But some of these questions about key money and finance basics tripped up some of our readers – almost no one got all five answers right. Making financial decisions without knowing the correct answer to even one of these questions can easily shave six figures or more off your lifetime wealth.

So I urge you to pay close attention to the correct answers below. You’ll also find a list of our six contest winners at the end of this post.

Here are the correct answers given by readers to the five questions…

Question #1: If you finance a $30,000 car through a finance company, your actual cost for the car is the money you spend on it, plus the interest you pay, less the value of your trade-in at the end of your loan repayment period.

If you pay cash for a car, what’s your actual cost for the car?

Answer: Joe Goldsmith pointed out what many people with alphabet soup after their name don’t get – that “paying cash for the car is just another form of financing.”

John Nicholson summed it up succinctly: “If you pay $30,000 cash for a car, your actual cost is the money you spent on the car, less the trade-in value at the end of the period, plus the opportunity cost – the loss of interest that the $30,000 could have earned.”

Perry Blouin went on to calculate the enormity of the total loss you could have over 40 years because of this “opportunity cost.” And Valerie Coffman noted, “If you use a Bank On Yourself policy (to pay for the car), you make money as if you never took it out, and you make money on yourself when you pay it back. Awesome!”

As Eric pointed out, “with Bank On Yourself, you accumulate the $30,000 and when it comes time for your vehicle purchase, request a check from the insurance company, receive it within 48-72 hours and then be ready to negotiate with the car dealership.”

Using your Bank On Yourself policy to pay for major purchases also gives you access to money on your terms rather than someone else’s. You can pay it back on your own schedule without worrying about bill collectors, late fees or black marks on your credit report. It beats financing, leasing or even directly paying cash for things by a long shot.

To find out how much more lifetime wealth you could enjoy – simply by using the Bank On Yourself method to make major purchases versus the other options available to you, request a FREE no-obligation Analysis that will show you your bottom-line results. I think you’ll be amazed!

Question #2: If you have a $20 stock and it goes up by 40%, how much money did you make on that stock? (Hint: This is about a key financial principle, not a math question.)

Answer: The talking heads on Wall Street NEVER get this one and do their best to make sure you don’t figure out the blindingly obvious answer to this question!

As Ruth noted,

You don’t make any money until you actually sell your stock.”

Likewise, it makes me crazy when people talk about how much value their home has lost since the real estate bubble burst. You don’t have a REAL gain (or loss) until you sell an asset and lock your profits in.

Which is in stark contrast to the Bank On Yourself method. The gains you receive each year (guaranteed and predictable) are locked in the moment they’re credited to your policy. As for losses… well, there aren’t any. This is based on an asset class that has increased in value every year for over 160 years!

Question #3: According to Morningstar, Inc., the top-performing mutual fund for the last decade (ending December 31, 2009) enjoyed an 18% annual return.

However, the typical investor in that fund wasn’t so fortunate.

What was the annual return of the typical investor in that top-performing fund? And why was their return so different from the return reported by the fund?

Answer: Only one person – Raymond Trembath – nailed the shocking correct answer to this question (no one else came even close), and he also noted the reasons why:

“The typical investor in the best performing mutual fund of the last decade lost 11% annually, even though the fund itself rose by more than 18% annually. The reason this could happen is that all mutual funds are legally allowed only to advertise the results of their ‘buy and hold’ investors, in spite of the fact that long-term mutual funds tend to be held for less than half a decade!”

Doesn’t this typify the smoke and mirrors that the Wall Street Casino uses to pull the wool over our eyes?

If you find it hard to believe that the results mutual funds report could be so different than the results the investors in those funds get, I urge you to read the article supporting this from the Wall Street Journal.

Question #4: What percentage of mutual funds, financial advisors and investment advisory services underperform the overall market? And why?

Answer: Nick H. hit this one spot on when he said, “80% per Hulbert Financial Digest.”

And it’s not just because of the fees they charge. It’s because all the “experts” are humans, too, and are “predictably irrational,” buying and selling at the wrong times.

Question #5: You could have $10,000 in a mutual fund that reports an average annual return of 25% for four years… and at the end of the fourth year end up with only the $10,000 you started with.

How is that possible?

Answer: Doc Youngblood’s little story was such a great, entertaining explanation of this, I decided to include his response in full:

“How is it possible to have $10,000 in a mutual fund that reports an average annual return of 25% for four years… and at the end of the fourth year you end up with only the $10,000 you started with?

The key to the question’s answer is hidden in this short, simple story, but hidden in plain sight for those willing to see.

And the story? You’ll like this I promise—no animals were hurt during its filming.

Imagine we are duck hunting and I shoot. I miss by a foot behind the duck. So I quickly aim and shoot again. I miss by a foot in front of the duck.

By the law of averages, I hit a bulls eye. By the law of dinner, my plate is still empty.

So, if your mutual fund reports an average annual return of 25% for four years, does that mean you’ve got more money in your account?

Let’s play:

Four years later you still have a $10,000 balance. But not once did the rate of return equal 25%. Here’s the percent change for each year: 100-50+100-50. So we add that up (100%) and then we divide that by four years to show our average rate of return is 25% for four years.

Wait! A 25% average rate of return is supposed to be a great thing, right?

