Six Ways Financial Institutions Take Advantage of You

Hey there, real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Ever feel like your bank is making more money off of you than you are? Or that no matter what you do, you're stuck paying fees and interest that just never seems to end? So listen, if you ever felt like the financial institutions that you're putting your money in to help you are actually working against you while you're trying to get ahead, well, then this episode is for you. So today, I'm gonna break down some of the ways that financial institutions are designed to take advantage of you, and more importantly, how you can protect yourself from making sure that you don't pay fees that you don't need to pay and that we keep more of your money in your hands, doing the work for you that you needed to do to build your financial dream.

All right, let me ask you this. Have you ever opened a bank statement or a credit card bill or something like that that you got from a financial institution and thought, where did all these fees come from? Or maybe you signed up for a loan or a credit card, an offer that maybe that seemed amazing at first and you only realized later that there was a catch and that it was a teaser rate. Here's the deal. You're not alone. Because financial institutions are really great at making money. And sometimes that money comes right out of your pockets without you even realizing it. And I want that to change. So today, I want to show you how to recognize the way financial institutions can take advantage of you while also giving you some actionable tips on how to protect yourself. And I'll break down the most common traps, the fees, and, of course, the ways you can avoid them. All right, let's start off with hidden fees. All right, number one, let's just talk about the hidden fees, the things that maybe you don't know and you don't see as openly as you. You could in. In doing this. So there's small charges that seem harmless when you look at them individually, but when you add them up, they can add up to hundreds and even Thousands of dollars over time. And I just did an episode where $125 a month over 30 years invested in S&P 500 could be anywhere from 200 to $300,000 down the road. So imagine if we had the ability to eliminate some of those fees that are being charged to you and put them to work for you instead by investing it to make it, make it happen. This is, this is what I'm talking about. So the first, the first type of fee is monthly maintenance fees. Some banks literally charge a monthly maintenance fee for you to have money in their bank. Now, mind you, let's just talk about what, what banks do. They, they do what's called fractional lending. So they, they take your deposit and they can take that money. And they don't. If you put them $1,000 in the bank, they don't have to keep the thou. Your thousand dollars available to you. They'll take $900 of it and loan it out, which means that, that they're making interest on the $900 to whoever they loaned it out to, but then they're charging you maintenance fees because you're putting money in their bank. So you're putting money in the bank to keep it safe, and they are charging you to keep it safe, but then they take your money and make more money on it in doing that. So monthly maintenance fees. Monthly is one of the other, is one of the key fees. The second kind of maintenance fee or hidden fee is overdraft fees. Now, y', all, let's get serious here for a moment. You should not. If you are overdrafting your account, there's a problem. That means that I am overspending. I'm not managing. There is a bigger problem here. They're charging overdraft fees because we're overdrafting the account. I want to move the cart further up, up the lane here because why are we getting overdraft fees and why are we overdrafting the gap? Why are we overspending? That's a different conversation for a different time, but it's a money management issue. Now, on the fee side, though, the average overdraft fee in the US is $35. Can you imagine this for a moment? You go and you go to Starbucks and you pay for an overpriced priced latte. $7 for a freaking latte, okay? That has 700 calories because you got the macho and the cream and all the stuff in it, okay? So you pay $7 for that latte. You do it by check. Or you do it, you know, by a debit card and it overdrafts and you get charged a $35 overdraft fee. That latte just cost you $42. Okay, it's, it is, it's huge. And these overdraft fees can be astronomical. Now there are, there is overdraft protection accounts and you can have it go to a credit card and those kinds of things. But once again, it is, it is a symptom of something bigger. And that something bigger is mismanaging the money and overspending. We have to figure that piece out because even though they charge it, we should never be charged because we should never be overdrafting our account. Then the third kind of hidden fee is ATM fees. Now, I don't own an ATM card because I just don't use them. And. But when you use an out of network ATM for convenience, you can be charged anywhere from 4 to $6 per transaction. So you go to the ATM and you want to pull out $100 and you get charged $6 for it. You just paid 6% to get $100 out.

