Small businesses are currently facing the twin challenges of high interest rates and high inflation. They’re paying more for loans and raw materials while trying to maintain a good quality of life for their employees, all while trying to grow their business.
Things are moving quickly. In November of 2020, inflation was quoted at .75, less than 1%. But let’s take a step back in time what was happening in November of 2020? Well, stimulus checks had been sent out, there was PPP money sent out to business owners. EIDL was on the rise and overall the government was pumping as much money as they can into the economy to keep inflation that low and stop us from feeling the effects of the pandemic.
But let’s take a look at the results of this government interference. In August of 2022, inflation had risen to 9.2%. By the end of December, it was down to 4.6%. But here’s the point. Inflation has increased a lot. We know that every time we go to fill up our gas tank, we know that every time we go to the grocery store, we see inflation on a daily basis. And couple that with the fact that small business owners often have to pay 2 to 3 points more on their business loans.
In February of this year, 2023, the prime interest rate rose from 3.25% percent to 7.75%. This could have a huge impact on small businesses if they’re not flush with cash and they’re forced to finance to run their business or grow their business.
In fact, the last time the prime interest rate was this high was during the Great Recession of 2008. While we have no idea what’s going to happen in the future, we can use history as a guide. During the 2008 recession. 1.8 million businesses closed their doors and 8.7 million people lost their jobs.
During the last three recessions 91% of business owners were suffering. However, the key is that 9% thrived during those times. Success also leaves clues.
So here’s the question, how can you position your business to take advantage of all the bad news that might happen with a pending recession? Let’s face it, no one knows what’s around the corner. We could guess. We could estimate. We could say what we think. Regardless, you need to be in a position where you can thrive, having the flexibility to pivot to whatever life throws our way.
We would argue that that comes with being in control of your cash and your cash flow, not dependent on banks not saving in places where you can’t access that money, but rather having a pool of cash that you own and control that you’re able to access for when you’re ready to grow your business, perhaps during the next recession, whenever that may be.
If you haven’t noticed, the world we live in is becoming more and more polarized. There are so many conflicting opinions out there. Are we about to go into a recession or not? And what about interest rates? Are they going to keep going up or are they going to decrease again?
Will there be continued volatility in the market or will stability return to the market? Not to mention the ultimate question, are taxes going up or down? How do we put ourselves in control of what we can control and start saving for the future, for a sure thing, regardless of what’s happening.
Because of the polarization, because of the uncertainty that comes with this polarization, one thing is certain. We still have goals. We still have milestones. And the longer we wait to address them, the more time we lose. And the fact of the matter is this the only thing we cannot afford to lose is time.
So the question remains, what moves should you be making right now to put yourself in a better financial position tomorrow? What are you going to look back and say, “Hey, I’m glad I made that financial decision. I’m glad I didn’t stay paralyzed and I’m glad I took that next step”.
The lens we look through is control. How do you remain in as much control as you can? Control of your assets, control of your cash flow, control of when you meet your goals. And when you’re in control, you’re better positioned to take advantage of anything that the economy, the government, and the world throws at you.
Again, putting yourself in a position where you could actually take advantage of all the bad news that’s out there. You could actually be in a position where you can look at that as an opportunity rather than being victimized by whatever happens outside.
You see, we believe there’s more opportunities in avoiding the losses than picking the winners. And not only that, but have you ever heard this, buy low and sell high? What better time to have full liquidity use and control of an asset than when the world is in economic turmoil? And by being prepared, you put yourself in a position where not only can you take advantage of opportunities, but you can protect yourself from whatever happens out there.
Here’s a question we ask all of our clients. Does having money that safe, liquid, and accessible when you want, no questions asked, does that take away any options in the future?
All of these things take your cash flow on a monthly basis and to put it out of our control. We’re transferring money from our control, our checkbook, every single month to outside creditors where we no longer have access to that money, especially without permission or a penalty.
So the answer, in our eyes, is very simple. When you view things through the lens of you being in control of your money, that makes your decisions so much easier. Because when you look and you analyze at the outcomes of each of these strategies and you see that you’re not in control of your money, don’t do it. Search, and find, areas or strategies that will continue to keep you in control of your money so that you can pivot in any direction that’s advantageous to you.