Follow the cash in the example above—did the cash increase? The numbers above show one scenario with a 25% average rate of return and ending up with exactly the same money you started with.

However, 25% annual compound interest is a great thing. Take a look:

Year One: $10,000 becomes $12,500 at 25% compound interest.
Year Two: $12,500 becomes $15,625
Year Three: $15,625 becomes $19,531.25
Year Four: $19,531.25 becomes $24,414.06

Were you like me and confused about the two definitions? It’s very common to confuse them AND to assume that the average rate of return is a linear type of activity, one year after the next being the same. Average rate of return and compound interest are not the same.”

(For the record, you’ll find no smoke and mirrors when you see the bottom line numbers and results you could get when you add Bank On Yourself to your financial plan.)

Now for the list of our six contest winners…

There were so many insightful answers that it was hard to pick out only six winners. (All are being notified by email.)

The best entry, picked by our Bank On Yourself team, is Doc Youngblood, who wins a $100 Amazon Gift Card! (Doc – I guess you can tell your wife she was right!)

And the two runners up, who’ll get their choice of a $25 Dining Gift Certificate or a personally autographed copy of my best-selling book, Bank On Yourself: The Life Changing Secret to Growing and Protecting Your Financial Future, are:

1. Eric

2. Raymond Trembath

There were also three winners who got at least one question right, who were randomly chosen to win prizes. The winner of the second $100 Amazon Gift Card is Robert N.

And the two randomly chosen winners who’ll get their choice of a $25 Dining Gift Certificate or a personally autographed copy of my book are:

1. Carl Schoner

2. Rita

Thanks to everyone who participated in this blog contest. You are all winners for thinking – and seeing – through the conventional wisdom about money and finances that has cost so many people so much in lost money, lost time and broken dreams.

Here is how the responses to each of our 10 survey questions have broken down.  The percentages reveal which option our survey-takers find more scary!

You’ll see that snakes, blood, public nudity, eating fire-hot peppers, and even close proximity to a psychotic killer caused far fewer trembles than did the terrifying prospect of winding up in a serious financial jam.

Here’s what Americans find most scary…

1. Which of the following is more frightful to you?

• 22.2% – Death

• 78% – Outliving Your Money

  

2. Which of the following is more frightful to you?

• 28.6% – Having all of your investment decisions — good and bad — published in your local newspaper

• 71.4% – Walking naked down a fashion runway while being photographed

3. Which of the following is more frightful to you?

• 17.5% – Having to remain awake for 48 uninterrupted hours

• 82.5% – Having to memorize all the fine print on your 401(k) plan in no more than 48 hours

4. Which of the following is more frightful to you?

• 64.3% – Watching your stock portfolio lose 40% of its value in only a few weeks

• 36.4% – Ingesting 40 habanero peppers within 24 hours

5. Which of the following is more frightful to you?

• 58.8% – Sitting for 30 minutes in a tub of live snakes

• 41.7% – Explaining to your family or other loved ones that you’ve lost your home to foreclosure

6. Which of the following is more frightful to you?

• 49.2% – Having to pick the one mutual fund (among hundreds) that will outperform all others during the year

• 52.1% – Bobbing for a 10 oz gold bar in a vat containing 50 gallons of cow’s blood

7. Which of the following is more frightful to you?

• 9.4% – Going on twelve once-a-month blind dates with a randomly selected bachelor or bachelorette

• 91% – Entrusting your retirement portfolio to an anonymous fund administrator, who may or may not have any special education or training

Editors Note: Although 9 out of 10 Americans fear entrusting their retirement to an incompetent administrator, millions of Americans may unknowingly be doing exactly that right now! Read our shocking exposé and learn the facts!

8. Which of the following is more frightful to you?

• 64% – Having my personal tax returns audited by the IRS

• 37.3% -Walking around for a week wearing pants with pockets overflowing with live worms

9. Which of the following is more frightful to you?

• 31.7% – Be strapped atop a vintage stunt plane while it performs a typical aerobatics routine

• 70.% – Be tied to the Social Security program as your sole source of retirement income

10. Which of the following is more frightful to you?

• 66.1% – Losing my job and having to live only off of my current savings for a year

• 34.6% -Renting an extended-stay room in the Bates Motel and sharing a shower with Anthony Perkins

Were you surprised by any of your responses?

These results are a sad commentary on the financial condition and current state of mind of so many of our family members, friends, neighbors and colleagues.

The definition of insanity is doing the same things in the same way and hoping for different results.  So, if you’re ready to find a better way to save and invest for your financial future that gives you peace of mind and lifetime financial security, check out the Bank On Yourself method.

To find out how much brighter your financial picture could be if you added Bank On Yourself to your financial plan, request your free, no-obligation Analysis now, while it’s fresh on your mind!

I just held an urgent Teleconference on what you should do right now to protect your family’s financial security.

A number of people told us they weren’t able to attend and asked if it was recorded so they – and the people they care about – could still listen to it.

You can listen to a replay of it below, or you can download the recording as an MP3 and listen to it on your own player or iPod now at:

I urge you to shut the door and put out a “do not disturb” sign while you listen to this critically important information which includes answers to timely questions such as:

• Should you stay in the market despite the turbulence and wait for the market to rebound?
• Is now the time to shift into gold?
• Where else can you find shelter from the storm?
• What can we do to encourage Washington to get its act together?