It's avoidable. So overdraft fees are avoidable. ATM fees are avoidable by making sure you're using in network ATMs or planning ahead. Overdraft fees are avoidable because you shouldn't be overdrafted in the first place. Proper money management skills. Having a plan in place, following a cash resource plan as we teach it in my book, building your money stream is huge. Think about this. This is a huge money maker for the institution. So they're not going to, they're not going to manage you out of it. They're going to simply charge you and keep taking their fees. Because in 2022 alone, in 2022 alone, U.S. consumers paid over $8 billion in ATM fees. Alone ATM fees, out of network ATM fees, the 4 and the $6 accumulated to over $8 billion with a B and $11 billion in overdraft fees. So you're talking about in 2022, $19 billion paid by U.S. consumers for overdraft fees and ATM fees. So here's the thing. Your first step here on this is first to make sure that you've got a proper plan in place so you're never going to get hit with overdraft fees. Second, if I'm going to use ATMs, I use in network ATMs or I plan accordingly to make sure I have enough cash on me to not have to go to an out of network atm. But more importantly, I think you need to rethink who you're banking with. And I did a whole nother episode on that because I don't believe that I should be charged to give you the money that you're going to go out into the world and make money with. So if I want to put deposits in your account in your bank that you're going to go, go loan out to make money, then don't charge me for having that money. And so I'm going to find a financial institution that isn't going to charge me monthly maintenance fees to make sure that happens. Okay, so that's the first type of fee that and way that institutions can take advantage of you. The second is high interest debt. This is credit cards, this is personal loans, this is payday loans. They can quickly, quickly spiral out of control. Credit cards are especially tricky because the financial institutions will lure you in with flashy rewards and teaser rates and 0% APR and, and transfer your balance and, and, and all that stuff. And that's great for, for a limited period of time, but once the promotional period, the teaser period ends, the interest rates will jump to 20% or more. Especially in a rising interest rate market. I see it at 29%. Some, some credit cards at 29%. So I don't play the transfer game, the, the 0, 0% transfer game because what's, what I'm doing is I'm just playing a shell game, hoping I don't get caught. But if you trip up and you miss it by day, watch what happens when you're in that promotional period. In fact, you know, I see this done like Apple Car does this where you have this, if you pay it off in a period of time, then you pay no interest. But what they're doing is they're accruing the interest during the time that, that you have this teaser rate of 0%. And if you stumble, if you trip and you miss a payment or you're late on a payment, all bets are off and all that interest will come due. And so these are things that we don't think about is we just, oh, it's zero percent. I don't want you playing the payment game in the first place because that means that if I need payments to afford something that's a consumable, that means I can't afford it and I shouldn't be buying it. Okay, now let it even gets worse because when you start to look at going to these payday loans, the, they're a whole nother beast. They're predatory.

Parasites. Quite frankly, when it comes to their interest rates, I mean, their APR, the annual percentage rate is, can be over 400% because of the fees and the interest rates they charge. And they trap you. When you do that. You're trapped in a cycle of debt because the interest rates are so large and the interest payments are so you cannot get ahead. You take such a haircut on the money you get in a payday loan just to have the cash in hand that you're actually not getting ahead. And so these are things that I think we need to avoid. And again, all of these are a result of living beyond your means. They're a result of management issues that I think are bigger problems that we need to identify and look at to, to get control of and not necessarily just blame it on them. Because the reason we're going to get a payday loan is because I don't have enough money at the end of the term that I gotta go get the payday loan for. So I get a payday loan. So that is on me, that's not on them. And they're taking advantage of you at the time. The average U.S. household right now carries about $6,500 in credit card debt. Well, if you make just the minimum payments on that, it's going to take you a decade or more to get that paid off. And you will pay, you know, 50 to 70% more on whatever it is you purchased. So it's time for you to get yourself on a, what I call a cash resource plan where you have strictly. You strictly know exactly where every dollar is going, how it's allocated, and you stop spending over and above what you're making you. Look, one of the core concepts of building wealth is, is to spend less than you make. And that doesn't mean that you have the luxury of spending more than you make by putting it on credit card, because that math equation is going to come due one day. And so we don't use. I am a proponent that says you can use credit cards, but you cannot carry credit card balances. That will erode your wealth, that will destroy your wealth. So I'm fine, tentatively fine, with you putting something on a credit card, paying it off at the end of the month. But I'm not fine with putting consumables and your luxuries and your lifestyle on a credit card and then paying it off in payments, okay? Because some of the structured payments, the way they do them with the payday loans and the teaser rates and all that stuff, are hidden fees and the ways that they'll take advantage of you. All right, number three is promotional offers. And I kind of touched on this, but the promotional offers, and I'm going to say fine print, because this is really the issue is that they don't tell you, they tell you the truth, but you don't get the whole truth unless you leave the fine print. And so we've all seen these offers that you look at and say it's too good to be true. No interest for a year, no interest financing. Now the offers can be great, but what they'll do, like I said, is they'll backdate the interest, they'll accrue the interest, and they'll release all of those accrued interest charges if you miss by a day.

If you miss by a day. And then there comes this whole, you can do a balance transfer. So here's a 0% credit card and you balance transfer to this credit card at 0% for six months. And people do that. But here's the other thing that you don't see, and that is there's a 3 to 5% transfer fee. So if I transfer $10,000 to another credit card, I'm paying 3 to 5% as a transfer fee, which pretty much negates the savings on, on it. And that becomes a problem. Look, there, there's so many things that, that can come into, into play with this. The other thing that I've seen kind of along the same lines is.

