Business & Personal Finance Articles

Qualified Plans: The Hidden Truth

May 5, 2021

These are not tax savings plans but
rather tax deferred savings plans. The government did not say that you don’t have to pay taxes…

For many people, the term 401k is synonymous with retirement preparation, and sometimes represents the full extent of
their preparedness. Such accounts are often included as part of a benefits package provided by employers, and chances
are if you have one, most of your retirement savings are being deposited into this account. Given that it can play such a
prominent role in our financial picture, it is imperative that you fully understand exactly how these plans work.

So what do Qualified Plans do exactly?

Most people will be familiar with the fact that they defer taxes, which is true. But this term “defer” can often lead to a
misunderstanding about what is actually happening. Some people fall victim to the misconception that “deferred” taxes are
taxes they are “saving” because the taxes do not have to be paid; which is not true. These are not tax savings plans but
rather tax deferred savings plans. The government did not say that you don’t have to pay taxes on the dollars in your
Qualified Plan; they said that you don’t have to pay the taxes now.

If not now, then when?

Well, later obviously. The key difference between now and later though is relative to your tax
bracket. What bracket you are in now, and what bracket you will be in when you decide to take the money out of the
account. If you defer the tax and you are in a higher bracket later than you are in today your share of the account will be
less. If you are in a lower bracket when you take the money than when you put it in you will get more. The IRS is not
going to ask you what tax bracket you were in the day you made the contribution to your account. Their only concern is
going to be what tax bracket are you in at the time of withdrawal. Because this is true you will need to make an informed
decision about which option is best for you.

The Check Story

“Let’s assume that you call me one day and want to borrow $10,000. I hand you the check, but before you take it you are
going to ask me two questions. The first is how much interest am I going to charge you, and the second is when do you
have to pay it back?

Suppose I said to you, I am doing fine right now and do not need the money, but there will come a day when I need it, and
when I know how much I need we can figure out how much interest I need to charge you to get how much I need.”
Would you cash that check? Probably not, but you are standing in line to do exactly that with the federal government in
your qualified plan. They did not say that you don’t owe the tax; they said you can pay us later. At what rate? Now that is
a good question.

Understand that Qualified Plans do two things:

1. They defer the tax, AND
2. They defer the tax calculation

Ultimately, the impact these plans can have on your finances either positively or negatively, depends on a number of
factors. The first and most fundamental of these is your understanding of the rules of the game, and secondarily the
strategy you use to play the game.

Tic-Tac-Toe

You may not remember the first time you played tic-tac-toe, but you can probably guess who won. It was likely the person
who showed you how to play the game. The game has only a few simple rules, one is the X, the other O, three in a row
wins. As we first learned this game as children, we lost routinely until we learned the strategy of the game. If you have
dollars in a Qualified Plan, you are already playing the game. As an advisor, my job is is helping clients employ a winning
strategy by better understanding the rules of the game.

5 Types Of Life Insurance Policies

April 22, 2021

“We know that life has a lot of uncertainties that come along with it and being able to position our clients in a way that they can react and adjust and thrive during these uncertain times creates an opportunity for them to take advantage of uncertainty rather than become a victim of uncertainty.”

Initially there was only one type of life insurance, and that’s the simplest form, term insurance. With term insurance, there’s only one benefit and that’s the death benefit. If you die within the term, then a death benefit is paid in cash to your family.

Life insurance was initially bought by sailors. When they would go out on a voyage, they would buy insurance and then when they would come back, they’d be home for a month or two. When they would go out on another voyage, the price would go up. One of them said, “Hey, is there a way that I could pay the same rate for the rest of my life, this way I don’t have to keep paying an increasing premium.” What was developed was the precursor to whole life insurance. The insurance company realized that in order to even out the cost over the lifetime of this individual, they had to overcharge in the early years so that they could undercharge in the later years. By overcharging, they were putting money aside and that created an ever expanding pool of cash that could be utilized to offset the increases of premium in the later years.

