The CLUE Method – Episode 345

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[00:01] Welcome to the Prosperity Podcast. On this episode of the Prosperity Podcast, we’re going to be talking about the clue method. Now clue stands for something that is very simple. Once you understand it, it will completely transform the way that you look at any opportunity at anything you do with your money. How about that for a tease? Sounds fun to me. Are you going to talk about it or am I? Well, how about this? How about I will say what the letters mean and then you give us the explanation and the story behind it? It’s a deal. I was teasing back, but I’m excited to hear how you say it. Perfect. Okay. So the clue method, one thing that’s amazing is when you’re teaching in a book or on a podcast, you have this ability, Kim, to take the complex and really boil it down

[00:56] to the most simple things that we can all remember and digest and understand. So on the clue method, C stands for control. So we can help our listeners understand what you mean by control. Absolutely. So one of the things I like to use the clue method for is a bit of an opportunity filter as I’m looking at any type of item with my money. And I use the term item because I didn’t want to specify a product or a savings or an investment, just any kind of thing with my money. And control is a really critical aspect of dollars. And there are way too many times that we give up control. Now on certain circumstances, we want to do that. If I’m going to invest in an oil deal, I’m going to make the specific choice to

[01:44] give up control of those dollars, to get the tax deduction that I want, to get the hopefully awesome oil investment that I’m seeking. But with so many of our dollars, we’re in default giving up control. In other words, we’re just letting it happen without really thinking about it and without leaving other dollars that are in our control. And so as we know on this podcast, we like to have dollars in our control for something that we call our emergency opportunity fund. And that could start out at a bank or credit union or it could start it out as a jar on your counter. You clearly control cash in a jar on your counter and or under the mattress or wherever. Yet, as we grow those dollars and we get past the starting point of

[02:31] just a little bit of money in a bank, we might want to add a product that will let us maintain control and yet have our dollars working a little harder for us. And so that’s the cash value of whole life as a good place for that emergency opportunity fund where we still control our money. And control means being able to get my hands on it in less than 10 days. That’s my definition. OK, less than 10 days. That works. So for the most part, that’s a feature or I should say that’s a filter that anyone can look at and they can realize whatever judgment that is taking, how they’re going to access that money within that 10 days. Right. And that means without penalty, without restriction, without there may be

[03:15] some cost. That’s OK, but not in a negative way, like a penalty, you know, something that we could avoid. That means if the text on that document say 59 and a half, there’s your hint. Probably not going to work. Yes, 59 and a half equals no control. OK, so the next one is L is liquidity. What do you mean by liquidity and how do we approach it? Yes. And to clarify, what’s the difference between the control part and the liquidity part? Right. Because they kind of sound like the same thing. And to a certain degree, they are. Liquidity means being able to get at the money very quickly. That’s that under 10 days rule, if you will. It means being able to get at one dollar for one dollar, in other words, not being forced to take a haircut on that money

[04:09] for some reason like we would have to if it wasn’t liquid. Again, often investments are not liquid. And in order to get access to them, to make them liquid, we have to take some type of a fee or a haircut or lose something. And so liquid money, we don’t have to lose anything to get at it. And that enables it to be used for emergencies and opportunities. It enables us to have the thought process of this dollar has potential rather than, well, this dollar is on my balance sheet, but it’s not really available. And so I think for a lot of people, the key word that you used, at least for me as I was listening, is haircut. And, you know, it’s easy to think when you have a rental property or whatever that may be, that you can quickly sell it

[04:59] and it can become liquid. The problem with that is, again, you’re taking a haircut. So whatever value had take away 30, 40 percent. It’s not too fun. Plus associated fees, which makes it also not fun. And then Uncle Sam comes along and takes his portion as well. So, again, it’s like compounding bad. Whereas if you have followed this method, not so bad. Correct. Well said. Next is for in the clue method, you, which is use. So help us understand how use works with this. Yes, use implies that we can use the money for anything that we want. In other words, we’re not restricted to just a retirement account. We’re not restricted to just money for education. We’re not restricted to rules that are set up by somebody else

[05:47] controlling how or when we use that money. And so, again, you could almost say, well, you’re back into the same control and liquidity part. And maybe so, but also maybe not. So when you look at each of these three words, they’re all addressing a different aspect of dollars and their limitations. There are so many times that dollars are put in boxes where they’re stuck or put under rules that cause limitations on those dollars. And so we want to have our dollars be in our control, liquid and available and available so much so that we can use them for anything we want. Nobody gets to tell us what we use that money for. That sounds like total control. I like that. Now, the final letter and the clue method is E, equity.

