As the saying goes; it takes money to make money. But it doesn’t necessarily have to be your money if you understand how to leverage other people’s money (OPM), especially when it comes to making major purchases.

How Grandma would leverage other peoples money!

In today’s episode, you’re going to discover 3 key strategies Grandma would have used to leverage other people’s money when it comes to making major purchases without needing to go into debt or hand a large portion of your money away…never to be seen again.

The Show Highlights:

– Grandma’s warning about other people’s money you need to know ([3:00])
– Why more people than ever are struggling to pay off student debt ([3:45])
– What actually happens when you loan money from a bank ([7:00])
– Are you really winning when it comes to money? ([11:00])
– Why the majority of people unwillingly give away a third of their hard-earned income to bankers without even realizing ([13:45])

Read Full Transcript

Grandma’s Wealth Wisdom-005

A hearty welcome to Grandma’s Wealth Wisdom with your hospitable hosts, Brandon and
Amanda Neely. This is the only podcast for strategies to grow your wealth simply and
sustainably like grandma used to. Without further ado here are your hosts.
Brandon: Hey, I am Brandon and welcome to Grandma's Wealth Wisdom where we
help you build wealth grandma would be proud of. So today's episode is called
"Beggars Can't Be Choosers" and we talking about the smart way to make
major purchases.

Amanda: Now I don't know if you've ever experienced this, but when you ask grandma
for something that you don't really need like ice cream or cookies or some
kind of sweet treat, grandma my ass to see your bagging license. She might
ask, "Have you gone to the courthouse and gotten your begging license?"

Brandon: She asked me that a couple times.
Amanda: Yeah. I heard the story about a little girl who would get a single strawberry
candy whenever she saw her grandma. Do you remember those candies? I
think they're still around, they've got like a wrapper that's red with the little
green top and the seeds and then at the hard candy with the ooey-gooey
goodness inside?

Brandon: Oh yeah. My grandma, that was in the package but there was like an
assortment and so she would put it in the sitting room, I guess you call it, the
candy dish, and I would always pick out the butterscotch because I didn't
really particularly like the strawberry ones, I like the butterscotch ones and we
can debate over which ones are better, butterscotch or strawberry; I think
butterscotch all the way.

Amanda: I think the strawberry ones are the best, and this little girl did too. In fact she
liked the strawberry ones so much that if grandma chose to give her a
butterscotch instead for whatever reason, who knows my grandma chooses
these things, but if grandma did choose that, the little girl would protest, "No, I
want the strawberry. No butterscotch, that's disgusting. Please give me
strawberry." and then Grandma would remind her that beggars can't be
choosers. It was this sweet reminder, pun intended, sweet. Sweet reminder to
the girl to appreciate what she was given until she can provide for herself. And
of course now as an adult, the little girl provides for herself and can get as
many strawberry candies as she really likes with their own money.
Brandon: Or butterscotch. I think we should go get some of those actually after we

record this.

Amanda: I have no idea or even find those anymore.
Brandon: We should ask grandma. So keep this idea of beggars can't be choosers in
mind today as we talk about how to go about making major purchases.
Remember, beggars can't be choosers. We're talking about getting things way

Grandma’s Wealth Wisdom-005

bigger than one piece of strawberry candy, or butterscotch in some cases, and
try to think through who the beggar is in the scenario that we explore. So what
I want to start off with is this first point, leveraging other people's money, or
as we like to say in millennial talk, OPM. 
Amanda: Got to love those abbreviations.
Brandon: Acronyms, abbreviations, all that stuff.
Amanda: I had to explain a bunch abbreviations to Brandon last week, like OOO and

BR, "best regards".

Brandon: Yeah, I didn't know these. I was like, "What is OOO?" Figured it out over


Amanda: Because I explained it to you, that's why you figured.
Brandon: Well hey, use your resources.
Amanda: We're talking about OPM.
Brandon: Leveraging OPM, other people's money. It sounds like a great way to build
wealth, and sometimes it actually is, it is in some cases because people have
done it, there are other places that do it, but there are a few warnings grandma
would give you about leveraging OPM.

Amanda: Yeah. So let's take college as an example. So many of us who graduated from
college around 2008 or later are realizing that it's difficult to repay those
student loans. We leverage other people's money in order to get that education,
to get that degree, but we aren't getting the pay that we need to repay those
who lent us the money.

