Episode 23 – We Finance Everything – Even When We Pay Cash!


Hi everyone and welcome to another wealthy and wise Wednesday. Hope you’re doing great? Got a little background music going for you here. Maybe that will trigger a lot of memories for some of you with a little gray like I do and for others I just want you to know that the greatest music ever in the history of America was pretty much the seventies. So check it out. Anyway, I love those that era.

Well, today we’re going to talk about financing and this is going to be a concept that you may have heard of. For the most part, most people haven’t and this is an undiscussed concept especially by many financial advisors and even some of the really famous ones that are on the radio. They just don’t talk about this and here’s the concept, we finance everything we buy even when we pay cash. OK Now there are some things that we pay cash for every month and that’s perfectly fine, that’s the little stuff, the food, the gas, the clothes, things like that that we have to have, we’re going to pay for cash for those things and unfortunately it just costs money to live and it costs money to have a roof over your head and that’s why we work. But when it comes to saving and major purchases this is what I mean by we finance everything even when we pay cash.

So let’s use some of the reasoning here so first let’s define a major purchase. A major purchase would be something that I could not pay for with the discretionary income that I have at the end of the month. So I make X number of dollars and I spin for gas and groceries and all that good stuff and utilities and at the end of the month, I’ve got this much more the left over. Well, if what I need to purchase is more than what I have left over we’ll consider that a major purchase. Might be oh a washer or a dryer where I have to say for a few months to build up enough capital to make that purchase. It might be a car, a vacation, you want to remodel your house or remodel just the kitchen. You get the idea. Any major expense we have to determine am I going to save and pay cash for this or am I going to finance it. So to make this simple list just use a car. And I don’t have enough money at the end of the month to buy that car so now I got to come to the conclusion my going to save my money up and pay cash or am I going to use financing? And my argument of what I want to show you today is that you if you actually finance it either way even when you pay cash.

Now financing might not be that actual terminology but let me explain what I mean. If I have money in an account that I’ve been saving and let’s just say for sake of argument that accounts getting five percent return and it will continue to get five percent for the next fifteen, twenty, or thirty years, well if I take the money out of that account, what am I doing? I’m giving up interest that I could earn for the next ten twenty thirty years, that’s called Opportunity cost, but in our terminology for today that’s actually financing because we’re giving up interest that we could have earned had we not taken the money out of the account and paid cash, right. Now when I do traditional financing so I go to the bank and I borrow the money for the car and they’re going to charge me five percent interest let’s say. Now I’m paying interest and of course, that is a cost and we can see it we, understand that we’ve been taught don’t pay interest. What we haven’t been taught is don’t give up interest. Right because that interest could have grown in and built my capital and my poor folio for years and years and years and decades into the future. So, in reality, we are financing everything that we buy even when we pay cash. One’s actual financing or in paying interest one is losing interest and opportunity cost on that money.

So do we have a third choice? Have you ever been presented a third choice? That’s some of the things that we like to talk about because there are places that you can store your money and then what you can do is take loans against your money so your money still grows and compounds at that let’s say five percent rate that we’ve been using as in our example as if you never touched it. But you can take a loan against it use that money to pay for your major purchases and then what do you do? You make payments back to make that two to refill that bucket if you will, to have that capital back in there for your next major purchase. We call this kind of a wealth creation process because you never give up interest and the interest that you paid in a roundabout way ends up back into your account as you pay those payments back. It is quite a unique system and it can be

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very beneficial especially if you have two or foresee yourself using the money over your lifetime and buying these major purchases in a way where you can actually continue to build and grow your wealth instead of losing it. You know we’ve talked in the past that on some podcast about the saver and the debtor, right? Well the saver is supposedly in better shape than the debtor, but if I’m a saver and I build up this pile of money and then go spend it then I build up this pile of money and go spend it, build of this pile of money go spend it, well in the end I’m pretty much at ground zero,, I just I never really get anywhere because all I do is save my money to spend. Well if I’m a debtor what happens is I kind of dig myself a hole and then when I get out of the hole I’m back at ground zero and then I dig another hole for another purchase then a back to Ground Zero. Well in the end both the saver and the debtor are back to ground zero. Sure the saver has you know maybe save some interest which is good, not saying that that’s not good but there are no they’re not that much better off financially in the end.

So we’ve got to figure out a structure to where when we have to make these major purchases that it’s in our best interest and works best for us financially. And right now this just being pain cash isn’t necessarily the best alternative and I should back up and say this especially when it comes to a car. OK, folks listen a car is a horrible investment, it’s really one of the worst places you can put money. And who one of the first things we ought to assess is do I need the car? Do I have to buy the car? Can I get a less expensive car? Because the least amount of money you can put in cars in your lifetime is going to be to your advantage.

Now I’m kind of guilty some of this because I like cars and I’ve been, I’ve probably bought a few too many, but it’s an enjoyment in life and I always make sure that I still have plenty to save and invest even when I’m maybe not being too wise with my car purchase, let’s just put it that way. And look life is meant to be enjoyed. We’re not trying to you know hamper you into this corner so that you can never enjoy life and some of the things that life has to offer, but let’s do it in a practical manner and certainly let’s do it after we’ve built up a nice pile of money and then just use it wisely to help create and build our wealth even more so.

So really just getting back to this concept that’s really talked about is that we finance everything even when we pay cash. Cash has a cost, cash has a future cost. Cash can be used for so many opportunities down the road that sometimes we give up because we’ve put our money into a major expense and we think about this. Think about going and putting you know a good chunk of your capital into a car because you were told to pay cash and then some opportunity comes along were had you been able to invest that money it might have doubled and tripled and quadrupled in the next ten or fifteen or twenty or thirty years and it could have been a nice capital base for retirement or for other things that you may want or need down the road. So we give up a lot of opportunities when we take that cash and throw it into, especially depreciating assets.

So think about that next time you’re looking for a major purchase. Am I going to be a debtor? Am I going to be a saver or my going to be a wealth creator and if you’d like to learn more about this strategy and how you can build up your capital and use it as well for your major purchases and still continue to grow in compound happy to talk to you about that. You can also go to our website wise money tool dot com And there you can get a copy of my book in the banking effect which talks a lot about this and talks about how to literally become your own banking system, which is what a lot of very wealthy people have been doing for decades and decades and generations, so learn about it there.

In the meantime if you have any questions feel free to shoot me an e-mail to questions at wisemanytools.com. Happy to answer them as quick as I can. If you want to strategy session where we can talk about this further see how it might fit into your situation, we can do that as well. Otherwise, I hope this was just some really good information for you and understand how money works and you might blow away your financial advisor when you explain to him one day that you finance everything you buy even when you pay cash. So that’s it for today, for another wealthy and wise Wednesday. Thanks for joining us and until next week, take care.

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