Can you imagine the things you could do if you owned your own bank? It may not be that impossible now that we have an opportunity to bank on yourself sitting right under your nose. Joining Scott Carson to explain this to us is Mark Willis, a Certified Financial Planner at Lake Growth Financial Services and co-host of the Not Your Average Financial Podcast. In this conversation, you will learn how to create and self-fund your own bank and retirement account that you can tap into for investments. You can stop being a slave to banks now and get your own source of tax-free funding! Listen in and see the amazing benefits this opportunity has in store for you.
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Learn How You Can Be Your Own Bank With Mark Willis, CFP
Welcome to this episode. I’m excited to be here with you. We’ve got a special guest on the show. He is a two-time number one bestselling author. He is the Owner of Lake Growth Financial Services out of Chicago, the Windy City. He’s got a huge passion for not only helping investors, but a lot of real estate investors and people find financial freedom and do amazing things not only with their investments, but also with the retirement. You are going to love what he’s going to share. We’re honored to have Mark Willis. He’s a man on a mission. He’d like to help you think differently about your money, economy and future. Mark, welcome to the show.
Scott, thank you for having me.
You’ve had some hindsight this 2020. We are going to look back at what everything happened many years ago and what’s going on. Why don’t you talk about how you got into that aspect of having a passion and a mission for helping people struggled along the way?
I was speaking with someone on a phone call. We had a quick fifteen-minute phone call to get to know each other, see if any of our services at our financial firm would be a good fit. He was sharing that he’s a frontline worker and one of the nation’s heroes. He was laid off amidst everything else. You’d think that someone in that space would be hard earned to keep. One story after the next, we’ve had good times and bad times. A lot of people say this is a K-shaped recovery. Some people going clear up into the right, other people dropping down, losing their jobs, getting furloughed, getting hours reduced. This is not unlike what I and my wife went through number of years ago.
In 2008, we graduated right in the middle of the Great Recession or as I call it now the less Great Recession of 2008. We had no job. We had no plan to pay off the six figures of student loan debt that we had. We had no attention on our finances. There’s a lot that has changed in 2020. We’re all ready for 2021. “Come Lord Jesus,” that’s what I’m saying. 2021 is the year. In the meantime, we’ve got a lot that we’re working through. We are eyeballs deep in a massive recession, pandemic, possible national conflicts and our election. The stock market is at an all-time high. Go figure that. What hasn’t changed? It’s important for your readers, everyone to realize there are some things in the financial universe that have not changed.
One of the more important and fundamental parts of our financial life that hasn’t changed is the idea and the function of banking. Banking is, has been, for as long as we’ve had human civilization. There’s a great book by David Graeber, Debt: The First 5,000 Years. The title of the book says it all. We are in the banker’s world. We’re all living in it. If we can understand the function of banking in our lives, it won’t matter what your mutual funds are in this year. It won’t matter almost anything else to your financial life. It’s the smallest hinge that can swing the biggest door in your note business, personal life and your financial future as well. That’s what we specialize. That’s what we work on with our clients is helping them take back control of the banking function in their life so that they can sleep with sanity once again.
Let’s talk in that a little bit. What do you mean by the banking? I believe everybody’s in the debt game. You’re on the wrong side of the payment streams for the most part. People got it going out whether it’s their student loans or car or mortgage or I owe you the bubba down the street. We got to going on. That’s why I love becoming the bank and having money coming back. Let’s talk a little about what you hit it too.
I’d say that similar statement that I like to tell people is we are all in the banking business, we’re sitting on the wrong side of the banker’s desk. What if you wake up one day and you owned the bank? What would be different about your life if you owned a local bank branch down the street? The kind that you know about, the kind that you may have some debt to. Most of the people I work with are business owners who are trying to run their business profitably during this difficult time that we’re all going through. If all of a sudden, we owned two businesses, not just one or our day job, note business, side fund, investment portfolio but we also owned a bank, imagine that for a minute.
What would be different about your financial life if you were your own banker? Let that sink in for a moment. The power there is it’s hard to even quantify. Everything about your financial environment would change if you had a ready line of credit to yourself, unless you want to deny your own loan to yourself. Go out if you want to do that, repo your own car too if you want to. If you were the banker, imagine what that would do? What could that offer you if you had an asset on your balance sheet that could give you 6 or 7 figures of capital in good and bad times, you’d have a competitive edge against everyone else in your marketplace.