A perfect example of how someone isn’t looking at things through the lens of control is when they get hung up on interest rates. For example, when you go to the bank for a mortgage, what’s the first thing they offer? Hey, if you get a 15 year mortgage, you’ll have a lower interest rate than if you got this 30 year mortgage. But, what happens if you take that 15 year mortgage?
Well, you’re giving up a larger chunk of your monthly cash flow. And what’s the ripple effect of that? Well, if you’re putting more money toward your mortgage, you’re locking more money up in your home equity, but you’re also not able to save as much to reach your other financial goals.
You see, the money in your home equity isn’t necessary liquid, and it’s especially not liquid if you lose your job or become disabled, there’s no bank that’s going to give you a mortgage or access to that money If you don’t have a job.
So when you step back from that decision to take a 15 year mortgage because the interest rate is lower versus a 30 year mortgage, now you’re chewing up more of your cash flow. And the ripple effect is now you can’t save as much money, but more importantly, now you have less accessible money. So, if an emergency comes around or an opportunity comes around, you can’t solve the problem created by the emergency or take advantage of the opportunity that came to you. So the key is having accessible money that positions you to take advantage of all of these situations.
Let’s face it, life always happens. And when life throws a curveball at you, don’t you want to be able to hit that ball out of the park instead of being hit in the face? I for one, I have to tell you, I hate getting hit in the face. It’s not pretty.
If you’re ready to hit that curve ball out of the park, be sure to visit our website at Tier1Capital.com. Check out our free webinar for exactly how we put this process to work for our clients.
As we always say, it’s not how much money you make. It’s how much money you keep that really matters.
Cash flow is the lifeblood of any business, and having access to cash is kind of like the lungs. If you’re a business owner, you know this and you know it all too well. When you don’t have access to cash or cash flow, it feels like you’re suffocating.
So the question is, as a business owner, how do you position yourself so you have the lifeblood and the lungs of your business working together all the time.
Recently, Intuit did a survey of business owners all over the world, and they found that 61% of all businesses struggle with cash flow and 69% of business owners admitted to losing sleep or sleeping less due to cash concerns.
Some businesses are seasonal and their cash flow operates on a cyclical basis. Some quarters they have cash. Other quarters they’re a little light on cash.
On the other hand, some companies have chronic cash flow issues. It seems like they’re always playing catch up or they never have enough cash to take care of either running their business or growing their business. Either way, it could feel like you’re always putting out cash flow fires. It could feel like your business is suffocating and that could be very stressful. It all comes from cash flow not being as efficient as possible.
Over the past 37 years, I’ve worked with small business owners. I’ve worked with families. One thing I’ve determined is that their cash flow issues don’t have to be. It all stems from an inefficient way of utilizing their cash and their cash flow.
You see, it’s not how much money you make, it’s how much money you keep that really matters. What are you doing to maintain wealth within your business so that you’re off the debt cycle and you’re not dependent on external things in order to have smooth cash flow?
Number one, we want tax advantages. We are business owners after all.
Number two, we want guaranteed access. We want to be in control of the cash and the cash flow going in and out of this warehouse.
Number three, we want a reasonable rate of return. We don’t need to hit a home run, but we want to make sure that our money is working for us 24/7.
You see, we believe there’s more opportunity in avoiding the losses, than picking the winners. Meaning that if you could make your cash flow more efficient and make this warehouse for your wealth as efficient as possible, you don’t need to hit it out of the park with investments. You’re able to maintain your wealth, keep it safe, keep it within your business, keep it within your family, and still accomplish your goals with guaranteed access to that money.
But what does that guaranteed access actually mean for you?
Well, it means that you could take back the financing function of your business. Imagine not having to be dependent on banks and creditors in order to make major purchases within your business.
Now imagine being able to restructure your current debts to build this warehouse of wealth, to finally be in control of your cash flow so you don’t have these chronic or cyclical cash flow dry spells.
But you see, the first step is creating that warehouse of wealth, because if you don’t have the warehouse, you don’t have a pool of money that you could access. Everything else is out the window. You no longer have control. You no longer have uninterrupted compounding of interest.
