The Circle of Money to Create Wealth – Episode 322

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[00:01] Welcome to the Prosperity Podcast. Welcome back to another episode of the Prosperity Podcast. We are going to dive in, we’re going to get into a part two to really educate and talk about the processes of money and how it’s coming in and how it’s going out and how it affects you. Kim, this is going to be exciting because I’m in the passenger seat with my ears open, ready to learn. Yeah, that’s nice of you to say, Spencer. So I want to give a thank you to one of our listeners for alerting us that in Podcast 307, we might not have been as clear as needed on two specific areas. So we’re going to have a part two, as you said, a take two on this and see if we can do a better job. One of the things that we brought up is the principle of cash flow. And

[00:55] so I want to just identify that when we talk about cash flow, it’s both money coming in and money going out. And so often when we think about cash flow, we just think about money coming in. But cash flow indicates money going out. And particularly when we’re talking at this big high, what we would call macro level, it’s about our savings. And I mean savings as a verb here, like the act of saving every month or, you know, for some people every quarter or even annually, we’ll just talk about monthly savings and how important it is to identify that money is going out every month as a savings strategy and that the best product, which our listeners are certainly familiar with to store said savings

[01:40] is the life insurance. And then we talked about leveraging that up, in other words, building up monthly monies in the life insurance policy because whole life insurance accepts monthly deposits. And we’re going to save up enough money to get our emergency fund. That’s step one. Step two then is to go on and save more money so that we can have what we call an opportunity fund. And when we have an opportunity fund, then we can borrow against it. And when we borrow against that opportunity fund to invest for opportunities, one of the things that we want to be looking for are opportunities that cash flow. And people typically are not looking for opportunities at cash flow. They’re looking for opportunities that are growth oriented.

[02:29] And you could argue that those are the same, but they’re really very different. A growth oriented investment typically does not create cash flow. And most typical financial planner and advisor types don’t work on creating cash flow until people are in this quote retirement phase. And so I’m disagreeing with that. I’m saying you want to work on creating cash flow in, as in from your investments. Now, whatever age you are now, you want to currently, as long as you’ve got that emergency fund established, you want to work on creating cash flow in. So the principle again, cash flow. Now, the second principle that we addressed is the idea of multiply. And this is where you can get one dollar to do lots of jobs. And that’s

[03:16] exactly what we were just talking about is you have a dollar that buys the life insurance policy, and then it builds the emergency fund. So now we’re on like the second job. In fact, we could even argue that the life insurance policy itself is two or three jobs. I won’t get into that right now. Then we have the emergency fund. Then we have the opportunity fund. That’s another job. Now we can parlay that into investments, which is another job. And so these are things that enable us to build our wealth efficiency. Again, the principles of cash flow and multiply where the question then came in is, okay, so I’m borrowing against my cash value. I’m paying it back. I may want to put in extra money because my investment may be

[04:02] earning more than I’m required to pay on my loan and or my income has risen. And so I may want to be saving again as a verb and act more money every month. So whether I want to save more money because I earned more by working, or I want to save more money because I earned more by my investments, where can I put that extra money? And how do I know when I’m going to take that step? So the answer is you often don’t really know when you’re going to take that step. And yet the place to put it is fairly obvious. So stepping back to our original suggestion, if you’re going to save money on a monthly basis, then you’re going to start with a whole life insurance policy because that accepts monthly deposits. And the really good

[04:58] investments tend to want lump sum deposits. And so if we can put monthly money into whole life insurance, and then leverage that up into lump sums for cash flowing investments, then we get a more efficient approach to our overall finances. When we then are ready to save more money, again, either because we earned or had good investments, then we buy a second policy, or maybe it’s a third or a fourth, or maybe it’s one on a spouse or one on a child, either it could be a minor child or it could be an adult child. And so this purchase of second policies occurs when we have more money to save monthly because we are earning a higher income, or we have more money to save monthly because we are getting investment income, that

[05:51] cash flow back in, that then creates the ability to save more money. And it’s often investment income is often monthly or quarterly. So again, now you’re back to the best place to store monthly or quarterly income is the life insurance policy. The whole life insurance policy, which is the best place to store cash, to build that emergency opportunity money, especially when that money is available monthly or quarterly. So that whole tirade there ends up being in a circle. You start with the whole life insurance, you build your emergency, you leverage it up to opportunity, you borrow against it, you create cash flowing investments, which then enable you to both pay back your loan and create more investment income. That’s

[06:39] easily a two to three, maybe four year process. Along the way, maybe your actual earned income increased. So now three to four years later, you’re ready to buy a next policy. Repeat again, three to four years after that, your next policy. Repeat again, three to four years after that, your next policy. And it’s never going to be perfect. Maybe it’s eight or nine years, but generally speaking, that’s the progress that I see our clients making as they continue to build wealth using those prosperity economics principles. Okay. That makes that actually cleared it up a lot. And so there are a couple of follow-up questions that I have. Is it cool if we kind of hit a lightning round with some of those questions? Absolutely.

