The Secret to Spending Money Extremely Efficiently

Connecting with Matthew Love has been a great experience. He has brought a fresh perspective to light on the subject of money, and is an all around genuine guy. He was kind enough to share some perspective with me regarding his take on the most effective way to leverage credit, and pay down debt efficiently. Here is what he had to say:

The Power of Collateralization

How to Spend Money Efficiently

Have you ever wondered if there is a more efficient way of making purchases? How can it be that we work so hard and never seem to get ahead? What is it that people do differently to set themselves apart? How can I get there? While I don’t believe there is one answer, technique, or product that will create financial success, I do believe there is a process we can follow that will influence our decision-making at a young age to set us apart as we get older and (hopefully) wealthier.

Let’s look at a typical way purchasing a car, or even a student loan, using financing.

I find the car of my dreams and head to a lending institution, such as a bank, and ask for money. I realize this might not be the best way to make the purchase, but the smell of a brand new car is un-beatable. I talk with a banker and they will let me have the money to make the purchase, but in order to use their money, I have to qualify. After a rigorous background check, housing check, employment check, etc., I finally qualify, but there is a catch. I have to pay an interest rate THEY determine. Either way, I want the car, so I make the purchase. I have a new car by spending other peoples’ money at a cost, and I’m in debt.

Let’s look at what happens when I buy the car with cash. Instead of buying the car today, I save the monthly payment I would have made to the bank. Over the course of a few years I have accumulated enough money in an account which is compounding interest. By paying cash I save paying interest, but it prevents me from earning any interest on the money I just spent. An economist would say I lost opportunity to earn more because I spent on a depreciating asset. I killed the forward momentum of the money by spending it! I never got a chance to realize the full effects of compounding interest.

However, there is a third way. I can use collateral. If I were to put my savings account up as collateral, I can borrow money at a negotiated interest rate and allow my money to continue the compounding curve! By doing this my full account value can continue to compound, while I pay an interest rate on a smaller amount used to pay off the car; I will have more control, use, and liquidity of my money during my lifetime! The sooner we can understand how money works, the sooner we can let it work for our advantage. So, what is your collateral capacity?

Matthew Love is a member of Financial Architect Inc. His work focuses on building wealth for young families. Working with Matthew, his clients understand the principles of how money really works.