It’s pretty safe to say we all have one goal in common, and that is to eventually retire. Today, it’s harder than ever to save for your retirement. Americans are being squeezed from so many different directions. Income is down, inflation is up, the savings rate is down. How are we going to be able to save as well as live and survive to get to retirement?
One day you’re going to want to turn your income off, stop working and start taking distributions from your accumulated funds. We call this Position A. Having enough money saved up and accumulated to support your current standard of living, adjusted for inflation, so that you don’t run out of money before you run out of life.
So how do you know if you’re on track to meet this goal? How do you know if what you’re saving in your company 401k plan, 403b plan, IRA, or other investments is actually going to get you to your Position A.
Well, there are four questions that everyone needs answered in order to know whether or not you’re on track. First and foremost, what rate of return do you need on your savings and investments to get you to Position A? Second, how long do you need to work in order for you to get to Position A? Third, how much more do you need to save in order to get to Position A? And number four, how much will you have to reduce your current lifestyle in retirement in order to not outlive your money?
Knowing the answers to these four questions is vital to make sure you’re on track to meet your Position A. Another thing to note about these four questions is that the answers are going to be noted in future dollars, meaning adjusted for inflation. Currently, inflation’s between 6 and 7%, so the government says, and we want to make sure that you have enough so that your dollars could buy the same amount in the future as they’re buying today.
The point is, this is not a simple calculation.
The fact of the matter is we’re trying to hit a moving target and in essence, we’re trying to plan for certainty during uncertain times. However, as with any goal, in order to know how to get there, you need to first know where you’re going, and then you can make a plan on how to achieve that goal of getting to your Position A and retiring so that you’re not going to run out of money before you run out of life.
If you’d like to know the answers to the four questions as it relates to your specific financial position, check out our website at Tier1Capital.com and hop on our calendar for a free strategy session. We’ll be able to answer them in about 15 minutes.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
Did you know that the number one reason why small family businesses fail is because of lack of planning? Only one third, 34%, of all small businesses have a robust, documented succession plan. One of the main reasons that business owners fail to plan is because they’re too busy working in their business and they don’t take the time to work on their business.
You see, when it comes to family businesses, a lot of times they’re already established by the time the second generation gets there. So they assume it’s going to be there forever, but without the proper planning, that may not be the case.
Proper succession planning is the key to pass the family business from one generation on to the next.
I’d like to share an example of a local business that failed to do the planning. The business was in its third generation. The founder of the business never did any succession planning, and when he passed away unexpectedly, all of his ownership passed to his wife, who was not active in the business. He had two sons working diligently in the business, who in fact, were growing the business. And he had a daughter who was not involved in the business at all.
The mom never got around to doing any proper planning as well. And when she died, the boys had to pay over $8 million in federal estate taxes in order to gain ownership of the business. Now, as bad as that sounds, additionally, they had to come up with another $3 million to buy out the sister’s share in the business.
They borrowed $11 million and things were humming along fairly well until the 2008 financial crisis hit, and at that time their business basically evaporated. They had very little sales and certainly no revenue coming in, and ultimately they defaulted on the bank loans. The business ultimately went bankrupt. And not only did the two brothers lose their livelihood, but they had 150 employees who also lost their livelihood.
This perfectly underscores the importance of proper succession planning. A business succession plan is there to lay out exactly what’s going to happen when. Whether the owner dies, becomes disabled, or simply wants to retire. It’s a way to pass the business down from one generation to the next and make sure it’s a smooth transition.
A properly documented business succession plan is known as a business owner’s will. It literally addresses the transfer of the business and the business assets.
If you’re at the point in your business where you’re starting to think about how to exit the business and what’s going to happen and what you want to have happen at your death or disability, and you’d like to start with a business succession plan, be sure to visit our website at tier1capital.com to schedule your free strategy session today. We’d be happy to guide you.
Or if you’d like to learn more about how to smoothly make this transition for your business and your family. Check out our Free Business Owners Guide on our website.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
A lot of people don’t have the time or the motivation to do a deep dive into their finances. And other times people say to us, “Hey guys, I’m not giving up control of my money in any of these five areas of wealth transfer. How do I get started with saving for my short term, intermediate and ultimately retirement savings goals with this concept?”