Everyone is looking and begging the government. I’ve had numerous Zoom calls with people where they got a PPP loan or an EIDL loan earlier in 2020. Now, they’re concerned that they’ve got to jump to the government soups to keep enough people employed or to pay that loan off with interest over the next few years. Yes, it rained on money to us business owners and then we all started getting rioted, looted and many businesses had to border. We lived fear in Chicago land. I saw it. Plywood on the windows and everything, but if you could become your own source of financing when banks aren’t lending, what kind of power or competitive edge would that yield for you? How much more could you take advantage of this situation in inappropriate ways and even protect yourself from whatever comes next, whatever 2021 brings us?
You have a lot of opportunities there if you’ve got that income coming in. The banks being able to pay out 0.01% on a certificate of disappointment. You can use that, give me credit three times, we can use it, but then they’re getting 4% on a mortgage or 8% on a used car loan, 19% or 18% on credit cards that arbitrage of doing it. Let’s dive into this. What’s the vehicle you’re talking about? I know my audience. They understand the power of banking, but let’s talk more about what are you exactly talking about for those that are reading?
We all know that banks don’t lend out their own money. That’s where they get infinite return. They’re going to give that 0.01% on that certificate of disappointment and then they’re going to loan that same money out to the guy behind me in line who needs a loan at 10%. How much of the bank’s own money did they have in the deal there? Zilch. We call that infinite return around here. I am a certified financial planner. When you go through that process to get that designation, they ask you to dive deep and broad. It’s the biggest, baddest certification you could go through. It took me and my wife about three years to go through that designation. For me, it was fun. I kept track of about 450 different places we could put our money as I was going through that study.
Everywhere you keep your money, we’ll make it act different. That’s such a brain-dead obvious statement. I think it needs to be said, “Where I keep my cash makes it act differently.” It’s like a fish in water, the environment matters. If you put a fish in the wrong environment, it’s going to die. You leave it out in the desert. It’s not going to last too long. If you put it in the right environment, a nice salty ocean, it’s going to survive, thrive and reproduce. We want our money to reproduce. Part of what I like to start conversations with many of our clients is, “What do you want your money to do for you?”
I don’t have any preconceived notions of what your characteristics are. If you could be pope of money for a day, wave that magic wand. What characteristics would you want your money to have? That’s where we like to start. I’ll give you 1 or 2, but I’d love to get your thoughts on this too. If you could design the perfect financial vehicle, what attributes, characteristics, environment would you want it to have? For me, I wanted easy access to the cash. If I’ve got it in a certificate of disappointment, the first thing I need is liquid access to my cash.
We’re in the middle of a pandemic. I know that if I’ve got a fever, I need lots of liquids to lower my temperature and to keep me healthy. Similarly, if our money is sick, we need liquid funds, liquidity to get access to that cash quickly to help us. It’s like the oxygen of our businesses to be able to access liquid cash is many times the difference between success and bankruptcy, unfortunately, for too many businesses. That’d be one. I’d also want a good competitive rate of return. I’d want some tax advantages on my cash. What about yourself, Scott? Is this striking up any ideas for you? What do you want your money to do for you?
Liquid is always good. You want to have access to it. You don’t want to be at some place that I don’t want to say safe because nothing is safe. People talk about, “In the bank is safe because of the FDIC.” Do you know the bank can take up to 99 years to give you your FDIC money back to you? People don’t realize it. You’re only protected up to $100,000 in specific asset. The ex-banker pulling that out of my ass. I haven’t talked about that in years. People don’t realize that you have to have it. You also want to be independent of rumors. We all know that rumors of companies can affect stock prices, ups, and downs and things like that. We talked about that you don’t have penalties if you got to pull the money back out and stuff like that. You also want the opportunity to be able to direct it however you want it to go out to. How is that money if you need to use it? Also, ROI is an important aspect along with ROT, Return On Time.
Protected from rumors. Can you say some more about that? Are you talking about market?
I’ll give an example, Netflix has taken a big hit. Their stock prices dropped based on one show they had posted on there. I haven’t watched, but we know a lot of people being like, “Cancel Netflix.” You see something independent in Netflix or suddenly you’ve got Tyson chicken has an outbreak and bad birds and they’re doing a recall. It’s going to affect stock prices.
