We have talked about many different parts of your financial world, inefficiencies, how to look at things differently. Today, we’re going to talk about winning financial strategies. What’s yours?
From Philadelphia, the home of the Liberty Bell, Financial Freedom Radio starts now. Here’s your host, Raymond Jewell.
Welcome everybody to FinancialFreedomRadio.com. The reason I say that is we used to have a dot info. Remember that, Steve?
Yeah the new listeners won’t remember that, but I remember it vividly.
Financialfreedomradio.info not .com. So how was your weekend?
It was a very busy weekend.
You mean you went out?
Well yard sale season started back up for me. So I was back out yard sale hunting.
Yeah, you actually make money doing that.
I do. I do pretty well. It’s a lot of fun. It’s a fun little hobby. I go out and I find junk and I sell it to the people who want to buy that junk.
You ought to share with our listeners how to make money using Amazon and eBay one day.
One day, but that’s a topic for another show.
So today, let’s talk about winning financial strategies. If saving is a discipline and done in a consistent manner over the long term, everyone’s financial plan would work successfully. Unfortunately, it’s not that easy and the current climate we live in, financial planning does not contain all of the components that lead to a successful plan. I’m going to give you a few reasons why. First, some people are not able to save enough money to reach their plans in retirement and many people have lofty plans, but they just don’t have enough to continue saving to get those end results. Second, many people don’t have the ability to achieve the same programmed right of return that has been designed in their financial plan. This is a major flaw. When people put together a financial plan, they assume that interest rate is going to stay there forever. Well no, there’s many different market fluctuations that will enter into that interest rate.
So if you’ve got a financial plan that was put forth back 20 years ago when you’ve got an 8% programmed interest rate or 30 years ago it hadn’t happened. We’ve seen two declines in the market in a little over ten years, ‘08 and just now in 2020. So interest rates change and the program rate of return that you’re looking at hasn’t been consistent. It’s up and down.
Let’s look at the third one. The third one is some will lose money in the stock market or other volatile instruments. See I used the interest rate tied to the market on number two, but it’s really not. Interest rate is laid out by the Fed, but the market does drive their thinking. So they are kind of tied together, but not directly. Whenever you have fluctuations and interest rates and you add that to market fluctuations and volatility, you have an impact in your financial world. If you put something together, assuming one thing and it changes oopsy-daisy, you just lost.
Let’s look at the fourth. Some people will end up having to spend part or all of that money that they’ve saved before it’s time to take distributions. For example, something can come up. It happens all the time. Steve, you just had it. Actually, you’ve got a couple of them coming up, don’t ya? You may have to repair your house, you may have a wedding to pay for.
Don’t get me started on that.
Yeah I don’t want to do that. Paying for a wedding, which you’ve got coming up. You may have to buy a new car and if you didn’t program all that stuff into your financial world, then you’re gonna be taking distributions of the money before you plan on doing it. That has a huge impact on someone’s financial world.
Let’s take a look at number five. Many are searching for that perfect product, financial product, that will do the job instead of building a coordinated and integrated process together. They look for that perfect product. Number six is the most important, eroding factor. This is what we’ve been talking about. Taxes, inflation, planned obsolescence, technological change, market fluctuations, interest rate fluctuations, interest changes, lawsuits. They will take a toll on your plan. I’m going to go through an illustration in a second and show you how these will impact you where you could actually see the real numbers, let’s look. If there was one perfect financial product that would satisfy all of the requirements that eliminate inefficiencies, that everyone would be putting all their money into wouldn’t it? If there were that perfect product out there, that ideal product, everyone would be dumping money into it. There would have to be an ideal strategy that the product fits into. It’s coordinated and integrated together in a macroeconomic model. As we’ve said earlier, there’s no specific product that will make you wealthy, it’s a process. What if I told you there already was a perfect product that eliminated a majority of the financial inefficiencies that we talked about and would stand the test of time. This perfect product, which is the heart of a financial plan, is discredited by financial planners. Would you believe me?
Well, let me tell you that that exists today. Financial planners will shun the heart of a financial plan because it doesn’t fit their agenda. We’ve talked about it. Want to know what it is? Let me show you an illustration. I’m going to actually take you through and show you how we can look for the inefficiencies and program then in and show you where the losses are as we talked about earlier. Then if we have time, we’re going to come back and we’re going to look at that ideal product. At least, I’ll tell you what it is. So, let’s go to the illustration and let’s take a look.
So we’re going to start to take a look at the exponential curve calculator. Let’s look at saving $5,000 a year. We have no present. We’re not going to start from anything from 0 or we don’t have an income that we need to put in there. We’re going to start age 25. We’re gonna go to 65 and our annual rate of return is going to be 8%. Our average rate of return is 8%. So when we look at this over a 40-year period, we end up growing 1.398 million dollars. This is what most financial people will tell you. If you put away X over time, which is $5000, over 40 years you’ll end up with 1.3 million dollars. Isn’t that great? Well the ideal world is a financial scenario whereby your money grows without any outside interference or eroding factors. For example, when you look at it, your assets, your inside world, includes all of your assets and income. If left unencumbered by the outside world, it would grow substantial wealth in the future. That’s what many people talk about. They look at it through what is called an exponential curve. So that’s why we say you have one exponential curve in your life. You start at birth and you’ll go to death. So money grows on an exponential curve and it just keeps growing slowly, slowly, slowly and we called this the startup phase. This is the growth phase and then you get up here to what is called the distribution phase. You only have one of these. If you were to put your lifetime to it so anything grows with compounding the interest on an exponential curve.