Find out what you need to do right now to protect your hard-earned savings and take back control of your financial future here:

Nobody is going to twist your arm, and you won’t even be asked to buy anything at your first meeting with your Authorized Advisor.

But at least you’ll know whether Bank On Yourself makes sense for you and your family.  So please request your free Analysis today.

The Dow is down 1,300  points (give or take) in just the last two weeks, plunging more than 500 points today alone

The risk has been increasing daily that we will fall into another recession (if we aren’t ALREADY there), making it likely that the volatility in the markets will only continue – and maybe get worse.

If you have money in the stock market and you haven’t read the article I wrote on “Why You Need Dow 27,000 Today,” I urge you to read it now.

Are you sick and tired of the “hope and pray” method of building wealth?

Do you want to have a nest egg that grows by a guaranteed and predictable amount EVERY single year?

The Advisor selected for you will be able to answer any questions you may still have and show you exactly how much money you can count on having in your plan at any point in time.

If you don’t like what you see, there’s no obligation at all and no one is going to twist your arm or try to hard sell you.

But at least you’ll know whether Bank On Yourself makes sense for your situation.

Wall Street already lost more than 45% of investors’ money – TWICE – just in the last decade

You may not vividly remember the sting of the last crash, but please don’t fool yourself into thinking it isn’t going to happen again.

More than $2 trillion of wealth has been wiped out in the past two weeks, but NO one lost a single penny in their Bank On Yourself plan. It’s an asset that has increased in value EVERY year for more than 160 years and remains the ultimate financial security blanket in both good times and bad.

So, request your free Analysis now.

These “experts” promote the concept as if it makes perfect sense to make up for your gambling losses by doubling your bets.

To me, it’s appalling that anyone would advise those who are already retired to gamble their life’s savings on the volatile, risk-filled world of Wall Street.

But my message – that Wall Street is unstable and potentially as explosive as nitroglycerin – is really not age specific. The stock market can (and will) blow up in your face at any age.

For most Americans – and Wall Street goes to great lengths to hide this truth – the stock market is a promise unmet.

The success myth hyped by the financial services industry is like a casino showcasing its big winners, without mentioning that the prize pool derives from the much larger pool of losers who generate huge profits for the operators, but who themselves walk away worse off than if they had stayed at home.

Money isn’t the only price that the Wall Street casino extracts from most investors

Peace of mind is surely as much a toll. When it comes to steep ups-and-downs and hairpin curves, the stock market is unrivaled by even the most infamous amusement park rollercoasters.

Yet the rollercoaster metaphor only goes so far. For while both Wall Street and theme park thrill rides will set your head spinning and sometimes rocket your stomach into your mouth, only one guarantees a safe, predictable, rapid landing back where you began. The other never does.

The Wall Street propaganda machine is so mighty and so effective, that most Americans continue to buy into the myth that the stock market – over the long-term – is the best place to grow personal wealth. That’s the case, amazingly, even for the tens of millions of Americans whose own money-losing experiences repeatedly prove otherwise.

It’s time to let the “Big Secret” out of the bag: You Are Not Alone. Your eyes, and your personal experience, are not deceiving you. King Wall Street really is not wearing any clothes. Those who say it is are too afraid to admit that they too have been snookered by the promoters who always manage to get paid, whether you win or lose.

There are loads of numbers and statistics to validate my point. (Although I’ll bet that most people reading this column don’t need me to reaffirm what their own stock market misadventures have already proven.)

Here’s an example of the reality versus hype facts that Wall Street wants you to overlook:

The stock market has plunged more than 45% – TWICE – over the past decade. You may not vividly remember the sting of the last crash, but don’t fool yourself into thinking it isn’t going to happen again.

Even in bull markets, if you are like the average investor, you will wait too long to buy and then compound your misery by selling after the bubble has inevitably burst. What money you do manage to preserve could very well be subject to fees and taxes that will chew up a hefty chunk of what should have been yours. What’s left, the scraps, will be your only financial legacy.

So why do so many Americans continue to cling to the notion that Wall Street offers them the best hope of wealth creation?

The main reason is that no safe, non-volatile alternative has yet been able to penetrate the fortress that Wall Street and its promoters have successfully built around the collective consciousness of the American public.

Put another way: There may be a better mousetrap, but it won’t do you much good if you are prevented from knowing it exists.

After investigating more than 450 different financial products and strategies, I know a better way does exist – it’s called Bank On Yourself and it works for old and young alike. It works for those who start out rich and those who start out wanting to be rich. And, best of all, it has worked flawlessly for more than 160 years.

My research led me to conclude that Wall Street has brainwashed the American public into believing we must accept risk and volatility in order to grow a sizeable nest-egg.

Of course, I’ve taken a lot of flak for taking on the financial fat cats. But the $100,000 cash reward I’ve offered to the first person who can show they have a better strategy remains unclaimed after nearly three years.

As Benjamin Franklin noted…

You will observe with concern how long a useful truth may be known and exist, before it is generally received and practiced on.”

Make no mistake: If you don’t know what your retirement account will be worth in 10 or 30 years, you don’t have a financial plan. And if you don’t know how much income you can count on from your investments in retirement, you don’t have a plan. You are gambling.

