Leverage or Lifestyle

Notorious for bragging about their lifestyle are the Montana ranchers — while they use the leverage of debt as a crutch to hobble down to oblivion.

There is a better way.

Million or Penny a Day?

What would you rather have — a million dollars, today, or a penny doubled for a month?

A Penny Doubled

Your answer will be an academic letter grade of your comprehension of the magical concept of “compounding” — either a grade of A (passing) or F (failing). The good news, today, is you’ve discovered this presentation — and can save (literally) yourself millions of dollars in Interest (expense).

You can enjoy fancy trips with your Family — rather than financing those vacations for your neighborhood Banker.

I hope you said, “Give me that penny doubled for thirty-one days.” Because that answer is worth an additional amount of $9,737,418.24.

“How can that be?!” you ask.

“Compounding,” I reply.

Now, that you know the most important aspect of this financial principle, “What will you do?”

Good Debt & Bad Debt

Okay, this is a little like Good Cop — Bad Cop. Insomuch that we can only really appreciate the good after experiencing the bad. Odds are good that everyone has done “it” in our Twenty’s — enjoyed using a Credit Card until the Bill came.

Then, we stared at that Total wondering, “How the heck can all those little amounts add up to such a big one?!” In the world of Finance, that big Total is known as the Principal.

Now, the fun begins (for the Bankers) — because for every dollar of Principal, from the beginning of that original thought, “I just can’t live without…” and a swipe of the plastic, Interest is calculated. The challenge then becomes, “How fast can we pay that Debt back?”

If the swipe of that Credit Card was to purchase something which made YOU more productive, that is Good Debt. If, however, you simply caved into fleshly desires and temptations, then, you have experienced Bad Debt.

And — all Debt is worse than Income Taxes. Interest accrues from the moment of indebtedness until payment is made. Year after year Bankers are like predators circling a carcass — they will demand their Interest be paid in good years and bad. We only pay Income Taxes in the good years.

History Lessons

Those who refuse to learn from History are forced to repeat it. That, my friends, is another Universal Principle — we will keep getting opportunities to learn until we understand the lesson inherent in the experience.

For an entire generation, we have been sold a Bill of Goods known widely as Quantitative Easing. That’s a fancy term for Free Money. And, oh how the Bankers have pushed that money at People. Maybe, even you. Did you take it? Because if you did, YOU need (and want) a Plan to get rid of that Debt.

Leverage or Lifestyle

“Why?!” you plaintively ask.

“Because I have vivid memories of a 19% interest rate in 1985,” is my reply.

The interest rate on Home mortgages for us twenty-somethings was 15%.

What’s the difference between 5% and 15%?

You’ll find it hard to believe — but, here’s the reality. And, I can explain it a couple different ways. First we’ll start with the Monthly payment on a modest house of $250,000 in today’s Billings, Montana, real estate market. Then, we’ll take a look at what Rates do to Prices.

The only two resources available to human kind are Time and Money. As we consider the investment of these resources, we also need to know Rate of return — Risk, or Reward. Before this current generation of “creative economics” and “funny money,” historically, interest Rates are a measurement of Risk. Does the phrase Credit Score come to mind?

Knowing the Principal, Term Certain, and Interest Rate we are ready to examine some Examples of a typical young couple in love — with their first house.

Examples

$250,000 at 5% for 20 years — Monthly Payment is $1,649.89. (CLICK)

$250,000 at 15% for 20 years — Monthly Payment is $3,291.97. (CLICK)

But, you exclaim, “We can only afford $1,649.89 per month!”

Okay, let’s see what that does to the Price of houses on the Market.

$125,296.40 at 15% for 20 years — Monthly Payment is $1,649.89. (CLICK)

So, if you have invested blood, sweat, and tears into Home ownership, then, be happy to live in your current home for many years, be ready to have a negative equity position for many years, or have a Plan to become debt free.

This societal notion of “free money” does not work — being “debt free” is a goal worthy of your Time and Money.

Bankers

I hope you noticed the total amount of Interest paid over the life of the loan for that $250,000 home, for a period of 20 years (please, review the last page of the Amortization Schedules).

$250,000 at 5% for 20 years — Interest paid by you is $145,973.60. (CLICK)

$250,000 at 15% for 20 years — Interest paid by you is $540,172.80. (CLICK)

Yes, that’s right — and we older kids did it — pay for that beautiful Home three times: once for Principal and twice for Interest.

