Having Savings, Saves Families – Episode 258

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[00:04] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, best-selling author, Kim D.H. Butler. Hello listeners and welcome to the Prosperity Podcast. Today we’re going to be talking about the family bank. And this is going to be special because Kim has a personal story within her family of how this works. So Kim, are you there with us today? I am, Spencer. Happy day to you since, I won’t say Monday since we’re recording Monday, but who knows what day people will be listening. Isn’t it wonderful? And, you know, it’s wonderful because, you know, whenever we get to talk about something personal, especially with family members or in our lives, it becomes a more intimate

[00:52] listening experience. So I’m, I’m actually really excited to hear about this story with Seth. Awesome. Well, Seth is my nephew and so we’ll get to talk about him in a moment. To set the stage, you asked about the importance of having a family bank. And so we’re going to first of all define the word bank, i.e. not a literal corporate big public bank, but just a place to go to for cash, for liquidity, for emergencies and opportunities. And our listeners know that I love to word together the emergency opportunity idea because nobody wants to be only focused on emergencies. People want very quickly to get out of emergency mode and be focused on opportunities. And I guarantee you positively, without a shadow of a doubt, cash, liquidity, money,

[01:44] savings, cash value, whatever you want to call it, that creates your emergency opportunity fund is what creates your emergency opportunity fund. I mean, it’s the most important money, frankly, in my mind, that all families have. If you have an emergency opportunity fund, you can sleep better, you can be at peace, you can take advantage of opportunities, you can solve emergencies. It’s a wonderful, wonderful tool to have this money. It’s just cash and you could store it in a savings account. You could keep it in the mattress. You could put it in a regular bank. You could put it in an online brokerage house. You could have it as cash value of life insurance like we do. You could have it in gold, I suppose, although that’s really not my favorite at all.

[02:33] What matters is that it’s liquid and it’s available for use. And one of the little Twitter comments that I made one time that I think just resonates so well is that having savings as a noun saves families. So you could word it this way, savings saves families. So in that case, savings is a verb, but having savings saves families. So in that case, savings is a noun and it’s boring, no financial advisor wants to talk about it and yet it’s so unbelievably critical, don’t you think? I totally and completely agree with you. I think one of the pieces for me at least is as far as having that cash reserve, having some that’s readily available, be it in your home safe. I think that’s pretty important.

[03:28] Now if you have six months, I personally wouldn’t suggest storing it all in the safe or in your gold, as you mentioned, but having a chunk of it available at home is a pretty nice thing. Agreed. You know, there are times when ATMs don’t work. There are times when credit cards may or not be usable. And so I do agree that some money should be stored at home in a safe place, in a literal safe or something similar, at least, you know, fireproof box at bare minimum. And yet, as you identified fairly quickly, people are going to get over and above that amount. And people always want to know, well, how much and how much is totally dependent on your family? And this is where the story of my nephew comes in.

[04:16] Seth is now 22 or 3 years old and out of college at his first job, starting to make his own way in the world financially, as in, of course, lots of other ways as well. And he was a fairly independent college student. So he wasn’t creating finances just starting yesterday. He’s been at it two or three years. And yet just recently was the perfect time for his family to transition something to him. So back up 20 years, not quite, when Seth was five years old, and his parents, who are my sister and Seth’s dad, purchased a life insurance policy on him. And that’s not an unusual thing to our listeners, but just in case you’re new to our podcast, the purchase of a life insurance policy, this is dividend-paying whole-life

[05:13] insurance from a mutual company, one of the oldest products on the face of this earth, is an interesting thing on a five-year-old. Because a lot of financial advisors will tell you, oh, my gosh, don’t do that. That’s a complete waste of money. You have no need to have life insurance on a child. That’s just crazy. And then there’s other people like me that think that buying life insurance on one- and two-year-olds, which is when I bought it on my children, five-year-olds, which is when Chip and Tammy bought it on Seth, seven- and eight-year-olds, which is when I bought the second policies on my children, is a completely normal thing to do. Now, this policy was $50 a month, and I believe death benefit was $100,000 or

[05:57] something. So the parents, in this case, these were people in their late 20s, paid for this policy fairly diligently for many, many years. And like any family, they had emergencies, right? I don’t know any family that’s gone through life without any financial emergencies, do you? No, I think we all face them. Absolutely. And the thing that’s funny is when you get, quote, bigger in your net worths, the emergencies just get more zeroes on them. I mean, it’s not like they go away. So this family diligently saves $50 every month. On the few months that they couldn’t, they borrowed against the cash value to pay the premium, which is called an automatic premium loan. And the cash value keeps growing, and the loans got paid back.

[06:43] And then at some point, Seth needed a vehicle, so they borrowed against the cash value of life insurance, got the vehicle, got that loan slowly paid back. There was still a small amount left over, though. So all of a sudden, here he is, 22 years old, ready to go forward in the world and essentially completely sever all financial ties to his parents. You know, they were kind of getting in there, cleaning everything up. And his parents realized like, hey, this kid is very financially responsible. He’s got a good head on his shoulders. He’s doing everything right. It’s time to give him this policy. Now, I want to make clear that they wouldn’t have had to do that. You know, the nice thing about life insurance is you don’t have

[07:26] to gift it at a certain age. Like you do lots of other accounts that you would buy for children. So I get on the phone with Seth and start to go over it with him, and I explain it, and he’s kind of like, okay, yeah. And I’m going to come back to that story in a minute. I also get on the phone with his dad just to, like, clear everything up on their end. And his dad says to me, you know, I got to tell you, when we bought this policy, because his dad’s married to my sister, right? So they pretty much just did what I said that they should do. His dad says, when we bought this policy, I just didn’t really think this was going to work. But it has been the best financial decision that we’ve made. Because not only were they, the parents, able to use it along the way,

