As a young business owner, it could be simple to fall into the trap of reinvesting all of your profits back into your business to help that business grow and expand and hopefully grow your income as you go. But today, we’re going to talk about how do we save outside of the business on a systematic basis to achieve your other short term and long term financial goals?
When you first start off as a business owner, there’s not a lot of cash flow that you could take out of the business. You’re just putting all that money into the business to help grow and expand and set a footprint in your space. But once that business is established, there’s some extra cash flow there that may make sense not to put directly back into your business, because, let’s face it, life exists outside of your business. You may have a family, children that you want to send to college, a wedding that you want to pay for, or a home that you need a down payment for. How do you grow your business and still achieve these financial goals?
It’s often been said that the problem with a closely held business is that it’s closely held. And what does that mean? Basically, you make all the decisions, and generally most business owners will make the decision to reinvest all of their earnings back into the business. Not necessarily a bad thing, but here’s what happens. That money is stuck in the business. And if you have other goals outside of the business that you need or want to accomplish, it puts you in a position where you have to choose between your business or your family. And no business owner should have to make that choice.
So the question is how do you make your cash and your cash flow more efficient so your money could be in two places at once. And the way we help our clients to achieve this is by using a specially designed whole life insurance policy designed for cash accumulation. So you have full liquidity use and control of your money to do things like expand your business. But also send your children to college or finance a new car. There is no “or” in this situation, it’s an “and.” How do you do this and that? Not to mention, you could use this tool as a long term solution to achieve your goal of eventually retiring.
So by making your money more efficient, it’s literally like your money’s in two places at once, because quite frankly, it is. And that presents a situation or an opportunity where you have $1 performing two, three or four tasks. It’s multi duty dollars and it really works for a small business owner.
What do we mean by multi duty dollars? Well, you’re paying the premium for the life insurance, but you also have access to that money to expand your business or achieve your other goals. But that policy also produces a death benefit for your business or your family. And there’s other riders that could be included.
Those other riders include a disability waiver of premium rider in case you get sick or injured and can’t pay the premium or a terminal illness or chronic illness benefit rider which allows you to tap into the death benefit on a tax free basis to pay for a long term care event or a chronic illness.
Not to mention the fact that if you use the money to grow your business and put it back through the loan feature, when you go to retire, you can use the dividends from the policy to supplement your retirement income and that’ll save you on four taxes. Federal income tax, state income tax, Social Security offset tax as well as not allowing an increase in your Medicare premium. And there’s actually a fifth tax when you die, the death benefit goes to your family in the state of Pennsylvania, outside of state inheritance tax.
Let’s take a look at the loan feature of these policies. Every whole life insurance policy includes this loan feature, but these specially designed policies allow your money to be in two places at once. What do we mean by that?
Well, a policy loan is a collateralized loan against the cash value in your policy. So the money never leaves your policy, but you still have access to it from a separate policy loan given by the insurance company. So you’re able to access cash and still grow uninterrupted compounding of interest on your money.
One of the best features of these policies is that it’s a systematic way to save outside of your business, meaning as you pay your premium and build up your cash value, you have more and more access to cash and your policy becomes more and more efficient as it matures.
So before you know it, you’ll have a pile of cash that you have access to for whatever you want, whether it’s to expand your business or achieve your other financial goals, and you’re able to access it without interrupting the compounding of interest. So you could earn interest within your policy and continue to grow that cash and still make an external rate of return if, for example, you use it to grow and expand your business.
Think of it this way. You have two choices. Choice number one is to reinvest the profits in the business, and the money is illiquid, or choice two is reinvest the money into the whole life policy. The money’s liquid and you can then borrow against that cash to reinvest in your business. So you get to grow your business. But now you have some liquidity.
We look at financial situations through the lens of control. Is this decision going to put you in more control or less control of your cash flow?
If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation. Be sure to visit our website at Tier1Capital.com to get started today. Feel free to schedule your free strategy session. We’d be happy to help design a policy for you and give you a free cash flow analysis to see where we can help you make your money more efficient.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.