Why is it Done this Way?
There’s a story I heard long ago, although I don’t remember its source, that described a woman making a roast using an old family recipe. She would season the roast with secret herbs and spices, prepare it according to the rules handed down by her mother and grandmother and, just before placing it in the oven at the exact temperature she learned from her mother, she would cut off the ends and put them in a separate pan.
One day the woman’s daughter asked her why she always cut off the ends and cooked them separately.
“That’s how my mother taught me to do it,” she answered.
“But what’s the purpose of it,” the daughter, undaunted, continued.
“I don’t know,” said the mother. “Ask your grandmother.”
So the daughter called her grandmother and asked, “Mom cuts the ends off the roast when following the old family recipe, why does the recipe say to do that?”
“Well, dear, I really don’t know,” replied the grandmother. “That’s how my mother taught me and I’ve done it that way for over 50 years. So that’s how I taught your mother.”
The daughter was undeterred. She called her great-grandmother and said, “Why do Mom and Grandma cut the ends off the roast when following your old family recipe?”
The older woman paused for a few seconds then said, “I don’t know why they do it, but back in my day I didn’t have a pan large enough to hold the entire roast.”
There are many areas in our lives where we simply accept things as true because that’s the way they’ve always been done.
And therein lies the rub. There are many areas in our lives where we simply accept things as true because that’s the way they’ve always been done. We don’t question why certain things are done in certain ways or whether they can be done better because circumstances or technologies have improved.
You see this in different cultures, various age groups and across all social and economic strata.
What’s more, sometimes these things become so ingrained in our minds, they are transformed into beliefs we vehemently defend, regardless of the fact they might not make sense. To question these things start arguments of religious proportions.
And when it comes to money, historical beliefs we’ve learned from our parents and ancestors further up the line take on a special significance that, unfortunately, have been the root cause of many problems today’s population faces. They cause immense damage to people’s financial well-being and wealth over time.
When the global financial crisis hit in 2007, many were ill-prepared for the resulting job loss, housing market deflation and stock market crash. The so-called, “experts,” were telling people things were fine and the politicians and their cronies were making decisions, as politicians are apt to do, based on what was popular and would get them re-elected rather than what was prudent, logical and based on common sense.
That’s why mortgages were being handed out to folks who had no chance of keeping up with the payments and others were jumping into stocks that were highly overvalued, had little or no earnings and selling for absurd prices.
As interest rates were cut to the bone and inflation hidden behind false constructs built upon quantitative easing and outright manipulation of the Consumer Price Index, most people’s savings were wiped out – if not directly, then indirectly through low interest rates and the unbridled printing of trillions of dollars (much of which still has to make its way through the system).
In addition, millions lost their jobs or had to accept lesser positions and a great many of those simply gave up looking for new jobs.
But why did the majority of people feel such pain?
The answer goes back to the fact just about everyone bought into the illogical lies that pass for truth: Government is good for the economy and individuals are too stupid to handle their own investments so they need to hand them over to the Wall Street mavens to manage.
Nothing could be further from the truth.
Even when the crisis was contained (make no mistake, it’s still lurking out there waiting for an opportunity to inflict even more pain and damage) people didn’t question the causes but again jumped on the big government bandwagon and thanked governments for being smart enough to get through the crisis.
Poor government policies and programs, as well as Wall Street mismanagement, caused much of the crisis, yet nobody seemed to notice when these same entities stepped in and said they needed more power.
That’s the funny part. Poor government policies and programs, as well as Wall Street mismanagement, caused much of the crisis, yet nobody seemed to notice when these same entities stepped in and said they needed more power.
So rather than taking away power from the organizations that caused the problems in the first place, the people simply handed these exact same organizations even more power.
Is that smart? Of course not! But since many people believe governments are essential and required to run many facets of society, they simply go along with it. And since many people believe they’re not smart enough to build their own wealth and manage their own investments, they dutifully hand their money over to Wall Street and mutual fund managers like fleeced sheep.
In short, society clung to its illogical beliefs thereby setting itself up for a far larger crisis in the future.
The financial shenanigans that caused the dot com boom and the global financial crisis have not gone away, but have simply been swept under the rug and hidden, for now, using very dangerous strategies.
They will re-appear in an even uglier form to cause exponentially more damage than before.
If you want to shield yourself from this damage you must make significant changes in how you view the world and ensure your beliefs are based on logic rather than simply accepting what governments, Wall Street or even your parents have been telling you.
Fiat Currency is NOT Money
When the next crisis hits, the unfortunate fact is the vast majority of people will experience the full effects of its wrath. Not many will come through unscathed, but if you put the correct plans and strategies in place right now, you can be among the few who not only survive, but thrive in what is expected to be a volatile and turbulent financial storm.
