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 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.
How much should I contribute to my retirement plan? Conventional wisdom tells us that from the day we start working, to the day we retire, we should maximize contributions to our qualified retirement plans. Traditional retirement plans leave your money inaccessible and out of your control. Your goal should be to save in a tool that you can control. This video provides a closer look at retirement plans, and whether or not they are suitable for you and your needs.
“Another thing to keep in mind with retirement plans is that they’re often invested in the stock market and there’s no guaranteed that when you go to retire, your savings is going to be intact. “
Have you ever wondered how much you should be contributing to your retirement plan or 401k? Traditional qualified retirement plans leave your money inaccessible and out of your control. If your goal is to regain control of your money, then perhaps you should consider saving money in a place that’s safe and allows you access to your cash for things like cars, vacation, tuition, home renovation, and any other purchases, whether planned or unexpected.
When all your money is tied up in retirement plans, you’re at the mercy of the government, wall street and the banks. Let me give you an example. We were introduced to a client who had $1.4 million in a 401k plan. He wanted to take his family on vacation to Disney, but he couldn’t put his hands on $13,000 in order to do so. On paper, this man was a millionaire, but the reality of it was he couldn’t put his hands on $13,000 to take his family on vacation because he didn’t have access to his cash.
The point of the story is it’s not a bad idea to save for retirement. In fact, it’s a very good idea. However, it’s also important to save in a tool that you control, somewhere that’s flexible and allows you access to cash. Another thing to keep in mind with retirement plans is that they’re often invested in the stock market and there’s no guaranteed that when you go to retire, your savings is going to be intact.
People view their retirement plans as savings, but there’s a big difference between savings and investing. Savings should be money that’s accessible and safe. Conventional wisdom tells us that we’ll be in a lower tax bracket when we retire, but taxes is another area in regards to retirement plans that we don’t control. We may be in a lower tax bracket; we may be in a higher tax bracket. The fact of the matter is nobody knows but think about this. You’re deferring taxes into the future of the unknown. It’s like driving a car off the lot, not knowing what the final purchase price is. Would you do that? Most people wouldn’t, but yet every day we fund our retirement plans not knowing what the future cost is going to be to get our own money.In conclusion by maximizing our retirement plan contributions, our money is inaccessible and because our money in accessible, we have to go to banks and credit companies to finance the things of life. Additionally, we’re deferring taxes into an unknown future.
How often do we think about what will happen if we get sick, hurt, disabled, or lose our job?
These are just some of the factors that we need to consider when investing in real estate. Buying a house is an exciting but stressful time. With so many options out there, how do you know which one is right for you? In this week’s video, we dive in to explore the pros and cons of a 15-year mortgage vs. a 30-year mortgage. We also explain the difference between a bank’s equity and your own, and other factors to consider. Remember, if you need approval to access your equity, is it really yours?
“It’s important to choose the option that gives you the most liquidity, use, and control of your money.”
Which is better a 15- or 30-year mortgage? When shopping for a mortgage, it can be so confusing because there are so many options. Buying a home is one of the largest purchases you’re going to make, and many people get hung up on interest rates. Well, interest rates are important. It’s not the only factor you should consider when choosing the right mortgage for you.
One thing to consider that’s often overlooked is inflation. When you buy a house today, you get a mortgage, the dollars have more purchasing power today than the dollars that you’re going to use to repay the bank. So the longer you can take to pay back the bank, the less purchasing power the dollars are going to have at the time of repayment.
Let me give you an example. When I was younger, my parents would send me down to the bank to pay the mortgage. The mortgage was $52.80 and at the same time, they would send me over to the local hardware store to pay the utility bills. Our electric bill at the time was about $45 or $50 and I remember asking my parents, “how much was the electric bill was when we bought the house? ” And they said it was about $4 or $5 per month.
Think about what happened over 15 years. The electric bill increased by about five times, but the mortgage stayed the same. So my parents were negatively affected by inflation on the electric bill, but they were positively affected on the mortgage because the mortgage stayed the same and they were paying that mortgage back with dollars that had less and less value over time.
