Cash flow may be King, but cash accumulation can actually slow down your prosperity. Your must MOVE your money to accelerate prosperity — our 6th Prosperity Principle.
What do we mean by “move”? The movement of money is the opposite of what is often recommended, which is to accumulate money in separate accounts earmarked for particular purposes. You know the drill: save for retirement in your 401k and/or IRA, save for college education in a 529, save your emergency fund in a money market account or a savings account.
When we move money, we don’t just move it “to” investment vehicles; we move it “through” them. Another way to look at this is that you’re getting one dollar to do more than one job. This is an abstract concept, so let’s look at a couple of examples that demonstrate this principle.
1. Make your money work for you — buy a house to get a boat.
In this example, let’s say that a middle-aged couple has been saving up to buy a boat to enjoy. And we’re not talking about a rowboat – no, they want a boat they can vacation on, sleep on… perhaps a beautifully restored sailboat, or a newer Regal Express Cruiser.
Let’s say they find a boat they want for $100k, precisely the amount of cash they have. They can now take the $100k they’ve saved and buy the boat. Done deal. Or… they could take the $100k and buy a rental home, and use the cash flow from the rental house to make loan payments on the boat!
Why would they do it this way? By moving money “through” the rental property instead of simply “to” the boat, they have now doubled their assets. They have a rental house worth $100k plus a boat worth $100k. Best yet, as the boat depreciates over time, the rental home (in most markets!) will appreciate and therefore help to offset any loss of value in the boat.
Likewise, Robert Kiyosaki says that although he loves sports cars, he won’t buy a sports car unless he first acquires assets that support it. This is a brilliant way to “splurge.”
When we allow our assets to support our lifestyle; our cash flow pays for our sports car, boat, vacation, or a Harley Davidson. Then, if we decide to sell the boat or vehicle later (or not take a big vacation next year), we still have the asset that provided us with the cash flow in the first place!
2. Use your insurance policy to further your education.
In a previous post, we talked about how to use life insurance to get cash when you need it. And in these days of high unemployment and volatile markets, many Americans have needed a cash injection or two! Some people have been out of full-time work for years, and more than a few have returned to school to update their credentials or obtain new degrees.
Unfortunately, many students are leaving college or graduate school saddled with literally hundreds of thousands of dollars in education loans. For those who have been putting consistently putting money in their whole life policies, different options are available.
One option may be to simply use your cash value for books and tuition. For those unsure of their ability to pay back a loan in a timely manner, this may be a good option, as no payments will be required. Another option that allows the returning student to keep control of their cash value and continue to use the equity they’ve built is to borrow money from the insurance company (or a bank), using the cash value as collateral.
How is this different from simply taking out a student loan? By using their whole life policy and flowing money “through” that vehicle, the cash value keeps growing—tax free! In this way, the accumulating cash value offsets most of the cost of the loan.
This strategy also allows the policyholder to maintain cash flow and control. For instance, it may be possible to use the dividends from the policy to pay for premiums, thus, lowering the needed cash outlay while returning to school full or part-time.
Why move your money?
We’ve seen in these examples how moving money through – and not just to your assets can keep your geese laying those golden eggs, while you enjoy your time on a boat or build your professional credentials. The movement of money allows you to build prosperity and abundance!