Post by BecomingYourOwnBank.com Owner – Dan Thompson
Do you remember the movie “Back To The Future?” Wouldn’t it be nice to have a DeLorean equipped with a Flux Capacitor that would allow you to go back in time and live a part of your life over again? Maybe you would just make a minor adjustment or two regarding some decisions you made that could make things dramatically better? If you are like me you probably dream of all the things you could have “invented” because you knew what was coming and you could be on the forefront to all the new technology. Do you remember in the sequel where Biff was able to bet on every major sporting event and made millions because he already knew the outcome? How nice would that be to have a sure thing.
Since none of us have a DeLorean time machine and it’s probably not going to be available in our lifetime the only thing we have available to us is comparing what we have done to what we could have done. What would you have done different with all the money you have made over your lifetime?
I think one of the biggest mistakes made in the world, from a financial perspective, is that we spend more time trying to understand and being involved in “investing” rather than “financing.” In reality financing plays a much greater role to our economic wealth than investing does. Yet we take what little extra we have at the end of the month and invest in an IRA or a 401(k) or maybe we put in money every month in a mutual fund. Meanwhile we are spending and wasting more money on financing or paying cash for things than most investments could ever return.
Every once in a while, as an adult, I kind of like to do some retrospection and contemplate what I would have done differently if I could go back. Unfortunately the list is long. Looking back on our lives as a young married couple, and then as new parents, and now as grandparents, I think if my kids and grandkids wanted financial advice from me what I would say to them? Here is what I’ve come up with: “Control the banking or financing equation in your life and it will have a much greater impact on your wealth than investing will.”
What do I mean by that? Have you thought about what a typical teenager, growing to a middle aged adulthood, and what they will deal with when it comes to financing? For some it’s much worse for others not quite as extensive, but here is a short list of what is typically borrowed or financed (or paid cash for, which is another method of financing, but we’ll discuss that in a future article):
Several Cars – maybe 7-10 cars by the time they are 45 years old
One or more homes
Dental Expenses – Braces for the kids
Repairs (car, home)
Credit Cards – clothes, food, gas, entertainment
And the list goes on and on….
My best guess is that it can easily add up to 60-80% of all their after tax income went to some form of payment……financing.
So what if you could recapture some if not all of that money? The 60%-80% is typically spent or given to someone else for them to increase their wealth….right? So why not increase yours?
Think about a wage earner making $50,000 a year after taxes. If he/she/they are spending or paying $2,000-$4,000 per month to someone else, that is lost money and lost opportunity…..forever! It would be an incredible wealth builder to recapture and be able to put in their account the majority of those financing costs…..wouldn’t it? What if you were paying yourself $2,000 to $4,000 per month and building your wealth.
So as a grandparent, I want all of my grandkids, and their parents too for that matter, to understand that if they can control the financing in their lives (debt to others) and create a private banking system for themselves in which they borrow and pay back loans and finance all their needs with the “family bank,” they will do more to create wealth, without the risk of investing, than otherwise would be lost by financing through others.
One of the things that I will be doing is setting up a banking system for each one of our grandchildren as they are born. After just a few short years of funding, they will never, EVER have to borrow a single dollar from anyone else throughout their entire life.
Think about this…… what if the $2,000-$4,000 per month in our example above was coming directly back to them each month! You can’t offset the cost of financing by investing, investing is just not predictable enough or without significant risk!
That is how you build wealth.
Grandparents! Let’s not let our kids and grandkids make the same mistakes we did. We can make a huge difference in their lives by teaching them a lifetime skill to control the financing equation in their lives by creating their own private banking systems.