Learn about financial strategies to enhance business and personal cash flow. Get tips that will help counteract the effects of inflation. Discover unconventional wisdom related to life insurance, infinite banking, wealth building, and much more—here in the Tier 1 Capital blog.
“That’s exactly why our process aims to put you back in control of your cashflow, so that you can build a pool of cash that you have access to when you need it with no questions asked.”
When people come to meet with us, they have the mistaken belief that the reason they’re stuck financially is because they don’t earn enough income. Well, we have a secret. We have clients who make $50,000 per year, and they’re stuck financially. We have clients who make over $800,000 per year and they’re stuck financially. Now, if you’re making $800,000 per year, it’s not your income that’s holding you back.
We’ve cracked the code. What we found is, it’s not your income that’s holding you back, it’s how you’re using your money. By making your cashflow more efficient, plugging the holes in your leaky bucket, you’ll be able to experience true financial freedom.Let’s face it. Most financial frustrations arise from the fact that we don’t have access to money. Whether it’s to expand our business, educate our children, or take our family on a vacation. We’re forced to turn to banks and credit companies to get access to their money. In the process, we’re literally obligating our future cashflow to them. We found that whoever controls your cashflow, controls your life.
That’s exactly why our process aims to put you back in control of your cashflow, so that you can build a pool of cash that you have access to when you need it with no questions asked. Here’s an example of how our process helped transform a cashflow problem to true financial freedom. We met with a client about three years ago, he was an accomplished business owner earning over $400,000 a year, but he was still struggling to pay for things like private school, expanding his business, providing for his family and not to mention every quarter when taxes were due, he was drawing on a credit line to fund those taxes.
Now, as an entrepreneur, his natural inclination was to earn his way out of this problem. But after meeting with us, we identified the leaky holes in his bucket, which were primarily the fact that he was paying down his debt too quickly. He was literally taking profits from his business and transferring those profits to the bank to pay down his debt. The bank now controlled that money, those profits in his eyes, he was building equity, but he didn’t control that equity. Consequently, when it came time to pay his quarterly taxes, he didn’t have any access to money cause he gave it all to the bank. So what did he have to do? He had to draw on his credit line. When we asked him to sort of take a step back and look at what was happening, he was paying down this debt, but he was increasing this debt. Our question to him was, are you making any progress?
So let’s take a look to see how our process transformed his situation. Step one was to slow down the rate at which he was paying down his debt immediately, that increased his cashflow by over 40% per month. Now we didn’t change his revenue at all. The amount of money going into his pocket every month was exactly the same. What changed was the amount of money he was keeping. Step two was to redirect some of that money to build a pool of cash that he owned and controlled so that he would have access to it when he needed it in the future, to reach his financial goals.
Three years later, we’re proud to announce that he’s sitting on over $850,000 worth of cash. Imagine how that would feel. If three years ago you were struggling to pay your quarterly taxes and now today you’re sitting on $850,000 worth of cash. Now understand the power of this process. He’s not working any harder. His cashflow hasn’t changed. The only thing that changed is how he was using his money and because he regained control of his cashflow, he’s now regained control of his life.
” It takes discipline and focus in order to save for the future. “
This picture is what we refer to as the personal economic model. The fact of the matter is, everybody has a personal economic model. We use this diagram as a tool to show people how money works in their lives. The ultimate goal is to get to position A, where there’s enough money in the future lifestyle tanks, the risk and the safe tank to support our current lifestyle in retirement and through our life expectancy. So let’s take a look at how money works in our lives.
Let’s start by taking a look at how money enters our system. You’ll notice over here, we have the lifetime capital potential tank. You’ll also notice that this is the largest tank on the screen. That’s because anytime we earn income, whether it’s at our job, maybe an inheritance, maybe we will win the lottery, all that money flows through our lifetime capital potential tank. It doesn’t stay in there and it goes right through this tube and then hits the tax filter. Did you put the text filter on your personal economic model? No, none of us do.
It comes pre-installed on all the models and the government puts it there. What it does is, it diverts money from our lifetime capital potential and it diverts it into the government’s personal economic model. Once the money flows through the tax filter, we then reach our lifestyle regulator. This is where we have some choices. We can either save some money for our future lifestyle, or we could spend 100% of our income on our current lifestyle. After money flows through and is spent on current lifestyle, there’s no getting it back into our system and it makes it very difficult for us to reach position A. Rather than consuming all of our income. We have a choice as to how much we save for the future. Notice, that our future lifestyle tube is pointing upwards. It takes discipline and focus in order to save for the future.
