Mandeville, LA - Exclusive Transcript - Check out today's transcript of Mike's interview with David Simpson. In the interview David discusses his how to be your own banker system including his "four-bucket strategy", the four places you can put your money where you can expect a return. David also discusses the housing market with Caller Scott and how you should really be thinking of your house. Check out today's transcript for more...
Begin Mike Church Show Transcript
Mike: David Simpson is here with me, my financial guru. I do what’s called the “be your own banker” system. I put money into a certain account. It grows slow, but it grows.
David Simpson: It doesn’t go backwards.
Mike: It doesn’t go backwards. It is about as safe as anything you can put it in. Not only do I do that, but I also borrow money from my own bank, and then I pay it back to me with the interest the bank would have charged. That’s one part of it. The other part of it is the intrinsic worth things. This is where I think people don’t quite get it. Maybe they just don’t understand it. I always explain it to people when people ask me, [mocking] “What is this intrinsic worth you’re talking about? Why shouldn’t I give all my money to the guy in the cowboy hat, Bender, on the CNN commercials? Bender says he manages money.” Maybe he does. Maybe he manages pixels well. The thing about the intrinsic worth items and the other places you can stash your dough without keeping it -- because you can’t keep cash. Cash is bad. Am I right? In this climate, is cash bad?
David: Well, yes. Obviously we’re earning less than half a percent on cash sitting in stockpiles somewhere.
Mike: What about inflation.
David: Right, but we have to use the greenbacks until they fall apart. In other words, when you say cash is bad, yes, as far as holding and/or saving with it. We still have to use it until the hyperinflation sets in and it becomes worthless. So, yes.
Mike: One of the other places you can stash your cash, and it is risky but has the potential for a reward, and you can always keep tabs on it, is in a small business.
David: Absolutely. There are no secrets to my financial planning strategy. I think it’s kind of dressed up and sometimes I use technical language and it’s nice, I guess, to sound like you’re professional, but it’s really common sense. I usually call it common sense on steroids. There are four places to put your money. You can speculate and try to grow it in the market. I do manage money for a living. That’s part of my business. I usually take it as an afterthought. In other words, if somebody has an IRA and they don’t want to get crushed in taxes, I take the money and manage it. It’s just too costly to get out of the system. We’ve put money in our bank, the be-your-own-bank bank. That’s our cash. If there is a cash holding place, that’s it. We’re trying to get it to grow slow and steady and keep going up and not go in reverse.
That third category, which is the hardest one to fulfill, most of my clients do not have it fulfilled adequately, including myself, is the business, investing in small businesses that are producing something. The value of that component of your financial strategy is that it produces income. It’s not speculating on whether or not a stock will grow. It’s not cash earning three or four percent. It is we build this widget, we sell this widget, and the widget makes us x dollars.
Mike: And I helped finance the company that builds the widget and I expect a return.
Mike: You may just keep your money parked there and keep getting the dividends. You may not get the principle out immediately.
David: Mike, you and I are in that circumstance, right? Our individual businesses dominate our living. If our business does well, we do fine. If our business does poorly, we know it. We’re watching that. By the way, there’s a huge education that comes from being in business.
Mike: Oh, boy, is there!
David: You learn so many things about people, about finances, about the bottom line, about banks, about all kind of stuff you never thought you’d have to know anything about. That’s a whole other value of things being served. We ought to get educated in this just by tiptoeing into it. In none of my recommendations to my clients do I ever say jump in with both feet and naked. I say just put your toe in and see how the water is and we’ll advance step by step and get better at it. The fourth bucket is intrinsic worth. We’ve talked about that before.
Mike: Scott is in Indiana with a question for David. Hello, Scott.
Caller Scott: I was just talking with your screener and telling her I could probably never really retire. The reason is because I make about $500 a week. After everything is all spent out, I have about $200 I can invest. I’ve looked at the math and how you can invest and things like that, and inflation just outpaces everything. That was recently as of last month that I looked at.
Mike: So you don’t have the money to put on the side to invest in future returns is what you’re saying.
Caller Scott: Right. In a lot of ways, I’m blessed because my home is paid for, my car is paid for. I do have a little bit of money in the bank, but it’s not much. Every time tax season comes around, I basically get hammered.
David: You’ll hate part of my response, which is I wouldn’t store your wealth in your house. I know it’s paid off and you think that’s good, and it was good in 1930, it’s not good in 2012 because of the chicanery that’s going on and the way that the monetary system is set up. I would actually tell you to indebt your home and take that out of there in case you need to leave the country. Sorry, that was just putting it very blatantly.
Mike: Just tell us what you really think.
David: That’s just a suggestion to you. I didn’t hear all of your question.
Caller Scott: Here’s something else to take into consideration, too. My living expenses I have is quite low. What I mean is, the only way I could live cheaper is to sell my vehicle, sell the house and live in a box. It would make it hard to get to work, and I actually go to work after everything is considered.
David: I completely understand. There are a lot of people who have the same problem you have. What I tell you is, usually when I look through somebody’s financial system, I do find wealth that they didn’t think of as wealth and I put it to work for them. They are generally happier, but it requires a certain discipline and it requires a certain amount of accepting things you usually don’t accept.
One of the perfect examples is the one you bring up, should you have your home paid off or not? My answer is no. That’s the economic and financial answer. There are personal reasons why people would say, “David, I reject that principle for personal reasons.” I’m fine with that. Usually when I go through somebody’s financial planning, I do find wealth that’s hidden that they didn’t think of that they could put to use. They’re usually pretty happy, but it requires a certain discipline that they aren’t doing right now. They go, “Well, you made me a little tougher because now I’ve got to save and work and have some plans and I don’t like all this.”
Mike: You have to commit to it.
David: That’s right. It’s a tradeoff. If you say, “No, I like the simple life and I’m not going to change it one bit because I haven’t had any thoughts about planning, any thoughts about paying notes, any thoughts about being disciplined, no thoughts about saving,” that’s fine. That’s a personal choice, not a financial choice. If you’re trying to grow financially so you can have some more power in the future, then you have to change your ways slightly.
Caller Scott: I looked at it that I want to make two percent off my money. If I retire at $200 a week, living that way the rest of my life, I can live off just the interest of that alone. That’s pretty frugal.
Mike: Yeah, but where are you going to get interest at? You’re not getting any interest in the bank today. You’re getting a quarter percent. Bern-yank-me and Obama and Company have taken care of that and that’s the problem.
David: Scott, that’s the other point I always make to people. When I hear that statement from people, I say where are you storing your money? Where are you storing your wealth? I’m not just talking about trying to get two percent. What I’m saying is the places that people put money is so dangerous. They think they’re going to earn two percent; they might lose 50 percent. The question is, where are you going to store your money? I suggest to you, if you put your money in the four boxes that I’m talking about, it’s much safer than what the average American does, which is I’m going to drop it all into a CD, and banks, by the way, fold and close and go out of business; I’m going to put it in the market, we know what kind of roller coaster ride that is. Listen, you’ve got to put your money in all these places and then watch it like a hawk. That’s just been my suggestion to people. It has proven true.
I had a client in 2008 who lost $250,000 in the market. That’s not a very pretty ride. I’m his financial advisor and I was watching it. By the way, the market went down 50 percent, so you could pat me on the back and said, “Hey, Dave, you lost half as much as everybody else. Good job, my fine and faithful servant.” That’s not what my client was saying. My client was saying, “What the frig happened to my $250,000?” I went and looked at his four boxes and added those four boxes up and he was actually break even for 2008 and most people lost their rear ends.
Mike: They lost it all because they had it all in the market.
End Mike Church Show Transcript