this model. This is what we refer to as a personal economic model. We all have one. This is how we show how money works in our lives. Let’s start with income, your income, all the income that you’ll ever earn in your life. We’ll go through this lifetime capital potential tank. It’s the largest tank, cause it has the most money flowing through it, but it doesn’t stay in there. It flows through this tube and hits your lifestyle regulator. Your lifestyle regulator is where you have choices. You can either spend all your money or you could force some up into your future lifestyle tanks, your investments, and your savings. 

Conventional wisdom tells us that we should focus on getting a high rate of return on our investments. That’s what most financial advisors do. They focus solely on the yellow tank and showing you how to get a higher rate of return, probably taking on additional risk. But our focus is different. We focus on the lifetime capital potential tank because that’s where the greatest opportunity lies for you to improve the efficiency of your money, improve your cashflow, and ultimately increase the amount of wealth that you’re able to accumulate over your lifetime. 

So let’s take an example of exactly how making your money more efficient can improve your personal economic model. Let’s take a look at wealth and income potential. Let’s assume you’re age 42. Do you plan on retiring at 70? Your current income is $100,000 and you don’t expect any increase in your income and you don’t have anything saved to this point, but you could expect an investment return of 5% at your retirement age of 70. Your income potential would be $2.8 million. It’s a $100,000 of income times 28 years, gives us 2.8 million. Your wealth potential would be about 6.1 million. That comes from investing your full $100,000 of income over that 28 years. 

Obviously it’s unrealistic to think that you can save 100% of your money because there are expenses that come along with our income. Whether we like it or not first and foremost are taxes, we’re going to put you in a 30% tax bracket. Now that’s federal state, local gas tax, real estate tax, and any other taxes that you would encounter on a day to day living. Our wealth potential now is reduced to $4.2 million. Additionally there’s debt. The average family pays 34 and a half cents of every dollar to service their debt. That’s student loans, car loans, vacation loans, you name it. Now our wealth potential is reduced to 2.1 million and then we have lifestyle, groceries, utilities, insurances, and hobbies. Now we’re down to $600,000. Again, conventional wisdom wants us to focus on getting a high rate of return. Well, let’s assume we can go from 5% to 8%. 

They have to take some risks to do it, but now our wealth potential goes to a million dollars and to them, it can’t get any better than that. But again, the reason you can’t get ahead is because your cashflow is pinched. The reason your cashflow is pinched is because of taxes and debt. What if we can show you how to reduce your taxes from 30% to 25%, look at the effect that has on your wealth potential. Keep in mind, we’re going to reduce your investment return from 8% to 5%. So you don’t have to take any risk in order to do it. Our wealth potential grows from 600,000 to 900,000. It grows by 50% just by reducing our taxes by 5%, but we’re not finished. 

We could also show you how to control your debt. If we can show you how to reduce your debt from 34.5 % percent down to 20%, look what happens to your wealth potential. Now you’re at $1.8 million just by reducing your taxes and controlling your debt. Now, all of a sudden you’ve tripled the amount of money you’re able to save. We’ve done all of this without having to reduce your lifestyle in order to do it. That’s the value of controlling your cashflow. This is how you can get ahead without having to earn or generate additional income. 

Here’s the good news. If you’re ready to get rid of that stuck feeling, all you need to do is stop giving up control of your money. We always say, it’s not how much money you make, it’s how much money you keep that really matters. It’s not your income that’s holding you back, it’s not your rate of return that’s holding you back. It’s the inefficiencies in your cashflow that are stopping you from getting ahead. 

Once you focus on what’s important, control of your cashflow, each and every decision becomes more and more clear and you’ll know exactly what to do. Our process focuses on identifying exactly where and how you’re giving up control, Whoever controls your cashflow controls your life.

 

 

How does money work in my life?

 

” It takes discipline and focus in order to save for the future. “

 

This picture is what we refer to as the personal economic model. The fact of the matter is, everybody has a personal economic model. We use this diagram as a tool to show people how money works in their lives. The ultimate goal is to get to position A, where there’s enough money in the future lifestyle tanks, the risk and the safe tank to support our current lifestyle in retirement and through our life expectancy. So let’s take a look at how money works in our lives. 

Let’s start by taking a look at how money enters our system. You’ll notice over here, we have the lifetime capital potential tank. You’ll also notice that this is the largest tank on the screen. That’s because anytime we earn income, whether it’s at our job, maybe an inheritance, maybe we will win the lottery, all that money flows through our lifetime capital potential tank. It doesn’t stay in there and it goes right through this tube and then hits the tax filter. Did you put the text filter on your personal economic model? No, none of us do. 