At its very essence, life insurance is a transfer of risk. Whether you have a full life insurance policy or a term life insurance policy, we’re all going to die. So the insurance company is taking on that risk with a little bit of uncertainty, because they don’t know when you’re going to die. The insurance company has to price the policy properly so that they can guarantee the payment that they committed to or promise to your family and still make a profit.

Now understand this. When you have a whole life insurance policy, you have an ever expanding pool of cash. That’s because when you get a whole life insurance contract, the insurance company is making you two promises. They’re promising to pay the death benefit when you die and they’re also promising that when that policy matures, usually at age 100, the cash value and the death benefit are going to be the same. So they have to put reserves away to make sure they could keep those two promises.

Now the insurance industry has functioned very well for hundreds of years with these two products. Then in the 70’s, when interest rates were rising, a company called E F Hutton arose. Those of you who are old enough might remember EF Hutton because when he EF Hutton spoke, everybody listened. Have you heard him lately? He doesn’t exist. EF Hutton was sold off to first capital life, and first capital life was taken over by executive life and executive life doesn’t exist because they were investing their policy holders cash values in junk bonds sold by Michael Milken. Michael Milken did jail time for his shenanigans. But the bottom line is that universal life insurance is really term insurance with a side fund invested at market interest rates.

So every year the cost of that annual renewable term policy is increasing. Eventually it’s going to hit a breakeven point and it’s going to start eating away at your cash values. It transfers the risk of insurance and investments back to the policy holder.

I understand that with whole life insurance, you could never take a step backwards because of the way the policy is actuarily designed. The policy has an ever-growing cash value guaranteed by contract. In the early eighties, when all policies were first introduced, they looked really attractive because they were tied to market interest rates. At that time, CD’s were paying 15% to 16%, but by the mid eighties, market interest rates started to stabilize. And so you all policies didn’t project as well.

So the insurance industry’s response was to not invest in market interest rates, but to invest directly into the stock market through mutual fund sub-accounts. Now known as a variable universal life insurance policy, which was introduced by equitable life in the mid eighties, and everything was functioning fairly well as the market was going up. What people didn’t realize was that when the market went down, you got hit with a double whammy. Number one, your cash value moved backwards. Number two, because your cash value moved backwards, you have to increase the amount of pure life insurance. So at a time when your cash value was going down, your expenses, the pure life insurance component was going up. That created some significant problems for the universal life policy.

The newest version of the universal life policy is called an index universal life policy or an IUL. With that, your money isn’t in the market. It’s tied to a market index. They’re able to eliminate the losses from the market, but they also have the crediting of interest to your account.

Whether it’s a universal life, you lose. If it’s indexed universal life, you lose. If it’s variable universal life, you lose. The bottom line is this, with all three of those products, you can move backwards. With a whole life policy, it’s actuarily designed that you could never take a step backwards. If you’re planning on having cash available for future events, why would you ever want to transfer the risk from the insurance company back to you? To us? It doesn’t make sense.

As you know, our mission is to help our clients regain control of their money. So we use the whole life and term life products because the certainty those products provide, allow for us to adjust the planning for our clients uncertainties that happen in life. We know that life has a lot of uncertainties that come along with it and being able to position our clients in a way that they can react and adjust and thrive during these uncertain times creates an opportunity for them to take advantage of uncertainty rather than become a victim of uncertainty.

Who is teaching you the rules of the financial game?

April 15, 2021

Throughout the years, we’ve found that people tend to have a wide range of expectations that come to mind when they hear
the term “Financial Advisor.” And it’s no wonder that sometimes even the advisors themselves have differing opinions on
the term, and certainly different approaches to serving their clients. We would like to outline what it means for us to be a financial
advisor for our clients, and it’s not dissimilar to the relationship a golfer has with their caddie.

The Caddie’s Role in Golf

For a touring pro, there is a very unique relationship between them and their caddie. Not only does the caddie carry the
players bag, but they also carry with them a wealth of wisdom about the course, the weather conditions, the player, the
field, and the game in general. Perhaps more importantly, they also carry the player’s trust to give solid, actionable advice
even in tense situations when the stakes are highest. A good caddie provides a reliable sounding board for the decisions
ahead, and is often the voice of reason in difficult situations.

