Buy on time, invest the difference
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Buy on time, invest the difference

Buy on time, invest the difference

…Or to put it another way, buy forward and spend the difference on consumer goods

Back when I was just starting out with Northwestern Mutual as an insurance agent intern, I remember one of the oldest and most respected general agents complaining about the fact that most people today, in the mid-1980s, don’t I understood that in order to invest you first needed to save.

“Oh, that’s not right!” opined every purchase term and invest the difference shyster and short order chef in the country. The fact that these two, the proponent of the difference buying and investing term and the fast food chef, were often the same person never seemed to make a significant impression on the American people. I had a business card and all these pretty graphics and oh, I’m going to be so rich!

Many of them made statements about the idea that whole life policies were a terrible investment and that the protection should be broken up. Buy forward, invest the difference in mutual funds, and use your investments as a double bid—meaning your mutual funds should be both your retirement and savings.

I’m sitting here for a few minutes considering the credulity of the American people. The effort to plumb its depths is done, there is no bottom. Still, from time to time you have to sit back and marvel at it.

Black Monday, 1987

Another notable memory I have is Black Monday in 1987. My general agent marveled at how in a conversation with a gas station attendant he couldn’t understand why everyone was so worried about whether the banks would open the next day.

The state of financial education has not improved one bit, if anything it has gotten worse and the more developed the ignorance, the more proud a person seems to be of his position.

An opinion that seems like a recommendation

to-do lists

First, let’s get list #1 out of the way.

  1. Calculate how much you enter the home and what is your expense. You may need to give up some things, get another job, or start a part-time business.

  2. Work with your budget until you are living on 70% of what you earn. I know. Wailing and gnashing of teeth. Stay with me though. We’ll get back to that in a minute.

  3. A better option to cut your budget is to try to generate another 42.85% of income each month. That would give you the option of having 30% with which to work your savings plan.

  4. Accept the idea that you don’t know anything about money, for now.

  5. Stop borrowing until you know the difference between good debt and bad.

Next, look at the 30% that doesn’t come out every month. That’s seed money for a better future.

  • It will become a cash cushion that will protect you against predatory lending during emergencies.

  • It will give the house a sense of security because whatever happens, next week whoever gets to do the shopping will be able to load it.

  • It will give you cash with which to take advantage of opportunities without having to choose between the opportunity or the purchases.

  • If the breadwinner dies, the children can still eat, go to school and sleep in their own beds with the knowledge that even though you are gone, their lives go on.

Here’s how it splits up, to make list #2.

  1. 10% goes to cash savings

  2. 10% goes to whole life with perhaps an rider that can be converted to whole life as your finances stabilize.

  3. 10% can go to the title as your faith directs. Or not, as you choose.

You can also choose to just save 30% over 4 months, at which point you will have more than a month of income saved in the bank.

After that, you should definitely start a full life program, and continue to save the rest. This is, in my opinion, what you should stick with until you educate yourself on money.

Why Whole Life?

For a long time, bankers were prohibited from entering the life insurance business. I honestly don’t know all the reasons for that barrier, but knowing banks as we all know them, I feel safe in saying that allowing bankers into the life benefits business was a net loss to the citizen.

There are some general protections that your money in your entire life gives you that your local cook and financial planner probably didn’t tell you:

  • If you die, your money is due immediately, payable to your family.

  • Once the cash value accumulates, you can use it to secure loans at 100% of the cash value, either with the insurance company itself or with a bank. Try to do that with your actions. (Spoiler alert! You can’t. You also can’t use a bond because you can’t secure a debt with another debt, unless the law has changed. As always, consult your professional advisors.)

  • Your cash value is protected from lawsuits and creditors. Is that blanket policy not enough to protect you? Your cash value is safe from claims and collections by creditors, no matter how clear your liability.

I love all life because if you go in, stick with it, and hold on to the iron rod of discipline, you will have an asset later on that is almost bulletproof in protecting you and your family.

Financial Education

Now, before I forget, remember my comment about crying and gnashing teeth from living at 70%? I can guarantee that someone within 500 feet of you it is living on 70% of what you earn and think your paycheck would be like winning the lottery. See it as a drill against future calamities, a drill where you can take some of the pressure off when it gets too hard. It is better to do it when you are in control than when events are out of your control.

Now, let’s address the topic of financial education. First, throw out all the copies of those fancy, glossy financial magazines that are constantly hawking the latest mutual funds.

Many of those magazines have people from the same backgrounds they talk about to advise them on the articles they publish. Do you get me? In my opinion, many of those magazines are simply unregulated prospectuses. Maybe LESS regulated would be a better word and then you have the subject of regulated by whom.

I just know that I found it extremely amusing that the articles in some of the magazines I looked at gave editorial control to the product managers they were writing about.

…kind of like a nasty green funk that you just can’t get off your carpet. No matter how many times you clean it, it still stinks.

To do list #3: Start reading. Here is a list:

  • The richest man in Babylon

  • ‘Rich Dad Poor Dad’

  • Rich Dad’s ‘prophecy’

  • ‘Who took my money?’ by rich dad

This reading list will not only teach you some of the basics about money, but it will also teach you the importance of being careful who you give control of your money to.

Those who run the major Western economies don’t necessarily view their successful retirement as a good thing. I’m going to go out on a limb and state that that’s a fact, not an opinion.

Unless you open the curtain and

  1. Take control of your money

  2. Understand the difference between saving and investing

  3. Master what the velocity of money means

…you can never set aside the devastating effects of inflation and go from America’s deceptive relative poverty to riches.

Cheers,

Tim Singleton

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