Somebody sneezes the wrong way, why should that have any impact on your financial future? If someone sneezes the wrong way on Wall Street or China or someone gives the wrong report or someone publishes a wrong tweet, why should that impact your financial future? I totally get that. I’d also add to that the rumors of your own business. What if someone sues you for wrongdoing or slander or something like that, if you’re a business owner, odds are you’re going to get sued at some point. I hate to say it, but let’s protect it from creditors, bankruptcies, lawsuits and frivolous lawsuits. I’d say that’d be another little key piece to that, but that’s a great list. I put together a list of 20 or 30 different characteristics I wanted my own money to have.
Competitive rate of return, some safety as much as we can have safety in the financial universe, some liquidity, no penalty to borrow or access that cash, no limit on directing those monies. If I want to fix up my own kitchen or send my kid to college or invest in slot machines, I want the right to be able to do that. Why should the government tell me I can’t fix up my own kitchen with my cash like a self-directed IRA can’t allow us to do? Before putting labels on our money, it’s always important to think, “What do I want my money to do for me?” We all have bias, backgrounds, many financial gurus on the radio telling us we should stay away from this or keep clear of that.
I wanted to get to the bottom of the function. First principles thinking is all about what are the functions behind the labels? I don’t care what it’s called. I care what it does for me. That’s the truth. For me, it was an eye-opening moment when I realized that there’s been a financial asset in this country available for over 200 years that does everything we’ve been describing. It grows on a guaranteed basis every single year outside of the stock market, aside from Netflix rumors and who sneezed on what chicken or whatever else. It’s liquid and accessible to me anytime I wish. It’s taxed like a Roth IRA. It’s tax-free for the rest of my life on the harvest. Principal and gains can be accessed totally tax-free.
I can use it and direct it for my investments, my real estate, my kids’ college, or going to Disney World. It’s my cash. I can do anything I want with this asset. It does a nice competitive albeit moderate rate of return that’s decent enough for me to keep up with and even beat inflation and allows me to do everything else in my investment life that I want to use it for. This vehicle surprised me when I found out it was dividend paying whole life insurance of all things. This is not the kind of dividend paying whole life that our grandpas probably had in their portfolio and Dave Ramsey loves to hate on. It’s the whole life insurance that’s been modernized for massive cash accumulation, 8 to 40 times as much cash as the old stuff used to have. The way we do that these days as I came to find out in my research, that the insurance agent or the financial professional building this has to take a massive pay cut to design the policy correctly.
It’s going to cut the debt benefit down to as small as we can make it while pouring as much wealth as we can into the cash value side of the policy. Many people are not aware that there are two types of life insurance. There’s rented term insurance. You’re renting it for a certain period of time and then there’s owned life insurance where you own it for life and it’s an asset on your balance sheet and there is a debt benefit but the cash value is like a living benefit. The more you build up wealth in that cash value, the more you can use it as a line of credit. Back to our point about banking, you can use it like a line of credit to yourself. It’s like having a bank on yourself.
There’s a difference in price. That term is always the cheapest because of the step in this. You’ve got a term 10, 20, 30, 40-year term and the price is based only on your health conditions at the time that you get it approved. With any type of insurance, you’ve got to usually qualify some fashion out there.
If you’re going to be the insured, you will have to do a medical exam. You don’t have to be the insured to get a policy. I have a gentleman who came to me, he was pumped up about the idea of becoming his own source of financing, but he had open heart surgery. That took him off the list to getting life insurance. Think like an insurance company, they’re not going to bring you on if you had open heart. He brought up a concept that a lot of our clients have since done, which is he is grandpa of the family, patriarch. He now owns twelve policies. How did he do that?
He’s got a wife, adult children, grandkids. He’s the owner of all the policies in the family. He’s using it. He sends in his paperwork, loan requests and accessing the cash for his investments and his real estate. Probably once a quarter, he’ll send in some paperwork to get those monies out in about 3 to 5 days. Should he pass away, all the cash value in those policies then goes to his wife and then when she graduates, it goes to the kids, it becomes a three-generation financial portfolio.
We created a personal family bank, not literally an FDIC bank. This is a portfolio of wealth that’s now generating dividends for the rest of three generations. The premium that goes into a whole life policy will always be more than a temporary term insurance policy. Let me talk about that. Term insurance. You pay for it for 10 or 20 years. Great news, you lived. Bad news is in over 30 years, you gave $30,000 bucks and you have nothing to show for it. With a whole life policy, you’ve got over 30 years. You’ve got three times as much as you put in there in liquid cash and then you also have a giant death benefit income tax-free. I’d wonder which of those is more expensive?
