lifetime income

Money Management Tips: Regain Control Of Your Cash Flow

If you have been following our blog post, you know that we are constantly talking about the importance of you being in control of your money or regaining control of your money. So why is it so difficult to accomplish despite it being a very simple concept? Today, we are going to talk about the unintended consequences that result from following traditional or conventional wisdom when it comes to your finances and how to regain control of your money by just knowing these things.

Now there are three main institutions that are trying to gain control of our cash flow on a monthly basis: the banks, Wall Street and the government. It is like a game to them in the sense that they set the rules. These rules are:
1. Gain control of as much of our money as possible.
2. Get that money on a systematic basis, meaning they want their hands in our checkbook every single month.
3. Hold on to or control that money for as long as possible.

We are going to take a look at how Wall Street gets us to act in their best interest. By following the rules that benefit them. Firstly, they want to take control of our money. So how do they do that? They will tell you that the only chance you have to beat inflation is to be in equities. They tell you that you have to be in it to win it. They tell you to employ strategies like dollar cost averaging. That’s how they get us to do things on a systematic basis. Also, they tell you that the higher the risk, the higher the reward. So these are things that they tell us to get us, to play the game by their rules so that they could win. Secondly, when the market is down, they tell you that you can’t sell now because you are going to be locked in losses. But when the market is up and you say, “Hey, I wanna sell because I think we made a pretty good profit”. They will say, “Geez, I don’t want you to miss out on this profit”. Plus if you sell now, you have to pay taxes on the gains. So if you don’t sell low, because they don’t want you to lock in losses and you don’t sell high because they don’t want you to pay taxes or miss out on a run, then, when do you sell? Well for Wall Street’s benefit, they never want you to sell.

You see, their job is to get you in the market and keep you in the market at all costs because that is what benefits them, but it doesn’t necessarily benefit you.

 

Now, how do the banks get us to do what’s in their best interest? Let’s take a look at the rules again. Rule number one is they want to get our money. So when it comes to a mortgage, we want to put a downpayment as high as possible. Because with a lower loan or a lower mortgage, you will pay less interest. Rule number two, they want to get our money on a systematic basis. So they will entice us with lower interest rates on shorter term mortgages. For example, a 15 year mortgage will have a lower interest rate than a 30 year mortgage. Rule number three,  they want to keep our money for as long as possible. So with the 15 year mortgage, we’re giving up more of our monthly cash flow to the bank. Even though we’re paying them less interest, we’re still losing control of that monthly cash flow. With the home equity, they tell us that it’s our home equity as if we have control of it and that we are more secure when our house is paid off. But in reality, we don’t have access to that money unless they give us permission to access that home equity. So who’s really benefiting from a shorter mortgage, us or the banks? The answer is clear. The banks are following the three rules and they are in control of our money by positioning it as if we are in control and that it is in our best interest.

Finally, the government gets us to play the game by enticing us to invest in retirement plans for our future. They give us a tax deduction on a small amount of money today so that money can grow on a deferred basis and then they have the potential to tax us at a much higher rate in the future.Think about it, you are putting money away today for a small tax deduction, but in the future, the government determines how much of that money you get to keep. Even if you earn a decent rate of return over many years, you don’t know how much of that money is actually going to be available to you to fund your retirement lifestyle. The government gets us to play the game, but they are also consulting with Wall Street and the banks to create the rules. Who else benefits when we participate in retirement plans? Wall Street, because they get to hang onto our money until 59 and a half, or we pay a penalty and tax. Secondly, the bank’s benefits because if we’re maxing out our retirement account contributions, that means our money is tied up. When the time comes that we have to pay for our children’s college education or buy a car or go on vacation, we don’t have access to our money as it is tied up in retirement accounts or home equity. Therefore we have to borrow more money and who benefits when we borrow more money? Obviously it’s the banks.

Now that  we have  looked at how the government, Wall Street and the banks get us to follow their rules so that they can win and can be in control of our money, what’s the alternative that is not following their conventional financial advice?