[08:10] now they’re able to give it to Seth. Like I said, it still has a loan on it from his first vehicle. Seth’s very clear on the loan payments. And Seth, at age 22, you know, with a nice, normal sort of starter salary, whatever it is that he’s earning these days, is able to absolutely, very appropriately, pick up the $50 a month savings. The premium is 50 bucks a month, and he’s able to pay that. And then he can do pay to petitions on top if he wants. Pay to petitions are just a way to add extra cash to it. And so this is the importance of having a family bank. That policy served the parents well all along the way. If Seth was to buy a brand new policy today, the premium would be probably double that.

[08:58] Not that he couldn’t handle 100 bucks a month, but it’s so much more efficient because he now has a life insurance policy based on his age five that he will now use for the rest of his life as that emergency opportunity fund. He’ll pay back the rest of the loan. The account’s still growing. I came back to a little follow-up meeting with Seth after he’d read our Live Your Life Insurance book. So if you’re curious more about this idea, go to Amazon and grab Live Your Life Insurance. It’s available as a physical book. You can get it on Kindle. You can get it as an audio book. And it will be a little 100-page primer on how to make this whole idea work. And Seth read the book. We had a second meeting.

[09:42] He was now totally excited about it, whereas before he’d been kind of like, yeah, OK, whatever. This is Aunt Kim talking. I guess I’ll listen to her. And now he’s ready to go. And it puts him miles ahead of his peers in terms of building his financial foundation. Isn’t that cool? That is a great story. It doesn’t have too many wrinkles in the story either. They luckily paid it. Now, what I think about this is I go, OK, well, what would have happened if an unfortunate cause of a serious illness or disease in his life, then getting into his career in his 20s, imagine the cost of his life insurance. It totally paved the way at a very small cost. That’s a wonderful story. I was super proud of them all for continuing

[10:33] the work that had been started. And it wasn’t easy at times. We think, oh my gosh, 50 bucks a month. Well, yeah, people sometimes struggle with 50 bucks a month. It could be 500, 5,000, 5 million. The numbers don’t really matter. The point is they stuck with it. When they couldn’t stick with it, they did the automatic premium loan. They paid that loan back when they straightened out their finances. And now Seth will have it to do the same thing for him and it will create the foundation of his emergency opportunity money. Yes, he too will have a savings account at a bank. We need to have that for the money that we literally need that day. But life insurance cash value loans can get to you in seven working days,

[11:11] sometimes even less than that. And they’re just super valuable because they’re just a little bit further away than a savings account. We think just a little bit harder before we access that money. We make sure that the opportunity is clean and clear and appropriate. And obviously the use of a vehicle was he couldn’t get any other loan. So had he been able to, bank financing might’ve been cheaper. I don’t remember the stats at the time, but he was young and unemployed. And so he couldn’t have gotten the loan any other way and this paved the way for that. And now it’ll pave the way for so many other cool things. Wow, wonderful. Now I would echo again for the listeners to check out your book, Live Your Life Insurance.

[12:00] For me, the way that I think about it, just because of my business background, is that I equate it to runway. So the life insurance and having your savings is your runway. And what happens is if you don’t have enough runway, you can’t make good decisions because you’re always worried about the near future. But having that cash savings in the bank, that provides enough runway to be a little more patient, to be a little more selective, to not be stressed out. And then having the life insurance, that makes it as well, it extends the runway, but it also on top of extending the runway, it extends it another generation, if you happen to be married or have kids. So that’s the way that my thinking goes,

[12:45] because I’m not licensed in this industry. So that’s the way I think of it in the business world. And I like the term foundation that I used as well, because that’s truly what it does. The larger foundation you have with your emergency opportunity fund, the larger house, if you will, of other financial opportunities you can build. And clients that don’t do a good job with their foundation, just like if you don’t do a good job with the foundation of the house, tend to have that proverbial house of cards that can come falling down. Whereas those that have the foundation of a really strong emergency opportunity fund, can tend to more easily prop things up. And you said it well, they’re not running out of that so important runway

[13:31] that enables them to get up to speed. So either analogy works, and I appreciate your perspective on it. It certainly helps maybe somebody understand it just a little bit better. Well, thanks. So for our listeners, if you happen to be at the age of Seth, and you’re starting out in your career, right now is the best time to get your family bank, your cash reserves, and then get that policy in place. Now, if you’re a parent and you’ve got a child at the age of Seth, it’s not too late. Or even if you’re a grandparent and you have a grandchild the age of Seth, it’s not too late to do that. And I’ll tell you, the benefits of having that peace of mind are unparalleled to anything. It truly is. I would agree.

[14:18] So if you are curious about what the premium and pay to petition capability is on either that five, six-year-old or that 20, 25-year-old or any other age, reach out to us. Hello at partners number four, prosperity.com is a special email that we’ve reserved for our podcast listeners. We’ll pay close attention to it and happy to send you a sample illustration so that you can put the numbers with the concepts that you’re gonna learn from the Live Your Life Insurance book. So that email again is hello at partners number four, prosperity.com. Well, thanks again for our conversation today and thank you listeners for being a part of this podcast. We’ll bring you another one soon. Thank you for listening to the Prosperity Podcast.

[15:09] To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.