This Is Your Money Problem In Canada

We're taught to take our money and put it at risk. But then if you look at what the wealthy do and if Are banks pretty good at making money? Are banks good at generating profit? Are they taking their money and investing or investing with risk or are they lending with security? They're lending with security. Well, why don't we just do what banks do?

Rarely does anybody even bring it to our attention or do we even get the opportunity to actually think about the banking process and think about what's happening with our money. So that's what we're going to do. We can't worry about a solution. The solution doesn't matter at all unless we're really clear that we actually have a problem that needs to be solved. So Nelson, he left us with a lot of great wisdom. And one of the things that he said is that wherever wealth resides, somebody will try to steal it. What does he mean by that? Well, let's use a little. A few headlines that have come up over the last few years. You want to save the economy. Let's start with $150 billion that Canadians have saved during the pandemic. Toronto Star, December 1, 2020. The deficit will rise to nearly 382 billion. Financial Post, November 30, 2020. Statistics Canada is about to be required to require Canada's nine largest banks and credit unions to turn over highly sensitive data about their customers without telling the customers. That means that every withdrawal, deposit, overdraft, charge, credit card fee, mortgage payment, and more essentially, your life will be laid to bear for the government bureaucrats to look over. Toronto Sun, October 29, 2018. And the COVID 19 bill will give the Liberal government power to raise taxes without parliamentary approval until the end of 2020. 1. National Post, March 20, 2020. Now, here's a question that I want you to ask yourself. Who is the banker in your life today? Who is the banker in your life today? Now let's examine the banking process. You earn an income, right? If you weren't earning an income, you probably wouldn't be on this call. And if you're not earning income, that should be your number one focus at this point. So you earn an income and the money has to get deposited. Wealth has to reside somewhere. Money has to get deposited. It gets deposited where? Into someone else's bank. Nelson said he was pumping energy into the system in the wrong direction. We're pumping money into someone else's bank. All that financial energy is being put to work for the commercial bank and not for our family. And then we need to go and access that money to pay our bills and do what we have to do to live our life, because we always have the need for the use of money. But then that's a permanent transfer of that financial energy away. Meanwhile, you know, the bank has already put that money to work. In other words, you are doing all the work and everyone else is getting all of your money. And how does that make you feel? Does it make you feel like this? The great Jim Carrey helping us express our emotions.