Now we have some choices. We could either put money in the investment tank or the savings tank. Notice that the investment tank is labeled “risk”. There’s no lid on that tank. Depicting the fact that we have the potential to possibly lose some money in that tank. Alternatively, we can put money in the savings tank. The savings tank has a lid on it depicting the fact that we could never lose money in that tank. As long as money is in that tank.
Remember the ultimate goal is to get to position A, where we could turn off our income and we have enough money in both of these tanks to fund our lifestyle through our life expectancy. But what happens if your lifestyle regulator is turned up to 100%? That means that you’ve had very little success in saving money for the future. In the past, maybe you have a little money in your 401k at work, and maybe you have a bare minimum of an emergency fund. What happens when you’re in this position is that you have no access to capital. What happens is, you’re forced to borrow money and take on liabilities.
Maybe you have a little bit of credit card debt. Maybe you have a car loan. Maybe there’s some student loans that you haven’t had the chance to pay off yet. Notice that all of these debts have no collateral. The money spent on the credit cards, that’s gone. The car is a depreciating asset that the bank really doesn’t want.The car and the education, they can’t take your education back. So you have no collateral. But the fact of the matter is you do have collateral.
You are obligating your future income to pay those debts. And by obligating your future income, that reduces your future lifestyle and further compromises your ability to save for your future lifestyle. Consequently, that really puts in jeopardy your ability to get to position A. As you can see, we use this personal economic model to show people how money enters their system. More importantly, the consequences of all the choices that they can make with their money. Are you living within your means? If you’re not sure, we recommend you start with a budget. Take inventory of what you have coming in every month and what your monthly expenses are and what you could reasonably afford to save every month.
“We focus exclusively on making your money more efficient by showing you how to reduce or eliminate transferred money.”
This circle represents all the money that’s going to go through your hands throughout your lifetime. Now your circle might be larger than some folks and others might be larger than yours.The number one thing you have in common with everybody is that you want this circle to grow. There’s many ways that that can happen. The fact of the matter is, every dollar that goes through your circle of wealth is put into three categories. First there’s accumulated money. That’s the money you have saved and invested. Second is lifestyle money. That’s the house you live in, the car you drive and the schools your children go to. Third is transferred money. Transferred money is money that you’re giving up control of unknowingly and unnecessarily. There are two key words because unknowingly means, you don’t realize it. And unnecessarily means that, working together we can fix it.
Let me show you how we differ from traditional financial advisors. Traditional financial advisors want to take the money that you have saved and accumulated and show you how to get a higher rate of return by potentially taking on additional risk in order to do that. Well, what if you don’t want to take on additional risk? Well, you’re not a prospect for them. The second way that they can help you is they can show you how to reduce your current lifestyle in order to save more for the future. How much time do you really want to spend talking about how you could live on less? You see, nobody’s talking to you about transferred money. That’s things like interest on debt, taxes, any efficiencies in your current planning, maybe some fees nobody’s talking to you about, that transferred money.
That’s where we differ. We focus exclusively on making your money more efficient by showing you how to reduce or eliminate transferred money. Our mission is to put you in control of your money. Take a look at how we’ve let other financial institutions creep into our checkbook every month. We have a mortgage that’s due every monthand credit card bills. We have taxes that are paid before we even get our paycheck and those cars aren’t going to buy themselves. We all know this game, Tic Tac Toe, who won the first time you played ? Well for all of us, the answer is the person who showed us how to play. They showed us just enough to play, but not quite enough to win. The same is true for financial institutions, banks, and the government lending companies. They all showed us the game, but not enough to win.
Who’s teaching you the rules on how to win the financial game? That’s our job. We teach our clients and show them how to win the financial game. You see, traditional financial advisors focus only on your savings and investments. Their job or their goal is to move your money from where it is to them. But by focusing only on rate of return and/or taking on more risk in order to get a higher rate of return, you’re still ignoring opportunity costs, taxes, and interest on debt. The more you grow your money, the more taxes you have to pay. The more you grow your money, the more opportunity costs you’re giving up.
You see, the golfer over there is really important because we think that by focusing only on growing your savings and investments, that’s the equivalent of focusing only on the golf club in order to improve at golf. Where our process, we focus on how you use your money. We focus on the golf swing. We think by focusing on the swing, or the process of using your money, you can get much better results rather than focusing only on the product or getting a higher rate of return.
Most people think if they were just able to earn a little more income or a higher rate of return, that all their problems would be solved. But if we don’t address the inefficiencies in our system, they are going to grow with our circle of wealth and we’ll have more interest on debt, more taxes and more lost opportunity costs.
