Insight & Analysis

How Risky is Your Financial Plan?

Traditional financial planning centers on taking various levels of risk. We’re told the higher the risk, the higher the reward. But have you ever taken on a great deal of risk and not received a very hefty reward? Or taken on a small degree of risk and lost a lot of money?

And furthermore, where is it written that in order to make money, you need to lose 40, 50, 60 or even 70% of your wealth? This is exactly why we focus with our planning on avoiding the losses and making your money as efficient as possible.

When it comes to financial planning, we like to think of it more like an art than a science. There’s more than one right way to build and maintain wealth in your family. Not everyone needs to take on a ton of risk to become financially successful. In fact, a lot of people don’t even want to take risk.

That’s why we focus on avoiding the losses instead of picking the winners. And when we say avoiding the losses, it means more than just avoiding the market losses. We’re talking about losing opportunity costs, losing money to taxes, losing money to interest. It’s all of those things, but more importantly, losing control of your cash flow. And we always say whoever controls your cash flow controls your life.

Imagine you had a leaky bucket, a bucket with a ton of holes in it, and you had your income streaming in as the water. Wouldn’t it make more sense to plug the holes in the leaky bucket before turning up the income?

Think about this. Does it make sense to take a lot of risk on a small amount of money to hopefully get a high rate of return on that small amount of money? Or does it make more sense to make your money more efficient, so even if you’re earning a smaller rate of return, you’re guaranteed to earn that rate of return, and it’s on a larger pool of money.

 

And by getting a small rate of return on a large pool of money, you actually make your money more efficient because, number one, you’re avoiding the losses. And number two, you’re not taking risk.

Our process uses specially designed whole life insurance policies to help make your cash flow more efficient. We build up a pool of cash in these policies to help achieve your financial goals and make your money more efficient. We always talk about control, because controlling your cash flow and controlling your money and having liquidity use and control of that money is invaluable. And when you have control of your money and you have control over your cash flow, you literally have control over your life. And the feeling of freedom and independence can never be measured.

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

Or if you’d like to learn more about exactly how we put this process to work for our clients, check out our webinar, The Four Steps of Financial Freedom.

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

Stop Giving Up Control of your Cash flow

In every household and business the main key to finances is cash flow. The difference between feeling financially free and financially stuck all comes down to that one thing, cash flow. But here’s the problem. How do you manage your cash flow to amplify the feeling of financial freedom?

We have cash flow and then we make decisions to save our money. But we save it in places that literally stops the flow of money. We put it in retirement accounts, we put it in home equity. We pay off debts sooner. We put money in 529 plans. We pay cash for major capital purchases. All of these things stop the flow of money. More importantly, it stops the flow of money towards us and starts the flow of money away from us.

Now, it’s not enough just to have cash flow. We have cash flowing in every month from either income or our business. But how do we use that money once it’s in our control to move us forward financially so we could achieve our financial goals without giving up control of that money? And again, keeping in mind that we want the money to flow, but it should be preferably flowing towards us, not away from us.

The next question becomes, “how do I use my money to achieve my financial goals, like sending my kids to college or expanding my business, or buying a new car without stopping the flow of money?” Well, it’s real simple when you look at the choices, you have to save your money.

Are those choices stopping the flow of money or are they allowing your money to continuously flow towards you? Whenever we’re looking at a financial situation we’re looking at those decisions from an aspect of control. Is this decision going to leave me in more control of my money or less control of my money?

There’s an old adage in the accounting industry and it goes like this:

“Follow the flow of money.”

Wherever money stops. That’s where you have an opportunity to make that money flow towards you.

You see, conventional wisdom teaches us to give our money away. It’s by design. Pay off your mortgage as soon as possible. Get rid of all this debt. But what these decisions are doing is leaving us out of control of our cash flow and we’re unable to get our hands on money when we really need it.

We’ve been trained to do things with our money that we would never do with the things that our money buys. We would never buy a loaf of bread and put it away for 40 years and not eat it. Yet, that’s what we’re trained to do with our money when we put it in a retirement account. Same thing with home equity. We would never buy something and forget about it for 30 years, but that’s what we do when we put extra money on our mortgage. We’re literally saying, Hey, I’m going to put this money in the house. It’s not going to earn any interest. The dollars I take out in the future are going to have less buying power than the dollars I put in. We would never do that with the things that money buys, but that’s what we’re doing with our money.

Now, we’re not saying you shouldn’t save for retirement or you should be in debt with your mortgage. But what we’re saying is you should save your money in a place where you have complete liquidity use and control so you can access that money to achieve your goals along the way. Without asking permission and without subjecting yourself to penalties and fees.

