The majority of Americans are sinking money into these two investments, and it’s destroying any chance of financial freedom. What are they?
Cash Flow Expert and “Anti-Financial Advisor” Chris Miles will teach you where most people are “investing” their money but getting no return. They can’t attain financial freedom during their lifetime, let alone the next ten years!
Tune in now!
Chris Miles Bio:
Chris Miles, the “Cash Flow Expert,” is a leading authority on how to quickly free up and create cash flow for thousands of his clients, entrepreneurs, and others internationally! He’s an author, speaker, and radio host that has been featured in US News, CNN Money, Bankrate, Entrepreneur on Fire, and has spoken to thousands getting them fast financial results.
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The Two Deadly Investments EVERYONE Is Doing
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In this episode, I’m not going to mince words. I’m going to get right to the point here. There are two deadly investments that the majority of Americans are doing. If you’re reading this or like most people I’m talking to, you probably have one or both of these. That’s a pretty high likelihood. Even if you don’t do this, maybe you even agree with me. You might be the minority of Americans that agree with me on this point. The worst case is to share this with somebody that is doing this because this is going to hit it right to the core of what most Americans are doing wrong with their money and why they struggle month to month.
Even if you’re making 6 or 7 figures every year, some people still struggle month to month because of this very reason. It keeps them in bondage. It keeps them creating no cashflow. If you’re worried about cashflow now or want to improve your cashflow, it is possible that this is one or both of these areas you’re suffering in. The two deadly investments are these. Your home and retirement plan, whether that’s a 401(k) or an IRA, whatever it is, those two things are things that the majority of Americans have, especially those that are adult Americans. Most Americans usually have at least a 401(k), IRA, or some retirement plan.
In most cases, they probably have a home too. They have a mortgage. When I see people sinking money, they sink money into their homes and in these retirement plans. In fact, this is what most people believe, especially from that saver perspective. They believe that this is somehow going to give them financial freedom. Somehow this is going to lead them to the Promised Land, that this depression-era broke mentality will somehow get them to retire. It doesn’t work. First of all, if you’ve read any of these episodes, you’ve read some of the numbers I’ve given, whether it be about retirement plans and how much money you need to save to retire, whether it be about the 401(k) and how much the match doesn’t matter, those kinds of things. Also, your home.
Having a home is not an investment for the most part because it's something you consume. It's not something that produces cash flow or income for you. Click To TweetI’ve talked about this as well too, but I want to talk about these two together because this is where many people are sinking their money into. I’ll start with the home. I don’t mean that having a home is a bad investment. I’m not saying that at all. Having a home is not an investment for the most part because it’s something you consume. It’s not something that produces cashflow or income for you, but it is a big asset on your balance sheet that most people have. You start paying it too. You normally pay whether you pay a mortgage for 15, 30, 20 years, or whatever. You’re putting money into this. You have to put money into it to some degree because you have a mortgage payment.
What I’ve seen happening is that many people will put more money into it. They’ll try to pay it down faster. Here’s one example. I had a guy that I talked to from Florida who was a great and fantastic guy. He proved the point of what I talk about from time to time here that I often teach, especially when you come to my events. It’s not about working harder. It’s not even about working smarter. It’s about working right. Many people try to work smarter because they know that working harder isn’t so good. They know that’s not working too well, so they try to work smarter. The problem is that working smarter doesn’t necessarily mean you’re working right.
For example, his thing was he wanted to pay off his mortgage faster. He’s putting extra money into this mortgage, but the way he was going to do it, he’s like, “I’m going to be a little bit more creative more from an investor perspective.” He’s like, “I’m going to get an extended home equity line of credit.” It’s a home equity line of credit where your first mortgage is your line of credit, which is smarter. You pay a little higher interest rate, but you were able to have this line of credit. The nice thing is that as you’re paying on your mortgage, you can access the equity down the road.
If you paid an extra $50,000 on your mortgage or something, you’ve got this line of credit to go back up to where you started if you want to use it. That could be a dangerous tool for the spender. I don’t recommend that. It could be a great tool for an investor. However, that still comes back to the fundamental problem. When you’re throwing money into things that you don’t control, your money now goes outside of your reach. The thing I warned him about was a thing I saw happen ten years ago. Funny enough, what many people have forgotten about was the recession. When things get crazy with the recession, banks will retract.
