In the realm of personal finance and conventional wisdom, there is some really bad advice going out there, in my opinion. Today, I want to discuss four financial taboos.
The middle class has been conditioned to use financing for everything: their cars, homes, and for basic goods and services. This is bad debt, and we should all avoid it.
Dave Ramsey and Suze Orman take it to the extreme, though, going on to fight all debt, including good debt that has helped millions of investors create enormous sums of money. Mr. Ramsey regularly talks about how he only pays cash for his rental properties, and I am sure he does making over $25 million a year, but for the average guy calling his show, that’s just not realistic.
Using debt to acquire assets is a powerful tool. By taking on $100,000 of debt, you can control a $120,000 asset. This allows for generating cash flow based off of the full asset – not just the $20,000 it would have take to buy it.
The most patriotic act you can do is pay the least tax possible. The income tax is a violent act, theft by force, because if you don’t pay it, you go to prison.
Avoid wealth stealers like the IRS, and keep as much of your own money as you can. Never leave the IRS a tip.
Wealthy individuals and groups have paid top dollar to bribe politicians into tweaking the tax code in their favor, but rather then complain about this, use it to your advantage.
Find a professional who services the rich to do your taxes.
You’re looking for the person who charges a lot, because they have seen every legal loophole and will advise you to make your lifestyle truly tax-friendly.
CPAs are like realtor referrals: everyone says they have the best person working on their taxes, but the truth is most tax advisors are a brutal audit waiting to happen.
#3) Retirement Accounts
Truly, this is where I stray furthest from the mainstream financial publisher.
401ks, IRAs, and most traditional retirement plans, in my opinion, are Wall Street schemes. In exchange for tax-deferred income, Wall Street has buyers lined up, not only making themselves rich through commissions and management fees, but also through trading. And they do it with a healthy amount of volume coming in on the 1st and the 15th of every month.
This entire scam also lacks real diversification, putting millions of non-investors into dangerous and volatile mutual funds that offer no real safety.
Even though I don’t personally believe in the conventional sense of “retirement,” if you’re going to save money for decades down the road, then look for more consistent returns that offer safety.
Never invest to save on taxes; only invest because you believe a specific asset is a great investment.
If you want life insurance, buy term. But just because we like term insurance for life insurance doesn’t mean whole life is the enemy. Buying term and investing the difference never happens.
Let’s be real: it takes $12,000 a year for a 35-year-old to have a $1 million whole life insurance policy. Or he could buy a $1,200 twenty-year-term insurance plan.
Conventional wisdom says to buy the cheap insurance and invest the difference.
I would bet that not 1 person has ever “invested the difference.” Instead, the $1,200 term is paid up for 20 years, leaving them with nothing on year 21. Instead of investing the difference of $10,800, only a fraction of that is invested. And unlike whole life, which offers a guaranteed return, the money invested outside of insurance most likely is not in a guaranteed vehicle.
Investing the difference is a myth. The whole life policy in year 21, 31, or 51 will still have great value. Structured right, these policies can even be self-sustaining by year 5, where you never make a policy payment again, yet you have the insurance for your entire life – with no expiration!
Whole life also has a cash value. You can use the cash value as a savings account. It’s protected from lawsuits, grows tax-deferred, and is completely liquid if you need access to it.
Summary: Before writing a check to an insurance agent, tax advisor, stock broker, or anyone claiming to help you with your finances, always remember that no one will ever care about your money more than you.