Our role as a Financial Advisor

While there is no official rule that states a golfer must use a caddie, playing without such a valuable resource can put the
player at a competitive disadvantage. Financially speaking, trying to “carry your own bag” by making your own
investments and financial decisions might not be the best idea either. The financial advisor, like the caddie can lend a
special knowledge of the course, the dangers, layup positions, club selection, and the sucker-pin placements. It’s handy
information to have when trying to decide whether to go for it or hold back, especially when everything is on the line. They
are also there to help you to eliminate mistakes and avoid unnecessary penalties or even disqualification. A trusted caddie
with intimate knowledge of all of the factors surrounding a golfer’s next shot is just as valuable as a good financial advisor
when it comes to evaluating your next financial move. And, it can make all the difference in determining where you finish.

Fuzzy Zoeller, after winning the 1979 Masters at Augusta remarked:

“I never had any thought the whole week. I figured my caddie (Jerry Beard) knew the course a lot better than me, so I put
out my hand and played whatever club he put in it. I’d say “How hard do I hit it?” He’d tell me and I’d swing. The guys who
come down once a year and try to get smart with Mr. Jones’ course are the dumb ones.”

Glittering generalities aside, sometimes the smart play is to simply take advantage of the resources available to you.

Secrets of a Wealth Creator: How to Buy, Borrow, and Pay Smarter

April 5, 2021

Let’s face it, we all buy things and we will need to buy things our entire life. It’s not necessarily what we buy, but rather the way we choose to pay for them that can have a lasting impact on our financial well being. Especially those things we call Major Capital Purchases. These are things that cannot be paid for in full with our regular monthly cash flow. Certainly things like cars, vacations, weddings are major but a new set of tires for many Americans could be a major capital purchase as well. If you can’t pay for it in full you are going to have to finance it.

Let’s take a closer look at this with the graph below:

The first thing I want you to notice is the black line in the center. This is the Zero Line, and represents the point at which a person has nothing or owes nothing. When you owe more than you have accumulated you are below the zero line. Unfortunately living above the zero line takes more than a good job.

Let’s begin talking about The Debtor (shown in Red)

The Debtor doesn’t have any savings or resources and is forced into borrowing. They borrow the money against their future earnings, and work toward paying it off and getting back to zero. They hope to have finished paying back what they owe before another need arises. They spend their lives working to pay for what they have already spent plus interest. The only way they can support their lifestyle depends on money they have yet to earn. This obligation on future earnings is one of the biggest problems with debt. It can be very depressing when you can’t see the way to even get back to zero. Another difficulty is that when you become a debtor to a creditor, you lose control. The creditor is then in control of your resources, not you.

The Saver (shown in blue)

The Saver, being well aware of the wealth transfers inherent in borrowing at interest, will postpone a purchase until they have saved enough to pay cash in full, up front. However, at the same time they make a purchase they also consume their savings and move back toward that zero line. A very precarious position indeed. A single unforeseen circumstance could lead to depleting their savings bringing them closer to the zero line. The saver constantly moves from having access to money and needing to save to get back to where they were before they had to spend their savings. They do not like to pay interest so the drain their accounts and kill compounding each time they do.

Paying cash seems to be the best way to pay for things because it avoids the necessity to pay interest but to pay cash you must also give up the ability to earn interest on those same dollars.

Another problem with paying cash is that first, you must save it which is not necessarily an easy thing to do. Depending on where you are saving those dollars, the government may also require that you pay taxes on the growth of that money. And when you do make a purchase not only do you consume those savings, but you also negate the ability of those dollars to earn interest because they have been spent. Many people choose to pay cash in order to avoid paying interest to a lender, which seems smart. However, the part that is often missed is that they are also losing interest they could have earned had they not had to pull dollars out of the account to make a purchase in the first place. But it’s not possible to keep the dollars in the account earning interest and still make the purchase, is it?