Here’s how we differ from traditional financial advisors. We focus exclusively on transferred money. Let me give you an example. Here’s a couple earning $100,000 saving 6% or $6,000 per year. They’re earning 5% on their savings. Now, a traditional financial advisor will come to them and say, we can show you how to get a much better rate of return. Maybe take on some additional risk in order to increase the output of that $6,000 that you’re saving. So let’s assume they can get you to 7%. Well, they’ve just added $120 to your bottom line, but you see, they focus on the 6% that you’re saving and they’re completely ignoring the $94,000 of annual expenses. Here’s where we differ. If we can reduce your annual expenses by eliminating efficiencies that are built into those expenses, just by 1%, that’s $940 and $940 is the equivalent of earning 15.67% on the $6,000 that you’re saving.
Now, here’s the irony. What does it cost to eliminate an inefficient expense? Well, it doesn’t cost anything. How much risk do you need to take to eliminate an inefficient expense, no risk. More importantly, how much of a reduction in your current lifestyle does it take to reduce an inefficient expense? There’s no impact on your lifestyle. So think about it, no risk, no cost and no reduction in lifestyle. We think that’s what makes us different because we don’t focus on trying to grow your money by taking on risk. We focus on growing your money by eliminating losses. Only two ways to fill up a leaky bucket. The first is to turn up the flow and the second is to plug the holes so that even if the flow is just a trickle, it will still get filled up.
“According to the Bureau of labor statistics, the average annual income in the year 2000 was $30,000. Today it’s only $34,000.”
Inflation is often referred to as the stealth tax. It’s stealthy because it’s kind of sneaky and no one really sees it coming. According to the federal government, over the last 20 years, we had a 2.5% inflation rate per year. Basically something that costs $1 in the year 2000 should now cost about a $1.51. We did some research and some things aren’t adding up. Let’s take a look at what we found.
So in the year 2000, the average cost of a home was $119,000. Today, the average cost of a home is $320,000. In the year 2000, the average price of a new vehicle was $22,000. Today, the average cost of a new car is $38,000. In the year 2000, the cost of a year in college was $10,000. Today, the cost of a year in college is $41,000. Something doesn’t add up.
So let’s take a look at how the government is calculating inflation. The government basically takes the price of a set number of goods. Over a period of time, it’s called the consumer price index or the CPI. Let’s take a look at it.In 1980, the government used 13 sectors of the economy to calculate inflation. In 1996, they reduce that to seven sectors of the economy. Then in 2008, they changed it to three sectors of the economy, but that’s not even the big problem.
Let’s take a look at four sectors of the economy that aren’t currently being used to calculate inflation. First, healthcare. Second, taxes. Third, energy. Fourth, food. Now they’re including food, but now they’re saying you’re supplementing. So, if you were used to eating steak once a week, now they’re telling you that you’re substituting steak with hamburger.
Now here’s the real issue. According to the Bureau of labor statistics, the average annual income in the year 2000 was $30,000. Today it’s only $34,000. That’s a 12% increase over 20 years. But if the government is correct about inflation and at being 51%, something still isn’t adding up.
So in light of the fact that income has not gone up as much as the cost of living over the past 20 years, we think it just makes sense to protect your savings from the effects of taxes and to position yourselves to be able to take advantage of inflation in the future.
“That car that we pay $20,000 for, is really costing us about $150,000.”
For the past 35 years, I’ve learned that there are only five ways that you could accumulate wealth in America. Number one, you can be born into it. Number two, you could marry into it. Number three, you can purchase a business and have your employees create wealth for you. Number four, you can purchase real estate and have your tenants create wealth for you. Or number five, you can focus on saving more of your money.
Notice, nowhere in there did we say you need to earn a higher rate of return on your money to become wealthy. You see, traditional financial planning focuses on rate of return. Oftentimes people go from one advisor to the next advisor, all with the promise of a rate of return that’s better than the last. We believe that there’s more opportunity in making your money more efficient than there is in picking the winners.
For every dollar that goes through our hands, we could only make two choices with it. We can either save it or spend it. Saved dollars will grow over time, spent dollars are gone forever. Now the potential future value of spent dollars is called opportunity cost. We will never see the money that we don’t earn after we spend our money, but let’s take a look at an example to see just what an impact opportunity costs can have on our money.
Today we’re going to look at buying your first car. You graduate college and you get your first job. Now you want to buy a car. Let’s say it’s a $20,000 car. That $20,000 could have earned 5%. We’re going to look at this over the next 40 years. Well, focusing on opportunity costs, we think the car cost is $20,000. Nothing could be further from the truth. The fact of the matter is that car costs us $20,000 plus what we could have earned on our money for 40 years, that’s an additional $127,168. That car that we pay $20,000 for is really costing us about $150,000. That is opportunity cost.
