LIFE Acronym #18:
"Luxury Is First Earned"
The title of a recent post that I wrote was "Lightning Is Flashing Everywhere". I wrote it in the same reclining chair that I'm in right now, and on the same back porch. And just as it was when I wrote that post, lightning is flashing everywhere again tonight as I write this one. But this time it makes me think of something else.
You see, a lot of this majestic natural show is unfortunately blocked by a brand-new 2-story house that was completed less than a month ago. The house was built extremely fast, because the builders and construction workers don't have much work right now, so they pump them out fast when they do have a house to build. But I suppose that the real estate bubble is a subject for another post.
Tonight, as I was looking at this towering stucco wall next door, I decided to talk about the materialism that we think is so normal. This guy who moved in next door, whoever he is (I haven't had the chance to meet him yet), obviously feels pretty good about his job security. But so did the 1 in 14 people in the Phoenix Valley who are in foreclosure right now.
This new neighbor of mine has two brand-new cars parked outside in front of his house. And I can pretty much guarantee you that he does not own them. You know who does? The bank! And when he finally pays them off, he will have given the bank a ton of profit, and ultimately paid way more than the cars were worth in the first place (not to mention that if he bought them new, they dropped several thousand dollars in value the very second that he drove them off the lot). Why is he willing to pay through the nose to drive something that he does not own? Materialism and instant gratification, that's why. It's this system that we've been tricked into thinking is normal.
WOW!!! Quick interjection. I just saw the BEST lightning strike! Oh man, it was amazing! It was like a giant, monstrous, wiry and blindingly bright hand reaching across the sky! The sky came alive, and I witnessed the apparition of some sort of a previously unclassified energy monster or plasma golem materializing out of nowhere. This powerful monster proceeded to ominously warn everyone of his domineering, forceful supremacy with the same thunderous roar that made the ancients think that he was a deity. You missed out big time by not sitting right next to me and watching the sky with me. It was probably the best strike I've seen all year. :) Anyway, on with the story...
We Americans live in the richest time period in the world's history, and in the richest nation in the world. In the last 20 years or so, our population has grown by 10%, yet our money supply has increased 900%!!! I'm pretty sure I heard recently that our 5% of the world's population has more wealth than all of the other nations combined!
Yet we still somehow feel the need to get in DEBT for a house that the rest of the world would consider a mansion?! WE'VE BEEN CONNED!! This is the land of opportunity! Think of the good old days when people would work hard and save for the things that they wanted. Today people in CHINA save more than the average American. In fact, last I heard, our national savings average wasn't even a positive number! It was negative 2%!
To get to that number, there has to be a LOT of people who are in debt and living check to check with no savings. And there are. Statistically, the odds say that you are most likely one of them. Did you know that the average American would lose everything that they have if they were out of work for just three months?
The banks are making oodles and gobs of money off of our backs with their credit cards, ARMs (Adjustable Rate Mortgages), REFIs, CDs, savings accounts and Money Market accounts.
Did you know that in the investing industry, they purposely make bonds look bad because they only pay the broker 2%? Mutual Funds, ETFs, Annuities, and stocks pay the broker from 3% to 12%! That money comes out of your pocket when you buy those investment vehicles. And when the market tanks, you lose big with all of these equity-linked investment vehicles that you were tricked into buying. I'm not saying that all brokers know better. But the people who created these investment vehicles in the first place do know better.
The banks take in BILLIONS AND BILLIONS of dollars from grannies with their IRAs, white-collar dads with their 401(k)s, and hapless, young, inexperienced would-be investors with their "high interest CDs". Banks are in business to make a profit. They take your money, invest it, keep most of the profits, and give you a little tiny speck of profit back for good measure. This was YOUR MONEY. They would have never made a DIME if you hadn't entrusted them with your hard-earned cash in the first place.
When the banks take in all your money, do you think that they buy mutual funds and ETFs with it? Do you think that they are out there buying annuities or large-cap growth stocks with your money? Had you ever even stopped to THINK about what they were using your money on? I can tell you.
For a large part, THEY BUY BONDS WITH IT! That's right, bonds, if bought right and held right, provide a SOLID form of income for the banks, and are much more reliable than stocks and other equity-linked investments. The banks take your grandma's money, invest it in bonds, make 4% to 12% or more from it, and give her back a measly 1/4%! Yes, that's one fourth of a percent. But even if they paid 2% it'd still be a ripoff.