It comes pre-installed on all the models and the government puts it there. What it does is, it diverts money from our lifetime capital potential and it diverts it into the government’s personal economic model. Once the money flows through the tax filter, we then reach our lifestyle regulator. This is where we have some choices. We can either save some money for our future lifestyle, or we could spend 100% of our income on our current lifestyle. After money flows through and is spent on current lifestyle, there’s no getting it back into our system and it makes it very difficult for us to reach position A. Rather than consuming all of our income. We have a choice as to how much we save for the future. Notice, that our future lifestyle tube is pointing upwards. It takes discipline and focus in order to save for the future. 

Now we have some choices. We could either put money in the investment tank or the savings tank. Notice that the investment tank is labeled “risk”. There’s no lid on that tank. Depicting the fact that we have the potential to possibly lose some money in that tank. Alternatively, we can put money in the savings tank. The savings tank has a lid on it depicting the fact that we could never lose money in that tank. As long as money is in that tank. 

Remember the ultimate goal is to get to position A, where we could turn off our income and we have enough money in both of these tanks to fund our lifestyle through our life expectancy. But what happens if your lifestyle regulator is turned up to 100%? That means that you’ve had very little success in saving money for the future. In the past, maybe you have a little money in your 401k at work, and maybe you have a bare minimum of an emergency fund. What happens when you’re in this position is that you have no access to capital. What happens is, you’re forced to borrow money and take on liabilities. 

Maybe you have a little bit of credit card debt. Maybe you have a car loan. Maybe there’s some student loans that you haven’t had the chance to pay off yet. Notice that all of these debts have no collateral. The money spent on the credit cards, that’s gone. The car is a depreciating asset that the bank really doesn’t want.The car and the education, they can’t take your education back. So you have no collateral. But the fact of the matter is you do have collateral. 

You are obligating your future income to pay those debts. And by obligating your future income, that reduces your future lifestyle and further compromises your ability to save for your future lifestyle. Consequently, that really puts in jeopardy your ability to get to position A. As you can see, we use this personal economic model to show people how money enters their system. More importantly, the consequences of all the choices that they can make with their money. Are you living within your means? If you’re not sure, we recommend you start with a budget. Take inventory of what you have coming in every month and what your monthly expenses are and what you could reasonably afford to save every month.

 

 

How to get ahead with your money.

 

“We focus exclusively on making your money more efficient by showing you how to reduce or eliminate transferred money.”

 

This circle represents all the money that’s going to go through your hands throughout your lifetime. Now your circle might be larger than some folks and others might be larger than yours.  The number one thing you have in common with everybody is that you want this circle to grow. There’s many ways that that can happen. The fact of the matter is, every dollar that goes through your circle of wealth is put into three categories. First there’s accumulated money. That’s the money you have saved and invested. Second is lifestyle money. That’s the house you live in, the car you drive and the schools your children go to. Third is transferred money. Transferred money is money that you’re giving up control of unknowingly and unnecessarily. There are two key words because unknowingly means, you don’t realize it. And unnecessarily means that, working together we can fix it. 

Let me show you how we differ from traditional financial advisors. Traditional financial advisors want to take the money that you have saved and accumulated and show you how to get a higher rate of return by potentially taking on additional risk in order to do that. Well, what if you don’t want to take on additional risk? Well, you’re not a prospect for them. The second way that they can help you is they can show you how to reduce your current lifestyle in order to save more for the future. How much time do you really want to spend talking about how you could live on less? You see, nobody’s talking to you about transferred money. That’s things like interest on debt, taxes, any efficiencies in your current planning, maybe some fees nobody’s talking to you about, that transferred money. 

That’s where we differ. We focus exclusively on making your money more efficient by showing you how to reduce or eliminate transferred money. Our mission is to put you in control of your money. Take a look at how we’ve let other financial institutions creep into our checkbook every month. We have a mortgage that’s due every month  and credit card bills. We have taxes that are paid before we even get our paycheck and those cars aren’t going to buy themselves. We all know this game, Tic Tac Toe, who won the first time you played ? Well for all of us, the answer is the person who showed us how to play. They showed us just enough to play, but not quite enough to win. The same is true for financial institutions, banks, and the government lending companies. They all showed us the game, but not enough to win. 

