Financial Cases

What are Opportunity Costs?

As business owners, we make financial decisions every single day. But when speaking with business owners in our office, it’s apparent that many of them fail to consider opportunity cost. What effect is this decision today going to have long term on your business cash flow and ability to grow?

When you’re first starting out in business, it’s all about survival. What can you do to get sales and maintain efficiency so your business doesn’t go under? But as your business matures, it’s important to make adjustments for longevity and efficiency within your business.

We always say it’s not what you buy, it’s how you pay for it. And the key is making the proper decisions with the information that you have to increase your efficiency and therefore stabilize the longevity of your business. One of the keys to efficiency is recognizing the difference between costs and opportunity costs.

 

Back in the 1800s, there was a French economist named Frederic Bastiat. Frederic Bastiat pointed out the difference between that which is seen and that which is unseen. And what does that mean?

Well, basically what we see when we’re making purchases are the costs. What we don’t see are the opportunity costs. The other things we could have done with that money had we not deployed that capital in the way that we did. And one of our tag lines or one of the things that we always tell people is that you’ll never see the interest you don’t earn by paying cash to make major purchases.

You see, as business owners, we make financial decisions every single day, and a lot of those decisions are based on cash flow. Can I afford this payment? Do I have enough capital to pay cash for this expense? But what’s not considered is, is there a more efficient way to use your money that will leave you in more control and leave you in a better position in the long run?

You see, we finance every single purchase that we make. What do we mean by that?

Well, whether you pay cash or finance, either way, you see the interest that you’re going to be charged. But when you pay cash, you never see the interest that you don’t earn on that money. And what we mean by that is basically, if you invested that money, what kind of rate of return are you giving up by giving up control of that pool of cash?

And once we understand the unseen or the opportunity cost, that helps us to make our decisions much, much more clear. Let me give you an example.

Let’s assume you’re going to invest $50,000 for a major capital purchase to your business. Now, if you finance, the bank tells you that you’re going to pay 8% to borrow their money, but you also have $50,000 of cash laying around in your corporate checking account and you say, hey, if I use this cash, it won’t cost me anything. Big mistake, because it will cost you money. You just don’t see the interest that you’re not earning on that money.

So, if your decision is to pay cash because you’re saving 8% on interest, that you’re not being charged. That, again, is a mistake because you’re not recognizing what the opportunity cost can be for that money that you have sitting in cash.

So you may be wondering how should you be making these purchases if everything all purchased is financed? What is the best way to use your money and make it as efficient as possible for your business and your family?

And that’s where we come in, because we can help you make the proper assessments that take into consideration not only the costs that which is seen, but also the opportunity cost that which is unseen. And again, once you understand the difference between the seen and the unseen or the cost and the opportunity cost, your decisions will become much, much more clear and much more focused.

Our solution uses a specially designed whole life insurance policy designed for cash accumulation. This allows you access to your cash value via the loan provision so you’re able to self-finance and earn uninterrupted compound interest within the policy.

If you’d like to get started with an analysis of your business cash flow and see if this is a solution that makes sense for you, check out our website at Tier1Capital.com. Feel free to schedule your free strategy session, or check out our webinar: The Four Steps to Financial Freedom. It’s free and right on our homepage.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

How can I Combat Inflation?

We all know that inflation is running rampant these days and the federal governments national debt is now $31 trillion and counting.

Today, we’re going to cover the three things you can do today to protect your family and your business from the effects of inflation down the line.

The first thing you can do to battle the effects of inflation is to go long on your debt, and to go long, particularly, on your mortgages. You may be wondering why that is. Well, it’s real simple. When you go and take a loan from the bank and extend it as long as possible. You’re locking in those payments for that whole term. And what this allows you to do when you pay back your mortgage, the longer you can go on the mortgage, the dollars are worth less and less the longer you can stretch it out. Inflation is affecting those dollars just as it’s affecting your gas bill, your electric bill and your water bill.

In a nutshell, a dollar today is going to be worth less in the future, and 30 years down the line, it’s going to be worth potentially a lot less. So it’s going to feel like you’re paying pennies on the dollar because, quite frankly, you are.

 

Another reason why you want to go long on your mortgage is because if interest rates go down in the future, you can always refinance to create more cash flow. However, if interest rates go up in the future, you’re locked in at a lower rate and now the bank has the interest rate risk, not you.

Third reason you would want to go long on your mortgage is really simple. If you qualify for the interest tax deduction, you will be paying more interest with a longer mortgage. And the more interest you pay, the higher your tax deduction. So that tax deduction can offset the effects of inflation by giving you back more of the money that you spent.

The second way you could combat the effects of inflation is by deferring taking your Social Security income. Preferably at least until age 70. Now, a lot of people say, I don’t want to wait that long because I’m not sure Social Security’s going to be around. Well, let’s face it, if Social Security truly isn’t going to be around, does it matter whether you take it at 65 or 67 or 70?

So the point is this if you defer taking Social Security, that means you’ll get a larger check every month. And that larger check can allow you to counteract the effects of inflation.

The second reason you want to defer taking Social Security is because it will leave a larger survivor benefit for your spouse.

And finally, the third reason why you would want to take Social Security at a later age is because by getting a larger check, you now get cost of living adjustments on a larger base. That larger base, with the added cost of living adjustments, can help counteract the effects of inflation on your monthly retirement income.

