Episode 35: The Wealth On Any Income Book – Conclusion: Don’t Pay Your Debts First and Avoiding Fraud – Transcript

Hi Folks, Welcome to the Wealth On Any Income podcast. This is where we talk about money tips, techniques, attitudes, information and provide inspiration. I’m your host, Rennie Gabriel.

In the previous episodes I spoke about your five year financial goal; the difference between good debt and bad debt; how good debt can support you to create wealth. We discussed how to complete a Balance Sheet and determine your net worth so you know how close you are to Complete Financial Choice®. For the Income and Expense form, when you focus on expenses first you’re rewarded with more income. We discussed how to measure the level of pleasure based on where you spend your money.

In the last episode we spoke about different types of life insurance, trust deeds, real estate, life settlements and tax advantaged investing.

Today, I’ll complete reading the last of the 12^thstep in the Wealth On Any Income book that deals with creating your prosperous financial future. Today we’ll cover the story of Jack and Jill and take another look at why you should NOT pay off your debts, like credit cards, before you begin to invest. We will also cover how to avoid investment frauds, fraudulent charities and conclude the reading of the Wealth On Any Income book. This episode will be about 15 minutes.

As I read, I could stumble over some words. I am not a professional voice over actor so please forgive me if that happens.

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Don’t pay your debts first!

By now I would expect you’re in the mood and excited to begin setting aside money to create financial freedom or Complete Financial Choice®. Besides, you deserve to pay yourself first. Many people who have credit card or short term debt tell me at this point, “As soon as I pay off my debts I’ll start to save and/or invest.” This is faulty thinking, but it’s not your fault. Do you remember when I explained the concept of “pay yourself first” with the two circles and said to start paying yourself first even if you have debt to pay off? In the section on “Becoming a Millionaire on $10 per Day,” I provided a chart that showed the cost of waiting to invest. Now I’ll provide similar information in the form of a story.

It seems the common wisdom from many accountants and financial advisors is to pay off your high interest debts before you start a savings or investment program. On the surface it might look appropriate, or even intelligent, to pay off credit card debt at 14% to 21% instead of putting money aside at 1-3%, or investing when the return could be unknown. To start with, if your credit is good, you can transfer balances to lower rate credit cards. If your objective is to create Complete Financial Choice® where work is a choice and not a requirement, using the common wisdom may not be the best advice to take. See if you agree after I tell you the story of Jack and Jill.

After working with people and their money for over 40 years, I’ve discovered two sets of conflicting views. The first set is, short term versus long term; and the second is, looks good on paper versus human nature. The funny part, or sad part, depending on your personal outlook, is what looks good for the short term is a disaster for the long term. And, what looks good on paper most often does not fit how human beings act.

Let’s introduce the characters of our story, Jack and Jill. (By the way, there is no relationship to the kids who were in the hill and water drama.) They are friends and work for the same company, and they both earn the same amount. Although Jill is the VP of sales and Jack is an administrative assistant, this is about the impact of compound earnings, not equal pay for equal work.

Both Jack and Jill spent money unconsciously for several years before they turned 35. Jack purchased stuff to impress other people and Jill bought clothing and jewelry she didn’t need to fill the emptiness that welled up inside of her. They each built up $15,000 of credit card debt at 16% interest. What a coincidence!

Jack was making payments of $300 per month, and he calculated his debt would be paid off in seven years. But, by adding an additional $125 per month he could eliminate three years of payments and save himself about $4,500 in interest (see Box 1). He said after he paid off his credit cards in four years, then he would invest the $125 per month. After all, he was paying 16% interest and if he put his money in a bank at 1-3%, or even if he could get 12% in a mutual fund, he was guaranteed a 16% return just by paying off his debt. His CPA said it was the best thing to do, but they were only looking at the short term, not the long term.

Jill, the smart one, had watched my “Wealth on Any Income” video program and decided to pay herself first by putting money in a high quality mutual fund which had average earnings of 12% annually for several decades. (She could have purchased a variable annuity, made direct stock purchases and paid no commissions, or even contributed to her company’s 401(k) plan, but I want to keep my example simple.)