So let’s talk about the warehouse. What we talk about on our channel is a specially designed whole life insurance policy designed for cash accumulation, where you are able to store and warehouse your wealth, build up that cash over time, and leverage it in the future without interrupting the compounding of interest on your money.
You see, the money never actually leaves the life insurance policy. A lien is placed against the cash value and a separate loan is taken out from the insurance company. It’s a loan, so naturally there’s no tax to access that money through the loan. And you, as the business owner, get to decide the repayment terms.
What this translates to is a tool that you’re able to use as a business owner to function within your business to relieve the cash flow stress that 61% of you are facing, and ultimately build a warehouse of wealth for your business and your family.
Are you stuck on the merry-go-round of the debt cycle? You don’t have access to cash and so you’re forced to borrow, and then you go and you earn profits, but all of your profits go towards repaying that debt. When something else inevitably comes up, you’re forced to borrow again. It’s a merry-go-round that goes round and round and round until you break the cycle.
It’s not hard to get into debt. In fact, it’s been quite easy up to this point. Whether it’s student loans, a credit card or a business loan, not to mention mortgages and home equity lines of credit.
Once you’re on the debt cycle, the key is not to stay in it.
The first step is taking that first step, determining what amount you can save on a monthly basis to build up a pool of cash that you own and control so that in the future you’re not dependent on financing to make major capital purchases. A major capital purchase is defined as anything that you can’t afford out of your regular monthly cash flow.
You see, understanding how the problem starts is the best first step. And basically the problem starts because you don’t have access to your own money. Therefore, you have to pay for the privilege of using somebody else’s money, a bank or credit company.
This problem is easily overcome if you just build up your own pool of money in which you can borrow or you can utilize for whatever you want. We’re talking about taking back the financing function in your life because let’s face it, every time we turn the corner, it seems as if we’re making a major capital purchase.
To start, you don’t need to know what your first goal is going to be. The goal initially needs to be to break the cycle, build up that pool of cash so when the time comes, because it always does, you are prepared.
We often talk about being in control. Being in control of your cash. Being in control of your cash flow, and what does that actually mean? What are the benefits of being in control? Well, let’s take a look at what life looks like on the other side of the debt cycle.
The first step is being aware that you’re on the debt cycle. The second step is to make a change, start building up that pool of cash. And then after you have enough money, you’re able to leverage that cash to make major capital purchases. What does that mean for you?
By leveraging the cash, number one, you don’t have to borrow from a bank or a credit company. You can either use your own cash, which we would recommend not doing or borrowing against your cash and replenishing that money over time so that you can make the next purchase.
What we’re talking about is the infinite banking process that uses specially designed whole life insurance policies designed for cash accumulation to help accumulate and keep your wealth. By using the specially designed policy, you’re able to place a lien against the cash value in the policy and access it via a policy loan. What does this mean for you? Well, it basically means that money never leaves your policy.
A lien is placed against the cash value and the death benefit of your policy, and a separate loan is taken out from the insurance company’s general fund. Again, the benefit of this is that your money is able to continuously compound and grow within the policy, and you’re still able to access cash with no questions asked from the insurance company.
And if that was all there was to it, that would be great. But that’s not all there is to it, because the loan you get from the insurance company is an unstructured loan and basically what that means is you determine how, if, and when you repay that loan. And because of that, you get to determine what the monthly payments are. And if they’re too large, you can back them down. If they’re too small, you can increase them. If things go well, you can finish the amortization schedule. If things don’t go well, you can extend the amortization schedule. You’re in complete control of that payback process.
So the two benefits that we see that most of our clients enjoy are, number one, their money gets to earn continuous, uninterrupted compounding of interest. And number two, they control the payback process.
So what does this look like using the policy? Well, you have premium deposits building up the policy’s cash value on a systematic basis, whether it’s monthly, quarterly, semiannual or an annual basis. So it’s building up the cash value over here. And once you leverage that cash value with a policy loan, you set up loan repayments. And so you have money coming in over here rebuilding that cash value, reducing the lien against it as you go.
What that does is infuse cash into the policy from two angles, from the premium deposits as well as the loan repayments. So you’re able to get out of debt faster by using this process because you have so much cash going into an entity that you own and control, not the banks, not the finance companies.