Conventional wisdom tells us debt is bad, so Americans want to get their house paid off as soon as possible. You think you’re making your position safer, but the fact of the matter is you’re actually making the bank’s position stronger. Let me give you an example. If you have a $250,000 house with a $200,000 mortgage balance, if the bank had to foreclose, it might be difficult for them to break even if they had to sell that house. But if you have a $250,000 house with a $125,000 mortgage balance, it’d be very easy for the bank to break even if they had to foreclose.
Don’t get us wrong, both you and the bank are building equity, but the nature of those equities are quite different. The bank has full liquidity use and control of their equity. Whereas you would need to qualify to access the equity in your real estate. The bank’s equity is cash and your equity is real estate equity, which requires bank approval in order for you to access your equity. So, basically if you need approval to access your equity, is it really yours? The next thing to consider when choosing a mortgage is control. Think about it. If your goal is to regain control of your money, then you should not be giving up your discretionary income to the bank. That’s money that you could be using for your lifestyle or savings.
You’re taking money that you have complete liquidity, use and control over and giving it to the bank and now they own and control that money. Which brings us to our third point. What happens if you become sick, hurt, disabled, or lose your job? You may have a lot of money in real estate equity, but now you have to apply to the bank in order to access that money and make no mistake. Banks are not loaning you money because you have equity in your real estate. They’re loaning you money on the premise that you’re going to be able to repay them. Anytime you want to tap into your real estate equity, you need to go to the bank, apply and prove that you could repay the bank.
It doesn’t matter if you had a great payment history on your previous mortgages. They don’t care if you actually paid extra on your previous mortgages. They have to consider whether or not you can pay back this new wealth. Let me give you an example. We have clients who had a $175,000 house with a $50,000 mortgage balance. The husband got sick and couldn’t work. They figured they could tap into their equity when they applied to do a refinance, even though the monthly payment was going to be lower, the bank declined them because they couldn’t prove that they could pay back the new loan.
So, all along the way, while this family was building their home equity, making their mortgage payments, they believed that they were making their financial position stronger and safer. But at the end of the day, it ended up hindering them. If you need to get approval from somebody else to get your money, is it really your money?
The fourth thing to consider when choosing a mortgage is what happens if the economic climate changes. For example, interest rates can go up or down. If interest rates go down and you’re locked in for 30 years, you could always refinance if it makes sense for you. But what happens if interest rates rise? Well, this happened actually in the early 1980s people who had money outside of real estate equity were able to take advantage of interest rates on CDs and money market accounts that were 15% or 16%. If you have money tied up in real estate equity and the CD rates go to 15% or 16% you can’t tap into your equity because the bank is going to charge you more than the 15% or 16% if you’re borrowing.
It’s really going to put you in a situation where you can’t take advantage of opportunities if those opportunities arise. This brings us to our fifth point when choosing a mortgage tax deduction. Not everyone will qualify for the mortgage interest deduction, but if you do, do you want all of it, none of it or some of it.
Most people want as much as they can get. With the 15-year mortgage, there’s less opportunity for tax deductions.
In conclusion, we’ve been trained to shop for mortgages using one criterion only, interest rates. While interest rates are an important factor, they’re not the only factor you should consider when choosing a mortgage. Let’s face it, if the banks made the same amount on all the mortgages, there would only be one option. It’s important to choose the option that gives you the most liquidity, use, and control of your money. Again, if the point is to regain control of your money, does it make sense to give that money to the bank and then still have to get approval to access your money?
Want to start saving for your child’s future but don’t know where to start? Conventional wisdom tells us to save for college in one account and save for retirement in another. With so many options out there, it can be confusing which one might be right for you and your family. Today’s video covers your basic options for paying for college. The most common ways of paying for college are cash, cash flow, and borrowing/financing. We will give you three great reasons to why you should fund a whole life insurance policy to pay for college!
“Additionally, the money that you save in either savings account or 529 accounts are disclosed on the FAFSA form, so you’re actually going to increase the cost of college for your family.”
Are you thinking about paying for your children’s college education? The problem with funding your children’s education oftentimes isn’t a problem of funding the actual education. It becomes a question of, how do you fund this huge expenditure that sometimes costs more than your home and still stay on track for your retirement goals. No parent should have to choose between sending their children to college and funding their own retirement.
