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Two Problems Magnified by the “Box” Approach to Personal Finances
$ Income $
Less Tax (federal, state, and local) and Basic Expenses (food, shelter, clothing)
= Discretionary Income that must be divided among competing wants and needs.
1. The economic law of scarcity dictates that money supply runs out before all the needed "boxes" can be properly filled. What we want competes with what we need. Important needs compete with each other. These competing demands on a limited money supply create tremendous pressure to cut corners and compromise on serious financial issues. For one example: to save money most of us minimize auto liability insurance to some degree. Then we drive around every day just one small error away from a million dollar lawsuit that would destroy us. Because the “right” choice is often known only after “things” happen, we are really guessing on how best to use our money. As a result we are left in great risk of complete financial ruin.
How do you prioritize your choices? How would you, or your family, handle a wrong choice?
2. The “boxes” themselves create additional costs; and, they impose limitations that lead to other hidden costs. These costs steal money that could solve problems. The way we save and invest typically involves “boxes” that lock up our money with taxes, fees, and penalties. We give up the use of that money, thinking that hoped for growth will take care of the future. If there is growth, that stays in the box too. So, with our money locked up we are forced to use credit cards, car loans, equity loans and other loans to finance what we need and want. Then, what we pay in interest takes away money that could be used to save and invest and to provide protection against the risks that will steal everything when they occur. The boxes themselves create costs that make the scarcity problem worse. The “bottom line” is negative: the total costs exceed the total gains. The “box system” cannot win. The only hope is to make so much money it doesn’t matter. Still, the problem isn’t solved. Solving the problem requires a different approach to finances.
In summary, the “box” approach to personal finances:
Forces uncomfortable choices (guesses) by aggravating the natural economic problem of scarcity with the unnatural limitations imposed by the “boxes”.
Maximizes financial costs (taxes, fees, and interest expenses) which continually transfer excessive amounts of your earnings to financial institutions and government.
Takes away money that could be used to create benefits, financial security, and increasing personal wealth.
The solution to these problems is found in economic process, not in financial products. Think of it as playing in the Masters Tournament. The “box system” sells you Tiger Woods’ clubs (“products”) and says “good luck”. Infinite Banking Concepts gives you his swing (“process”) and says “let’s win!”
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