Financial Success Stories – Episode 569

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, today we’re going to be talking about success stories. And this is with personal finance. We’re going to tackle two types of categories. One is for the group of people that are trying to gain momentum. And then the second is going to be the people that have momentum and it’s redirecting it so that we have a greater outcome. I think this sounds like something interesting because now we have this audience that is, you know, we’re talking from 18, even young teenagers, all the way up to the wise ages, we’ll call that. I’m not going to say anything beyond there. So, Kim, let’s take it away. I love the wise ages. In our seven phases of prosperity, we actually talk about the wisdom years.

[00:53] Yes, yes. All right. So I can think about Bill and Pam, and they had 11 different savings accounts. They had one for Christmas, one for a child’s education, one for repairing the home, one for all these special things that they had. And they were constantly chasing interest rates. They were moving from bank to try to get instead of 3%, maybe 3.2 or 3.3%. At the end of the year, this created over 30 1099s because the bank sends you a 1099 for the interest that you earned, no matter how small it is. And so if you move a bank just one account one time, that immediately is two 1099s. Well, multiply that times 11 accounts times quite a few moves. And it was inefficient. They were occasionally having to move money from one place to another

[01:52] in order to keep good records, which was a great goal. Nevertheless, they’re also paying taxes on all of this interest that they earned, thereby horribly undermining everything that they were trying to accomplish. And so we simplified their savings. We pulled all of their emergency opportunity money first into one simple account where all of their income could go, investment income, earned income, it didn’t matter. And then they kept their main checking account in order to keep paying the bills just like they had been. We only put into the checking account what they needed to pay the bills. These were very disciplined savers, so they didn’t necessarily need the extra element of the discipline.

[02:38] Yet we certainly didn’t want to undermine their situation because of a lack of structure. So we kept them in the same structure. And then we moved the bulk of the opportunity money into cash value of life insurance, whereby it could grow at a consistent rate that they knew was going to be just a little bit above bank rate and was not taxed. This opportunity fund, they’re going to use the rest of their life. So not paying taxes on their opportunity monies is a very valuable product in adding to their situation the cash value of life insurance so that they don’t have to pay tax on those dollars that are now still completely available to take advantage of opportunities with. Okay, so you, one, you simplified.

[03:30] You then optimized for the brain power of not having to overcomplicate life on their books with accounting, but also you set up the strategy of using this life insurance policy and thinking of the future with their taxes. So we’ve optimized that’s coming into the gate with a person that already had the skill of savings. How is it that you’re able to help some of the people that don’t already have that habit, the skill of savings? Let’s talk there. And then we’re going to dive into a couple other points. Well, it really is the same structure because savings is a discipline and human beings don’t necessarily like discipline. And so adding a structure that enables motivation and momentum to occur whereby,

[04:25] instead of getting those dopamine hits from the Amazon Buy button, you’re getting a dopamine hit because you see your emergency fund grow and you set a target that’s low. Like let’s say somebody’s just starting out. They feel like they have no money to save and they want to have a $10,000 emergency fund. Well, if they get excited because that emergency fund is growing by $100 every pay period, they may look at their landscape and say, you know what, it could really grow by 150 and I’ll get to my 10 grand faster. So having that milestone, it’s just a very temporary milestone of 10,000 and seeing on their app where they’re making progress toward that every single day, really, you can look at it at any time,

[05:10] especially every pay period, very motivational and then that creates momentum. So they’re going to get more excited. They’re going to be able to save more. That is the solution. It’s not budgeting. It’s not scrimping. It’s living your life just the way that you are. It’s just skimming a little bit of cream off the crop before you drop your income into your checking account. Okay. So the stage of the discipline of this happening, where do you get pushback? Where is it that people stop and they start to freak out and they resort to their old self? Well, this structure is by invitation only and it’s funny how just even that simple wall will stop some people. And it is an account. So you’re invited in

[06:02] and then you get to put your social security number in and all your information that you would set up a bank account with. And if people don’t realize that going in, they’re going to be resistant to that. And I think this is a good thing. We’re more cautious these days as consumers, which as stated is good. We look at these things. So this account, of course, is FDIC insured and that protection now is $2.5 million or it might even be $4 or $5 million. They’ve raised it so many times. It’s huge now. So nice to know that’s protected. And then I think also people really get stuck because they’re looking at individual trees instead of the whole forest of personal finance. And so, for example, they might be overly focused on that interest rate.

[06:47] So your emergency money’s not going to earn a lot, maybe 3.5% on today’s recording. That’s fine. Your emergency money is designed to be small. It doesn’t have to earn 4 or 5%. It just needs to earn a little bit so that you can pay the bank fees or whatever might be associated with the account. I think those are the three sticking points is getting invited, making the time to set the account up and the structure properly, and then understanding that this is just to get to that first short-term target of 6 to 12 months of expenses. Some people have it all ready, and it’s just one fell swoop and they’re done. Some people have to work toward it. But those are very valuable steps to take that will impact you the rest of your life.