Inflation erodes the buying power away from our dollars, but in retirement, we’re no longer working. So it’s important to make sure those dollars that we have are working as hard as possible for us and that we’re setting ourselves up and the best possible solution in retirement. By deferring, taking Social Security, you’re increasing your benefit amount and helping counteract the effects of inflation on your retirement income.

The third thing you could do to decrease the effects of inflation on your life is by purchasing a specially designed whole life insurance policy designed for cash accumulation. And you may be wondering why is that? And the reason why is simple. Because specially designed whole life insurance policies designed for cash accumulation have the power to make all of your other assets even more efficient.

So one of the ways that a specially designed whole life insurance policy can increase the efficiency of your other assets. Let’s take, for example, your house. Your house is there. You’re living in it. It’s not producing any income for you. So what if you took a reverse mortgage against your house?

The problem with that is most people say, “Hey, we’re leaving the house for our kids.” No problem. The kids might have moved out of the area. They probably don’t want the house, but they do want the money that the house is worth. Having life insurance gives you the permission to spend the equity in your house and you can leave them the money from the life insurance. So that’s one reason.

The second way a specially designed whole life insurance policy can make your money more efficient is by using it as a volatility buffer. Well, what does that mean? In the years that the market is down, you don’t want to take money out of that portfolio and have a down year. So what you do is you take money from the life insurance policy instead of from your portfolio, and that gives your portfolio some time to regenerate it`self, gain back the money that you lost in the year that it was down.

Another way you could use your policy to combat the effects of inflation is by using the dividends to help supplement your retirement income, often on a tax favored basis. And think of this, dividends from a whole life insurance policy should not be subject to federal income tax or State income tax. They won’t subject you to a Social Security offset tax, and they won’t contribute to a higher Medicare premium. And in most states, the death benefits will pass to your children, inheritance and or estate, tax free.

Another point to consider is when you buy a whole life policy, you’re locking in those premium payments. So it’s just like the mortgage, the dollars that you are spending on the premiums today are going to have a lot less buying power in the future. And so it’s not going to be as painful making those payments.

And finally, another way that whole life insurance can counteract or help reduce the effects of inflation. If inflation is higher, that means interest rates are higher. And if interest rates are higher, that means your dividends should be higher. As we mentioned earlier, those higher dividends could help supplement your retirement income on a tax favored basis.

If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation, be sure to visit our website at Tier1Capital.com to schedule your free strategy session today.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

When Can I Borrow from My Policy?

Have you heard about life insurance policy loans and wondering what they are and how they work? A policy loan is a collateralized loan against the equity or cash surrender value in your life insurance policy. And this is a key distinction, because several times I’ve spoken to people who were misinformed, on exactly what a policy loan is.

They were told that a loan against your policy is a loan against the death benefit, that is technically not correct.

 

Although policy loans will decrease your death benefit dollar for dollar if you’re to die with a policy loan balance, it’s technically collateralized against the policy cash value. And this is a big difference because you don’t have access to that full death benefit while you’re alive, but you do have access to the amount of cash value that has collateralized and built up in your policy throughout your policy years.

Now, it doesn’t matter which insurance company you’re working with as long as you have a cash value building life insurance policy like a whole life universal or variable universal life policy, you have access to the policy loans via the policy loan provision included in those contracts.

So the next issue with policy loans is when or how soon can you take a loan or borrow against the equity of your policy? And the answer is it depends. It depends on the company. Some companies allow for loans after ten days or within the first 30 days. Other companies discourage policy loans in the first year.

It’s important to address these questions before placing your policy in force, because the last thing you want to do is plan on using that policy value during the first year and not have access to it to accomplish your short term goals.

The next question is how much cash are you able to get your hands on and that again, depends on the policy. If you have a policy designed for cash accumulation, typically it has some type of rider and the rider allows you to build up that cash value quicker so you have access to it sooner.

You can expect about 85 to 95% of the contribution that’s going towards the rider to be accessible immediately. However, if you have a regular or whole life insurance policy or other permanent life insurance policy, there’s likely some cash value in it, especially if you’ve had it for several years. And typically you could get your hands on about 90% of that cash value via the policy loan.

So you’ve decided that you’re ready to take a policy loan. How do you go about accessing that money? Well, it’s real simple. You’re giving an order to the insurance company with either a form, a phone call or going online and requesting that policy loan. They’ll either send you a check or put the money right into your bank account.

But then the next question becomes, how do you pay that loan back? And do you have to? You see, life insurance policy loans are unstructured loans, which means there’s no coupon booklet or payment schedule that goes along with the loan. It’s completely up to you as to when or whether you pay the loan back.

And the reason is the entity, the insurance company that is making the loan is also the entity that is guaranteeing the collateral, the equity in your policy. The insurance company is literally verifying to themselves whether or not you have equity in your policy. As the equity appears or when you have equity, the insurance company can release that money to you through the loan provision. Since it is a loan, a separate loan from the insurance company against your cash value, the policy loan will accrue interest.

And what that means is basically on your policy anniversary, the insurance company will send you a bill for interest if you have a loan outstanding. It’s typically anywhere between 4 and 6%, maybe a little more, maybe a little less, and it can fluctuate.

But every year you’ll get that policy loan interest bill and you have the option to pay it. And as long as there’s enough cash value within the policy, you don’t have to pay it and it will accrue onto your loan balance. But we do recommend that you at least repay the loan interest so your loan balance doesn’t continue to grow year after year.