Now, we made this better with 15-years of payments. $379,814.60 (CLICK)

Or, much worse (by advice of Bankers) with 30-years. $887,999.60 (CLICK)

So, it is possible to help ourselves and take fancy trips with our Families, to the tune of $160,358.20*, by paying $207.00** more per month.
[*$540,072.80 – 379,814.60 and **$3,498.97 – 3,291.97]

Or, if you are bound and determined to let a Banker do your thinking, you will pay an additional $347,826.80*, by “saving” $130.86 per month.
[*$887,999.60 – 540,172.80 and **$3,291.97 – 3,161.11]

I beg of you, please, “Do your own thinking!”

Help Yourself

When interest rates are 15%, the average Citizen cannot afford $250,000 houses. The price will come down to something in the neighborhood of $85,000 to $125,000.

Because this is another Universal Principle — there is an inverse relationship between Interest Rates and the Price of what Debt purchases.

The magical thing about numbers is they are proportional — 1/3 of $250,000 is $83,333.33 and a monthly payment of $1,097.32 [$3,291.97 / 3]. (CLICK)

Wherever you find yourself on the spectrum of debt, use these examples to make decisions, today, to help yourself in Building Your Dynamic Future.

Will interest rates go all the way back up to 15%?

I don’t know, for sure — but having lived through Mortgage rates of 15% and having paid Business loan rates of 19%, I’ll offer this, “They did it before — and it is possible for them (Bankers) to do it, again.”

In the “olden days” there were two purchase options to prevent people from becoming indebted: Savings and Layaway. Yes, it is possible to stay in vogue with societal trends by saving for the purchase of a consumable — or by placing the item out of sight and out of mind, with the Merchant, while making monthly payments (of Principal only) to acquire it.

Leverage

Debt is (AKA) also known as leverage.

Leverage or Lifestyle - Pry

The reason “why” is that debt will let us “pry” our way into deals bigger than what we are capable of doing on our own — from the Cash in our own back pocket.

Again, if we are using Good Debt for a good reason — to become more productive in life and business — then, we will create new wealth.

Remember, though, a debt must be paid back with after-tax dollars. For those in a 40% Income Tax Bracket, this means they pay back debt with 60 cent dollars.

In other words to pay back $1,000 of debt, they need to earn Wages or Profit of $1,666.67 [solution: $1,000 / .60] and they will pay $666.67 in Taxes [solution: $1,666.67 x .40] to, then, have $1,000 to pay back the Banker plus the market rate of interest (Prime + Banker Profit).

Debt is (via Bankers) a cruel taskmaster — you will be a slave to a Banker.

Lifestyle

Remember my story about the Montana ranchers?

For 35+ years, I’ve teased them about their lifestyle.

“I’m sure glad you didn’t waltz in here with your crowbar,” I’ll say.

Puzzled, perplexed, and border-line offended they respond with, “What do you mean?!”

“Well,” I’ll continue, “When you encounter a big rock at the bottom of a posthole, you go to the toolshed and get the crowbar. You leverage the rock out of the hole and, then, put the crowbar back where it belongs — away in the toolshed.”

“Why, then, do you believe living in constant fear of having all your stuff repossessed is good for you?”

I have yet to receive a positive answer to that question. I’ve listened to them swear a blue streak of profanity — at me and the world. But, there have been very few Debtors change their beliefs and actions.

Sad, because I’ve watched good people lose farms, ranches, and mainstreet businesses — simply because they refused to hear and use Common Sense.

If you want a new, debt-free, lifestyle, contact me and we’ll take the steps forward to building a bright dynamic future for YOU — and your Family.

Trust Fund Babies

I must confess my sin. For more than thirty-five years, as a CPA very good at what I do, I assisted in building little empires.

Having grown up poor, the intent was pure. I wanted those, for whom I served, to have the best that money can buy. What I discovered was that my Grandpa Foard was right, “Too much money will make people go crazy.”

There is never enough money. The more stuff people accumulate — the more unhappy they become. Which then fuels the fire for them chasing after even more of what is making them miserable.