So whether you are in or nearing retirement, or just starting out on your career path, I urge you to do your research and leave the rollercoaster rides to the amusement parks. Let Wall Street grow even richer using someone else’s hard-earned savings.

Executive Summary: Most modern Americans overspend, assume too much debt, and fail to invest wisely for retirement.  Tim Austin, a leading proponent of ‘old-fashioned’ spending and savings strategies, recommends a time-tested 10/10/10 financial formula: saving 10% of gross income for the near-term; 10% for the mid-term; and setting aside 10% for the long-term.  Austin’s favorite savings tool is specially-designed dividend-paying whole life insurance policies such as those structured by Bank On Yourself’s specially trained and authorized advisors.

By Pamela Yellen and Dean Rotbart

Even back in 1975, the year comedian Woody Allen wrote, directed and starred in the movie Love and Death, the perception of whole life insurance as a savings instrument designed for fuddy-duddies and masochists was already commonplace.

There are some things worse than death”

…deadpans the film’s protagonist, Boris Grushenko, played by Allen…

If you’ve ever spent an evening with an insurance salesman, I’m sure you know what I mean”

(Read: A Savings Fish Tale: Why the Last Laugh is on Planners Who Mock Whole Life Insurance)

Meanwhile, holders of whole life insurance policies such as those designed by Authorized Bank On Yourself Advisors, were more like the Little Engine That Could, consistently climbing ahead and never once loosing a penny during those 35 years.

While no ‘Whole Life 500′ index exists to document the specific annual average performance of Bank On Yourself-style dividend paying whole life insurance versus the S&P 500, even Love and Death‘s village idiot can calculate that funds saved and compounded with interest and dividends without interruption since 1975 would yield a rich, secure and predictable financial nest egg.

Once Discarded Financial Precepts Reborn

Bank On Yourself-compliant whole life insurance policies, contrary to popular lore, actually turn out to be – and to have always been – a highly reliable savings and retirement vehicle.  Indeed, many discarded money-management precepts – the kinds our grandparents and great-grandparents once treated as gospel – are, with the benefit of 20/20 hindsight, proving to be anything but out-of-date.

(See: When it Comes to Money Management, Grandma & Grandpa Knew Best

Ranging from the value of whole life insurance as the cornerstone of a family’s financial plan, to the concept of setting aside as much as 30% of gross income in savings and investment accounts, old-fashioned financial ideas are getting a fresh new look.

Tim Austin, the 46-year-old Founder and President of the National Association of College Funding Advisors

Among the nation’s most-respected and leading proponents of revisiting the financial playbooks of our grandparents and great-grandparents is Tim Austin, the 46-year-old Founder and President of the National Association of College Funding Advisors.

Austin, who knows firsthand that the old sensibilities enjoy increasing modern day currency, has educated more than 5,000 families since 1994 on how average American families can pay for college without going broke.

Like so many financial advisors, Austin began his career dishing out the same commonplace investment recipes that every other planner was serving their clients: a steady diet of stock and bond funds.  When Austin’s grandmother – who lived through the Depression – asked him to safely invest $10,000 on her behalf, she instructed him: ” I want you to put me in something safe.  I don’t care about the interest rate, I just don’t want to lose any money.”

Grandma’s investment, it turns out, was a defining event for Austin.  Still young and relatively inexperienced, he followed the advice of more seasoned financial planners in his firm and put his grandmother’s entire $10,000 in a bond fund in February 1987.  Everyone assured him her funds would be protected.

Then came October 1987 and the global crash known as Black Monday, which up until that time was the largest one-day decline by percentage in stock market history.  Grandma Austin’s bond fund was not spared as it was supposed to be.

The experience caused him to rethink conventional financial planning.  “It made me look at what other people were doing and I realized I just wasn’t getting – or giving – the right advice.”

So Austin charted a new course – one more aligned with his grandmother’s needs, experiences and sensibilities.

The core tenet: there is no need to ever put money at risk in order to grow it and use it reliably

Today, Austin’s typical client is 47 years of age and faces the dilemma of juggling current debt, paying for one or more children headed to college, and still setting aside sufficient funds for retirement.  With his help and some individual self-discipline, Austin says that in roughly 13 years – or by the time his clients reach age 60 – they will have paid for college, be free of all bank and credit card debt, and be socking away savings.

Austin derives his inspiration from the decades of the 1940s and 1950s, when it was commonplace for Americans to set aside 10% of their gross income for short-term needs, such as a vacation or holiday gift-giving; 10% for anticipated mid-term needs and potential emergencies, including a new car, replacement of major appliances, a new roof, and college tuition; and 10% for long-term retirement planning.

For the first two categories – short-term and mid-term – Austin recommends savings instruments, including certificates of deposit, savings accounts, money market accounts and permanent whole life insurance.

For the 10% of gross income targeted for the long-term, he recommends the acquisition of multiple whole life policies, added strategically over time, and designed for income replacement.  Under current tax law, when properly structured, such layered policies provide a guaranteed and predictable retirement income with little or no taxes due on it.

