In our society, debt has been villainized, especially when it comes to mortgages. The common advice is to opt for a shorter-term mortgage, like a 15-year one with a lower interest rate, or to pay extra on a 30-year mortgage to get it paid off sooner. But is this really the best strategy?
Let’s delve into the tactics banks use to make us believe that shorter-term mortgages are in our best interest. They entice us with lower interest rates, making it seem like we’re saving money. But in reality, they benefit more from getting their money back sooner to lend it out again.
Consider this: a 15-year mortgage typically has a lower interest rate but higher monthly payments compared to a 30-year mortgage. This seemingly advantageous rate is just bait to get you to pay back the loan faster, putting more money in the bank’s pocket sooner.
Moreover, putting extra money towards your mortgage doesn’t necessarily forgive your next payment, increase your home’s value, or make that money easily accessible to you. You’re essentially locking away your cash in a way that benefits the bank, not you.
So why consider taking longer to pay off your mortgage? Here are a few reasons:
Cash Flow Control: Opting for a longer-term mortgage gives you more control over your monthly cash flow. You can keep more of your hard-earned money accessible for emergencies or investments without seeking permission from the bank.
Inflation Hedge: Over time, the value of your mortgage payment decreases due to inflation. Paying with dollars that have less purchasing power benefits you in the long run.
Flexibility: Life is unpredictable. Having a smaller monthly mortgage commitment gives you flexibility in your financial planning without being tied down to hefty payments.
In conclusion, don’t fall for the myth that a faster mortgage payoff equals financial freedom. It’s about strategically managing your cash flow and keeping control in your hands, not the bank’s. Remember, it’s not about how much money you make, but how much money you keep that truly matters.
In today’s fast-paced world, access to cash can often be the difference between seizing an opportunity or facing a financial setback. For many homeowners, a Home Equity Line of Credit (HELOC) presents a tempting solution to tap into their home’s equity quickly. However, before diving into a HELOC, it’s crucial to understand the risks involved.
One of the primary risks associated with HELOCs is interest rate volatility. While initial rates may seem attractive, they can fluctuate significantly over time. Consider the scenario of a client who secured a HELOC at 2% interest only to find themselves facing a staggering 9% rate years later. This drastic increase in interest costs can catch borrowers off guard, impacting their financial stability and monthly budgeting.
Another critical factor to bear in mind is the lack of control inherent in HELOCs. Unlike traditional mortgages where borrowers have a fixed rate and repayment structure, HELOCs grant considerable discretion to banks. These credit lines can be called at the bank’s discretion, exposing borrowers to sudden changes in their financial obligations. Instances during the 2008-2009 financial crisis, where banks called in credit lines, serve as stark reminders of this risk.
In contrast, conventional mortgages offer a more stable and controlled approach to financing. With a cash-out refinance, for example, borrowers lock in a fixed interest rate for the loan’s duration, shielding themselves from interest rate fluctuations. This control over interest rate risk and repayment terms empowers borrowers and provides greater financial predictability.
Ultimately, the choice between a HELOC and a conventional mortgage boils down to control. While HELOCs offer quick access to cash, they come with inherent risks and potential loss of control over financial decisions. On the other hand, conventional mortgages provide stability and empower borrowers to navigate market fluctuations on their terms.
In the realm of personal finance, understanding the nuances of financial products like HELOCs is paramount. While these credit lines offer flexibility, they also pose significant risks, particularly concerning interest rate volatility and control. By weighing these factors and considering conventional mortgage options, homeowners can make informed decisions aligned with their long-term financial goals.
If you’re interested in learning more about our system and securing a better financial future, hop on our calendar and schedule your FREE strategy session today! And remember, it’s not how much money you make, but how much money you keep that really matters.
Are you eager to dive into investing but feel discouraged by hefty account minimums set by financial advisors? This predicament is not uncommon. Many individuals, like a couple I recently spoke with, encounter barriers due to these minimums, often set at astronomical figures like $1,000,000. However, let’s debunk this myth together and explore why starting where you are can be the key to financial success.
The misconception lies in the industry’s focus on poaching large accounts rather than fostering growth from modest beginnings. Our approach differs significantly. We prioritize empowering individuals to build wealth from their current financial standing. It’s not about how much money you have right now but rather how efficiently you utilize it to secure your financial future.