Brandon: Yeah, and that's what I'm going back to some people do it really well.
Leveraging other people's money is what banks do really well. You might say
banks are the foremost expert on OPM. You put your money on deposit and
the bank turns around and lends it out to someone else right away, the person,
like two people behind you...
Amanda: I don't know if it's that fast.
Brandon: Maybe not that fast, but it kind of feels like that sometimes, but they are
giving out that money right away. You might have heard of the idea that a run
on the bank could shut it down. Like in Mary Poppins or in It's A Wonderful
Life these are true possible scenarios.

Amanda: Yeah, I should probably remind us of what happens in Mary Poppins, one of

my favorite movies.

Grandma’s Wealth Wisdom-005


Brandon: And there is a sequel.
Amanda: Yeah.
Brandon: It's coming out in December, I think.
Amanda: I don't remember when it's coming out, but regardless, we're not being paid by
the Mary Poppins creators to talk about Mary Poppins, it's legitimately one of
my favorite movies and I'm really looking forward to the sequel, although I'm
sure it will not measure up to the original.
Brandon: Dick Van Dyke is in it, I've heard.
Amanda: Yeah .
Brandon: And I'm not sure what was her name that...
Amanda: Julie Andrews?
Brandon: Julie Andrews, I'm not sure if she's in it.
Amanda: She's amazing, I love Julie Andrews, is why I like Mary Poppins really is
because of Julie Andrews. But anyway, in Mary Poppins the run on the bank
is instigated by Michael, the little boy, just because he wants his tuppence
back. Which tuppence are like pennies, a very little money, but he starts to
yell, "Give me my money! They won't give me my money!" And then
everyone in the bank that hears him yelling this rushes to the counter to
withdraw as much as they can as fast as they can, and the bank has to close its
doors because they don't have the money.

Brandon: Yeah. And then I think that dad lost his job, all kind of...
Amanda: Don't, no, no, no. Spoiler alert.
Brandon: No spoilers, sorry. Watch the movie. If you haven't seen this movie I don't
know where you've been, but you should go see it. I mean it is kind of an older

Amanda: And if you want to do a sing along just invite me over.
Brandon: That would be fun. So this scenario is possible not just because the bank
doesn't keep enough cash in its vault, it's because by a law they are only
required to keep between 3-10% of their deposits on the bankrolls. The other
90-907% is loaned out.

Amanda: I think this is really important, because I thought this for a long time,
especially like watching Mary Poppins as a kid, I figured the bank just doesn't

Grandma’s Wealth Wisdom-005

have that money on hand. It's like they put it into some armored vehicle, it's at
a larger branch of the bank, bullion instead of cash.

Brandon: Locked up somewhere.
Amanda: Yeah, that's really just why they had to shut down, because they didn't have
the cash, but that's literally not the case for banks, at least in America where
we have fractional reserve banking, if you want to google it. They literally
only have to keep 3-10% of the deposits that we put in the bank with the bank,
like they can loan out the rest. So they literally don't even have it, they've
loaned it out, people have spent it, people have used it and they're making
payments on those. 90-97%, depending on the size of the bank, is loaned out.
That's like very different than probably I expected, just as like a kid, you
know, and I'm really glad I've learned that since.

Brandon: So if everyone wanted their money at once, the bank would literally have to
call their loans or borrow money from somewhere else to get everyone their
money back. That's why we have the FDIC, it's to protect your money.
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Amanda: So they created the FDIC because they realized that if people needed cash, if
all of us wanted our money at once, that the banks wouldn't have it because
they loaned it out and it's been spent by the people that spend it, not in the
banks anymore. But what I realized when I was researching this episode was
that as of December 31st 2017, according to the FDIC's website in their annual
report for 2017, the FDIC only had 1.28% of insured deposits covered in their
deposit insurance fund. What does that mean?

Brandon: 1.28%? That's not a lot.
Amanda: Right. That means their deposit insurance fund, the money they've collected
that is there to cover the deposits that you have in the bank, that all of us have
in banks, that fund is only big enough to cover 1.28 of insured deposits. That's
not even counting the deposits that are uninsured.

Brandon: That's crazy.
Amanda: Yeah.
Brandon: So in case you want to geek out about this like Amanda does, we'll include a
link in the show notes on more about how banks work, how they actually

Grandma’s Wealth Wisdom-005

Amanda: Yeah, but one of our key phrases that you are going to hear us use over and
over again on this podcast is this idea of don't do what the banks tell you to do,
you do what the banks do. Let me say that again, don't do what the banks tell
you to do, do what the banks do. And there's a whole bunch of things we could
talk about here, but in terms of the conversation today, about leveraging OPM,
other people's money, that means to set up a system so that you win no matter
what. You take in money and then you leverage it, you loan it out, you make
sure you're loaning it at a higher interest than you're paying on it, and so forth.
You set up the system so that you win no matter what, which leads to our next

Brandon: So what happens when you're on the borrowing side of the table at your bank,
you don't get many choices when you put your money on deposit in a
checking or savings account, but it seems you get even fewer choices on the
terms of a loan from the same bank. Who sets the interest rate?