This is a really interesting quote to think about. If the minority of people, the world, accumulate and control the wealth, why do we continue to do what the majority of people do financially? It makes absolutely no sense, right? So we just need to take that wisdom and start implementing it ourselves. Now, like Nelson said, if you understand the problem, you'll know what to do and the solution will become clear. And we're going to dive into the solution later on today. But first, we're going to take a deeper dive into how do we use money today and examine kind of the pattern of spending, what's happening in the household. So you can see here we have approximately 20% of income, the income coming into the house. 20% of the 100% is going toward automobile financing. So we're making a payment and there's an interest payment. But you can see it's all about how the loan is structured. It's all about how the debt is compounded. The bank understands that. They know that we, the consumer, our eyes focus on the rate. We think the lowest rate is best. But the banker knows it's all about the volume of interest that's being, that's being paid. So this isn't a 5% interest rate. This is 5% of the income that's actually coming in is going toward interest for the car financing. And same with the homes. We're going to look at a mortgage financing example, and we're going to see that although I'm paying, you know, 1.2% or 1.99 or 3.9, whatever that interest rate is, it's all about how that debt is compounded and how the loan is structured. So the volume of interest that we're paying toward our housing is astronomical in comparison to what's hitting the principal. And our overall income, you can see here, 40% is being spent on living. Maybe there's 5%. Maybe they have a line of credit, a credit card. Maybe there's some other interest that they need to service there. And then we have, as a rule of thumb, that we've heard a lot. The average person, hey, you need to save 10% of your income. We all know that the average person is actually not saving 10%. That's just what we've been told to do. But let's assume that we were saving 10%. So let's think about this for a minute. We're accumulating and saving or, and, or investing, putting that money into the hands of somebody else to grow that money. We're putting this money at risk. So we've got 10% of our money working for us while 90% of the money just flows out the door and we transfer that financial energy away forever. So how hard does this 10% of money have to work to try and compete with the 90% that we're already losing? And that money's flowing to someone else's bank. So if we put ourselves in position to be the four characters in the financial play, the depositor, the borrower, the banker and the bank owner, and that money is flowing back toward the family, we're going to be accumulating and controlling more of the capital and have more to put to work to grow our wealth for our family. If you have a mortgage, you might want to pay particularly close attention to this slide. I'm sure all of us have, you know, sat down with their mortgage professional or gone to the bank or whatever it is. And one of the key things that again, what are we taught to look for? We're taught to focus on the rate. We want to get the lowest rate possible. You get 1.99 and your brother gets 2.5 and you call him up bragging because you think you're doing better. But we're going to examine a little deeper and see exactly what's going on here. So we have a $400,000 mortgage here, mortgaged over 25 year amortization, 2.92 is the interest rate. And that gives us a payment of $1,880.24 per month. And now if we examine the first month, look at the payment that was made. Principal, $906, almost $907 went to the principal and more than half, more than 50% actually went to interest. So again, we know that the banker has all the control and they can structure the loans how they want. These mortgages are front end loaded with the interest. So most of, the, most of the payment that we're making especially early on is actually going to interest. So we can see month two, just a few more dollars goes toward the principal and then Same, just about the same amount goes to the interest. And then if we go to the first, to the end of the first year, we have $930. Wow, we're really making progress here. $930 going to principal. I want you to keep in mind though, also every mortgage payment that we make is still a transfer away where we're paying down the mortgage. But that money is essentially tied up inside the home. It's not like you can use it. The banker is getting all of the money and putting all that money back to work again. So at the end of the first year, we've paid $22,562 toward the mortgage, but only $11,000 hit the principal. I don't see so far, I don't see 2.9% anywhere. Now you can see what's happening. Obviously we're making some progress, but if we fast forward, if we continue to just renew the mortgage and stay and see the 25 year amortization all the way through to the end, and we go all the way through the amortization at the end, we purchased the home for 400 and, excuse me, $400,000. But we ended up paying 564,000 total. So that's closer to 40% of volume, the volume of interest. We're in the lowest interest rate environment in history, but yet the banks are posting more profit than ever. How is that possible? Well, it's because they understand the process and they understand it has nothing to do with the rate, the rate. Our eyes will focus on that and that's just going to attract more money, more volume. Okay, so the fundamentals of banking, okay, they lend with security rather than invest with risk. So what are we taught to do? Right, we're taught to take our money and put it at risk. But then if you look at what the wealthy do and if are banks pretty good at making money? Are banks good at generating profit? Are they taking their money and investing or investing with risk or are they lending with security? They're lending with security. Well, why don't we just do what banks do? So who has all the control? The bank. You're the first one who applies for the money. You're the one who has to qualify. You have to do all of that. But the bank is the one who's going to grant you access. The bank is the one that has all the control.

Now this is a really interesting concept just to think about because do we actually stop and think about this? What is the underlying asset to the bank? Is it the Real estate do they care about? I'm just using real estate as an example. Is it the home, though, or is it the stream of payments? Sarblo, could you help me out again? Sure, just let me know, get some participation. Can I get some audience participation in the chat? Do you think the bank, do they care about the home or do they care about the stream of payments that, that mortgage generating?

Stream of payments, Warren? Stream of payments flowing in.