The one you get nothing at the end of 30 years or the one you have a giant pile of tax-free wealth? I love term insurance too. I think they’re both fine. They both do things. What do we want our money to do for us? I’ll say this last thing too. Are we more likely to die because we have a whole life policy? No. There’s a reason why term insurance is much cheaper it’s because nobody dies with term insurance in force. According to a study, 99% of term insurance gets canceled or expires. Nobody gets that claim paid out. There is a reason and a time for renting an apartment like there is a reason for and a time for term insurance. What we’re describing is becoming your own source of financing and you got to own it to be able to borrow against it.
Let’s dive into the functionality of the whole stuff. You’re putting in, you’re buying a policy. Let’s say, the great grandfather you talked about puts a $50,000 policy down on there. Let’s talk about some of the functionality of that. You said in 30 years, it’s three times the amount of what you’ve paid into it.
That’s rough estimates. I can give you some exact specific examples of a guy who’s 45. He was putting in $32,000 a year. That was his decision. Who in the world, in the right mind, Dave Ramsey and all the rest of them would be screaming, “$32,000 into a whole life policy, why don’t you put that in the market or worse in a savings account?” After ten years, he’s got $400,00 of cash value and a $2.1 million asset to the family.
What did it grow at? It was the annual return on investment people are thinking.
Probably, it’s in the middle single-digit range, somewhere between 3% and 6.5% after tax, somewhere in that ballpark. Think of it like a cash equivalent in your portfolio. he put in $32,000 times 10 and after 10 years he’s got $400.000. He’s also got a $2.1 million gift to the family, whatever the ROI is on that.
Where do you get the $2.1 million value to the family on one policy at $32,000?
Where you keep your money makes it do different things. If I’ve got $32,0000 a year for ten years and I put that into a certificate of disappointment, I’ll have about $320,000 to my name. If I pass away, my family gets $320,000 in that CD and that’s it. That’s the end of the story. If I put $32,000 a year in over ten years into the stock market, all I have is a big fat question mark. My investment advisor is going to get a fee off that cash. If I put it into any investment, there’s no guarantee as nice and as solid as real estate is or even notes. All of it, nothing is guaranteed. We can get close listening to some of the strategies that Scott talks about, but there’s no guarantee on investments.
There’s one thing I don’t think you’re mentioning, that the whole point of if you’re not going to put it into something, you’ve got to take the action opposite. Most people are not action takers. That’s why this works well because they’re getting something sitting on their hands and twiddling their thumbs, as long as they keep putting money into it. There’s that difference. X insurance agent here back in my early days. I understand the whole life versus the whole buy term and invest the difference aspect that a lot of people love to get into sell it. You got to make the term work. You’ve got to do plan B, invest the difference.
Most people buy term and go out to eat. With the whole life contract and this guy’s example, 45-year old, after ten years, he’s got $400,000. That’s better than a savings account, but that’s what gets me out of bed in the morning. What’s interesting is in the eleventh year, he takes a loan against his policy for $350,000. He’d buy a house or maybe he’s investing in some notes or in something that’s going to give him a great yield. The policy will continue to grow and compound, give him the same exact growth, ROI dividends as if he had never touched the cash.
This is one of the biggest, most crucial pieces to the financial puzzle. Why does this matter and gets me passionate? It’s because everywhere else in the financial universe that I can find at a $400-plus financial product, anytime I withdraw money out of my savings account, my brokerage account, my 401(k), I’m losing the compound growth. I have an opportunity cost to my dollar. Every time I buy that car, send my kid to college, go on vacation, anything, I’m losing the growth I could have earned on that money had I left it invested instead. Even on the piddling rates of savings accounts and CDs, I’m getting at least something when I don’t spend the money, but when I do spend cash, it’s gone and also gone is all that that money might have grown to had I left it invested.
All of us are in the banking business, either we’re paying interest to a banker, car loans, student loans, mortgage loans, or we’re passing up interest we could have earned on our money. Had we left it saved or invested. Back to this guy in the eleventh year, he decides he’s going to take out $350,000 and buy some real estate with it or invest in notes or anything else you’d like to do. He pays himself back on his own schedule over the next five years, his choice, he’s in control of that. It’s a loan to the policy that he owns. He’s got a policy with a company that’s mutually owned and he owns and controls the repayment process. He owns the environment where his money lives. If someone else like a bank owns the environment where your money lives, they’re going to win.