Efficiency is the cornerstone of our strategy. We emphasize making your money work smarter, not harder. This means identifying and plugging leaks in your financial bucket, such as unnecessary interest payments or tax inefficiencies. By redirecting these resources back to you, we help accelerate your wealth-building journey without compromising your lifestyle.
Our process revolves around putting you in control of your money. Unlike traditional institutions fixated on fees and returns, we focus on optimizing your cash flow and minimizing risk. This personalized approach allows you to achieve greater financial security and pass on a guaranteed legacy to future generations.
Starting where you are is crucial. Whether you’re a seasoned investor or just beginning, our team tailors strategies to fit your unique circumstances. We believe in using every dollar efficiently, ensuring that each one contributes to your long-term financial goals.
Are you a firm believer in the mantra that “cash is king”? It’s a common adage, deeply ingrained in many of us, advocating for the virtues of paying cash and avoiding debt at all costs. We’re told to clear our mortgages, credit cards, and student loans as swiftly as possible, freeing ourselves from the clutches of external financial burdens. But what if this belief, seemingly prudent on the surface, is actually holding us back?
The financial landscape is complex, and often, the seemingly straightforward advice of paying cash for major expenses needs a closer examination. Yes, there’s merit in reducing debt and not being beholden to lenders. However, the larger financial picture demands a nuanced approach.
We challenge the notion that financial success hinges solely on owning products or being debt-free. The reality is far more intricate. How you use your money and financial tools is what truly determines your long-term wealth accumulation, financial stability, and the legacy you leave for future generations.
Let’s delve deeper into the concept. Paying cash for purchases might seem like a sound strategy to avoid interest payments to financial institutions. However, it’s crucial to recognize the opportunity cost of paying cash – the interest you could have earned on that money if it were strategically invested or utilized differently.
Every financial decision involves a trade-off. By paying cash, you may save on interest paid to lenders, but you’re forfeiting the potential interest you could have gained. This unseen interest, lost unknowingly, could have been a valuable asset for your financial future and that of your heirs.
Our approach focuses on maximizing your financial potential while maintaining flexibility. Financing purchases intelligently, leveraging specially designed whole life insurance policies for cash accumulation, allows you to benefit from the power of compound interest. Instead of depleting your resources with each purchase, you’re continuously growing a pool of money that works for you.
With a structured financial strategy, you can navigate life’s inevitable expenses – whether it’s a vacation, major household purchase, education costs, or unexpected emergencies – without compromising your long-term financial well-being. By understanding the intricacies of interest, borrowing, and wealth accumulation, you can make informed decisions that align with your financial goals.
We’re here to guide you through this financial journey. Our personalized strategies empower you to optimize your cash flow, make strategic purchases, and build a robust financial foundation for yourself and your family.
Life is full of uncertainties, but one thing remains constant: the need for purchases. Whether it’s starting a business, clearing student loans, taking vacations, or investing, financial transactions are inevitable. The key is to be prepared and have the financial means to seize opportunities or handle emergencies without financial strain.
The advantages of using policy loans for purchases are manifold. Your cash value continues to grow unabated, as the borrowed amount never leaves your policy. Moreover, each loan repayment increases the equity available for future borrowing, enhancing your financial flexibility over time.
This approach is about more than just making purchases; it’s about strategically managing your cash flow to build wealth and secure your financial future. If you’re interested in exploring this financial strategy further, consider consulting with experts who specialize in specially designed whole-life insurance policies for cash accumulation.
At Tier 1 Capital, we provide tailored strategies to help individuals navigate financial decisions and achieve their long-term financial objectives. Schedule a free strategy session today to begin your journey and take financial control. Remember, it’s not about how much money you make; it’s about how much you keep that truly matters.
Recently, we spoke with a client who had considered starting four years ago but didn’t feel ready. Now, he’s eager to begin, realizing that waiting only delayed his financial growth. The key takeaway? Start where you are. You don’t need a fortune to start; you need a comfortable amount that fits your budget and allows you to progress without stress.
Start small by redirecting a portion of your cash flow into your policy. Over time, this money becomes more efficient, giving you access to funds for various needs like debt repayment, vacations, or investments. The goal is to start without biting off more than you can chew, ensuring a sustainable financial strategy.
