OK, we all know debt is a problem but how can paying cash be a problem? First of all, in order to be able to pay cash one must be a saver, which is a problem for many. Using your tank picture (Personal Economic Model in the Private Reserve Strategy) you must first fill the tank. As you fill the tank, you must report any interest gained on the account to the IRS and pay taxes on the gain which makes it even more difficult to fill the tank.
Once the tank is full, meaning you have enough money in the tank to make your purchase, you must now drain the tank. When you drain the tank, you now have lost the money you took out of the tank plus the interest the money would have earned had you not taken it out.
Each time you drain the tank, you reset compounding. By that we mean, you have forfeited the growth the money in the tank would have earned and must start the compounding process all over.
Suppose you were going to enter a 10K race. You get your number and line up at the starting line. When you hear the gun, you start running along with all the others. While you may not be in the lead, you are doing pretty well compared to the rest of the runners.
About two miles into the race you begin to get thirsty. As you plod along, you remember that they had bottles of water on the tables at the starting line so you run back to the start to get a drink and then return to the race.
What are the chances you will ever catch up to where you were? They are not very good.
Explain this to your clients and prospects and be sure to ask them: “Have you been resetting compounding?” If so, give us a call and learn how you can avoid this crippling financial decision.