[07:21] Okay, great. So when it comes to paid up additions, how does that factor in with the multiple policies and deciding at what benchmark you should start a next policy? Fabulous. So there is a lot of talk out there that you should stop a paid up addition. And just in case somebody is not clear on that term, it’s extra money being paid into the life insurance policy. So you have your premium, which builds cash value. And then you also have your paid up addition, which builds cash value. And ideally, you want to pay into your paid up addition as much as you can. And yet at some point, when you start to learn more about the importance of death benefit, when you get the fact that buying another policy is

[08:04] valuable, sometimes it makes sense to drop a paid up addition or reduce it for a while so that you can start that second, third, or 10th policies premium. And then ideally, that newest policy also has a paid up addition on it also, which after you’ve done this a while, you’re going to have probably more paid up addition ability than you have the ability to fund. And so that’s okay. It’s so critical that people understand that premiums build cash value also. And we need to get past this thought that it’s only paid up additions that build cash value. That’s not accurate. And so you’re going to have, if you continue to build policies, you’re going to have more paid up addition capability than you have the ability

[08:53] to fund. And you just need to let those go. You never know. Maybe someday you will have the ability to fund them. What you do always want to do is fund your minimum paid up addition, not your maximum. Okay. That does make sense. And that takes me to my second question, which is there’s this paradox of choice. And so you’ve seen that you’ve been able to save more money, your income rises, or again, you’re having cashflow come in from investments. Would it make sense for someone to start a term policy that they’re going to convert so that they can lock in that health? And I think as you alluded, instead of maybe going for that paid up addition, you’re starting the premium of a new policy. Is that to lock

[09:38] in a lower rate and better health and everything else? It certainly can be. So the converting of term insurance. So this is term insurance that is more expensive because it’s convertible to whole life, not term insurance that’s less expensive because it’s either only convertible to universal life or it’s not convertible at all. So the converting of term insurance happens when you have more monthly savings capability, again, either because you increase your income or you have investment income. And so yes, you do want to be on the lookout for those opportunities. And just like everything in life, especially around finances, there is not a lot of crystal clear guidance. And this is not really a mathematical thing. It’s more of a heart or

[10:28] emotional thing or just your own commitment to, you know what, I want to save more money. I’ve got the capability. I want to save more. And so that’s when either the converting of term or the purchasing of a brand new whole life policy is going to be started. And it really depends on how much death benefit you’re looking at. Spencer, you brought up the converting of term or even the starting of term locking in health. That’s a very important thing. It’s not going to lock in age, but it can lock in good health. And so this is an area, if you’re at this space, to please get on the phone with me or somebody that understands this environment, because it’s very much the art part of our work, not the science part,

[11:14] in terms of helping somebody figure out more death benefit, less higher cash value, less premiums versus paid additions, et cetera. And this is just what we do all day long. And so this, if you’re having those kinds of questions, this is to get on the phone and let us talk you through it. Wonderful. Well, what we’ll make sure to do is put a link to episode 307 in the show notes so that they can get the part one, or you can just listen to the part two. And then we’ll put a link to the email address to contact you, which is hello at partnersforprosperity.com. And I love how you said there’s a balance. There’s that art and the science. And truly, that’s what we’re getting here in this situation.

[11:56] And having someone that’s doing this all day, getting that balance is just invaluable. Well, it’s a joy to do. And our team stands ready to help people that have these questions. And we are also ready to send people illustrations so that they can see what a new whole life policy would look like for themselves or, as I said earlier, on a child or an adult child. And then, of course, the phone call to tie in the distinction between the premium and the pay to petition and whether the focus should be on cash value or death benefit or both, because sometimes that’s the best answer. Perfect. Well, Kim, thank you for sharing your insights and this update to the podcast. Very helpful. And listeners, thank you for spending some time with us again today on

[12:48] the episode. Thank you for listening to the Prosperity Podcast. 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.