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Monday, November 25, 2013

The Difference between being Rich and possessing Wealth

Today we're going to talk about two terms that seem to be one and the same theoretically but in a true everyday life sense are not..

Being rich and Being wealthy.

To explain this concisely we will use two women: Allie and Bea

Allie is a 45yr old normal everyday person..  She's not poor but not middle class..  She's a hustler in the good sense of the word working one job to the next while trying to survive and build a mini nest egg.
Because she lives in the city, she uses public transportation to get around, and currently is renting an apartment, splitting the cost with a roommate.

And because of either a deep mistrust of banks and/or government pretty much her entire life savings is in cash; kept literally in a coffee can where no one but her can find it --

All $35,000 of it..

Now Bea is a very successful woman by all accounts.  She owns her own business and has made enough money over the years to allow her as a single woman to own her own home, two cars, etc..
Bea is not a 'millionaire' but lives a very comfortable life surrounded by beautiful things.  Her income is somewhat consistent so it gives her the freedom to shop for nice things with the means of paying back in full, and she even invests in the stock market.

Bea has a net worth of over $750k but only has $12,600 in her bank, most of which is in a money market because with her lifestyle, its not practical to hoard cash.

OK, now who is richer..  Allie or Bea?

Obviously its Bea.   No brainer there..

But...  Who is wealthier?
The answer is..   it depends.

Now if both women went to the banks seeking loans, Bea would have a far easier time acquiring one than Allie.     She'd also get better financing than Allie if both sought to buy the same car, etc..

It is fair to say that within the perfectly working construct which is this Matrix or "System" we live in, Bea is also wealthier.

OK, now let's peel the onion to delve deeper..

Let us say the nation is attacked again like 9/11.. Or market crash..  Or something totally unexpected..

Who would be wealthier, Allie or Bea?
Remember after 9/11, the stock market was closed for four days and during that time you could not access your stocks for purposes of cashing out.  You also could not touch your CDs or get into your money market account...

In this situation, Bea would only have whatever funds she kept in her checking account until such time as things normalized.

Allie would have $35,000 at her disposal.

Or lets say circumstances required the immediate need for $20,000 cash..   Doesn't matter if for legal or illegal purposes..

Could be bailing out someone you care about out of a really bad fix or else he/she will be greatly harmed..

Could be a margin call after your stock tanked..

Who is wealthier in an emergency-- Allie or Bea?

Bea has all her money tied up in property and possessions; very difficult to sell a car in less than a day and hawking jewelry gets you 15 cents on the dollar..

Allie has $35,000 in cash.
Now it certainly would be painful and even foolhardy for her to part with over half of her lifetime nest egg.. and we will trust she is sensible not to.

But in emergencies or any circumstance where the System breaks down or one needs to conduct business privately away from its prying eyes, Allie is in total power; she holds all the cards.

Bea owns things.. objects that can not be quickly liquidated.

The longer something occurs natural or man made that either requires large amounts of cash or prevents her access to what funds she possesses, the worse off she'll be.
A person can be both wealthy and rich..

But you do not have to be rich in order to possess wealth.

You simply have to literally possess your cash.

When you put your money in a bank, you are limited as to how much you can access at any given time.

Try taking $1,000 out of an ATM machine.   You will be told there is a daily limit of perhaps $500-$600 you can withdraw.
Try going up to your bank teller and withdrawing $20,000 in cash...  In all likelihood you will be either told to come back when the bank possesses it or made to wait and wait while heavily scrutinized...

They will also report it to the IRS and every other government agency that monitors such things..

If you want to experience what its like to feel like a criminal, attempt to withdraw at least $8,000 of your own money from your own account...  Then ask for it to be in $20's

If you use your credit/debit card to make purchases, there's daily limits as to what can be charged even if you possess more than enough funds in your account to cover, and if you make a purchase that the bank doesn't seem to think is 'normal' for you, it will decline you and/or freeze your account
~ An example of Native American historical PC revisionism...

They're pretend its for your benefit.. a safety protection against fraudulent use.   But its not..  The bank wants to control your money and your ability to access it.

That is why a person should only keep enough funds to pay bills and cover emergencies.

For example, and we know this is not practical or doable for most and we respect that... Nonetheless, if your bills for a given month run you $2500, there's no reason to keep more than $3500 in a bank.. The rest should be withdrawn.

And if one needs to write a larger check at a given moment, one simply deposits the cash needed to cover that check beforehand..
~ And an example of Native American historical Truth

Cash unlike checks process immediate to one's bank account.

Pretty much in all aspects of life, cash can still be used rather than credit so why not use it?   Why leave a paper trail that says you went to WalMart on X-day at X-o'clock then spent X to eat at Olive Garden..

Cash is convenience and its privacy.

And for all the fear that robbers will break in and know you kept all your cash inside a box of Shredded Wheat, the real robbers are the banks that hold onto your cash, control every aspect of your access to it, charge you fees to acquire your own money and record/report your movements to others.
~ And another..

Then the banks take your money which you get basically zero rate of return in interest, then via fractional reserve lending, are able to lend out 10x the amount acquired by you to others for home and car loans at 5-10% interest

So to finish the example from the beginning of this post, Bea may be richer.. Own more possessions and live an overall more comfortable life..

But if/when society or the system breaks down even briefly, it will be Allie and her $35k cash in the drivers seat, able to make the best choices and enjoy a level of comfort that Bea for all her homes, cars, and credit cards will be denied.