The alternative is to save in a place where you have full access and control of your money. A place where your money could grow on a continuous compound interest scale and never be interrupted even after you spend the money. We accomplish this by saving in a specially designed whole life insurance policy, where we get to control our money, where we have full liquidity use and control and access to our cash value for whatever we want, whenever we want. So that we will not be forced to go to the banks to borrow and give up control of our monthly cash flow.

If you’re interested in learning more, book your free strategy session today  to know exactly how we can accomplish this. Remember it’s not how much money you make. It’s how much money you keep that really matters.

How Business Owners Can Increase Cash Flow

 

When you first start your business, it’s very important, actually, it’s vital that you reinvest the profits into the business to help the business grow. However, as your business continues to grow more and more, your net worth becomes enmeshed in the business. Consequently, your net worth becomes illiquid and inaccessible. And that has a direct impact on your cash flow.

As business owners, we face many challenges at various times throughout the year: how to increase revenue or increase sales, how to decrease expenses or overhead hiring people. Currently, it’s very difficult to hire people, and more importantly, it’s difficult to get the right people for the right position.  One common thread challenge that all business owners face either consistently or at various times throughout the year is how to increase cash flow.

Today, we’re going to talk about how to increase your cash flow as a business owner and we’re also going to show you how to do it without increasing your sales and without reducing your overhead expenses.

When you first start your business, it’s very important, actually, it’s vital that you reinvest the profits into the business to help the business grow. However, as your business continues to grow more and more, all your net worth becomes enmeshed in the business.

Consequently, your net worth becomes illiquid and inaccessible. And that has a direct impact on your cash flow, which has a direct impact on your ability to continue to grow your business on your ability to take care of your personal obligations, as well as your ability to procure financing, to grow your business, or even just to operate it.

In every business, there are seasons of good cashflow and bad cash flow and for the business owner, the typical diagnosis is something like this: “If only I could make some more sales, if only I could earn some more revenue, then I could finally feel the cashflow relief that I’m looking for.”

You see, typically business owners usually correlate lack of cash flow to one of two things, either too little sales or too much overhead. What we found that the real culprit is how they are using their money. How they use their money is really going to have a huge impact on a consistent basis on their cash flow.

About all the competition we have for our business checkbook. We have vendors, we have consultants, we have taxes. We have insurance. Everyone is trying to get into our checkbook and they’re trying to get in there on a consistent basis. So it’s really important that we make our cash flow as efficient as possible so that we as business owners don’t feel pinched when we need more money.

Exactly. And understand that all of those competing industries or those competing vendors are very good at what they do. And because of that, we’re giving up control of our money unknowingly and unnecessarily. But the good news is that’s where the opportunity exists for you to really increase your cash flow.

Because once we bring the awareness that knowingness, that you’re doing things in a less efficient way, we’ll be able to bring that awareness and make the changes necessary to give you the relief you’re looking for. Here’s a perfect example. A few years ago, a business came to us for some consultation on some business succession planning. Basically they had some partners that were looking to retire and they didn’t have the cashflow to buy them.

After a thorough analysis, we determined that the major culprit in pinching their cash flow was that they were in a race to get out of debt.

And what happens when you’re in a race to pay off your debt is all your disposable, monthly income is leaving your control and going into the control of a bank or a finance company.

Now understand the bank loves that because the bank was taking that money and turning it over. And literally by paying off their debt quicker, this business was making the bank’s position better and their position worse.

So what’s the moral of the story. Well, we’ve said it once and we’ll say it again. It’s not what you buy. It’s how you pay for it. That really matters.

And to underscore that point, let me share with you an analogy that we share with our clients. Let’s say that you want a special drawing to appear in the masters golf tournament in the spring of 2022. And you came to us to improve your chances of winning. Well, we point out to you that there’s really only two approaches. Number one, you can purchase the clubs of anybody who’s ever played on the tour or approach number two would be to have the swing of anybody who’s ever played on the tour. Which strategy do you think would improve your chances of winning?

Well, the obvious answer is to focus on the golf swing, how you’re using your money in our example is so much more important. And whoever has the control of your money controls your life. Sometimes we get hung up on things like loan terms and interest rates, and we take our eye off of what’s really important controlling our cash flow

When you control your cash flow, and that becomes your major focus, all of your decisions become much clearer.

