Five Ways People are Legally Stealing Your Money

Don’t you hate it when you find out you have been taken? I sure do. I buy something the salesman convinced me was a great deal, only to find out later that it wasn’t a deal at all. In fact, I paid a whole lot more than I needed to.

There is a lot of this going around today. I get so many calls from people or organizations trying to sell me something, that I stopped answering the phone if I don’t recognize the number. Unfortunately, sometimes it is a call I need to take and I miss it. 

Following are five ways connivers are transferring our hard earned cash to their pocket, often without us even realizing it. 

Extended Warranties

A warranty is essentially an insurance policy for a very specific item. An insurance policy is taken out to cover expensive things that would lead to a financial catastrophe if they happened. Good examples are medical malpractice insurance and fire insurance for my house. Either of these events could cost me, suddenly and unexpectedly, hundreds of thousands of dollars. That is worth insuring against.

But if my dishwasher breaks, I can get it fixed or buy a brand new one for $600. That is hardly catastrophic and wouldn’t be a big hit to my finances. So why would I ever consider purchasing an extended warranty (insurance) for an appliance? Extended warranties are a waste of money. There is never a good reason to invest your hard earned money to insure inexpensive items.

This industry has become a 40 billion dollar business. That means that every year they siphon off 40 billion of our dollars for something none of us need. Why do they do this? Because they can. 

For the companies who sell extended warranties to make a lot of money, they must sell policies that are never collected on. The reason we get a call asking us to extend the warranty on our car every week is because they are making a fortune selling them, and we are biting.

If they make a lot of money selling them, then we can save a lot of money by adding the price of the warranty to our emergency fund, instead of buying an extended warranty. When we do have an item break that isn’t under warranty, we can use the money in our emergency fund to cover its cost. So just say NO to extended warranties!

Installment Payments

It seems like a good idea when the salesman tells me I can make easy monthly payments instead of paying it all now. But have you ever thought about why monthly payments are always offered? Because they make a ton of extra money if we bite. That money comes right out of our pocket.

I remember shopping for a couch. The only price on the tag was the monthly payment, there was no indication what the buy now price was. I asked the salesman what the interest rate was on the loan. He told me there wasn’t a loan, so there wasn’t any interest. It was a rent-to-own deal. You are paying rent, not interest. 

When I pressed him for the price if I paid cash, he made a trip to the back and returned with a number. I went home and calculated what the effective interest rate was on the easy rent-to-own monthly payment; it was over 20%. 

When we make installment payments, it is actually another way to transfer some extra money from our wallet to theirs.

Zero Percent Financing

It seems like a no brainer to borrow money for zero percent. But think about it. Why would a company that is in the business of making a profit by selling things ever offer you zero percent financing? What is the catch? How are they making money?

They are usually using the zero percent financing to entice you to buy something you would not otherwise buy, or they have inflated the price to cover the financing. Either way, you lose money.

For more information see my article Zero Percent financing is Not Always a Good Deal

Investment Life Insurance

It sounds so good the way the salesman explains Investment Life Insurances benefits. And why not, since hundreds of hours went into training that salesman to convince us it is a good deal. “You can make a great profit and borrow your money back tax free,” they tell me. They don’t mention that I could put my money in any bank account and take it back out tax free. These products are sold under various titles, such as: Whole Life, Universal Life, Variable Life, Permanent Life Insurance…

I met a slick salesman at a success seminar who wanted to set up a meeting with me to discuss a great new retirement plan option I should be telling my followers about called the 7702 plan. He had all the right things to say to get me interested. They always do.

During the break, I Googled the 7702 retirement plan to learn more about it. I discovered that 7702 is the IRS legal section for how cash value life insurance is taxed. 

Since many of us have become wise to the investment life insurance racket, this slick guy gave it a new title so I wouldn’t run away, giving him a chance to reel me in. If they have to hide the name, steer clear.

Over 80% of the people who buy these products, by any of their various names, cancel them. That should give you pause. If the majority of purchasers, after they learn the rest of the story, back out of the deal, we should all stay away from the start.

Never combine life insurance with any form of investing, even if you think your situation might be different. It will cost you a fortune. Stick to term life insurance and buy an amount that works for your family for the period of time you will need insurance. Here is a link to my article on Calculating the Right Amount of Life Insurance. 

Celebrity Endorsed Investing

Every time I see a celebrity spokesperson on a commercial I realize they must be making a fortune on this product to be able to afford to hire a celebrity for a national television campaign. But the biggest problem is usually the timing. 

If I’m looking at an ad saying, “I always buy my gold from….” Then it is clearly not the time to buy gold, and they are trying to convince me it is. Why? Because they have gold they want to sell while the gold prices are up and are paying for a national ad campaign to do just that. If they want to sell so badly, it is not the time to be buying gold, it is time to be selling. 

There is no way a national ad can know enough about my family’s situation and my investment portfolio to know what I should be doing right now. Never directly use generic investment advice aimed at everyone. Get your advice translated into what you specifically need to do. The advice on the TV is what they want me to do to help their investment portfolio, not to help me boost mine.

I hope you will remember the five ways hucksters are stealing your money the next time one of them crosses your path. It is your job to grow your funds and not let them be frittered away by slick talking people who want to do a transplant on you. They want to transplant your money into their wallet. 