And this is important, you understand, because the loans are unstructured, the decision to pay back the interest or to pay back the principal is completely yours. The interest is charged, but the decision to pay it is yours. And that’s why we utilize policy loans to help our clients regain control of their money.

Now, you may be wondering why would you want to pay that policy loan back? And the answer again is control. As soon as you pay that policy loan back, you’re releasing equity within that policy. So you’re able to access that money again in the future.

This is very different than when you’re repaying your loan to, let’s say, a credit card or other loan, because once you give that payment to that other entity, you no longer have any access or control or you’re giving up opportunity costs on each one of those dollars.

You see with policy loans if you take a policy loan, this becomes your loan balance. Your equity is reduced dollar for dollar by the loan balance. Every payment you make on the loan reduces the outstanding loan balance and increases your equity. And that’s the key. Now you control that money because you’re the owner of the policy. You could ask for another loan, and another loan, and another loan, as long as there’s equity you can borrow.

Now, at this point, you may be wondering, what do people use policy loans for? And there’s a variety of reasons. We have people who are buying real estate, investing in their business, doing other investments in the marketplace, earn an external rate of return as well as their internal rate of return within the policy.

We have other people who are trying to get out of debt and they’re building their savings in the policy and also getting out of debt simultaneously. And what this allows to happen is they’re able to get out of debt often faster and still build their savings within the policy so they don’t have to put themselves in that situation going forward.

Another reason why people would borrow against their life insurance cash value is to create a volatility buffer against their retirement portfolio. We’ve done a previous video that explains how a volatility buffer works, but real simply, instead of taking money out of your retirement portfolio in the year that the market is down, you would forgo taking money out of that account, borrow money against your life insurance to supplement your income and give your portfolio an opportunity to regenerate or regrow itself.

Another great use of policy loans could be sending your children to college and funding the tuition through the policy loans. Did you know that accessing money from your life insurance policy and building that equity within your policy is completely off the FAFSA calculation in most cases?

Another reason why people would take a policy loan would be to buy a car or to remodel their home. And finally, for a medical or financial emergency, you see the key in life is having access to capital. And one of the things about life insurance, cash values is that money is liquid and you can use it and you control it. We call it liquidity use and control or “the luck factor.”

If you’re ready to get started with a whole life insurance policy designed for cash accumulation or could use some more guidance on using your existing life insurance policy, be sure to visit our website at Tier1Capital.com.

Feel free to schedule your free strategy session or if you’d like to learn more about how our process works, check out our free webinar, 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.

 

Growing Your Circle of Wealth

Are you looking to start down the path of financial freedom and wondering where you’re going to find the money to start saving?

This circle represents all the money that will pass through your hands throughout your life. Your circle is larger than some and others are larger than yours. But we all have one thing in common, and that is we want our circles to grow.

 

Every dollar in your circle of wealth is broken up into three categories.

First is accumulated money. That’s the money you have saved and invested. Second is lifestyle money. That’s the home you live in, the car you drive, the schools or the colleges that your children go to. They’re all lifestyle expenses. And finally, there’s transferred money. Transferred money is money you’re giving up control of unknowingly and unnecessarily. Two key words unknowingly means you don’t realize it and unnecessarily means that working together, we can fix it for you.

You see, our focus is on making your money more efficient. How do we regain control of that transferred money and put it to work for you, your business, and your family.

Have you experienced this?

You sit down with a financial advisor and the first thing they say is, show me what you got. So you give them all your statements and a listing of all your accounts and assets. And the next thing they say is, well, you’re earning X. We can show you how to earn X plus something else, but you’ll probably have to take a little more risk to do it. Now you have to make a decision. Do you want to take more risk in order to build your wealth?

Let me ask you this question. Have you ever taken risk and not gotten the reward in the past?

The second scenario you may have experienced with a traditional financial advisor is looking at your lifestyle, cash flow and seeing where you could cut back so you’re able to save more. But let’s face it, if you could be saving more, you probably would be. How many subscriptions can you cut out a month to save more, and will that really help you reach your financial goals?

So if you’ve ever had an experience with a traditional financial advisor, the two bullets they have is move your accumulated money to them because they’re going to manage it better or reduce your lifestyle in order to save more for the future.

But nobody’s talking about this third piece of your circle, and that’s transferred money. And this is where we can help you. This is where we have been uniquely trained to identify exactly where you’re giving up control of your money unknowingly and unnecessarily.

What if there was a way to achieve your financial goals no matter what they are, without reducing your lifestyle or without taking on additional risk? Wouldn’t you want to know about that?

Our unique ability is to point out exactly where you’re giving up control of your money. The question is, will you stop doing it? Because understand, it’s things that you’re doing that you think are moving you forward but in fact, are actually holding you back.

No one wakes up in the morning and says, “Hey, how can I mess up my finances today?” No, we all think we’re making the best decisions that are moving us forward to reach our financial goals. But we’re here to say that there are some areas where you may be giving up control of your money, and there are five areas of wealth transfer that we help identify.

The five areas of wealth transfer are taxes, how you pay for your mortgage, how you pay for your retirement, how you’re sending your children to school, whether it’s college, high school or grade school, and how you’re funding major capital purchases like cars, weddings, or anything else that you can’t pay out of monthly cash flow.

Our process is really simple. It’s four simple steps.

Number one, we identify where you’re giving up control of your money.