So, what can you do?
First of all you have to cast off some so-called, “wisdom,” that has been around for a very long time. It won’t be easy, but if you follow what everyone else is doing, you’ll end up with their poor results.
One entrenched piece of, “wisdom,” falls under the heading of saving. Most people believe it’s good to save and many, especially in the older generations, still think saving means depositing your money with a bank.
You’ll also hear financial planners telling you to keep 6 months’ wages in a bank account in case of emergencies.
On the face of it, this sounds like fine advice, but dig a bit deeper and you’ll see it falls under the category we spoke about earlier – that being, taking advice that has been around for a long time at face value is often detrimental to your financial well-being.
So why is saving or putting aside 6 months’ wages such a bad idea?
To answer that question we need to take a step back and look at things the way they were a few generations ago and the way they are now – and will most likely continue to be going forward.
The beginning of the decline started in 1971 when Richard Nixon removed the U.S. from the gold standard. The upshot was the U.S. dollar was no longer backed by anything of real value – only by a promise of the U.S. government. At the time, the U.S. had great economic potential and nobody thought it may not be able to meet its obligations (in fact there are still people today who think the U.S. is in good shape and will continue to meet its debt obligations well into the future, but this group is shrinking).
That one move changed the U.S. dollar from actual, “money,” (a store of value) to a, “fiat currency,” a debt instrument with no value in and of itself but simply a, changeable, representation of value.
The problem with fiat currencies is they can be manipulated by governments. Gold can’t be printed into existence or removed from existence very easily (because if a government tried, they would see tons of gold hidden away in a variety of places).
Fiat currency, on the other hand, has no such limitation. Government can, and routinely does, increase or decrease the supply at its whim. This means currency cannot be counted on as a store of value. As an example, an ounce of gold, back in the heyday of the Roman Empire, could buy a nicely tailored, high-quality toga. That same ounce of gold, today, can purchase a nicely tailored, high-quality suit. So despite thousands of years passing, an ounce of gold hasn’t lost its purchasing power.
On the flip side, I remember a hamburger being priced at 25 cents when I was a child. That same hamburger today sells for about $1.50. That’s a six-fold increase in about 40 years. And there are other items that have gone up far more than hamburgers (such as my parents’ first house they purchased in 1971 for $21,000 that today would sell for about $700,000. An interesting fact is an ounce of gold in 1971 sold for about $40.62 which means $21,000 could purchase about 517 ounces. Today’s price is about $1,300 an ounce, so 517 ounces would be worth a little over $672,000 – pretty close to the market value of that house).
The purchasing power of any fiat currency erodes due to government mismanagement…
The point is, the purchasing power of any fiat currency erodes due to government mismanagement and the U.S. dollar is a prime example, having steadily lost purchasing power since 1971.
Real stores of value don’t generally suffer from this problem.
So if the government can decide, via the Federal Reserve, to flood the market with trillions of new dollars (brought into existence with the mere press of a button) and the production of goods and services don’t increase accordingly, the result is significantly more dollars chasing relatively fewer goods. And that means those goods will cost more in terms of dollars.
Are they inherently worth more? Probably not. But the fact there is a greater supply of dollars in circulation drives the price of goods up (or, to look at it another way, drives the price of a dollar down) according to the basic rules of supply and demand. This is inflation.
But, you might be saying, “why would a government do such a thing?”
Well, governments continually do things that hurt their economies because they take short-term, politically safe views. Governments are made up of individuals who need to be elected. And the best way to be elected is to give people free stuff, like raises, a feeling or prosperity, phones, larger welfare cheques and such.
But if you’re going to give away free stuff, you need to pay for it. But how can you pay for all these freebies if your income is limited (after all, you can only tax a population so much before it revolts) and your debt burden is extremely high?
Well one way to get the required dollars is to create them out of thin air. Boom! Instant dollars. You’re not really creating anything of real value, mind you, but you are creating the illusion of prosperity – at least until it’s time to pay the piper, and then things come crashing down in the form of hyper-inflation and other bad things.
But the reason you’re able to temporarily profit from such a scheme is because other countries and people are willing to accept these made-up dollars for goods of real value. Unfortunately, like a Ponzi scheme, this can’t go on forever and will eventually come to an end.
Further, being able to point to the fact the stock market is at its highest level, ever, scores lots of political points because the typical uninformed voter doesn’t realize the government is using inflated dollars to measure stock market value rather than inflation-adjusted dollars (which would look far worse) and is led to believe the economy must be humming along nicely since the stock market has reached its historical zenith.