Assessing each situation individually is crucial. We guide you to avoid overcommitting and help you make informed decisions that align with your goals. Our goal isn’t just to start a policy but to empower you with financial control and flexibility.
Once you start, you’ll see the benefits firsthand. Think of it as a forced savings account that grows tax-deferred, giving you access to funds when needed. It’s about regaining control of your finances and being prepared for both challenges and opportunities.
Do you have a lump sum of money and you’re wondering how to get the most out of it? Well, one option could be a CD. But another option could be an annuity. Have you ever wondered what the differences are, what the pros and cons are of each of these products?
Recently, one of our clients inherited a lump sum of money from her mom. However, she wasn’t sure what to do with the money, she knew that banks were paying a reasonable rate of return on short-term CDs right now.
For example, a six-month CD may be paying out 6%. So naturally, she questioned, Is this a good deal or is there something better for my situation? And to that, we brought to the table the question of a fixed annuity.
You see, the bank was actually crediting them 6% for a six-month CD. Why was the bank paying that much for a short-term CD? And the answer is really simple. If and when interest rates go back down, the bank doesn’t want to be caught with a long-term commitment at a higher interest rate. So the bank’s given themselves some wiggle room, meaning a short duration to get out of the contract and this is because banks generally don’t keep the money around.
When a depositor puts money in the bank, the bank doesn’t let it sit there. They turn it over. And how do they turn it over? They turn around and they loan it to somebody. And a bank will generally loan a dollar that you put on deposit 8 to 10 times. Going out, coming back, going out, coming back, and they just rinse and repeat.
So because the bank doesn’t have the money on hand, they have to sort of suck you in so they don’t get caught with long-term interest rate risk. The bank is offering a much higher rate for a short duration so that they can keep turning it over. And more importantly, when the interest rates go down, the bank isn’t going to be caught with a long-term commitment.
Let’s contrast that with an annuity, specifically a single premium deferred annuity. This is a fixed annuity that locks in the interest rate over, let’s say, three, four, or five years. Because let’s face it, these products are actually paying out similar interest rates to the bank’s CD. But generally, the rates will be higher for a short-term annuity and lower for a longer-term annuity.
In other words, short-term interest rates are actually higher than long-term interest rates. And consequently, what’s happening is insurance companies as well as banks are incentivizing people to take shorter duration annuities because the interest rates are higher. So this is how these financial institutions sort of limit their interest rate risk.
But this goes back to the original question, why should this client take an annuity versus a CD? The annuity might be paying 5% whereas the CD is paying 6%. What’s up with that?
And the answer is simple. You’re locking in a reasonable rate of return for an extended period of time. Would you rather have 5% over three years? Or would you rather have 6% over only six months?
Basically with the CD at the bank. The bank is transferring that interest rate risk back to you. So ultimately, what happens is people say, yeah, well, but after six months, I could renew it at 6% again. Well, maybe you can. Maybe you can’t. It depends on what the interest rate environment is at that time. But here’s the point.
You know, three years ago, if somebody came in and said, hey, I’m looking for a fixed annuity, they might be getting two and a half, maybe 3% if they were lucky. Now they’re getting close to 5%. So they could walk in for five years at an interest rate that’s like 60% higher than what the rate used to be three years ago. That’s a pretty good deal. Again, you’re locking in for a longer period of time.
Now, of course, there’s this other issue, which is do you need access to that money? And if you do, then this may not be the appropriate way to address this issue. But a huge benefit of an annuity versus a bank CD is it’s tax deferred.
Once you put your money in that annuity, it’s growing on a tax-deferred basis, meaning it’s not taxed until you access the money. Once you do access it, the interest will be taxed as ordinary income. However, with a bank CD, your interest is taxed all along the way. And that’s something a lot of people don’t consider.
So really with an annuity, you make the decision as to when you want to pay the tax. You could take an annual distribution of interest only and therefore pay the tax at that time. You can defer the interest each and every year until the annuity is finished and then pay the cumulative tax at that time. Or, you can roll over that annuity into another fixed annuity and defer the tax even still. But, the key is you have the choice.
Now, one other thing to consider, not specifically for this client, but if you’re under age 59 and a half. Taxes aren’t the only thing to consider. If you access money in an annuity before age 59 and a half, that money may also be subject to the 10% penalty. Because these products are structured for retirement purposes.
So let’s go back to the original question. Should they be doing a CD or an annuity?