Temper Tantrums

During those 35+ years of doing a great job for the Trust Fund Babies, I noticed something — those were the, only, individuals in the ranks of the thousands of clients I served, who would throw a fit. You know, a good ol’ two-year-old temper tantrum — the aisle blocking, head turning, hushed murmuring, and clerk cringing — type of hissy-fit.

Why did they do it? Because they are spoiled. Clueless to the bone, they are chock full of arrogance and ignorance. If they knew half as much about what they think they know, they’d know twice as much as they really do.

They were born on third base, thinking they hit a triple — and, then, they will lie through their teeth as they try to convince you it was a Home Run.

The Reality

The grandparents, of the Trust Fund Babies, worked hard to build something — special. Then, generally, Mom and Dad were expected to maintain what Grandma and Grandpa built. Unknown to little Junior, as he struggles to deal with what has shown up on his silver platter, he is the Janitor’s son. And, by the time we move to the fourth generation of this Family, everything has reset.

The wealth that Mom and Dad inherited from Grandma and Grandpa was slowly chiseled down in size — because they were playing not to lose, rather than working hard to build something special, of their own. Junior has no idea how the Empire was built (because Grandpa is gone and Dad has neglected to teach) — and, Junior has even less knowledge of how anything operates. If something breaks it remains broken.

So, at the end of the third generation, the Ranch (or, the main-street Business) is on the Auction Block. If by some stroke of luck the remaining wealth passes to the fourth generation, it will soon be squandered. At that moment, a Universal Principle kicks in.

If you want to eat, you must work.

What appeared to be a life of luxury to the poor kids of the world, became an affliction and a limitation for the Trust Fund Babies.

History Repeats

Fifty years ago, as a twelve-year-old kid, I thought it harsh that the mistakes of parents carried over to the children and grandchildren. Why must they suffer for the bad choices their elders made?

I believe it’s because of another one of those darn ol’ Universal Principles. For example, Gravity — it’s real, it’s unseen, and it’s hard to explain. However, it works the same way every time. We can take comfort in that Universal Principle and depend on its consistency. Or, for those who doubt the effectiveness — and, take a flying leap off a tall building — they will learn the hard way.

Personal Note

After those 35+ years of holding the hands and wiping the snotty noses of way too many Juniors, I burned out. After two years, of what I call, “My trip through the desert,” one day, my son, Ryan, had questions. In fact, I remember the day, well — January 11, 2018.

He came to the closed bedroom door, knocked lightly, and said that he had a question. So, I went with him to his office area, stood behind him, as he pulled up a QuickBooks screen and wiggled his mouse over the real estate where his Question resided. I answered that question and went back to the bedroom.

A few minutes, later, another tap on the door and another question. Same song, second verse: I went with him to his office area, stood behind him, as he pulled up a QuickBooks screen and wiggled his mouse over the real estate where his Question resided. I answered that question and went back to the bedroom.

A few minutes later, another tap on the door and another question. Well, by now, I’m thinking, “OK – Ryan has lots of questions. I might as well just stand there with him and answer them all.”

Sure enough, seven hours later, after a review of the mistakes on the two prior years of Tax Returns and detailed Depreciation Schedules prepared by the best CPA Ryan could find, the tumblers of the lock on my mind turned and I realized, “I’m the best — CPA in the Country.”

I’ve heard people talk about being Born Again — and, always, wondered what that was all about. Now, I know. I wasn’t “back” — as Arnold might say. I felt like a brand new person. Later, as I searched for something of which to compare the feeling, the best I can do is, “I feel like I’m in the fourth grade, again!”

Once — and, For All Time

So, why did I recently agree to one more Consulting engagement to provide services for the benefit of a Trust Fund Baby? Answer — Old habits, similar to bad beliefs, die hard.

This particular specimen of a Trust Fund Baby is 75 years old and is still as clueless as he was at age 25 — when Grandpa’s money was used to buy him a Ranch. He was put on the Ranch and offered an opportunity on a silver platter. Now – that I think about it – Junior is just like a Post Turtle.

When you’re driving down a country road and you come across a fence post with a turtle balanced on top. That’s a post turtle. You know he didn’t get there by himself; he doesn’t belong there; he can’t get anything done while he’s up there; and, without help to get down, he’s stranded!