He takes the $350,000 out. There’s an interest rate payment on that loan back to his vehicle.
In effect, what he’s doing is he’s using that $350,000 as collateral and he’s borrowing against his life insurance. There’s a key distinction there rather than taking it out because if you take money out of your savings account, brokerage account, it’ll stop growing for us. We removed that asset, but like HELOC, we’re using our house as collateral for a HELOC. The house still grows whether we borrow against it or not, but with a whole life policy, we’re using our cash value as collateral and the policy’s cash value continues to grow. To give you some real numbers here, as he repays his loan, he does have a loan interest rate of $38,000 and the APR on that rate is 2.1%. That was his loan interest rate.
Borrows $350,00. Where’s the $38,000 come from?
The insurance company is what’s giving us our cash here, but we own the company where we have the policy. It’s almost like you and I went into business together and we got a mortgage company set up. We own this mortgage company together. I need a mortgage. I come to you and say, “I know we own this mortgage company together. I need to be a customer. I need a mortgage.” You say, “Here sign here. Here’s your interest rate.” I’ll be like, “You’re going to charge me interest?” You’re like, “Yeah, you’re a captive customer. You’re not going to go to Chase Bank down the street. You’re going to come to our mortgage company. I’m going to charge you some interest.” I’ll be like, “I also own this mortgage company. I’m going to profit when I pay my mortgage every month.” Same is true when you own, co-own, in essence, the life insurance company. If it’s a mutual life insurance company, you get to profit when the policy loan is outstanding and the insurance company charges us on interest rate, they’re not doing this for charity.
What’s the average interest rate on the loans?
Over four years, the APR on these loans, if it’s properly structured will be about 2%.
That loan where that $38,000 came in and that’s structured over how long of a repayment plan?
I picked five years for this guy, but it’s important to mention that all of us are the ones that control the repayment process. You can take it over 5 or 10 years. You can wait until you sell your property or get out of your private placement fund and pay it all off at once. You could even take the loan all the way to your grave and the debt benefit back to this guy, that $2.1 million would be reduced by the $350,000 loan and his family would get the difference there. You could never pay off the loan as long as the policies enforce when you pass away, the family gets the net debt benefit income tax-free.
You paid $38,000. Dave Ramsey would be screaming like, “You paid interest on your own money.” I would say, “There’s one more piece to this story that I think deserves some attention.” This guy, this example, he was not paying after the tenth year. He stops putting cash into the policy. It’s growing on its own steam. From year 11 to 15, when he’s done paying off that loan, the policy by itself grew another $120,000. He paid $38,000, it grew $120,000, we call that arbitrage. That’s a powerful strategy for making our large purchases in our life, investment deals, real estate, sending our kids to college, investing in our business, capital expenses, pick and choose. That’s the power of becoming your own source of financing and letting the power of the banking function be taken back in house into the family rather than outsourcing the function of banking to the bank down the street.
I want to make a couple of points here. Dave Ramsey thinks all debt is bad. No offense, not all debt is bad. If that was the case, most people wouldn’t own their house. The biggest fallacy I see is people paying off their house and having all this equity that now they can’t touch without having to go out and qualify from a bank and do it’s tappable. You have to understand the securities in place, you mentioned those on the front inside, that 2.1%. If somebody got in trouble, it’s an insurance policy, they can’t tap into it.
The cash value is what we can access as a line of credit or withdrawal. The 2.1% is there. If we have the ultimate emergency and graduate on our family that pass away.
Graduate to a higher power or a lower power in some cases.
If we wake up on the wrong side of the grass, our family gets that 2.1%.
That’s the security interest built into it. If you get sued, which everybody in real estate or entrepreneur at some point is going to get sued, they can’t go and tap that.
The state by state has a bankruptcy protections and creditor protections for life insurance, both debt benefit and cash values. Check your state’s exempt list for creditor protections, but the general rule is there’s major cash value protections. They don’t want to disinherit your children because somebody decided to sue you because they slipped on a banana peel outside the rental. That’s the way it works with most states. Check your list in your state where you live.
We’ve got people on here that are new investors and $32,000 a year. What are some of the amounts that you see people start off and graduate up to?
