Financial Leaks – Episode 055

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel and we’re back in the studio again and I am so excited to have my co-host and bestselling financial author, Kim Butler, back with us again. Thank you, Todd. Happy to be here and it seems like this is the first time we’re recording since our Summit for Advisors. I don’t know if that’s accurate or not, but I do want to alert our client base that if they want to sneak peek at what advisors talk about behind the scenes,

[00:52] the videos from that event will be available in another 45 days or so. We might even have some audios from it since these are podcast listeners and we will make them available. We’ll let you know when they’re out and about and we’ll keep the price down as low as we can to get them to those that are interested. Super. And just for a little more details on that, we were able to pull together some of the top advisors in the country. And what united the group together was this commitment to prosperity economics and to promoting prosperity economics education. And Kim, why don’t you just kind of just explain what that is for a minute? Absolutely. So prosperity economics is a term that we’ve coined that helps

[01:39] us be clear about the difference between what we preach and practice with people’s finances compared to the typical financial planning advice that’s out there. So most of our listeners know that I had a certified financial planner designation and got rid of it. And yet I found that I was still using some of the same language, even the literal verb of financial plan or financial planning. And that’s confusing to people. So we’ve developed a set of principles. We have the seven principles of prosperity and there’s a variety of pieces of information about them on our website and some podcasts. And then we have a series of other pieces. There’s books, there’s the video that’s coming out. There’s just a whole way of thinking, talking about and handling your money

[02:35] that is all underneath this umbrella called prosperity economics. So we actually created a movement. It’s called the prosperity economics movement. And it’s a 501c3 organization that’s designed to educate. And we’re going to be continually providing information that educates both clients and advisors, because, you know, it’s funny, sometimes our clients have better questions than the advisors do. And of course, advisors often have good questions that would help the clients as well. So we make a little bit of a distinction between the two audiences, but not a lot, because one of the things we’re big believers in is full transparency. And so why shouldn’t a client have access to everything an advisor has access to?

[03:20] I could not agree more. Although I think most people are afraid that if the client knew everything that they did, they would no longer serve a purpose anymore. And the client would not necessarily need them. And I would say that having an independent thinking client who respected you for the knowledge and service that you provide and is willing to compensate you to do so is a good thing, not a bad thing. Absolutely. I had a client just the other day say, can you tell me the exact commission that you earn on this whole life policy? I said, yep, let’s go look at the base premium. You multiply that number times 55 percent. That’s the first year commission. And then the years two through 10, there’s a 10 percent renewal.

[04:10] And that’s it. And it’s all laid right out there in front of you. In the net cash value column, because the net cash value is after the commission and, of course, after the cost of insurance as well as running the mutual company. But it’s right there in black and white. And that was yeah, that was the end of the discussion. He just wanted to know there wasn’t even any other question about it. One of the interesting topics that I know I addressed this a couple years ago, I don’t know if this has changed, but commission free life insurance policies exist out there. However, the rates that the client pays are turned into they turn that into the state and get approval for that. So the client pays the same price for the life insurance, regardless

[04:59] of whether the commission is paid or not. And it does not affect the cash value. So that’s kind of a misnomer out there that people think that if they can find a commission free product that they’re getting necessarily a better deal. And the last I investigated it, they were not. I don’t know if you have any updates on that, but. I have looked at those. There are a variety of non-commissioned products out there. And we’ve actually run them through the Truth Concepts internal reader return calculator to determine how well the cash value was growing for the client. And they were embarrassing. I would never want to show one of those to a client, no matter what fee the client might be paying me separately or not at all.

[05:43] That is not a good product, at least the ones that we looked at. So it is an interesting environment. I know the people in Britain don’t have commissions anymore, but I’ve heard that they are not working with whole life much either because the advisor cannot get paid for the time it takes to educate the client on how to use their whole life products. So we’re big believers in the education, but also in running a profitable company, because we’re not any good to our clients if we’re not able to stay in business and help them when they need it. And the education is a long one in the whole life arena, because there’s so much misinformation out there in the marketplace. Super. Well, yeah, we absolutely some of the worst and most expensive advice

[06:34] I have ever received in my lifetime was free. Well said. Super. Well, today we’re actually responding to some more of our listeners asking questions, and we’re going to be talking about financial leaks. These are things that happen each and every day that maybe we’re focused so much on the big picture that we don’t sit and think about all of the little pieces and things that are going on. And what really sparked this is I happened to be with someone who was withdrawing money from an ATM and I was driving at the time. So I was kind of the middle person in the transaction, moving the cards back and forth. And there was actually a $6 and 50 cent fee to make to withdraw $60 from their own bank account.

