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Originally Posted by padthaiforlunch
I'll Bite. How do you address their debt issue? Better yet, let's hear the solution to the lifestyle paradigm.
Now that ...
I'll Bite. How do you address their debt issue? Better yet, let's hear the solution to the lifestyle paradigm.
Now that credit markets are tightening up, it's not so easy to get a second on the house to pay off the credit cards or fund a WL policy.
I have not notice any tightening up of credit or home mortgage loans as long as equity is there and, a decent credit score.
The Paradigm is simple to grasp, either you look where everyone else is looking, the existing budget or address the budget. When you address the budget you don't look at the lifestyle, that is a no go, no one is biting on that, if they do they'll be over at Dave Ramsey's site.
First thing we have to understand is the simple fact that much of middle America is similiar, in that a vast majority have problems, first obvious problem is that there is no real savings, well not enough for retirement. That is plain and simple, yet they do hold assets, it is how they are managing those assets that are preventing them from saving a substantial amount. First thing you do is show them just how much they'll need to substain their lifestyle thru out their retirement. Just figure a 4% inflation rate, ask them what they are achieving in interest on savings and how much savings they have. It is a no brainer, rarely do I find anyone that has substantial amount saved or have enough that the growth of the money Vs inflation is going to be enough.
I just love this question, "Now that we know you don't have enough for retirement, if I can show you what you think is true, in fact is not, would you consider reviewing a plan that we will create for you?". Usually a few moments of comparing a paid off house vs a house not paid off but a large side account suffices to generate a great deal of interest. Now obviously, most will not run off and get a new mortgage and dump tons of money in a WL Policy, that is a new paradigm I had to go thru! Take the HELOC, now I can say everyone needs a HELOC! Does that mean everyone should be using the HELOC? Of course NOT but, having one in place does serve a great function, as in it gives the equity that the person has liquidity, which is a powerful thing do itself. Which is a key to the plan, security. The HELOC being in place allows them access to the money at a known cost any time in the future. So what does that do? Simple, they now can manipulate their rainy day fund, which on average runs from 5-30 grand for middle america.
Now that I have free up some money, I go after the "Cost of Aquisition", another words, I simply bring up that nasty little thing, how much they are paying for credit, likely its around 30% of their entire income. Let us forget that idea of 10% should be saved, if I can start repositioning that 30%, I can use conservative interest of 6-8% and beat anything you can do with 10%!
The paradigm is simple, look at the cost of living and not the lifestyle! Its late, I hope I was able to post this in some proper manner but, in a nutshell this is the beginning of the plan. Next, the various mortgages available to them, financing of that new car or boat is a great place to start, not the home.
Ok, interesting concept using the difference in interest paid to fund the policy. Do you use words like "arbitrage?"
I can see doing this, but I suspect resistance to pulling together the amount of interest paid on CC's and auto/boat/cycle. What are you saying that motivates them to gather the old cc statements?
Also, based on the discussion so far, these don't sound like business owners. How are you prospecting for homeowners?
Back in the 90's, there were a lot of people who advocated refinancing the house to invest in the stock market. People did this in droves, which drove the market up. Heck, get an 8% second, and invest in the market and get a 30% return. Good plan. Well, it turns out if you don't know what you are doing, things like March 2000 can come along and wipe you out.
Hey no problem, we can fix this. Your house is now worth more, refinance again, and invest in real estate. A 'safe' investment, real estate is booming. People did this, caused a nice bubble, then they found out what the term 'recast' means on their neg-am loan, and payments on the loan went from $300 a month to $1500 (or more) per month.
Shortly after this, it's still not a problem. The government is now lowering interest rates and sending out money to fix this problem.
My point in all of this? People for years have been advocating eroding the one true security blanket a lot of Americans used to have, the value of their home, and the equity they built up, in the name of having a brighter financial future. While it can be very rewarding financially, recommending this type of action should only be done by those qualified to make the recommendations, and with a complete plan in mind.
James - I admire your creativity.
I believe this type of advice should come from financial planners, people who have the training to pull this together in its entirety. People who have the licenses / certifications to do this. I fully realize a license does not make you qualified, and many people without licenses / certifications have more common sense than those with, but, when it comes to large money transactions and refinancing recommendations, I see to many people recommending it for very strange reasons.
In this case, it is usually better to have debt on the house than on credit cards, but only if you can manage it. If you just turn around and run up the credit cards again, you just end up further in debt.
While James has a great and creative idea, I seriously recommend people understand the full picture, and the individual prior to making this type of recommendation for clients.