We talk about the five areas of wealth transfer where we look to find where people are giving up control of their money unknowingly and unnecessarily. Those five areas are: taxes, how you’re funding your real estate, how you’re funding your retirement, how you’re paying for your children’s college education, and then how you make major capital purchases.
But what if you’re not giving away control of your money in any of those five areas of wealth transfer? Does that mean that your cash flow is already as efficient as possible?
But that may not necessarily be the case.
The fact of the matter is, most of your income is flowing through your system, through your checking account, and going to pay for lifestyle or to be reinvested or to help you grow your business.
In many situations, we’ll review how people are using their money and we’ll look at those five areas of wealth transfer and we’ll be able to identify areas that they’re giving up control of their money unknowingly and unnecessarily, and show them how that if they just stop doing that, their circle of wealth will grow. And, if they redirect that same cash flow back to an entity that they own and control, they’ll be able to build a pool of cash that they could access, no questions asked, without having to get permission, in order to expand their business or their personal lifestyle.
In that type of situation, it’s easy for us to identify the leaky holes in your personal economic model or in your bucket, if you will. We’re able to plug those holes and fill up the bucket with money. But if you don’t have any holes in your bucket and instead your bucket doesn’t have a bottom, it’s important to build that foundation and start with what you can afford to put away at this point and then slowly build up that bucket. Keeping that money as efficient as possible so that you’re able to achieve your short term, intermediate and long term financial goals no matter what they may be.
What we have found is that everybody has financial milestones or goals that they need or want to accomplish, and in that case, starting where you are puts you in a better position to make your money more efficient prospectively as you’re going forward, because the more efficient your money could be, the better chance you have of reaching those milestones and more, more importantly, achieving your goals.
A financial goal could be something like paying off your credit cards, your student loans, saving for a down payment on a house, financing a new car, or eventually one day retiring. No matter what your financial goal is, it’s important to start somewhere so that you’re able to build before it’s too late.
You see, with the compound interest curve, there are only two factors to consider, time and consistently putting away money. The sooner you start that compound interest curve, the better your results are going to ultimately be. This goes back to a point earlier, when we say pay yourself first. Again, the whole concept is to make your money more efficient, paying yourself first, make sure that you’re saving or you’re going to be on track to meet those milestones.
If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation to help meet your financial goals, be sure to visit our website at Tier1Capital.com to get started today. Feel free to schedule your free strategy session or if you’d like to learn more about exactly how our process works and how to put it to work for your family and your situation, check out our free webinar, The Four Steps to Financial Freedom.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
Are you in business with your parents or parent and you’re wondering how you could buy them out when the time comes. That’s a huge issue for the younger generations, like millennials, as their parents approach the retirement age.
In America, it’s not uncommon to be in business with your family members, but what happens when the older generation is ready to phase out into retirement and the younger generation has to step into those shoes? How do you transition from the younger generation being employees to being in control of the business and transitioning the older generation out?
That is the age old question. But also keep in mind there are several issues that need to be addressed. One issue is, what happens if the founding or the older generation dies. That can be a huge financial impact to the business. Literally, all of the knowledge, connections and information goes to the grave with that person.
As is with any issue involving family, it’s not always cut and dry. First, we have the issue of death or retirement or disability of the founding member. But what happens if this founding member simply wants to cut back his hours or retire? How does the younger generation buy them out and compensate them throughout their retirement so they could afford to retire, while also affording to maintain the business and their income?
But keep in mind, the older generation needs to be compensated for all the value they created over their lifetime. Think of it this way, if they weren’t transitioning the business to the younger generation, they would have the opportunity to sell the business off to someone else at fair market value. Why should it be any different because we’re transitioning to a family member.
Now, surely there will be a family discount, but the older generation can hang around and can also be contributing to the growth or the sustainability of the business. And obviously all of that knowledge and those connections aren’t just going away.
