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