As I mention in BOLD no less, obviously you miss it?
The paradigm is simple, look at the cost of living and not the lifestyle! Its late, I hope I was able to post this in some proper manner but, in a nutshell this is the beginning of the plan. Next, the various mortgages available to them, financing of that new car or boat is a great place to start, not the home.
As far as the Financial Planner goes, well they walk away from middle america some time ago and, I don't see nothing changing in that. So I don't know your point in that either?
Ok, interesting concept using the difference in interest paid to fund the policy. Do you use words like "arbitrage?"
I can see doing this, but I suspect resistance to pulling together the amount of interest paid on CC's and auto/boat/cycle. What are you saying that motivates them to gather the old cc statements?
Also, based on the discussion so far, these don't sound like business owners. How are you prospecting for homeowners?
I do both, either/or really. If you want to hit homeowners look for neighborhoods you see signs of the demographics you're looking for. Hit it hard with mailers, such as flyers, brochures even walking if you feel like some exercise.
If you actually get them looking at the whole amount of interest they are paying then that usually is motivation for them to act to at least see what you are offering.
... and, I don't see nothing changing in that. So I don't know your point in that either?
"I don't see anything changing..."
Please try to use correct grammar on the board. We're (supposed to be) professionals... and professionals do not use double negatives in their public business dissertations. In private and when speaking with a client, I can understand. But when you are writing to a group of other professionals I think you want to sound as educated as you can.
Coach Bear Byrant of Alabama once had a freshman running back who in his first game took the ball and ran 30 yards for a score. Well, the boy jumped up and down, did cart-wheels and summersaults and an Irish "jig" dance in the end zone. His team had to 'drag' him back to the sideline. When he got back to the bench the old coach took the boy aside and said "Son, here is a life-lesson. When you get to the end-zone... try to act like you've been there before!"
As I mention in BOLD no less, obviously you miss it?
As far as the Financial Planner goes, well they walk away from middle america some time ago and, I don't see nothing changing in that. So I don't know your point in that either?
James - I obviously misread your post, let me ask for clarification, what does the following paragraph refer to?
Now obviously, most will not run off and get a new mortgage and dump tons of money in a WL Policy, that is a new paradigm I had to go thru! Take the HELOC, now I can say everyone needs a HELOC! Does that mean everyone should be using the HELOC? Of course NOT but, having one in place does serve a great function, as in it gives the equity that the person has liquidity, which is a powerful thing do itself. Which is a key to the plan, security. The HELOC being in place allows them access to the money at a known cost any time in the future. So what does that do? Simple, they now can manipulate their rainy day fund, which on average runs from 5-30 grand for middle america.
If this isn't recommending someone extend credit on their house, I'm not sure what it is. In general, I agree with your philosophy of paying 7% on a home loan rather than 20% on a credit card, makes sense.
A statement of financial planners won't work with this crowd (which isn't accurate) does not make it open for others to provide advice without providing a plan. Now, this is my opinion, legally there may not be anything wrong with it, just I've seen to many people give bad advice because they don't take the time to understand the clients goals and to work towards the clients goals rather than their own personal goals.
A statement of financial planners won't work with this crowd (which isn't accurate) does not make it open for others to provide advice without providing a plan. Now, this is my opinion, legally there may not be anything wrong with it, just I've seen to many people give bad advice because they don't take the time to understand the clients goals and to work towards the clients goals rather than their own personal goals.
Dan
Well, go out there and show me all those financial planners that are prospecting the middle class. I'm sure we can find exceptions but, that is about what it amounts to, exceptions. As for the legality and ethics charge you are trying to make in a off handed way, well that's not here nor there.
Obviously we have some very confused people or I'm not being all that clear? The point of the home/house, is just an example to grap someone's attention, as in the saying, "if what you think is true in reality isn't true" has a specific meaning. Having a house paid off (unless there is extending circumstances) in most cases is really an urban myth, you simply don't find it often. When you do find it, several times at least in my experience I'll find someone in their 50's that does in fact have a paid off house or near paid off. Yet they have little or no savings, now can you explain to me how they are so well off since their house is paid off? In fact you can not in any reasonable manner suggest such a thing! In fact they fell into the 21st Century financial idiocy!
In fact, if these people don't act and act quickly a positive such as Appreciation of their property in fact becomes a negative, an actual threat that may force them out of their home. We're seeing it actually play out from coast to coast.