Banks won’t lend money when things are tight when they know the economy is in trouble, whether it’s a recession or even just a low in the market. They might get a little bit protective. I tell them like, “They can cut back those lines of credit to whatever dollar amount they want.” You might have sunk an extra $100,000 into it, and it will matter. Here’s the fundamental problem I see with trying to sink extra money in your house. Most of everybody’s goal is that they’re trying to get rid of the house payment. Would you agree that you don’t want to have a house payment? All things being equal, you prefer not to have one versus having one. The problem is that unless it’s fully paid off, you still have a house payment.
In fact, no matter how much extra you put into your house, your payment doesn’t change. At least to the credit card, if you pay it down, your minimum monthly payment goes down too. If anything ever happens, if cashflow ever gets tight or you end up in a crunch, at least you know that with a credit card, you’ve paid it down. You’ve shrunk the minimum monthly payment. If you put more money into your house and sink more money into it, the payment doesn’t change. It stays the same. It’s like sinking extra money into a car loan or student loan.
Anything that’s an installment loan, for that matter, where the payment doesn’t change as you pay it down, is dangerous to throw extra money onto it. You’d be better off saving the money outside of that loan, putting that money into savings. There are more productive ways to put into a savings account or checking account to do that. Put that money aside, let it grow, compound, take that money, and use it to pay it off in one check, so then you free up all the cash all at once. It does not help you to try to accelerate paying it down by throwing extra money onto it.
Here’s what happens with most Americans. They’re putting all this money into their retirement plans, putting all this money into their home, and then trying to pay off their debts. What happens? Something unexpected happens, and the next thing you know, these people are like, “I need money.” Most Americans I’ve seen, even people that make good money, often don’t have a ton of cash reserves. If you make great money where you have a position that’s hard to find or fill, and you’re trying to find a job again, something like that, or something happens to your business that cuts you, like what happened to me in the past during the recession, it didn’t matter if he had six months reserves. That money will eventually be gone.
If you follow the majority, you'll end up like the majority, which are struggling and are broke. Click To TweetThat helps, but most people don’t even have that six months of reserves. Even if they do, once it’s gone, it’s gone. They are then going to credit cards and everything else. Most people don’t have that much liquid savings. Once they burn through usually a couple of weeks’ worth of expenses, they’re out. Maybe they’ve got a month’s worth of expenses in liquid savings, and then they’re out. They are then going to credit cards and stuff. Why pay extra to a home, a car loan, or student loans that have low interest and put all this extra money onto it to not free up any cash, and then only have to write up a credit card, which is even a higher interest rate in greater payments? It makes no sense.
Throwing all this extra money on your home is ridiculous. This is also true of 401(k) plans, IRAs, and things like retirement plans. I was talking to a buddy. He’s a mortgage broker. He says, “Chris, that’s ridiculous. We’re seeing people throw all this extra money into their homes, and then they don’t have any cash available. They then throw all this extra money into their 401(k)s, and there’s no cash available either because they can’t touch it.” You put it in a 401(k) or an IRA into retirement plans, and it’s locked up until you’re 59 and a half.
If you’re in a job, it’s even worse because even if you try to access it, the only way you can get it is through a loan. You can only loan up to $50,000. That’s if you have it, or up to half of whatever’s in there. If you have $20,000, you can only get the $10,000. You have to pay for that out of your paycheck, which restricts your cashflow more. It’s not a great emergency fund to get to, or it’s not great for opportunities, either. People have asked me, “Should I tap into my 401(k) and get a loan out to do this investment?”
The thing I have to tell them is, “The cashflow from your investment won’t be enough to pay for that 401(k) loan. You’re going to be losing cashflow, even though you’ve technically gained by buying an investment. That’s ridiculous.” In some cases, it could make sense, but for the most part, it doesn’t. People will sink all this money in the 401(k) because they think they’re getting a wonderful match. I did an episode where I talked about how the real return of matches might only increase your return by a couple of percent.