This is not a new revelation. We are following the rules of nature. In nature, things have to flow. Water has to flow. You would never want to drink stagnant water. And it’s the same thing with our money. We need to keep our money flowing and preferably flowing towards us. The problem we see too often is that money is flowing. It’s just not flowing towards you. It’s flowing away from you.

If you’d like to get started with our process using specially designed whole life insurance policies to regain control of your money and finally experience more of that financial freedom we’re all looking for. Be sure to visit our website at Tier1Capital.com.

Feel free to schedule your free strategy session or check out our free financial planning webinar, The Four Steps to Financial Freedom to see 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.

Are You Insuring Your Key Employees?

Are you a business owner who is insuring your PCs for more than your VPs? You see, there are three main reasons why you would want to insure your key employees.

First and foremost is the fact that they are the people who are adding to the growth and profitability of your business. Let me give you an example. About 25 years ago, I had a business owner client whose building burned to the ground. And it wasn’t till after the fire that he realized that his building, which was worth over $250,000, was only insured for $68,000.

Most business owners would have seen that as a problem. But he along with his key employees, kept the business going and profitable throughout the time it took to rebuild the building.The point was he didn’t have proper insurance on his building, but he was able to grow the business and came out much further ahead than he would have had he lost a key employee. You see those key employees were the people responsible for keeping that business alive, even when he didn’t have enough insurance to rebuild the building.

 

You see, people don’t do business with you because of your building. They do business with you because of the people you have working and supporting your business and your operations. If something was to happen to one of them, what impact would that have on your business? And are you willing to take on that cost?

The second reason why you would want to insure your key employees is because with life insurance, it’s the only product that allows the problem the death of your key employee, to also trigger the solution, the death benefit and the cash flow that comes with this life insurance. Think about the devastating effects it could have. Losing a key salesperson, for example, on your business. Think about all of the revenue that your key employee brings in for the business and how many people within the business depend on those sales.

You see, in a lot of situations, the key employee is the founder or the owner of the business, somebody who might be older and the next generation is going to need two things, time and money. Time to make up the mistakes that they might make, and money to gloss over those mistakes.

So again, with life insurance, the problem also triggers the solution. When the key employee dies, it also triggers the solution of money that allows you to make mistakes during the time of transition.

The third reason why you would want to insure your key employee is is because life insurance is the only product that allows you to buy dollars at a discount. Think about it this way. If you had a key employee that passed away, you would need money to attract and retain a new key employee to replace them.

Again, only life insurance allows the problem, the death of that key employee, to also trigger the solution, an influx of cash into your business, exactly at the time you needed it most, on a tax free basis. Now, here’s the best part. If you’re using a specially designed whole life insurance policy designed for cash accumulation to insure these key employees, you, the owner of the policy, the business owner, has access to the cash value via the policy loan provision on a tax free basis. And you’re still able to earn continuous compound interest on that money all along the way.

So you’re able to access that money, let’s say, to reinvest in your business, maybe make a major capital purchase like new equipment for the business or new cars for your team. Or we had one of our clients access the cash in their policy to buy out a competitor.

You see, there are no restrictions on what you could use that cash value for. So it’s great for business owners who want to be able to access cash and still be responsible and ensure their key employees.

If you’d like to get started putting this strategy to work for you and your business, check out our website at Tier1Capital.com to get started with a free strategy session today.

Also, if you’d like to see how we put this practice to work for businesses and small business owners, check out our Four Steps to Financial Freedom Free webinar 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 Do I Become a Wealth Creator?

Have you recently received an inheritance or anticipate receiving one soon? For the past 37 years working in financial services, I’ve seen many people receive inheritances and they generally fall into one of two categories. First, they’re either a spender, or second, a saver.

The first type of person who would receive an inheritance is a spender, and the spenders finances typically look something like this. They start at the zero line, and when it comes time to make any major capital purchase, they’re forced to borrow because they have no savings, they’re at zero.

And so they dig themself a hole in debt and all of their extra cash flow, instead of going towards savings, goes towards repaying that debt and filling in that hole. So when they receive their inheritance, it makes sense that they first, pay off their debt and then would drain down that tank, draining down the rest of that inheritance to make other major capital purchases.

The second type of person who would receive an inheritance is a saver and savers start at the zero line and they save and save and save. But when it comes time to make a major capital purchase, they drain down the tank or reduce their savings back to zero. And then they start saving again for, let’s say, the next automobile or the next major capital purchase.