Who’s teaching you the rules on how to win the financial game? That’s our job. We teach our clients and show them how to win the financial game. You see, traditional financial advisors focus only on your savings and investments. Their job or their goal is to move your money from where it is to them. But by focusing only on rate of return and/or taking on more risk in order to get a higher rate of return, you’re still ignoring opportunity costs, taxes, and interest on debt. The more you grow your money, the more taxes you have to pay. The more you grow your money, the more opportunity costs you’re giving up. 

You see, the golfer over there is really important because we think that by focusing only on growing your savings and investments, that’s the equivalent of focusing only on the golf club in order to improve at golf. Where our process, we focus on how you use your money. We focus on the golf swing. We think by focusing on the swing, or the process of using your money, you can get much better results rather than focusing only on the product or getting a higher rate of return. 

Most people think if they were just able to earn a little more income or a higher rate of return, that all their problems would be solved. But if we don’t address the inefficiencies in our system, they are going to grow with our circle of wealth and we’ll have more interest on debt, more taxes and more lost opportunity costs. 

Here’s how we differ from traditional financial advisors. We focus exclusively on transferred money. Let me give you an example. Here’s a couple earning $100,000 saving 6% or $6,000 per year. They’re earning 5% on their savings. Now, a traditional financial advisor will come to them and say, we can show you how to get a much better rate of return. Maybe take on some additional risk in order to increase the output of that $6,000 that you’re saving. So let’s assume they can get you to 7%. Well, they’ve just added $120 to your bottom line, but you see, they focus on the 6% that you’re saving and they’re completely ignoring the $94,000 of annual expenses. Here’s where we differ. If we can reduce your annual expenses by eliminating efficiencies that are built into those expenses, just by 1%, that’s $940 and $940 is the equivalent of earning 15.67% on the $6,000 that you’re saving. 

Now, here’s the irony. What does it cost to eliminate an inefficient expense? Well, it doesn’t cost anything. How much risk do you need to take to eliminate an inefficient expense, no risk. More importantly, how much of a reduction in your current lifestyle does it take to reduce an inefficient expense? There’s no impact on your lifestyle. So think about it, no risk, no cost and no reduction in lifestyle. We think that’s what makes us different because we don’t focus on trying to grow your money by taking on risk. We focus on growing your money by eliminating losses. Only two ways to fill up a leaky bucket. The first is to turn up the flow and the second is to plug the holes so that even if the flow is just a trickle, it will still get filled up.

 

 

 

How does inflation effect me?

“According to the Bureau of labor statistics, the average annual income in the year 2000 was $30,000. Today it’s only $34,000.”

 

Inflation is often referred to as the stealth tax. It’s stealthy because it’s kind of sneaky and no one really sees it coming. According to the federal government, over the last 20 years, we had a 2.5% inflation rate per year. Basically something that costs $1 in the year 2000 should now cost about a $1.51. We did some research and some things aren’t adding up. Let’s take a look at what we found. 

So in the year 2000, the average cost of a home was $119,000. Today, the average cost of a home is $320,000. In the year 2000, the average price of a new vehicle was $22,000. Today, the average cost of a new car is $38,000. In the year 2000, the cost of a year in college was $10,000. Today, the cost of a year in college is $41,000. Something doesn’t add up. 

So let’s take a look at how the government is calculating inflation. The government basically takes the price of a set number of goods. Over a period of time, it’s called the consumer price index or the CPI. Let’s take a look at it. In 1980, the government used 13 sectors of the economy to calculate inflation. In 1996, they reduce that to seven sectors of the economy. Then in 2008, they changed it to three sectors of the economy, but that’s not even the big problem. 

Let’s take a look at four sectors of the economy that aren’t currently being used to calculate inflation. First, healthcare. Second, taxes. Third, energy. Fourth, food. Now they’re including food, but now they’re saying you’re supplementing. So, if you were used to eating steak once a week, now they’re telling you that you’re substituting steak with hamburger. 

Now here’s the real issue. According to the Bureau of labor statistics, the average annual income in the year 2000 was $30,000. Today it’s only $34,000. That’s a 12% increase over 20 years. But if the government is correct about inflation and at being 51%, something still isn’t adding up. 

So in light of the fact that income has not gone up as much as the cost of living over the past 20 years, we think it just makes sense to protect your savings from the effects of taxes and to position yourselves to be able to take advantage of inflation in the future. 

 

 

Opportunity Cost vs. Rate of Return

 

“That car that we pay $20,000 for, is really costing us about $150,000.”