So let’s get back to our numbers here and let’s look at what happens if we were just to look at this with the inefficiencies programmed into it. So when we change it, let’s look at taxes. What’s taxes going to cost us? So if we look at taxes at 20%, we’re going to see that we spend every year over the whole 40 year period, $177,000. Now, you’ll argue, well it’s paid every year. Yes it is. You grow wealth in one pocket and you pay your taxes out of your income every year. So if you could keep those dollars back in this pocket, you would have $177,000. If you could put those dollars to growth at the same 8%, you’d have $488,000. Well, since you don’t have it in the real world, it becomes a lost opportunity cost. So when you look at the opportunity cost as compared to your wealth, your net result is $910,000. So we want to look at that in the real world. Let’s look at inflation. What is inflation going to cost us at 5%? Believe me, even though they say it’s lower, it’s not going to the store to see how much they mark things up. So when you look at 5%, we now have our opportunity cost, but we also have the inflation cost. So even though we have $5,300 in our account, we lose $253 of spending power. So look what happens we get down 40 years out of it, it becomes even greater. We lose $781,000 of spending power. So even though we have $910,000 in our account, its value is only worth $129,000. So when you add these two together, you’ll come to that 900,000 number.
So it’s important to understand that you need to offset inflation. That’s an important loss that we want to look at. So now let’s look at market risk. I’m not going to go in and pick the rate decline. Let’s just use volatility of the markets over a 40-year period. So we have it programmed in here even though past performance is not indicative of future results. I think that’s kind of silly because why would you look backwards to go forwards. I’m showing you this as an example. It’s kind of like driving the car and looking out the rear window. You’re gonna crash. You just don’t know where and why. So when you look at your rate of return, you’ve got some positives which also have some negatives. So the taxes, according to this, when it’s programmed in here costs us $559,000. When we put that to growth, we have $1.9 million. So we had a huge lost opportunity cost and then we looked at inflation. So inflation strips away 1.3 million of spending power. So if we were to look at that in today’s dollars, we only grew $218,000 of spending power, positive spending power, even though you might argue that you have 1.53 million in your account. Wouldn’t you like to have 1.5 million plus 1.3? So you want to make sure that you keep up with inflation. We could also look at fee risk and we could also look at consumer risk, but let’s put one percent management fees. There’s fees and hidden in everything you could imagine and that diminishes down our dollars. We could go into consumer risk. We go into other risks, but let’s do a what if.
What if you didn’t start this till you were 45? Look at how much you lost. We went from 1.3 million down to 332,000. We lost a million dollars because we started 20 years too late. That exponential curve that we look at that is showing the growth of our money has a lot of peaks and valleys as it goes up, but we’re only allowed to get it from 45 instead of age 25. So this is important, the takeaway that you want to take away from it is linear goals are very difficult to manage due to ever-present wealth eroding factors as we saw in that pyramid in that exponential curve chart. So you want to be prepared to defend your assets against these wealth of eroding factors by maximizing the use of your savings and investment dollars and eliminating the erosion. So you want to balance your assets to gain multiple returns and benefits and position your assets according to the principles of Elite model and rule book. Remember, this is a rule book, a model that we follow that shows all these losses. No other financial planner is going to do this unless they’re following the lead process. So if you have somebody that’s working with you, that’s taking you through the leap process, then that’s great. If not, look for somebody and if you have trouble looking for somebody, go to my calendar, schedule a half hour meeting with me and I’ll help you find somebody.
You can go to RaymondJewell.com/meet and that’ll take you to my calendar and you can schedule a half hour time. I’ll help you find somebody. So where we want to go back and look at the ideal product that we were talking about earlier, we’re going to dig into that and see how that is. Not one product’s ever gonna make you wealthy, but at least it’s a good start. So that illustration showed you the eroding factors, very eye-opening as to the eroding factors and how they can impact your financial life, but there is the life blood, the heart, of a financial plan that will help eliminate those. It’s not the true financial plan, but it’s the start, it’s the heart, and it’s whole life insurance.
Next week, we’re gonna actually go through that step-by-step and show you how it helps and how it is the heart of your financial plan and your financial world. So I want to thank you all for coming and listening and downloading. By the way, I forgot to say it earlier, but please like, subscribe, and hit the bell. Ring that bell because that bell will let you know when we do this again. So I want to thank you all for coming and watching and have a great week. Take care. God Bless.
Thanks for listening! Please remember to subscribe to the podcast. If you want to learn how to create real sustainable wealth like the extremely rich people do, or maybe you just want to sustain the wealth you already have, you need to check out Dr. Ray’s new book “Why the Rich are Rich”. Ray’s been coaching clients for 35 years and has completely unlocked the secret strategies that rich people use day in and day out to grow and sustain their wealth, regardless of what’s going on in the economy. His book is completely free, and you can get it by going to https://whythericharerich.com and entering your email address. Again, that’s https://whythericharerich.com. Head over there now.