The Wealth Creator (shown in green)

The Wealth Creator utilizes a unique approach. They also save, but when it is time to make a purchase they use their savings as collateral to secure a loan, preferably at a lower interest rate than they are earning on their money.. Now, there are a couple of key benefits here. The first is that this strategy keeps you from having to deplete your savings to make a purchase. At the same time, it allows those savings to continue to compound interest without interruption. Secondly, while the Wealth Creator does pay interest on the loan, they can often do so at negotiated rates. As the loan is repaid, the amount of savings available to be collateralized increases proportionately until the loan obligation is met. Compound interest works best over time uninterrupted. Resetting compounding on dollars we remove from accounts that are earning interest is not an efficient purchasing strategy.

We all want to make the most of the resources available to us; to be as efficient as we can be while also avoiding wealth transfers. Once a decision has been made to part with our dollars, it is permanent. Since we can never have those dollars back again, it makes sense to spend them wisely. To spend them in a way that fosters the creation of wealth, not the relinquishing of it. Let’s spend some time together to discuss how we might improve your purchasing efficiency.

Why My Clients Choose to Work With Me

March 29, 2021

If you have had any previous experience with a financial advisor, chances are the conversation revolved around how much money you have, where it’s located, we can do a better job. It would seem that most investment firms share the same singular focus of trying to find better products that earn a higher rate of return which often take more risk. For all of the fancy analytics and mathematical acrobatics available today, nobody has yet figured out how to predict the future. Earning higher returns is certainly not a bad thing, and something we can help you with as well, however we believe we should help our clients avoid money they could be losing unnecessarily before considering options that require more risk. Return is not the only thing to consider when evaluating the efficiency of your own personal economic model. There are three types of money:

The money used to secure your financial future must somehow come from these three areas. Accumulated money represents the dollars you currently have invested and are currently saving. You could focus your attention on these dollars in order to find better investments that potentially pay higher rates of return.

Lifestyle money represents the dollars you are spending to maintain your current standard of living: where you live, what you eat, where you vacation etc. For many people, this is where the conversation ends. While everyone wants to solve their financial problems reducing their current standard of living is not a popular option.

What if there were a way to address the issue without having to incur more risk or impact your present lifestyle? I’m glad you asked!

Transferred money represents the dollars you may be transferring away unknowingly, and unnecessarily. Such as:

How you pay for your house,
What you pay in taxes
How you fund your retirement accounts
Non-deductible interest
How you pay for major capital purchases like cars, education, weddings, and other large expenses.

There are really only two ways a financial advisor can be of help to you:

By finding better products that pay higher rates of return requiring more risk
By helping you be more efficient by avoiding unnecessarily losses

I believe that there is more opportunity to serve my clients by helping them first avoid the losses, before trying to pick the winners. My focus with clients begins with eliminating the involuntary and unnecessary wealth transfers. Consider this. There are two ways to fill up a bucket that has holes in it. One way is to pour more in, and the other is to first plug the holes, then the bucket will fill up even if the flow is just a trickle. Which strategy more closely resembles the way you are currently approaching financial management?

Mortgages: Spoiled for Choice

March 22, 2021

It is likely that during your lifetime you will allocate more dollars to the place you are going to sleep than anything else. As such, the potential to transfer your wealth away unknowingly and unnecessarily as a result of decisions made surrounding your mortgage is just as high. There is a great deal of misinformation and misconception concerning this topic, and often our decisions are made based on hearsay or commonly accepted perceptions, what others have done, or even media influence, not what is necessarily correct.

Choosing a Mortgage

There are so many options available; it can be daunting which option is best to say the least. It is no wonder that making the right choice can be very confusing, and it can be easy to doubt that you have made the right decision even after the choice has been made. Ask yourself this. If the mortgage lending institutions made the same amount on every mortgage option, how many options would there be? Obviously, there would only be one. Since there are so many, it can be helpful to have someone on your side that is more knowledgeable about the subject to steer you clear of the pitfalls.