Austin’s 10/10/10 approach avoids all conventional bank and credit card debt.  Instead, he recommends clients pay cash for their larger purchases, such as a car or even a home, or utilize Bank On Yourself-style whole life policies to self-finance major expenditures, effectively repaying themselves over time with interest ultimately ends up in their policy accounts.

In fact, Austin’s experience has shown that the average family could increase their lifetime wealth by $500,000 – or more – simply by financing their cars and vacations through their policies, without taking on the risk or volatility of stocks and real estate.  (To find out how much more wealth you could have by using this method, request a free Bank On Yourself Analysis.)

While our grandparents and great-grandparents instinctively followed a 10/10/10 style of living, now it’s typical for Americans to spend 30% or more of their gross income on mortgage interest, credit card debt, car payments, and other installment loans.

“Pretty much in today’s world, consumers have swapped debt payments for the 35% of their income that used to go into savings and investing,” Austin says.  Depending upon one’s tax bracket, he notes, 30% or 35% of gross income can actually represent as much as 50% of net income.

Listening to the Wrong Prognosticators

“Over the past 30 years, it has become very easy to accept the idea of  a car payment,” Austin notes, “Whereas in the 40s and 50s, no one would have thought about having a car payment. They would have paid cash for the car.  They would have saved the money and then they would have paid cash for that vehicle and they would have started saving again for the future.”  Except for the ultra-wealthy, the idea of acquiring a new car every two or three years was unheard of.

Not only have Americans come to accept debt-financing for many purchases, Austin says, they also have lost the discipline of saving 10% of their gross income for the long term.  Here, Austin believes, the main culprit is obvious: 401(k) plans and the unrealistic returns promised by the financial advisors who promote them.

The mantra for many employees has been and remains to invest only 3% to 5% of gross income in a 401(k).  Then, assuming their employer matches their contributions and that their 401(k) portfolios will grow at an average annual rate of 12% for decades to come, the typical American now assumes – wrongly – that should be plenty enough money for retirement.

Reality, as tens of millions of 401(k) investors learned in 2008, is not quite as rosy.

(See: A Savings Fish Tale: Why the Last Laugh is on Planners Who Mock Whole Life Insurance)

The 401(k) promise, Austin says…

Allowed people to have this illusion that they really didn’t need to put as much money into the retirement savings category.  The higher you forecast their expected rate of return, the less the consumer believes they actually have to save out of their income.”

“Americans,” Austin adds, “have been substantially misled on what needs to go into their IRAs and 401(k)s in order to hit the numbers they need to have.”

In late 2010, conventional financial wisdom, much like Love and Death’s Boris Grushenko, continues to mock those who recommend or purchase whole life insurance policies.

But back in 1942, according to a report titled, Family Spending and Savings, published by the U.S. Bureau of Home Economics, a majority of Americans viewed life insurance, annuities and endowment policies as a preferred method of savings.  And time has proven them – not today’s naysayers – correct.

“It was very common that the whole life insurance agent would be coming around on Friday mornings to collect the $1 or the $5 premiums,” says Austin, who was born in 1964, but has extensively researched the period.  “Those policies were very commonly used for emergency funds, car loans, business loans and such.”

Austin believes so strongly in the value and utility of permanent dividend paying whole life insurance policies that before his clients ever put another dollar at risk, he advises them to work with a Bank On Yourself Authorized Advisor to structure one or more policies tailored to their needs and budget.

(To get a referral to one of 200 advisors who have met the rigorous requirements to be an Authorized Advisor, request a free Analysis that will show you the bottom-line numbers and results you could have if you added Bank On Yourself to your financial plan.)

Austin’s general rule of thumb is for his clients’ first step toward financial recovery to be to accumulate roughly two years of average expenses in a whole life policy that is consistent with the Bank On Yourself approach.

Austin, himself, helped develop and leads the nationwide Bank On Yourself Authorized Advisor training program, so he understands the power of these advisors to help their clients restructure their entire approach to savings, spending and investing.

Savings Come Before Spending

Ideally, Austin points out, individuals would begin following his recommended 10/10/10 formula at the time they accept their very first job.  After setting aside his recommended 30% of gross income, what remains for the newly employed worker would constitute his or her living expenses.  “What remains is what you’d go out and coordinate your lifestyle around.”  (For those who can, Austin recommends keeping lifestyle expenses under 50% of gross income. His best clients, he notes, knock spending down to less than 40% of their gross income.)

(Read about how the Bank On Yourself method allows people to take advantage of opportunities that inevitably arise.)

While high school and college graduates in the 1940s and 1950s were accustomed to such pragmatic ‘home economics’ – as the field of personal finance was known back then, most men and women who walk into Austin’s Troy, Michigan office these days come peering into what they believe is the financial abyss.

“They are looking at college bills, looking at retirement, and just not seeing how the heck they are going to be able to do all this stuff,” Austin says.  “The reality is that if they stare ahead to age 70, it is going to be overwhelming.”  If he added to their trepidation by recommending that they immediately begin saving 30% of their gross income, Austin realizes his shell-shocked clients would walk out, saying, “Well shoot, I don’t have a chance, I might as well just give up.”

So rather than asking his clients to slam on the brakes and jam their financial throttle into full reverse, Austin patiently counsels those who seek his help: “You begin where you are.”