When you buy a stock, you are buying a percentage of that company. That means that you share in the risk. So, when the company's stock tanks, you have no recourse because you are PART-OWNER. That's the risk that you take. And precisely that risk is what they've conned the VAST MAJORITY of Americans into taking.
If you buy a Bond, you are LENDING money to a company, a city, a county, or maybe even the federal government (think Treasury Bonds). Compared to ownership, debt is treated very seriously in our society. If you buy part of a company, and the company can't afford to pay you, nobody is really going to help you get that money, because that's risk that you took. But, if you LEND a company money and they don't pay, by golly you can get a boatload of lawyers all lined up on your side to help you get that money. And they'll have the LAW on their side.
Have you ever been on the borrowing end of this equation (think calls from a collection agency)? Which side do you think it's better to be on? I think it's obvious. Yet, they've tricked us all into constantly being on the wrong side of the lending equation.
Wouldn't you like to be the bank? Bonds have guaranteed principle and interest that is often even backed by the Federal Government or a government agency, or by a strong bond insurer like the MBIA. And bonds are much safer for other reasons as well.
Let's consider a company in bankruptcy. The stockholders will likely get screwed. If you have a mutual fund or an ETF, you are a stockholder. When a company goes bankrupt, naturally they sell off all their assets to pay their debts. Bondholders are CREDITORS, and therefore that's the first place that the money goes. THEN, if there's any left over, it goes to preferred stockholders, and then finally to common stockholders. So you see? This is why they have made it popular for YOU AND YOUR FAMILY to be buying stocks, while the banks who really know what's going on buy the bonds.
I am an Investment Broker by trade right now, and I work at the firm with my dad. There at the firm (just at OUR OFFICE), we do what LESS THAN 1% of all brokers do, which is to focus almost entirely on Bonds. In our clients' portfolios, we typically do from 90% bonds and 10% small cap stocks, to 95% bonds and 5% small cap stocks. And, do you know what happens? OUR CLIENTS STAY AROUND!!! My dad can honestly boast that in 8 years, he has NEVER lost a client due to portfolio problems. Yet, if you read about what has happened to the brokers in the investing industry because of the '08 crash, you'll see that that is virtually UNHEARD OF. Not only did he not lose any clients, he actually GAINED a lot of clients. Why? Let me give you a common scenario for my dad:
One of his clients would be out golfing with his buddies, and his buddies would be lamenting the situation of the market. They'd say "I'm down 40%, how about you?". And the other would say "Man, I'm down 60%!". Then they would turn to my dad's client and ask "What about you? How much are you down?" And he'd say, "Well, I'm not down at all! In fact, I'm UP!" You know what the next words of their mouths would be? "Who is your broker and what is his number?!"
My dad was going over the accounts of all of his clients the other day, many of whom have made money HAND OVER FIST during the last three years (we're talking doubling and tripling their accounts). The client who made the LEAST was STILL in the positive and outdid the average return of the stock market. Most everyone else out there at all the other brokerages was way in the red. But not a single one of my dad's clients. Why? Because they were being the bank! They were on the winning side of the lending scenario. The rich get richer, and the poor get poorer.
I'm just showing you this to try and help you to see the light of the con that we are all living in. The big guys have found ways to trick us out of more money. They especially dipped into our pockets when they figured out a way to take your Grandma's money by allowing banks to invest CD money in risky investments. They also tapped into our bank accounts legally (that word is a joke these days), when they figured out how to take your dad's money by instituting the 401(k) plans. In the 401(k), you can't even really buy bonds. In fact, you don't really have that much control over what is purchased. And for the most part, all 401(k) money is in equity-linked securities. That's the kind of thing that slides to rock bottom when the market tanks. Risky.
When you borrow money from your friend, and the market tanks, don't you still owe him the same amount of money? Yet companies take your money, and don't have to pay you back near as much because you rode the stock market down to oblivion with everyone else. They got that money from you. And when the "perceived value" of their company shrunk due to the market crash, they were now obligated to pay you back a much lower amount.
That's called legalized theft. It's not theft when the person who buys equity ownership really does it on purpose and knows what they're doing. But it's theft when they trick all grannies and white-collar dads into doing it as well. These poor unfortunate people entrust their financial advisors and investment brokers with their money, only with the hope that they will take care of it, make it grow, and provide a retirement for them.
But the financial advisors and investment brokers have been tricked into the system too, with their educations, the tests that they studied for and took to get their licenses, the training that they received from their firms, and all the stuff that they see on the news and read in the newspaper, on the online articles, and in their financial magazines that arrive snugly folded in their mailboxes every month.