So the key all comes down to this with proper legal planning and proper financial planning, you can ensure a smooth transition from one generation to the next. But with these steps become, an additional set of issues. You see, you don’t want to just have an agreement with no funding behind it, and you don’t want to just have funding with no agreement behind it. Having these together gives us a whole separate issue, though, of where are you going to find the money to fund this solution?
And that’s where we can help. We are specially trained to show you how to maximize the efficiency of your money so that you can get $1 to possibly do two or three or four different duties and in the process, make your money more efficient. Quite literally, what we’re able to do is to find money within your current cash flow without having to reduce expenses or without having to increase sales or revenue in order to fund this new plan.
It all comes through the lens of making your money more efficient and leaving you in more control of your cash flow so that you’re able to allocate some of that money to accomplishing your goals of buying your parents out of the business, while still being able to operate the business and grow the business all at the same time.
You see, what we found is that some simple shifts in how you’re using your money could make all the difference down the road. We recently worked with a business owner who owns a manufacturing company locally. He wanted to start planning his business exit strategy for about ten or 12 years down the line, and it was determined that the business was worth about two and a half million dollars.
So we started from ground zero, meaning that they had no money saved to fund his exit strategy. Now, also part of the backdrop to this case is his son was involved in the business and his daughter was a schoolteacher and not involved in the business. And he wanted to make sure that if he passed away, she would be compensated in some way, shape or form for his interest in the business. What we needed to do was to determine how much money he needed to put away in order to get that full value of his business. Two and a half million dollars. And it was determined that he needed to put away about $200,000 per year.
So now the question became, where are they going to get the money? He looked at me straight in the eyes and said, “Tim, if I could save $200,000, you better believe I’d have been doing that for a long time. I just can’t understand where we’re going to get the money”. And my response to him was, “What if you already have the money within your current flow? You’re just using your money inefficiently. If I can find the money, would you fund the plan?” He goes, “Sign me up“. And that’s exactly what we did.
We did a deep dive into their financials. We looked at where they were putting their money, how they were using their money, how they were making purchases. And lo and behold, we didn’t find $200,000, we found $240,000 of annual recurring revenue that they could use to fund his exit strategy. And in one fell swoop, we redirected money from an inefficient strategy to a very efficient strategy that was going to fund his exit strategy. But in the process, he got much, much more cash flow relief.
If you’d like to learn more about these strategies and how we could customize a plan to put them to work for your business, be sure to visit 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 free web course. The Four Steps to Financial Freedom.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
As a business owner, it’s not uncommon to have a majority of your net worth tied up in your business. How do you retire when all of your assets are tied up in the business? What’s your legacy going to look like if your only asset is your business? What happens if your children don’t want any part of the business? This is a situation we see all too often. There are some simple steps you could take to make sure you’re able to retire and not depend on the equity within your business.
Do you realize that over 80% of all businesses are first generation businesses? Meaning that the founder of the business started the business and is still operating and working in the business? Also, less than 30% of all businesses make it to the second generation. So there is a great probability that for whatever reason, your children will not take over the business.
Let’s face it, kids these days have minds of their own. But what does that mean for your retirement? How do you retire if all of your assets are tied up in the business?
There’s an old saying that the benefit of a closely held business is just that, that it’s closely held. And you don’t have to consult a lot of owners or a lot of people when you’re making a decision. The bad part or the downside of a closely held business is that it’s closely held and you’re responsible for everything. So, there has to be a delicate balance between making enough money to operate the business, making enough money to grow the business and making enough money to make sure that you’re independent of the business so that you could leave on your terms.
The fact of the matter is, a lot of small businesses aren’t marketable, and the main reason for this is because the owner is the breadwinner of the business. If the owner was coming with the business, it would be worth a lot more than the business without the owner who’s been running it for however long. So what ends up happening with these small businesses is they’re forced to liquidate any inventory they have and any equipment that they have at fire sale close out rates and walk away, close the doors of the business for a fraction of the price that they would have got had they been able to sell the business as a whole.