Keep in mind. This is only looking at the cost of one car. The average person is going to purchase 12 cars over their lifetime. The point is, it’s not what you buy, it’s how you pay for it. Making your money as efficient as possible and losing as little opportunity cost as possible is what will make you financially free. There’s no certainty in trying to risk your way to financial independence.
“It’s really the best of both worlds when you’re a wealth creator.”
Albert Einstein once referred to compound interest as the eighth wonder of the world.Here’s the problem. Most people are so focused on not paying interest that their eye is completely taken off the ball. They completely ignore the concept of continually earning interest on their money. But there’s one foundational principle that we need to come to grips with and that is, we finance everything we buy. What does that mean? It means this, you’re either going to finance and pay interest to a bank or somebody else for the privilege of using their money or we’re going to pay cash and therefore give up interest that we could have earned, had we not paid cash.
That’s the secret. We either pay up or give up. If you’re looking to realize true financial freedom for yourself, keep this in mind. It’s not what you buy, but it’s how you pay for it that really matters. You know, most people think there’s two ways to pay for something. Either finance or pay cash. Well, there’s actually three ways. So let’s take a look at them. If you finance your debtor, you’re working to spend, you have no savings. You earn no interest and you pay interest. Most people recognize or realize that that’s a bad thing. Maybe they were taught by their parents that if you didn’t have enough money to pay cash, you didn’t need the item. Or they saw their parents struggle to get out of debt. Either way, they move to paying cash. So they save, they avoid paying interest, but they earn no interest. And then they pay cash.
There’s actually a third way, the wealth creator. This is where true financial freedom is really located. You save, you’re using other people’s money to maximize the efficiency of your money. You’re putting leverage to work for you. You save, you continuously earn compound interest. Then, when it’s time to buy something, you collateralize the purchase. Notice the key here in all three areas and all three methods. You still get the purchase.
It’s really the best of both worlds when you’re a wealth creator. Let’s take a look at what that looks like. Let’s say you finally graduated college and you have your first real job. Everyone at work has new cars and you finally have the income to qualify for a loan. So what do you do?You buy a car, you go to the dealer, you get a loan. 30 days later, you get a coupon booklet. What you did is, you bought a car and now you have payments. So you dug a hole and you filled it up. Five years later, you got a five-year-old car. You don’t have a payment, time to buy another car. You just keep digging a hole and fill it back up. But notice over time, you never get above the financial line of zero. So what’s the alternative? Well, the alternative is to pay cash. Paying cash takes tremendous discipline because in order to pay cash, you have to save first. So you delay the gratification of a new car until you have enough money to pay cash. Then when it’s time to pay cash, you drain down the tank, you spend your savings and then you got to start over.
Here’s the problem with paying cash. You still have payments because if you want to pay cash for the next car, you have to begin saving the day you bought the car. Then when you have enough money saved for another new car, five years later, then you drain down the tank. Again, notice over time, you don’t get too far above the financial line of zero. In fact, you’re not much better off than the spender. The only difference is, you lost interest along the way.
The way that we teach our clients is to become the wealth creator. When you’re a wealth creator, you’re saving. Your money is continuously earning compound interest, but then when it’s time to buy something, you collateralize your purchase. What does that mean? You’re using your savings as security against the loan. You’re pledging it as collateral and you still have a payment, but understand, if you finance, you have a payment. If you pay cash, you have a payment. If you’re the wealth creator, your money never stops earning compound interest. That’s the key to true financial freedom.
It’s like your money is literally in two places at one time because you’re able to make the purchase. You also are still able to earn interest on your savings because you’re never actually touching it. You’re using other people’s money. There are two main variables to compound interest, money and time. Every single time we drain the tank, we’re saying, “don’t worry, I could replenish that cash later.” What we often forget is that, time is a variable that we will never get back.
Let’s take a look at an example. Let’s say you’re saving $5,000 per year. You’re earning 5% interest on that money. We’re going to look at this over a 30 year period. We’re going to drain the tank down four times by paying cash and we’re going to refill it every five years. So here’s what happens. We go and we buy a car. Now had we not drain down the tank, our money could have continuously earn compound interest for us. And at the end we would have $353,804. But because we decided to pay cash, and we did this four times. And then we finally realized it wasn’t the amount of income that we were earning that was holding us back. It was how we were using our money that was holding us back. We started to continuously earn compound interest on our money. Notice we only have $71,034. That’s a difference of $282,770. Keep in mind, this person figured it out. After 20 years, most people never figure it out.
Here’s the problem with traditional financial planning. They completely ignore time. They’re so focused on earning a higher rate of return that they completely ignored the two factors of compound interest, time and money. Most people come to us thinking if only I could earn a higher rate of return, I could finally be financially free, but that’s not necessarily the case.