Well, it depends. It depends on their situation and how they plan on using that money. And it depends on how much control they want. So the moral of the story is, like always, it’s not only about comparing interest rates. We have to look specifically at your situations, your goals, your objectives, and how you plan on using the money.
If you have a lump sum of money you’d like to discuss a way to earn a reasonable rate of return and avoid risk in doing so. Hop on our calendar for our Free Strategy Session and we’d be happy to speak to you about your specific situation.
And remember, it’s not how much money you make it’s how much money you keep that really matters.
Are you thinking about implementing the infinite banking concept? But you don’t quite understand why it takes ten years to recapture the money that you put into the policy.
One of the most common complaints we have when speaking to people about the infinite banking concept is that they’re not going to have all of their money back for a full ten years at least.
So you may be wondering, Yeah, why does it make sense to put money in a whole life policy? That’s a lousy investment. It’s going to take me so long to break even and then earn a rate of return on that money.
So let’s go back to the basics.
Nelson Nash originally had four cardinal rules as it related to infinite banking, and his first rule was to think long term. You see, Nelson was trained as a forester. He was trained to think 70 years in advance. And as he would say, I’m not going to be here to see the fruits of my labor. But somebody will and they will benefit handsomely by my good judgment.
So first and foremost, you’re being future thinking. You’re not thinking about the death benefit. You’re thinking more so for the cash availability. And it’s just like planting a tree. You plant a tree and it takes a long time to see that tree grow, but all of a sudden, one day, you go out in the backyard and my gosh, you’ve got a tree that’s taller than you. And that’s the way it is with life insurance. There’s a start-up cost. Nelson used to say it’s sort of like starting a business. Very few people start a business and become profitable on day one.
The fact of the matter is time takes time and you’re not going to wake up one day and just have a pool of money sitting in a life insurance policy. Now, in some cases, there is availability to be able to put a large sum of money within the policies. But it’s still going to take time for that money to grow and compound. But the key here is to be able to access the money everywhere along the way. As your policy becomes more and more efficient with time, you’re able to access more and more of that cash value.
Yes, it might take ten years to realize a profit on that policy. But you don’t have to wait ten years to get your money as the cash value appears, you could borrow most of that or borrow against most of that cash value and deploy it in your life.
Whatever you decide to do with that money is completely yours. And here’s the key, however you decide to pay back that money to the insurance company, that’s your decision as well. That’s what Nelson realized by using the life insurance company’s money borrowing against the equity in your policy puts you in control of the financing function. And that’s the bottom line. That’s the golden rule. That’s the reason to be. That’s the reason why we recommend this concept because it puts you in control.
Americans are being squeezed from many, many different directions. Inflation is up. It costs more for goods and services. Our pay is down. Our revenues are down. Our profits are down. Inflation is eating into everything. Interest rates are higher. It costs more money to borrow from the banks and the credit companies than it has in over 15 years.
It’s affecting our health. It’s affecting our relationships. It’s affecting our ability to run our companies or do our jobs. It affects everything because it’s always top of mind.
But, there’s a way out of this. There’s a way that you could now be in control of this process rather than being controlled by this process. And that’s what the infinite banking concept can bring to you.
A question that you may have, if you’re thinking about implementing the infinite banking concept, is why on earth would I be paying interest to access my own money?
One of the core principles of implementing the Infinite Banking concept, using a specially designed whole life insurance policy designed for cash accumulation, is utilizing policy loans, leveraging the life insurance company’s money to make major capital purchases, whether that be a car, a wedding, or an investment where you can earn an external rate of return.
You see one of the things we sort of take for granted, or I think more appropriately we ignore, is the fact that we finance everything we buy. What do we mean by that? If you want to make a purchase, everybody thinks there are only two ways to do so. You could finance borrowing money from a bank or a credit company, and therefore paying interest to the bank or the credit company for the privilege of using their money.
The second way you can make that purchase is to pay cash. And what most people fail to take into consideration is the opportunity cost of using their cash. In other words, they know that if they take a loan, they’re going to pay 5 or 6 or 10% interest. But what they don’t take into consideration is the fact that if they use their cash, they could have earned interest on their cash. And guess what? That’s called opportunity cost.