Number two, and this is the hardest step. You have to agree to stop doing it. Now, think of this. What would happen to your circle of wealth if you were giving up control of your money and you stopped doing it? Wouldn’t that have a positive effect and grow your circle of wealth?

Step three is to save the money in a specially designed life insurance policy so that you have access, liquidity, use and control of that money whenever you want, for whatever you want. No questions asked.

And step four is where the magic happens. This is where you borrow from yourself and pay interest back to yourself for things like major capital purchases, sending your children to college, buying vehicles, going on vacation, whatever a major capital purchase would be for you.

If you’re saving and growing your circle of wealth, using your savings to fund your lifestyle, your money never leaves your control. And what effect do you think that would have on your circle of wealth? By using our system, you can regain control of your money to grow your circle of wealth. And if you understand how this works, your money never leaves your control.

When thinking about growing your circle of wealth. We always say it’s not what you buy, it’s how you pay for it that really matters.

If you’d like to get started with a specially designed, whole life insurance policy designed for cash accumulation and see if this makes sense for your situation, be sure to visit our website at Tier1Capital.com to schedule your free strategy session today.

We also have a Four Steps to Financial Freedom webinar on our website where you could learn exactly how we put this process to work for our clients.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Is the Death Benefit Better for the Beneficiary?

We often talk about the living benefits of life insurance, but we’re skipping out on a huge benefit,
and that’s the death benefit that comes with every single life insurance policy. So let’s start at a very high level. What is a life insurance policy?

Quite frankly, it’s a unilateral contract between the insurance company and the owner of the policy. So what’s a unilateral contract? Well, think of it this way. There are two parties to this contract. There’s the policy owner and there’s the insurance company. The policy owner has one job and one job only, and that is to pay the premiums on time. When the policy owner fulfills that obligation, the insurance company has all of the rest of the obligations.

That is, pay a death claim when the insured dies, make sure that all the other ancillary benefits, whether that be cash value, whether that be disability waiver of premium terminal illness or chronic illness, any benefits that are extra to the policy the insurance company is guaranteed and obligated to deliver.

Now, you can’t just demand a life insurance policy. You must first qualify. And there are two main ways that the insurance company is going to qualify you. The first is medical underwriting. They’re going to look at the insured’s health and determine that they’re healthy enough that the insurance company will take on their risk. The second piece is financial underwriting. And basically what this means is that you can’t over insure someone. The insurance company is not going to give you as much death benefit as you want and they’re not going to give you more death benefit than that person is worth. Just like when you’re insuring a car, you can’t get more money for the car if it gets totaled than the car is worth.

So there are three ways that an individual can qualify for more or a larger legacy or larger death benefit. First is based upon their income, and usually it’s a multiple of their income that they can insure themselves for. Second would be based upon their net worth. If they have a $2 million net worth, then theoretically the insurance company would be willing to issue $2 million of death benefit, and the third would be based upon business needs, whether it’s insuring your business interest or insuring your business debt.

Now that we’ve talked about how to qualify for a life insurance death benefit, let’s talk about why you would want life insurance death benefit to insure your legacy versus buildings, your business, or an investment account for that matter.

The answer is real simple: liquidity, use and control. We talk about it all the time and it’s more important via the death benefit than ever. You see, when the insured dies, it triggers something in the contract and the insurance company is now obligated to pay the death benefit, whatever it may be in that contract.

So keep this in mind. We’ve seen so many times where people pass away and their children have moved out of town and they leave their home to their child who lives four states over. The kid doesn’t want the house. The kid moved to Ohio or Maryland or Massachusetts for a reason. He didn’t want to be here. And because of that, the first thing they’re going to do is sell the house. Well, if the house is worth $200,000 right away, they have to pay a 7% real estate sales tax, plus a transfer tax, plus a probate tax. They thought they were leaving their kid $200,000. It’s only going to be about 150,000 after everything is said and done.

Now, let’s look at if the parent dies with an investment account. Same thing. There’s management fees, there’s liquidation fees. And again, there’s taxes and probate, probably end up with maybe $160,000.

So now let’s look at an investment account. Same thing. They’ve got to pay somebody to manage the money. They got to pay somebody to liquidate the money. They got to pay taxes on it. And it’s going to go through probate.

When all said and done, they’re going to end up with way less than $200,000. Now, if you really want to get sick to your stomach, let’s have the parent die and leave the child a retirement account. Same management fees, same liquidation fees, same probate fees. But now they got to pay income tax on top of it. And that income tax is in the kids tax bracket, not the parent’s tax bracket. So when all is said and done, they’re left with pennies on the dollar.

Well, how does this contrast with a life insurance contract? Well, first of all, it’s a contract between the insurance company and the policy owner. So it doesn’t need to go through probate. There’s no income tax. In most states there’s no state inheritance tax. It’s simply a claim form to the insurance company. And whatever the death benefit states is how much the beneficiary is going to get. So you know exactly how much money you’re passing on to your heirs and you get to determine where that money is going at your death. You’re completely eliminating the middleman. There’s no management fees, there’s no taxes. There’s no probate fees.

Like so many other times, when you’re dealing with an insurance company, you’re giving a direct order. You’re not asking permission. You’re saying, hey, when I die, I want my money to go to this person. And so that person fills out a claim form and they get a check from the insurance company.

Oftentimes when you’re dealing with a life insurance claim, the first money that the beneficiaries are able to get their hands on are from the insurance contracts, not from the bank account, not from the investment account, certainly not from the real estate. This money is going directly to that beneficiary as soon as possible.