Just say NO!

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19 thoughts on “Five Ways People are Legally Stealing Your Money”

  1. Nice article.

    But you didn’t mention the stock market.

    Any thoughts/comments about the 2001 and 2008 crashes. We’re probably heading into another.

    Frankly nothing is safe.

    If you do well, you’re more likely to lucky than smart. Or you maybe doing the stealing.

    • Peter, You don’t have to be lucky to make money in the stock market. Simply stop buying individual stocks and buy broad index funds and invest for the long haul. I didn’t mention a lot of other ways people are legally stealing from you, the article would get too long.

  2. Extended warranties: We’re partners in a house in Kauai. The ocean/wind/salt limit a tv’s life to about 2-3 years. An extended 5 year warranty is maybe $80. I normally wouldn’t buy one, but there are circumstances that make them a good investment.

    • I agree…I bought an extended warranty on my new BMW at the time of purchase, when it was much cheaper to buy. Having owned a BMW before, I knew that simple repairs can run into hundreds. I wish you could be more nuanced.

    • James, Not sure how Rich Dad, Poor Dad came into the conversation, but I am also a real estate investor and I find it just as relevant today as when it was written. The bottom line of the book is to be an owner of an income producing business, not an employee of someone else’s income producing business.

  3. There is a world of difference between Whole Life and variable life policies and the two should not be lumped together. The biggest difference is that in a whole life policy your premium is level and never changes. With a variable policy you can get sucked in with a lower “variable” premium but if the investment portion of the policy does not perform well enough for your cash value to fund the actual “necessary” premium to keep the policy in force, you will be presented with a huge bill if you want to continue coverage. This is something you are never going to be honestly warned about by the agent who suckers you in with the original low premium. This happened to me and I was forced to let the policy laspe.
    So don’t confuse the two. There is nothing wrong with a whole life policy from a financially sound company. You will hear people like the author of this piece to only buy term life because it’s cheap and you can invest the difference you would pay for whole life, but you never know how your financial well being is going to play out. You may wish you had that level premium whole life policy with a nice fat cash value when you are an old retired doc!

    • Sanford, They might be different, but both are a poor use of your money. When you are an old retired doc, you will have a fatter cash value if you invested the money yourself (not in a life insurance product) and you won’t need any life insurance.

  4. Speaking of locum companies can anyone tell what is their real margin… in one rumor it is 100%… they work with you through credentialing and are more than willing to pay you license fees and then they press you very hard to sigh the agreement with as long of a commitment as possible and then for as long as work they make a cut of every cent you make and even after the commitment is ove they own your name with the hospital company for years!!!

    • Hi Tahcin,
      I’m an anesthesiologist who’s done locums intermittently for more than 20 years. I’ve also hired them and their agencies for different practices I’ve worked for long term. The agency is essentially a finder, collector and reseller of available physician time. They spend most of their effort finding and engaging the services of physicians with time to sell. The usual margin for anesthesia is 15-30%. But if you are the anesthesiologist with time to sell, it’s very important for you to know what you are worth. It is not the role of the agency to explain that to you. The agency knows from experience selling physician’s time to their clients what that time is worth to their clients. When they contact you, they will very rarely ever make you a specific dollar per hour offer. They will likely resist if you ask for one. Their callers are trained to try to get you to give them the specific dollar number that you are willing to sell it for. If your specific quote is 80% of what they know they can sell it for, then their margin is 20%. But if you don’t know your worth, and you give them a dollar per hour quote of half of what it’s worth to their client, they do not pass the savings on to their client. They just increase their margin to fill in the gap (created by your low quote) to total the price that they already know their client is willing to pay (that was probably discussed with the client before they started the search). That can result in a margin of 100%. And this is why they want you to give them your specific quote first. They are hoping to have found that one doctor who is worth a lot, but unaware and willing to sell for a small fraction of it. So, bid high and let them try to get you to accept less, when they’ll be required to get specific on how much less. If you get a locums confirmation letter (separate from provider services agreement, a short form specifying actual dates of work with hourly rates) with a very long time period of commitment , it’s likely that your bid is either very low, or the only bid they have for that client. In this event, you can shorten the commitment period it to say, one month. You can use that month to survey the client facility in person and decide wether you want to raise your bid for the following month, or look for a new facility with the same, or different agency. You can work for as many different agencies at as many different facilities as you like. And if you want, you can wait out the no compete with your favorite facility, or favorite area while you work at other options. ‘Hope this helps. If you have other questions, feel free to email me. 🙂

  5. A much more common daily occurrence of people stealing YOUR money is the middle man in YOUR practice. Locums Companies skimming off the top, Corporate hospital systems skimming off the top(when was the last time YOU got a comprehensive fully disclosed financial sheet on YOUR practice?), working for a corporation where some suit sitting behind a nice oak test on his houseboat skimming off the top while you work nights and weekends, and employment agreement where you have to pay them to work, are all examples. Bottom line, it takes many physicians half their career of learning on the job to stop letting other people steal YOUR money.
    Last put least, YOUR financial adviser must be vetted.

  6. Celebrity endorsed investing… So true.

    I barely found out today that Robert Kiyosaki’s Rich Dad seminars are run by franchisees and that none of the advice really is controlled by Robert Kiyosaki. Have to be very careful who’s actually saying the advice.


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