Let’s say you could earn 7% on your money. If you go through this same pattern of delaying compounding interest, now you’re out $431,000. That’s still a big number but let’s take a look at what happens. If you could earn 3% on your money, that’s a big number. Keep in mind, we made six purchases over a 30 year period of $30,000. That’s $180,000. You’re losing just as much if you caught onto this 20 years down the road in lost opportunity.
You see, it’s not what you buy, it’s how you pay for it that really matters. What is most important is to never jump off the compound interest curve. The key is to get on the compound interest curve as soon as possible and never jump off. That includes market losses. Although, financial advisors could promise a high rate of return, every time you experience a market loss, you’re jumping off the compound interest curve. We could see here just how detrimental that could be to your financial wealth.
“Our mission as a company is to show people how to regain control of their money.”
The problem with getting in the debt cycle is that once you take on that first debt, it becomes difficult to save your income. In the case of an emergency, you’re forced to take on more debt and tie up even more of your income and make it even harder to save. In his bestselling book “Rich dad, poor dad,” Robert Kiyosaki’s foundational principle is to pay yourself first. But if you’re working that hard to pay off your debt, how in the world are you going to be able to pay yourself first?
So here are some of the problems with consumer debt. First, it places an obligation on your future earnings. You lose the capital to purchases and the financing costs forever. As in, you’re giving up opportunity costs. When you make these purchases, you become a debtor to the creditor. Most importantly, you’re losing control.
Our mission as a company is to show people how to regain control of their money. With this simple concept, showing them how to regain control of the financing function in their lives. We could make significant progress in showing you how to regain control of not only your money, but your financial future.
If there’s only one thing you take out of this video, please let it be that “ It’s not what you buy, It’s how you pay for it that really matters.”Because let’s face it,every purchase we make is financed. You could either be a debtor, a saver, or wealth creator. Let’s go over the differences.
This is what a debtor looks like. They have no money. So when they have to buy something, they have to finance it. They have no choice. They dig a hole and then they fill it up and then they dig another hole and they fill that up too. But notice, they never get above the financial line of zero.So what a lot of people do, is they save money in order to spend. They save, save, save, and then when it’s time to buy something, wipe out their savings in order to make the purchase. They keep doing this again and again. Over time they don’t stay above the financial line of zero.
Then there’s the wealth creator. This is what we help our clients to become. They save as a matter of course. Then, when it’s time to make a purchase, they borrow against their money. They use other people’s money to make their money more efficient, but notice they never interrupt the compounding of interest on their money. Their money is always working for them and they are no longer working for money. That’s the power of becoming a wealth creator and that’s the power of controlling the finance function in your life.
“We just want to make people sleep better at night so that when they wake up in the morning, they can take a breath knowing that they’re going to be okay.”
Brian Peters:
Hi, my name is Brian Peters and I’m the CEO of Brian Peters consulting. I work with the top advisors around the world in all countries. Today I have the privilege and the pleasure of chatting with Tim Yurek of Tier 1 Capital in Pennsylvania. Now, Tim is a 35-year veteran in this industry and is really at the top of his game. We’re going to learn some great secrets and insights into financial services and the world today by speaking with Tim. So Tim, great to have you on. Thank you very much for joining and welcome.
Tim Yurek:
Well thank you, Brian. I appreciate the opportunity to chat with you.
Brian Peters:
I’m going to be asking you a number of questions. Some, that people have actually written in because they knew that we’d be speaking. So I’m going to start with question one, Tim. There’s so many different types of advisors. You’ve got advisor firms, investment firms, you got banks, you’ve got credit unions. You’ve got all sorts of types of advisors. So let me ask what makes you so unique or different?
Tim Yurek:
Well, you know, Brian, that’s a good question. What I found is, when you encounter a financial advisor, when you meet with them for the first time, they ask to see everything you have, and then the conversation usually goes somewhere to this point. “Well, everything you have needs improvement and my stuff is the best.” That’s because they’re focused on the product. What makes me different is when we sit down, we’re going to talk about how you’re using your money. We’re going to look for inefficiencies in how you’re using your money. To give you an analogy, let’s say you want to get better at golf, this is how the other guys would approach it. “Show me your golf clubs, your golf clubs stink. Come to my pro shop. I’ll sell you a new set of golf clubs.” My analogy is, “Hey, Brian, I don’t know if you need clubs, but I know the best way to improve your swing in golf is to take a look at the swing. So let’s go down to the range, take a look at how you can swing the club and then we can maybe make some recommendations.” What we do is we look for any inefficiencies in how you’re using your money and then make recommendations on how you can improve yourself financially.
