How do you make, keep and grow wealth? These three stages may be different in strategy, yet each stage shares this commonality: The hidden villains trying to separate you from your wealth. Listen to learn more.
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The Seven Hidden Dangers That Will Take Your Money
When I was starting in business and investing, I had no idea how naive I was. I grew up in a loving family where honesty and trust were high values and where greed and theft were not even on our radar. The only instance I was exposed to a theft was in second grade when John Stellar stole my He-Man action figure and we recovered it with a stealth operation from his backpack. Enter young, naive Jack in the investing world, attempting to put his money to work and I had sucker written all over me, I didn’t know what I didn’t know and that’s always costly.
Fortunately, the vast majority of people you’ll do business with are amazing, honest and sincere people. Unfortunately, there’s a small percentage that will do anything to separate you from your money and won’t think twice about it, nor will they care. I call these the hidden forces that are out there ready to jump at the chance to take your hard-earned cash. Let’s figure out how to avoid these traps. You follow Warren Buffett’s number one rule of investing, “Don’t lose money.”
My oldest son, John, is growing like a weed. Likely, he is going to be taller than me. I’m 6’2 and he was already 5’9 when he was 13. I wanted to always tower over him for the rest of his life but that doesn’t look like it’s going to happen. I’m trying to instill an entrepreneurial spirit in my children. So far, maybe it’s a sign that it’s starting to take. He goes to Walgreens on his bike and gets nine bags of Jolly Ranchers. He spends $4 per bag.
He goes to school and I didn’t know this was going on. He didn’t tell me this plan. All I knew is he came back with a bunch of bags of Jolly Ranchers. Our family is on this Jolly Rancher craze. They’re like gold to us. We’re on a kick. He takes the Jolly Ranchers to school, sells five bags and profits $11. Maybe it’s four bags. I don’t know. He had 1 kid that bought it for $5, 1 who bought it for $6 and 1 who bought it for $10 for the bag. He had another kid who bought a partial bag for $5.
He comes home all excited. He’s like, “Dad, I profited $11. I could see why you liked this game.” I was cracking up. I’m like, “Yes. Now you get it. Now why I love entrepreneurialism. Profits are always going to be better than wages.” He said, “I get to eat my Jolly Ranchers for free. They’re paying for my Jolly Ranchers when they bought them.” I’m like, “Yes, you’re getting it.”
I posted that on Facebook with 20 to 30 comments. People loved it. I don’t think that my mother-in-law potentially liked it because she was the guidance counselor at that school. He was prohibited from selling items in the school. I asked him if he was allowed to and he said yes, which I should have raised somewhat of a yellow flag. His principal had a conversation with him and told him he couldn’t sell in the school but he could sell outside the school. He couldn’t do it inside the building.
John is doing his promotion inside the school and then he’s doing his transactions. The exchange of goods and services for money, he’s doing that outside of the building. I love it. I’m proud. Too bad school is over and he’s going to not be able to make money doing this but hopefully, he figures out some other way to create profits.
I want to talk to you about the hidden dangers that are lurking to separate you from your money. I don’t know how else to say it but building wealth is fucking hard. If we look at the three major stages, the make it bucket, the keep it bucket and the grow it bucket, each stage has an onslaught of challenges to navigate. Let’s take a look at what you’re up against. This game is not to be played naive with childlike wonder anymore. We’re not playing monopoly for the board game with fake cash.Building wealth is hard. This game is not to be played naive with childlike wonder anymore. Click To Tweet
Young investors like I was not too long ago typically aren’t aware of all the hidden and unseen forces that are constantly eroding and trying to intentionally separate you from your hard-earned cash. I want to take a look at the seven major hidden forces that are coming for your money. Let’s learn how to give them the big middle.
We know the first step. You’ve got to make money. In this phase, your primary asset is your skills, energy and the way you develop new skills that increase your earning powers through education. To become more educated, you have to dedicate the time and money to take courses, hire coaches and download books and podcasts. You got to learn and get educated. You’re consistently and relentlessly being bombarded with addictive time-consuming distractions to your attention.
Netflix, alcohol, friends, restaurants, Amazon Prime and internet porn are all major distractions that you deal with daily. Maybe not internet porn. I’m talking to people that you know. I’m not talking to you, even though statistics show that it’s highly likely that half of you have some level of addiction to internet porn but it’s probably not this audience. That’s a different audience.
Netflix has engineered its algorithms to serve you up exactly what they know you’ll be interested in. The shows are designed with the storyline sequence to suck you into massive binge-watching. How many courses could you have gone through by the time you went through a few shows? Once you increase your ability to earn more money by improving your skills and your knowledge, you’ve got to keep some of what you make to have anything to grow.
In the keep stage, you’re bombarded by a slew of marketers and advertising messages to get you to spend your dollars. It’s estimated that the average American sees somewhere in the range of 6,000 to 10,000 ads per day. You’re not even going to believe this or you might believe this but it’s crazy to me. It has gone up dramatically that electronic ads on Facebook and Google are hitting you up for pretty much the duration that you’re online and you’re online probably multiple hours per day.