How to Increase Your Net Worth

 

Because our money never leaves the policy, our money continuously earns compound interest even while we’re using it. It’s as if our money’s in two places at once, because quite literally it is. We’ve cracked the code on creating wealth by making purchases.

 

Wouldn’t it be great if you could increase your net worth by making everyday purchases? Most people think there are only two ways to make a purchase. You could either pay cash or you could finance. But today we’re going to talk about a third option, an option that allows you to earn continuous compound interest on your money even after you make the purchase.

When it comes to making major capital purchases, the often most convenient way is to finance the purchase. Think about it – when you go to buy a car, how easy is it to show proof of income and them to give you a loan?

So when we borrow, we have no access to capital. We have to use somebody else’s capital, therefore pay them interest, and in the process, we’re not earning interest, but make no mistake we’re using the collateral of our future income to pay for the purchase. The bank is loaning us money because they know we have the ability to earn income.

Since we’re financing and we’re giving up that monthly cashflow, it hinders our ability to save for the future. And then the next time we need to go buy a car. We’re forced to finance again, because we didn’t have the ability we didn’t have the cash flow to build up a pool of cash to self-finance or pay cash for that car.

So you see how every financial splash we make creates a ripple effect down the road.

Every decision we make financially could either move us towards financial freedom or further away from financial freedom. Often times these debts snowball. So it’ll start with a car loan and then it’ll be paying for the wedding and tuition for our kids and appliances and furniture. These monthly payments slowly grow and grow and grow. Before you know it, we’re out of control of our cashflow.

Think about it from the perspective of a financial institution, what does the financial institution want? What does it need? It needs our money. And the best way to get that is to do it on a systematic basis – on a monthly basis. So the more of our monthly cashflow that the financial institution can control, the more that they can control us, but the more profits that they could make.

The goal of every debtor is to finally be able to go out and pay cash for that car. They’ll save month after month, year after year until they finally have enough money to go out and pay cash for that car. But what happens when they drain their tank down to zero is – they gave up all the potential to earn compound interest on that money.

You see the person who pays cash – does so, so they don’t pay interest. They think they’re getting ahead of the game, but really they’re always going back to zero. They save. They wipe it out. They save again. They still have payments – it’s to a savings account, but at the end of the day, they’re still not earning interest and they’re really not in control of their financial future.

You see, there are only two components when it comes to compound interest and that’s time and money. Every time we drain that tank, we’re losing all that time. And we all know time is an asset that we can never regain.

A lot of times we talk to folks who don’t finance and the reason they don’t finance is because, “I hate paying interest.” they’ll say. My response to them is, “Oh, so you like to lose interest?” And then I get a look like, what are you talking about? And then I explained to them how they’re losing interest by paying cash.

So if financing isn’t the answer and paying cash isn’t the answer – what is the solution to finally achieving financial freedom? And here’s the secret. It’s not what you buy – it’s how you pay for it, that really matters. So you may be wondering how we do this. The answer is we use specially designed whole life insurance policies. Mainly because they have some unique characteristics and that we’re able to collateralize loans against the cash value of the policy. What that means is we’re never taking money from the policy. We’re never draining that tank, but instead we’re placing a lien against that cash value so that we have access to make major capital purchases and basically self-finance.

Because our money never leaves the policy, our money continuously earns compound interest even while we’re using it. It’s as if our money’s in two places at once, because quite literally it is. We’ve cracked the code on creating wealth by making purchases.

There are two main differences between this type of financing and traditional financing. The first is that it’s an unstructured loan repayment schedule. Meaning that you get to determine when and how much you pay back towards this policy loan. And the second key difference is that every time you make a payment, your payment is literally increasing your net worth.

Make no mistake about it – whether you finance through conventional methods, through a bank or a finance company, or with using our process and borrowing against your cash value – every payment you make will increase somebody’s net worth. Using our process, you will increase your net worth.