People tend to maintain different staunchly held views about which mortgage is “best,” and as a result it can be difficult to have an open conversation about it. After all, nobody wants to hear that the decisions they have made might not have been the best ones. What’s more is that these decisions have not been made haphazardly, but with great care and effort. We make decisions based on the things we “know,” which we also think are true. But what if what you “know” turned out not to be true?

The Mortgage Quiz

Let’s run through the mental exercise of taking the following true/false quiz:

A large down payment will save you more money over time than a small down payment
A 15-year mortgage will save you more money over time than a 30-year mortgage
Making extra principal payments saves you money
The interest rate is the main factor in determining the cost of a mortgage
You are more secure having your house paid off than financed 100%

Chances are you answered most, if not all of these questions with a reasonable degree of certainty. However, if you have made mortgage decisions based on what you thought to be true, and it turns out that the answers are different than what you thought, you could be negatively impacting your wealth potential as a result.

Does the value of your house go up when you make extra principal payments?
Do your payments go down?
Can you easily get to the money in your house after you put it there?

These are just a few of the questions we will discuss together and help you determine which mortgage option is best for you. If what you thought to be true about mortgages turned out not to be true, when would you want to know?

How GameStop changed the way we think about the stock market.

March 15, 2021

“What if you could develop a strategy that would prevent you from ever losing money ever again, and because your money was safe, you were in a position to take advantage of any manipulations or volatility in the market.”

Have you ever felt that the market is being manipulated by wall street, the government and banks? Do you think it’s being manipulated for our benefit or for their benefits? Did you ever give thought to the fact that not one American CEO or senior executive did any jail time for the 2007, 2008 financial crisis that almost took down the entire financial system? That’s when they went begging to their buddies in Washington to get a bailout and you and I ended up paying for the bailout. How about this? We can’t benefit from insider trading, but they can. Congress set themselves up where they’re completely exempt from insider trading, but yet Martha Stewart went to jail for insider trading.

We have to stop playing the game by their rules because the system is rigged against us. We need to play by a different set of rules to set ourselves up for financial success. We have the opportunity to take advantage of the markets rather than being a victim to the markets. Here’s another example of how the game is rigged against us. For years and years, hedge fund managers were able to short stocks and take advantage of the market. However, in the early months of 2021, when the general public began to manipulate the stock for Game Stop, the popular trading app Robinhood, took the stock off their platform so that no one else could take advantage. No one else could benefit from the market manipulation.

Again, it’s another example of “we could manipulate the market”, meaning the insiders, but once the public gets a hold of it, “Oh no. Now what’s wrong.” Now the regulators are talking about stepping in to make sure that this could never happen again. Do you think the regulation is going to be for our benefit or for their benefit?

Why play a game that’s set up for them to benefit and for you to lose? What if you could develop a strategy that would prevent you from ever losing money ever again, and because your money was safe, you were in a position to take advantage of any manipulations or volatility in the market. Furthermore, even better than that, what if you can do so with total elimination or reduced taxation on your money! Wouldn’t that be vital information to have? If that type of planning was available, when would you want to get started?

Becoming the beneficiary of your own life insurance policy: How to use the living benefits

February 22, 2021

“You see, instead of becoming a victim of market volatility, owning cash value life insurance allows you to access that money so that you could actually profit from market volatility.”

There are two main types of life insurance. The first is term insurance, which has one benefit and one benefit only, the death benefit. Then there’s cash value life insurance, which has a death benefit, but also has several other living benefits. By taking advantage of these living benefits, we’re able to overcome the five financial challenges that we all face.

It has often been said that there are two certainties in life, death and taxes. So let me ask you a few questions. Number one, do you think taxes are going to be higher in the future? Number two, do you think that with all that’s going on in our country, and keep in mind that we’re nearly $28 trillion in debt, do you think there’s a potential for taxes to go up much higher in the future? Now here’s the most important question. Do you want to pay those taxes? You see, after you pay tax on your earned income, the choice of whether or not you pay taxes in the future on that money is completely voluntary.