Any way you look at it, you are paying or financing that purchase. You’re either going to finance through a bank or self-finance by paying cash. We have a saying here at Tier 1 Capital, you’ll never see the interest that you don’t earn on the money you used to pay cash to make a purchase.
With traditional banking, we typically park our money down at the local bank. However, we’re not earning any interest on that money, are we? The bank is though. They’re able to loan out that money at whatever rate of return they deem necessary. As many as 9 or 10 times for each dollar deposited.
So what does that mean? If you finance and have a bank account at the same bank, Which money are they actually lending you? And how are you being compensated for it? People deal with banks every day, and they accept that as normal.
And then we present them with the idea of, “Hey, why don’t you cut the banker out?” Set up your own pool of money that you will always earn interest on using the cash value of a life insurance policy. But you see, they have these preconceived notions of what life insurance is. And a red flag goes up and they’re like, No way. Life insurance is bad. Bank, good.
And then they come back and say, “Why in the world would I ever pay interest to get my own money from a life insurance company?” Well, here’s why, it ain’t your money. Your money is still in the policy earning interest on an uninterrupted basis.
The insurance company is putting a lien against your money and giving you a separate loan from their general account. That’s why you’re paying interest. You’re paying interest to get the insurance company’s money. You’re using other people’s money to make your money more efficient.
At the end of the day, if you’re accessing money, whether you’re financing or paying cash, there’s a cost to accessing money.
If you’d like to make your money more efficient by utilizing a specially designed whole life insurance policy designed for cash accumulation, schedule your free strategy session today. We’d be happy to talk about your specific situation and how this concept fits.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
When it comes to the infinite banking concept, the traditional design is a life paid-up at age 100 or 121 with a 40/60 split, 40% base policy, and 60% to paid-up additions. But sometimes we think it can make sense to do a limited pay policy, whether that be a 10 pay, a 20 pay, or a paid-up at age 65.
When it comes to designing a whole life insurance policy designed for cash accumulation, most agents use the 40/60 split, as illustrated in Nelson Nash’s bestselling book, Becoming Your Own Banker. So this design is used to have a substantial piece of the premium going towards the base policy because those are very efficient by nature and actuarially designed to get better and better every year, and a substantial piece going towards the paid-up additions. Those paid-up additions allow us to supercharge the cash value, accumulation, and accessibility in those early years of the policy.
Typically, you could leave that paid-up additions rider on for anywhere from 5 to 10 years, and at that point, the policy is efficient on its own and you could drop that premium down. The second piece of that design is the life paid-up at age 100 or 121, meaning the base policy premiums are going to be payable until the insured reaches age 100 or 121.
The thinking behind this is we want to be able to put money into our banking policies as long as possible. And while that is the goal, again, to allow us to be able to put money into the policy as long as possible, we also have to be cognizant of the fact that when you get into retirement, let’s say in your late sixties or seventies and you’re no longer working and you’re living off your investments or your savings, your cash flow is limited.
What we found is that some people get into retirement years and they don’t think they have the money to put into these life insurance policies. and that’s unfortunate because they’re probably thinking about things incorrectly. But because we’ve seen this mindset over and over, we have begun to implement limited pay policies, policies paid up at age 65. What that means is there are no more premiums after age 65.
Now we also know that people will be looking for places to put money beyond retirement years. So the point is this: why do we recommend the limited pay policies? Well, as someone in my thirties, I know that at age 65, I don’t plan on working any longer, but I still want to be able to utilize this concept while I’m working, in fact, these policies still continue to grow and compound interest even after age 65.
So what’s the downside really? Well, the only one that I could think of is I’m no longer able, I no longer have the ability to put money into that policy, whether I want to or not. But if you recall what I said earlier, we do this for younger people. Why? Because they have the option of buying the limited pay policy.
When you get into your fifties, your options for limited payment start to reduce. And if you’re understanding the infinite banking concept, you may want to buy more policies in your fifties and sixties. Those policies certainly will be paid up at age 100 or age 121. So your option for limited pay policies is off the board as you get older.
But if you have a situation where you have premiums stopping at age 65, that gives you the wherewithal or the ability to fund the other policies that you purchase later in life with the cash flow that you would have from retirement.
If you’d like to get started with an IBC policy, a policy designed for cash value accumulation, be sure to schedule your Free Strategy Session today. We’d be happy to speak with you.
And remember, it’s not how much money you make, It’s how much money you keep that really matters.