Plus, the brokers and advisors see the differences in commissions, and purposely want to promote the higher-paying investments anyway. And if you've been in sales, you know that you can present almost anything in a perfect light. But what of truth? Shouldn't truth trump a fancy presentation? You need to be seeking it.
Now back to debt. They have also tricked us into paying three times over for our houses, by making us think it's normal to borrow for a huge house that we can barely afford. Did you know that another of the main things that banks invest in are a wonderfully solid source of cash flow called MORTGAGE NOTES?! That's right, they're making a killing off of you. And they sell your loan all around. It changes hands left and right, because it is an ASSET. It's a solid, income-producing ASSET. It DOESN'T GO DOWN WITH THE STOCK MARKET. People just keep on paying.
Of course, a lot of the sub-prime loans that were issued a few years back during the "zero-down", hardly-regulated bank home lending frenzy are now biting the banks in the backside. But the banks are still making money, because despite all of the foreclosure doom and gloom, there are plenty of people who are happy to keep on paying them (not to mention that our corrupt government is happy to bail them out with our tax dollars and fake printed money if needs be).
Oh man, I could go on forever. How about all of the negative equity that we see in the houses today? These houses are all left over from the real estate bubble (which again was a somewhat calculated plan and could have been avoided had we had people of integrity running this big vast globe that we call home). These upside-down houses are interspersed throughout every neighborhood, and the mortgages that people owe on them are WAY higher than the current FMV (Fair Market Value) of the houses. Many people are just walking away, even when they can actually afford to keep paying the payment.
But I believe that the honest and scrupulous thing to do is to pay the debts that you agreed to pay. I am not an advocate of insolvency; I'm not so fond of the ability to write off debts that you rightfully owe. It just seems dishonest to me.
Even though so many people are upside down in their houses, they are fighting to keep paying these inflated amounts. But for the most part they're not doing this because they feel morally obligated to pay. They're doing it because they don't want to mess up their credit, and they don't want to look bad in front of their friends and family.
They're fighting to stay afloat, and are gladly paying an arm and a leg to keep up this illusion, this facade of wealth that they are presenting to the world. Everyone is just trying to "keep up with the Joneses", and surround themselves with luxurious things that they haven't earned yet. And I'd say that it's gotten to the point of avarice.
People are not spending INCOME when they get into debt. They're spending IFcome. That means that IF the money continues to come in as they expect, then they'll be able to keep paying the payments on their CONTRACTUAL OBLIGATION called a home loan, and paying the debt down. But what IF NOT? What IF the money DOESN'T keep coming? Creditors don't just say, "Oh, your income is down from what it was before? Well then I'll just accept a lower payment from you." No, on the contrary, you still have to pay the full amount on your debts, even when your income drops.
So why do people strap themselves down like this? They do it because it's normal. They do it because our whole society has bought into the con that was created for us by greedy men with sly minds and influential pocketbooks.
From what I remember, a forcelosure stays on your credit for 7 years, and a bankruptcy stays on your credit for 10 years. As I was saying earlier, the main thing that keeps people fighting to pay upside-down mortgages is not a feeling of moral obligation. It's the fear of losing their ABILITY TO BORROW MONEY in the future (fear of messing up their credit) that keeps them paying their inflated mortgage payment.
You see? Do you see what this whole big con has caused us to be like? We put so much value on the ability to borrow, that it scares us to death to think of dinging our credit or permanently damaging it. It's because borrowing has become the backbone of our society.
And I'm not even going to go into the fact that the government is actually a CORPORATION now, and YOU are a corporation as well, with your social security number, and your birth certificate. Don't believe me? Look it up. It was their trick for getting around the Constitution. When they say "Are you WARREN CHAD GOLDTHWAITE?", and you say "Yes", they're taking that to mean that you are admitting that you are acting in behalf of the CORPORATION that they set up for you when you were born. Corporations are in ALL CAPS. The UNITED STATES GOVERNMENT is in all caps as well, and so is the FEDERAL RESERVE and YOUR NAME ON YOUR BIRTH CERTIFICATE, because they're ALL CORPORATIONS!!! Income tax is against the constitution. We are not supposed to have it. They're robbing us blind. Funding for a SMALL government is supposed to come from other sources, including some small taxes, and tariffs, and the exporting of goods, etc.
