lazy assets

The Cure for Lazy Assets: Get Your Dollars to Do More Jobs!

“The main reason people struggle financially is… that people learn to work for money. . . but never learn to have money work for them.”
-Robert Kiyosaki

lazy-assetsHow do you make your dollars work harder?

An effective way to multiply money is to get your dollars to do multiple jobs. First, let’s define what a “job” is.

Any time a dollar buys a product, purchases an asset, pays an insurance premium, reduces tax, increases cash flow, leverages itself, improves protection, recaptures opportunity cost, improves liquidity, recovers control, enables tax benefits, builds confidence, gains movement or lowers restrictions, that dollar is doing one job.

In many financial products (things we buy), money can do two or three jobs, as well as in many strategies (things we do), it can do five or six additional jobs. However, too many people limit their prosperity potential by having their dollars do only one or two jobs.

For example, we might put away dollars only to educate kids, or dollars only for retirement. A retirement fund or an education fund also provide some tax benefits, but often in the form of tax deferral. (Deferring tax is like sticking your head in the sand, ignoring taxes and hoping they will disappear. Unfortunately, deferring almost guarantees you’ll pay more later.)

So how do you get your dollars to educate your kids AND provide for your financial freedom? You get your money to multi-task. Like a Smartphone, money can do more than one thing.   And money multiplies (does many jobs) when it’s moving. When it’s sitting still, it can only do one or two jobs. Let’s look at some examples of how this works:

Example #1: Investment Real Estate. Rental properties are excellent vehicles for accelerating prosperity. When you purchase investment real estate, you put your money to work! Here are some likely jobs your dollars will be doing:

  1. purchasing and improving the property itself
  2. making mortgage payments, which increase equity as well as pay interest
  3. earning appreciation (not guaranteed, but historically reliable over time
  4. qualifying landlord for depreciation (a tax advantage which offsets cash flow)
  5. achieving leverage (the nearly unlimited ability to multiply dollars by controlling a larger asset with a smaller down payment)
  6. enabling disposition (the ability to sell or give property away in a tax-favored way, such as in a Charitable Remainder Trust)
  7. creating cash flow (which can be increased over time)
  8. building financial confidence through gaining experience as a real estate investor.

Now how about educating those kids? If you build up assets in a 529 plan, when you send the kid and the money off to school, the asset is gone. That money now causes lost opportunity cost for your retirement or financial freedom.

For example, if you send $100,000 off to the school at your age 50, this equals $324,340 lost from your asset base by the time you are 80, assuming that you could have earned 4% with that money. If you have investments performing at net 12%, the lost opportunity cost is a whopping $2,995,992.

By using real estate, that $100,000 can be accessed by borrowing against the property (meaning that the underlying asset keeps growing). The cost of borrowing (interest plus principal pay back) can be carried by the tenants. It can also improve your tax position. Then as the loan is repaid (again, by the tenants), the borrowing strategy can be used again for the next child. When college costs are repaid, the property then produces cash flow for financial freedom.

Notice it was the product (investment real estate) plus the strategies (leveraging) that enabled the dollar to educate kids AND provide financial freedom.

Example #2: Whole Life (Cash Value) Insurance. (This is assuming the policy is properly set up with paid-up additions and waiver of premium riders.) Here are the multiple jobs your dollars can do in whole life insurance:

  1. pay for premiums
  2. build cash value
  3. provide waiver of premium
  4. guarantee a death benefit
  5. be used for leverage (such as borrowing against your cash value from your insurance company, perhaps… for that rental property down payment?)
  6. increase of death benefit over time
  7. the capability for paid up additions
  8. the possibility of living benefits and other jobs.

Additionally, money can “move” through the policy, and leveraging your policy gives you endless options for further cash flow.

Can life insurance help educate your kids AND provide for your own financial freedom?

Absolutely. Similar to real estate, you can borrow against (we don’t recommend “taking out”) cash value of life insurance to pay for school while the underlying asset keeps right on growing.

The cost of borrowing (interest plus principle) will need to be paid back by either you or your child, however, borrowing costs go on only for a period of time, say four years of college plus ten years of payback, whereas opportunity costs go on for your life time. (We used age 80 in the example above, but opportunity costs really don’t stop until you die.)

Getting your hard-earned dollars to do as many jobs as possible is more important than chasing a higher rate of return. We all want our money to be efficient and effective. To accomplish this, our measuring stick should be “how many jobs our dollar is doing”–not what rate of return it is earning.

Don’t miss this featured episode from the Guide to Financial Peace Radio show:

Recently, our own Kim Butler and No BS Money Guy Todd Strobel did a lively episode on the Guide to Financial Peace Radio show about this very topic. The recording is titled “Hard Working Dollars vs. Lazy Dollars,” and it includes several “mini-topics” as well. You’ll hear about:

  • Getting your money to MOVE and do numerous jobs. Moving and Multiplying by getting money to do more than one job are two of the 7 Principles of Prosperity, and they work together.
  • Why you don’t want “still” or “stagnant” money! Money is the lifeblood of the economy, and it must flow for an economy to be healthy. Just like stagnant water isn’t a healthy environment, too much “accumulation” without movement can kill an economy – personal, local, national or global.
  • Financial Products vs. Strategies: You can use the same financial “product” as everyone else – but in conjunction with prosperity-accelerating strategies! Many of these multiplication strategies are offered by financial institutions but not advertised (because they’d prefer to keep your money working for them – not you!)
  • How it works when you  borrow against (not from) your own cash value in a whole life policy. How you are charged interest, who determines the re-payment schedule, and even how paying the loan back can improve the policy!
  • Life Settlements: Thinking about “cashing in” your life insurance policy? You may have an option to sell your life insurance policy if unwanted or unneeded, rather than just surrender it for the cash value.
  • Go ahead – spend your principle! Would you like a “permission slip” to use your other assets to their fullest capabilities? Life insurance death benefits that grow over time are a valuable weapon against  inflation, and paid-up additions are the key to increasing both cash value and the death benefit.
  • Tax-advantaged assets: We touch on how real estate and cash value can both provide tax-advantaged options in estate planning.
  • Why you won’t get accurate financial advice from financial writers and journalists. How conflicts of interest affect the corporate media, including investment programs and publications.

To listen to this show now, just click the player below. Alternatively, you can download the episode or open in your default player at the Guide to Financial Peace webpage for “Hard Working Dollars vs. Lazy Dollars.”

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Would you like to hear more? Explore past shows, listen to archives, download episodes or “follow” the show at Guide to Financial Peace radio.
categories: college planning, cash value insurance, real estate, principles of prosperity, wealth-building, whole life, guide to financial peace

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