In addition, you have another hidden danger called your neurochemistry. The first danger is marketers and advertisers. The second danger is neurochemistry that’s wired into your brain from tens of thousands of years ago, which was necessary to help you increase your odds of survival. Why is it a real thing to keep up with the Joneses? The higher the level of status you had back in the tribal days gave you the greater number of allies and resources, which greatly increased your odds of survival.
Thank the serotonin chemical that’s still very present in your brain for your desire to showcase your status with the nicest cars, houses, clothes and trips that you can afford or maybe not afford but you buy it anyways because you need that rush of serotonin for status. We aren’t done with the keep it bucket. The biggest threat to you keeping your funds is the biggest expense of your life without anything even close which is taxation.
This may not be a hidden necessarily danger. There is a lot about the tax code and taxation that is hidden from you that you haven’t taken the time to educate yourself on yet. Over your lifetime, you’re going to pay 50% of your efforts to the government, probably a lot more than that. That doesn’t include the inflation tax. That’s taxation without representation. That’s the government printing more money to service its debt load. That doesn’t even include the devaluation of your dollar. It’s well over 50%.
You do know that there are tax-saving strategies that you could probably be educating yourself on now, not later when you’re rich. “I’ve got a free hour and I need to unwind. I’ve had a challenging and busy day. How about I grab a book on tax reduction strategies? Maybe I could do that tomorrow. I’m right in the middle of Ozark on Netflix. I can’t stop watching this amazing show to learn boring tax-saving strategies.” You finish that one and then the very next show is served up to you by the algorithm. Tomorrow is put off indefinitely.
With all of these roadblocks, we haven’t even gotten to how to grow your money yet. In the growth stage, there are additional hidden agendas that we’ll want to take a look at. I’ve fallen into all of these. Unless you know where you’re up against, you have a good chance of encountering at least a couple of these as well. Back in ‘97 to 2000, I hustled and worked hard through college. I saved up some stacks of money.
Internet stocks were cranking our yearly 40% gains and seeing intense speculation. I wanted a piece of it. FOMO or Fear Of Missing Out hit me. It was too much for me to handle. I wanted to get rich as quickly as possible with the least amount of effort. I fell victim to investing for quick gains without protecting my principal capital. Someone out there made off with my money. When the stocks crashed and I was still left holding the bag, they were laughing gleefully at how they found another sucker.
Believe it or not, my business partner ended up in FBI handcuffs while I was left picking up the pieces for myself, friends and associates whom I referred to him to buy properties. I neglected the wisdom of Former President Ronald Reagan when he spoke of how he would handle the Soviets. I’ll trust but I’ll verify. A simple background check would have revealed that this was not a man to be trusted.The biggest threat to you keeping your funds is the most significant expense of your life without anything even close to taxation. Click To Tweet
I don’t think this is necessary to background check every person that you do business with, especially when you’re buying small ticket items if somebody screws you over for a couple of hundred bucks. You’re going to move on from that quickly. It’s not going to be a life-altering event. When you’re dealing with large sums of money and you’re in partnership with somebody, you better be clear about whom you’re dealing with.
Another factor that many don’t realize is eroding their wealthiest fees. In Tony Robbins’ masterful book, MONEY Master the Game, he did an amazing job exposing the enormous drag that mutual fund managers put on your portfolio. Side-by-side comparison models show a 1% difference in fees with all things being equal coming in a $100,000 investment in a 30-year timeframe. They get both get 8% returns and have an equal withdrawal at retirement.
The investor paying 1% more in fees will run out of money 10 years sooner. One study even showed that 96% of mutual funds failed to beat the market over a 15-year period. The result is that you overpay for underperformance. This is why I’m not a fan of mutual funds. You cannot escape the awful greedy fees. This is the plan that so many people sign up for not paying attention to that extra 1% fee. It seems so insignificant in the grand scheme of things.
What difference can a little 1% fee make? I’m going to make that up with big gains from these expert picks. It makes a huge difference that you’re not even thinking this is how Wall Street is getting rich off of the hard work and Americans are blindly putting their money into these highly intensive fee-structured plans that don’t even get them that much more value than investing in the market and into an index fund.
Of all the hidden challenges to the wealth-building process, there’s another one that’s called debt and how to understand a property utilized debt. I’ve talked about this in a previous episode. Read that if you skipped over that one because it looks like a lot of readers did. It is huge to understand good and bad debt. I believe the difference maker for me was that I love good debt and I hated and eliminated bad debt. Good debt is debt that helps you buy assets that you normally could not afford to buy that produce income and allow you to control an appreciating asset. Bad debt is consumer-based debt.
When you borrow money to buy things you can’t afford that doesn’t produce any income, you increase your liabilities instead of your asset. Every payment makes you poor instead of richer or if it doesn’t make you poor, it erodes your investible income and puts you further away from financial freedom. Let’s review the seven hidden villains in your wealth-building process. You got marketers, neurochemistry, FOMO, fraud, taxes, fees and improper use or understanding of debt. Have a great day. Let’s watch out and be on guard for these hidden dangers to your wealth strategic process.