Inflation – The Hidden Tax – Episode 005

This transcript was auto-generated and may contain errors.

[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 Everybody welcome to another edition of the prosperity podcast. This is no BS money guy Todd Strobel Once again, we have our best-selling author Kim Butler with us today. Welcome Kim Hello Todd, thank you much So glad to be with us today and our conversation is gonna be valuable takes a little different tack than some of the work We do sometimes so I think people will find it interesting Super today we’re gonna be talking about what we refer to as the hidden tax And this is a tax that really gets assessed to savers and is actually a

[00:52] Benefit to people who borrow a lot. In fact, I would say the more that you borrow the more you benefit From this hidden tax I’m not gonna say anymore. I’m gonna let you take it from there Well, it is interesting, you know saving is the way that families can get ahead it’s one of the first steps on the prosperity ladder and it’s something that we address heavily in our busting the financial planning lies book and Yet taxes erode savings Unless you save in cash flow you have a life insurance policy so when we’re talking about this hidden tax and the idea of the impact that it has on savings we’re talking about people that save in banks and in money market accounts and in municipal bond accounts and

[01:41] Short-term mutual funds that kind of thing and that tax that occurs It roads those savings and it’s very much a stealth tax or a hidden tax in That what it is doing is reducing the dollar value of the account rather than an actual tax like an income tax and it’s typically known as inflation and What it does is it is a very sleepy little guy and that you could go ten years and not really see the impact Of it, but when you look over even a partial lifetime So let’s say 20 years 30 years. That’s a third of most people’s lives now A lot of times we don’t start out saving when we’re one year old so let’s even say it’s a half of our adult lives and it I’ll go gosh probably more like a third because

[02:34] if you started when you were 22 right out of college and you started saving and you were not aware of the impact of Inflation and what it does to your money and you lived until you were 100 that’s close to 80 years that inflation can erode that dollar and depending on what Rate you choose to use for inflation Depends on how much those dollars would get eroded and so it’s not something that we can see it’s not on our statements anywhere but they they the inflation and the Impact of the dollars of that inflation can be a massive massive erosion of our wealth And it’s a big challenge to identify it also and even put an interest rate to it because The government of course reports what they think inflation is

[03:25] But there are a variety of other sources that can tell us how much inflation Actually affects our lives from an interest rate standpoint Because what the government chooses to identify is the actual inflation rate and what’s actually out there in the marketplace are two totally different things Well, I think it’s interesting to note too that if inflation benefits the debtor Because debtors are paying back dollars that are worth less than the dollars They are borrowing today and the United States government is the single largest debtor in the world Would not inflation be to their benefit and would it not make sense that they would encourage that? Absolutely. In fact, it was just a couple years ago where the head of the Federal Reserve said

[04:17] The savers are hurting our economy and I started out by saying that a family Can build itself up by saving? So here we have two totally opposite comments where the head of the Federal Reserve is saying that savers hurt the economy and I’m saying Savers help not only your personal economy, but the economy as a whole. Here’s the challenge savers do hurt the worldwide economy in the short term because they take money out of circulation and Yes, it does get impacted by inflation But savers help the economy long term Because they build up assets to do what has to happen in long-term businesses like building of buildings and Plans that take 15 20 years to implement etc So yeah, you’ve got the government out there and they’re first of all focused just one year at a time

[05:15] I could even say quarter at a time, especially because Wall Street drives so much of the government So here they are focused very very short-term and the government of course doesn’t really care What happens 20 or 30 years because all the people in Congress are out at that point So we’ve got a real mixed message there and it’s interesting You can turn to things like the website shadow stats So it’s shadow stats Stats.com and they have alternative information against all of the government’s information on statistics behind Inflation and employment and a variety of other things Because I think by now everybody pretty much knows that the government tweaks the inflation numbers They tweak the basket of goods that they use to measure inflation

[06:04] But you know, there’s a whole nother area of inflation out there that is this stealth tax this hidden tax That we don’t think about and I’ve written about it before and it’s called lifestyle inflation and Lifestyle inflation is where you used to drive a beater car and be totally happy with it But now ten years later you have a job and you want to look professional. So you drive a much nicer car That’s lifestyle inflation. It’s the same car It still gets you places but it costs a lot more golf balls are another really good example Used to be totally fine fishing them out of the pond and playing with them. Now you want to buy titleists for 20 bucks a sleeve It’s the same golf ball arguably and

