Once upon a time, it was frowned upon to have a lot of debt in society.
With the big media advertising and all forms of credit cards and leasing offerings one is tempted to think that this form of debts and lending is a new invention, but in fact the concept is thousands of years old already.
Debts already existed back in ancient Greece or Babylon, and ever since they existed and were available to people it had very negative effects.
Many of the hardest punishments were used for people who could not pay back their debts.
Back then, it always involved asking other people directly for money.
That meant there was not only the risk of possible consequences if you could not pay back your debts in physical or legal terms, but it would also put pressure on you socially as the rumour would be sure to spread about you in the community.
Throughout history thus, taking up debt and the potential side effects it could have was an unpleasant thing to do.
But today we are at a point where getting into debt is so easy you do not even notice it anymore until it is too late and you wonder where all these bills in the mail come from.
And this is the point where you should start to improving your finances.
If you want to have a designer dress but have zero cash in your pockets, there is a financial institution willing to lend you what you need.
If you are broke but still want to drive around in a fancy car, the bank will finance it for you with seemingly no problem at all.
Want to have the latest flat screen in your apartment but are down to your last cents?
No problem there's financing for that.
How about those new shoes for 300$ even though you hardly earn enough to cover your bills?
Just stretch out the limits of your bank account a little more.
And if all this still goes wrong, there is one of the most genius inventions human beings had over the last centuries:
The credit card!
It makes sure that even the poorest people are equipped with stuff they can't afford.
Personal finance today is overloaded with debt.
At the same time, it is perfectly normal for us to be raised with commercial messages from early childhood on.
We get those pictures indoctrinated from TV shows, commercials and all forms of advertisement.
Consume, consume, the more the better.
Even for the most reluctant of us, there is plenty of stuff that would fit them perfectly.
In fact there is no way of escaping it anymore. No matter where you focus your attention on there are commercial messages everywhere, whether it is the billboard on the freeway or that ppc ad you see in your google search results.
Now mix up those two situations where you can finance everything and at the same time see shiny stuff around you all day - and you get a cocktail that makes people long for more and more things, even though they are vastly out of their financial reach and absolutely unnecessary in most cases.
Today there is almost no adult person left without debt in the western world.
And yes, your lease contract for the car is also a form of debt.
The average US citizen under 35 has a total debt of 67.400$ at the time of writing this and interestingly that number even keeps climbing higher to an average of 134.600$ for people between 45 and 54 (source: time.com/money).
The problem with debt is that even if you earn a very high income or run your own business, you will still not be free.
There is always the bank that demands to be paid first.
At best, you can then expect to get what's left after the bank took its share.
To make matters worse, you will be charged with high fees and interest rates even if you always pay on time.
And if things are getting tough at one point or the other for you and you are not paying them on time, you will be charged with often ridiculously high extra fees and interest charges on top of that.
And on top of that, many people are ashamed to make their debts public and are thus less willing to ask others for help than in cases with other problems.
So how do you get out of this deadly swamp of debt?
First we have to understand how a bank works to improve our personal finances.
Fees And Broken Promises
The first step to get out of debt is to avoid it as much as you can.
Clever investing to improve finances comes later, but first make sure you have your mind and situation free from any enemies.
I am sure you have seen those commercials too, on TV and around the internet that advertise loans.
Or maybe you also receive such funny letters from your bank like I do almost every month, offering you to take a loan immediately if you need it.
Those ads admittedly look very promising, and offer you to be free of care in any financial regard.
The car broke down again?
No problem buy a new one we will finance it for you!
Just had a divorce and need to furnish the new single apartment?
Just take a small loan and get it right now!
The old furniture looks disgusting to you?
Lets finance a new designer couch!
There is a mean detail that is used for marketing such offers behind all this.
Our brains are naturally wired to look for gratification immediately.
In our primal days, if you had something to eat, you were happy and the body was served with important nutritive substances.
Gratification came instantly from our brain in the form of hormones that create a good mood, or endorphins.
There were no negative-long term side effects or other strings attached to it, and so our subconscious mind never developed patterns that would take the long-term effects and details of for instance a credit agreement into account.
But the subconscious is responsible for around 90% of our acting!
The result is that if we look at such an offer, we only see the instant benefit we would get from it.
The new kitchen, the new shiny rims on your car, or that sudden boost of 10.000$ to your bank account, this is what we can grasp with our mind as it forms a nice picture in our head.
What we are missing however, is the seemingly minor part which ultimately causes a lot of trouble for us.
And this part is crucial if you miss it!
Nothing in the evolution of the planet could have ever prepared us for fine-printed conditions ranging over several pages and basically stating that the bank has every possible right out of this contract and we, the credit users, have no right at all except to pay the rate as it is stated in the terms.