Amanda: The bank.
Brandon: Who determines your monthly payment?
Amanda: The bank.
Brandon: What happens if you miss a payment?
Amanda: The bank charges you huge fees and they might even increase your interest


Brandon: What happens if you can't repay that loan?
Amanda: The bank comes and they'll take whatever you used for collateral for the loan,
maybe it's your car, maybe it's your home, whatever it is, they'll come and
they'll take that. And then if they still can't get their money back using your
collateral, then they might even garnish your wages in the future. They get
really serious.

Brandon: And I've heard they could recall it?
Amanda: That's only some loans.
Brandon: But they can recall it and say, "You owe all of it, all upfront." That would
suck. And it's all outlined in pages and pages of legalese that you sign in initial
in multiple, multiple, lots of places.

Amanda: Yeah, huge stack of pages and things to read through that I don't know anyone
actually reads. So what we're getting into is you have to ask yourself a very
important question, who is really winning. Let's take an example if you take
out a $20,000 to buy a car. Now, the $20,000 goes to the car manufacturer
who built the car that you purchased, and of course they have to use that

Grandma’s Wealth Wisdom-005

$20,000 to cover the cost of the materials, the factory and the workers who
built the car, the commission of the sales person, a whole bunch of things.
Maybe your $20,000 payment, they might make, let's say, a 10% profit on
after covering all those expenses. So $2000 maybe. I don't work in the car
industry, I'm just making up these numbers. So you got the car manufacturer
profiting $2000. Maybe your local government get some sales tax, whatever
your local sales tax rates is when you buy a car, if you have one. Maybe your
local government gets a little of it, too. But my guess is that the company that
gave you the car loan that they're going to make a great deal from that loan. So
let's say you check out that $20,000 loan, you have a 7% interest rate and a
five year term on that loan. When you do the math, the financing company that
gave you that loan is going to make over $4000 in interest. That's not to
mention any late fees, additional credit insurance, warranties and so forth.
That's just pure, simple interest, pure, simple profit that is going directly to the
people that gave you that loan. And so if you think about it that way, and then
you add on this statistic that the average American has 35%t of his or her
income going to servicing debt.
Brandon: How much did you say again?
Amanda: 35%.
Brandon: That's high.
Amanda: Yeah, but it's true. The average American goes to work and we get to use
about 2/3 of our workday to cover current expenses, while the bank gets a
third of our work in payments. The bank has a lot of people making them a lot
of money, and the majority of us aren't even on a bank's payroll, and yet we're
still going to work and paying the money from our salary, 35%.
Brandon: That's why they're so ginormous sometimes. So we talked about debt in
episode 2, the title was "Six of One, Half Dozen of the Other." Even we pay
off our debts, we might find ourselves going back into debt the next time an
emergency happens, when something like that strikes or the next time we want
to buy a car, we go back into debt. So go back and listen to that episode again
to get a refresher on the alternatives to going into debt, or just paying cash for
major purchases.

Amanda: So to recap today, grandma's warnings might make you think twice about
going into further debt, and they might be a good motivation for getting out of
debt quickly. Do you really want to give a third of your income to a banker?
Do you want to remain in beggar status going to banks whenever you need
money for a major purchase and then having to adhere to their terms?
Brandon: You know beggars can't be choosers, that's what grandma says. 

Grandma’s Wealth Wisdom-005

Amanda: Yeah. But what if you could leverage OPM in a way that doesn't require going
into debt to a bank, a finance company, a credit card or an investor? That'd be
pretty cool.

Brandon: Yeah, that would be awesome.
Amanda: To see if grandma's the leverage of OPM. would work for you, schedule a call
with us We'd love to talk with you, hear
what kinds of ways you want to leverage OPM to reach your financial goals
and see how we might be of service to you and your family.

Brandon: So today we talked about how 1/3 of the average American income leaves
their hands to go to a banker never to be seen again, to go to a bank. Next
week we're going to talk about another place a good portion of our income
ends up going. This is huge, the Internal Revenue Service.

Amanda: Until next time, keep building your wealth simply and sustainably for your

own future and the future of our grandchildren's generation.

The topics presented in this podcast are for general information only and not for the
purposes of providing legal, accounting or investment advice. On such matters place
consult a professional who knows your specific situation.
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