But it’s all smoke and mirrors.
The economy is not really humming along and all those new dollars will exact a fierce price sometime in the future (probably sometime after the politicians who made these terrible decisions have retired and are living off their gold-plated, fully-indexed-to-inflation pensions – did you ever notice how politicians always seem to ensure their pensions take inflation into account?).
The sad fact is, once money isn’t backed by something of real value (like gold), it will be mismanaged by short-sighted politicians and eventually collapse. This has happened every time in the past and it will continue to happen in the future
So, with that somewhat long preamble out of the way, let’s return to the question of why saving money in a bank or keeping 6 months’ worth of wages in cash is not a good idea.
Don’t Put Your Money in a Bank
As we’ve seen, inflation erodes purchasing power. Keeping your money in a bank pays you an interest rate lower than the inflation rate. This means your money is losing purchasing power every day it is sitting in the bank.
If you work hard to make $100 and decide to save it, the government might take, say, 30% in income taxes which leaves you with $70 to save. You save that $70 in a bank’s savings account. Let’s assume that inflation, on average, will be 1.5% more than the interest rate you’re receiving. This means that every year your money sits in the savings account, you’re losing 1.5% in purchasing power. So you lose about $1.05 each year (plus you’ll be taxed on the interest, so you’re actually losing more).
The same is true when you follow the advice of keeping 6 months’ worth of wages on hand. You put these after-tax dollars into a savings account and end up, not only tying up money that could have been working for you, but actually losing purchasing power.
If you run into an emergency, the solution is not to have a declining cash hoard on hand, but to ensure you have adequate insurance and a decent line of credit reserved solely for real emergencies.
Remember, the dollar you save at the bank today will be worth less a year from now.
Remember, the dollar you save at the bank today will be worth less a year from now.
On the other hand, if you properly invest that dollar with a long-term perspective in mind, you increase the chance of receiving returns well in excess of inflation. Your money has a fighting chance to grow more and more each year and, the best part is, you don’t have to work for your ever-increasing wealth. It grows automatically.
Now before we move on I’ll point out one of the delicious ironies that occur when you deposit your money with a bank. Because of the way fractional reserve banking works, your deposit allows the bank to literally create new money the instant it lends out the money you’ve deposited.
This adds to the money supply, which in turn, ceteris paribus, leads to inflation. So you, the depositor, inadvertently increase inflation and thus further erode the purchasing power of your own deposits. The more you save, the more money the commercial banks create, the higher inflation nudges and the less your savings are worth. Pretty funny huh?
Is a College Degree Worth It?
Another piece of advice that’s been around for some time is, “get good grades at school, get a good job and work hard.”
Is this the path to success? Well, it really depends.
There’s no question following this advice 50 or 60 years ago probably worked out well. But times have changed.
Today there is ample evidence those with university or college degrees don’t always end up with good paying jobs. And there’s ample evidence those who work hard don’t always build their wealth.
Why is that?
For starters, a college education is now looked upon as a right by today’s youth. They feel it’s their right to be educated. They look down on the, “uneducated,” and think they know far more than they really do.
Honestly, though, higher education isn’t a right and some people would be better off skipping college and picking up a well-paying trade or other such work.
But the main problem is the types of degrees many students are pursuing today. There is a big difference between a degree in something like Engineering, Computer Science and Business compared to a degree in Anthropology, English or Women’s Studies. The former group prepares you for a relatively high-paying, stable job while the latter group prepares you for asking people if they, “want fries with their burger.”
My point isn’t to denigrate Anthropology students, but to point out that if you’re going to spend tens of thousands (perhaps even reaching into six figures) of dollars and 4 years of your time on something, it’s probably a good idea to ensure it pays off in the end. Let’s face it, there simply isn’t a demand for people with Anthropology, Sociology and other such degrees.
So simply saying get good grades at school isn’t enough. We should be giving the younger generation advice to get good grades at something that will pay off when they graduate and tell them to be prepared to keep learning.
Unfortunately today’s government climate, with its grants and low interest loans, enables students who have no business being in college to take useless courses that won’t help them later in life. Governments enable self-defeating behavior under the guise of increasing the general education level of the populace. It doesn’t take a rocket scientist (by the way, a good degree to pursue if you like that stuff) to see this won’t turn out well.
The other problem with the standard wisdom is that simply working hard isn’t all there is to it. If you work hard at a minimum wage job, you’re not going to have a great retirement in the end and you’re going to have difficulty helping your family.
But even if you work hard at a high-paying job and end up spending your money on consumer goods and, perhaps, going into debt, you also won’t end up in a good place.
