There is a basic economic principle that is vital for you to understand.  It could prevent some terrible future financial decisions.  In effect, it could save your financial life. 

That basic economic principle is TINSTAAFL.  It is an acronym for There Is No Such Thing As A Free Lunch.

There is a basic economic principle that is vital for you to understand.  It could prevent some terrible future financial decisions.  In effect, it could save your financial life. 

That basic economic principle is TINSTAAFL.  It is an acronym for There Is No Such Thing As A Free Lunch.

I believe that this is probably the most often ignored principle that causes financial harm to unsuspecting consumers, so we wanted to bring it to your attention and arm you with ways to protect yourself from entering into a financial transaction that may not be in your best interest.

Now, I know you are probably thinking, "Well, everybody knows that!  I was taught that on my mother's knee."  But you would be shocked by how many people in their daily financial decisions ignore, or simply don't think of how this timeless principle applies to their situation.

Many financial products and services are sometimes presented as "free lunches" (some products more than others).  As a matter of fact, I've received several invitations to "free lunches" to learn about many of these financial products.   Again, remember TINSTAAFL if you decide to attend such a lunch.

 Every financial product or service has a cost, sometimes revealed and sometimes hidden.  There is nothing wrong with charging for value received.  When you work at your job, you expect to get paid a reasonable amount for the work you do.  If you hire someone to help around the house, you expect to pay them for their services. 

Where people get into trouble is when they are not made aware of the various costs or how those costs may impact them.  Some examples may be helpful at this point.

One violation of the TINSTAAFL principle we have seen a lot when someone makes an appointment with us to review their portfolio is in the area of various types of fixed annuities.  Annuities are provided by insurance companies and can be an important part of an entire investment portfolio if structured properly. 

One claim made by some fixed annuity marketers is that other investment products carry heavy fees or expenses but their product has no fees.  Time for TINSTAAFL to raise a red flag!  Every financial product is designed to provide a profit to those who provide it.  Again - nothing wrong with that as long as it's fair.  There's always a hidden expense buried within the design of these fixed annuity types of products, however.  Full disclosure from your financial professional should be provided for legality purposes, but also for ethical reasons. 

I was exposed to this claim just a few weeks ago when one of my clients was approached by someone claiming to offer an annuity with no loads or expenses.  When my client called me to see if I could offer such a product, I reminded him of TINSTAAFL.

I asked him to bring in the written material left by the salesman.  There was none.  I then asked him the name of the product and the insurance company offering it.

Since we are independent financial advisors, we can offer just about anything anyone else does, so I researched the product and met with him to reveal the hidden costs.  Once the costs were revealed, he didn't feel the product was appropriate for him.

Another area we often find TINSTAAFL ignored is in the area of bonus annuities.  This type of fixed annuity offers an upfront bonus to entice consumers to purchase the product.  One particular insurance company we investigated actually offered a higher commission to an agent to sell the bonus annuity than the same annuity without a bonus.  Why would an insurance company pay an agent more to sell an annuity that pays you more? TINSTAAFL!  There has to be a payback in some way to the insurance company and you need to be aware of it before you make a decision.  We had to dig deeply into the fine print to discover the cost to the consumer but once we did, again, the person we counseled didn't feel the cost justified the bonus.

In the area of common investment products, TINSTAAFL needs to be addressed.  You either pay an upfront charge, a charge to get out, or expenses along the way.  Often, you incur more than one charge, such as an upfront charge and expenses along the way. 

So, what if someone said you had a choice: pay an upfront charge or no upfront charge?  As you can imagine, the option without the upfront charge must have a catch to it.  There has got to be a trade-off for not paying an upfront charge and normally that trade-off is in paying higher expenses which are often not explained.  Now, we may sound cynical, but we meet with people all the time who have not had all the charges explained.  The problem is so rampant that government agencies, industry regulatory bodies, and even the United States Senate is investigating the abuses.

One last example may be helpful.  I was recently contacted by a long-time client who attends a lot of the "free lunch" seminars and then brings the material to me to discuss.  At times there are some good products or concepts, but in most cases TINSTAAFL is ignored by the various presenters.

At the last "free lunch" seminar, long-term care insurance was presented by an insurance agent and attorney.  The attorney stated that he only recommended long-term care insurance that paid a benefit even if you never had to go into a nursing home or need long-term care by wrapping the long-term care insurance within a life insurance policy.  That way, it would pay the costs if you had to go into a nursing home before you died.  It would also pay if you died before ever needing to go into a nursing home.  If you think of it, you'll either go into a nursing home before you die, or you will die before you need to go into a nursing home.  No matter what, the policy will pay.

Sounds pretty good, doesn't it?  Since I was presently working with this client to find the most affordable way to cover eventual long-term care expenses, he wanted me to research this alternative, which I did.

My first thought was TINSTAAFL.   If one type of policy pays only if you need long-term care and the other policy pays either way, it has to cost more.  There Is No Such Thing As A Free Lunch.  When I presented him with the cost analysis, the additional cost didn't make financial sense for his situation. 

Now, I want you to be aware that there may be times when bonuses, long-term care life insurance combinations, and other such benefits may be advantageous.  But there are always trade-offs that need to be considered.

In summary, be aware that all financial institutions and their representatives, as well as financial advisors need to be fairly compensated.  That compensation comes in different forms and you need to be made aware of the various methods of compensation to determine the best method for you.

Always ask what the trade-offs are for various bonuses or benefits.  Consider getting a second opinion.  And always, always, keep in mind TINSTAAFL.

We at Christian Financial Principles will do a free cost analysis for you.  It's much easier to stay out of trouble than to get out of trouble.  The saddest thing for us is to meet with someone after they have purchased a financial product that has not been appropriate and they are stuck with costs they weren't aware of.

We can help you avoid these situations by providing a cost analysis before you make a financial decision.  By considering all the costs before making a decision, you are being a good and faithful steward of the assets God has entrusted to you.