[07:19] And I thought I wouldn’t pay $6 and 50 cents to have somebody loan me $60 for a month, let alone pay $6 and 50 cents to get my moan money out of my own bank account. This is awful. It really is. And I’ve got to spell the word that you used. So we’re talking about financial leaks, L-E-A-K-S. It’s a toughie to hear. And it’s amazing what’s out there that is leaking from the bottom of your financial bucket. And this example, Todd, that you just gave is absolutely mind-boggling to me. And yet when we look at all of the fees, just at the bank level, let’s just stay there for the conversation. Cause we could go all day on talking about mutual fund fees, but just the fees that the bank charges you to keep your own money.

[08:13] Like you said, there’s your ATM withdrawal charge to have any kind of an overdraft you’re looking at between 20 and $30. And then of course, if you end up being late, like on paying a credit card, they change your interest rate from eight or 10 or 12 or whatever it is to 20 or 30 or whatever maximum they can. These are all leaks in the bottom of the bucket. There are holes in the bottom of the bucket that are draining away your finances in bits and pieces, sometimes so small that you’re not really aware of it. But my gosh, if we add it up over the course of a year, the amount of fees that we pay to a bank just to use their services, just to store the money and use the money again, our money, like you

[09:04] said, $6 for 60 bucks of our own money. It’s amazing how much those leaks are, or those fees are going to be the holes in the bottom of the bucket. And then on top of that, we have opportunity costs. So that is not only did you lose the six bucks, but now you lost the opportunity for that $6 amount to earn any kind of interest for the rest of your life. Now I realize banks are not paying much interest these days, but nevertheless, there is still an opportunity cost. So it’s way worse than the $6 and 50 cents. Well, and the reason that we point this out is that there are things that you can do about it. Number one, you do not have to have overdraft on your checking account. You can simply state that they are not permitted to pay any

[09:54] checks or any credit card transactions that go more than the money that you have in the bank. This was a law that passed, what I think a couple of years ago, but you have to actually specify that on your account and they won’t pay the charge, which a lot of times they wouldn’t have paid the charge anyway, but in exchange, they can’t charge you an overdraft fee. So I believe that’s in all States. Is it not, Kim? That’s a good question. I’m not certain about it, but it’s absolutely worth checking into. And then in addition to that, you can have a savings account linked to your checking account so that you have the ability to have a cushion there if something does go wrong. Additionally, some banks offer what’s called a overdraft line

[10:39] of credit, really is what it is, where there’s maybe like a thousand dollar line of credit attached to your checking account so that if you go below zero, the check can get paid. But I like your idea as well of just not having them pay a check if there’s not money in the account. Super. And then one other thing is I don’t know if you have to shop around within your own bank or how much leniency there is now, but I use a company called KeyBank, K-E-Y, and their policy is they reimburse all ATM fees for all banks that I use. So that’s another option. That is nice, especially if you’re a person that travels or whatnot, and on the ATM withdrawal, if you are going to pay a fee, make sure that you withdraw a sufficient

[11:27] amount of money to not have to go back there again over the course of a month or what have you. What a great point because it’s the same, isn’t it? Absolutely. So even the one dollar that I often see as an ATM charge, you needn’t need to be hitting that once a week. You should be trying to do that once a month or what have you by strategizing ahead a little bit in terms of what cash you’re going to need. Kim, there was a, in one of our shows early on, you talked about having a specific account, and I can’t remember the name of it, where you could start to track your money in and out. I’m not sure what… Is it a pass-through account or a… Oh, a prosperity flow-through account. That’s it, there we go.

[12:11] Yeah, that’s what you’re talking about. And that is a really good idea. And this is just a regular checking account. And so it’s our term, a prosperity flow-through account. Don’t go asking for one at the bank. They’re not going to know what you’re talking about. But if you have a separate account that we’ll call a prosperity flow-through account, it helps you track what you’re doing in the area of savings and investing. So this is not the account you’re going to pay your groceries and your car payment out of. This is the account that you’re going to put money in to pay life insurance premiums, to invest dollars in. If you’re going to maybe be buying real estate, it’s where you compile your down payment.