And keep in mind, one thing about life insurance, it is the only financial vehicle, the only asset that you will own that guarantees that what you want to have happen will happen, even if you’re not here to see it happen.

So what does that look like? Well, let’s say you’re alive now and you’re young and you have a child and you want them to go to a good college. So you’re saving for retirement. But let’s say you die in five years. How is your child going to afford college now that they don’t have the savings that you’ve been accumulating for them? So one way to do that is to take out an insurance policy to make sure your child has the money to go to a good college, even if you’re not there to see it happen.

Another reason why you’d want to buy life insurance for the death benefit is for income continuation. If you’re a breadwinner or a dual household income, wouldn’t you want to make sure your spouse could maintain their current standard of living even if you’re not there working with them?

Another reason to buy life insurance is if you’re a business owner, and we see this so often, where a business owner will insure his business interests or the value of his business interest
so that his spouse doesn’t have to run a business they’re not familiar with. They can utilize the cash to create the lifestyle that the business created when the husband was operating the business.

So it all comes down to, once again, having full liquidity, use and control of your money even after your death.

If you’d like to get started with a life insurance policy to protect your family or your business, visit our website at Tier1Capital.com to get started today.

Feel free to schedule a free strategy session and get right on our calendar.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Ready to Expand Your Financial Knowledge Circle?

You hear us talk about wealth transfers and how you’re giving up control of your money all the time. But what does that actually mean? Where do we find this money and how? Where is there money hiding in plain sight in your financial life?

Let’s face it, we’re all trying to make the best financial decisions possible. When we wake up in the morning, we don’t say, “Hey, how could I screw up my finances today? “No, we say, “How can I move myself forward financially? How do I get from point A over here to point B, Financial security?”

Everything we do, we think, is moving us forward. But here’s the question. If what you thought to be true turned out not to be true, when would you want to know? Wouldn’t the answer be as soon as possible, so you could start on the correct path to financial freedom? A path where you have complete liquidity use and control of your money so that you don’t have to ask permission to access your money to make purchases in your life.

Let’s face it, every purchase we make is financed, whether we go to a bank for a loan or we pay cash. But what if there’s a better way, a way that leaves you in control of more of your money for a longer period of time?

All the decisions we make are based on the knowledge and the information that we have at that time. We call this the circle of knowledge. This circle represents all of the information that exists in the universe today. It’s everything that’s known by everyone in the universe. Your slice may just be a small slice of everything.

Then, there’s another slice of that circle of knowledge, and it represents everything that we know exists, but we just don’t know anything about it. It’s things like brain surgery or nuclear physics.

What we often forget is that there’s a whole universe of knowledge out there and not one person could know everything in the entire universe. It’s simply impossible. What we’re able to do is leverage the knowledge of other people, that’s the easiest way to expand your slice of knowledge.

So here’s the problem. All of the rest of the information, the rest of that circle is information that we don’t even know exists. It’s stuff that we don’t even know that we don’t know. And this is the information that can be holding us back from making huge strides personally and financially.

So how does this relate to the money we’re giving up control of unknowingly and unnecessarily? Think of it like this. The information that we don’t know exists is stuff that is literally sitting in our blind spot. Now, when you’re driving down the road and you look in the rearview mirror and you see nothing, and then you look in the side view mirror and you see nothing. And then you peek your head around and you see a 4,000-pound truck traveling down in the lane that you wanted to turn into.

That’s your blind spot. And this could be your blind spot financially as well. The information that we don’t know exists is stuff that is literally sitting in our blind spot. That car didn’t just appear out of nowhere. It was there the whole time, we just didn’t see it until we changed our perspective.

So if the decisions we’re making are based on the information that we have, the information we know and believe to be true, the best way to make better decisions could be as simple as expanding your circle of knowledge, making your slice a little bit bigger, and creating new beliefs that could actually move you forward financially instead of what the conventional wisdom is telling us to do.

It’s very simple. There are only three ways we can expand our knowledge. The first is the experiences we receive by the places we go. The second is the knowledge we gain by reading books. And the third is the transfer of knowledge from one person to the next.

That’s where we come in. We could help you because the key here is the things that might be in your blind spot are literally in the slice of the circle that we know, and we know that we know it. If you meet with us and we share our piece of the circle of what we know, it could help expand your circle of knowledge so you can make the best financial decisions for you.

There are five major areas of wealth transfer that we could help identify where you’re giving up control of your money unknowingly and unnecessarily, with 100% certainty. Those five areas are…

  1. Taxes
  2. Retirement
  3. Real Estate
  4. Capital Purchases
  5. Education

After we identify these areas where you’re giving up control of your money. It’s really simple. This is money that’s literally hiding in plain sight. It’s in your cash flow. You think it’s moving you forward, but it’s actually holding you back. Once we go through this process, you’re able to utilize that money to move you forward.

If you’d like to get started with a custom plan on how to move yourself financially forward, visit our website at Tier1Capital.com to get started today.

You could schedule a free strategy session if you’re ready to speak with us or we have a free webinar where we do a deep dive on our Four Steps to Financial Freedom.

Feel free to click that button and register for our webinar today.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Are you Unknowingly Giving Up Control of your Finances?

Do you make a great income but still feel stuck financially?

Well, you’re not alone.