So every time you make a payment, you increased your future ability to access that capital again. So that over time you’re less and less dependent on the banks and financial institutions – and ultimately can reach freedom this way.

Earlier we mentioned that it’s not, what you buy, it’s how you pay for it. We talked about financing, we talked about paying cash and then we talked about using our process. In this process, we focus on showing you how to regain control of your money. You see, when you focus on controlling your money, all of your decisions become very clear. It’s only when we take our eye off the ball and we focus on interest rates, or we focus on getting a high rate of return on our money that we really start to lose control of our financial future.

If you’re ready to finally regain control of your financial future, please check out our one hour web course. It’s on our website tier1capital.com. We go into great detail about how our process works and how it could work in your life.

Remember, it’s not how much money you make – it’s how much money you keep, that really matters!

How GameStop changed the way we think about the stock market.

 

 

“What if you could develop a strategy that would prevent you from ever losing money ever again, and because your money was safe, you were in a position to take advantage of any manipulations or volatility in the market.”

 

Have you ever felt that the market is being manipulated by wall street, the government and banks? Do you think it’s being manipulated for our benefit or for their benefits? Did you ever give thought to the fact that not one American CEO or senior executive did any jail time for the 2007, 2008 financial crisis that almost took down the entire financial system? That’s when they went begging to their buddies in Washington to get a bailout and you and I ended up paying for the bailout. How about this? We can’t benefit from insider trading, but they can. Congress set themselves up where they’re completely exempt from insider trading, but yet Martha Stewart went to jail for insider trading. 

We have to stop playing the game by their rules because the system is rigged against us. We need to play by a different set of rules to set ourselves up for financial success. We have the opportunity to take advantage of the markets rather than being a victim to the markets. Here’s another example of how the game is rigged against us. For years and years, hedge fund managers were able to short stocks and take advantage of the market. However, in the early months of 2021, when the general public began to manipulate the stock for Game Stop, the popular trading app Robinhood, took the stock off their platform so that no one else could take advantage. No one else could benefit from the market manipulation. 

Again, it’s another example of “we could manipulate the market”, meaning the insiders, but once the public gets a hold of it, “Oh no. Now what’s wrong.” Now the regulators are talking about stepping in to make sure that this could never happen again. Do you think the regulation is going to be for our benefit or for their benefit? 

Why play a game that’s set up for them to benefit and for you to lose? What if you could develop a strategy that would prevent you from ever losing money ever again, and because your money was safe, you were in a position to take advantage of any manipulations or volatility in the market. Furthermore, even better than that, what if you can do so with total elimination or reduced taxation on your money! Wouldn’t that be vital information to have? If that type of planning was available, when would you want to get started? 

 

What am I doing wrong financially?

“We focus on the lifetime capital potential tank because that’s where the greatest opportunity lies for you to improve the efficiency of your money, improve your cashflow, and ultimately increase the amount of wealth that you’re able to accumulate over your lifetime.”

 

Up until 1993, I was exactly like you. I was making great income, but I was living pay to pay. The reason I was living pay to pay is because I was doing everything by the textbook of conventional wisdom. I had a 15 year mortgage and was paying extra on the mortgage. I was maxing out my retirement account. I was paying cash for as many things as I possibly could, but embarrassingly, I had credit cards and I had to borrow money from my father in order to pay my mortgage. The reason my cashflow was being pinched was because of the things that I was taught to do by the so-called experts. 

There are two factors that can really pinch your cashflow. The first is an unsteady income. This could be whether you are a business owner and have a cyclical business cycle, whether you’re a sales person and commission comes when commission comes or maybe you’re an employee and you were expecting a bonus that didn’t come through. These things can really tighten up your monthly cashflow and leave you feeling stuck. 

The second factor we’re going to look at is when unexpected major expenses come up, whether it’s tuition for kids or an annual premium for insurance that you’re paying, or maybe you need new tires or car repair, or we all know how bad it is when your refrigerator breaks and you’re forced to go out and buy whatever’s available at the store. All these things could really leave a dent in your personal economic model and leave your cashflow feeling tight. 