You can think of it as the best mousetrap for men that has ever been created, and yet people continue to fall for it again.
Additionally, we are bombarded with commercial messages about things that we actually do not need at all, some even totally useless, yet this stuff is often expensive enough to destroy any personal finances.
But hundreds of marketing messages every day try their best with deeply rooted psychological tricks to sell us every possible good on earth, again and again.
“If something is stated with enthusiasm, often and loud enough, people will ultimately believe it.“
Do you know who said that?
It was Hitler.
All propaganda systems of the 20th century were based on this simple discovery, that if you tell people any stuff over and over again, they will start to believe you even if it is total nonsense.
North Korea, which is still using the same propaganda systems, has all their citizens think they live in the best country in the world.
In reality, they actually live in poverty, suffer from hunger and are totally isolated from the rest of the world.
But they believe it, because their propagande tells them at every angle of the country that they are doing great, that things run well and that they have the highest living standards.
We then convict these people of being dumb and fanatical, but in fact our marketing systems work the exactly same way.
We are advertising products over and over again until people will buy them, even if they can't afford them and don't need them.
Think for a moment how much economical sense it makes for a person earning 40k per year
to drive a car that easily costs 60k.
Think again how much sense it makes for that same person to go shopping for 400$ per week.
Or to party at the club for 200$ per night on a consistent basis.
And maybe that person also lives in a nice home for 400k.
To look at this situation from a birds eye view, you could think that this person is suicidal in financial terms.
But this is what is considered perfectly “normal” in our society.
A little debt here and there makes it easily possible.
The problem is that even though all kinds of products get advertised in glitter and glamour, and banks hand you fancy looking brochures with pictures of people finally having that new car or making that dream vacation, it is a trap.
There is an entire system in place that will allow the bank to take advantage of you in various forms, while you don't have any rights and no position to negotiate once you signed the contract.
The gods in the financial system
To improve your finances, you have to know the rules of the game.
Whether you are a religious person or not, you probably still know about how allegedly powerful god is claimed to be in our lives.
If any of the world religions is right, then god is almighty.
He sees, hears and watches everything.
He has the power to create and the power to destroy, and by all means you should never try to make god angry at you, for he controls the powers of the universe and could bring them up against you.
In our financial system, banks and other financial institutions can be seen as god of the financial world.
They are the mightiest institutions in the system because they are a part of the system themselves, which makes them irreplaceable and creates a special position for them as they are so valuable in keeping the overall economy alive.
And therefore a bank can do things and has special laws in its favour that an ordinary company has not.
Unfortunately, no one really knows how strongly the impact of these laws can be until it is too late.
So when you think of a bank, you cannot see it as just an ordinary company producing some goods, because its role and function are entirely different.
One of the biggest differences between a bank and a normal company is that a bank does have a very special treatment in our legal system like just mentioned and does not have to produce any goods or products.
A bank thus plays a huge role in a macroeconomic and the politically important economic growth rate.
There are many cases whereby the debtors had been right from the legal point in court, but the judge decided against them because national economic growth is more important than the wellbeing of individuals even though they had the law on their side (No joke!).
Let that sink in - you are legally right, but the bank still wins because of its role in the economy… What a great reason to lose your home!
The worst kinds of financial institutions have made use of this legal advantage very well, and have financially ruined the lives of many people worldwide.
One of the famous cases involved firms like a Texan hedge fund whose name I can't name here, which have become famous for being locusts that destroy one country and its cititzens economically after another and jump to the next.
Similar practices have even used to blackmail whole countries, as in the case where a Wall Street hedge fund used complex legal activities and US court decisions to blackmail the whole country of Argentina - an entire nation!
Even to this day, Argentina still did not recover from the losses out of this financial attack and has ongoing economic problems that will probably continue to hold on for decades while the hedge fund (a private company) made billions on a deal that took advantage of an entire country with millions of lives.
So if even whole nations have no chance against the complex legal activities some of these financial institutions have and the destiny of a whole country is being disregarded in courts to favor a private group of investors, then you can probably estimate already how big your chances are if you will one day be in debt and somehow you will face trouble to pay them back.
Because the banks and other financial institutions have such an extreme privilege in our society and especially in the legal system, I advise you to ideally never take up any loan and avoid debts like the plague.
Banks don't have to be right, they will always win no matter what.
And you will lose.
Drive the old car a little longer.
Stay in the shabby apartment for a little longer.
And make the next financial move when you are truly ready for it - not when the bank offers you the next best loan “deal”.
Oh, and speaking of deals...
This sounds like a Good Deal!
Improving finances starts with avoiding the traps that have been laid out for all of us.