So instead of having that money going out or leaving your control, you have the money staying in and you maintaining control. And if you look at this from a big picture perspective, you never lose control of that money. And as time goes by and compounding interest continues to work for you, all of a sudden you have an ever increasing pool of money from which you can borrow for the next larger purchase.
I would argue that the number one source of financial stress comes from not having access to money when you really need it. The perfect example of this comes when you end up in too much debt than you could afford. It ties up your monthly cashflow and leaves you in a position where you just are trying to get out. But often people neglect to save and secure their own financial future before getting out of debt.
Total household debt is up to $16.9 trillion for Q4 of 2022, and of that, nearly $1 trillion is credit card debt. Credit card debt had grown by 6.6% in Q4 over Q3. That’s the largest quarterly increase ever recorded.
It’s clear that Americans are being squeezed from every angle. Inflation is up. Interest rates are up and savings is down. It’s getting harder and harder to make ends meet. So it’s no wonder that people are charging on their credit cards. But when you charge on your credit card, what are you actually doing? You’re obligating your future income to pay off that credit card debt and with the interest rate so high, some credit cards are 25 to 30% APR these days. It could be a very heavy interest expense, but it’s what people need to do to get by. However, once you’re in credit card debt and you’re trying to get out, the natural reaction is to put all of your monthly cashflow, all of your extra money towards that debt because it’s draining you.
What people neglect to take into account is that even if you got all that credit card debt paid off, you’re still just at the zero line. You’re no more financially secure than you were when you were buried in debt.
You went from a position of having very little cash flow and no access to money, and now you’re out of debt, but you’re still in a very precarious situation financially.
This is why we think it’s important to both pay off your credit card debt, but also save for your future, to accumulate a pile of money that you own and have full liquidity use and control over to protect you and your family.
58% of Americans have less than $5,000 in savings and 42% of them have less than $1,000 in savings. Most families out there have a very difficult time absorbing a $400 medical bill. And let’s face it, how easy is it to rack up $400 in medical bills today?
Parkinson’s law says that expenses rise to meet income. So if you’re not diligent on saving your raises, guess what’s going to happen? Your expenses will rise to meet your income.
Another way to look at this is with the student loan debt. A lot of people stopped paying their student loans during the pandemic because of the forbearance. Didn’t they in essence, give themselves the raise? What’s going to happen when those payments resume and their cash flow is going to be pinched for the amount that they’re going to have to repay back to the student loans?
You know, we talk about this all the time, but really, there’s no such thing as a free lunch. Our capital also has a cost, and sometimes we don’t recognize that. In essence, what’s happening is we’re taking care of our current lifestyle wants and completely ignoring our future lifestyle needs.
One of the ways we help our clients is by using specially designed whole life insurance policies designed for cash accumulation so that they’re able to build a pool of cash that they’re able to leverage to pay off their credit card debt and achieve their other financial goals without interrupting the compound interest curve.
Everybody knows that cash flow is the lifeblood to any business. But many businesses have chronic and cyclical cash flow issues that inhibit their ability to grow. In fact, 80 to 90% of businesses have most of their wealth tied up within their business.
Within a small business, there are two main factors that could cause these chronic and cyclical cash flow issues. Number one is reinvesting all of your profits back into your business. When you do this, you have little to no access to cash because you’re constantly trying to grow and expand your business, which makes sense because that directly impacts your income. And number two is paying off debt as quickly as possible.
A lot of times business owners are in a race to get out of debt, and so they have a ton of money going every single month, to entities outside of their control. But what happens with this is when they need money again they haven’t built any up for themselves, so they’re forced to go back and borrow the next time something comes up.
That’s why we always say it’s not what you buy, it’s how you pay for it that matters. And when you look at purchases through the lens of you being in control of your money and your cash flow, your decision becomes much, much more clear.
You see, what they don’t tell us is that every single purchase we make is financed, whether we pay cash and give up interest or finance and pay interest. You’re either going to pay up or give up. There are no other choices. This is exactly why it’s so important to be strategic with how you’re using your money.
You see, when it comes to golfing, it’s easy. There are only two ways you can improve. You could either buy the best clubs and hope that you have the best golf game ever, or you could practice and work on your swing. We work on the swing in the sense that we focus on the process and how you’re using your money instead of where your money is parked. And that is the difference between us and other advisors. Most other advisors are looking to manage your assets, while we are focused on showing you strategies to increase your cash flow by working on how you’re using your money.
