CPC Episode #5 - Financial Time Machine Earns you $87,050 over 10 years if you avoid THIS 4 Letter Word

Welcome to Episode 5 of the College Prep Confidential Podcast. Today’s episode is titled, Financial Time Machine Earns you $87,050 over 10 years if you avoid this 4 letter word.

In the 1985 science fiction film, Back to the Future, Marty McFly, played by Michael J. Fox, accidentally travels back in time to 1955 in a Delorean, invented by his friend, genius scientist Doc Brown. In the movie, 1955 happens to be the year where his Mom and Dad first meet as love interests. When Marty arrives in 1955, he makes a series of mishaps, resulting in him “interrupting” his mom and dad’s initial meeting.

Because of this interruption, his Mom and Dad do not get to meet as expected, throwing off their path to romance. Because of this, the fabric of time gets interrupted. Marty later pulls a photo out of his pocket of him and his family. Hours after the interruption of his parents first romantic meeting, Marty sees his picture and his siblings start to “fade away and disappear”. Marty’s mishaps cause his parents to not have their first romantic meeting. And if they don’t start dating, they never have kids, and Marty is never born. 

College Prep has a time machine, which helps you avoid mistakes now, which hurt your future self. I’ll get to the time machine in a moment, but first, there is a 4 letter word which hurts your future self. This 4 letter word means the difference between a future saddled with debt, or a bright future where your money works for you. And this 4 letter word rears its ugly head during college prep. I’ll give you a clue to the 4-letter word… using some famous quotes

This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received

"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." -Albert Einstein

Time is your friend, impulse is your enemy - John Bogle

Billionaire investor Warren Buffet: "Someone is sitting in the shade today because someone planted a tree a long time ago."

Now ask yourself, how could you, as a financial time traveler, hurt your future self. What could you do know, to make your future worse. And the answer... is a 4-letter word I’ll reveal in a moment.

Let me set the scene… In Back to the Future, when the past gets altered, Marty has a picture of his family. and when the past goes bad with his parents meeting, Marty's picture starts to fade. Because if the parents never date, Marty is never born.

The same kind of future alteration happens with, the nasty, 4-letter word known as debt. Before I show you the numbers, consider these statistics....

A dangerous new disease

The worst part is that this disease — let’s call it debtitis —is spreading. All the proof you need is on Debt.com’s Personal Finance Statistics page, where you find symptoms like these:

• Nearly half of Americans are “concerned, anxious or fearful about their current financial well-being”
• The average credit card balance is now $6,375, up 3 percent from last year
• 17 percent of Americans carry student loans

Those numbers are backed up by yet another poll, this one of college-educated Americans. A lender called Laurel Road asked 1,000 grads about their “financial lives.” The results were grim. First, more than half “don’t think they will ever make enough money to reach their financial goals.” Even worse, Millennial women “are significantly more stressed than their male peers about their finances.”

You’ve probably heard another scary statistic: Americans owe over $1.56 trillion in student loan debt, spread out among about 45 million borrowers. That’s about $521 billion more than the total U.S. credit card debt.

Q4 2018:

STUDENT LOAN DEBT STATISTICS BY LOAN PROGRAM:

What about the alternative? In Back to the Future, when Marty finally gets things in order, and sets up a date between his future parents, his photo begins to reappear. He undoes his mistakes. And how do you undo or avoid debt… Investment. Let’s review how your future gets molded for College Prep…

Suppose you don't maximize your financial aid. And you take on 30,000 extra of debt. 30,000, rolling at 5%, for 10 years, or 120 months.

• Monthly payment is $318.20
• 120 payments equals $38,184
• Interest paid on top of the 30,000 in principal is 8,184

And that's IF you pay on time.

Now, let's say you maximize your financial aid, and had the 30,000 paid in grants and financial need. 

You take the 30,000, and invest it at 5% for the same 10 years. You don't make any future payments, you simply drop the 30,000 in which earns 5% compound interest every year. After 10 years, you'd have: $48,866.84. In 15 years...your money doubles! Think about it...imagine you’re walking down the street, and a dollar falls out of your pocket. For whatever reason, you don't feel it, and keep walking and forget it. In 15 years, the dollar comes running back to you, with another dollar attached. knowing this, how many dollars would you drop? Because this is what happens at 5% for example, your money doubles every 15 years.

Now, let's compare what you lost versus what you could gain. When you take on $30,000 of extra debt, you end up paying out $38,184 over 10 years. So your in the hole $38,184. But if you had that $30,000 taken care of through financial aid, and invested it at 5% compounded annually for 10 years, you'd have $48,866.84.

Now, let's calculate the difference between this:

A loss of- $38,184 versus a gain of $48,866.84 for a difference of $87,050.

In the future, if you're saddled with extra debt, you jeopardize your future. Like Back to the Future when Marty’s picture fades away, your bank account and future prospects fade, just like the picture of Marty and his family.

Simply by taking time, or getting help on student loans, as I'll show you how to do shortly, you'd have an $87,050 spread. When I look at this number, I think of the movie Back to the Future, where Marty and Doc lose the almanac, and the bad guy, Biff, gets it, goes back in time and bets all his money on the winners, since he has the list. when Marty goes to the new point in time, his family is poor and everything is destroyed. And Biff, the bad guy is rich.

I use this movie as a metaphor - highlighting the 2 futures you have. Biff, the bad guys, is debt. And your good future is when you use the time machine for good. The most valuable commodity in life is time. Time with your family, time to enjoy your money, time to live a fulfilled life. And with student loan debt, it takes away time to be paid. 

So what can you do now, what financial time machine can you use to chart your future course? The Delorean Time Machine of College Prep, is an amortization calculator. Amortization calculators show what your payment, both principal and interest, would be on any sort of loan. This allows you to peer into the future and see what debt versus investment will give your future self. And it got me thinking about the most valuable asset we have in life...Time. Once it’s gone, you can’t get it back.

I recently read a fascinating review of the Back to the Future movie, related to the importance of time. In the Back to the Future movie, you have to drive the Delorean Time Machine 88 miles per hour to activate the time travel sequence. Now here's where it gets fun...the number 8 turned on it's side, is the symbol for infinity. This seems to be a nod to the infinite nature of time.

Time goes on, but we, as humans, only have so much of it. And getting saddled with additional student loan debt takes away from this. The entire movie features clocks in many of the scenes, reminding us of the power of time. And this is why I brought you this episode, because your time can be expanded or contracted based on the decisions you make, and money is an important decision in your life. Debt contracts your time, while investment expands your time. 

How do you fix these problems in advance? Well, the answer is simple. And I covered some of this in Episode 4. If you've not listened to that episode, I recommend you go back and absorb the free tips I gave for how to extract more financial aid out for college. Because the more aid you get, the less money you put up. Now, besides episode 4, I've put together free training for you to learn how to save even more money on college. Savings you can use to invest in your life, and not give it away to colleges to saddle you with more debt. And more debt will have you feeling like Marty, staring at his disappearing photo. A future you never planned on nor wanted. The training, by the way, is at cpcshow.com. I'm doing this to give you back more time, but freeing up the debt in your life. I'm also giving you this free training, because you may find the information valuable enough to want to learn even more, and work with my company for college planning in the future. Thanks for listening, and see you next episode.