Really good advice would be to work hard at a high-paying job and invest as much money as you can using a proven and well thought out strategy. As you’re working, the money you invested will also be working for you at the same time, silently and automatically building your wealth. At some point, your investments will start to add more to your wealth than your day job. At that point you end up with far more options than the average person has.
Plus, I’d add one additional thing, “find something you like doing.” If you can do that, you’ll enjoy yourself throughout your career and, most days, it won’t even feel as if you’re, “working.”
To rephrase the standard advice then, “get good grades in a discipline you enjoy that will get you a stable, relatively high-paying job, work hard and properly invest as much money as you can with a long term perspective in mind.” That’s how you build substantial wealth in today’s turbulent environment.
Of course things will change in the future, so advice that’s good today might not be as good later. Therefore it is very important to think for yourself and not simply accept and blindly follow advice, no matter how long it’s been around and no matter who is giving it, without determining if it is logical or not.
Education is supposed to free our minds, however on many college campuses, the opposite occurs.
Education is supposed to free our minds, however on many college campuses, the opposite occurs. Students play at free thinking and pretend to embrace free speech and tolerance. They envision themselves as rebels all the while conforming to their expected roles.
Look no further than what occurred in the early part of 2014 when student (and faculty) protests caused several intellectuals to withdraw from delivering commencement addresses because students didn’t like their involvement in certain situations. Former U.S. Secretary of State, Condoleezza Rice, IMF Director Christine Lagarde and retired University of California, Berkley Chancellor, Robert Birgineau, all fell prey to this false outrage.
The people who typically get caught up in these types of protests are those who are conditioned not to think for themselves. I’d wager if you asked any of the protesters whether they were for or against free speech, tolerance and inclusiveness, they would inevitably come down on the side of, “For!”
However when faced with something they have been programmed to, well, the only word for it is, “hate,” they throw tolerance and inclusiveness out the door and freely discard free speech like yesterday’s dot com stock certificate. That’s not the sign of people who think for themselves but rather the sign of people brainwashed into thinking like those in a particularly intolerant group.
In these cases, “education,” helped mould these students into crowd-following sheep who lost the ability to independently think for themselves. It taught them to be dependent on the group and suppress any original or logical thoughts lest they be shunned and ridiculed by the, “intelligentsia.”
More insidious, however, is it started the process of wiring the brain to deceive itself into thinking it is being bold and original while in fact it is being programmed for lifelong dependence and conformity to the lowest common denominator.
If you want to succeed in today’s world, you need to learn the correct skills, apply them with logic and persistence and, just as importantly, throw off the brainwashing that would have you following the politically correct crowd of the moment. Only when you think for yourself will you have a chance to succeed spectacularly. Unfortunately you won’t learn any of this in college.
Opening your mind to logic, no matter how unpopular, gives you the significant advantage of changing circumstances to work for you rather than you simply becoming a victim of circumstances.
Independent thinkers ask questions such as, “how can I do this?” rather than saying, “this can’t be done.” It opens your mind to endless possibilities rather than a rigid subset dictated to you by others. This is the core attribute all great scientists, explorers and leaders have. And the nice thing is, you can do it too. Choose your goal, work out a plan to reach it and then implement that plan — and most of all, ignore those who rail against you simply because you’re doing something different from what they have been accustomed to since childhood.
If you have been programmed to mindlessly believe illogical ideas just because your parents, or their parents, or anybody else, believed them then you have been set up to fail. Following illogical ideas will most likely hamper your wealth building efforts and is a detriment to other areas in your life.
Doing this can lead to a silky smooth retirement lush with vividly superior outcomes and a higher quality of life.
Of course it’s difficult to pull yourself out of this way of thinking because the school system, your family and society in general drum these false ideas into us over and over and over.
However those of us who choose to think differently are best positioned to come out well ahead of those who don’t. Challenge all ideas and ensure they are logical and make sense. Don’t waste your money and time on a useless degree. Get a good paying job and invest as much as you can using a proven long-term strategy. Ensure your money is always working hard for you. Don’t park your money in low interest bank accounts. Don’t hand your money over to Wall Street and mutual fund managers – this won’t make you wealthy but it will make the Wall Street kingpins and mutual fund managers very rich. You take all the risk and they receive a guaranteed payout, taking a chunk of all your assets they manage each and every year whether you make money or not.
By continuing to believe in illogical, unproven ideas we’ve erected great barriers to success and limited what we can achieve. If you want to change your life for the better, change your thoughts first. Challenge old ideas and beliefs. Doing this can lead to a silky smooth retirement lush with vividly superior outcomes and a higher quality of life. I mean, what more can you ask for?