Brian Peters:
Wow. That sounds much different than everybody else. So, what can you really help your clients achieve?
Tim Yurek:
Well, Brian, first and foremost, what we help our clients to achieve is having access to their money. That is the center of our planning because when you don’t have access to money, you have stress, you have frustration, you have anxiety, you can’t take advantage of opportunities. If a financial or a health emergency occurs, you don’t have access to money. That creates more stress and anxiety. Additionally, people come to us looking for confidence. You know, they’re rich on paper. They have a lot of money going through their hands, but they feel like failures because they don’t have access to their money. Our process shows them how to create greater access to their money. What they don’t realize is they have it within their power to achieve the freedom and the confidence that they want. They just don’t know how to do it.
Brian Peters:
That sounds great. That sounds like a real problem solver. So Tim, tell me, how did you come up with this process?
Tim Yurek:
Well, you know, Brian, I realized that following conventional financial wisdom doesn’t work for the client, it works for the financial institution. It works for the financial advisor, but it leaves your money inaccessible when you need it most. So I realized something had to change.
Brian Peters:
So, the change was, instead of taking on more things, the change was to use what they were currently using more efficiently. Is that right?
Tim Yurek:
Yeah, exactly. So, all we do is help people to analyze what they’re doing with their money and then determine whether or not it’s leaving their money accessible or inaccessible. Then if their money was inaccessible, we looked at a different way of doing things. So that their money can be accessible to them. Now, the financial institutions don’t like that, but it’s better for the client.
Brian Peters:
Now I’m going to ask you the $64,000 question. Why did you even bother trying to come up with this process? Why do it like this?
Tim Yurek:
I mentioned earlier that our clients come to us frustrated, stuck financially, and full of anxiety. Well, back in 1993, I was in the same spot. I was making good income. I was following conventional wisdom to the book and I didn’t have any access to money. I was stuck financially, and I was frustrated. I thought it was my fault because I wasn’t making enough money. The problem wasn’t that I wasn’t making enough money. How I was using my money was the problem.
Brian Peters:
Oh, that makes total sense. Do you think that today it’s mostly in America, or do you think that a lot of people are in that similar situation?
Tim Yurek:
Brian, it’s amazing. Every day we see people who are in the same boat. I just met with a client out in California. We did a virtual meeting and they were in the same boat. The husband said, “I’m making more money now than I’ve ever dreamed and yet I can’t pay my bills on a monthly basis. What’s going on, what’s wrong?” See that’s where people come to us. They don’t have confidence because they think it’s their fault. It’s not their fault, to a degree. It is because they’re following conventional wisdom, but they think they’re doing everything right by the book. They are, but it’s not in their best interest. That’s why they’re stuck, frustrated and full of anxiety.
Brian Peters:
I can tell you’re really passionate about fixing that for people too. That’s great, Tim, it’s all sort of sounding so simple and obvious and straightforward. So if that’s the case, why isn’t everyone doing it?
Tim Yurek:
You know, Brian that’s a great question. You know, the American actor Will Rogers has a quote. He says “The problem in America, isn’t what people don’t know. The problem in America is what they think they know that just ain’t so.” You know, what I found is when I meet with clients, they’re doing the best they can with the money they have, based on the information that they have. The problem is they don’t have all the information. So, one of the questions I ask my clients when I first meet them is, “What if what you thought to be true about finances turned out not to be true, when would you want to know?” They all say immediately. So, the problem is they don’t have all the information.
I met with a client and his wife the other day, he’s a business owner. He said to me during the meeting, why isn’t everybody doing this? I said, well, they haven’t met me yet. So we put this plan together for them and I just got a text the other day and he said, “Hey, we’re going to move forward with that plan and I just want you to know, last night was the best night’s sleep I’ve had in months.” That just gives me such pleasure to see that I’m making an impact for people on a daily basis.
Brian Peters:
Wow. That’s fantastic. That must’ve made you feel really, really great. That’s great.
Tim Yurek:
Absolutely.
Brian Peters:
So Tim, I can tell you’re really passionate about what you do. So when you wake up in the morning, what’s your mission statement?
Tim Yurek:
Well, Brian, it’s real simple. We just want to make people sleep better at night so that when they wake up in the morning, they can take a breath knowing that they’re going to be okay. They don’t have the stress of thinking that they’re living pay to pay or week to week. They don’t have the pressure of having to make a sale. We help our clients sleep better and we give them that confidence.
Brian Peters:
Great, fantastic. So Tim, I can tell you’re really passionate about what you do and you really do like helping people. Now, the world’s in a bit of a tough place at the moment for business people and everyday families. So I understand that you’ve got a special offer for any business owners who would like to chat with you over the next 30 days. Would you share that with us?
