The Fallacy of Free


Every single thing we do requires an exchange—of time, of energy, of money. Nothing in this world is free.

Now more than ever, people seem to be on the lookout for how to get the most while spending the least. There’s a common belief, perpetuated by marketing, that it’s possible to receive a maximum return for a minimal exchange. What gets left out, or forgotten, is that everything has a cost, even if that cost isn’t cash.

Is Anything Really Free?

The “fallacy of free” persists on the notion that people can still receive quality without paying for it. The reality is that nothing is truly free. If you’re not paying for a good or service with your money, you’re paying for it in time or quality. The problem is, we’re wired to seek deals. So much so, that we’ve become blinded to the difference between a deal and a rip-off. We all want to “put a little in, get a lot out” that we’ve forgotten to make practical assessments.

Your time is your most valuable resource, and you should be leveraging it so that you’re actually optimizing your unique abilities and interests. If you spent 30 hours learning to build a deck and bought all the materials, were you really saving money? Unless learning this skill was of great importance to you going forward, maybe not. You have to dig deeper.

It may have been a great learning experience for you if you’re interested in continuing to build decks, but what happens when you use the deck for the first time? Will you be enjoying it, or will you be worrying whether you built it sturdy enough to hold you and your family up? If your only goal was to save a buck, did you really do that, or did you cost yourself the earning potential of 30 hours and the peace of mind needed to enjoy your deck?

Instead, what if you had hired a contractor with good recommendations to build your deck? Now, while they execute their highly specialized work, you’re available to put more work into your business. There’s an out-of-pocket cost, but you get your time back, and if you’re an entrepreneur, that means a world of difference. (Remember opportunity cost?) Then, when the time finally arrives to enjoy your new deck, you won’t be concerned about whether or not it will hold you up.

There will always be an exchange for something you receive, so make sure that you’re making the right exchange. Your priorities will dictate the right choice, but make no mistake: nothing is free.

The Issue of Quality

On the other hand, if people aren’t looking for things for free, maybe they’re looking for the best deal. Remember: there’s inexpensive, and there’s cheap. If you have the option between two products, one being significantly cheaper than the other, don’t immediately jump for the bargain. There’s always a reason for the price difference. Sometimes the difference is a brand name, but more often than not, there’s a difference in materials. A good leather briefcase could last you years, while cheap imitation leather might fall apart in a matter of months. And that’s the issue. When you take shortcuts, you end up shorting yourself. What could have been a onetime $200 purchase, ends up being several small $50 transactions when you’re forced to replace the same briefcase over and over again.

In the long-run, you can actually cost yourself more by buying cheap. If it matters to you, don’t immediately jump at the least expensive option. Consider the reviews, the materials, and what kind of longevity you require out of your purchases.

Let’s return to the deck analogy for a moment. You’ve already decided that you could build your own deck with a little help from the internet, and to save an extra buck you decide to opt for cheaper materials as well. It sounds like a good deal, but when you think about it, do you really trust the cheaper materials to do their job? Do you even want to take the chance?

Efficiency and Optimization

Look up the word efficient in the Merriam-Webster Dictionary, and you’ll get: “achieving maximum productivity with minimum wasted effort or expense.”

That’s the very first definition, and your eye will likely drift straight to the phrase “minimum wasted effort or expense.” Many will read that to mean inexpensive. In reality, it means that whatever effort and cost go into a given project goes un-wasted. It is not, therefore, efficient to use a low-quality product solely because it saves money. Because if that product needs to be replaced more often, or doesn’t perform well, you’re actually being extremely inefficient.

Efficiency is not a synonym for inexpensive. Instead, efficiency is about getting the “most bang for your buck.” It’s about paying the right price for the right item or spending your time on activities that energize you.

Optimization is in the same vein. So often in the financial industry, we hear about people wanting to “maximize” their returns or “maximize” their accounts. Rarely do you hear people use the term optimize. Optimization is about quality over quantity.

Let’s raise another hypothetical: if you found out that you had financial leaks, would you work to earn more money, or would you work to patch up the holes? One option focuses on out-earning your potential leaks, while the other focuses on plugging the leaks and making the best use of the cashflow already available. Focusing on the former first may not actually solve the problem, and the holes might even expand in proportion to the growth. If one focuses on patching up the holes, however, any growth will likely be handled more responsibly.

Maximization, like the free fallacy, is the illusion that there are simple solutions to complex financial problems. Instead, efficiency and optimization should be the benchmarks for a financial strategy.

Skin in the Game

When it comes to education, there’s tons of free knowledge at the tips of our fingers. When you have a passion for something, this can be a legitimate resource. But we’ve also noticed that when you pay for something—a class, a webinar, a conference—you don’t take it for granted. Todd refers to this as having “skin in the game.”

When you’re working with a client, have you ever offered them a book or a pamphlet that you knew would be crucial to their comprehension of life insurance or another product? And have you ever followed up with a client, maybe more than once, to discover that they hadn’t really looked into it much, if at all?

This is because the client isn’t invested. They haven’t put their own resources toward the information. They don’t have any skin in the game. Instead, we prefer to show our clients how to acquire the resource themselves, usually for $10 or less. It’s not a large sum of money, but because they’ve put their own capital toward it, suddenly, they’re interested in reading the book.

The same goes for things like webinars. Recently, we saw someone charging $7 for a $99 webinar because “People pay attention to what they pay for.” Rather than providing it for free, they offered it at a nominal price just to ensure that the people who opted in would be invested in learning. Others like Dean Graziosi or Garrett Gunderson periodically give their books away for “free,” so long as the person pays for shipping and handling. It causes clients to be active participants in their education, rather than accumulating resources they’re unlikely to use.

In this scenario, exchanging value for value helps consumers to be active consumers rather than passive ones. There’s so much information available for consumption, but the memorable information is the information that you pay for.

Adding Insurance to the Equation

In the popular zeitgeist, there’s a notion that life insurance is life insurance, and anyone who says otherwise is out to steal your money. This has been a tough lie to combat, but it simply isn’t true. All insurance is an exchange, but not all policies are created equally.

With life insurance especially, you get what you pay for. We’ve seen time and time again, advisors pushing the idea that term life insurance or universal life insurance will function virtually the same for a lower cost. Often, it’s because they don’t know better. As we’ve dissected above, there’s more investigation to be done. First, how is it possible for these different types of insurance to be virtually the same if they have different price points and models? You must examine the moving parts.

The reality is that each type of life insurance functions differently, beyond the most basic requirement of a death benefit. There are clear pros and cons for each type of insurance, but it’s crucial that a client learns what those are. A well-constructed whole life policy provides a place to store cash and optimize finances. It is efficient in the true sense of the word. When it comes to insurance, you truly get what you pay for, and you can’t afford to be cheap. What you don't pay in premium, you might pay in other ways. Term insurance, for example, provides a death benefit but only for a set term. Then, all benefits vanish unless you pay a higher premium. Term insurance may work well for some, but unless you know the “true cost” of the policy it doesn't matter.

At the end of the day, everything has an exchange rate, whether it's obvious or not. The key to helping your clients is helping them to understand what they're paying for when they do something–whether they're paying in cash, time, efficiency, or convenience. Once people learn to put this into perspective, they can revolutionize the way they live their lives and manage their finances.

When it comes to insurance, Truth Concepts software is the cutting edge tool for this type of comparison. You can load life insurance data directly to the software and then test its performance. To experience the software for yourself, download the ten-day trial here.