No attention to those numbers, it could be as simple as a couple $100 a month or if you don’t want to wait ten years like that guy did, I had a lady who’s in her late 60s and started a policy with about $211,000 and she’d dumped that all into the policy with one lump sum. Right away, she had about $195,000 in cash value that she could use right away. You might have a bunch of money sitting souring in a CD or maybe have a couple of $100 a month you could set aside into one of these. It’s all proportional. Take a zero off those numbers or add another zero on, the concept of banking starts small at your pace.
With the lady that say that $211,000, she had $195,000 available to her to do what she needed to. She needed to borrow against that money. Let’s say somebody falls on hard times, like we’ve seen a lot of Americans out there and they’re unable to pay back that $195,000 for a period of time, because if they don’t pay back in 6 or 12 months, they lose it or it goes to the debt benefit of the variant. It’s deducted.
The interesting thing here is the loan against the policy is self-collateralized. I mean that the life insurance company sees loans to you and me as the safest bet they can make. What are these insurance companies doing? They’re protecting their general fund and getting yield to pay out their debt benefits and pay out their dividend claims and all that good stuff. Apple and real estate deals. I had an interview with a commercial banker and he was telling me that he uses life insurance companies as source for capital for large bank loans. You probably know this is true. Life insurance companies are out there getting interest yield and getting fixed income payments like bonds, but held to maturity. Life insurance loans are some of the safest monies that they can invest.
Why? It’s because that’s letting the insurance company off the hook instead of paying my family $2 million. It’s going to be $2 million minus the loan that they already advanced to me. If I should pass and never pay off my loan, my family gets the net debt benefit. The insurance company’s off the hook, the remaining loan balance amount and whatever I invested, let’s say I bought a couple of rentals with my policy loan, my family keeps that too with the outcomes and the rental income and everything, tax advantages that come with real estate, it’s a place to park our money in between our deals. That’s one of the best ways I can describe this concept.
You can take $195,000, buy a property or take it and buy down payments on ten properties, but her policy still growing inside of the bank, she keeps paying her monthly payment, but she’s leveraged an arbitrage. She sells two of them off. In five years, the properties double in value or ten years of values. She pays off her loan at that point, but now she used that $195,000 to buy ten properties and arbitrage that stuff to help herself fund and stuff. If you can connect the dots, if you’re an audible learner or a visual learner, you might need somebody to walk you through that.
I’ve got several different webinars and spreadsheets that show these numbers. If you love the visuals, I’m happy to set up a time to chat with people about that. It it’s all about do you want to control the environment where your money lives? Do you want to be your own source of financing? Do you want to have someone else do it for you? There are profits to be made. If you can understand how interest works, you’ll collect it as they say.
I can put a policy on you if I wanted to.
If you and I were in business together, yes. If we’re strangers, probably not.
You’d have to still prove to go through the health check.
There’s a big deal on stranger owned life insurance. You don’t want your worst enemy coming after you in your sleep. If you are business partner, friends, partners, family, the idea would be if you’ve got an insurable interest with somebody, it could be a grandkid or business partner or spouse.
Business partner is like key man insurance there for you.
You can even have your business own the policy, use it as an access point for assets and collateral for your capital expenditures for your business. That’s a big bucket of money that’s now a sellable asset. When you do sell your business someday. Let’s say, there’s $500,000 in your policy there for your business. Now, your business is worth at least that much plus everything else that your business has built up over the years hopefully and you can use that as a golden parachute to sell your business or leave it in the business when you walk away with your golden ticket.
It’s a valuable asset to that helps you leverage. Who doesn’t like buying a property that they can make 20% to 25% return on investment, do a quick flip, but they can make a quick $50,000 in 90 days? The biggest thing is when you hear people bragging about quick fix like that, they’re quick hits. When we talk with investors and they’ve flipped the property because what have you invested in before is an important thing. They’re like, “I did a fix and flip one time. I made 30%, great.” “How long was it? Was it 90 days? Did you do three more?” “No. I only did one that year.” “You didn’t make 30%. It made more like 8% annualized if you looked at.” If you understand breaking the numbers down. That’s one of the biggest things is being able to park your money, making something the entire time, get it out, get it back in and double down on everything.
I’ll also mention what this isn’t good for as well. When do we want our money growing the fastest? Some people will tell me, “I want it fast.” That means to the exclusion of the future. If I’ve got $1,000 and I double it now, that’s $2,000 tomorrow. If I’ve got $500,00 in my policy a few years from now and it doubles to $1 million, that’s even better. I would rather my policy or my money more specifically become more efficient every single year. Imagine if our cars got better gas mileage every single year and there was nothing we could do to stop it.