[06:45] And what I’m going to do is I’m just going to read a piece of your book. And for listeners, I’m reading from Kim’s book, Live Your Life Insurance. If you haven’t picked up a copy, go to Amazon and grab it. You can go to the website, partnersforprosperity.com and you can see the links there. So I’m on page thirty four. And for equity, you say, create an account where you are benefiting from the ability to leverage. Help us understand the equity in the leverage piece. Yes. So a lot of times, if we go to use, working backwards, a liquid dollar that’s in our control, when we use that dollar, it is now gone. It’s only being used for one thing. So let’s say we have a savings account at a bank and we need to get new tires on our car.

[07:30] And we use those dollars for tires. And now they’re not in the savings account at the bank. Or if you want to think bigger, you have a money market account at a brokerage and you want to make a down payment on a rental property. And you do that. And now those dollars are not in the brokerage anymore. They’re in the walls of the rental property tied up again. If your dollars instead can act like equity, then you get the car’s tires, as well as money still as an asset on your balance sheet sitting in the bank. Or for the larger example, you get the rental property while at the same time, that asset is still on your balance sheet. Maybe now it is in the form of cash value of whole life insurance,

[08:20] because you let that cash value act like equity, meaning you borrowed against it in order to make the down payment on the rental property. So the dollars now, because they’re acting like equity, are getting leverage and leverage in finance works just like leverage does in physics. And the definition of leverage in physics is being able to move a big thing with a little thing, you know, think about the teeter totter looking picture of a lever, right? With a you’ve got one end of it. And on the other end of it is a big old item that you need to move. And my husband is a master at this because he’s not a physically like big, strong guy. And so he totally figures out leverage any time he needs to move stuff

[09:09] around on the farm that is bigger than he’s got the physical capacity to do. Or he just goes and gets the tractor. But it’s a it’s a lever in physics that is the same idea in finance. If we can leverage, then we can get a bigger impact. So as an example, back to our rental real estate idea, if you just take cash out of your money market account, then that that assets gone and now it’s tied up. So you went from liquidity to not liquid. Whereas if you borrow against and you can borrow against a money market account and that money market account then can continue growing, even though you’ve also bought the rental property. I think it’s even more efficient and effective to borrow against cash value

[09:54] of a life insurance, because the cash value is going to grow faster than a money market account does in most eras. And definitely when we’re talking right now. So, again, you borrow against your cash value, and that lets you keep the cash value at its full value growing as a line item on your balance sheet. While at the same time, you get to add the rental property as a line item on your balance sheet. And just in case you’re new to this line of thinking around cash value of life insurance, the ability to have cash value act like equity is because you are borrowing against it and from the life insurance company. So it’s against cash value from the insurance company, which means that now you’re using other people’s money

[10:43] and now you have extreme leverage on your rental property. And somebody could argue, well, if you borrow the down payment, the bank’s not going to like that. Yeah, you have to season your funds. In other words, you get the money from the insurance company, put it in your regular bank account and let it sit there for 30, 60, 90 days, whatever the requirements are. And you still want to do a mortgage. That’s another form of equity and leverage, of course, is do a mortgage on that property as well. And if you have the down payment borrowed and the mortgage money borrowed, literally, you’re increasing the rate of return on that rental property’s capacity because you have only your closing costs in the deal.

[11:28] Great point. So I’m I’m going to simplify even more in my brain because I’m a simplifier as a person. And the kind of I think of as we look for clues and we follow the clues, then we find the opportunities. You know, it’s kind of insightful that the way you’re mentioning this, you know, if we follow the traditional path, we really get there. The typical path takes us off. And so doing this, we get to now have better opportunities in our way, which is really going to help us. I love the idea of following the clues. I never really thought about it like that. And and yet that’s very accurate. Following the clues, following the money and learning about this kind of thing rather than just doing the typical that everybody else is talking about.

[12:20] You know, it’s insightful, something that I wish I would have learned a long time ago. So here’s the challenge I’m going to give for our listeners. We don’t do challenges a lot. But here I’d like to do a challenge. Is that OK? Absolutely. How fun. Perfect. Inside of the this episode, we went through the acronym of clue. And it’s so simple that you could teach this to your children. So if you haven’t have children, help them understand one. It’ll make you become a better teacher. You’re teaching the principles and I hope you understand it more. And if you don’t have children, then share it with someone else that can benefit, help them understand that they can take back control of their finances, of what they’re doing.

[13:02] And then that will help them have more opportunities because life is not a zero sum game. Everyone can create win win opportunities. And hopefully we’re creating a win win on conversation with you today. Sound good? Love it. Great challenge and keeps our listeners alive and awake and moving things forward, which is always a good reminder to be and do and act in that way. Wonderful. All right. Well, listeners, thank you for being with us on the podcast today. If you happen to take us up on the challenge, send an email to hello at partnersforprosperity.com. Let him know. And we can keep this as a secret success story or we can tell others how well you’ve done with it. So thank you for taking an investment of your time with us today.

[13:52] 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.