Conventional wisdom to tells us to save for college in one account and retirement in another account. The problem with that is, it leaves a good chunk of our money inaccessible at the time we need it most. Our process for funding college tuition includes a whole life insurance policy and you may be wondering why on earth would I fund a whole life insurance policy for college tuition and there really are three reasons. Access and control. It’s fast and has continuous compounding of interest. Basically, there’s only three ways you could pay for anything. Cash, cashflow, or borrow. Let’s look at these three ways. The first method of paying for college we’re going to look at is paying cash, whether that’s from a savings account or a 529 plan earmarked for college tuition. In order to pay cash, you have to have saved first, so you will have access to that money and control of that money, but when you pay for college, you’re actually wiping out compounding forever on that money.
Additionally, the money that you save in either savings account or 529 accounts are disclosed on the FAFSA form, so you’re actually going to increase the cost of college for your family. You’re actually being penalized for doing the responsible thing, which is to save for your children’s education. The second method of funding college that we’re going to look at is funding it out of your monthly cashflow, and let’s face it, if you’re fortunate enough to be able to pay out of monthly cashflow, it assumes you have access to that money. However, you’re giving up control of that and with that, you’re forfeiting the ability to ever earn compound interest on that money. The third method of paying for college is to borrow or finance and basically there are only four types of loans you can get for college. First are Stafford loans, they’re in your child’s name, second are parent plus loans. Third, are home equity loans and forth, are life insurance policy loans.
We’re going to discuss why life insurance policy loans as the preferred method of financing your children’s education. Let’s look at parent plus loans. With the parent plus loan, you gain access to someone else’s capital with the collateral of your future income. So, you get money when you need it, when your children are going to college, but you’re giving up control of your current and future cashflow in order to send your child to college. Now it is FAFSA neutral, but because you gave up control, you forfeit the ability to earn interest now and in the future on that cash flow. What you really need to look out for with a parent plus loan is that it kills your ability to save for retirement, not only while your kids are in college, but for about 10 years after that. It really hinders your ability to save for retirement on your own terms. So basically, all you have to show for it is a diploma in your child’s name.
Next, let’s look at a home equity line of credit for paying for college. With that, you have access to the money because you have equity in your house and the ability to repay the loan. But you obviously don’t have control because the bank controls the situation. They can call that loan whenever they want and you’re also forfeiting the ability to earn interest on that cash flow forever. It’s not going to increase the cost of college and you are rebuilding your home equity, so hypothetically you could have access to that money again in the future. Next we’ll look at using life insurance policy loans to pay for college tuition.
Now using insurance policy loans is kind of a hybrid between savings and financing and that the money that you have access to in your policy is the money that you’ve actually saved. However, in contrast to traditional savings account and 529 plans, this money is FAFSA invisible, so it’s not going to go down on your FASFA sheet and it’s not going to increase the cost of your college tuition. Additionally, you’re in control of the borrowing process as opposed to parent plus loans or home equity lines of credit because life insurance policy loans have an unstructured repayment process, meaning that you control the terms and conditions as to when or even if you pay back those loans. Additionally, with life insurance policy loans, you’re not borrowing money from the account. You’re borrowing money against the account so you’re never going to be interrupted in the compounding of interest on that money.
You have access, you have control, you have FAFSA invisible and you’ll have continuous compounding. That’s why we recommend life insurance policy loans to pay for college. That’s why we believe life insurance policy loans are the best way to fund your children’s college education. It allows you to send your children to their dream school without having to reduce your current lifestyle or derail your retirement in order to do so.
Want to know how to save money without reducing your lifestyle? In today’s video, we offer tips on how you can tell if you’ve lost control over your money. An example is, needing permission or approval in order to access your money. How you use your money is more important than were your money resides. Watch the full video for 5 areas on where you should check to see if your money is leaving your control.