The paradigm is simple, look at the cost of living and not the lifestyle! Its late, I hope I was able to post this in some proper manner but, in a nutshell this is the beginning of the plan. Next, the various mortgages available to them, financing of that new car or boat is a great place to start, not the home.
Not sure I get what you're saying here. Borrow against the boat?
Not sure I get what you're saying here. Borrow against the boat?
No, I'm gonna have them finance it themselves as in paying themselves the interest and not an outside financial institution. That interest will create a nice little retirement fund! Now positioning them to be able to do that is the paradigm!
I'm quickly finding that this idea isn't that hard to sell at all! Yet, I'm at a great disadvantage since I'm serving middle america, much of IBC and COW has a preset disposition towards Tax savings, or the Home Mortgage Deduction, most middle american households can not take advantage of the HMD. That is basically for the upper middle class and HWC's.
Exactly how many licensed investment advisors would you like me to refer to you?
I think you missed my point. If done properly, there is nothing unethical about what you are suggesting. My issue is that I've personally seen far to many people recommend this type of thing with what I feel is an improper recommendation. The person making the recommendation was making the recommendation without enough fact finding up front, and simply to make a commission. I've seen a lot of this with mortgage brokers pushing to refinance homes, and putting individuals into loans they shouldn't have been in, simply because they paid better commissions. At the same time, I know mortgage brokers who are very above board, very ethical, and really talk with the client to figure out what is in the clients best interest.
Now, I know you are not taking this from a mortgage brokers perspective, but, I've seen many other industries (even licensed financial advisors) suggest pulling money out of a persons home, without taking the clients needs in proper perspective.
Heck, I even thought about doing it. Pull money out of my house at 8%, invest at 30%. What's wrong with that? Well, if it works, nothing. Many people like having the financial security of equity in their home, so that if something goes wrong, they are not out on the street.
Again, I agree with your basic point of in general, it is a better idea to be out of debt, but if debt is necessary, doing it in the lowest cost way is the best way. There is nothing unethical or illegal about this. From that point on though, a slippery slope can come up quickly.
No, I'm gonna have them finance it themselves as in paying themselves the interest and not an outside financial institution. That interest will create a nice little retirement fund! Now positioning them to be able to do that is the paradigm!
I'm quickly finding that this idea isn't that hard to sell at all! Yet, I'm at a great disadvantage since I'm serving middle america, much of IBC and COW has a preset disposition towards Tax savings, or the Home Mortgage Deduction, most middle american households can not take advantage of the HMD. That is basically for the upper middle class and HWC's.
I've quickly lost track of this thread. I'm not able to put the pieces together.
- How does someone take a debt they have (the boat) and turn that around so they finance it themselves? Or are you talking in the abstract here, that if they want to buy a boat, they save the money first?
- Why can't middle class homeowners take advantage of the home mortgage deduction? I know lots that do. Or are you saying that in your area, the middle class average home / average mortgage doesn't get them past the standard deduction? That would be a good problem to have.
I guess I'm an example person. Can you spell out this boat a bit more?
I've quickly lost track of this thread. I'm not able to put the pieces together.
- How does someone take a debt they have (the boat) and turn that around so they finance it themselves? Or are you talking in the abstract here, that if they want to buy a boat, they save the money first?
- Why can't middle class homeowners take advantage of the home mortgage deduction? I know lots that do. Or are you saying that in your area, the middle class average home / average mortgage doesn't get them past the standard deduction? That would be a good problem to have.
I guess I'm an example person. Can you spell out this boat a bit more?
Dan
This is basically IBC, as far as the self financing, yes this takes time depending upon what they have. This really hit me as I was sitting accross the table of Mr and Mrs Sixpack with the husband waffling at the cost of a Blend Product I had in front of him. I ask him about his bassboat and he looked, well like I was going to come back with "If you can afford that?" but, of course I didn't! Simply ask how he was going to finance the new boat. Which open up a very good discussion, since I have employed this and low and behold it works!
Believe it or not, not all middle class Joe Sixpacks are as you describe them, irresponsible people. In fact many of them are quite responsible with assets! It is amazing if they see value in something exactly how much of those assets can be moved to a position to help them. As far as the Bass Boat or Auto, more then likely Auto is more common. First off we look at the mortgage, can we save anything there, things like the obvious, are they going to move in the next 2-3 years, if I'm with a client that came from my individual prospecting I look for homeowners of around 3-5 years. Do we need to jump start their retirement assets, as they may be approaching 50 with no real significant savings, outside of a letter from an African Prince.
