“You finance everything you buy–you either pay interest to someone else or you give up interest you could have earned otherwise.” Nelson Nash
Throughout our lifetimes, we are faced with numerous financial decisions on how we pay for things. From how to pay for a house, to funding education, to saving for retirement, and purchasing automobiles. If not done efficiently, there could be a signficant amount of cost incurred which can erode your wealth.
One approach many take is to be a DEBTOR. For those taking this approach, they are working to spend. They are relying on future income to fund the things they need today and aren’t saving money. They continue to pay interest to financial institutions and depending on their situation could be paying extremely high market rates. Over time payments are made to extinguish the debt bringing their cash position back to zero.
A second approach is to be a SAVER. For those taking this approach, they are looking to avoid making interest payments by saving their money with the hopes of earning some interest along the way. When it comes time to make payment, they do it with the cash accumulated which stops the compounding of the account. This is equivalent to borrowing from yourself as you reduce your collateral position and discontinue earning interest on your money. After draining the bucket, the cash position reverts back to zero.
A more efficient approach is to be a WEALTH CREATOR. For those taking this approach, they continue to save and use OPM (other people’s money) to maximize their efficiency. They borrow from lenders at negotiated rates, using their own money as collateral and continue to earn uninterrupted compounding. Depending on the lender chosen, the borrowed money can be an unstructured loan providing maximum flexibility and control to you. Taking this approach allows the magic of compounding interest to take hold over long periods of time without disruption while having control of the debt payments.
Below is an example which demonstrates the power of this strategy using a $50,000 purchase or investment.
The top portion illustrates the power of compounding interest as the money continues to earn for many years without interruption and amasses over $85,000 in interest.
Instead of using our own money, we borrow the funds needed by using our money as collateral and pay a shrinking interest amount each year totaling just over $29,000. The difference between the interest earned and paid covers the full cost of the initial $50,000 purchase or investment. Imagine how this could apply to various aspects of your life.
To become a WEALTH CREATOR requires you to think differently about your money and go against the conventional wisdom. However by doing so, you’ll be able to eliminate or reduce some significant wealth transfers and gain more control over your financial life.