And when it comes to business owners, a lot of times, like we said, their assets are tied up in their business, so it can feel difficult for them to get financial advice on how to maximize their assets and grow their business because their financial advisors are simply there to manage the money. Another thing we see with business owners is that they get their financial advice from their accountants. They have a good relationship with their accountants. They’re there every year. Maybe they have their books done by the accountants, but with accountants they’re looking through the lens of, how can I save my client taxes this year?
Let me give you an example. Your accountant approaches you and says, “Hey, you had a really good year last year, but you’re going to owe the IRS $100,000. However, if you take that $100,000 and put it into a retirement account, it’ll reduce your taxes by $40,000.”
Well, that sounds great. You certainly would rather pay 60,000 in taxes instead of 100,000 in taxes. But what they don’t tell you or what you don’t maybe realize is that you have to take the whole hundred thousand invest it in a retirement account. So now you don’t have use or control of that 100,000. Now you got to come up with another 60,000 on top of that in order to pay the IRS. Are you in a much better position or are you in a more illiquid position as a result of that advice?
This is why we always look at things through the lens of control. Sure, there are tax benefits associated with the methods that we use, but when we look at things through the lens of control, is this going to leave you in more control of your cash flow or a less control of your cash flow? Are you going to have access to this money in the near future or are you going to have to wait 15, 20, 30 years to access that money penalty free? Everything becomes much more clear.
It’s our goal to help as many people as possible to make the best financial decisions possible. We do that by looking at things through the lens of how can we help you be in more control of your money? You see, when you’re in control of your money and your cash flow, you’re in a much better position to address your short term, intermediate and long term goals and objectives, whether it’s from a business perspective or on a personal basis. Our mentor, Nelson Nash, used to say when you have access to money, opportunities will find you.
If you’d like to learn more about how to put these strategies to work for you and your business, be sure to visit our website at Tier1Capital.com and schedule your free strategy session today. We’d love to chat with you, or if you’d like to learn about how we put this process to work for business owners, check out our free guide for business owners right on our website.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
Credit cards could be a great financial tool if used properly. They give you instant access to capital and if you pay them off before the credit card due date, you don’t have to pay any interest. Unfortunately, some people get into a situation where they’re carrying a small or large amount of credit card debt that could really weigh down their ability to succeed financially.
Additionally, participating in a tax qualified retirement plan like a 401k or an IRA is a good idea as well. However, what happens when you combine having credit card debt with your participation in a tax qualified retirement plan?
Sometimes people come to us and say, Where do I get started? Do I pay off my credit card debt? Or my student loans? Or do I start saving first? And to that question, we answer, “What if you could do both?”
Credit card interest rates could go anywhere from 18 to 30% these days with an interest that high carrying any credit card balance could become stifling because of the amount of interest being charged each and every single month.
When you combine high interest rate credit card balances with your participation in a retirement plan such as a 401k, that creates a double whammy where you’re saving money in an area that you can’t access. And along the way, you’re paying a hefty interest rate just to get out of debt.
A lot of times people who are carrying a credit card balance and contributing to their retirement plan can feel stuck and suffocated financially because they have no access to cash flow. Hundreds of dollars every month are going towards credit card interest, and hundreds of dollars a month are going towards an area where they don’t have access to that money.
So where does that leave them as far as their short term financial goals? The strategy of where you’re saving your money and the strategy of how you’re using your money need to be coordinated to give you the best results.
Typically, if someone comes into our office and says, “Hey, I’m carrying this heavy credit card balance and I’m contributing to my retirement plan every paycheck”, the advice we might give them is to pause on the retirement until we could get a hold and a handle on this credit card debt, because, like I said, that interest rate can be stifling on your ability to save for your future.
And a lot of times when we see people in that situation, we’ll ask them, how long have they been doing this? And they’ll look and say, “Well, we’ve been doing this for a long time. It seems like forever.”
Well, that situation keeps perpetuating itself. Because what happens is sometimes you start getting that credit card balance paid down, but then you run into a financial or a medical emergency, and that means you’ve got to put more money on a credit card because you don’t have access to any of your money. Why? Because all of your savings is in your retirement account. Again, try to coordinate, where you’re saving your money and how you’re using your money, can give you tremendous results on the back end.