So let’s take a look at this model. This is what we refer to as a personal economic model. We all have one. This is how we show how money works in our lives. Let’s start with income, your income, all the income that you’ll ever earn in your life. We’ll go through this lifetime capital potential tank. It’s the largest tank, cause it has the most money flowing through it, but it doesn’t stay in there. It flows through this tube and hits your lifestyle regulator. Your lifestyle regulator is where you have choices. You can either spend all your money or you could force some up into your future lifestyle tanks, your investments, and your savings. 

Conventional wisdom tells us that we should focus on getting a high rate of return on our investments. That’s what most financial advisors do. They focus solely on the yellow tank and showing you how to get a higher rate of return, probably taking on additional risk. But our focus is different. We focus on the lifetime capital potential tank because that’s where the greatest opportunity lies for you to improve the efficiency of your money, improve your cashflow, and ultimately increase the amount of wealth that you’re able to accumulate over your lifetime. 

So let’s take an example of exactly how making your money more efficient can improve your personal economic model. Let’s take a look at wealth and income potential. Let’s assume you’re age 42. Do you plan on retiring at 70? Your current income is $100,000 and you don’t expect any increase in your income and you don’t have anything saved to this point, but you could expect an investment return of 5% at your retirement age of 70. Your income potential would be $2.8 million. It’s a $100,000 of income times 28 years, gives us 2.8 million. Your wealth potential would be about 6.1 million. That comes from investing your full $100,000 of income over that 28 years. 

Obviously it’s unrealistic to think that you can save 100% of your money because there are expenses that come along with our income. Whether we like it or not first and foremost are taxes, we’re going to put you in a 30% tax bracket. Now that’s federal state, local gas tax, real estate tax, and any other taxes that you would encounter on a day to day living. Our wealth potential now is reduced to $4.2 million. Additionally there’s debt. The average family pays 34 and a half cents of every dollar to service their debt. That’s student loans, car loans, vacation loans, you name it. Now our wealth potential is reduced to 2.1 million and then we have lifestyle, groceries, utilities, insurances, and hobbies. Now we’re down to $600,000. Again, conventional wisdom wants us to focus on getting a high rate of return. Well, let’s assume we can go from 5% to 8%. 

They have to take some risks to do it, but now our wealth potential goes to a million dollars and to them, it can’t get any better than that. But again, the reason you can’t get ahead is because your cashflow is pinched. The reason your cashflow is pinched is because of taxes and debt. What if we can show you how to reduce your taxes from 30% to 25%, look at the effect that has on your wealth potential. Keep in mind, we’re going to reduce your investment return from 8% to 5%. So you don’t have to take any risk in order to do it. Our wealth potential grows from 600,000 to 900,000. It grows by 50% just by reducing our taxes by 5%, but we’re not finished. 

We could also show you how to control your debt. If we can show you how to reduce your debt from 34.5 % percent down to 20%, look what happens to your wealth potential. Now you’re at $1.8 million just by reducing your taxes and controlling your debt. Now, all of a sudden you’ve tripled the amount of money you’re able to save. We’ve done all of this without having to reduce your lifestyle in order to do it. That’s the value of controlling your cashflow. This is how you can get ahead without having to earn or generate additional income. 

Here’s the good news. If you’re ready to get rid of that stuck feeling, all you need to do is stop giving up control of your money. We always say, it’s not how much money you make, it’s how much money you keep that really matters. It’s not your income that’s holding you back, it’s not your rate of return that’s holding you back. It’s the inefficiencies in your cashflow that are stopping you from getting ahead. 

Once you focus on what’s important, control of your cashflow, each and every decision becomes more and more clear and you’ll know exactly what to do. Our process focuses on identifying exactly where and how you’re giving up control, Whoever controls your cashflow controls your life.

 

 

Making Compound Interest Work For You

 

“It’s really the best of both worlds when you’re a wealth creator.”