[06:45] Yet you’re paying a lot more so it’s not only inflation that shadow stats might tell us about but it’s Lifestyle inflation. It’s our desire to have an improved life, which is a fabulous thing. We want that for our clients Superb So if I’m hearing you correctly the number one challenge is cash flow, which means Creating money monthly or weekly or yearly that can be saved and then the second part of that challenge is What do I do with it so that the buying power of those? Dollars is least is the same as it is now not less when I need it and the answer to that is that you do want to have a place where your Rate of return on your savings vehicle is at least equal to inflation and that’s very difficult in today’s dollars

[07:35] When you deal with banks that are paying less than 1% and that those savings accounts are taxable So our alternative for our clients has been for many many years to use cash value of life insurance as a place To save or store money and it’s so effective because it first of all earns a decent rate of return So you have four or five six percent depending on what the marketplace is doing at the time and I say marketplace I mean economy not stock market So you’ve got a four or five six percent account without taxes That’s the cash value of life insurance and then equally importantly to address your cash flow statement You have a place where you can put money monthly Because most people save money monthly now

[08:23] There’s some people who work in jobs where maybe they earn a bonus once or twice a year So they’re saving a chunk of money once or twice a year Or maybe their income is such that they’re saving money in larger chunks two or three times a year But for most people the way to save money is a couple hundred a couple thousand whatever the numbers are for you per month Well, it’s very difficult to find any decent Investment that will tackle a hundred or a thousand a month Whereas life insurance cash value is not an investment But it’s a great savings tool and it will easily handle a hundred or a thousand per month That then builds up savings you get a better rate of return You don’t get taxation which then helps you beat that inflation problem or that stealth tax problem

[09:10] Super so again number one cash flow get the money set aside so that you have excess money number two store it in a savings vehicle like cash value life insurance that pays enough to keep up with Inflation and then are there any tax advantages as far as these life insurance policies as well? Absolutely, so the growth on the account is not taxed as long as that life insurance stays in place And then there can even be in the later years for income Monies borrowed against that account which can also then go tax-free So this issue of taxation is helped by the life insurance policy Not only along the way while it’s growing but later in our years when we’re borrowing against it to create income And then the final event of course is also a tax-free death benefit a

[10:06] Completely income tax-free death benefit to our family now if we know that that death benefit is going to pay That can also help us from a taxation standpoint in a couple other areas primarily the ability to use a reverse mortgage which of course is tax-free income and That can be actually Benefited by inflation because our homes driven by inflation do tend to increase in value So if we can do a reverse mortgage get tax-free income on that higher inflated value home Then when we pass on the death benefit goes to our family if they want the home They just pay off the reverse mortgage if they don’t want the home They give the home to the bank and let them deal with it That is secured by that reverse mortgage and they keep the tax-free death benefit and I don’t want to get too far

[10:58] Involved in that discussion, but there are a couple other ways that tax-free death benefit can help us our clients While they’re living not having to wait until death occurs to benefit from it Got it. And again for your own specific situation. We encourage you to go to partners the number four Prosperity calm there’s more information available on that blog Kim’s office is also available to set up appointments for you to discuss your own personal situation Anything else you’d like to add Kim? No, thank you for Advising clients that we’re here to help and the emails are open We enjoy communicating with people in all 50 states and we’d be delighted to answer questions that you have got it Well, we’re gonna wrap up today’s prosperity podcast. Again. This is no BS money guide Todd Strobel special

[11:49] Thanks to our guest and best-selling author Kim Butler. Thank you all and take care 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 calm if you liked this episode, make sure you subscribe and leave a review She means Shannon Maldonado sua fundadora da yaoi uma loja de souvenirs com artigos artesanais e peças selecionadas por artistas Escolhia Shopify porque depois de experimentar outras plataformas Esta foi sem dúvida uma das mais intuitivas Para mim foi importante pensar onde estaríamos no futuro todas as flamentas para analisar as vendas como a gestão de inventário Estão ali mesmo no nosso dashboard

[12:39] Começa sua avaliação gratuita em shopify.com