For starters, Austin asks clients to help him put their monthly budget under a microscope.  His goal: to begin reducing the percentage of their gross income that is directed at debt service to under 20% – and to do it as painlessly as possible.

“I have been specializing in this area for 20 years and I haven’t met a family, no matter what income level they are at – from $40,000 a year to $400,000, to $1 million – that I haven’t been able to find some very simple things within their monthly budget that they can trim using some very simple tweaks,” Austin says.

“So you start where you are, trying to find those dollars — $500, $600, $1,000 a month” to redirect to a whole life insurance policy, he explains.  As the cash value in a Bank On Yourself-style policy accumulates, Austin’s clients are able to use their policies to self-finance short-term and mid-term purchases.

Austin favors whole life policies that are consistent with the Bank On Yourself strategy because they have provisions that permit policyholders to continue earning interest and dividends on the cash value of their policies, even while borrowing funds against that very same cash value to pay for the kind of expenses that families previously financed with bank loans and credit cards.

NOTE: Not all companies pay the same dividend on borrowed funds.  An Authorized Advisor can recommend companies that meet all the requirements to maximize the power of this strategy.  You can get a referral to one when you request a free Analysis.

“If we look at Bank On Yourself from an engineering perspective, it is an economic machine that is built to get better with time,” Austin says.  “What happens, once you get policies going, is they snowball.  The more purchases that you finance through these special life policies, the more that these policies are going to snowball and snowball.”

For some clients who are able to build up a large cash value in their policies, the Bank On Yourself strategy actually permits them to purchase and self-finance a home – forgoing the need for a conventional 30-year mortgage.

“Thirty years from now, not only is all of the money that you paid returned to your (whole life insurance) policy, but you are going to have all of the growth from compounding interest, dividends and then some,” Austin explains.  And when the policies are properly structured, the funds grow in a tax-free environment.

A House is a Home, Not An Asset

Austin believes that housing choices and home mortgages are at the root of many American’s current perilous financial state.

In his grandparents’ day, those who needed to take out a mortgage to finance the purchase of a home put as much down as possible and signed up for a 15-year mortgage, which they paid religiously.  Moreover, once in a home, families remained there.

For baby boomers and subsequent home-owning generations, the trend has been to take on 30-year mortgages with as little down – if anything – as possible.  Moreover, Austin notes, during the course of their lives, today’s adults are likely, on average, to purchase four or five homes – often progressively more expensive – during the course of their lives.

Doing so dramatically reduces the opportunity to build equity, even while monthly principal and interest payments on a mortgage soar.  “During the first ten years of a typical 30-year mortgage, about 86% out of every dollar is interest,” Austin explains.  So for those who flip homes regularly, most of their housing dollars are lost to interest alone.

Many of Austin’s clients eventually come to realize how much better off they’d be trying to pay for their children’s college tuition and approaching retirement had they stopped at home number three or four.

Austin also bridles at the notion put forth by so many accountants and financial advisors that a home is an asset.  He doesn’t view one’s home that way and neither did his parents, who purchased their first house in 1958 and continue to live in it today, long after their sole mortgage had been paid off.

“My father never believed that his home is an asset,” Austin says.  ”He has always believed it’s a liability because my mom asks him every single year to change the carpet or make other improvements. They redid the kitchen a few years back.  He has got a pool to maintain.  And he’s got to pay taxes on the house.”

Austin acknowledges that his parents’ home may one day prove to be an asset for him and his siblings.  But his parents intend to remain in their house as long as their health permits – and even if they do eventually sell it, they’d still have to live somewhere else, he reasons.

Never Too Young To Learn

In addition to working with the parents of college-age students, Austin tries to convey his reborn 1940s and 1950s fiscal sensibilities through programs that he and his staff conduct for high school students and even those children who are elementary-school age.

If past can be made prologue for these students, Austin believes, they will grow up and enjoy a lifetime of fiscal stability and growth, unlike the baby boomer generations who pooh-poohed the common sense wisdom of their Depression-era parents and grandparents and now face such economic turbulence.

Most of today’s students are open to revisiting the financial planning wisdom of a bygone era, Austin says.  To the extent that he meets resistance, either from the students or parents, he is undeterred.

“It is a fight worth fighting,” he concludes.

About the Authors:

New York Times bestselling author Pamela Yellen is the originator of the life-changing Bank On Yourself system and related personal finance strategies. Pamela has worked as a consultant to successful financial advisors for more than two decades.

Pulitzer Prize-nominated investigative reporter Dean Rotbart has reported on business and financial topics since 1979. His editorial and research clients include numerous Fortune 500 companies and leading communications agencies.

© 2010 Hayward-Yellen 100 Ltd Partnership

And while there are some hopeful signs of new life in the economy, this year has also brought us:

• Massive bailouts
• A tripling of an already-bloated federal deficit
• A falling dollar
• Rising foreclosures (and likely to spike as billions of dollars in ARM’s are now coming up for adjustment)
• Major banks and investment houses taking on three times (!) the risk they were before the collapse

So what do you think next year has in store for us?

No one really knows for sure.  (Well, except maybe the folks at the Psychic Hotline.)  So how do you prepare for a very uncertain future?
Here’s a quick quiz that may reveal an answer for you…

What’s the one financial asset that increased in value during the market crash of 2008?  And in 1929?  And in every period of economic boom and bust in between?