So the danger is that you pour all of your profits back into the business by doing so, you’re literally locking up that money inside your business and setting yourself up where you may never be able to get the value of the money you actually put in, let alone a profit.
When you first start your business, it’s important to reinvest the profits so you’re able to grow and expand. But as your business matures, it’s even more important to diversify so that you have liquidity use and control of an asset and also have your business to provide income for you and your family.
How do you continue to operate and grow your business while at the same time making sure that your future, or your exit strategy, is independent on having to sell the business?
We recently came across a situation with one of our long time clients who was a business owner for 37 years and he had an offer to sell his business. But because he had over two times the value of the business in other assets, he didn’t have to take the first offer that came along and he was able to wait for the best offer to present itself.
As with any financial planning, taking steps early on to secure your financial future is best. And it’s never too late to start planning. By taking these steps to secure your financial future, you’re setting yourself up for success in retirement and also securing your legacy for your family. You’re not dependent on the sale of the business for your livelihood. Instead, you have a pool of cash that you have access to along the way, and the business to help support your income for you and your family.
This individual took the best offer that was on his terms. By selling his business and getting the best price possible, it was just sort of like frosting on the cake. You see, he wasn’t dependent on the sale of his business for retirement and said he had money set aside, that he had full liquidity use and control that he spent years accumulating so that he wouldn’t have to be dependent on the sale of that business in order to retire.
If you’d like to get started with a plan to secure your financial future for you and your family and your business, be sure to visit our website at Tier1Capital.com. Feel free to schedule a free strategy session. We’d love to chat with you.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
As a young person, the thought of paying life insurance premiums until age 100 or 121 can seem a bit daunting. I mean, who makes commitments for that long, really? But here’s the secret. There are limited pay policies, policies that are paid for X amount of years. These policies can be a great saving solution for young people.
By its nature, a specially designed policy for cash accumulation puts extra money into the policy, and a limited pay policy has extra premium because you’re shrinking down the amount of years in which you’re paying the premium from age 100, let’s say, to age 65 or for a 20 year period or a ten year period.
The lower the amount of years of funding, the higher the premium. But again, if you’re designing a policy for cash accumulation, a limited pay policy makes sense because it puts you in a position where, let’s say a life paid up at age 65, there are no more premiums due after age 65. Now you’re collecting checks instead of paying premiums.
But let’s take a step back. We’re saying a higher premium. And what we mean by that specifically is, it’s a higher premium for the set amount of death benefit, which isn’t necessarily a problem when you’re designing these policies for cash accumulation. You’re focusing on the cash accumulation versus the death benefit. And many people, when they’re young, they don’t have a great need for death benefit. So it’s really not a deal breaker.
But the key is you’ll have the death benefit at your life expectancy when you’ll need the death benefit the most. And consequently, if you have a limited pay policy, again, let’s say a life paid up at age 65, by the time you’re 85, there will have been 20 years where you didn’t have to pay any premiums. But you had a completely paid up death benefit that’s actually growing every year because there’s no cost of insurance dragging the return or the growth of the policy.
In my case, I started limited pay policies years ago and it was a simple way to get started with saving. I put away a 500 or $1,000 a year into these policies, and in ten or 20 years they’re going to be paid up completely and the cash value and the death benefit are going to continue to grow and accumulate interest and dividends throughout my entire life, even after the premiums aren’t being paid anymore.
But keep in mind, there is a trade off with a limited pay policy. And what the trade off is, is that’s less money that you could stuff into the policy for any given death benefit. And what that means is your cash value will be slightly lower in the earlier years, but then you have to weigh the cost of having less cash value in the early years versus the benefit of having no premiums in the later years.
But let’s take another step backwards and think about compounding interest. Compound interest curves require two factors time and money. We all know we could never get time back, and it’s important to consistently put money in to these policies to accumulate the best compound interest curve possible. But with a limited pay policy, you’re limited on how much money you’re able to put in.
So again, in my situation, what I do is I have a term policy that guarantees convertibility of that death benefit, and I could create more whole life policies throughout my life as my budget allows. So as I pay up policies I have the cash flow to now convert a piece of my term policy into a new whole life policy and start the cycle all over again.