Foreign exchange fees. Okay, I had to pay a contractor, and when I paid a contractor, I was using Western Union to, to pay this contract because they were in another country and it was one of the only ways that they could.

That, that they could get paid. And I, I decided that, hey, they allow me to use a credit card. And I didn't see in the fine print, so I, I used a credit card. I figured I would get my points and then I would just pay it off because I pay all my credit cards off at the, at the end of the month. Well, when the credit card statement came in, I got hit with a foreign exchange surcharge, I got hit with a foreign exchange fee. So whatever points I was going to get got completely trashed by the, the fees. And I don't want to say undisclosed, but it was in the fine print and I didn't see it. So the key here is this. It's important for you to read the fine print to be, to don't get all caught up in the advertisement of 0%, 0% and not see that there's a 3 to 5% transfer fee or that there's a foreign exchange fee or there's a foreign exchange premium or surcharge. Look at the fine print and see are they accruing the interest and does it get released if I miss by a day? Know what the fine print says? Otherwise you get blindsided with these fees that you didn't expect because you thought you did a good deal. Number four is the conflicts of interest. And this is more around their, their advisors and the people that are working there. Not all financial advisors are created equal. Okay? Some advisors, we call them fiduciaries, they by their licensing standards are required to do the things that are in your best interest. Then there is suitability standard. Okay, so there's a fiduciary standard, there's a suitability standard where it basically says that they put things in front of you that are suitable. Now there are a lot of investments that could be suitable for me. There are a lot of investments that could be suitable for you. But does it make it the best for you or the best for me? And the answer is not necessarily so. But if they're following the suitability standard, it's still okay in their eyes. It's not okay in my eyes. Fiduciaries are legally obligated to act in your best interest, whereas where there are others are not necessarily. And many people in financial institutions.

They'Re not necessarily fiduciaries, they're actually salespeople. They call themselves advisors and they're selling financial products that they get paid commissions on. And their financial products that they can offer are a narrow, a narrow sliver of what is possible for you. So, so they're not offering the best necessary, they're offering the best they have that's suitable for you. And so they could push you into high fee insurance products, high fee mutual funds, high fee portfolios or annuities that create great commissions and fees for them that might give you a decent return, but it's not the best for you. And so it's important to, to be really clear and ask. I ask people, what is the bias? Follow the money and don't be afraid to ask them, how do you get paid? How do you get paid on this product? How do you make money on this product? How does the company, the institution make money on this product? As long as they turn around and they put transparently say here's how we get paid, here's the commissions, here's the fees, here's this, here's that, and you know that. And you can make A fully informed decision, then it's on you. But too often they don't do that too often they just kind of. It's unspoken and that I have a problem with. There's a study by the White House Council of Economic Advisors that estimated that Americans lose $17 billion.

Annually due to conflicts of interest in financial advice. I think you need to be very deliberate, very specific and unwavering in your questioning around this. And if there's a conflict of interest, go elsewhere. I don't care how nice the guy or gal is. I don't care. It doesn't matter. Your financial future matter. All right, leads me to number five, and number five is loans and mortgages. Again, the fine print. Understanding what you can and can't do with some of these things and what the fine print says. Okay, majority of these, when I'm talking about this, are what we call ARMs, adjustable rate mortgages, especially because they seem like a really good deal at the beginning. There's this low teaser rate and it's going to adjust and it's going to be there for five years or seven years and that kind of a thing. So you can. They get you in the game? What are they doing? They're reducing the friction of your buying decision. They get you in the game cheaply. But at some point those adjustable rate mortgages are going to adjust. And if rates are higher, the question is, can you afford it? If we look back at 2008, it's one of the things that hit people is that when those rates started to increase, they couldn't afford the adjusted rates. And it was, we didn't see much of this when we had mortgage rates at 2%, 2 and a half percent, 3%. But when they increased to 6 and 7%, all of a sudden these financial institutions started to come back with their adjustable rate mortgages and these adjustable rate programs again. And if you're not careful, you know, they tell you the story that you can go get a loan, you can afford the loan because we'll give you a 3% rate. Sounds great. But that 3% rate will stay for say, five years. And they tell you that, hey, in five years your, your, your home will increase in value and then you can refinance before the rate adjusts. The problem is, is what are rates going to be then and can you afford it? Because it isn't just about what the rate is, it's about your income and how you can afford it. And, and it becomes a challenge. And then the other piece of this is most of these arms because the financial institutions know that at the beginning when they have a low rate, they're kind of losing money because most mortgage rates are at six or six and a half percent and they're giving you a 3% mortgage. So what they do is they in the fine print, they put something in there that says you cannot prepay the loan. So if you prepay the loan, they're going to penalize you for it. And if you don't see that and say you want to refinance or you want to sell the property and you don't have an exclusion for a sale, when you prepay that loan during that lock in period, they're going to penalize you and charge you some of that back interest. Now that's fine, just disclose it. I want you to be fully informed. I think you avoid adjustable rate mortgages from the first place because if you need an adjustable rate mortgage to afford buying a home, that tells me you are buying too much home or you're financing too much of the home to make it make sense. Because sooner or later that adjustable rate mortgage is going to adjust. And if you cannot afford that adjusted rate, then you shouldn't have bought the home in the first place. I know that's hard, hard to say and hard to take. It's tough love, but it's reality. I want to keep you safe. I want to build an unshakable foundation for you and I want you to grow from there. All right, that leads me to number six. And number six is investment and in retirement account fees. Again, this is something that these financial institutions or will do.