[07:31] In fact, our studies show that on a normal American family, talking 100 grand a year of income, it’s $2 to $3 million of additional wealth that we can help them build because of that one simple change of gaining cash flow control, simplifying their savings, not putting their income into their checking account, instead putting their income into a separate account. I love it. That, as we came out the gate as far as talking about a client’s success story, seeing that’s an additional couple of million dollars a year over the lifetime is huge. In the previous episode, we mentioned how four out of 10 people believe that they’ll never buy real estate. We couple in this and we say, hey, look, here’s a process.

[08:24] I would say that alone raises the confidence level. That’s what’s amazing. Second part of the process right here in this podcast episode that we were talking about are people that already have momentum. It’s unlocking that next level of success. Let’s do a success story around that. I have a really fun example. There’s a guy named Ron, accredited investor, loves alternatives, and finally admitted to me that he has lost millions in some of these investments. They are all ones that he found or a friend found or what have you. I was not involved. I am really grateful that he was willing to admit that to himself because this is not talked about out in the landscape. Everybody looks at the mountain chart

[09:23] of their regular investment, their alternative investment, whatever it is, and they think it goes from the bottom left-hand corner to the top right-hand corner every single time. Yet, there’s so much money lost in all types of investments because the very definition of investment is to take on more risk. Unfortunately, in the YouTube language, more risk automatically equals more reward, and that is not accurate. Well, it’s interesting because Ron, when he was just out of college, had a buddy that helped him buy a whole life insurance policy. Ron, now looking back 20 years, was willing and will admit that he didn’t totally understand it, but he could see its very slow growth over the first two or three years.

[10:17] Every time he did one of these super fun, exciting alternative investments, which of course, as he became accredited, got more and more nuanced, more and more complex, more and more opportunistic, more and more risky, and as stated, that did not always equal a reward. Well, because of the complexity of these, every time he purchased an additional investment, he bought another life insurance policy. Boring whole life on him, on his spouse in time, on his children, and on his business partners. So as he’s gaining money, losing money, gaining money, losing money, in the investment realm, his whole life policies are gaining slowly and paying dividends every year and gaining slowly. And so here he has this large stack

[11:16] of whole life policies with cash value to pay dividends every year, and I should state, dividends are not guaranteed to be paid, but once they get paid, they become a part of that guaranteed cash value, never to go down again. And so he has amassed an impressive cash value with a portfolio of policies, and yes, some of his investments have turned out beautifully, yet he’s well aware how much money he’s lost in investments, which is I think a really hard thing for an investor to admit, and he’s starting to see, he’s got a child that’s just getting ready to be out of school, essentially. He’s starting to see that sometimes slow and steady wins the race. Oh, I love it. You know, let’s take an example of this,

[12:14] which is in our first half of this episode, we talked about establishing the habit of savings and changing the environment of that. So what Ron has done is he had the base foundation, but he hasn’t changed what was necessary at the beginning, meaning he has, when he’s done these additional investments, he’s created new policies, he’s done these things that will help out. That’s his savings vehicle. And I think that as we listen to the YouTube world out there, it seems as though they want us to start at step one, and let’s skip and let’s just go to step nine right away. It just doesn’t work. It is the YouTube way. It is the American way, unfortunately, right? We want good health. We don’t need McDonald’s.

[13:12] We want to have great energy, but we don’t want to get proper sleep. And so those of us that have been on this earth a little bit have figured out that there’s work involved and there’s patients involved, and I like to move as quickly as the next person. And yet I realize every day that sometimes that slow and steady approach or the consistent approach or the optimized approach, my favorite word, is the better way. And so from a perspective of finances, if you can at least build that foundation, then you can go ahead with a little bit of money and have fun swinging for the fences and know that if you end up losing that particular set of monies, it’s not going to affect your family. And the other thing that I want to add in on this

[14:01] is for those accredited investors, how important it is to look for investments that cash flow, because Ron found this to be so true. Everything was growth-oriented. Oh, you put X in and it’s going to be Y a certain number of years later. Well, maybe. Whereas the investments that cash flowed that provided some type of at least annual movement of money actually fared a lot better for him and enabled him to have the cash flow that is so hard to create from assets to do whatever it was. Maybe it’s vacation, maybe it’s paying those life insurance premiums, maybe it’s building the next business. Yes, sort of very true. I think that comes back to what you said at the beginning is making something more simple,

[14:51] really uncomplicating this. And as you’ve focused on cash flowing investments, it also helps it to be able to understand where you’re putting the money, how it’s moving around. Incredibly helpful. Thanks for sharing your wisdom, Kim.