Change The Game: Replace Your Credit Score with Your PowerWealth Debit Score™
In addition to their income and material possessions, many Americans use their credit scores as a way to evaluate and judge their financial success in life. Through decades of marketing, product innovation, and the passing of personal finance myths from one consumer generation to the next, America’s financial services industry has most of us conditioned to focus our attention on improving the credit scores computed and maintained for each of us by America’s four major credit bureaus, Experian, Equifax, Innovis, and Transunion. Such effective conditioning comes as no surprise – it is, after all, the financial services industry that profits handsomely from us taking out mortgages, using credit cards, obtaining car loans, and otherwise borrowing money for just about anything we want to buy or do to enhance our lifestyles.
Your Credit Score Helps the Financial Services Industry, Not You
Alas, the more we consumers borrow cash from the financial services industry, the wealthier the industry becomes and the poorer we become. This can readily be seen in the simplest definition of your wealth, which is determined by your net worth:
Your Net Worth = What You Own – What You Owe
The more you borrow from the financial services industry, the more debts you owe. The more you owe, the lower your net worth sinks toward zero, or even into negative territory. The financial services industry has a net worth too. But, what is true for your net worth is exactly the opposite for the financial services industry’s net worth – the loan you must repay to the industry is an asset the industry owns. The more the industry lends cash to you and other consumers, the more assets the industry owns. The more the industry owns, the higher the industry’s net worth rises.
From the financial services industry’s perspective, your focus on your credit score is a great thing. Your behavior helps the industry grow wealthier over time. The financial services industry has it good – the product it sells is cash, the price of its product is a given interest rate, the interest payments we make are the industry’s revenues, and thanks to the industry’s unique ability to scale by simply recycling our interest payments into still more revenue-generating product, the industry’s profits are hefty. The industry has made the rules of the game, and the ball used to “win” in that game is your credit score. So, as conditioned, you focus on the ball, trying to move it up the field toward the goal. But, clearly, your behavior – your focus on your credit score – is not such a great thing for you and your family’s wealth. While having ready access to cheap credit can be a good situation in which to be, obsessing about your credit score so that you can borrow more and more from the financial services industry could ultimately preclude you and your family from achieving true financial freedom and security in your lifetime.
Rolling a New Ball into the Game – the PowerWealth Debit Score™
I submit to you that you and your family don’t have to play the financial service industry’s game. You have a choice. You can change the game. You can freely elect to change your behavior. You can remove your focus on your credit score and, instead, focus your attention and effort on a new score with which you can better evaluate and judge your financial success in life. Herewith, I roll a new ball into the financial service industry’s game: the PowerWealth Debit Score™.
As you know, your credit score is an indicator of your ability to borrow, and borrowing can be damaging to your wealth. In contrast, your PowerWealth Debit Score is an indicator of your ability to lend, and as you understand from the activities of the financial services industry, lending creates assets – loans – that you can own and use to increase your wealth over time. If one of your goals in life is to build enough wealth for you and your family to achieve true financial freedom and security, doesn’t it just make sense to place more of your focus, time, and effort on improving your PowerWealth Debit Score than on improving your credit score?
Calculating and Interpreting Your PowerWealth Debit Score™
So, how do you calculate your PowerWealth Debit Score? The proprietary PowerWealth Debit Score™ formula below shows you how:
For a given month, quarter, year, or other period:
PowerWealth Debit
Score™ = 1,000 × (Your Free Cash Flow ÷ Your Total Income),
where Your Free Cash Flow ≥ $0
You can use your calculated PowerWealth Debit Score to fully evaluate and judge your ability to lend cash to others for profit and wealth building. For example, let’s assume that your household’s Total Income is $85,000 per year, and your Free Cash Flow is $8,500 per year (don’t worry – Free Cash Flow is defined in detail below). Using the formula above, your PowerWealth Debit Score would be a 100. Likewise, let’s assume that your monthly Total Income is $4,000, and your Free Cash Flow in a given month is $500; here, your PowerWealth Debit Score for the month would be a 125. Note that if you have no Free Cash Flow or your Free Cash Flow is actually negative (i.e., below $0), your PowerWealth Debit Score is simply a 0.
Now let’s interpret your PowerWealth Debit Score. Whenever your calculated PowerWealth Debit Score is a 0, your ability to lend money to others is non-existent -- you are not in a good position to be creating loan assets that you can own and use to increase your wealth over time. However, any positive PowerWealth Debit Score suggests that you are in a good position to be creating loan assets to increase your wealth. Furthermore, the higher your PowerWealth Debit Score, the greater your ability to lend money for profit and wealth building. Any PowerWealth Debit Score above a 0 is good. Any score above a 200 is outstanding!
The Critical Role of Free Cash Flow
Clearly, the key driver to your PowerWealth Debit Score is your Free Cash Flow. As part and parcel to the proprietary PowerWealth Debit Score™ formula above, your Free Cash Flow can be calculated as follows:
For a given month, quarter, year, or other period:
Your Total Income |
|
− |
Your Retirement Account Contribution* |
− |
Your Health, Life, & Disability Insurance Premium Payments |
− |
Your Federal & State Income Tax Payments |
− |
Your Emergency Savings Account Contribution* |
− |
Your Regular Payments on Mortgages, Loans, and Credit Cards |
− |
Your Basic Living and Lifestyle Expenses |
= |
Your Free Cash Flow |
*Your contributions to your Retirement Account and your Emergency Savings Account should be made according to how your personal financial adviser has advised you to contribute to these important financial planning accounts.
Ultimately, your Free Cash Flow can be used for a variety of wealth-building activities, not just for creating loan assets by lending money to others. Other important uses of your Free Cash Flow include paying off credit cards in full, making extra principal payments on mortgages and car loans, fully funding your Retirement Account and Emergency Savings Account, and making equity investments. Each of these other important uses of Free Cash Flow can increase your net worth by reducing what you owe or by increasing what you own, thus helping you build financial freedom and security for your family over time.
Clearly, using your Free Cash Flow to create loan assets by lending money to others is but one option out of many good ones available to you. A positive PowerWealth Debit Score simply tells you when you have the luxury of taking one or more of these options to pursue an opportunity that could increase your wealth.
Use the PowerWealth Debit Score™ Right Now and Change the Game
Why not go ahead and start using the PowerWealth Debit Score today? It is a great way to help you evaluate and judge your own financial success. By electing to focus on your PowerWealth Debit Score in lieu of (or, perhaps, in addition to) your credit score, you open up far more opportunities to increase your wealth over time precisely because you are focused on building your wealth rather than on playing the credit game that America’s financial services industry wants you to play. Take action now and change the game – you’ll be glad you did.
Copyright 2007 PowerWealth.com. All rights reserved.