Which choice have you been making? And with that in mind, wouldn’t it make sense to build a pile of money that the government could never access ever again, as long as you live? You see, the living benefits of life insurance allow you to have that money grow on a tax deferred basis, and you could access it on a tax-favored basis via the loan provision. Finally, that money passes to a named beneficiary on an income tax free basis. Do you know of any other financial tool, financial product that could be that tax efficient and provide liquidity use and control of your money?

The next challenge we all face is lower benefits in the future, you know, higher premiums, higher deductibles, and more out of pocket expenses. But, doesn’t that mean a lower standard of living for you and your family? Are you okay with that? Because I’m not. If there was a way to replace those expenses, when would you want to know about it? Before or after the benefits are lost? By using the living benefits of life insurance, you’ll have access to money to supplement your income when those benefits are lost, and still have death benefit to pass onto your family.

If there’s going to be higher taxes and lower benefits, will that be enough to fix all the problems that are about to happen in our country? So how will our government respond? Won’t they print more money? When they print more money, doesn’t that cause inflation? You see, inflation is the third financial challenge that we all face. So what’s your strategy to overcome the effects of inflation? More importantly, when you’re retired, how are you going to overcome inflation? The living benefits of a life insurance policy provides multiple duty dollars. What that means is, the money can be accessed to overcome a long-term care event, a chronic illness event. We know that it can be utilized to supplement your income for anything. Finally, it can do all of the above on a tax-favored basis.

That’s multiple duty dollars, and that’s how the living benefits of cash value life insurance can help you overcome the effects of inflation. So if there’s higher taxes, lower benefits, and the government prints more money, won’t that cause more and more volatility in the markets? Higher volatility in the markets is the fourth financial challenge that we’re all going to face. If there’s higher volatility in the markets and you make a mistake, can you lose some money? If there’s higher volatility in the markets and you make four or five mistakes, can you lose it all?

Wouldn’t you benefit from a strategy that allows you to lock in your money when the markets are high so that when the markets go down, you’re in a position to access that money because your money wasn’t correlated to the market and you can profit from all the mistakes, errors, and blunders that are made in the market. You see, instead of becoming a victim of market volatility, owning cash value life insurance allows you to access that money so that you could actually profit from market volatility.

The next challenge we all face is the challenge of outliving our income. If we retire at age 65 and only live till age 72, would we have much trouble planning for that retirement? But what if we retire at 65 and live all the way till 95, but run out of money at age 72, what would the rest of our retirement look like? And by the way, isn’t 72 the new 52? Aren’t 72 year olds doing what 52 year olds used to do? Do you have a strategy in place that could provide you with an income that you can outlive? By taking advantage of the living benefits of life insurance, you could provide supplemental income when all your other streams have dried up.

Do you realize that most people view these five issues, higher taxes, lower benefits, higher inflation, greater volatility in the market and longevity, outliving money, as challenges. Here’s what owning cash value life insurance can do for you. What if you never had to worry about these issues ever again for the rest of your life? What if any time any of these issues occurred, you’d be in a perfect position to take advantage of it. Wouldn’t that be a great benefit to have?

Do you know of any other financial products that can provide these benefits with certainty? Can a CD savings account, money market, IRA, stocks, or bonds provide you with these benefits? You see, the living benefits of life insurance can help us overcome these five challenges, and in essence become the beneficiary of our own life insurance policy. But then we still have the death benefit that goes to our family. So if I can show you how to be in complete control of your money until you take your last breath, but instead of leaving that money to a nursing home hospital or the government, you can leave that money to your family for generations to come. Wouldn’t you want to know about it?

How do policy loans work?

February 15, 2021

“Think of this, what if you can guarantee that you will never lose any money ever again, would that be a good benefit to have?”

Anytime you have cash value in your life insurance policy, you have a contractual right that allows you to borrow against that cash value. Anytime you want. For whatever reason. Two reasons that we think make a lot of sense to borrow against your cash value are number one, to make a major capital purchase. Major capital purchases are things that you can’t pay in full using your regular monthly cashflow. And the second reason is to take advantage of an investment opportunity.