Junior could not articulate the specific Objectives he wanted me to resolve, he had no idea how to Measure our progress, and he offered little feedback about the Value he was receiving. What begins twisted, ends twisted.

After two months of a six-month commitment to provide services, I had grown tired of being a valet for his ego. I suggested that my “work” was done and he had no further responsibility to honor our Agreement. Junior insisted that I stay — he needed to use me, some more.

However, after four months of enduring his silliness, “Oh, Wow! — did he pop a cork when I asked him, “Why?”

Why do you want to withhold information and keep me in the dark?

The sniveling little pup did a Trump on me, too, while yelling into the phone (so loudly he was cutting out and I asked him to repeat his foul language), “You’re fired!”

What a blessing!

I think I’ve passed — in flying colors — the final exam in the high-level coursework of Trust Fund Babies.

Oh, by the way, this Consulting engagement was to assist in the transition of Junior off the Ranch. Because of the two clowns for Realtors he had chosen, I finally asked, “After their neglect of an important issue (to the tune of $150,000), why do you continue to believe their nonsense?”

Lesson Learned

Around the 25-year mark, in the 35+ years of my crusade to save the world as a CPA, I noticed something. I felt dirty. As I served the Trust Fund Babies, there was no appreciation or recognition of the Value my efforts produced for them. They were paying me and I was doing things for the money. There’s a name for those kinds of people — Hookers.

Confession without repentance is counterfeit spirituality. As you are my witness, I fully and completely give up the old way to enjoy my rebirth.

Die Broke

The scholars among us will take great offense at the concept of not leaving children and grandchildren a monetary inheritance. They will even pretend to have God on their side of the argument and quote an old Proverb.

Good people leave an inheritance to their grandchildren, but the sinner’s wealth passes to the godly.

Well, here’s the Real Deal — I don’t see a single reference to Money in the line, before the comma, about good people. Do you?

I know – for a fact – that my Grandchildren will receive an inheritance from me. No, it will not be because my Lindsey and Ryan were anxious for me to tip over — so they might win the Lottery of wealth untold.

The inheritance that my Children will pass on to my Grandchildren will be everything they have learned from me. I have diligently provided opportunities for Lindsey and Ryan to learn everything they need, to be successful in this life — and, beyond.

Free Advice

Free Advice

Through the years, I’ve given lots of free advice. I’m beginning to realize that’s been a very bad character trait.

» Advice — the wise don’t need it and the fools won’t heed it.
» Free — the perception of something worth nothing.

So, this week, when I said “No, thanks,” to an opportunity of continuing in my tradition of offering free advice, the response was enlightening. Well, I was enlightened. The person making the request was shocked. They were shocked that I would, could, should, and did say, “No.”

We Get What We Allow

Engaging in a mutually beneficial relationship (two-way street of offering and receiving) is different from demanding a response (one-way street of taking).

We get what we allow. For years, my immaturity was assuaged by giving free advice. The act of giving appeared noble and it made me feel like a hero. After all, Trusted Business Advisor, at one time, was the moniker of the CPA profession.

There is a very fine line, though, between an act of commerce and codependency. Commerce recognizes “Yes and No” as the two sides of the same coin. Codependency is defined as doing for others what they could, should, and would do for themselves, if we simply said “No.”

In fact, this most recent request for free advice was related to purely business matters. The resources for the answers to this new series of questions had already been given in response to an earlier request.

While my earlier gift of free advice was taken with no expression of appreciation, my offer to provide Advisory Services for a fee was berated and ignored.

Never give Advice —
The wise don’t need it,
and the fools won’t 
heed it.

The individual asking for advice has every right to express their choice to do nothing by saying, “No, thanks.” Freely offered and freely rejected. That’s the way commerce works. Change nothing — Nothing changes.

However, a price is paid for everything. To choose This, we forego That. Every thought and every action involves some measure of time or money. Asking anything of anybody involves either an act of commerce (exchange of money) or sacrifice (offering of time).

Respect

Regardless of the relationship, giving respect to the person responding to our request is a valuable courtesy and currency.

Asking is more than OK — It is our responsibility to ASK.

The issue is — There is a price to be paid. Are we willing to participate in the payment of the price (commerce), or do we expect something for nothing (sacrifice)?

As for me, I’ll continue to engage in commerce and sacrifice.

I will choose, though, which it is.