Projecting out into the future, if Jill made monthly contributions of $125 (or about $4.17 per day) for 28 years at 12% earnings, by age 63 she would have accumulated $341,400. Jack, on the other hand delayed his investing for four years until he paid off his credit cards. By age 63 he would have $207,000, or $134,400 less than Jill. His waiting four years and saving $4,500 in credit card interest cost him $134,400 in lost earnings over the next 24 years (see Box 2).

While Jill’s results look good on paper, the difficulty is with human nature. Most people lack the discipline to set aside money on a regular basis. I’m suggesting a difference of only $4.17 per day will create these wonderful results over 24 to 28 years. However, most bank Christmas clubs opened in January are emptied by the end of the summer. Instead, a structure that almost forces people to pay themselves first might be the most important foundation to creating financial freedom. Vehicles like 401(k) plans, tax sheltered annuities, variable life insurance, or dollar-cost-averaging into a mutual fund by payroll deduction could be considered as a better approach to reaching your goals than willpower.

In 2021 dollars the difference in cash is enough for Jill to go to Germany, pay for all the travel expenses, purchase a new Mercedes-Benz 500 SL convertible for $92,000, bring it home and still have money left over. Instead of buying these goodies with the difference, if Jill used the earnings alone, which is more than $16,000 per year, she could take a friend on vacation with her to Hawaii for a full week twice a year, including airfare, for the rest of her life, and have $2,000 spending cash on each trip.

If Jill earned only 9%, instead of 12%, she’d still have accumulated almost $62,000 ($61,800) more than Jack. If Jill used the earnings from the difference (at 9%) it would allow her to go to Europe for two weeks, twice per year, pay for airfare, hotels, tours, and have $600 spending cash on each trip (see Box 3).

Please be aware of another assumption upon which I based this story: ONLY the $125 difference was considered for the calculations. There is no way to know if Jack will add the $300 per month extra to his investments after he pays off his credit cards, three years before Jill pays off her credit cards. (Even if he did do this, he would only produce $5,224 more than Jill, but he would have invested $10,800 more to do it.) Human nature has shown me 95% of the population won’t add the extra $300 on a consistent monthly basis even when they say they will.

The moral of this story about Jack and Jill can be expressed by the German phrase habeas achtoom corpus: which translates to “Wash your hands before eating,” So much for the humor. The point is: Don’t wait to pay off your debts before you begin to invest. Pay yourself first now, or the delay will cost you far more than you’ll save.

How to Guard Against Investment Fraud
Intelligence, education, success in business or a profession does not offer protection against being defrauded. Chances are the more successful you become, the more you will be able to attract a better class of con artist. I started collecting articles in 1983 and have dozens covering all sorts of frauds and swindles. They depict well- dressed, church-going, public and community involved individuals, like Bernie Madoff, as well as gangsters, who stole from the people who trusted them. Some of the following information was taken from a Sylvia Porter article dated September 14, 1988, and things have not changed much in the last thirty-three years. You can avoid being a victim of investment fraud by following these guidelines:

Develop a coherent investment strategy tailored to your own circumstances. The development of realistic investment goals is worth the effort, not only for its own sake, but also because it results in a healthy skepticism that con artists dread.
Select investments to fit your goals. Do not settle for what someone wants to sell you. Even in times of economic uncertainty, solid investment opportunities exist.
Choose a professional advisor as carefully as you would select a million-dollar investment. Refer to the questions on how to pick an advisor in a previous section.
Keep your guard up. Be aware that there are people who want to live well on your money and they may look and sound as respectable as anybody else.
Have a good defensive strategy. Use other professionals you trust to review investment offerings in which they have expertise. Ask an insurance agent about insurance; ask a CPA tax questions; ask a stockbroker about a specific stock; ask an attorney a legal question; ask a certified financial planner to help you set financial goals. You wouldn’t ask your gardener for medical advice. Would you?
NEVER, EVER, AND I MEAN NEVER SEND MONEY, OR GIVE YOUR CREDIT CARD NUMBER, TO A STRANGER ON THE BASIS OF A PHONE CALL, ESPECIALLY IF THEY SAY THEY ARE WITH THE IRS.
Before investing in a new stock offering, read the prospectus—especially if the promoter tells you not to bother.
Don’t take exaggerated promises at face value. If such great returns are real, why would they share the secret?
Do not be hustled by high-pressure tactics. The investment world is not going to run out of good opportunities in the next hour.
Beware of hucksters who claim they’re doing you a favor because you’re a member of a particular organization, church, or a group. This is called affinity fraud.
Do not assume state or federal regulators can protect you. They are far outnumbered by the scam artists.
Read: http://www.fbi.gov/scams-safety/fraud/seniors to find out more ways to protect yourself.

Other Frauds: Charities

There are other frauds of which to be aware. In an Ann Landers column reported in the Los Angeles Times on April 19, 1998, charities can be deceptive and misleading, too. A company that used to go by the name of Watson & Hughey, which was changed to Direct Response Consulting Services, used sweepstakes and telemarketing to raise money, supposedly for charities. In some cases, nearly all of the money raised was kept by Watson & Hughey. Over the last several decades, the Attorney General in many states brought suit against phony charities, probably resulting in their changing their names, but not their practices. The charities have legitimate-sounding names as part of the deception. Here is a partial list of the charities to stay away from:

American Institute for Cancer Research (which sounds like American Cancer Society)
National Children’s Cancer Society
Center for Advanced Heart Research
Center for Alternative Cancer Research
United Children’s Fund
A Child’s Wish (which sounds like Make A Wish Foundation)
National Cancer Research Institute
And even the United Way *

* It appears that the United Way in Connecticut may be complicit in a hoax involving the Sandy Hook Elementary School shootings. Please Google Sandy Hook United Way and determine this for yourself.

To protect yourself, do not give money to a charity with which you are not completely familiar, to a paid solicitation firm, or to a paid solicitor. Read the fine print on their material or ask the caller if they are working for a paid solicitor. You can find out how well charities do at http://www.charitynavigator.org and see how well they spend your donations.

Conclusion

As I discussed in the beginning of this book, with Awareness, Tools and Actions you can create financial prosperity, even in a roller coaster economy. You are now aware of how millionaires operate; you’ve become aware of your beliefs, where they’ve come from and your values. You used the tools like the Balance Sheet and Cash Flow Form to provide awareness of your money. The Spending Plan Register provides awareness on a moment’s notice of where your money is going and if you’re getting the level of pleasure you’re paying for. Using these tools is taking action. Speaking with other people and letting them support you is action at the highest level to produce results. Creating accountability with another person is setting up the action structure to produce results. If you haven’t started working on the forms in the back of the book, now is the time to start. Buy the book, or email a request for the forms. As you continue on your path to financial abundance, prosperity and freedom, and Complete Financial Choice® please share what you’ve learned with others. You’ll be glad you did. Congratulations on completing the Wealth On Any Income book.

I wish you the best in life, and to live the life you love.

Your attitude and actions of the past have brought you to where you are today.

Your attitude and actions today will create your future.

And remember,

“Wealth creation is a team sport, not a solo sport.”

– Rennie Gabriel

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Here’s your opportunity to grow: Send an email to Rennie@WealthOnAnyIncome.com and put All Forms in the subject line to get all of the forms I spoke about. Or, buy a copy of Wealth On Any Income from my website - instead of Amazon - because profits from any book purchased from my website are donated to the charity Shelter To Soldier. Go to www.WealthOnAnyIncome.com/books

This was the last episode of my reading the Wealth On Any Income book. It will now be converted into an audio book. If you would like the audio book version, please send an email to Rennie@WealthOnAnyIncome.com and put Audio Book in the subject line.

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Until next week, be prosperous. Bye, bye for now.

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