Have you ever done something so stupid that you wanted to smack yourself and scream out loud, “WHAT WAS I THINKING?” I know I have. I recall one freezing, cold, winter day. The snow was up to my knees. I had to go out and run an errand. Car was low on gas. I made a stop at the gas station. The gas cap was frozen shut. I pried and I pried. I couldn’t get this gas cap to open for nothing. Then I got this bright idea. Use a lighter to thaw it. I scurried around in the car and located a lighter. I went back to the gas tank, ignited the lighter with fire and right before I put fire on the gas cap, I thought better of it. I screamed to myself, “WHAT WAS I THINKING?” Can you imagine some idiot igniting fire to a gas tank. Poof-Poof-BOOM! It was me who was almost that idiot. Fortunately for me, my brain kicked in before I completed the act.
Renowned radio host and personal finance expert Dave Ramsey says when you do something stupid and it costs you money, you pay “Stupid Tax.” I, too, am a personal finance expert. Like Dave, I, too, have done some stupid things that has cost me money. How do you think we both became experts in personal finance? Sure, I got the academic training in finance. I’ve worked in banking and finance my entire working career. None of that really prepares you for real-world personal finance management. Spoken more directly, none of that really teaches you how to win with money. I consider you to be winning with money when you’re debt-free with mega-money in the bank. Anything else is an illusion.
Academic training teaches you these high-level concepts and prepare you to pass tests. The concepts of beta, standard deviation, economic yield curve, fiscal and monetary policy don’t necessarily trickle down to basic everyday money management. Training acquired in the finance industry teaches you how to service or sale various financial products. In addition to product and service training, you get compliance training to ensure you don’t subject the financial institution to breaking the law. Neither academic finance training nor working in banking and finance taught me how to win with money.
If those of us who’ve been trained and worked in finance haven’t been given proper information and tools to win with money, how’s the rest of the hard-working, everyday people fairing. Published statistics state: 78 percent of Americans are living paycheck to paycheck. The average American couldn’t cover a $400 minor emergency. The average American saves less than two cents of every dollar earned. 78 percent of Americans don’t have a will. The average American current retirement savings balance is less than their annual salary. Only 15 percent of retirees receive more than $35,000 annually. 96 percent of Americans aged 65 or older retire or die broke.
With little to no personal finance curriculum in elementary, middle school, high school or college, most people have obtained what they know about finance from bankers, insurance agents, financial advisors, tax preparers, loan officers and realtors. All of whom are trying to sell you on their financial products and services. Most of their earnings are based on 75-100 percent commission. Yes, it’s true you have smart, morally correct, selfless people in these positions that have their client’s best interest at heart. It’s also true that you have self-centered people in these positions who are more concerned about themselves earning money on the transactions than they are helping the client make the best decision for themselves. You have to be able to choose between the two.
You also have people in these positions who are enthusiastic ignoramuses. These are finance professionals selling financial products and services they believe in but don’t fully understand. Their respective company is pushing a particular product. They stand to earn a decent commission on it. They sell it to you. They buy it for themselves. I’m reminded of a story I heard on a personal finance radio show. The caller was an insurance agent who had called in to reveal that he was debt-free. As he was sharing his story, he revealed that he had Cash-Value Life Insurance with a $900 monthly premium. One of the things he did to create wiggle room in his budget was obtain Term Life Insurance, which gave him a higher face amount (coverage) and a $90 monthly premium. He was able to save $800 per month. He then used that $800 to accelerate his process of getting out of debt.
After doing research on his own, he came to learn that what he was selling and buying wasn’t in his best interest. He got out of dumb, then he got out of debt.
There’s a myriad of financial products, financial services, and financial concepts that are widely touted and widely accepted that’s not always in the best interest of the end user. Cash-Value Life Insurance vs. Term Life Insurance is one of them. Instead of being educated on the pros and cons on both, we’ve been sold on the necessity of Cash-Value Life Insurance. Why? Cash-Value Life Insurance pays the higher commission.
I’ll cover more in future articles. I’d be remiss if I didn’t touch on building credit score vs. building net worth. The American public is sold on the idea that a high credit score is a true indicator of good money management. LIES! I’ll say that if you’re seeking to win financially, you want to focus on building your net worth, not your credit score. Net worth is defined as assets minus debt. Credit score is a predictive indicator of how well you manage debt. Eliminating debt is smart.
(Damon Carr, Money Coach can be reached at 412-216-1013 or visit his website @ www.damonmoneycoach.com)