 

Albert Einstein once referred to compound interest as the eighth wonder of the world. Here’s the problem. Most people are so focused on not paying interest that their eye is completely taken off the ball. They completely ignore the concept of continually earning interest on their money. But there’s one foundational principle that we need to come to grips with and that is, we finance everything we buy. What does that mean? It means this, you’re either going to finance and pay interest to a bank or somebody else for the privilege of using their money or we’re going to pay cash and therefore give up interest that we could have earned, had we not paid cash. 

That’s the secret. We either pay up or give up. If you’re looking to realize true financial freedom for yourself, keep this in mind. It’s not what you buy, but it’s how you pay for it that really matters. You know, most people think there’s two ways to pay for something. Either finance or pay cash. Well, there’s actually three ways. So let’s take a look at them. If you finance your debtor, you’re working to spend, you have no savings. You earn no interest and you pay interest. Most people recognize or realize that that’s a bad thing. Maybe they were taught by their parents that if you didn’t have enough money to pay cash, you didn’t need the item. Or they saw their parents struggle to get out of debt. Either way, they move to paying cash. So they save, they avoid paying interest, but they earn no interest. And then they pay cash. 

There’s actually a third way, the wealth creator. This is where true financial freedom is really located. You save, you’re using other people’s money to maximize the efficiency of your money. You’re putting leverage to work for you. You save, you continuously earn compound interest. Then, when it’s time to buy something, you collateralize the purchase. Notice the key here in all three areas and all three methods. You still get the purchase. 

It’s really the best of both worlds when you’re a wealth creator. Let’s take a look at what that looks like. Let’s say you finally graduated college and you have your first real job. Everyone at work has new cars and you finally have the income to qualify for a loan. So what do you do? You buy a car, you go to the dealer, you get a loan. 30 days later, you get a coupon booklet. What you did is, you bought a car and now you have payments. So you dug a hole and you filled it up. Five years later, you got a five-year-old car. You don’t have a payment, time to buy another car. You just keep digging a hole and fill it back up. But notice over time, you never get above the financial line of zero. So what’s the alternative? Well, the alternative is to pay cash. Paying cash takes tremendous discipline because in order to pay cash, you have to save first. So you delay the gratification of a new car until you have enough money to pay cash. Then when it’s time to pay cash, you drain down the tank, you spend your savings and then you got to start over. 

Here’s the problem with paying cash. You still have payments because if you want to pay cash for the next car, you have to begin saving the day you bought the car. Then when you have enough money saved for another new car, five years later, then you drain down the tank. Again, notice over time, you don’t get too far above the financial line of zero. In fact, you’re not much better off than the spender. The only difference is, you lost interest along the way. 

The way that we teach our clients is to become the wealth creator. When you’re a wealth creator, you’re saving. Your money is continuously earning compound interest, but then when it’s time to buy something, you collateralize your purchase. What does that mean? You’re using your savings as security against the loan. You’re pledging it as collateral and you still have a payment, but understand, if you finance, you have a payment. If you pay cash, you have a payment. If you’re the wealth creator, your money never stops earning compound interest. That’s the key to true financial freedom. 

It’s like your money is literally in two places at one time because you’re able to make the purchase. You also are still able to earn interest on your savings because you’re never actually touching it. You’re using other people’s money. There are two main variables to compound interest, money and time. Every single time we drain the tank, we’re saying, “don’t worry, I could replenish that cash later.” What we often forget is that, time is a variable that we will never get back. 

Let’s take a look at an example. Let’s say you’re saving $5,000 per year. You’re earning 5% interest on that money. We’re going to look at this over a 30 year period. We’re going to drain the tank down four times by paying cash and we’re going to refill it every five years. So here’s what happens. We go and we buy a car. Now had we not drain down the tank, our money could have continuously earn compound interest for us. And at the end we would have $353,804. But because we decided to pay cash, and we did this four times. And then we finally realized it wasn’t the amount of income that we were earning that was holding us back. It was how we were using our money that was holding us back. We started to continuously earn compound interest on our money. Notice we only have $71,034. That’s a difference of $282,770. Keep in mind, this person figured it out. After 20 years, most people never figure it out. 

