You Finance Everything You Buy – You Either Pay Interest or Give Up Interest.

The Debtor doesn’t have any sav­ings so they are forced into bor­row­ing. They bor­row the money and work toward pay­ing it back and get­ting back to zero. They do this over and over because if they don’t have any cash, they are going to be forced to bor­row every time a major expense comes up.

The prob­lem with con­sumer debt is;

You are oblig­at­ing your future earnings.

You lose cap­i­tal to pur­chases and financ­ing costs forever.

And, you become a debtor to the cred­i­tor and you lose control.

Con­sumer debt is an inef­fi­cient pur­chas­ing strat­egy. The ini­tial pur­chase is lost as well as the inter­est owed, caus­ing fur­ther loss that can com­pound and spi­ral out of control.

***

The Saver post­pones grat­i­fi­ca­tion. They save until they have enough resources to pay cash and then they con­sume that sav­ings to pay for the expense — again mov­ing back to zero. They con­tinue that cycle, con­cep­tu­ally mak­ing pay­ments to them­selves until they are able to fund the next major expense.

The prob­lem with pay­ing cash is;

You first need to save cash.

Then you must drain your sav­ings to make the pur­chase. This inter­rupts the com­pound­ing effect of inter­est earned on those sav­ings. So pay­ing cash costs you inter­est as well.

And you have the 1099 tax leak­age, taxes on any inter­est earned while saving.

Pay­ing cash is not bad but it is not the most effi­cient. You lose the inter­est you could have earned had you not drained the tank. It is a defen­sive strategy.

***

The Wealth Creator still has the same expense. How­ever, when they make the pur­chase, they col­lat­er­al­ize it. They allow their sav­ings to con­tinue to  com­pound and finance the pur­chase. They do pay inter­est, but as they get the loan repaid, they find them­selves higher on the cap­i­tal­iza­tion curve.

How is that possible?

If I could show you a way of mak­ing a pur­chase with­out emp­ty­ing your sav­ings account/wealth store­house, which would allow your pri­vate cap­i­tal reserve to con­tinue to employ the ben­e­fits of guar­an­teed growth  —  min­i­miz­ing the asso­ci­ated lost oppor­tu­nity costs, when would you want to know that?

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November 9, 2014 · Jennifer · No Comments
Tags:  · Posted in: BANKING with INSURANCE, Life Insurance with Living Benefits, You Finance Evrything You Buy

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