Then you got the HELOC, can we now shift the emergency funds? This can be anywhere from 5-30 grand. Is there any small orphan accounts floating around that will be spent if not placed in a larger plan. Can we save them money in there P&C coverage. Can we pay the CC off with access to home equity if we went that way and so on and on. I'm finding on the cases I've work on 20-40 grand with no real pain can be gathered up within a quick time span. Of course depending, the plan calls for several years of ramping up. Yet though, if they can place this amount quickly in and, they want to purchase a car now or a boat now or soon you simply go the 36 plus month finance (which you should always do) free from interest and payments! You know, that deal GMC uses all the time, just have to pay the bill 1 month before it expires or you'll be charge a lot of deferred interest!
Then yes they have to pay themselves back just as they were writing a check to GMC. Except now that money goes into an account that will finance the next purchase instead of using a signature loan or credit card.
This part of the plan is nothing more then IBC, a great system. Yet many of the practitioners believe strong that IBC and other programs need that all mighty Home Tax Deduction, which isn't pratical for much of middle america.
Believe it or not, not all middle class Joe Sixpacks are as you describe them, irresponsible people.
Okay, I think we're on the same page, but I didn't lump everyone into the irresponsible category. I simply pointed out that some people will simply run their bills back up again.
In general, most homeowners have some degree of responsbility, the degree varies from low to very high, but normally, you can't be totally irresponsible and buy a home.
Many people, myself included, run up credit due to a series of events. I started with plenty of savings, but, I needed more. I understand this happening, and in fact, having a credit card for emergencies is a good thing.
Okay, I think we're on the same page, but I didn't lump everyone into the irresponsible category. I simply pointed out that some people will simply run their bills back up again.
In general, most homeowners have some degree of responsbility, the degree varies from low to very high, but normally, you can't be totally irresponsible and buy a home.
Many people, myself included, run up credit due to a series of events. I started with plenty of savings, but, I needed more. I understand this happening, and in fact, having a credit card for emergencies is a good thing.
Dan
LOL, don't give me a credit card, my wife knows this, my mother told her that like my daddy, we can't handle credit cards. Do good in savings and budgeting etc etc, but give us a credit card and, with out a doubt we nickel and dime ourselves to death!
This is basically IBC, as far as the self financing, yes this takes time depending upon what they have. This really hit me as I was sitting accross the table of Mr and Mrs Sixpack with the husband waffling at the cost of a Blend Product I had in front of him. I ask him about his bassboat and he looked, well like I was going to come back with "If you can afford that?" but, of course I didn't! Simply ask how he was going to finance the new boat. Which open up a very good discussion, since I have employed this and low and behold it works!
Believe it or not, not all middle class Joe Sixpacks are as you describe them, irresponsible people. In fact many of them are quite responsible with assets! It is amazing if they see value in something exactly how much of those assets can be moved to a position to help them. As far as the Bass Boat or Auto, more then likely Auto is more common. First off we look at the mortgage, can we save anything there, things like the obvious, are they going to move in the next 2-3 years, if I'm with a client that came from my individual prospecting I look for homeowners of around 3-5 years. Do we need to jump start their retirement assets, as they may be approaching 50 with no real significant savings, outside of a letter from an African Prince.
Then you got the HELOC, can we now shift the emergency funds? This can be anywhere from 5-30 grand. Is there any small orphan accounts floating around that will be spent if not placed in a larger plan. Can we save them money in there P&C coverage. Can we pay the CC off with access to home equity if we went that way and so on and on. I'm finding on the cases I've work on 20-40 grand with no real pain can be gathered up within a quick time span. Of course depending, the plan calls for several years of ramping up. Yet though, if they can place this amount quickly in and, they want to purchase a car now or a boat now or soon you simply go the 36 plus month finance (which you should always do) free from interest and payments! You know, that deal GMC uses all the time, just have to pay the bill 1 month before it expires or you'll be charge a lot of deferred interest!
Then yes they have to pay themselves back just as they were writing a check to GMC. Except now that money goes into an account that will finance the next purchase instead of using a signature loan or credit card.
This part of the plan is nothing more then IBC, a great system. Yet many of the practitioners believe strong that IBC and other programs need that all mighty Home Tax Deduction, which isn't pratical for much of middle america.
I like this approach James. I'll have to buy Nash's book
The issues you hit on are exactly the topics I've thought about. Going into a household and conducting a complete money makeover.
I'm curious, when you incorporate IBC, is you goal to sell them a life insurance policy and get them sold on IBC by looking at their health, auto, home, etc. etc.??
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