Most of our clients don’t understand how to make their money as efficient as possible. That’s where we come in. We find money that’s hiding in plain sight, that people are giving up control of unknowingly and unnecessarily.

If you’ve ever met with a financial advisor, traditional financial advisors are really good at pointing out problems.

“You don’t have enough money saved for your kids to go to college. Therefore, you need to save more for college.”

“You don’t have enough money to fund your retirement income. Therefore, you need to save more money for retirement.”

But the thing is, you’re probably doing the best you can with what you have, and if you could save more, let’s face it, you would be saving more. The question is, how to do it?

This is exactly what makes us unique. We’re trained to identify where you’re giving up control of your money unknowingly and unnecessarily. And these are two keywords. Unknowingly, meaning you don’t realize you’re doing it. And unnecessarily, meaning a simple shift, sometimes just in perspective, can change what you’re doing that’s actually holding you back. It’s our mission to help as many people as possible make the best decisions possible financially, and oftentimes that means making their money work more efficiently.

 

What does it mean to make your money work more efficiently?

Well, it means putting your money to work for you, not the government, not the banks, and not Wall Street. Maintaining control of as much cash flow as possible is what will move you ahead financially. It’s not enough to point out a problem. It’s not even enough to offer a solution. What makes us unique is that we actually help you find the money within your current cash flow to pay for the solution. Basically, we would have minimal or no impact on your current cash flow to solve a problem and provide a solution.

There are five major areas of wealth transfer where we look for these inefficiencies in your personal economic model.

    1. Taxes
    2. Retirement
    3. Mortgage
    4. Education
    5. Major Capital Purchases

Identifying these five areas is literally how we find money that’s hiding in plain sight. Ultimately what happens is we can provide you with a solution to your problem with minimal or no impact on your current cash flow.

Let’s face it, none of us wake up in the morning and say, “Hey, how can I hold myself back financially today?” No, we think we’re making the best decisions that would be moving us forward. But what if what you thought to be true turned out not to be true? When would you want to know about it?

If you’d like to get started with our solution to find the money within your current cash flow so you’re able to achieve your financial goals sooner, visit our website at Tier1Capital.com to schedule your free strategy session today. Or if you’d like to learn exactly how we use this process to identify inefficiencies in the cash flow model, check out our free webinar where we go into 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.

How Do Banks Make Money?

Have you ever wondered how banks make money? Well, stick around to the end of this blog post because we’re going to go over the velocity of banking and why it’s vital to control the finance function in your life. 

When it comes to banking, there are three main characters to consider: 

  • The Depositors, who save their money at the bank
  • The Borrowers, who need access to money and are willing to pay a premium 
  • The Bank, who connects the two 

So the temptation is to say, okay, the depositor gets 1%, the borrower pays 4% on a loan, and the bank gets to keep the 3% in the middle. That oversimplifies and ignores velocity banking.  Fortunately, there’s a company, Bauer Financial, that does financial reports on banks. Bauer financial reports will show you exactly how velocity banking, or turning the money over, makes huge profits for the bank. 

So, here’s an example of a Bauer financial report from 2016 for Bank of America. Bank of America had $860 billion of deposits for which they paid the depositor $1.9 billion in interest to attract those deposits. Now, the borrowers of Bank of America paid Bank of America $44.8 billion in interest. This came from credit cards, mortgages, home equity lines, fees, and business and personal loans. So, if you look at the ratio of interest paid by the bank, 1.9 billion, versus interest paid by the borrower to the bank, 44.8 billion, that’s a 23.5 to 1 ratio. 

That’s 2,350% more being earned by the bank than is being earned by the depositor. But here’s the kicker. They’re using the depositors’ money to make their money. The bank has zero skin in the game. 

So, this just illustrates how powerful velocity banking is and illustrates perfectly why Nelson Nash’s fourth rule, Never Rely on Banks, Especially For Lending Money is so important. 

Nelson knew the importance of pulling yourself away from the banking system because they control you. And when you control the financing function in your life, now you are in control. And more importantly, you’re no longer controlled by the banks. 

The best way we know how to put this to work for us is with a specially designed, whole life insurance policy designed for cash accumulation, so that you could capitalize your own money and borrow against it and pay yourself back. Not only will you earn the interest in the policy like the depositor in the bank, but if you charge yourself more than what the insurance company is charging you, you also get to keep those profits. And again, you’re in control of the process and you get both sides of the street. 

We always preach about being in control of your cash flow, and if you’re looking to get started with implementing this process in your life, be sure to visit our website at tiercapital.com to get started today. Feel free to schedule your free strategy session to get on our calendar or check out our free web course where we go through a deep dive on how we put this process to work for our clients.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Is Whole Life Insurance a Good Investment?: Internal Vs. External Rate of Return

You often hear that whole life insurance is a lousy investment and that’s kind of true in the sense that life insurance isn’t an investment. Investments inherently have risk and that’s not the case with the whole life insurance policy.

With the whole life insurance policy designed for cash accumulation, you could expect to earn anywhere between 3% and 5% over your lifetime – but understand that’s not how the policy starts off.

Starting a new life insurance policy is kind of like starting a business. If you were to start a business today, you wouldn’t expect to become profitable in the first year, the second year or even the third year – but usually from the fourth year, that business will become profitable and hopefully will continue to grow year over year. The same holds true with a whole life insurance policy designed for cash accumulation. In the first year, you might have access to 40% of what you pay in premium. In the second year, it might be 60% or 65%. In the third year, 90% or 95%. But from the fourth year on, you should be generating a profit year over year in that policy and it will only get better from that point forward because of the way the policy is designed.

