DEBT DIAGNOSIS

1.  Cash Back Credit Cards charge the busi­nesses 3% of every trans­ac­tion when­ever you use your credit card. And that is on top of a monthly fee they charge just for the priv­i­lege of being able to accept pay­ment from you with a credit card ver­sus cash or cheque.

The bank does not give you the cash back. No money comes out of their pockets.

So really, every­one, includ­ing those who do not have cash back cards pay higher prices for the goods and/or ser­vices because the cost of the goods we buy have to include that 3% as a busi­ness expense and so unless that busi­ness increases the cost of goods or ser­vices they are sell­ing, they are out of pocket.

This is another way that banks make you think they are being gen­er­ous and are your friend when really, those who qual­ify for the cash back are increas­ing the cost of goods for every­one because the retailer has to cover the cost them­selves, not the banks.

Cor­po­rate credit cards also charge the retail­ers 3% on every trans­ac­tion, which again increases the cost of the goods or ser­vices for all, so a few can reap the ben­e­fits of cash back in their pockets.

2. Zero per­cent inter­est rate charges when pur­chas­ing a car is another ploy to make you think you are get­ting a deal.  In real­ity, you can­not get zero per­cent financ­ing with­out a large down pay­ment right? Well, that down pay­ment IS the inter­est. You are just pay­ing it all up front.

3. Many peo­ple do not real­ize that when they take money out of their qual­i­fied plan at their retire­ment, taxes will be due. The taxes have been com­pound­ing along with their sav­ings and so that $100,000 they thought they had, is not $100,000 after all.

Deferred taxes do not mean you will save on taxes, it means your taxes are post­poned to an unknown rate that the gov­ern­ment will decide upon at the time of with­drawal. His­tor­i­cally taxes have increased over time. Most think their income dur­ing retire­ment will be lower which will place them in a lower tax bracket. This is the only way one could win with this strat­egy how­ever, why plan for fail­ure by expect­ing to have a lower income while the cost of liv­ing is increas­ing dramatically.

On top of that, usu­ally at the time of retire­ment, you do not have the numer­ous deduc­tions you had when you could have actu­ally paid the taxes dur­ing your accu­mu­la­tion years. For instance, many have their mort­gage paid off so no longer have the mort­gage inter­est deduc­tion. The kids no longer live with you, so no tax deduc­tion there. Just food for thought.

Qual­i­fied plans were intro­duced in the early 1980’s when our tax rates were near record lows. They have increased since then and will prob­a­bly con­tinue to as more and more peo­ple become eli­gi­ble to begin with­draw­ing money from their retire­ment plans„ only to find out too late that they have been duped. Maybe a 10% penalty for with­draw­ing early will not be such a bad idea as the time between now and when you actu­ally are eli­gi­ble to with­draw with­out that penalty could give you a return of more than 10% if you know what to do with your money between now and then.

4. Rate of Return. Most peo­ple think that if their invest­ment goes down, say 38% they just need it to go back up 38% to break even. How­ever, they do not con­sider the fact that a loss of 38% means the $100,000 is now 62% of that, so it is $62,000. 38% of 62,000 = $23,650. That  is a total of $85,650. Add with fees and taxes and infla­tion etc. means you have lost at play­ing the game. It would take a return of 61.5% to come close to get­ting back to even, not includ­ing taxes on those gains. Where do you know of a low risk or any invest­ment that pays 61.5% or even 20% or even 12%?

5. Buy Term insur­ance and invest the dif­fer­ence. Did you know sta­tis­tics prove that only about 1% to 2% of Term insur­ance poli­cies are ever  paid out as a death ben­e­fit. Why is that? Could they be orches­trated to have the Term end before sta­tis­tics show you will be most likely to pass away?  Will the cost of the insur­ance after your Term ends be pro­hib­i­tive and so must be dropped leav­ing you unin­sured? These are impor­tant ques­tions to ask.

Have you con­sid­ered the fact that life insur­ance death ben­e­fit is the only legacy you can leave your loved ones that  passes to them with very lit­tle has­sle and many tax advan­tages, in fact, in most cases it passes income tax free. Per­ma­nent life insur­ance, life insur­ance that lasts your entire life, is actu­ally cheaper than Term insur­ance when designed correctly.

6. Dow Jones is an index that shows how 30 large, pub­licly owned com­pa­nies based in the United States have traded dur­ing a stan­dard trad­ing ses­sion in the stock mar­ket. These 30 com­pa­nies can change accord­ing to how they are performing.

But the ques­tion is, were the com­pa­nies you’re invested in per­form­ing at this same level or not? The aver­age is price-weighted, and to com­pen­sate for the effects of stock splits and other adjust­ments, it is cur­rently a scaled average.

The value of the Dow is not the actual aver­age of the prices of its com­po­nent stocks, but rather the sum of the com­po­nent prices divided by a divi­sor, which changes when­ever one of the com­po­nent stocks has a stock split or stock div­i­dend, so as to gen­er­ate a con­sis­tent value for the index.

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7. You save money by hav­ing a 15 year mort­gage ver­sus a 30 year mort­gage. Wrong. Ask me to prove this to you.