Hold on to What You’ve Got - Transmission Digest

Hold on to What You’ve Got

Most of the time I teach people in our industry how to run profitable businesses by using proper sales and management techniques. Many of you have learned your lessons well and have gone on to build very successful businesses. Your reward for all of your hard work comes in the form of a sense of accomplishment and, of course, money. As good citizens, you’ve paid taxes on the money you’ve made and hopefully put the rest to work to make you more of it. Many of you have invested in real estate, either land, buildings, or both. Others have tried the stock market, bonds, annuities and other business ventures, hopefully all lucrative. Some of you have put your money in banks feeling that even though there wasn’t much to be made, it was safe.

Hold on to What You’ve Got

Author: Terry Greenhut
Subject: Banking and lending
Issue: Understanding current practices

It’s Your Business

  • Author: Terry Greenhut
  • Subject: Banking and lending
  • Issue: Understanding current practices

Most of the time I teach people in our industry how to run profitable businesses by using proper sales and management techniques. Many of you have learned your lessons well and have gone on to build very successful businesses. Your reward for all of your hard work comes in the form of a sense of accomplishment and, of course, money. As good citizens, you’ve paid taxes on the money you’ve made and hopefully put the rest to work to make you more of it. Many of you have invested in real estate, either land, buildings, or both. Others have tried the stock market, bonds, annuities and other business ventures, hopefully all lucrative. Some of you have put your money in banks feeling that even though there wasn’t much to be made, it was safe.

How safe is the money banks hold for us? For many years banks have been lowering the interest rate they are willing to pay on savings accounts. When I was a young boy, at the age of 5 in 1951, my kindergarten class went on a field trip to the Chemical Corn Bank, a bank that has since been bought out several times and has undergone many name changes, but it was, at the time, one of the biggest banks in New York, possibly in all of North America. We were told we needed to open savings accounts and that by depositing money, which essentially meant loaning money to the bank, we would be rewarded by our money earning 5% interest. We didn’t really know what that meant, but we were shown that, if we deposited $100, after one year we would have $105, and so on. The longer we let the bank use our money, the more interest we would make; not only that, but the interest would compound quarterly to pay us even more. Our teacher calculated that our money would double every seven years. That sounded really good so we all opened our savings accounts and deposited whatever little amounts we could scrape together from time to time.

How did the banks make a profit using the money we deposited? They loaned it out and charged a higher rate of interest than they were paying us. Over the years interest rates the banks charged for lending money changed often and at times went quite high, but the amount the banks paid on our savings remained relatively low. As we grew older and wiser, many of us invested our savings in other opportunities that could potentially pay us much higher dividends than what the banks were willing to pay. Many of us started our own businesses, therefore investing in ourselves, in our own abilities. If we hit on a good idea and worked really hard at it, many of us did well.

Even though we did not rely too heavily on saving accounts anymore, we still had to let the banks hold on to some of our money because we needed to pay certain bills by check, and if we needed to borrow money to buy a house, a car, or shop equipment, many banks wanted us to have established accounts with them. Banks sometimes charged us for processing our checks if we didn’t keep a high enough balance in our checking accounts. They wanted to have the use of the money we kept in those accounts even though they weren’t paying us for the using our money.

Now a new wrinkle is being added. It’s called “negative interest.” Instead of the bank paying us for the use of our money, they want us to pay them for holding it in safe keeping, a percentage of the amount we have on deposit. Not bad for them. They make money both ways: If you borrow from them or you lend to them, they want to charge you.

There’s no longer any incentive being offered to save money. In fact, the banks want us to spend it as fast, or faster than we can earn it. And why not? If we haven’t yet earned the money to buy things, we have to charge them on credit cards and the interest the banks get is often two to 10 times that of a home mortgage rate. It can exceed 30% in certain circumstances. If you tried to loan money at those rates, you’d probably get locked up for usury, (loan sharking), but the banks get away with it.

Now you might be thinking, “Well, I’ll just pull all of my money out of the bank and invest it somewhere else, where it will be safe.” Some problems:

  • 1) It’s very difficult to find a legitimate annuity fund that pays any more than 3% right now. You get emails all the time from funds that say they can get you up to 8%, but how? The more interest, the more risk must be involved, and notice they don’t say they will get you 8%; they say up to 8% which could mean you’d make no more than the safe 3% that the long-established annuities are paying. In fact you could make less or even lose some or all of your principal.
  • 2) If you bury it in the back yard like a friend of mine did, you may not be able to find it again like he couldn’t, and if you don’t waterproof the packaging it might all rot away. You could buy a safe, but you had better find a way to hide it or embed it in something crooks can’t yank it out of or somebody’s likely to try to steal it from you.
  • 3) You could invest it all in gold, but it better be real gold, and how would you know if it is? Maybe the sample that the assay office checks is real but how would you know if it is all real? Gold stocks are just paper so they aren’t safe. They only represent that you have a share in the gold or supposedly own some.

If you withdrew a lot of money from the bank that you were going to squirrel away because you figured that there was no interest to be made on it anyway, what denominations would you ask for? Hundred-dollar bills would probably be the most convenient for storing away, but what if the rumor is true that the $100 bill might soon be taken out of circulation like other larger bills were in the past? What would then happen to the money you hid and forgot about? When you eventually remembered and dug it up again, would it still be worth anything? What would happen to the stacks of hundreds people have squirreled away? The likelihood is that there would be a certain amount of time in which people could exchange those hundreds for other smaller denominations, after which they would become worthless.

During World War II, the Korean Conflict in the early 1950s and Vietnam, the U.S. used something called “script” instead of money when soldiers were “in country.” The script was being counterfeited regularly so every few months our government would redesign or change the color of it and announce to the GIs stationed there that on a certain day they had to exchange their old script for new or it would be worthless. It helped protect against the circulation of fake money, but it also let the authorities know who had how much.

There is a term you might have heard from time to time over the past several years: “redistribution of wealth.” What it basically means is taking money away from people who have worked very hard to make it and giving it to those who haven’t.

Meanwhile, returning soldiers, who have fought gallantly and are now physically or mentally disabled on account of it, have to fight again to get the help they need. Additionally, seniors who have paid into the system all of their working lives are being told that their benefits may be cut and their Medicare payments may be outrageously raised while some groups that have done nothing to earn the help get to take advantage of all the freebies available to them, and there are plenty. Don’t get me wrong; I’m not against giving to charities if the choice to do so or not is up to us.

I had a new inexperienced employee once tell me that I needed to pay him more money because I drove a Mercedes. I laughed at him but inside I was fuming. What in the world gives people the right to think they are entitled to any money that they don’t earn? Our society apparently has created this problem, and now those of us who do toil for our living every day are stuck with it.

While no one can tell you for sure where your money will be kept safe from those who would try to take it from you, just be aware that the problem exists and it isn’t going away or getting better on its own. The less people know about what you have, the better off you are. Your business is your business; keeping it to yourself as much as possible will certainly help to protect it. Be careful what you post on line and what you tell friends and so-called financial advisers about what you have and what you do with your money. You’d probably be better off operating under the assumption that most everyone you meet would love to get hold of whatever you have, so don’t let them. Think through every potential investment very carefully before signing or committing to anything. Don’t be impulsive or trusting. These are not the times for that. There are more scams being run today than ever before because it’s much easier for the crooks to do so, and crooks come in all forms, so protect yourself and what you’ve worked so hard to earn.

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