[12:54] It’s where you also receive money from, let’s say you have cash flowing real estate or bridge loan investing or a life settlement payout that has occurred. So this flow-through account lets you keep an eye on the money going out and the money coming in from a savings and investing standpoint, not a lifestyle standpoint. So again, not checking, not car loans, not mortgage payments. Now we could argue your mortgage payment can come out of there because in theory, sometimes your home is an asset, but it really depends on your situation and your own viewpoint. There’s no right or wrong way about it. But this prosperity flow-through account can help you monitor the savings and investing that you want

[13:42] to be doing throughout the year so that you don’t get to the end of the year, not having saved the 15 or 20% of your income that was your goal. If you’ll just have it put into that prosperity flow-through account, then when the life insurance premiums come up or the opportunity to invest in something comes up, that’s where you go for those dollars. Can you think of any other banking leaks, L-E-A-K-S, that we could talk about before we move to the insurance subject? Yes, I think that the other piece to be aware of is going to be happening more and more. And that is when the banks are literally charging you by keeping your money. So, for example, money markets, a lot of banks, when they make a minimum, for example, let’s say

[14:32] you have to have $10,000 in your money market account. That is in essence charging you because that’s saying that you have to have their minimum in their institution. It’s not what you want to have there, it’s what they want to have there. So we need to be aware of the rules that banks are putting forth, and I think we’re going to see more and more as we go on. If interest rates continue to stay low, this is one of the problems with the way that the government has handled the interest rate environment. Instead of letting it be a free market, they’ve dropped it lower and lower artificially, and so we’re going to be seeing banks charge us to keep our money since they can collect fees for a while, but then they’re going to continue

[15:19] to find more and more fees, and they’re going to actually be charging us. So now, not only are we not getting good interest, but we’re paying fees, either in the form of a literal fee like with your friend in the ATM, or in the form of a minimum, or in the form it costs X dollars to open an account, or what have you. So banks are just something to be real aware of, and what’s going on, read the fine print, look at your credit card statement. Of course, that’s a whole nother area on the interest rates and the fees that are charged on credit cards, annual fees, monthly fees, fees if you go over your credit limit, fees if you don’t pay on time, et cetera, et cetera, and just to be conscious of all of that

[16:03] so that you’re not having more financial leaks in the bucket draining away without you even being aware of it. One of the ways you expressed it the other day that just caught my attention was you’re earning a negative interest rate on your money. It’s saying the exact same thing, but somehow another expressed that way. When I take my negative interest rate and then add in inflation, it can be a frightening number. Yes, absolutely, and it does. It brings you up short. Super, well, why don’t you, we’re kind of at the end of this one. Maybe if we’ve got some new listeners out there, give them some websites or something where they can go for some additional information on what we’re talking about today.

[16:41] Sure, so we have a fun little ebook that is done as an audio, and it’s called Financial Planning Has Failed, and it’s a couple hours of audio material going through my background in the transition from typical financial planning to the prosperity economics that we talked about at the beginning of our show today. And it also details the three specific areas that most people want their money to operate in. One, of course, is that liquid cash. Everybody needs emergency slash opportunity money. Two is where they need money to grow. So anytime you need money to grow, we talk about the various opportunities that are out there. And then three is cashflow. Everybody needs early, early on to identify investments that provide cashflow.

[17:30] A lot of times that’s left until retirement. That’s not wise. You wanna be developing cashflow early in your adulthood so that you get used to and confident about the types of investments that provide that. Additionally, cashflow does a good job of helping you save money because you can take the cashflow off of an investment and save that to build up the liquidity for the emergency opportunity fund. And then of course, you can use the emergency slash opportunity fund to borrow against and go do more investing. So real good cycle there. And that’s spelled out in the book available at partners number four, prosperity.com slash ebook. Super. Well, this is No BS Money Guy, Todd Strobel for the Prosperity Podcast.

[18:15] Once again, special thanks to Kim Butler and we’ll talk to y’all again real soon. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review. Shannon Maldonado, founder of YOWI, a souvenir shop with artisanal articles and pieces selected by artists. I chose Shopify because after trying other platforms, this was undoubtedly one of the most intuitive. For me, it was important to think about where we would be in the future. All the tools to analyze sales, with inventory management, are right there on our dashboard. Start your free evaluation at Shopify.com.