Buy Term, Invest the Difference

Buy Term, Invest the Difference

… Or to put it another way, buy term and blow the difference on consumer goods

Back in the day, when I first started Northwestern Mutual as an intern insurance agent, I remember one of the older, more respected General Agents complaining about the fact that most people today, now in their mid-1980s, didn’t understand that in order to To be able to invest, you first had to save.

“Oh, that’s not right!” meant every buying term and invested the difference shy and short order chef in the country. That these two, the buying term and investing difference proponent and the chef of the short order, were often the same person never seemed to make much of an impression on the American people. He had a business card and all those pretty cards and oh, I’m going to be so rich!

Many of them made statements thinking lifetime policies were a terrible investment and the protection should be split. Buy a term, invest the difference in mutual funds and use your investments as a dichotomy, i.e. your mutual funds should be both your retirement and your savings.

I’ll sit here for a few minutes, bearing in mind the credulity of the American people. The effort to sound the depths has been made, there is no bottom. Still, you have to sit there every now and then and marvel at it.

Black Monday, 1987

Another remarkable memory I have is of Black Monday 1987. My general agent marveled at how, in a conversation with a gas station attendant, she couldn’t understand why everyone was so concerned about whether the banks would open the next day.

The state of financial education has not improved even a little bit, it has gotten even worse and the more one’s ignorance is, the more proud the person seems to be of his position.

An opinion that resembles a recommendation

To-do lists

Let’s get List 1 out of the way first.

  1. Find out how much you bring into the household and what your outgoing is. You may have to miss certain things, find another job or start a part-time business on the side.

  2. Work on your budget until you live on 70% of what you earn. Oh I know. Whining and gnashing of teeth. However, stay with me. We’ll come back to that in a minute.

  3. A better option to lower your budget is to try to generate an additional 42.85% income each month. That would give you the opportunity to have 30% with which to work on your savings plan.

  4. Embrace the idea that you know nothing about money for now.

  5. Stop borrowing until you know the difference between good and bad debt.

Next, look at the 30% that don’t go out every month. That is starting money for a better future.

  • It becomes a money cushion that will protect you from predatory lending during emergency situations.

  • It will give the house a sense of security because no matter what, next week everyone who is shopping will be able to load.

  • It gives you cash that allows you to take advantage of opportunities without having to choose between the opportunity or groceries.

  • When a breadwinner dies, the children can still eat, go to school and sleep in their own bed, knowing that even if you are gone, their lives will go on.

Here’s how to break it down, to-do list #2.

  1. 10% goes to cash savings

  2. 10% goes to whole life with perhaps a term driver that can be converted to whole life as your finances settle down

  3. 10% can go to tithe as your faith dictates. Or not, your choice.

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You can also choose to simply save the 30% for 4 months, after which you will have more than a month’s income in the bank.

After that, you should definitely start a lifelong program and continue to save the rest. This, in my opinion, is what you should continue to do until you learn about money.

Why all life?

For a long time, bankers were forbidden to enter the life insurance business. Frankly, I don’t know all the reasons for that barrier, but knowing banks as we all do, I feel safe in saying that allowing bankers into the life insurance industry was a net loss for the citizen.

There are some general protections that your money offers you throughout your life that your local chip chef and financial planner probably haven’t told you:

  • When you pass away, your money becomes due and payable in one lump sum to your family.

  • Once the cash value is built up, you can use it to secure loans at 100% of the cash value, either with the insurance company itself or with a bank. Try that with your stocks. (Spoiler! You can’t. You also can’t use a bond because you can’t insure a debt with another debt unless they changed the law. As always, check with your professional advisors.)

  • Your cash value is protected from lawsuits and creditors. Isn’t that overarching policy enough to protect you? Your cash value is safe from lawsuits and collections from creditors, no matter how clear your liability.

I love all of life because if you get into it, stick to it, and hold on to the iron rod of discipline, you’ll have an asset later on that’s almost bulletproof in its protection of you and your family.

Financial education

Now, before I forget, remember my comment about whining and gnashing your teeth about living at 70%? I can guarantee that someone is within 500 feet of you is lives on 70% of what you earn and believes your salary would be like winning the lottery. Think of it as an exercise against future calamities, an exercise that can help you relieve some of the pressure when things get too tough. Better to do it when you are in control than when events are out of your control.

Now let’s talk about the issue of financial education. First, throw out all the copies in those slick, glossy financial magazines that constantly promote the latest mutual funds.

Many of those journals have people from the funds they’re talking about advising them on the articles they publish. Do you understand me? In my opinion, many of those magazines are simply unregulated prospectuses. Perhaps LESS regulated is a better word and then you have the issue of regulated by whom.

I just know it struck me as extremely funny that the articles in some of the magazines I looked at gave editorial control to the product managers they wrote about.

… kind of like a nasty green funk that you just can’t get out of your carpet. No matter how often you clean it, it will still stink.

To-do list #3: Start reading. Here’s a list:

  • The richest man in Babylon

  • Rich Dad Poor Dad

  • Rich Dad’s ‘prophecy’

  • Rich Dad’s ‘Who Stole My Money?’

This reading list not only teaches you some basics about money, but also teaches you the importance of being careful who you give control of your money to.

Those who run the major Western economies don’t necessarily see your successful retirement as a good thing. I’m going to come out and claim that this is a fact, not an opinion.

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Unless you pull back the curtain and

  1. Take control of your money

  2. Understand the difference between saving and investing

  3. Master what the velocity of money means

… you can never face the devastating effects of inflation and move from the deceptive relative poverty of the United States to getting rich.


Tim Singleton