Let’s take a look at the mechanics of how a policy loan can work for a major capital purchase. As you pay your insurance premiums, three things increase your cash value, your death benefit and your access to capital. When you take a policy loan against your policy, you’re not taking money from your policy. It’s a collateralized loan, very similar to how you access equity in your home. You’re not taking money from your home. You’re putting a lien against your home and the same way you’re not taking money from your policy. You’re putting a lien against the cash value in your policy. As you make policy loan payments, you’re making the payments directly to the insurance company to decrease that lien on your cash value. This is going to free up cash that you can access again in the future.

Notice that your cash value continues to grow even while you have a loan against it. This is where you get to experience the miracle of uninterrupted compounding of interest, even while you’re using your money. It’s as if your money is in two places at once, because it literally is. Let’s face it. One of life’s greatest financial frustrations comes from the lack of access to capital when you need it most. We saw this a lot during the 2020 pandemic. If you’re a business owner and you’ve plowed all of your profits back into your business, you experienced the frustration of not having access to your capital or control of your money when you needed it most.

Let’s take a look at how policy loans could work to take advantage of investment or business opportunities. One main difference between a bank loan and a policy loan is that there are no restrictions for the purpose of the loan. There’s no income check. There’s no credit check and there’s no inventory check. Policy loans are collateralized against your cash value. Again, you’re not taking money from your policy, you’re placing a lien against your policy. Basically what this means is, if you die with a policy loan on your policy, your death benefit will be decreased dollar for dollar. For the amount of the outstanding loan. Loan payments are made directly to the insurance company to decrease that lien on your policy. But with every payment, your access to capital will increase.

Notice that the policy continues to grow even while you’re using your money because a policy loan is a contractual guarantee. You’re basically giving an order. You are telling the insurance company to go get you some money versus going to a bank and asking permission as a business owner. Would you rather give an order or have to ask for permission?

So let’s take a look at exactly how policy loans work. The first step is to build your cash value. After you have some cash value, you have options. One of those options is to tell the insurance company to distribute a loan to you, and they’ll place a lien against your cash value and distribute an interest-only loan. You could use that money to pay for a car, a wedding, an investment, whatever you want, you have the control of that money. Another thing you have control over is the repayment terms. You get to determine how much you pay back towards that loan. You can pay just the interest. You could pay more when your cashflow is flush and less when your cashflow is pinched, you have control.

We talked about policy loans and how you have use and control of your money, but there are so many additional benefits with cash value life insurance. Think of this, what if you can guarantee that you will never lose any money ever again, would that be a good benefit to have? What if, because you didn’t lose money, you had access to money so that you could take advantage of any stumbles, wonders or errors that the government and the markets make. What if you could earn uninterrupted compounding of interest on your money, even while you’re using it, would that be a good benefit to have? What if we can do all the things we just described and have reduced or eliminated taxes on our savings, would that be a good benefit to have? All of these benefits exist in cash value life insurance. There is no other financial product that offers all of the things that we just described.

What am I doing wrong financially?

February 10, 2021

“We focus on the lifetime capital potential tank because that’s where the greatest opportunity lies for you to improve the efficiency of your money, improve your cashflow, and ultimately increase the amount of wealth that you’re able to accumulate over your lifetime.”

Up until 1993, I was exactly like you. I was making great income, but I was living pay to pay. The reason I was living pay to pay is because I was doing everything by the textbook of conventional wisdom. I had a 15 year mortgage and was paying extra on the mortgage. I was maxing out my retirement account. I was paying cash for as many things as I possibly could, but embarrassingly, I had credit cards and I had to borrow money from my father in order to pay my mortgage. The reason my cashflow was being pinched was because of the things that I was taught to do by the so-called experts.

There are two factors that can really pinch your cashflow. The first is an unsteady income. This could be whether you are a business owner and have a cyclical business cycle, whether you’re a sales person and commission comes when commission comes or maybe you’re an employee and you were expecting a bonus that didn’t come through. These things can really tighten up your monthly cashflow and leave you feeling stuck.