Our process shows them how to start saving now and pay off their debt in an efficient manner. “
You want to save more money but can’t afford to reduce your current lifestyle? Before we get started, let’s identify how you’ll know you’re not in control of your money. A lot of people have money on paper, but when it comes to accessing their cash, they have no liquidity use or control of that money. Here’s some examples. You’ll know you’re not in control of your money when you have to get permission or approval in order to access your money. For things like home equity, you’ll know you’re not in control of your money when you have to pay a penalty in order to access your money.
For accessing your retirement plans before age 59 and a half, you’ll know you’re not in control of your money when you have to pay a tax on the annual growth or gains of your savings or investments. For things like stocks and mutual funds, I think of capital gains and 1099 is a carrying charge for the privilege of owning those investments. Finally, you’ll know you’re not in control of your money when you move money from one account to the other and it doesn’t increase your net worth.
This occurs when you pay extra on debts for cars, installment loans, or credit cards. When searching for money that’s leaving your control, you should look at five areas. If you optimize these five areas, you’ll increase your access to cash, reduce your debt, and increase your net worth all without having to reduce your current lifestyle.
There are only three places where you can put your money. Number one is tax deferred, but when you take the money out, it’s taxable in the future. Number two is currently taxable where you get a 1099 or a capital gains tax at the end of the year, and number three is tax-free, where you never pay tax on your money. Because you have a choice as to where you save your money. Paying taxes on your savings and investments is optional. Most Americans are saving any of their tax deferred or currently taxable accounts.
Let’s face it, the safest and sure way to maximize the efficiency of your money is to eliminate taxes. It’s not how much money you make, it’s how much money you keep that really matters. We’re trained by wall street to focus on rate of return instead of control and efficiency. The problem with the wall street model is that it leaves your money at risk to market volatility and ever-changing tax rates and laws.
The second area we look at is how you choose to fund your retirement plan. Conventional wisdom tells us that from the day we start working until the day we retire, we should maximize contributions to our qualified retirement plans. The problem with this is it leaves our money inaccessible and in order to access it, we need to pay taxes, penalties, and sometimes fees. Also, we don’t know what the final cost is going to be to get our money in retirement so we don’t have access to our money now and we don’t know what it’s going to cost to get our money in the future.
The third area is mortgages. When buying a house, it may seem appealing to get a 15 year mortgage because the interest rates are lower, but by doing so, you’re giving up control of more of your monthly income to the bank and true, you’re building more home equity, but remember, you need to qualify in order to access that equity. By extending the term of your mortgage, you’re giving up less control to the bank, less control of your monthly income and less control of your net worth. We suggest you save in a place that you own and control, such as a specially designed whole life insurance policy built for cash accumulation rather than death benefit. For more information on how to choose the best mortgage for you, check out our video in the description box below.
The fourth area is paying for college funding. Tuition could cost more than a house, in some cases. It’s important to build a plan that not only pays for your children’s college, but keeps you on track for your retirement lifestyle. Nobody should have to choose between paying for their children’s college and funding their own retirement.
The fifth and final area where you give up control of your cash flow is how you choose to fund major capital purchases. A major capital purchase is anything you can’t fund using monthly cash flow. Things like cars, vacation or even a home. We finance everything we buy. By that I mean we either pay interest to a bank for the privilege of using their money or we pay cash and give up interest on our own money so we either pay up or give up. We teach our clients how to use whole life insurance to continually earn interest even after they make major capital purchases.
By using the policy loan provision, our clients are able to access their money, no questions asked in order to make the major capital purchase. By doing it this way, their money enjoys the benefits of uninterrupted compounding. Many people come to us and ask, should I pay off my debt before I start saving? Our process shows them how to start saving now and pay off their debt in an efficient manner.
By looking at the five areas, we’re able to help our clients find money within their current cashflow to begin saving now without having to reduce their current lifestyle. In order to do so, how you use your money is more important than where your money resides. Think of it in terms of golf. Where your money resides is the equivalent of the golf club. How you use your money is the equivalent of the golf swing. If you wanted to improve in golf, doesn’t it make sense to focus on the golf swing rather than the golf club? Regaining control of the money you’re losing to these five areas will leave you in a safer financial position where you’ll have more control, more access to capital, and less dependence on banks.