 

For the past 35 years, I’ve learned that there are only five ways that you could accumulate wealth in America. Number one, you can be born into it. Number two, you could marry into it. Number three, you can purchase a business and have your employees create wealth for you. Number four, you can purchase real estate and have your tenants create wealth for you. Or number five, you can focus on saving more of your money.

Notice, nowhere in there did we say you need to earn a higher rate of return on your money to become wealthy. You see, traditional financial planning focuses on rate of return. Oftentimes people go from one advisor to the next advisor, all with the promise of a rate of return that’s better than the last. We believe that there’s more opportunity in making your money more efficient than there is in picking the winners.

For every dollar that goes through our hands, we could only make two choices with it. We can either save it or spend it. Saved dollars will grow over time, spent dollars are gone forever. Now the potential future value of spent dollars is called opportunity cost. We will never see the money that we don’t earn after we spend our money, but let’s take a look at an example to see just what an impact opportunity costs can have on our money.

Today we’re going to look at buying your first car. You graduate college and you get your first job. Now you want to buy a car. Let’s say it’s a $20,000 car. That $20,000 could have earned 5%. We’re going to look at this over the next 40 years. Well, focusing on opportunity costs, we think the car cost is $20,000. Nothing could be further from the truth. The fact of the matter is that car costs us $20,000 plus what we could have earned on our money for 40 years, that’s an additional $127,168. That car that we pay $20,000 for is really costing us about $150,000. That is opportunity cost.

Keep in mind. This is only looking at the cost of one car. The average person is going to purchase 12 cars over their lifetime. The point is, it’s not what you buy, it’s how you pay for it. Making your money as efficient as possible and losing as little opportunity cost as possible is what will make you financially free. There’s no certainty in trying to risk your way to financial independence.

 

 

Making Compound Interest Work For You

 

“It’s really the best of both worlds when you’re a wealth creator.”

 

Albert Einstein once referred to compound interest as the eighth wonder of the world. Here’s the problem. Most people are so focused on not paying interest that their eye is completely taken off the ball. They completely ignore the concept of continually earning interest on their money. But there’s one foundational principle that we need to come to grips with and that is, we finance everything we buy. What does that mean? It means this, you’re either going to finance and pay interest to a bank or somebody else for the privilege of using their money or we’re going to pay cash and therefore give up interest that we could have earned, had we not paid cash. 

That’s the secret. We either pay up or give up. If you’re looking to realize true financial freedom for yourself, keep this in mind. It’s not what you buy, but it’s how you pay for it that really matters. You know, most people think there’s two ways to pay for something. Either finance or pay cash. Well, there’s actually three ways. So let’s take a look at them. If you finance your debtor, you’re working to spend, you have no savings. You earn no interest and you pay interest. Most people recognize or realize that that’s a bad thing. Maybe they were taught by their parents that if you didn’t have enough money to pay cash, you didn’t need the item. Or they saw their parents struggle to get out of debt. Either way, they move to paying cash. So they save, they avoid paying interest, but they earn no interest. And then they pay cash. 

There’s actually a third way, the wealth creator. This is where true financial freedom is really located. You save, you’re using other people’s money to maximize the efficiency of your money. You’re putting leverage to work for you. You save, you continuously earn compound interest. Then, when it’s time to buy something, you collateralize the purchase. Notice the key here in all three areas and all three methods. You still get the purchase. 

It’s really the best of both worlds when you’re a wealth creator. Let’s take a look at what that looks like. Let’s say you finally graduated college and you have your first real job. Everyone at work has new cars and you finally have the income to qualify for a loan. So what do you do? You buy a car, you go to the dealer, you get a loan. 30 days later, you get a coupon booklet. What you did is, you bought a car and now you have payments. So you dug a hole and you filled it up. Five years later, you got a five-year-old car. You don’t have a payment, time to buy another car. You just keep digging a hole and fill it back up. But notice over time, you never get above the financial line of zero. So what’s the alternative? Well, the alternative is to pay cash. Paying cash takes tremendous discipline because in order to pay cash, you have to save first. So you delay the gratification of a new car until you have enough money to pay cash. Then when it’s time to pay cash, you drain down the tank, you spend your savings and then you got to start over. 

Here’s the problem with paying cash. You still have payments because if you want to pay cash for the next car, you have to begin saving the day you bought the car. Then when you have enough money saved for another new car, five years later, then you drain down the tank. Again, notice over time, you don’t get too far above the financial line of zero. In fact, you’re not much better off than the spender. The only difference is, you lost interest along the way. 