So if you’re a saver and you receive an inheritance, it would make sense that you would use your inheritance to make major capital purchases and pay cash for everything.

Now, it may seem to you that the saver and the spender are two very different people, but they have something in common, and that whether you’re a debtor or a saver, you spend a lot of time at the zero line and you never get to experience the magic that comes with continuously compounding interest on your money. The other thing that neither the spender nor the saver receive or experience, is being in control of their money. Which brings us to the third type of person who can receive an inheritance. And that’s the wealth creator.

The wealth creator is a very unique individual. They save, as a matter of course, just like the saver. The only difference is, unlike the saver who drains down the tank to make purchases, they continue to earn uninterrupted, compounded interest by borrowing against their savings. And when they borrow against their savings, they’re making their money more efficient.

 

Now, if you’ve recently received an inheritance or anticipate receiving one soon, you may want to look into becoming a wealth creator. Keep this in mind, the saver, spender, and the wealth creator are all making the same exact purchases. And we say this all the time. It’s not what you buy. It’s how you pay for it that really matters. The wealth creator is still able to make that purchase without draining the tank and without giving up control of their money, all the while making their money as efficient as possible. They’re never jumping off that compound interest curve. That is a huge deal.

If you’re using a specially designed whole life insurance policy with a mutually owned life insurance company, you’re automatically building in a legacy for the next generation and being a great steward of your money.

If you want to make your inheritance work for you, your business, and your family and last for generations. Visit our website at Tier1Capital.com to get started.

Feel free to schedule your free strategy session today or check out our free web course, the Four Steps to Financial Freedom to see 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.

5 Best Tips For Financial Success

So your cash flow is tight, but you still want to set yourself up for financial success in the future. If that sounds like you stick around to the end of this blog because today we’re going to go over five things you could do right now to set yourself up for success.

Let’s get started with the five things you could do today to move you ahead financially down the line, whether you’re just getting started or maybe your income isn’t as high as you’d like it to be, these things can make a huge impact on your financial future regardless. 

The first thing you can do is to start saving today, no matter how small the amount. There’s an old proverb that says “The journey of a thousand miles starts with one step,” and that’s the key. Pay yourself first, no matter how small that amount is. That’s right. Start saving and start saving on a consistent basis. These days we have so many subscriptions and auto-pays and everything else in our checkbook every single month and it seems like there’s always more. Pay yourself first. No matter how small the amount. 

This brings us to number two: never drain the tank. Keep this in mind. You’ll never see the interest you don’t earn. Once you put that money aside for savings for your future self, don’t drain the tank. Don’t use it to go on vacation. And don’t use it to go buy your car. Now, we’re not saying don’t use that money. What we’re saying is to use your money in a way that you’re able to always continuously earn compound interest on the money. So it’s always working for you, but you’re using other people’s money to make your money more efficiently. It’s the key fact. Leverage will move your head. Never drain your tank. 

The third thing you can do to move forward and set up your future self is to live within your means. For many of us, that might mean that we need to set a budget and stay within that budget. 

Number four: keep your savings liquid, and free from taxes, losses, and government regulations. Conventional wisdom teaches us to save our money in places where it’s inaccessible, places like qualified retirement accounts like IRAs, simples, SEPs 401k’s or 403b’s. Where we have to pay a penalty if we access before age 59 and a half and at all times we have to pay taxes, and it’s taxable as income when we access that money or non-qualified accounts where the growth is taxed every single year on that account. And we all know you can’t accumulate wealth in a taxable environment. 

Rule number five is probably the most important. Not all debt is bad, especially when you own your debt. You see, when you own your debt, you’re in control of the terms and conditions of that debt, meaning that you can set up the interest rate. You can set up the payment plan. You can set up how the money is going to be used. The bottom line is you’re in control. But think of it this way. Before you pay that loan, you control the value of that payment. 

Let’s say it’s $450. So, this month, you control $450. The next day, when you make a payment to a credit card or on a car loan, you no longer control that loan. The lender controls that $450. Now, here’s the key. When you control your debt and you own your debt, you get to control the payment before you make the payment and you get to control that same amount of money after you make the payment. That’s complete control. And that’s why we’re sticklers for putting our clients in control of their money. Why? Because when you’re in control of your money, you’re in control of your cash flow and you’re in control of your life. 

Think about it this way. When it comes to owning your debt, it could be likened to having money in your pocket and sliding it over to your right pocket. At all times you have full liquidity, use, and control of that money. The bottom line is this, when it comes to your money, keep it in your pants. 