Tim Yurek:
Brian we’re going to offer a free, no cost, no obligation cashflow analysis for business owners to see if we can help them to free up some cashflow coming out of this pandemic. Additionally, for families, we’ll offer a free 30-minute phone conversation to answer any questions that they might have about their finances.
Brian Peters:
Great. So, anybody who’s really interested in a no obligation free 30-minute chat, just get in touch with Tim, and he’ll be more than happy to help you. So, Tim, it’s been really great chatting with you and great learning all about what you do. We wish you very well and continued success.
Tim Yurek:
Thanks, Brian. I appreciate it. Thanks for your time. You’re very welcome
“As long as you keep your money in the whole life insurance policy, your money’s going to grow on a tax deferred basis.”
Inflation is a rise in prices of goods and services. Inflation reduces the purchasing power of our dollars. The problem is, the longer we hold onto our money, the less it can buy for us. Here’s an example. If you were to go into your backyard and dig a hole and bury $1,000 and leave it there for 10 years and after 10 years you go back and dig it up, what will you have? Well, it’ll be something that looks like a thousand dollars, but at 3% inflation over those 10 years, that $1,000 will actually only have the purchasing power of $744. The problem is not only will you have lost $256 of purchasing power, but you will have lost 10 years of time that you can never recapture. The government is destroying the purchasing power of our dollars every time they print money. Do you think our government will need more money in the future? If our government needs more money, there’s only two ways they can get that money. Number one is taxes. Number two is they can print more money.
There are six ways that whole life insurance can help protect your money against the effects of inflation. The first way is buying dollars for future delivery for pennies. Which means the premium you’re paying is pennies compared to the dollars you’re buying in a death benefit. What better way to protect your net worth than to buy discounted dollars for future delivery?
The second way is that your premium stays the same, but because of inflation over time, it’ll feel like less. For example, if you have a thousand-dollar premium at 3% inflation and 10 years, it’s only going to feel like $744. In this instance, you have inflation working for you rather than against you.
The third way that whole life insurance can help protect your money against the effects of inflation is what we refer to as multiple duty dollars. A lot of times clients will ask us, “Hey, I want to start saving, but I have to pay down my debt first.” We actually show them how to start saving today and how to pay their debt off quicker. How we do that is through whole life insurance. We take $1 that was just going to perform debt reduction and use it to reduce debt, to create an asset, to create a death benefit, to create a disability benefit, to create a long-term care benefit and provide retirement supplement. We took $1, that was previously doing one job, and got it to perform the job of 6 multiple duty dollars.
The fourth way whole life insurance can protect against inflation is dividends. Although dividends aren’t guaranteed, dividends typically increase as the policy matures. That’s an addition to the guaranteed growth within the policy. As interest rates rise in the market, the dividends in the policy typically increase. All other safe money products, as interest rates rise, the value of the product decreases because of the inverse relationship between interest rates and price.
The fifth way that whole life insurance can protect your money against inflation is through collateralization. The loan feature, your loan against a life insurance policy, is actually a collateralized loan against your cash value. So literally your money could be in two places at once because you’re borrowing against your cash value and getting a separate loan from the insurance company. Our clients have found that this can help them to take advantage of tremendous opportunities that are created when the market crashes because they can borrow against their cash value. When the market is down, they can buy into the market and then sell when the market rises. They can then put the money back into their policy and then use the money the profits gained from that transaction to supplement their income or to buy another policy. Our clients have found this to be a tremendous tool to show them how to take advantage of downturns in the market rather than become victims of market volatility.
The sixth way that whole life insurance can help protect against inflation is taxes. As long as you keep your money in the whole life insurance policy, your money’s going to grow on a tax deferred basis. Additionally, you’re able to access your cash on a tax-favored basis. This is a huge advantage over other financial products.
In summary, life insurance can help protect your money against inflation by reducing or eliminating taxation. It also makes your money more efficient, think multiple duty dollars. Thus putting you in a position to take advantage of market volatility, rather than becoming a victim of market volatility.
“We’re going to show you why it’s not what you buy, but it’s how you pay for it and how using leverage can actually get you a higher rate of return on your money.”
Have you ever wondered how you can get the most out of your real estate investment? Today we will be using an example about how to leverage your money for real estate investing but know that this concept can be applied to any type of investment. So, keep that in mind as we go through todays example.
We’re going to show you how using the cash value in your life insurance can maximize the rate of return on your real estate investment. We have clients who invest in real estate who ask us, “ Why should we put money in a life insurance policy and earn a measly 4% when we can put money in a real estate deal and earn an infinite rate of return?”