Absolutely. Thanks, Sarblo. We have a really sharp group here today. This is awesome. Yeah, absolutely. It's all about the payment. The last thing that the bank actually wants is for you to default on your mortgage because then they just have a problem. They have to deal with the real estate, they have to try and sell it, they have to chase down and try to get money, all those kinds of things. They don't want to deal with that. They just want that consistent stream of payments coming through. Which is why kind of a cliche thing that you hear a lot is like, banks are happy to give you the money when you really don't need it. As long as you can qualify and show them that you're reliable to pay for the money, they're happy to lend it to you. But if you need money to get out of a bind, they're. They're the last place that's going to actually do anything to help you out. So whoever controls the motion of the money, whoever controls the motion of the money, calls the shots, is going to be the one who accumulates the wealth. Whoever controls the motion of money is going to be the one who accumulates the wealth. Now again, let's take a deeper dive into the banking process and find out, well, how do banks actually make money? A bank cannot lend out money or do anything unless they first have a deposit. So you may have heard this, you might hear this later on. We've been taught that we need banks, but the reality of it is the banks actually need us because we're the ones capitalizing their business. And so you need to deposit money into the bank. And I know that most of you probably are not earning 2% on your, on your savings today. But let's just assume for argument's sake that the bank is actually earning or paying you some interest and then you deposit the money with the bank. And now if the banker, the banker can't just let that money sit still, they can't just let it sit and collect dust. They have to immediately put it to work. So now you deposit your money into the bank and someone else is Going to come and apply for a mortgage from the bank. So the banker needs to immediately start lending that money out to create more streams of payments. Okay, coming in now. So you get 2% on your mortgage or, excuse me, on your savings. And they're going to give 4% as an interest rate to the mortgage borrower. So so far, they're making a spread of approximately 2%. And then.

If somebody's going to apply for a mortgage, then they're going to be buying a house. So there's a seller. The cash is going to flow to the seller. What's the seller going to do with their money? Well, they're going to do what everybody else does. What they've been taught to do is just deposit it right back into someone else's bank and putting that financial energy to work for other people's family rather than their own. And then again, that money comes in, that gives the bank the opportunity to go ahead and lend it out again. Hey, we just bought a new house or have. Maybe we're having some kids. We got to go get ourselves a car. Right. We got to finance a vehicle. And again, most people are going to elect to finance and get a payment. So now we have 5%. Is the, is the vehicle financing. So we have 5 minus 2 equals 3. We have 2% from the mortgage. So now the bank is making 5%. Now, when you purchase a vehicle from a dealership, does the dealership have a big safe in the back of the, in the storage? Do they have some kind of a mattress that they're sticking all their money under? No. They need to take that money and it's going to flow right back to the bank. So the money's always coming back to the bank. Okay, let's fast forward a little bit further. Now, you know, we've been in the house for a while. We need to get some renovations. You, maybe we're going to go get a line of credit or something like that and access the money from the bank. And the bank's going to charge us 7%. So now they got another 5% on top of the two. Okay, 7 minus 2 equals 5. But then again, we pay our contractor, just like the dealership. What does the contractor do with the money? He puts it right back in the bank so that they can create even more loans. And now, hey, we got the mortgage, we've got the car, we've renovated the house, and gosh, things are getting a little tight. Maybe, maybe we need to go back and we need to, we need to consolidate some debt. So we're going to pay off some credit cards. The consolidation loan might be a little bit higher on a line of credit. So now we're going to give that to the credit card company. And doesn't the credit card company also have to store their money right back in a bank? So it just keeps on going over and over and over again and the money always keeps coming back to the bank. So if we do a little bit of math here, let's see how much the bank is actually making.

So 2% plus 3% plus the 5% plus 10. So again, they're paying us 2%. They're making 4% on the mortgage. So that's where we get our 2. The 5 gives us our 3, the 7 gives us our 5, and then the 12 gives us our 10. So they're actually making 20%. 20% on rather comparison to our 2%. But how much more is the bank actually making than what we're making? Hey Sarblo, maybe we can get some. See if we have any math whizzes here. Let's see if we can get some participation in the chat. If they're making 20%, we're making two. How much more is the bank making than we are?

Well, we're getting 18% burn, mostly.

18. Okay.

And one person, Chris, says 22. Roden. Oh, one person actually says 10 times.

10 times. Okay, perfect. So let's see what happens. If we actually take the 20% that the bank is receiving and we divide that by the 2% that we're receiving, the bank's actually making 1,000% more than what they're distributing to the depositor.

That's mind blowing. Well, here's the good news. That could be you. That could be you. You could be the banker. Okay, great. Thanks Darblo. So let's dive a little bit deeper here. Let's look at.

