Math Sucks

The question all math teachers hate: Will I ever use math in real life?

The basics are used almost every day: Paying for shit or calculating tips.

It can help you make important life decisions: If I pay the water bill, will I have enough to get drunk tonight?

Consumerism: Is this dress really worth it for an extra 20% off the sale price, since I already have one with red flowers? No, I don't wear dresses. Unless I'm paid to.

The dreaded word problem: Transfer your balance to this new credit card and get 0% interest for 24 months, unless you buy more shit with this card, and then we charge a gawd awful amount of money on those purchases until you pay off the transfer balance, which is likely to be more than you can pay off in the next hundred years.

I look Asian. I am Asian. But math ain't my strong point. However, I know enough to make me dangerous.

Looking at my bank account, I have five bucks. And no, my dear, not the animal deer. So I wanted to know where I could invest my nest egg.

I went to a lecture presented by what I thought was a financial planner, but instead was a salesman. Of what, I was about to find out. And I was the only one who showed up. Suspect.

You know when you're in the middle of a massive forest fire, and there's like hella smoke, and tears are like pouring out of your eyes, and you like can't see nuthin'? That was the first two hours of his slide presentation, a smoke screen.

"Do you have a 401K?"

I nod. "Is that bad?"

"It's tax deferred." Meaning the money I put in my 401K isn't taxed until I withdraw it when I retire, say 30 years from now.

I purse my lips. "Yeah..."

"If you're a farmer, do you want to pay taxes on your seeds, or do you want to let them grow and pay on your harvest?" 

In other words, do you want to pay taxes now, a smaller amount, or pay taxes on your money later, a larger amount? Paying taxes on $100 bucks now is way less than paying taxes on that same money that may have grown to say $340. I'll explain later.

"Now?"

He pointed at me. "Smart man. Not many people get that."

I patted myself on my back with my own hand.

He clicked to the next slide and went over some money concepts.

I didn't know it then, but the salesman had started to talk about self banking. Basically, banks make a ton of cash by loaning money for your $20,000 car, for example, and having you pay them back that twenty grand with interest. Easy money.

In self banking, you pay for the $20,000 car upfront, and then pay yourself back that twenty grand with interest. That way, instead of the bank making bank on that loan, you're the one making bank on your own money. Because that's what you would have done in the first place. Why pay the bank when you can pay yourself? Oh my Gawd! Brilliant!

Then the salesman threw more kerosene into the fire (i.e. more smoke).

"Now that you have more money," he said, "you want a higher quality of life. Right?" Mo'money mo'problems.

"So you buy a second car," he continues, "say an SUV, then get a couple of jet skis, one for you and one for the little lady."

I nod. Can't leave out the little lady. Happy wife, happy life.

"Then you go on vacation, so you self fund that."

Hell yeah.

"Do some upgrades to your crib."

I feel ya, bruh! OK, he didn't use the word crib.

"Buy yo baby momma bling, bling."

Excuse me?

When all was said and done, by loaning myself my money, and paying myself back my money (principle) with more of my money (interest), my money would have increased by 18%, or something like that. I don't remember the actual number.

He pointed at the 18% on the projection screen. "And the banks barely give you 1% for your savings account."

Dats right! Sign me the fuck up, mister!

"So instead of putting everything into your 401K, you can buy a life insurance policy that has a cash value. So depositing ten grand, more if you like, which is better because it benefits you," sure, sure, "you'll have about $6000 in cash value that you can borrow against."

I squint my slanty eyes. "Oh...kay..."

"And the second year you put in another ten grand, the cash value added is around $7000..."

Spock eyebrow. Illogical. "Uh..."

"So after about ten years," he barreled on, "you'll almost retain the cash value of your ten grand deposit for that year."

I raised my hand. Remember. I was the only one there. "Where did all the money go? Like the $4,000 of my first ten grand?"

"Oh. That's just to put the life insurance policy in motion and to maintain it."

Whatchutalkingaboutwillis?

Who you got back there running this thing? Donald Trump? Well, that explained it. 

Hold on...

I would have to have like a hunned grand ($100,000) to self fund all this bling in order for me to make that 18%, which is mine to begin with, hidden deep in the corners of my couch cushions. Right?

My finger tapped my lip. My mind was like, "Danger, Will Robinson!" Something else didn't make sense. His farmer example defied a math principle called multiplying. Paying taxes now or later doesn't change anything mathetically on the back end.

Say Uncle Sam takes 25% of your paycheck for taxes. So that $100 example, you'd have $75 dollars left. If you invest that with an 8% return for 30 years, you'd have $255.

But if you put that $100 in your 401K, you'd have $340 after 30 years with an 8% return. Then you'd pay your 25% tax on that, which would give you $255.

So his farmer example was bullshit. Good for the farmer. Bad for the math-challenged.

Not only that, the 18% interest earned on my own money also covered the fact that I was paying a $4000 commissions on my first ten grand deposit. That's 40% loss. Yes, that loss gets less and less each year, but that 18% will not make up for it because it was mine to begin with. Whether I put 18% in a glass jar or in a piggy bank, it's still mine. 

So, yeah, you'll use math in real life, or be someone's sucka.