Here’s the problem with traditional financial planning. They completely ignore time. They’re so focused on earning a higher rate of return that they completely ignored the two factors of compound interest, time and money. Most people come to us thinking if only I could earn a higher rate of return, I could finally be financially free, but that’s not necessarily the case. 

Let’s say you could earn 7% on your money. If you go through this same pattern of delaying compounding interest, now you’re out $431,000. That’s still a big number but let’s take a look at what happens. If you could earn 3% on your money, that’s a big number. Keep in mind, we made six purchases over a 30 year period of $30,000. That’s $180,000. You’re losing just as much if you caught onto this 20 years down the road in lost opportunity. 

You see, it’s not what you buy, it’s how you pay for it that really matters. What is most important is to never jump off the compound interest curve. The key is to get on the compound interest curve as soon as possible and never jump off. That includes market losses. Although, financial advisors could promise a high rate of return, every time you experience a market loss, you’re jumping off the compound interest curve. We could see here just how detrimental that could be to your financial wealth.

 

 

 

 

What are the benefits of whole life insurance?

What are the benefits of whole life insurance? In this video, we explain whole life insurance benefits and why they are essential in any diversified portfolio. A benefit of whole life insurance is that your money is continuously being compounded. There are three known factors that could interrupt compound interest, using your money, taxes, and market losses. We break these down for you and explain why whole life insurance takes them out of the equation. Another added benefit is that whole life insurance also protects you against inflation. When you own a whole life insurance policy, you’re allowing yourself to take risks in other investments!

“To call whole life insurance an investment is actually demeaning to whole life insurance.”

 

 

Have you ever wondered what the benefits of whole life insurance are? The number one reason why whole life insurance should be a part of your portfolio is because of efficiency. When we’re talking about efficiency, in this case, we’re talking about the fact that your money is continuously compounding in a whole life insurance policy. There are three things that could really interrupt the compounding of interest on your money.

The first, is using your money, then taxes and then market losses. So how does using your money interrupt compounding? Well basically you save and then you use the money to buy a car, or to make a down payment on a house, or to pay for a vacation or to pay for college, and then once you access that money, it’s no longer available for compounding. In contrast, when you take a loan against your life insurance policy, you’re able to continuously compound because you’re taking a loan against the cash value. You’re not taking the money from your life insurance policy.

The second factor that could interrupt compounding on your money are taxes. When you think about it, with traditional savings and investment accounts, you get a 1099 or a dividend statement and with mutual funds you could actually get a 1099 or a capital gain statement in a year when you lost money. Overall, it’s sort of like adding insult to injury and a lot of people don’t even realize how inefficient this really is because they’re paying their taxes from their lifestyle. They’re not taking money from their investments or savings, so they never have an opportunity to see the eroding effect that taxes are having on their investments and savings. The bottom line is, you cannot accumulate wealth in a taxable environment.

The third factor that can interrupt compound interest are, market losses. When you lose money in the market, you take a step backwards and need to restart the compound interest process. Again, with whole life insurance, you have contractual growth, which means that the growth is guaranteed by contract in the policy. On top of that, you have the ability to earn dividends and once dividends are paid, that could never be taken away. In conclusion, whole life insurance is efficient because it takes the three factors that could interrupt compound interest out of the equation.

The next benefit of owning whole life insurance is protection against inflation. Inflation is known as the stealth tax. You experience it but you never actually see it and what better way to protect yourself against the stealth tax than to purchase dollars in the future with pennies today. Use those pennies, the cash value in the life insurance, to purchase additional income producing assets. Life insurance is known as an asset because you’re able to maintain the death benefit, but also access the cash value along the way to purchase other investments and assets. When you get to retirement, you can use those additional assets to supplement your income and finally, you can leverage the death benefit in retirement to generate some additional passive tax-free income. Whole life insurance is a way to truly diversify your portfolio. True diversification is putting money you don’t want to lose in a place that you could never lose.

In conclusion, whole life insurance compliments your other assets. By owning a whole life insurance policy, you’re allowed to take risk in other investments, but understand life insurance is not an investment. To call whole life insurance an investment is actually demeaning to whole life insurance. This is because whole life insurance can do so much more than an investment.