But the key is I’ll be building capital that I could access everywhere along the way to take care of the things of life, whether it’s buying a car, whether it’s going on vacation or moving across the country. Not to mention for business opportunities.
These policies are great for entrepreneurial type people. You have full liquidity use and control of that money to take advantage of business opportunities that come about. So you could earn an internal rate of return within the policy and also an external rate of return by starting your own business and putting that capital to work for you without interrupting the compound interest curve, which is key.
Nelson Nash, the author of the bestselling book Becoming Your Own Banker, put it so eloquently, “When you have access to money, opportunities will find you.”
If you’re considering a specially designed whole life insurance policy designed for cash accumulation, whether the traditional design or a limited pay policy to meet your needs, visit our website at Tier1Capital.com to get started with your free strategy session today.
You can hop right on our calendar, or if you’d like to learn more about how we put this process to work for our clients, check out our free webinar, The Four Steps to Financial Freedom. It’s right on our homepage.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
We’ve all heard that you should pay yourself first and save for your future. But not everyone does it. Are you saving for your future? Is it 10% of your income? Is it 15? Is it 20? Are you saving anything? And if you are, are you saving in a place where you have access to that money?
Today, we’re going to talk about how to strategically save for the future so that you’re able to meet your long term goals of retirement and your short term and intermediate goals as well.
So a universal financial goal that most people have is to someday retire. But what about your other goals? How do you achieve those as well as your retirement? We call that the savings dilemma. Should you save only for long term goals or should you save for short term goals or should you save for both? And the problem is, once you make a decision whether it’s short term, intermediate or long term, you’re literally eliminating the other choices.
In other words, if you’re saving for long term goals like retirement in a conventional, traditional retirement plan, that means that money is not accessible or available to you for the short term needs that you’re going to have from the time you start saving until the time you go to retire. We call that saving in buckets, but that’s not necessarily the best strategy because you can’t access that money without penalty before age 59 and a half.
But what happens when you want to get married or put a down payment on your house or send your children to private school? Where is that money going to come from?
Now, a lot of times people say, “Oh, well, by the time those events occur, I’ll be making more money”. Well, maybe you will, maybe you won’t. And in all probability you will. But that still doesn’t negate the fact that saving in buckets is a very inefficient way of saving. When we’re looking at savings vehicles for our clients, we’re looking at somewhere where they’ll have complete liquidity use and control of their money without penalty is everywhere along the way.
You see, you may be making more money in the future, but what you can’t recapture is the lost opportunity cost for those years when you’re building up your income. When it comes to compound interest, there are only two variables in that equation and that’s time and money.
With time, we could never make it up. So it’s important to start saving as soon as possible and never jump off that compound interest curve because you could never make up that lost time.
It’s often said the more time you have, the less money you need to put away. The less time you have, the more money you need to put away.
The key is if you’re saving everywhere along the way and you have access to that money and you’re never jumping off the compound interest curve, well now you’re in a position where your money is always working for you, but you’re also in a position where you could access that and use it for the things of life, those things that come up, whether they’re emergencies or opportunities.
The most frustrating thing in life is to have an opportunity come your way and you’re not in a position financially to take advantage of it. Why? Because you don’t have access to your money. You see, we believe that there’s more opportunity in protecting yourself against the losses than trying to pick the winners. Our goal is to help you make your money as efficient as possible so that you’re able to achieve your financial goals regardless of what’s going on in the market or the bigger economic environment.
And when we say losses, we’re not only talking about market losses, we’re talking about the lost opportunity of paying taxes, the lost opportunity of paying fees, the lost opportunity of paying interest to an entity that you don’t own or control, and the lost opportunity of having to access your money and jumping off the compound interest curve.
By utilizing the loan provision within these policies, they’re able to earn continuous compound interest within their policy and still access the cash value to make these major purchases or take advantage of opportunities. So you have the potential to earn an internal rate of return within the policy uninterrupted, as well as the opportunity to take advantage of financial opportunities that come up.