The second factor we’re going to look at is when unexpected major expenses come up, whether it’s tuition for kids or an annual premium for insurance that you’re paying, or maybe you need new tires or car repair, or we all know how bad it is when your refrigerator breaks and you’re forced to go out and buy whatever’s available at the store. All these things could really leave a dent in your personal economic model and leave your cashflow feeling tight.

So let’s take a look at this model. This is what we refer to as a personal economic model. We all have one. This is how we show how money works in our lives. Let’s start with income, your income, all the income that you’ll ever earn in your life. We’ll go through this lifetime capital potential tank. It’s the largest tank, cause it has the most money flowing through it, but it doesn’t stay in there. It flows through this tube and hits your lifestyle regulator. Your lifestyle regulator is where you have choices. You can either spend all your money or you could force some up into your future lifestyle tanks, your investments, and your savings.

Conventional wisdom tells us that we should focus on getting a high rate of return on our investments. That’s what most financial advisors do. They focus solely on the yellow tank and showing you how to get a higher rate of return, probably taking on additional risk. But our focus is different. We focus on the lifetime capital potential tank because that’s where the greatest opportunity lies for you to improve the efficiency of your money, improve your cashflow, and ultimately increase the amount of wealth that you’re able to accumulate over your lifetime.

So let’s take an example of exactly how making your money more efficient can improve your personal economic model. Let’s take a look at wealth and income potential. Let’s assume you’re age 42. Do you plan on retiring at 70? Your current income is $100,000 and you don’t expect any increase in your income and you don’t have anything saved to this point, but you could expect an investment return of 5% at your retirement age of 70. Your income potential would be $2.8 million. It’s a $100,000 of income times 28 years, gives us 2.8 million. Your wealth potential would be about 6.1 million. That comes from investing your full $100,000 of income over that 28 years.

Obviously it’s unrealistic to think that you can save 100% of your money because there are expenses that come along with our income. Whether we like it or not first and foremost are taxes, we’re going to put you in a 30% tax bracket. Now that’s federal state, local gas tax, real estate tax, and any other taxes that you would encounter on a day to day living. Our wealth potential now is reduced to $4.2 million. Additionally there’s debt. The average family pays 34 and a half cents of every dollar to service their debt. That’s student loans, car loans, vacation loans, you name it. Now our wealth potential is reduced to 2.1 million and then we have lifestyle, groceries, utilities, insurances, and hobbies. Now we’re down to $600,000. Again, conventional wisdom wants us to focus on getting a high rate of return. Well, let’s assume we can go from 5% to 8%.

They have to take some risks to do it, but now our wealth potential goes to a million dollars and to them, it can’t get any better than that. But again, the reason you can’t get ahead is because your cashflow is pinched. The reason your cashflow is pinched is because of taxes and debt. What if we can show you how to reduce your taxes from 30% to 25%, look at the effect that has on your wealth potential. Keep in mind, we’re going to reduce your investment return from 8% to 5%. So you don’t have to take any risk in order to do it. Our wealth potential grows from 600,000 to 900,000. It grows by 50% just by reducing our taxes by 5%, but we’re not finished.

We could also show you how to control your debt. If we can show you how to reduce your debt from 34.5 % percent down to 20%, look what happens to your wealth potential. Now you’re at $1.8 million just by reducing your taxes and controlling your debt. Now, all of a sudden you’ve tripled the amount of money you’re able to save. We’ve done all of this without having to reduce your lifestyle in order to do it. That’s the value of controlling your cashflow. This is how you can get ahead without having to earn or generate additional income.

Here’s the good news. If you’re ready to get rid of that stuck feeling, all you need to do is stop giving up control of your money. We always say, it’s not how much money you make, it’s how much money you keep that really matters. It’s not your income that’s holding you back, it’s not your rate of return that’s holding you back. It’s the inefficiencies in your cashflow that are stopping you from getting ahead.

Once you focus on what’s important, control of your cashflow, each and every decision becomes more and more clear and you’ll know exactly what to do. Our process focuses on identifying exactly where and how you’re giving up control, Whoever controls your cashflow controls your life.

Valuable Finance Insights from Tier 1 Capital