Mystery…No. 2 You Know Best What’s Right for You

The Debt Paradigm preaches that you cannot fully comprehend your own personal economy. It implies that the professionals who subscribe to the Debt Paradigm are in some way wiser, more knowledgeable about your situation, better informed about your needs, and perhaps even cuter than you.

BUNK!

You do not need a financial planner with an abundance of letters after her/his name and the logo of a big company on his/her business card[1] and a sales oriented computer program to tell you what is right for you and your family.

In fact, the financial and investment professionals most apt to help you are most likely working with smaller firms and choose not to align themselves with just one financial advisory firm’s products. It is also likely that they have narrowly focused practices and a broad understanding of the markets they serve.

Regardless, you need to equip yourself to direct the course of action. Only you should decide to incur the “pure unrelenting risk” of an investment. Your cousin Louie, golf partner, co-worker, or professional colleagues are always available with hot tips and enthusiastic advice.  Ignore them. When you need advice, seek out an investment professional[2] - be it in the stock market, mutual funds, real estate, commodities, foreign currency or any other potentially lucrative investment. 

And remember, it’s up to you to protect your capital base.  An investment advisor is not compelled to do that.

Mystery…No. 3 Don’t Risk What You Can’t Afford to Lose

Ask yourself the question, “What is it that I can’t afford to lose?” This is a money question but the answer is not purely about money. Excessive consumer debt, job losses, family crises, medical expenses and long-term care costs underlie most bankruptcies.

However, all bankruptcies result from a lack of a capital. If you are trapped in the Debt Paradigm, you are at risk. You have saved too little, invested too much, and assured the success of some Behemoth while critically damaging your own personal economy.

Your capital base is not secure or is non-existent. You are at risk because you are employing a set of strategies and practices that are not based on developing a capital base and thereby place your family and your fortune - that which you cannot afford to lose - in constant jeopardy.

It is only by having an adequate capital base that you are able to withstand and survive what Shakespeare called the “slings and arrows of outrageous fortune.”[3]  You cannot afford to risk your capital base.

However, as we point out repeatedly in this booklet, the strategies and practices of The Money for Life Model allow you to build a solid base of capital and avoid the risk of losing it. This model of your personal economy relies on the steady accumulation of capital and the concurrent elimination of debt and guides you through a program that lets you control all of the money that flows through your life.

This leads us to the next mystery.

Mystery…No. 4 Why Debt = Financial Death

The foundation of all banking is debt. The bank borrows from you at 2% in your savings account and lends it to someone for a car at 8% or for some furniture at 15% or on their credit card 22.99%. The reason debt is not death for the bank is that the bank borrows to lend and for no other reason.

The reason debt is death for most Americans is that they borrow to spend. In fact, some put the interest paid out of every personal dollar earned as high as 36 cents. That is higher in some cases than all income and payroll taxes combined.

The average person will pay almost two times the purchase price of their home in interest, will pay enough interest on automobiles to buy an extra car every ten or twelve years and might pay their credit card companies up to 2000% of the principal balance before paying off the card. Is it a wonder that the savings rate is less than 0%? This is financial suicide.

Take the example of a $1000.00 refrigerator. The manufacturer borrowed the money to build the plant and buy the parts to build it. The distributor borrowed the money to lease the warehouse to store it until s/he placed it in inventory and in the store. The trucker borrowed the money to buy the delivery truck. You borrowed the money to buy it.

Who’s making all the money? You got it - the bank. What reduction in cost would occur if each entity financed their part of the process in lieu of borrowing from the bank?  Obviously you control only a small portion of that series of borrowing transactions but, if you could eliminate some or all of the 35% of your income that you pay to others as interest, your personal economy would work better for you and your family.

It’s not a bad thing that the bank - or someone - makes money from lending. Banking is essential to the economy of the world and just as essential to your personal economy. The important thing to be aware of and to remember is that you are not currently in the banking business…but you need to be in the banking business.

You need to find your way out of the Debt Paradigm - where you are a bank customer - and adopt the Money for Life Model where you are both the customer and the “bank.”[4] In The Money for Life Model, your debt is productive for you just as it is for a moneylender in the Debt Paradigm.

This does not imply that you sever your banking relationships or that the commercial bank has no place in your personal economy. There are many occasions when you may want and need strong banking relationships; when following the Money for Life Model makes you a very attractive customer of the commercial bank, and may even earn you preferred treatment and rates.

The Money for Life Model, however, transfers a major portion of your borrowing from moneylenders to your personal “bank” so that you recover the principal, interest and fees that you would otherwise pay to others.

[1] Industry designations and accomplishments demonstrate that an advisor has acquired specialized knowledge about finances.  It is not an indicator that s/he has skill and wisdom…one can know all about sand castles and have the skill to build one but lack the wisdom to wait for low tide.

[2] Part of our practice is to identify and refer these kinds of professionals to our clients when appropriate.

[3] Hamlet, Act III Scene I - William Shakespeare

[4] The word “bank” in The Money for Life Model refers to any savings vehicle that you own and use as a source of borrowing and that you plan to repay as you would repay a loan from a commercial bank, credit union, etc.

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