What would that do? How would that impact? How would that change how we bought cars or drove? If our money had an ever increasing more efficient schedule to grow consistently and predictably, even if we use the money, it keeps on growing and there’s nothing we can do to stop it, that’s a powerful tool. It’s not a good fit for people who want quick hits. It’s going to be boring you to tears if all we care about is ROI inside the policy. Like I said, 3% or 4% or 5% or 6% maybe, once we get back to normal interest rates, maybe it’ll be even higher. My plan is to see this as my parking space for my cash before I go and invest with Scott or anybody else. It’s where my money lives. It’s like the garage for my cash. I always take my car out of my garage to go do stuff, but it’s always coming back to the garage once it’s all done.
I’ve been thinking about while you’re talking about how many business owners took PPP loan out there. This could have been their own loan to them on the front hand that they’d been sparked. I was talking with an economist about it, what people don’t realize, the PPP loans, a lot of times that can be forgiven if you’re using that towards payroll, if you’re using that towards this expense, but if it’s forgiven. Guess what comes from Uncle Sam? A tax bill for loan forgiveness of at least 30%. Thank you for that big whoop in the back there, Uncle Sam. You’re not being hit with that debt forgiveness aspect of it because it’s from yourself.
When people got all excited and you see all these people, they took millions of dollars in PPP loans for their payroll or they took whatever they could, I didn’t even bother. I was like, “We’ve got the biggest payroll. No. I’m not worried about that. We’ll wait on that because we’ll basically self-insure ourselves with our savings and put stuff away in our cashflow that’s coming in.” That’s the biggest thing is if you’re an entrepreneur, you got to have some rainy day. You got to have something leveraged out there.
You as a CFP, this is a great product and you’ve worked with a lot of investors out there. If you look at what you’ve done and I know the class schedule that you’ve had to go through to understand this and in the curriculum you’ve done because I’ve looked at it as well. You want to have some mixed balance. You don’t want it to have all your eggs in one basket on the same active investor. Not somebody who’s sitting on the sides, what kind of mixed weight rate would you say that they need to have if there is such a thing as a balanced portfolio?
Let me give you my philosophy. Every person is going to have their own adjusted philosophy for their life. What we do is we have Zoom calls or phone calls and we have that conversation. I listen before I presume. Like a doctor, you can’t make a presumption about the people’s goals and objectives. Let’s think carefully and differently about our money, economies, futures because there’s something to be said for allocation and diversification. I view this product as a both end product. What’s to say that if my money is safe, predictable, and liquid in this whole life policy, it couldn’t also be deployed into real estate, notes, mutual funds and anything else? I have more choice when I have a liquid emergency/opportunity fund. That’s exactly how I view these policies. What’s the right balance portfolio? No one knows, not even as financial planners, not even as CFPs. We’re all guessing that’s the truth. I hate to be the Wizard of Oz, but no one knows the future of what the market’s going to do this week or next week.
When someone tells you, “I’m a long-term planner. I’m a comprehensive planner” BS. “Tell me what the market’s going to do this afternoon and tell me what it’s going to be in 30 years. Do you even know?” No one knows. Anyone who says otherwise is trying to fool you and trying to take your fees off your back. Here’s an idea. Imagine you’re a degenerate teenager and you see the factory downtown that hasn’t been used in twenty years. The windows are fallen apart. You go downtown, you’re looking to make some trouble and you pick up a handful of rocks that weighs about 3 pounds in your hand. You got a handful of pebbles in your hand and you throw it as hard as you can at one of those windows. Is anything going to happen? Is it going to break? If I’ve got a handful of pebbles, all that energy is dispersed and it won’t shatter at least maybe on the week.
Let’s get everything compacted into one 3-pound rock. If I have it all focused in one rock and I launch it with Scott’s arm at that window, it’s going to power through there. It’s going to shatter that window. It’s all about focus. If I’ve got my money in my 529 plans, 401(k), 403(b), my old annuity, my high school buddy sued me, what am I doing? I’m not going to go far in my financial life. Whereas if I’ve got my money focused and some people call this the barbell strategy, where if you’ve got a lot of cash, safe, predictable liquid available, tax-free cash for any purpose right alongside some speculative invest investments, you can have some serious plays. You’ll lose some money on the speculation, but then you’ll make some big deals come through as well.