Another benefit of this process is that you’re always paying yourself first. You start where you are with what you can afford, whether it’s 5% of your income or 20% of your income, and you continue to save as a matter of course and your money continues to grow and compound within the policy and all the while you have access to it via the loan provision.
The value of this process is really startling because what happens is wherever you start, whether it’s saving 2% of your income, 5%, 10% over time, you get to a point where you’re saving a significant amount of your income and it doesn’t feel like it’s reducing your lifestyle. Why? Because you have access to all the money that you were able to save in those previous years.
So your savings percentage increases as well as your total net worth. As you build up the cash value within the policy, you have access to that cash to pay off credit cards, student loans, put a down payment on the house. This policy can go with you through all stages of your life. At the end, you have access to it to supplement your retirement income and ultimately to pass down as a death benefit to your loved ones or a charity of your choice.
If you’d like to get started with this specially designed whole life insurance policy designed for cash accumulation to help meet your savings and financial goals, be sure to visit our website at Tier1Capital.com to schedule your free Strategy Session today.
What are you doing that’s holding you back financially? When it comes to finances, no one wakes up in the morning and says, “Hey, how could I mess up my financial future today?” No. We all wake up and say, “Hey, how can I move myself financially forward?”
We all need to navigate the headwinds that we all face, whether we’re business owners and we’re trying to navigate the headwinds that we face on a daily basis to move our company forward, or we’re a family and we’re trying to move ourselves forward financially. We all face the same headwinds. There’s the need for access to money, but if we don’t have money or more importantly, if we have money saved and then we need to access that money for an emergency or to take advantage of an opportunity, we’re going to drain down the tank. We’re going to use that money. And again, we’re never going to see the interest that we don’t earn on that money.
Then there are things like, let’s say you’re saving, there’s going to be taxes on your savings and investments. There’s going to be losses perhaps on your investment. There’s certainly going to be fees on those investments. All of those things are headwinds that we face on a daily basis. And then if we pay a tax, we pay a fee or we experience a loss, then there’s the lost opportunity cost. What we could have earned on that money had we not paid those fees or hit those headwinds or had those losses.
This is why we constantly talk about making your money more efficient. How do we work with what you have to get you as far as possible financially, whether in your family or your business?
Let’s say you have a plane that could fly 100 miles per hour, but you’re flying into a 345 mile per hour headwind. If your plane could only move 100 miles per hour, but you’re flying into that headwind, you’re going nowhere, and certainly nowhere fast. In fact, you’re not going nowhere, you’re literally going backwards.
So the facts are the facts. Your plane could only move 100 miles per hour and we have no control over the wind. But what if, instead of having a headwind, we adjusted the direction we were going and used it as a tailwind to propel us forward?
And that’s literally the type of planning we can help you with or the type of planning we designed for our clients on a daily basis.
We know that the winds are a given. The headwinds that we face are there. How can we work with those headwinds to make sure that we’re taking advantage of them so that now we’re using that wind to propel us forward rather than to prevent us from moving forward?
If you’re ready to make your cash and your cash flow more efficient and take advantage of the winds, please be sure to visit our website at Tier1Capital.com to schedule your free strategy session today.
Or if you’d like to learn more about how we put this process to work for our clients, check out our Four Steps to Financial Freedom Webinar right on our website.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
In today’s ever changing economic environment, there are a few questions that remain the same. How do you save for your retirement and achieve your financial goals along the way? There are so many things that are out of our control: interest rates, the stock market, government spending. Not to mention inflation.
But what isn’t changing are our financial goals. We still want to get married. We still want a new car. We still want to go out to eat when we want to go out to eat. How do we achieve all of these financial goals when there is so much out of our control?
Well, conventional wisdom would tell us to just take on more risk. More risk equals more return. But that is not always the case as we’re experiencing right now. The answer may be in saving. Saving, not investing.
And you may be wondering what’s the difference? Well, investments inherently have risk savings, do not. The tool we use to help our clients achieve their goals without taking on tons of risk is especially designed whole life insurance policy designed for cash accumulation for several reasons, and one being you’re able to access that money to achieve your financial goals without taking on the risk of the market and everything else that’s out there.