Hey Warren, sorry. We also got one.

Shock face showed up in the chat box too.

Perfect. Yeah, you can put those in. I appreciate that very much. You know, I miss being live with people. I love doing webinars. I love bringing the value. But any, anything that you can do to add a little bit more humor and some fun to it, you let her rip. That's awesome. Awesome. Okay, great. So we're going to talk about how do we go about actually acquiring the things that we need throughout our lifetime. You know, I spoke with a gentleman yesterday who immigrated to Canada from Africa and I said, you know, I spent a lot of time in Montreal and Ontario and I said, have you Ever noticed that Canadians really love their fancy, shiny cars? And he said, yeah, you know what? There's a lot more of that in Alberta than I noticed. Even in Ontario and Montreal, there's a lot of really nice cars out there. And how do people normally. And we'll just use car financing as an example. Okay. How do people normally go about financing a car? Well, there's a couple of different options. Well, first, what we're going to do is we're going to examine what we refer to as the debtor. Okay. So the debtor, you know, they know, hey, look, I got a good job, I earn a good income. I'm going to go to the bank here and see if I can qualify for some car financing. So what they're going to do is they're going to start at zero and then they're going to drop down, down into debt. So they're going to drop down below the zero line. And now what they got to do is they got to work and they got to fight and scratch and claw and make those payments for five, maybe even eight years in Canada now. So they're climbing all the way back up the line just to get to zero. And by the time they get to zero, well, now they're left with not a lot of money and an old car probably going to have some other kind of expense that will come up, just like we examined on the last slide. So what are they going to do? Well, they're probably going to go back to the bank, a dealership, whatever it is, and go right back into debt again. So they can keep on making payments and coming all the way back to zero. And then if you fast forward all the way to the end, yeah, they got the goods, they got the services, they got the things that they needed. But at the end of life, they're just left with a lot of old depreciating assets and not a lot of capital. Okay? Now this person, though, the person who is the debtor sees the interest because it's a part of the payment. They can see what they have to pay. They see the rate. They can look at their statement and all that kind of stuff and see what they're actually paying. Now what happens a lot of times is people say, you know what, I don't like to pay interest and I don't want to be under control. I don't want to have to make a payment back to a bank. You know, I'm just going to pay cash for the car. That's how I'm going to defeat this interest situation and this whole payment situation. But first things first, it's kind of a mirror. They have to go to work, earn an income, set money aside, and now they're storing capital.

Looks a lot like a payment. They're storing capital in someone else's bank, and that bank is putting that money to work that entire time. Well, I don't have use over it because I'm storing it in someone else's bank because I need to save for that large expense. And now what happens is I go and access that money. Now that I've achieved the objective of saving up that money, I'm going to go and withdraw it all the way down. I'm going to withdraw that money out, and I permanently transfer all that financial energy. I'm basically making one balloon payment to a bank or a finance company to get the vehicle. And now I have the car, but someone else has all my money. And now I know that I need to prepare ahead of time to start saving money again for my next major expense. So what I'm doing is I'm growing the money, but then I'm constantly interrupting the momentum on that money, and then I'm permanently transferring the potential, the growth that that money could have created. I'm transferring that away from my family. Not only this generation, but every generation that comes after us. The wealthy don't do that. They're finding ways to harness that energy and have that money come back. And if you fast forward all the way to the end, same thing. They didn't go into debt, but the money went up, the money went down, the money went up, money went down. And then we get all the way to the end, and they're left in a very similar place that the debtor was. They have all those depreciating assets, but all that money's been permanently transferred away. And the bigger problem here, that nobody really takes time to consider the opportunity cost that we're giving up on our money. Every single time we make a payment, whether it's gas, groceries, a car payment, a balloon payment for cash, for a vehicle, that's all a permanent transfer of money away from us. And we're giving up the opportunity to grow that money. And it just doesn't have to be that way. Okay, again, both. Both methods are a permanent transfer of money away from our family into somebody else's bank. Like, just let that sink in someone else's bank. If we could create our own bank, wouldn't we want to do that right away?