Every situation is different. A heavy credit card balance for some people may be a few thousand dollars. In some extreme cases we’ve seen people with over $100,000 of consumer debt that they’re carrying each and every single month.
But with great debt and great cash flow comes a great opportunity. With some simple shifts, you may be able to get out from underneath that credit card debt by building your own pool of cash that you have access to to start chipping away at the debts one by one.
The ultimate goal is to put you in control of all of that cash flow that you were using to get out of debt or to pay on your credit card. Imagine the impact it would have if you had control of every single dollar that you’re currently putting toward your credit card debt.
Imagine what goals you’d be able to accomplish, like putting a down payment on the house, starting a new business, paying for your car, or simply retiring one day.
This is a simple concept. If you step back, literally what we’re doing is converting liabilities into assets. Any time you can convert a liability into an asset, you win.
The mechanism of this strategy is redirecting excess debt payments from the credit card company and putting it in a specially designed whole life insurance policy designed for cash accumulation so that you could build a pool of cash that you have access to that you own and control.
As you build up that pool of cash, you’re able to borrow against the cash value within the policy and start knocking away at the credit card debt so that you slowly begin to earn more and more control of your cash flow. As you pay off those credit card debt, you redirect those payments to your policy loan so that you’re building your policy with your premiums as well as the loan repayments, and you’re able to pay off debts quicker and quicker down the line.
There are two huge advantages to this. Usually you’re paying a much lower interest rate to the insurance company. Currently, those rates are about five, five and a half, maybe 6% on the high side versus paying 18 to 25 or 30% on a credit card. So clearly you win there.
A second benefit is that as you’re paying back the policy loan, you get to use that money again to pay off another credit card and therefore have more cash flow redirected back to the policy that you are in control. And slowly but surely, you’ll have all of your debt payments coming into your policy and you own and control the policy. Therefore, again, converting liabilities into assets.
The most important step is the first one. If you’d like to get started and learn more about how we could put this process to work for your specific situation. Visit our website at Tier1Capital.com. Feel free to schedule your free strategy session today. We’d love to talk to you.
A lot of people don’t have the time or the motivation to do a deep dive into their finances. And other times people say to us, “Hey guys, I’m not giving up control of my money in any of these five areas of wealth transfer. How do I get started with saving for my short term, intermediate and ultimately retirement savings goals with this concept?”
We talk about the five areas of wealth transfer where we look to find where people are giving up control of their money unknowingly and unnecessarily. Those five areas are: taxes, how you’re funding your real estate, how you’re funding your retirement, how you’re paying for your children’s college education, and then how you make major capital purchases.
But what if you’re not giving away control of your money in any of those five areas of wealth transfer? Does that mean that your cash flow is already as efficient as possible?
But that may not necessarily be the case.
The fact of the matter is, most of your income is flowing through your system, through your checking account, and going to pay for lifestyle or to be reinvested or to help you grow your business.
In many situations, we’ll review how people are using their money and we’ll look at those five areas of wealth transfer and we’ll be able to identify areas that they’re giving up control of their money unknowingly and unnecessarily, and show them how that if they just stop doing that, their circle of wealth will grow. And, if they redirect that same cash flow back to an entity that they own and control, they’ll be able to build a pool of cash that they could access, no questions asked, without having to get permission, in order to expand their business or their personal lifestyle.
In that type of situation, it’s easy for us to identify the leaky holes in your personal economic model or in your bucket, if you will. We’re able to plug those holes and fill up the bucket with money. But if you don’t have any holes in your bucket and instead your bucket doesn’t have a bottom, it’s important to build that foundation and start with what you can afford to put away at this point and then slowly build up that bucket. Keeping that money as efficient as possible so that you’re able to achieve your short term, intermediate and long term financial goals no matter what they may be.
What we have found is that everybody has financial milestones or goals that they need or want to accomplish, and in that case, starting where you are puts you in a better position to make your money more efficient prospectively as you’re going forward, because the more efficient your money could be, the better chance you have of reaching those milestones and more, more importantly, achieving your goals.