Answer:  The product used for Bank On Yourself:  Cash-value life insurance.

As I’ve mentioned, my husband Larry and I now have 18 Bank On Yourself policies.  I’ve picked one of them to show you how a dividend-paying whole life policy like this can grow over time – even when the markets are plummeting.  It’s a great example of how Bank On Yourself gives you the peace of mind that lets you sleep at night.

Here’s how much this plan has grown each year since the beginning of 2000, a period that includes not one, but TWO devastating market crashes.  In four of these years, the S&P 500 was down for the year, as you can see in this side-by-side comparison:

If you had put $10,000 into an S&P 500 Index fund at the beginning of 2000, how much do you think it would be worth today?

Take a guess before you read on.

Based on where the S&P 500 has been trading this past week (week of December 7-14, 2009, it would be worth only about $7,488!  That doesn’t even factor in inflation over that period, which would slash the value of your investment by about another 27% – to $5,466!

Have you considered that maybe – just maybe – return OF your principal is at least as important as return ON your principal?

If you could turn back the clock, where would you rather have put that $10,000 – in stocks, mutual funds and real estate?  Or in an asset that has only one direction – up – and where all your principal and gains are locked in?

If you look at the chart above again, you’ll notice how this policy – like the rest of our other 17 Bank On Yourself policies – has increased in value each year by more than it increased the previous year, even though our annual “contribution” never increases.

I’ll be getting my next annual statement for this plan soon, and – like every other year – I can’t wait to see it!  Can you imagine looking forward to receiving every account statement, because they always contain good news and never any ugly surprises?

Of course, I already know how much growth I can count on receiving this year (and every year).  The growth in these policies is both guaranteed and exponential – with no luck, skill, or guesswork required to make that happen.

But there’s also the potential to receive dividends.  Dividends aren’t guaranteed, but the companies used by Bank On Yourself Authorized Advisors have paid dividends every single year for more than 100 years – including during every market correction, every bear market, and even during the Great Depression.

So, let’s fast-forward 7 years.  That’s when I’ll be 64. (Yeah, I know a woman isn’t supposed to tell her age.)  Suppose I want to retire at 65?  How much will the Bank On Yourself policy I used in the example above grow that year?

This particular policy is projected to increase by $47,709 that year, based on the current dividend scale.  I also know for sure the minimum guaranteed annual income I can take from this policy in retirement. And I can access that income stream with no taxes due on it, under current tax law.

I have NO idea how much my mutual funds will be worth nine years from now.  Or 30 years from now.  And I have no idea how much income I can count on receiving from them.  Same goes for my home value.  Do you?

And that sums up the problem with traditional investing and retirement planning methods.  They never have been – and never will be – anything other than a crapshoot.

It explains why, sadly, so many Americans are wondering, “Will I ever be able to retire?” and “What will I have to give up to be able to do that?”

But it doesn’t have to be that way!  Not when you Bank On Yourself.  Since I love what I do, I probably won’t quit when I’m 65, but it’s nice to know I’ll have a choice.

Every situation is different, and no two Bank On Yourself plans are the same, so your numbers won’t be the same as mine.  Each plan is custom tailored to fit your unique financial goals and dreams.  So if you want to find out what your bottom-line numbers and results could be if you added Bank On Yourself to your financial plan (if you haven’t already done so), you can request a free Bank On Yourself Analysis here.

Key Concept:  Unlike investments like stocks, mutual funds and real estate, where your gains aren’t locked in unless and until you sell them, all the growth you get in a Bank On Yourself policy is locked in! It doesn’t vanish because of a market correction.

Not only will you never have to worry about buying or selling at the wrong time, you will benefit from the continuous compounding of an ever-increasing base.

This also gives you some built-in protection against inflation

Can you see how, when you Bank On Yourself, you can shut out all the noise about the whip-sawing stock and real estate markets and other investments?  The peace of mind it brings you is indescribable.

We are only a few short weeks away from a new decade.  How confident are you that this next decade will give you a smoother and more predictable financial journey than the decade now coming to a close?

If you’re tired of hoping and guessing what the future may hold, and you’re ready to have a financial plan you can predict and count on, why not take the first step now?  Request your free Analysis and get a referral to a knowledgeable Bank On Yourself Authorized Advisor who can show you how a custom-tailored plan can help you reach as many of your short-term and long-term goals and dreams as possible!

These Advisors are also masters at helping you restructure your finances to free up money to fund your Bank On Yourself plan.

Click on the play button to discover…

• How Bank On Yourself grows your savings both predictably and guaranteed… even when stocks, real estate and other investments tumble

• How it can beat the pants off your best saving or investing method

• How the kind of policy used for Bank On Yourself is different from the ones Suze Orman, Dave Ramsey and 99.9% of all financial advisors talk about

• Why it’s an excellent alternative to traditional retirement plans

• How you can use it to get back what you pay for major purchases

• Where to find the money to get started

After you watch the video, I’d love to hear your thoughts and feedback – so please speak your mind below.

The reality is that the typical mutual fund investor has actually been losing 1 percent per year over the last 20 years, after adjusting for inflation.”

The statistic comes from the respected research firm, Dalbar, Inc., in its 15th annual study of mutual fund investor behavior. The study measures the returns investors actually get, not the returns they wished they got.

