Early Career Financial Strategies – Episode 156

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[00:01] 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 DH Butler and no BS money guy Todd Strobel Hey everybody, welcome back to the prosperity podcast. This is no BS money guy Todd Strobel once again, we have my co-host and best-selling financial author Kim Butler and We have been going through scenarios That our listeners Have been sending in to us saying hey, I’m here. How do I get there? And today we’re gonna be talking about a 25 year old They probably graduated at age 22 they got went, you know into the corporate workforce and The only thing that anybody ever told them was make sure that you max out that 401k

[01:01] So we got a 25 year old with a $25,000 balance in his 401k Excuse me for Got the old Ohio cold here So he’s got $25,000 in his 401k. He really has never been to a financial advisor Doesn’t understand prosperity economics. All he knows is is that mom and dad said whatever you can put in that 401k is what you need to do. How do you address that Kim? Oh I’m just thrilled that they’re reaching out for help like good for them because that’s not always easy You know, you’re in the prime of your life and you you’re learning a lot and you think you know a lot and yet Oh my gosh, what do I do with this decision? So without a doubt as always I would want to talk with this guy gal Whoever about saving money first like they’ve done this awesome job of investing money

[01:58] That’s what they were doing in their 401k plan and they probably thought that they were quote saving money saving as a verb But they really weren’t they were investing money. And so I want to talk with them about saving the habit of savings quickly It doesn’t need to be a long discussion You know as soon as you bring it up that most people are like, yeah I know I should do that but it’s so boring like the bank doesn’t pay me anything Why would I put money there? So if we can get somebody like that on the habit of saving typically 10 15 even 20 Maybe even 30 percent of their income, you know, this is the time they’re single they were, you know, maybe newly married They don’t have a lot of other expenses going on

[02:37] This is the time to get in the habit of paying themselves first and the best way to do that And oh my gosh, this is just not an easy one for people to swallow But the best way to do that is to have a whole life insurance policy that you use as your Savings account your liquid money your emergency slash opportunity fund and that bill either Automatically debits itself out of your account every single month or it shows up every year as a physical bill to pay And I got to tell you our family would not have the resources that We do if we did not pay our life insurance bills all the time And there are times when that bill comes or the debit hits the account That I roll my eyes and wish we didn’t have it or wish I didn’t have to pay it

[03:26] but by Prioritizing that ability it’s enabled our family to actually save some money over the course of Time rather than having nothing to show for all those working hours So just getting involved in a small life insurance policy paying it every month or paying it annually That will be such a great Addition to this person’s personal financial situation because it’s their emergency opportunity fund which right now is Completely missing so they’ve got this nice asset of the 401k But if they need to replace a car put in a new air conditioner go on a trip You know fly home because somebody needs their help or whatever They don’t have any money to turn to to make that happen. Well, they just have to wait 24 and a half years

[04:13] Aren’t you funny Yes, the the term emergency opportunity usually implies go now So just think about it at 25 First of all your rates that you get charged for life insurance are gonna be incredibly low and second of all your odds of having a Some type of a disability that would prevent you from getting insurance I mean, I’m sure it’s twice as much as there’s twice the odds of getting turned down for life insurance is 50 as 25 and I’m making that number up, but I bet it’s true Yes, you know thirdly This is the perfect time. I mean you can’t I mean how much money can you save at 1%? With a 4% inflation. It’s just going backwards, isn’t it? Well, it is something that’s just super super important for people to do so that’s the first step and then

[05:19] In addition to that, I would talk to them about rolling over that 401k That is no longer tied up in their work environment Into what’s called a self-directed IRA So people get really excited about these and they want to like run out and get their self-directed IRA right away But it’s backwards what they should do first is decide what investment they’re interested in and then go about Deciding from that investment which IRA provider Already works with that investment So I would talk to them as an example about some bridge loan environments that we have available for as little as 25,000 Where they can earn seven eight nine percent on their money and the money would then of course go back into this self-directed IRA