A financial goal could be something like paying off your credit cards, your student loans, saving for a down payment on a house, financing a new car, or eventually one day retiring. No matter what your financial goal is, it’s important to start somewhere so that you’re able to build before it’s too late.
You see, with the compound interest curve, there are only two factors to consider, time and consistently putting away money. The sooner you start that compound interest curve, the better your results are going to ultimately be. This goes back to a point earlier, when we say pay yourself first. Again, the whole concept is to make your money more efficient, paying yourself first, make sure that you’re saving or you’re going to be on track to meet those milestones.
If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation to help meet your financial goals, be sure to visit our website at Tier1Capital.com to get started today. Feel free to schedule your free strategy session or if you’d like to learn more about exactly how our process works and how to put it to work for your family and your situation, check out our free webinar, The Four Steps to Financial Freedom.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
As a young person, the thought of paying life insurance premiums until age 100 or 121 can seem a bit daunting. I mean, who makes commitments for that long, really? But here’s the secret. There are limited pay policies, policies that are paid for X amount of years. These policies can be a great saving solution for young people.
By its nature, a specially designed policy for cash accumulation puts extra money into the policy, and a limited pay policy has extra premium because you’re shrinking down the amount of years in which you’re paying the premium from age 100, let’s say, to age 65 or for a 20 year period or a ten year period.
The lower the amount of years of funding, the higher the premium. But again, if you’re designing a policy for cash accumulation, a limited pay policy makes sense because it puts you in a position where, let’s say a life paid up at age 65, there are no more premiums due after age 65. Now you’re collecting checks instead of paying premiums.
But let’s take a step back. We’re saying a higher premium. And what we mean by that specifically is, it’s a higher premium for the set amount of death benefit, which isn’t necessarily a problem when you’re designing these policies for cash accumulation. You’re focusing on the cash accumulation versus the death benefit. And many people, when they’re young, they don’t have a great need for death benefit. So it’s really not a deal breaker.
But the key is you’ll have the death benefit at your life expectancy when you’ll need the death benefit the most. And consequently, if you have a limited pay policy, again, let’s say a life paid up at age 65, by the time you’re 85, there will have been 20 years where you didn’t have to pay any premiums. But you had a completely paid up death benefit that’s actually growing every year because there’s no cost of insurance dragging the return or the growth of the policy.
In my case, I started limited pay policies years ago and it was a simple way to get started with saving. I put away a 500 or $1,000 a year into these policies, and in ten or 20 years they’re going to be paid up completely and the cash value and the death benefit are going to continue to grow and accumulate interest and dividends throughout my entire life, even after the premiums aren’t being paid anymore.
But keep in mind, there is a trade off with a limited pay policy. And what the trade off is, is that’s less money that you could stuff into the policy for any given death benefit. And what that means is your cash value will be slightly lower in the earlier years, but then you have to weigh the cost of having less cash value in the early years versus the benefit of having no premiums in the later years.
But let’s take another step backwards and think about compounding interest. Compound interest curves require two factors time and money. We all know we could never get time back, and it’s important to consistently put money in to these policies to accumulate the best compound interest curve possible. But with a limited pay policy, you’re limited on how much money you’re able to put in.
So again, in my situation, what I do is I have a term policy that guarantees convertibility of that death benefit, and I could create more whole life policies throughout my life as my budget allows. So as I pay up policies I have the cash flow to now convert a piece of my term policy into a new whole life policy and start the cycle all over again.
But the key is I’ll be building capital that I could access everywhere along the way to take care of the things of life, whether it’s buying a car, whether it’s going on vacation or moving across the country. Not to mention for business opportunities.
These policies are great for entrepreneurial type people. You have full liquidity use and control of that money to take advantage of business opportunities that come about. So you could earn an internal rate of return within the policy and also an external rate of return by starting your own business and putting that capital to work for you without interrupting the compound interest curve, which is key.
Nelson Nash, the author of the bestselling book Becoming Your Own Banker, put it so eloquently, “When you have access to money, opportunities will find you.”
If you’re considering a specially designed whole life insurance policy designed for cash accumulation, whether the traditional design or a limited pay policy to meet your needs, visit our website at Tier1Capital.com to get started with your free strategy session today.