Okay, back to the whole lending/borrowing subject. I believe that business sometimes need to borrow to expand, and I think that debt is permissible if you are leveraging it to create some sort of a stream of income for yourself, or investing it into the growth of your company.
But debt for personal use is just an expenditure that you can live without. Think about renting a house. People argue that if you buy, it's a lower payment, and if the house appreciates in value, you will have the equity. That may be true, but what if you have some sort of an emergency? What if you get injured, or you have to move? If you're renting, you can just pick up and go. I believe in being unencumbered. So I suggest that you rent a house that you can afford, and save up as much of your income as you can so that you can eventually buy a house FREE AND CLEAR! Imagine the freedom and peace of mind that you would have if the majority of your income was at your disposal, rather than going to huge banks with their high interest rates and 30-year mortgages?
I'm trying to teach a new mindset here; the mindset of investing correctly, and saving for what you want, and buying it cash. Don't get me wrong, I may borrow for a house if I think that I can pay it off in 3 to 5 years with less than 50% of my income. But you'll never see me locking myself into a 30-year mortgage that I'm spending 50%-75% of my income on. Yet that is exactly what everyone else is doing. And they're doing it with much more than just houses and cars.
I'm telling you, just because this is "the norm" does not mean that you should do it. This is not the best way. There is a better way. But the problem is that this is the popular way. Did we ourselves make it popular? Did we ourselves come up with this "ingenious" idea of borrowing to the hilt and living in a false lap of luxury?
No. The big people with all the money did. And it was no accident. They did it deliberately, with their clandestine meetings and their plans that they deny exist. They did it so that they could find a way to take more money out of the pockets of the most free and richest people on the planet. These big people in power like to line their pockets with our money, so that they can afford to keep buying the ownership of our minds and tricking us into their next big scam.
We are all acting like sheep. Look around you, and you'll see that everyone is a lemming, following the crowd to whatever end. All the lemmings are living it up on OPM (Other People's Money) right now. And they have hardly anything to show for themselves because they have mortgaged away their lives and their gold for a quick rush, a pillow that's plush, and toilet that will flush.
My cousin and her husband are doing something that I am extremely impressed with. They are buying their first house with cash. They're saving all that they can, and it's adding up, slowly but surely. They are going against the grain. I've heard of very people who do this. But imagine the POWER that just a few years of delayed gratification can give you! They will be so financially free, and at such a young age. We would do good to learn from them and follow their good examples.
Did you know that since I was a teenager, I've had the goal of buying my house with cash? This is a very rare mindset these days. It's part of what's led me to study entrepreneurship so heavily, as well as any other subject that would be valuable for a businessman to know.
But I haven't merely STUDIED these things. I've tried my best to ACT upon them. I buy all of my cars cash. It's actually a popular mindset in my family to buy your cars with cash. It's because we're not all caught up in the presentation. I was actually considering financing a car once, and my family all started looking at me like I was crazy.
We're not caught in the trap of trying to look rich. We believe in having reliable, practical cars. My dad made six figures last year, yet he drives a 1999 Chevy Silverado truck. My brother-in-law makes a quite decent income at University of Phoenix, yet he drives a late 90's Saturn that he bought with cash.
Come to think of it, I'm probably the most materialistic-minded person in my entire family. I love fancy cars. But the difference between me and the rest of our nation, is that I will not buy a fancy car until I can buy it with cash. I have never financed a car in my entire life.
And I've never financed a house. But I haven't bought one with cash yet either... Notice I said "YET". I wouldn't mind surrounding myself with nice things. I am not opposed to the idea of a nice house or an abundant lifestyle. But, we're in AMERICA for Pete's sake! This is the land of opportunity! Why not be prudent and deny yourself such things until you have really EARNED them? Delayed gratification gives the delayer a golden, gleaming prize that the instant-gratifier will never know or comprehend.
This is the Promised Land! It's what thousands of people have given their blood, sweat, and tears to protect. And it's what our beloved Founding Fathers gave so much of their time, talents, and heart and soul to create.
Why not show our lion-hearted Founding Fathers that we can be people of character like they were?! Do you think that the Founding Fathers would fit into this borrow-happy, instant-gratifying, materialistic, late-night-news-believing, irresponsible, tyrannical-law-ratifying society that we have created for ourselves?
Neither do I. Yet the Founding Fathers are some of my most esteemed and revered role models. That means that I'd rather be more like them than like today's typical "normal" Americans, even if it makes me fit in less in this society. I'm trying to change what's "normal". Would you care to join me?
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