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The consequences of listening to mainstream ideas; Or why the middle class is financially failing! July 16, 2009

Posted by shaferfinancial in Finance, Uncategorized.

Leonard Renier in his book Unintended Consequences calls it “transfers.”  Its when your wealth is sent to someone else, sometimes unconsciously, sometimes because it is not considered important, sometimes because the “experts” are listened to.

"These are people and institutions that create situations, control the outcomes, and profit from it. In the past we obtained financial advice from these sources. Many times you are led down a narrow path that they control only to find that the outcome wasn't quite what we thought it would be. You might discover that the financial solutions they provided for you may profit them more than they do you. Their thought processes may create more unintended consequences for you in the form of higher taxes, more fees, and higher interest rates." Leonard Renier

This is one of the differences between the way wealthy people think about money and the middle class.  The middle class transfers their wealth to government, to the banks and to investment firms at an alarming rate.  Mostly this is done without thought.  Do you know that when the tax tables [rates] were lowered, taxation actually went up?  Many items that were tax deductions were eliminated.   Now there is probably going to be increases in taxes.  We will see how far down the income ladder it reaches.  Here is a question for you.  Do you believe taxes will go up or down in the future?  If you said up, then you are being consistent with history.

401Ks/IRAs are predicated on taking tax breaks today and paying taxes on a larger amount in the future.  Is this a sound strategy? Are there any accountants that tell you to not save inside these tax deferral wrappers? And if you need your money before your 59 1/2 you can get an extra 10% penalty.  Nice deal!

Banks are back to insisting upon large down payments.  They are charging higher interest rates for folks who have minor problems on their credit.  They even charge you a fee to not do anything [set up an escrow account].   Yes, they will give you better deals the more equity you leave in your home.  And they have convinced the majority of folks that leaving equity in your home is a good thing.  Is it a good thing for you or the bank?  Think about it for a moment.  You get a 0% return on your equity, lose the ability to access it easily, and put it a risk from any number of disasters, and they get reduced risk in the form of a margin between the amount owned on the mortgage and the value of the home.  And now, apparently, when they don’t even bother to do that, they get the government stepping in to help them.  Who wins here?  Transferring risk from the lender to you is smart?

The government is selling them money for free and they are lending it out for 5-6%.  They will even pay you 2-3% for your money [CD], but make sure you don’t need it before the maturity date, because if you do they might just slap a penalty on it.  Why can’t you get this free money?

And of course those investment firms which will invest your money for you, for a fee.  How are they doing with your money?  Earn that fee did they?  Is this what those charts they showed you to get your money demonstrated would happen?  Do you think maybe they didn’t exactly tell you the truth when they signed you up?  Do you think maybe the strategies they use were flawed?  Do you think that with a little knowledge you could do as well and not pay their fee?

When you are done paying your bills and transferring your wealth to the government, banks and investment companies, how much do you have left?  What if you could severely curtail your transfers?  Which transfer should you start with?  The government is your largest transfer, why not start with that?  For the middle class the banks are next.  Now it is unlikely that you will be able to save enough up front to buy a house, so a mortgage is most likely going to be in your life.  Why not use that fact to you advantage?  As for the rest; cars, flat screens, furniture,  you can create your own bank and borrow from it instead of paying those fees and interest to banks.  Now this takes some planning and it takes some time to make it happen, but won’t it be worth it?

The middle class always thinks it can outsmart the system.  But the system ends up outsmarting the middle class.  I have pointed out the small amount of retirement funds people have saved many times before.  This is the proof of financial failure.  But it doesn’t have to be your future.

Pick up Leonard Renier’s Unintended Consequences. Read it and then contact me.  Start doing something about those transfers.



1. BawldGuy - July 16, 2009

The government is your largest transfer, why not start with that?

The word is misused and misplaced often these days, but that statement is truly profound in its simple truth.

2. shaferfinancial - July 16, 2009

Yes, it is the cornerstone of how I help people. Funny how people choose to ignore something that is transferring sometimes half their income, sometimes more!

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