According to Lou Harvey, the president of Dalbar, the study once again revealed that

“investor returns lag what performance reports and prospectuses would lead one to believe is achievable. While those returns are theoretically achievable, the reality is that investors are not rational, and make buy and sell decisions at the worst possible moments.”

Let me paint a picture of how this happens: Lets say you do what the author (who calls himself “David K.”) of the rather nasty blog comment suggests and buy “simple index funds” and hold them for twenty years.

Now, it should be noted that “David K.” did not suggest he had actually managed to follow his own recommendation, nor did he offer any brokerage account statements that show he had the wisdom and patience to hold onto an index fund for 20 years. (I, on the other hand, do show my own Bank On Yourself policy statements as proof.)

That’s not the point, but let’s say you did buy an index fund 20 years ago. When the dotcom stocks were flying high a decade ago, most investors jumped on that bandwagon. Index funds that tracked the overall market were no longer in fashion. Investors loaded up on tech stocks and mutual funds, ultimately suffering deep losses when the internet bubble burst.

Afraid of losing even more, many investors sold off their internet stocks. This is in spite of their “resolve” not to try to time the market. Many were also too scared to get back into the market, until they had already missed the big upswing, which wasn’t even in tech stocks.

Pamphlet from the Dutch tulipomania, printed in 1637

This is the kind of pattern human beings have followed for all of eternity

A few years ago, it was real estate. In the 1600′s in Europe, it was tulip bulbs, of all things.

Since the current bear market started, most of the otherwise intelligent people I know sold off their stocks and mutual funds. It has nothing to do with intelligence. We humans are motivated by fear and greed, which is why you will find very few people who actually did hold on for two decades to an index fund that tracks the overall market.

So, is it just us “regular” folks who do this?

Nope! 80% of all mutual funds underperform the overall market (source: The Motley Fool), and 80% of all investment advisory services underperform the overall market (source: The Hulbert Financial Digest).

So the scenario that David K. paints that could have given investors a 6% return over the last 20 years happened for only a small percentage of people.

If even most experts can’t do it successfully consistently, it’s not a science – it’s a crapshoot.

David K. also conveniently ignores the fees charged by mutual funds and the wealth-killing management fees you get charged in 401(k) plans, etc. (60 Minutes recently did an expose on this.)

The reality is that if you’re in a higher tax bracket, you’d need to get a 7-8% return before taxes to equal the net return you could get in a Bank On Yourself policy. (Under current tax law, you can take retirement income from a Bank On Yourself policy with little or no taxes due.)

And when you Bank On Yourself, you can do that with no luck, skill or guesswork required, and you can do it without the stress and the nail-biting ups and downs of stocks, real estate and other investments.

David K. insists “you simply are not going to get big returns without considerable risk.” Like most Americans, David has been brainwashed (especially by Wall Street) into believing we must accept risk and volatility to grow a sizable nest-egg.

It’s a lie!

To respond to David’s comment that if he were in Suze Orman’s shoes and had 25 million dollars, he “wouldn’t mess around with the stock market either” – this was in response to an earlier blog post where there was a link to the New York Times interview where Suze said she only invests 4% of her liquid assets in the stock market because “if I lose a million dollars, I don’t personally care.”

I will say again that I believe financial gurus like Suze, Dave Ramsey and others have some very good advice and have helped many people turn around their financial lives.

But I’ve got news for David K. – Suze Orman did not make her fortune by taking the risks in the stock market she urges the rest of us to take. She made her money through endorsements, TV appearances and book and other product sales.

Would you eat in a restaurant where the chef eats their own cooking and then throws it up?

If not, maybe you should think twice about following advice that the advice-giver can’t stomach themselves.

Stay tuned, because I will soon be revealing the details of a shocking new report on the long-term results people have been getting when they invest in the stock market.

Of course, inflation during that period has reduced the value of your dollars by at least 36%.

The reality is that most Americans have been digging themselves deeper into a financial hole every year, with no way of knowing how long it will take to crawl out.

If you’ve looked at the long-term historical trends of the stock market, this should have come as no surprise to you.

It was never a matter of if this would happen. It was only a question of when.

FACT: Wall Street’s dirty little secret is that it’s the norm, not the exception, for the stock market to end up going nowhere for very long periods of time. Over the last 80 years, for 52 of those years, the Dow was in a stall for ten or more years. (By “stall,” I mean it ended up back where it was ten or more years earlier.) That means about 65 percent of the time the market was at a standstill!

FACT: After the stock market crashed in 1929, there was a six-month “sucker” rally, and then the Dow continued tanking, ultimately taking three years to bottom out… down a staggering 89%, and then taking twenty-five years just to return to its pre-crash level.

Could something like that happen again?

I don’t know. And neither does anyone else, including all the talking heads on TV and in the magazines and newspapers.

And that’s the problem – most people have been pinning their hopes for financial security on things they can’t, never could, and never will be able to predict or count on.

So the big question to be asking yourself today is, in the immortal words of Dirty Harry – Are ya feelin’ lucky?

Take back control of your financial future – starting today. Grab your copy of my new book, Bank On Yourself at:

http://www.bankonyourself.com/products

Pamela Yellen