The Borrow Smart Chronicles - Stay CALM and Carry On

Episode 29 - Safety, Liquidity and Return

Author

Todd Ballenger
May 24, 2024

❝

“You don't become great by trying to be great. You become great by wanting to do something, and then doing it so hard that you become great in the process.”

Randall Munroe

More and more liability advisors are sharing their love of finance teaching our CALM course. CALM stands for Cash and Liability Mastery. If you can manage your cash flow and liabilities you are on your way to creating real wealth.

In less than the time it takes to watch a movie,
you can complete our CALM lessons.

Watch the video https://www.niofe.org/calm and then take the PIN/FIN challenge to see how you are doing.

*if you are interested in teaching this material - reach out to me to learn how.

a BORROW SMART CONCEPT
Should I pay off my 5% mortgage or invest in a tax-free REIT earning 5%?

It depends, as we say. It depends is always the best first answer to a financial question. This question however is confusing for most consumers. It’s like the question - what is heavier, a kilogram of feathers or a kilogram of steel?

We use the time-tested model of Safety, Liquidity, and Return to decide on the ‘it depends’ question as you can answer most financial questions using this approach.

This question appears to be a return question. If I pay off my mortgage I save interest of 5%, so I’m earning a 5% return. If I invest in a tax-free bond and earn 5% there I’m earning a 5% return. Aren’t they the same? They are from a return perspective, but how about Safety and Liquidity?

Return - is about the growth of your money over time. If all things are equal and the return on prepaying debt is the same as the return on investing, then there are other factors to consider.

Safety - is about the risk of your money. Do I feel safer having the money inside the house (paying down the debt), or do I feel safer having money built up in an investment account? The actual Safety of the investment is also a question. If I prepay the mortgage, the money is safe as long as I never lose the house, but prepaying the mortgage makes the bank safer, not me. If I invest in a tax-free bond, the bond could be worth nothing in the future, so I could lose my money. There are two questions here: which path is safer, and which path makes me feel safer? Both of these are valid.

Liquidity - is about the use and control of your money. Do I feel that having money in the house is liquid? I’d have to sell the house or borrow against the house to ever get that money into a form where it is liquid. If the tax-free reit is trading publically I can sell it with a click of a mouse, so it is extremely liquid.

Thus far, say the last 30 years, the opportunity cost benefits of investing have far outweighed the opportunity cost of paying off your mortgage early, and this can make a house cost far more than necessary over time.

In our Borrow Smart Conversation, we show consumer an example that over the last 30 years not understanding this concept has cost a typical homeowner over $1M …

time is a factor too - how long will it be before you need your money?

LIABILITIES and DEBT
What’s Happening.

at this rate more people will have stocks than own homes

young buying more stocks and using mortgage,
older using stocks to pay cash for houses

payment are higher

they’ll go lower if rates go lower for new buyers

home owners are declining again

as rates have risen and bonds have fallen in value

“This is an amazing interview and has really changed my thoughts about PAIN and we all experience it… share this with anyone suffering from mental or physical pain.”

- Me

REAL ESTATE
What’s Happening?

sentiment dropped this past week

inventory is going up

prices are going up

sentiment is going down

supply is going up

ownership has gone up over a long time

rent is coming down

likelihood of moving has been coming down as tenure goes up

“Life was mostly made up of things you couldn't control, full of surprises, and they weren't always good. Life wasn't what you made it. You were what life made you.”

Sara Zarr

ASSETS and INCOME
What’s Happening?

this is the 2nd Bucket in our CALM System

can you save first and then spend?

PIN/FIN helps with this question

stonks go up

as has earnings

but when you are high!

it’s a long way down

we need to save and invest to preserve buying power

as we like to spend

“It's a sad day when you find out that it's not accident or time or fortune, but just yourself that kept things from you.”

- Lillian Hellman

ON BEING HUMAN
What’s Worth Sharing?

As I read and listen to those VERY involved in AI, this topic of universal income for All is increasing.

I’m musing about AI’s capability and how quickly it will make human thinking obsolete. Not real thought, but the discursive thinking that takes so much time and energy day-to-day.

Why? That type of thinking is just association and memory - as the brain conserves energy and real thinking, what I call thought is difficult - as such it will be faster and deeper when we use AI. We’ll develop new neural pathways that say AI is quicker and deeper so why bother to think?

The two paths:

1) you will use AI and grow your business and profitability to new levels you didn’t imagine possible because you outsource basic thinking to AI and spend more time on deep thoughts that generate real change.

2) you will be completely in need of retraining and those who can’t (or won’t) retrain will find it increasingly difficult in this new world to work, and they’ll need supplemental income.

“Your task is not to seek for love, but merely to seek and find all the barriers within yourself that you have built against it.”

RUMI

DOPAMEMES
And Other Happy Moments…

Artificial Intelligence
And the Future of Work…

HOMESCORE - AI For Home Buying:
https://www.homescore.co/

Microsoft pAInt gets a big upgrade:
https://www.microsoft.com/en-us/windows/paint

Geek out with Reddit/ChatGPT:
https://www.reddit.com/r/ChatGPT/

New Tool I’m Exploring to Handle Unwanted Calls:
https://www.truecaller.com/truecaller-for-ios

Need HELP with an obituary?
https://akeeva.co/obituary-writer

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