[06:12] We would pick which of the various bridge loan providers they were interested in and then from there we would learn Which self-directed IRA trustee or custodian those terms are kind of interchangeable That bridge loan provider already works with That bridge loan provider already works with and then we would go to that company get that IRA set up again a self-directed IRA and just a little hint for people Self-directed IRAs are a little bit more expensive than regular IRAs like it fidelity or Vanguard or something like that So they just need to be aware of that you’re looking at maybe three or four hundred dollars to set it up and couple hundred bucks a year But for that they get an investment that will never reduce in principle will always grow at a decent interest rate seven eight

[07:01] Nine percent at that dollar figure if they have more money they get a little higher rate But for this person they they could get a seven or eight percent deal and it would be in the IRA So the income would go back into the IRA and they would have a fabulous structure for What’d you say the next 24 and a half years? Yeah, one thing I would want to point out though, is that if it’s your last Twenty five thousand dollars, that’s not what you want to commit Yes, very true and yet for a lot of people it’s kind of both their first and their last Twenty five thousand, so it’s important that these bridge loans are shorter term one to two years So that if they did need to withdraw Which of course they would pay a penalty to do so or the IRA that’s fine if you know if they need to do it they need to do it

[07:52] But that’s my goal in helping them build up this savings this emergency opportunity fund So that they have the ability to withstand both emergencies and opportunities without tapping into that 401k Got it. So we’ve got two different things going on here One, we’re saving in our life insurance policy and two, we’re investing in our investment account Does that make sense? Absolutely, you are and that’s a critical distinction that a lot of people miss And of course a lot of advisors don’t want to focus on savings accounts because Their definition of a savings account is a bank savings account or a money market at a mutual fund house Or a brokerage firm and those don’t pay anything for the advisor

[08:49] But this person that’s the absolute number one thing that they should be doing now There’s some other things you know maybe they need a will or a liability umbrella or whatever But if we’re just focusing on the money side of it rather than the protection side of it It is so important that they have an emergency opportunity fund and life insurance cash value today Is earning around four percent for somebody like that maybe even four and a half And so they even though they may not have children or a spouse They will benefit from owning life insurance they don’t necessarily need it But by owning it they will give themselves a place to have Their dollars growing at a decent rate a decent rate that’s not taxed by the way

[09:34] And yet still liquid so that those emergencies and opportunities are solved and or taken advantage of This is an interesting question I have for you and one is that Your dad’s world doesn’t exist anymore But in some ways I feel like your grandpa’s world does so Ignore what your dad says and listen to grandpa Yeah Grandpa grew his grew his wealth through life insurance, didn’t he? Yep. I mean walt disney Built an empire with life insurance Absolutely. Yep And you know on that note we’ve got on our blog at partners number four prosperity.com Blog if you’re not a reader you might miss these but there is a fabulous article about two current actually three current day entrepreneurs that are using whole life insurance very effectively

[10:33] And one of them has an amazing story to tell with it and it’s on Video on the blog so head over to partners for prosperity.com Blog and take a peek. It’s an article. That’s about It was posted early december of 2016 And it talks about entrepreneurs and using whole life to finance And you’d enjoy that very thoroughly. And then of course if you’re interested in learning more about these grid loans or the cash value life insurance for the emergency opportunity fund Then you’ll want to grab our prosperity accelerator pack which has the book in it called financial planning has failed And this book is not available on amazon. You can only get it by signing up for the pack At partners the number four prosperity.com

[11:23] Prosperity.com slash ebook. So that’s financial planning has failed available at partners number four prosperity.com slash ebook audio version and physical version as well And kim has been generous enough to provide that at no charge. So Would encourage everybody to start there. Um kim anything else you want to add before we wrap up for today? Nope, that’s a great case study and i’m looking forward to doing some more if you want to send in your info Hello at partners the number four prosperity.com is our special email dedicated to podcast listeners And we’re happy to play any case study out you’d like to send that’s hello at partners for prosperity.com Super well, this is an obs money guy toad strobel for the prosperity podcast saying take care everybody. We’ll see y’all again real soon

[12:11] Thank you for listening to the prosperity podcast to take control of your money and have it work for you Visit us at partners for prosperity.com If you liked this episode, make sure you subscribe and leave a review