That’s it. It’s a couple percent, not 100% like you think. It doesn’t work that way. If you look at the numbers and how they work, you do not get a 100% rate of return because if it were true that it’s a 100% rate of return, you would become a billionaire in ten years for many of you. That’s not happening. You’re not becoming richer than Warren Buffett within twenty years because you’re getting this 100% rate of return on your money. No, you don’t. It’s compounding. You only earn a couple of extra percent, and then you have to pay tax and everything else. Worse off, you lock up your money. You can’t touch it. You have no control over it. For those reading this because you want to retire early, this is the dumbest thing. Both your home and your retirement plan are the worst thing to put your money into.
If you’re trying to retire faster than most Americans do, it’s dumb. It’s ridiculous. It makes no sense. This is what I told my friend. I said, “If you look at it this way, retirement plans are negative 100% rate of return.” It’s sinking extra money into the equity of your home. They have a 100% rate of return. Money goes out as an expense out of your money, but no cashflow is coming back in return. You’re not selling your 401(k) is paying you any cashflow. You’re just plugging this money in trying to accumulate it and hope that you would have cashflow. I worked with some people that make great money. Accumulating up to $1 million is great if you’re making hundreds of thousands a year, but that usually takes years to still do that because you have caps, limits, and everything else, and the returns are not great.
Even if you get up to $1 million, you’re recommended at that point to only live on 3% a year when you retire. That’s $30,000 a year for every $1 million you saved. That’s lame. It’s dumb. It’s not great. The best thing you can do is not walk up your money and not get this negative 100% return by sinking into retirement plans that don’t pay you any cashflow, sinking into loans like your house that doesn’t pay you in a cashflow either. Those things are ridiculous. They don’t make sense. Can you see what I’m saying here? Can you understand this?
I know this goes against everything every dumb financial person teaches out there, but you know what? They’re teaching you how to be broke. They’re teaching how to be, at best, middle-class for the rest of your life. If you want a life better than that and a life of freedom, you can’t follow the majority. If you follow the majority, you’ll end up like the majority, which is broke and struggling. Even the ones that make good money will look back and say, “Where is it? Do I get to keep working? Do I have enough to keep living on?” They don’t have the cashflow in the end to prove it. The problem is by the time you get to retirement and realize it’s too late, you’re done. You’re trying to scramble for how you can stay employed or be as cheap as possible to let your money last or die quicker, to be morbid. That’s the thing.
I’m making a stand here, guys. If you truly want freedom now, do not fund these two “investments” that everybody is telling you to put money into. Do not pay extra money into your house. Do not put extra money into your retirement plan. In fact, I would stop putting any money into either. I wouldn’t even fund a retirement plan up to the match. For the most part, I would say no, unless you’re about to retire in the next year or two. If that’s not the case, keep that money in your possession. Keep it in savings. Where can you put it? There are other options where to put it. There are things you can do where you can get a better return and even beat the interest rate on your loans or beat the interest rate of your 401(k). There are ways to do that. There are things that I’ve taught in other episodes where you can do that.
If you’ve got questions about that for you specifically because every situation is different, you can always reach out to me at Chris@MoneyRipples.com, and ask the question. The thing is, I am getting pretty loaded pretty fast, but I try to check my emails and respond within a few days. Especially when I have an event come up, you’re pretty quick. It’s going to get a little tough, but I promise I will respond. If you’ve got a significant amount of money you’ve been putting into either of these two places, I recommend stopping. Even if you just put it into a savings account, that’s going to be better off than sinking your money in. I’ve seen this personally with my own life where I was sinking money into both these things.
When emergencies came up, I had nothing to tap into. I would have been much better off. In fact, I would have weathered the recession much better if I had kept that money in my possession versus sinking into a house or selling it to other plans where the money was out of my possession. It’s about the cashflow, people. It’s about that. It’s about what you can create today. It’s acceleration, not accumulation. If you want to create wealth and financial freedom faster, you need to accelerate your money, not just accumulate. That’s my advice for you, guys. Everybody, make it a wonderful, prosperous week. We’ll talk to you on the next episode.