Answer to a Financial Advisor’s Question…

An insigthful Money for Life Guide recently asked…

“There is one concept in the book Money Now, Money Later, Money for Life that I am interested in being better able to more fully understand, teach and implement, ‘Save from income and invest from assets.’ Basically, my understanding is to save from income, purchase assets with savings & leverage, and use the income from assets to replenish the savings…”

Your understanding seems to be basically correct but also contains two assumptions that are alien to The  EUREKONOMICS™ Model for creating wealth and managing personal finances.

• First, your question seems to assume “leverage” as a part of the investment equation. Leverage–in the minds of most people–implies borrowing from others, so it implies that the source of borrowed money is not under the control of the borrower. The EUREKONOMICS™ Model rests on the idea that individuals and families need to control the money that flows through their lives. When individuals and families borrow from an outside source, they are falling into the Debt Paradigm trap that chants the mantra “You cannot have what you need and want unless you borrow from others to get it.”
• Second, your question seems to assume that assets produce income. Some assets do not produce income; your home, your car, collectibles, precious metals, and so on. Moreover, some assets that are supposed to produce income do not; GM bonds, most mutual funds, some real estate, and so on.
• In addition, the unspoken conclusion of that sentence seems to be that the assumed income from the assets would reduce or eliminate the debt created to acquire those assets. (Ask anyone who has been tricked into one of the many get rich quick and easy schemes of the past about relying on formulas based on an ever increasing value of assets.)  There are two malicious Debt Paradigm shibboleths embodied in this conclusion.  The Debt Paradigm encourages having stuff you don’t own and owning investments you don’t control.

Other People’s Money – The Debt Paradigm would have you believe that what it calls leverage, borrowing from others, is really “arbitrage.” Not so. Arbitrage is the process of buying in one market and selling in another to take advantage of varying prices [Oxford Dictionary]. A money lender uses arbitrage when it borrows from savers and pays them 3%, knowing that someone else will borrow the same money from the money lender at 6% for a mortgage, 8% for a car loan, or 18% on a credit card. It is not arbitrage when one borrows from a money lender. It’s debt and a burden on the resources of the individuals and families that are borrowing.

Assets Increase in Value – No need to belabor this point today. The Debt Paradigm acts on the assumption that 1907, 1929-1942, 1973-6, 1979, 1982-4, 2002-3, 2008-20nn will never happen again or that the investor should only consider the long-term. DUH.

A More Accurate View of Wealth Creation and Financial management…

Let’s take a look at how the EUREKONOMICS™ Model for creating wealth and managing personal finances sees this issue.

Saving…

The EUREKONOMICS™ Model for creating wealth and managing personal finances tells one to save from income.  Saving doesn’t imply investing in a 401(k), IRA, or equivalent plan.  We’ve all seen what’s been happening to the money that Americans ‘saved’ in those kinds of plans.

Saving means putting money in a secure financial vehicle that guarantees a reasonable return for as long as the money remains an asset of the financial vehicle. The   EUREKONOMICS™ Model for creating wealth and managing personal finances calls these savings vehicles Money for Life Accounts.  Generally Money for Life Accounts are whole life insurance policies, annuities, credit union savings accounts, and other savings vehicles with guaranteed interest rate returns.

Investing…

If and when individuals and families using the EUREKONOMICS™ Model for creating wealth and managing personal finances want to invest, they would borrow the money for the investment from their Money for Life Accounts.  The loan would be made with the commitment that the Money for life Accounts would be repaid from income on the same schedule a money lender would impose.

If the investment turns out to be a total bust and all of the money was lost, the owner of the Money for Life Account would still repay the loan and the Money for Life Account from which it was borrowed would be fully restored, including the earnings that derive from interest.  The investment, in other words, would not have damaged the wealth and well being of the individuals and families that made it.

Is Investing Necessary?

Many who follow the Money for Life Model for Creating and Managing a Personal Economy find it entirely unnecessary to take the risk to invest in anything.  They commit all of their money to building multiple Money for Life Accounts to assure that the Four Pillars of every successful personal economy are erected on an unassailable foundation of money that they control.

Jeffrey Reeves

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