The way that we teach our clients is to become the wealth creator. When you’re a wealth creator, you’re saving. Your money is continuously earning compound interest, but then when it’s time to buy something, you collateralize your purchase. What does that mean? You’re using your savings as security against the loan. You’re pledging it as collateral and you still have a payment, but understand, if you finance, you have a payment. If you pay cash, you have a payment. If you’re the wealth creator, your money never stops earning compound interest. That’s the key to true financial freedom. 

It’s like your money is literally in two places at one time because you’re able to make the purchase. You also are still able to earn interest on your savings because you’re never actually touching it. You’re using other people’s money. There are two main variables to compound interest, money and time. Every single time we drain the tank, we’re saying, “don’t worry, I could replenish that cash later.” What we often forget is that, time is a variable that we will never get back. 

Let’s take a look at an example. Let’s say you’re saving $5,000 per year. You’re earning 5% interest on that money. We’re going to look at this over a 30 year period. We’re going to drain the tank down four times by paying cash and we’re going to refill it every five years. So here’s what happens. We go and we buy a car. Now had we not drain down the tank, our money could have continuously earn compound interest for us. And at the end we would have $353,804. But because we decided to pay cash, and we did this four times. And then we finally realized it wasn’t the amount of income that we were earning that was holding us back. It was how we were using our money that was holding us back. We started to continuously earn compound interest on our money. Notice we only have $71,034. That’s a difference of $282,770. Keep in mind, this person figured it out. After 20 years, most people never figure it out. 

Here’s the problem with traditional financial planning. They completely ignore time. They’re so focused on earning a higher rate of return that they completely ignored the two factors of compound interest, time and money. Most people come to us thinking if only I could earn a higher rate of return, I could finally be financially free, but that’s not necessarily the case. 

Let’s say you could earn 7% on your money. If you go through this same pattern of delaying compounding interest, now you’re out $431,000. That’s still a big number but let’s take a look at what happens. If you could earn 3% on your money, that’s a big number. Keep in mind, we made six purchases over a 30 year period of $30,000. That’s $180,000. You’re losing just as much if you caught onto this 20 years down the road in lost opportunity. 

You see, it’s not what you buy, it’s how you pay for it that really matters. What is most important is to never jump off the compound interest curve. The key is to get on the compound interest curve as soon as possible and never jump off. That includes market losses. Although, financial advisors could promise a high rate of return, every time you experience a market loss, you’re jumping off the compound interest curve. We could see here just how detrimental that could be to your financial wealth.

 

 

 

 

How do I pay off my debt?

 

“Our mission as a company is to show people how to regain control of their money.”

 

The problem with getting in the debt cycle is that once you take on that first debt, it becomes difficult to save your income. In the case of an emergency, you’re forced to take on more debt and tie up even more of your income and make it even harder to save. In his bestselling book “Rich dad, poor dad,” Robert Kiyosaki’s foundational principle is to pay yourself first. But if you’re working that hard to pay off your debt, how in the world are you going to be able to pay yourself first? 

So here are some of the problems with consumer debt. First, it places an obligation on your future earnings. You lose the capital to purchases and the financing costs forever. As in, you’re giving up opportunity costs. When you make these purchases, you become a debtor to the creditor. Most importantly, you’re losing control. 

Our mission as a company is to show people how to regain control of their money. With this simple concept, showing them how to regain control of the financing function in their lives. We could make significant progress in showing you how to regain control of not only your money, but your financial future. 

If there’s only one thing you take out of this video, please let it be that “ It’s not what you buy, It’s how you pay for it that really matters.”  Because let’s face it,  every purchase we make is financed. You could either be a debtor, a saver, or wealth creator. Let’s go over the differences. 

This is what a debtor looks like. They have no money. So when they have to buy something, they have to finance it. They have no choice. They dig a hole and then they fill it up and then they dig another hole and they fill that up too. But notice, they never get above the financial line of zero. So what a lot of people do, is they save money in order to spend. They save, save, save, and then when it’s time to buy something, wipe out their savings in order to make the purchase. They keep doing this again and again. Over time they don’t stay above the financial line of zero. 

Then there’s the wealth creator. This is what we help our clients to become. They save as a matter of course. Then, when it’s time to make a purchase, they borrow against their money. They use other people’s money to make their money more efficient, but notice they never interrupt the compounding of interest on their money. Their money is always working for them and they are no longer working for money. That’s the power of becoming a wealth creator and that’s the power of controlling the finance function in your life.