The Dangers of Conditioned Thinking

conditioned thinking, stop sign, yield, 401k, IRR

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Conditioned thinking can often hold us captive. What is conditioned thinking? It is the process our brain goes through when it has been exercised repeatedly to think a certain way. Conditioned thinking is to our mind, like weight lifting is to our muscles or running is to a marathoner. With a marathon, you get the first mile into the race and your muscles take over, as they know what to do and how to do it. Our brain is the same way.

The signs we see every day are great examples of conditioned thinking. You will immediately know the color of a STOP sign. It may take some counting, but you’ll eventually get how many sides the sign has as well. For reference, the answers are Red and Eight. Now, what you choose to do when you approach a stop sign at an intersection is between you and your conscience.

On that same wavelength, how many sides does a YIELD sign have? If you say three, you are correct. What do you do when you approach one of these signs? The correct answer is to be cautious and look for other traffic. Now, what color is a yield sign?

In my experience, a large majority of the people I speak to will say yellow, and be honest what image did you have in your mind when you read that question? Whereas the most common Yield sign is red and white. We are conditioned to think a certain way about financial products as well. We are led to believe that the only way to grow rich in retirement is to put money at risk in the stock market. We are conditioned to believe that life insurance is only valuable while we are in our working years. We are conditioned to believe that the cheaper a life insurance policy is the better option. We are conditioned to believe that the only savings vehicle for retirement is the 401k.

Allow me to illustrate an deep-dive example of how we combat the conditioned idea that debt is bad and your money can only do one thing at a time.

When I look at my own policies, I see the Internal Rate of Return (IRR) is just north of 4% but compared to my friend, Mary Beth, who is excited to tell me her 401k is up 15%. Both she and I hear of a rental house that our neighbor must sell because he needs money. Now, Mary Beth has been very diligent to put as much money away as possible into her 401k because she has been conditioned to believe that is where you will grow wealth. However, when she tries to access that money, the company that has control on her money tells her that she can’t have access to it because she already took a loan to buy her car. I, on the other hand, go into debt and pay 5% to borrow against my policy and purchase that $150,000 and close in five days. Our neighbor was so excited to get cash, that he was willing to sell it to me for $115,000. If I were to take three months to turn around and sell that property at the market value of $150,000, what is that rate of return? Most people would think that I made 111%.

The key is, I didn’t use my own money. Instead, I was using the insurance company’s money. The only cost I had was the cost of interest on that money. To break it down further, it was 5% on the $115,000 or $5,750. If we figure $5,000 to sell the house, I made a profit of $30,000

Does that beat the 15% Mary Beth was getting on her 401k? Yes. Additionally, my policy is still growing as if I had never taken a loan. Yes, I had to pay someone 5% interest on the loan, but once I sell the property, I will be getting a huge return on the 5%.

What I would like you to see is that by keeping an open mind, questioning those things we have been conditioned to believe, and working with those that are thinking outside the conditioned financial box you can grow wealth outside the status quo. The possibilities are infinite.

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