If you’d like to get started on your financial journey, visit our website at Tier1Capital.com. We have a free web course, The Four Steps to Financial Freedom that goes through our process step by step and could show you how to get ahead financially.

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.

5 Essential Rules of the Infinite Banking Concept

Do you have an IBC policy or are you thinking about getting one? If that sounds like you stick around to the end of this blog post because today we’re going to go over the four essential rules that need to be followed for any IBC policy to be put to work for you.

Rule Number One: Think Long-Term.

In Nelson Nash’s book, Becoming Your Own Banker. He explicitly says you have to think long-term. Remember, he was trained as a forester, so he thinks 70 years in advance. And like Nelson would say, “I will not be here. And probably neither will you. But somebody will and they will pay the price of you, not thinking long term.”

So what does this look like when it comes to designing your IBC policy? Well, it can look like maybe putting 10% of your premium towards the base policy and 90% towards the PUA, the paid-up additions, and the cash value part of that policy. And what that does is it directly violates rule number one. Think long-term.

So with this design, you’re getting a lot of cash value upfront, which could be great for your short-term needs. Maybe you want to make an investment as soon as you place the policy.

But what about the long term? How is this policy going to serve you and how is it going to serve you best? And it’s usually not with a 10/90 split.

Keep this in mind. When Nelson Nash discovered the infinite banking concept, there was no such thing as a paid-up additions rider. Because he was a long-term thinker he realized that he had to get the premiums, the base premiums of his life insurance to equal his mortgage. And then he knew at some point the cash value build-up would be four times his mortgage, allowing him to weather any financial storm created by inflation or manipulations in the financial markets.

Rule Number Two: Don’t Be Afraid to Capitalize.

And what Nelson meant by that was don’t be afraid to put in as much money as possible for as long as possible. Again, the temptation might be to do the 10% base, 90% paid-up adds. And that might work for some people who want to use their policies more aggressively early on. But what we found is, again, people are long-term in thinking and the best or the most efficient way of funding a policy or capitalizing your policy is 40% base, 60% paid-up additions.

Let’s take a step back here. When we say don’t be afraid to capitalize, we also don’t mean overextend yourself. If you’re looking for ways to make your cash flow more efficient, and to fund your policy more, we could help. Visit our website at tier1capital.com to schedule your free strategy session.

Rule Number Three: Don’t Steal The Peas.

If you’ve read the book Becoming Your Own Banker, I’m sure you remember the example of the grocery store owner and the temptation of them stealing the peas, going out the back door with their groceries, and not paying for them. So what he meant by that was if you are going to set up an IBC policy and you are going to borrow against your policy, make sure you put the money back, because if not, you are no better than the grocery store owner who goes, who bypasses the cashier and goes out the back door with his groceries. You’re stealing the peas and you cannot and will not or should not do that.

Rule Number Four: Don’t Deal With Banks More Than You Have To, Especially For Access To Cash Or Borrowing.

What did Nelson mean by that? He fully understood fractional reserve lending. He knew that if you pulled yourself away from the fractional reserve lending system and went to infinite banking, which is 100% reserve lending, he knew that you would no longer be contributing to inflation in America, and more importantly, you would be in control of the financing function in your life.

So let’s recap the four rules.

  • Number one, think long term.
  • Number two, don’t be afraid to capitalize.
  • Number three, never steal the peas.
  • And number four is, don’t deal with the banks more than you have to.

In January of 2019. I got a phone call from Nelson Nash and we chit-chatted for a little bit and Nelson said to me, he said, “Tim, I need to rethink my four rules. I think I need to add another rule.”

I said, “Nelson, what? What would that rule be?”

And he said, “Real simple. I’m going to graduate from this world one day and I’m going to leave my family a significant amount of death benefit. And if they don’t have large enough holes in their policies, they’re not going to have a place to store that money. I think we need a fifth rule.”

Rule Number Five: Make Sure That You Have Enough Holes in Your Policies to Accommodate a Windfall.

So that could be in the form of a policy loan against your policy or having term insurance that you’re able to convert into new policies when that windfall happens.

If you’re looking to regain control of your cash flow and put these four plus rules to work for you and your situation, we’d be happy to help. Visit our website at tier1capital.com to get started today. You could schedule your free strategy session or check out our free web course where we go through a deep dive on how we put our process to work for you.

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

Mastering Your Money With The Infinite Banking Concept

Money is the master of our lives, or at least, that’s what it feels like when you’re looking into an abyss of debt, loans, and financial responsibilities. When it comes to getting and staying in control of our financial situations, it might seem overwhelming when you have no idea where to start or even what to look for in creating a better, more rewarding strategy of using, saving, and creating money.