Basically, for each dollar you pay in premium from the fourth year on, you could expect your cash value to increase by more than one dollar. As mentioned, life insurance isn’t an investment because there is no risk. Once that money is credited to your cash value, that value will never go down.

On a cumulative basis, we would expect the break-even point to be somewhere between year seven and year ten. For example, if you paid a hundred thousand dollars in premiums over 10 years, you would expect your cash value to be a hundred thousand dollars in those 10 years and maybe a little higher. After that, the cash value and the accumulation value will continue to grow year after year.

The key here is that the so-called financial experts will judge life insurance on those first 10 years and say it’s a lousy investment. But what they’re completely ignoring is the fact that you could still access that money through the loan option or the loan feature in the policy. Taking advantage of the loan provision can allow you to not only generate that internal rate of return, but to generate an external rate of return on your money. This can allow you to make all of your other savings and investments much more efficient. Keep this in mind: You have the internal rate of return – that isn’t going to be interrupted by accessing that cash using policy loans PLUS you’re able to put that money to work for you somewhere else and make an external rate of return on an actual investment. Once you make the money on your investment, you can cash out and repay your policy loan and realize your profit.

Can I use my policy in the early years – before the break-even point?

A lot of times people come to us with credit card debt and they’re paying a very high interest rate which is taking up a lot of their monthly cash flow. An example of how you could use your policy is to repay that credit card debt using a policy loan and then rebuild and replenish your cash values so that it is accessible again in the future. Basically, you could take a loan  against your life insurance cash, pay that credit card off and then redirect the payments from your credit card to repay the policy loan until the loan is paid off. Not only do we have a lower interest rate, we also have control over that payment amount every month. If you run into cash problems, you could back off on that payment. But if you are cash flush, you could pay that debt off faster and you’re actually building an asset for yourself.

Another way that you could access that money either in the early stages of your policy or the late stages is to borrow against your cash value to make an investment whether that’s into stocks and bonds, crypto currency, gold, silver or real estate.

 

The key is using the cash value in your life insurance policy to make your other money substantially more efficient.

 

Only in a whole life insurance policy, you can have access to the cash values without draining the tank. Basically you’re able to continuously earn compound interest and access that money to make an investment that will potentially earn you a higher rate of return. You have the policy earning the 3% to 5% over your lifetime at the same time you also have the ability to earn a higher rate of return on investments like stocks or real estate. Whether it’s to make an investment or to pay off debt, the bottom line is that you’re making your money more efficient. Your money is working in more than one place at once. That makes your money more efficient and ultimately puts you in a stronger financial position.

What about getting a margin loan or borrowing against the equity of my real estate?

It is possible to access money from other sources like a home equity loan or a margin loan on your investment portfolio. However, whole life insurance is the only financial tool that allows you to access money and know for sure that you’re going to have a greater account value at the end of the year than you did in the previous year  – when you take a loan against your life insurance cash value, the compounding of interest is never interrupted. Your policy continues to perform as if you had not accessed any money.

With a margin loan, the underlying investments might decline and you may have a margin call – once again putting further squeeze on your cash.

In real estate, the value of your real estate could appreciate or it could also depreciate, it depends on the market conditions. Also, with a real estate loan, you have a structured repayment versus with a policy loan where you can determine the payment terms in the sense that if you want to put $50 a month on the policy loan, you could do that. If you want to put $300 a month on the policy loan, you could do that. If you don’t want to put anything on the policy loan, you could do that as well. There’s no one telling you what the repayment schedule is.

Here’s another thing to consider. What if you just drain your savings to make the investment? What’s the difference there?

We had this situation with a client who started a policy. They had about $5,000 of cash in the policy. They coincidentally have a $3,500 credit card bill that’s due and they wanted to pay off the credit card. The husband wanted to borrow against the policy because he sort of understood the concept of leveraging life insurance and the power of using this method. The wife was a little hesitant and wanted to use money from their savings account instead of a policy loan. They had $20,000 in savings and she said, “Well, let’s just take $3,500 from the savings, drain down the tank. Then we could leave the money in the policy to use for our home improvements.” What they’re missing is the fact that before that transaction, they have access to $20,000 that they own and control. If they drain down the tank to the tune of $3,500, they don’t control $20,000. They only control $16,500 and they’re still earning the interest in the policy because they didn’t access the money. But if they don’t take the money out from the savings and they borrow against the policy, they will still control $20,000 and they will still earn interest on the $5,000 – even though they accessed $3,500 against the policy. That’s what we call opportunity cost. We don’t only consider the money that we’re using – we also consider what that money could have earned us had we invested that money.

Whether it’s to pay off debt or pay a lower interest rate against the policy versus credit cards or whether it’s to make an external investment by accessing the cash value in your life insurance. Life insurance could allow you to generate that external rate of return on investment opportunities and still guarantee that you’ll get the internal rate of return on your cash value that you have accumulated in the policy.

Remember, it’s not how much money you make, It’s how much money you keep that really matters.

If you like this post, don’t forget to leave us comments down below on what you think about this topic.

Want to learn more about this topic, check out our free web course to see how our process works. If you are ready to talk, feel free to schedule a free strategy session today to get started.

NEVER be at the Mercy of Banks Again | Shuttered Line of Credit – What Happens?