Because your money is safe inside that insurance policy. You could also access that money to reinvest in the market after the market went down. That puts you in control instead of you being at the mercy of people that you don’t even know.
You see, most savings vehicles that are presented to us have risk, whether it’s a retirement plan at work or a brokerage account or other mutual funds. They all include risk, but not everyone wants to take on that risk, and not everyone wants to be at the mercy of everything that’s going on in the world to achieve their financial goals. Not to mention, once you access that money, you have tax consequences possible penalties, and you don’t know how much you’re actually going to be earning on that money. And also think of it this way. Once you access that money, it’s no longer earning interest for you.
We believe there’s more opportunity in avoiding the losses than trying to pick the winners. And we’re not only talking about market losses, we’re talking about the losses of interest paid to others or taxes paid to the government. They’re all losses that reduce the value of our money.
We’ve all heard that you should pay yourself first. But how do you do that? I don’t know about you, but every time my income goes up, it seems as if my spending goes up right along with it without even thinking about it. Today, we’re going to talk about how to put your savings on subscription mode so you don’t have to make a conscious decision every single month.
As a young professional, for me at least, it’s hard to think about goals like sending my children to college or saving for retirement when I don’t necessarily see those things in my near future. But that doesn’t mean I shouldn’t be saving for goals no matter what they are, down the line regardless of not having them defined.
The idea that as your income rises, your expenses also rise. That was what Nelson Nash, my mentor, used to refer to as Parkinson’s Law, expenses rise to meet income.
If we could give you an equation on how much you should be saving each and every single month, you should be saving 20% of your income. But how do you do that? Is it best in your retirement account or a savings account? Or especially designed whole life insurance policy designed for cash accumulation?
For me, it’s the whole life policy. When I graduated from college, I got my first whole life policy and it met my income needs at that time. And as the years went on, I added more and more policies to accommodate more and more of my income. So now I’m sitting right about 20%. But the best part about this solution is I don’t have to make the decision of how much I’m saving every month. It comes automatically out of my bank account. So all I have to do is budget for it.
Not to mention, I’ve borrowed against the cash value to buy a car, to pay off student loans, and many, many other things that will be coming up or have come up in the past that I’ll be borrowing against the policy to pay back and to make the purchase that I want to make.
You see, just because I don’t have financial goals defined at this time, I know that down the line and throughout my life I’m going to have major capital purchases. And I also know that if I leave that money accessible, easily accessible in my checking or savings account where I could access it with a click of a button, I’m going to do that.
So by putting the money in the whole life policy, I still have access to it. But I’m not leaving it so easily accessible in my checking or savings account that just because it’s there, I’m spending it each and every single month.
But the real key here is the fact that although I’m using the money, borrowing against the cash value, I’m also being responsible by putting the money back.
People always say, “Do I need to pay that policy alone back?” In short, no, you don’t. But by paying it back, you’re saving yourself loan interest. And when another purchase comes up in the future, you have access to that money again, with just a signature.
And that’s really the key. The need for cash or to access capital for the rest of my life is never going away. In fact, it’s going to get larger and larger as time goes by. Cars are going to be more expensive. Vacations are going to be more expensive. And then you have this thing called retirement.
The best part about saving in this way is that I don’t have to make a decision every single month to put money away. It’s automatically deducted towards the premium. And as the policy matures, over time, that policy grows more and more each and every single year, to the point where when I put a dollar of premium in now the cash value increase is higher than what I put in.
So in essence, saving is on subscription mode. Think of all the companies that are in our checkbook each and every single month, from Netflix, to our utilities, to our rent, everything is automatically deducted from our checking account. So why wouldn’t you pay yourself first right from your checking account? And the ease of this process makes it so more accommodating to fit our lives.
If you’d like to learn more about how to put your savings on subscription mode, visit our website at Tier1Capital.com to schedule your free strategy session today. We’d be happy to talk more about your specific situation and how we could help you meet your needs.