In this blog, we’ll talk about how you’re using your money, how banks use it to make more (for themselves), and how you can replicate their model of money flow to make sure you’re generating wealth for as long as you live. We’ll talk about the infinite banking concept, how it works, and how you can apply it in your own, everyday transactions and money strategies.

Ready to get started? Let’s dive in.

What Does Becoming Financially Free Require?

It Takes Less Than You Might Think

When we think of what it means to be or start becoming financially free, we often imagine luxurious cars, lavish holidays, and an endless flow of cold, hard cash. However, financial freedom looks different depending on who you ask.

For some, it means having the security to enjoy their hobbies and passions without sacrificing their quality of life. For others, freedom simply means learning how to control your finances before they control you through impulsive spending and crushing debt.

The one common fact about financial freedom, no matter who you ask, is that it’s possible to unlock it – and the infinite banking concept is the key.

First Things First…

You Need to Understand It’s Not About What You Buy or Don’t Buy

When you think of saving, you might think of the things that you buy. Instead, you should be thinking of how you’re paying for the things that you buy. In most cases, you’re either paying or losing interest.

Take financing a business for example. When you finance a business, you’ll incur interest that’s paid to the financial institution or lender you’re working with. When you pay in cash, you’ll never see the money that you don’t earn. You’ll essentially keep the interest.

With that in mind, it’s important to understand that the secret to how to control your finances is to control your cash flow. You need to find the most effective, efficient way to earn compound interest on a regular, continuous basis, without halting the purchases that you want or need to make.

Now that you have a basic overview of what you need to know about interest and payments, let’s talk about how banks make money.

How Do Banks Make Money?

They Do It by Using Yours

Becoming financially free means thinking like a bank. No, not loaning out money and hoping you’ll get paid back. We mean keeping your money flowing every single day. To understand the infinite banking concept, you need to understand how a bank makes money in the first place.

The very first step to making money as a bank is starting your bank. This is done by applying for a charter and finding people who want to start depositing money. A new bank might charge higher interest than their competitors at first. Then, this new bank needs to find people who need money.

Starting The Flow and Keeping It Going Forever

Using Depositors and Borrowers in A Perfect Balance

Once they’ve identified a network of depositors and borrowers, the real work begins. They offer sky-high interest rates on savings accounts to tempt you and others like you to start saving your money with them. However, they won’t be losing out by offering you these “high” interest rates. Once they have your money, they’ll start lending it to qualified borrowers.

These borrowers will then be responsible for paying their money back at an interest rate much higher than what you’re getting, which means that Mr. Bank can pay you your interest and pocket the difference. Easy, right?

As you can see, when you’re a bank, “your” money never stays in one place for very long. It’s lent out and stays flowing so that it can grow forever.

How To Apply the Infinite Banking Concept in Your Own Life

Without Spending Years Learning How to Do It

It might seem strange to compare making money as a bank to becoming financially free as a parent, working professional, and/or recent graduate. While you won’t be able to lend out billions of dollars and reap the reward of high interest repayments, you can apply the principle of keeping your money flowing with the right life insurance, savings vehicles, and processes. By owning this banking process, you’ll be able to learn not only how to control your finances, but also how to use them to keep your wealth growing your entire life.

What Does Tier 1 Capital Do?

We Help People Just Like You

Tier 1 Capital provides our valued clients with the permanent life insurance they need to accumulate cash indefinitely. We connect you to a savings vehicle or pool of cash that you own and control.

We provide our clients with a range of financial strategies that cut down the risk and ramp up the accessibility of their money while keeping them in complete control. Our mission is to empower our clients with the strategies and insight they need to take conscious action regarding their finances and their overall financial future. We are committed to keeping you informed, educated, and up-to-date with the best financial practices and services in the industry.

We have worked with families and small business owners of all walks of life, and now, we want to work with you. Reach out to our team now here at Tier 1 Capital  and book a free strategy call today if you’d like to learn more. We’ll walk you through everything you need to know as part of a complimentary strategy session with one of our certified and professional team members.

 

Qualified Plans: The Hidden Truth

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

 

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

So what do Qualified Plans do exactly?

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

If not now, then when?

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

The Check Story

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

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

Understand that Qualified Plans do two things:

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

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

Tic-Tac-Toe

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

Who is teaching you the rules of the financial game?

 

 

 

 

 

 

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

The Caddie’s Role in Golf

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

Our role as a Financial Advisor

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

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

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

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