You can hop right on our calendar, or if you’d like to learn more about how we put this process to work for our clients, check out our free webinar, The Four Steps to Financial Freedom. It’s right on our homepage.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
We’ve all heard that you should pay yourself first and save for your future. But not everyone does it. Are you saving for your future? Is it 10% of your income? Is it 15? Is it 20? Are you saving anything? And if you are, are you saving in a place where you have access to that money?
Today, we’re going to talk about how to strategically save for the future so that you’re able to meet your long term goals of retirement and your short term and intermediate goals as well.
So a universal financial goal that most people have is to someday retire. But what about your other goals? How do you achieve those as well as your retirement? We call that the savings dilemma. Should you save only for long term goals or should you save for short term goals or should you save for both? And the problem is, once you make a decision whether it’s short term, intermediate or long term, you’re literally eliminating the other choices.
In other words, if you’re saving for long term goals like retirement in a conventional, traditional retirement plan, that means that money is not accessible or available to you for the short term needs that you’re going to have from the time you start saving until the time you go to retire. We call that saving in buckets, but that’s not necessarily the best strategy because you can’t access that money without penalty before age 59 and a half.
But what happens when you want to get married or put a down payment on your house or send your children to private school? Where is that money going to come from?
Now, a lot of times people say, “Oh, well, by the time those events occur, I’ll be making more money”. Well, maybe you will, maybe you won’t. And in all probability you will. But that still doesn’t negate the fact that saving in buckets is a very inefficient way of saving. When we’re looking at savings vehicles for our clients, we’re looking at somewhere where they’ll have complete liquidity use and control of their money without penalty is everywhere along the way.
You see, you may be making more money in the future, but what you can’t recapture is the lost opportunity cost for those years when you’re building up your income. When it comes to compound interest, there are only two variables in that equation and that’s time and money.
With time, we could never make it up. So it’s important to start saving as soon as possible and never jump off that compound interest curve because you could never make up that lost time.
It’s often said the more time you have, the less money you need to put away. The less time you have, the more money you need to put away.
The key is if you’re saving everywhere along the way and you have access to that money and you’re never jumping off the compound interest curve, well now you’re in a position where your money is always working for you, but you’re also in a position where you could access that and use it for the things of life, those things that come up, whether they’re emergencies or opportunities.
The most frustrating thing in life is to have an opportunity come your way and you’re not in a position financially to take advantage of it. Why? Because you don’t have access to your money. You see, we believe that there’s more opportunity in protecting yourself against the losses than trying to pick the winners. Our goal is to help you make your money as efficient as possible so that you’re able to achieve your financial goals regardless of what’s going on in the market or the bigger economic environment.
And when we say losses, we’re not only talking about market losses, we’re talking about the lost opportunity of paying taxes, the lost opportunity of paying fees, the lost opportunity of paying interest to an entity that you don’t own or control, and the lost opportunity of having to access your money and jumping off the compound interest curve.
By utilizing the loan provision within these policies, they’re able to earn continuous compound interest within their policy and still access the cash value to make these major purchases or take advantage of opportunities. So you have the potential to earn an internal rate of return within the policy uninterrupted, as well as the opportunity to take advantage of financial opportunities that come up.
Another benefit of this process is that you’re always paying yourself first. You start where you are with what you can afford, whether it’s 5% of your income or 20% of your income, and you continue to save as a matter of course and your money continues to grow and compound within the policy and all the while you have access to it via the loan provision.
The value of this process is really startling because what happens is wherever you start, whether it’s saving 2% of your income, 5%, 10% over time, you get to a point where you’re saving a significant amount of your income and it doesn’t feel like it’s reducing your lifestyle. Why? Because you have access to all the money that you were able to save in those previous years.
So your savings percentage increases as well as your total net worth. As you build up the cash value within the policy, you have access to that cash to pay off credit cards, student loans, put a down payment on the house. This policy can go with you through all stages of your life. At the end, you have access to it to supplement your retirement income and ultimately to pass down as a death benefit to your loved ones or a charity of your choice.
If you’d like to get started with this specially designed whole life insurance policy designed for cash accumulation to help meet your savings and financial goals, be sure to visit our website at Tier1Capital.com to schedule your free Strategy Session today.