To make matters worse, the laws when it comes to guidance by the bank employee or broker are very blurry.
Elucidation about the terms and conditions that you are actually about to sign before taking up a credit contract is not clearly mentioned in the law.
In other words, if you want to sell you a loan, you can give any promise in the conversation you want to the customer even if this is total B.S.
You can promise that the bank will be considerate if you will one day be in trouble to pay back the monthly payments (it wont).
Or that it will be no problem to take breaks during your years of paying back (it will).
Or that ideally you should also take an additional warrantor into the contract to get better interest rates on the deal (the interest rate will hardly differ, and the bank is then legally able to hunt both of you until the end of the world).
Having worked years in the financial industry myself, I have seen dozens of cases just like that and the result is often that people are ruined or have their finances severely damaged. What the bank employee or broker tells you in the conversation is absolutely worthless.
Interestingly, what do you think the real job of any bank teller is?
To educate customers about the products of the bank?
To make sure your financial situation is appropriate with the loan?
To let you know what exactly is stated in the contracts?
His or her job is to SELL as many credits as possible.
Those who are honest enough to really look at the clients best interest often will not have their jobs for very long - because that would mean to sell less than their colleagues.
And like in any sales organization, every employee has to bring in a monthly quota.
Not hitting your quota a few times usually gets you fired as a salesperson.
That means if you go to John the financier in your local bank, he has to make 30 new credits per month or he might soon lose his job.
The problem is that John also has a family to support and a mortgage to pay for his home, so even if he is a nice person he will have no choice but to sell those credits as good as he can or he will soon be losing his own income.
Even if John is your best friend since high school, he has no choice but to decide between his own wellbeing and the financial wellbeing of you.
John might be your friend from school, but I’m sure his family is more important to him.
The problem is that the majority of people believe that their banker, broker or financial advisor is just that - an advisor who is supposed to help you make decisions and educate you about the financial product they offer.
This belief gets perpetuated by the behemoth of marketing machinery that financial institutions run daily on our screens, suggesting that their employees are actually just advising and guiding us on financial decisions.
Hardly anyone who has ever worked in the industry understands that in reality these people are salespeople and the organisation they work for is a sales organization.
Starting with the bank teller, up to the directors - everybody is focused on selling the products because this is how financial institutions make their money.
In my opinion this is a totally sick system designed to bring ordinary people off against each other, for the sake of making as much profit as possible.
What will really be agreed to if you ever take on a credit is in the writing, the really interesting part very often in the fine print.
But even if you are aware of this, it would require you to read and understand every detail of the 30 page contract that you will be about to sign during the conversation.
It would take you hours, if not days, and the contracts are set up by professional lawyers with words and terms in reference to any law that a normal person would never have heard of and much less understand what it actually means without professional help.
Let me make this clear: the average person is not able to understand what is written in the contract.
Instead people rely on what the bank employee (a sales person) tells them in the conversation (legally not relevant).
The result of this mix of social paradigms and unfair laws favouring the bank, is a lot of misunderstandings.
These are not only very, very expensive for the victim, they can sometimes even mean that the defaulter might have to file for bankruptcy in the worst case.
But during the conversation the bank employee was so nice and told me that everything will be fine and I could easily afford it!
What about the promise that the bank will be indulgent if you might one day have a hard time to pay?
There's nothing of that in the fine print about that.
What happened to the good interest rate that was mentioned during the conversation?
The contract allows the bank to charge otherwise if desired after a certain time.
What about the mentioned “easy-going” process if you happen to be in a financially bad time?
Again nothing mentioned in the fine print.
Think for a moment why every financial institution will need you to sign around 30 pages or more, just for making an actually simple deal with you.
In fact both sides merely have to agree on the sum of the credit, the interest rate and additional costs for the debtor.
How come there is no need for such contracts when you buy furniture or electronic equipment?
The unpleasant but obvious truth is that in such large contracts which actually nobody really understands there are always some legal backdoors that will allow the bank to have a lot of room to adjust every detail of the agreement as it pleases.
Hard times often have the negative side effects that they hit a lot of people in the whole country or economy.
If we face an economic crisis and you as a debtor might lose your job or are forced to accept a pay cut, chances are high that the bank itself is also in need for fresh cash.
With a lot of possible options to generate additional cash from outstanding debt - like the car financing you did a year ago - the bank can easily generate hundreds of millions if needed by exploiting the details of such contracts.
That means in other words if you have taken up any form of debt up to that point, the bank will be exploiting you.
Is there anything left good about banks that can actually help improve your finances?
Well, there is a good form of debt too.
What exactly this is and how this special kind of debt actually can improve your finances is what we will teach you in the next articles.