Episode #14 – Debtor, Saver, or Cash Buyer – Are They All The Same?



Debtor or Cash Buyer

Are you a debtor or a cash buyer?

What if I told you there isn’t a lot of difference between them in the end?

What are we told if we pay cash for big purchases?

We’re told that we’ll save money and not pay interest.

Of course, that is true – and interest can stack up.

Listen to the quote regarding interest:

Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.

Wow, that puts it into perspective, doesn’t it?

What most people don’t really grasp is that you finance everything you buy, even when you pay cash.

So, let me see if I can depict a visual for you when it comes to going into debt for something or paying cash.

As we’ve mentioned before – we are always told to pay cash. The guy on the radio tells us to pay cash as well and never go into debt.

But is there much difference?

As a debtor I don’t save, I want what I want when I want it and go and get it.

Suppose in our example I want a car.
I don’t have the money, so I borrow the money.

Essentially, I’ve dug myself a hole.

Now with each passing month as I make my payments the hole begins to fill up again.

About the time the hole is completely full – I’ve paid off the debt.

Problem is, the car is now a heaping pile of metal and I need a new one.

So, I did myself another hole and go into debt again, to buy another car.

You know, when I was first married a close relative of my wife told me that I may as well just plan on having a car payment my entire life because that’s just the way it is.

This was long before I understood money and debt and I thought, I guess that’s just life, always have a car payment.

Anyway, so once again the debtor goes to work and each month makes his payments and fills the hole again.

Only to repeat over and over and over with cars, and furniture, and boats, and home improvements, and anything else that he can’t pay for with a few bucks cash.

The debtor never gets ahead and literally hocks his future income now – for money from the bank to make his major purchases.

So, we think, wow this is a horrible life right? And must think that the guy who pays cash must be much better off.

Well, let’s see –

Now if we use our analogy of digging a hole, the saver actually builds up a pile of dirt as he saves, and saves.

Once his pile is sufficient he literally takes the money that he’s saved and goes and pays cash for his major purchase.

The entire pile of dirt that he was building up, is now gone.

What he’s left with is the same bare ground he started with. In other words, he’s back to square one, sent home without passing go and collecting 200 dollars – for those of you who play monopoly.

In both cases of the debtor and cash buyer, they end up with just the bare ground and a used car.

Now granted, the debtor had a deeper hole due to the additional interest he paid for his loan, but the cash buyer gave up something just as valuable.

It’s called opportunity cost.

You see, had the cash buyer not had to take his pile of cash and made a purchase, his pile would still be growing and compounding.

What he has missed out on was the opportunity for his money to keep growing because he took it out to make a purchase.

He too is back to square one.

The debtor paid interest out of his pocket for the use of money.

The cash buyer gave up interest he could have had when he used his money.

Both really have no money.

So how do you fix this seemingly unsolvable problem?

Well, we have to give kudos to the cash buyer for taking the time to forgo a purchase today and save first.

Which brings us to our third guy in the conversation. This one we call a saver.

What he does is save first, like the cash buyer, but this time instead of taking his pile of cash and making his purchase, he uses a technique called collateralization.

I know, big word, but what it means is he leaves his money alone and growing and compounding, and then borrows against his money. That is what collateralization means, it means to borrow against your money.

So in effect, his money never leaves the account.

He borrows what he needs for his car – he makes payments back to the lender, but his money is still growing and compounding.

The result is, he actually gets ahead.

His pile of money grows while he gets the use of it for his purchases.

Now, let me make one thing clear.

The best thing this guy could do is never buy a car – right? I mean they are horrible investments.

But since he will likely need or want a car and is going to buy one anyway, this is can be the best economic advantage to him.

That is all we are looking for is an economic advantage.

If we can still have our money growing and compounding and at a higher rate than the interest we are paying for the use of the money – we win.

I’m sure you’re asking yourself, why hasn’t someone told me about this before?

My answer is, the system is rigged against you. Between the big Banks and Wall Street, do you think they want you to know how to beat the system?

You see, the way you beat it is by using a sold mutual, dividend-paying, whole life insurance policy.

I know, but that’s life insurance, right? It is, but it actually resembles more of the banking principals that we need than simply for the death benefit.

There are a few keys though. We need to be savers, we need to overfund the policy.

What that means is we design it to accept more cash than a typical policy would, that is how we supercharge the policy and build a capital reserve account.

We want to maximize the premium right up to the IRS limits. I won’t get too much into that here, but just know, that’s how we’ll design it, to the maximum tax advantages to you.

I’ll bet you didn’t know there were tax advantages to a life insurance policy, did you?

You might be surprised what you’ve never been told before – those darn banks and wall street firms want you kept in the dark, don’t they?

We also need to be wise with our money, we always want to pay back loans, so we are not stealing from ourselves, and any loan we take has to be an economic advantage to us.

That’s about it – now you know the difference between a debtor, a cash buyer, and a saver.

If they are all on an equal playing field, with the same income and make the same purchases, the saver is going to come out lightyears ahead of the other two as they simply are on treadmills getting nowhere.

This could be the difference between a subsistence retirement and an abundant one.

Well, as always, if you have any questions, shoot me an email and I’ll answer them as quick as I can. Send them to dan@wisemoneytools.com

Take care.

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