Mutual funds, for instance, will charge expense ratios and they're not apparent. If you ever want to figure out how much of a.

How much the expenses are in like I just look at the average, the average expenses and fees charged by a financial institution on their investment products is 1.44%, 1.44% in expense ratios because they put you inefficient mutual funds, high fee mutual funds and those fees get deducted from your returns. So if I took the same because I can get the same investment for the most part in a mutual fund that I can get in an ETF, a low cost index fund or an ETF that has a fee of 0.04%. Well that's a whole nother 1.4% going into my, into my investing into my returns to grow my wealth. And if I'm not careful, we lose what sounds like a little bit 1%, 1.1% in returns. But over decades over your life of building it, it could be hundreds of thousands of dollars that are being eroded away in fees and you don't even know it. All right, so it is important for you to look at the investment fees the way that they're getting charged. How do, again, ask the question, how are they getting paid to make that happen, to be careful of that. All right, so that leads me to just the conclusion here is to sit back and say it's time. It's time for you to make sure that you're in control of your finances. Financial institutions, they're good at trying to make money off of you and they do it with these fees from all over the place. It's their business model and there's nothing to.

Begrudge them about it. But it doesn't mean I have to participate in it. There are ways to protect yourself and there are ways to avoid them. And I've been very vocal about this. Most of my banking is with credit unions on online banks because that eliminates account maintenance fees and other charges and other fees. Plus it gives me more of a community type of bank where I can have a relationship and a personal relationship with them. But, but some key things to think about is to one, review your bank statements and credit card statements to see if there's any hidden fees and how we can adjust those, eliminate those. And if in some cases you need to change the financial institution, you change the financial institution because once again, I'm not going to have them charge me so I can give them the money that they go to the world with and make money on. Okay, I'm going to pay down high interest debt as quickly as possible. So if you don't have a debt payment plan or pay down plan in place, you have to get one. If you're not, if you haven't done one of our money machine master plans where we build the debt payment plan into it and all the other aspects to run it. Then at least get the, the debt breakthrough calculator by going to Mel Abraham.

Get it, put yourself on a payment plan, get the debt paid off as soon as possible and get yourself out from underneath that in, in, in every way, shape or form. The, the third thing is to be cautious of promotional offers. They're putting teaser rates and promotions out there for a reason. Read the fine print, know what's going to go against you know when it's going to adjust if you're going to participate and be very, very cautious that you don't trip up because one day could cost you thousands and thousands of dollars. And then if you're going to work with any kind of advisor, you want to make sure that they're unbiased. So a fiduciary advisor that has your best interests at heart and is legally bound to that, or someone like myself. I don't sell investments. I don't sell insurance. I am simply your coach, your mentor, and your guide, whether it's with your family, as a family CFO or as an individual, to help you navigate this and not step into some of these potholes. And then lastly, double check your loan and investment statements and see what the expense ratios are. See what kind of fees you're getting paid. Because nowadays you should be able to avoid the majority of that, because the more fees we can avoid and eliminate, the more we have to build our money machine and to build our path to financial freedom. And that's what I want for you. All right? You got this. This is the way to do this. But you got to stay informed. You got to stay in the game, and you got to be vigilant with what's going on, because there are financial institutions out there that have a business model that want to scrape little dollars from you so they can make big dollars from them. Want to keep it all in your pocket. All right, I hope that you found this of value. If you did, do me a favor, let me know, Hit me up with some questions. And also do me a favor, share this episode, share it out with people and make sure that you're subscribed. So you're on this journey with me. I'm on a crusade to light the path to financial freedom for a million families, and I want one of them to be you. All right. I hope I get a chance to see you on the road to financial freedom or on the road as I'm out speaking. And until I get to see you or see another episode, as I always say, always, always strive to live a life that outlives you. See you. Thank you for listening to the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of building your money machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcasts or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.