 

…there’s an old saying, “A banker is somebody who will give you an umbrella when it’s sunny and take it away when it’s raining.”

Wells Fargo recently closed credit lines on their customers. Stick around to the end of this video, because we’re going to go over exactly what that could mean for their customers, for the economy, and show you a solution that will make sure that you’re never at the mercy of banks, the government or Wall Street again.

On July 8th, 2021, Wells Fargo announced to its customers that if they had a personal line of credit, they were shutting it down. Basically, if you had this line of credit, you’ve got to notice that in 60 days, Wells Fargo was going to shutter your account. Let’s go over exactly what that means.

Well, when your account is shuttered, it means two things. Number one, any unused portion of your credit line is no longer accessible to you. So you don’t have access to the unused portion. And secondly, they’re going to be getting a payment schedule for the outstanding balance that’s remaining. So how is that going to affect their customers? Well, it’s going to affect their customers in four ways. First and foremost, their access to credit has been limited. Secondly, their future cashflow is limited because now they have a payment schedule. Thirdly, because they had credit and it was shut down, that’s going to have a negative impact on their credit score. And all three of those issues are going to negatively impact their customer’s ability to obtain credit in the future.

So you could see how this simple shift from a line of credit to a term loan could have such a waterfall effect on these customers and not only their present cashflow position, but also their future ability to access capital. In the last week or so, we had the opportunity to speak with some of our clients and a lot of them asked “Is this even legal what Wells Fargo is doing? Are they even allowed to do this?” And the answer is yes, it’s written in the terms of their loan agreement.

You know, there’s an old saying, a banker is somebody who will give you an umbrella when it’s sunny and take it away when it’s raining. And this action by Wells Fargo only underscores the meaning of that saying. You see Wells Fargo is protecting themselves. They have it written into the loan agreements that they’re allowed to shutter or shut down those lines whenever for whatever reason. And by the way, it’s not only personal lines of credit, it’s home equity lines of credit that they can do this on. They can do it with business lines of credit. And not only Wells Fargo, other banks can do the same banks write documents on those loans. That’s why there’s all these legal documents when you take out a loan. Why? To protect the bank! But this should come as no surprise for Wells Fargo customers. In 2008 and 2009, when they took over Wacovia they did the very same thing.

They shut down credit lines for people, business credit lines. And I had clients call me and say, Hey, I’m in trouble. I’ve got to get a new credit relationship. I just got a letter from Wells Fargo that says I have 60 days to obtain new credit. Well, the ideal situation back then would have been to have control of their own pool of money so that they wouldn’t be affected when the bank decides that the bank wants to protect itself and they shut down your access to capital. So this is all part of what Nelson Nash referred to in his bestselling book, Becoming Your Own Banker. And in there, he has a chapter called the golden rule. And basically the golden rule, according to Nelson Nash was the one who has the gold makes the rules. Well, if you’re in control of your own pool of money and you’re making loans to yourself or to your business, you are truly in control of the process. So the question really becomes, do you want to continue to be controlled by the process and be at the mercy of the banks? Or do you want to be in control of the process? Again, the one who has the gold makes the rules!

Banks are really good at getting us to do what’s in their best interest and they do it under the premise that it’s in our best interest. And they’re so good at doing it, most of the time, we don’t even know what’s happening. And the perfect example of this is a 15 year mortgage with a low interest rate versus a 30 year mortgage with a higher interest rate. Let’s take a look at a solid example of a $250,000 mortgage.

So if our choices are a 30 year mortgage for third, for $250,000, at 4% interest, our payment is about $1,200 per month, a 15 year mortgage for 3.75%. And that’s how they entice us to do what’s in their best interests. They offer us a lower interest rate on a shorter term loan. Our payment will be about $1,800 per month. Now that’s a 50% increase in cashflow that we don’t control. And that’s cashflow that the bank now controls, but again, they have us focused on the interest. So with the 30 year mortgage, we would pay the bank $179,000 in interest with a 15 year mortgage, we’re only going to pay the bank $77,000 in interest. So here’s the issue, if the amount of interest paid is really in the bank’s best interest, why would they cheat themselves out of $102,000 of interest? Well, the answer that is, it’s not the amount of interest that’s paid. It’s how fast the bank gets it back. What the bank literally did by getting us to pay the loan back quicker, they increased their rate of return on the loan, the 30 year loan, they had about a 9.5% rate of return. And on the 15 year loan, they end up with a 13% rate of return. They almost increased their rate of return by 50%.

The thing is that with businesses, when they sell products, inventory turnover gets them more profits. And with the bank, they have a product to it’s loans. So the quicker they’re able to get the loan money back and then turn it over with a new loan, the more interest, the more profits that they’re able to make. Imagine how stressful it would feel if you had a credit line out for tens of thousands of dollars, and only had 60 days to secure new financing, to secure a new banking relationship.

Conversely, imagine having access to your own pool of money, so that when you got this notice, you can borrow against your pool of money, use it to pay off Wells Fargo or anybody else who calls your credit line and buy yourself time to obtain another relationship. In the process, while you’re using that money, you’re still earning uninterrupted compounding interest on the money you used to pay off that loan. Wouldn’t that be a great situation to be in?

If you’re ready to learn more about our process and exactly how it works, check out our free web course at tier1capital.com. It’s one hour and you could register right on our website.

And remember, it’s not how much money you make, it’s how much money you keep, that really matters.