We’re going to look at a real estate example, and we’re going to show you three different ways of acquiring the property; paying cash, financing with a traditional mortgage, and leveraging your life insurance cash value. We’re also going to show you how leveraging can actually get you the ultimate rate of return on your investment.
Here we have a $250,000 property and we are choosing to pay cash. After closing costs, we have $255,000 of our own money in the deal. We have no costs for financing and after taxes, insurance, and maintenance, we ended up with a gross rental income of $2,500 per month. We’re going to sell the property in 60 months and we’re going to assume that the value of the property appreciates at 2% per year over that ownership period. When we sell the property, five years later, the value of the property is $276,270. After we calculate everything that we received, we ended up with 13.08% as a rate of return on the real estate investment.
Now you may be wondering if the property is only appreciating at 2%, how did we get a 13.08% rate of return? Again, we have to evaluate the fact that we received $2,500 per month for 60 months. When you calculate that income versus the money we had in the deal, that’s how we can calculate a 13.08% rate of return. That’s a pretty good rate of return, but it can be so much better if we apply the laws of leverage to the purchase of the property.
Now, most people think that because we’re saving so much of interest by not financing, by not using a traditional mortgage, that this rate of return is as good as it gets. We’re going to show you why it’s not what you buy, but it’s how you pay for it and how using leverage can actually get you a higher rate of return on your money.
Next, let’s look at the classic 80/20 finance. We’re going to finance 80% of the purchase price, put 20% down and pay closing costs out of pocket. It’s the same deal. It’s the same building, same purchase price, and the same closing costs. The only thing we’re changing is the fact that we’re using other people’s money.We’re going to borrow 80%, $200,000 at 5% for 20 years. That means we have a mortgage that we didn’t have by paying cash and the mortgage is $1,320 per month. So how are we going to pay for that mortgage? We’re going to pay for it from the rental income, the $2,500 per month.
We’re going to evaluate this over the same 60-month period. We’re going to sell the property again in five years at 2% annual appreciation. We only have $55,000 of our own money in the deal. We’re also going to get the tax deduction because a portion of the mortgage is interest. So now we have less monthly income, $1180 versus $2,500, but we also have less of our money in the deal. When we sell the property, the fact that we have a mortgage doesn’t change the selling price of the building, it’s still $276,270. The only thing that changes is, when we sell the building, we have to pay off the mortgage. Our net cash out is lower. It’s $109,380.
Now you may be thinking with a lower cash out and a lower monthly income, it’s really surprising that the rate of return is actually higher when you finance, right? But you need to consider that we only have $55,000 in this deal. Our real estate investing clients, they understand leverage, and they would never pay cash for a building. If they have $255,000, they can buy five buildings instead of one by not paying cash. They understand leverage and that is the beauty of using other people’s money. Would you rather earn 34.37% on one property or on five?
Let’s take a look at the final scenario where we finance 80%, but we borrow against our life insurance policy for that 20% down payment. The only expense we have out of pocket is the closing cost of $5,000. We have the same property, $250,000 with the same closing costs of $5,000. But this time we’re going to mortgage the $200,000, just like in the last example. We have a 5% loan for 20 years and we have the same mortgage payment. The difference is we’re going to take $50,000 against our life insurance policy. We’re also going to finance that at 5% for 20 years. Our total mortgage payment is actually going to be a little higher and our monthly cashflow is going to be a little lower.
When we sell the property for $276,270, after five years, our net cash out is $67,633 because we have to pay off the bank mortgage and the loan we took against our life insurance. But remember, we only had $5,000 of our own money in the deal. Looking at it, this is the ultimate leverage. When we calculate all the income that we received, plus the appreciation of the property, we end up with a rate of return of 245.87%. Now, you might be thinking that that’s a great rate of return and it surely is. But actually, this scenario is so much better because what we didn’t tell you is the fact that when we borrowed against our life insurance, our money was still continuing to earn uninterrupted compounding of interest at the rate of 4%. Additionally, we have a death benefit. So, we have so much more than we’re actually showing here, that we couldn’t and didn’t calculate into the rate of return.
This is why it’s not what you buy, but it’s how you pay for it that really matters. Leveraging can really increase your rate of return. We really illustrated that with these examples today, you know, conventional wisdom would have you believe that the less you pay the banks and finance companies and fees and interest charges, the greater rate of return you can earn. Today’s example really underscores the importance of having as little of your cash tied up in the deal as possible and how leveraging other people’s money can maximize the rate of return that you could earn on your money. Not to mention you still have control over all that money that isn’t tied up in the deal.
