Buy in term, 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 , I did not understand that in order to invest you first needed to save.

“Oh, that’s not right!” opined each 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 much of an 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 split. Buy forward, invest the difference in mutual funds, and use your investments as a double deal, meaning your mutual funds should be both your retirement and your savings.

I’m sitting here for a few minutes considering the gullibility of the American people. The effort to probe its depths is made, 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 of Black Monday in 1987. My general agent marveled at how in a conversation with a service station attendant he couldn’t understand why everyone was so worried about whether the banks would be open the next day.

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

An opinion that looks like a recommendation

To-Do Lists

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

1. Calculate how much you enter the household and what is your expense. You may have 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 grinding 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% to work with your savings plan.

4. Accept the idea that you know nothing about money, for now.

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

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

• It will become a cash cushion that protects you from predatory lending during emergencies.

• It will give the house a sense of security because no matter what happens, next week whoever does the shopping will be able to carry it.

• It will provide you with 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 safe in the knowledge that even though you are gone, their lives go on.

Here’s how it breaks down, to make list #2.

1. 10% goes to cash savings

2. 10% is for life with perhaps a rider that can be converted to life as your finances stabilize.

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

You can also choose to simply save 30% over 4 months, at which point you’ll have over a month’s 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 about money.

Why Whole Life?

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

There are some general protections that your money throughout your life provides you that your local cook and financial planner probably didn’t tell you about:

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

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

• Your cash value is protected from lawsuits and creditors. Isn’t that umbrella policy enough to protect you? Your cash value is safe from lawsuits and collections by creditors, no matter how clear your responsibility is.

I love all of life because if you go in and stick to it and hold on to the iron bar 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 your 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 you think your paycheck would be like winning the lottery. Look at it as an exercise against future calamities, an exercise 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 issue of financial education. First, toss out all those snazzy, glossy financial magazines that are constantly touting the latest mutual funds.

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

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

…sort of nasty green funk that you just can’t get out of your rug. 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 major Western economies don’t necessarily see their successful retirement as a good thing. I’m going to go out on a limb and state that this is fact, not 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 ignore the devastating effects of inflation and go from America’s deceptive relative poverty to becoming rich.

Cheers,

Tim Singleton