It’s all a matter of philosophy and choice. As Warren Buffett says, “Diversification is insurance against ignorance.” If you understand what you’re putting your money into and I keep on reading Scott’s show and the things he teaches on this show because it gives people the insights into making informed decisions on what you can invest in, then you’ll be able to make our choices, use your predictable risk-free asset, maybe it’s one of these policies or their certificate of disappointment that gives you some access to that cash when you’re ready to invest.
A report came out that most Americans have been saving more than they’ve ever done in years.
It’s 17%. More in the teens.
Which is rare, but usually been a negative savings ratio for the most part. That’s a product as you are talking about, it’s something that they’re not getting anything on it. If it’s sitting there getting parked, that could be something to put into to start building your rainy-day fund in one of these and working with you. People need to have some reserves, you always got to have something because if something happens, you’re laid off at work, we all know that probably more 90% of people as we’ve seen are a missed paycheck away from being in default or being stressed at that. That’s never been more truthful than what we’ve seen.
Where do you think they got all that cash to save? It’s the government stimulus checks. It’s the PPP money and thank goodness we’ve had a lot of our clients come to me in 2020 and say, “I got a PPP loan. I want to put it into a policy.” I had a guy who had $120,000. He’s putting it into a policy and he’ll use that to fund his eCommerce inventory for the next few years and pay his taxes for him. I’ll tell one more little strategy. There was the CARES Act in 2020. If you’ve been impacted by Coronavirus in any way, financial or medical, they’ll let you have access to $100,000 out of your 401(k) or IRA with no penalty and give you three years to pay your taxes on that cash.
I haven’t seen that done anywhere except the mattress store down the street, three years same as cash, 10% discount. That’s what they’re letting us do in 2020. We’ve had a lot of our clients make their choice to take money out of their IRAs, 401(k)s where it’s a tax deferred time bomb, putting it into an after-tax designed whole life policy, which is much more like a Roth IRA. They’ve got liquid access to that money. They pay off an old debt they had or invest in real estate or a mortgage investing, whatever they choose.
You’ve got to talk with your advisor, talk with your counselor to know exactly what the costs are going to be because you pull it out of a Roth. You’re going to pay a penalty. That’s why it’s smart to do it on the frontend to put it into something if you’re not affected by Corona.
Don’t do anything that you heard on a podcast for sure. Go talk to somebody who’s competent and a good professional. There’s a lot of just googled it advisors out there who googled this idea of Bank On Yourself. After you called them about it like, “Mr. Advisor, I heard Mark Willis talking about Bank On Yourself on Scott’s awesome show. I want to do a Bank On Yourself policy,” and they’ll google it right before you show up in their office. Don’t work with anybody. You want to work with someone who’s been doing this and is credentialed by Bank On Yourself. Otherwise, you could end up with a fee-laden, taxable, whole life policy, or worse, universal life or variable life insurance. Those type policies are not designed well for this type of strategy.
What’s the best way for people to reach out to you? I’m sure you work with people all across the country, not just up in Illinois.
We love getting around town. We love seeing people around here, but we do virtual work most of the time. If you want to check us out first and learn more about us go to NotYourAverageFinancialPodcast.com. You can click on request a meeting if you want to chat with me or any of my advisors. We have a team of people who can help answer your questions. All of whom are Bank on Yourself professionals.
Mark, this has been a fun time. It’s been educational. A lot of people can get a lot out of it. Check out Mark’s website and podcast. He’s got great nuggets on there, does a tremendous job of educating and get some great guests on there. Mark, quick question for you. You brought this up a little bit. Have you heard of insurance companies are evaluating people differently if they’ve had COVID? do you know if there’s any of those things have changed?
One thing I have seen is a lot of companies that were struggling financially beforehand are making firm and conservative choices on who they approve for life insurance now. All the companies I work with have been around for over 100 years and they were paying dividends straight through 2020, through 2008, through the last pandemic we had in 1918, every one of the companies that I would recommend to clients have not adjusted their underwriting. In fact, a few of them have even raised their dividends in 2020 amidst all the pandemic, which proves how financially solvent these people are going to be for the next 100 years. There are some companies immediately, I’m thinking of one on the East coast that made some immediate restrictions on who they’d let have a policy. They obviously were in tight financial straits and I’d be very careful working with any old insurance company, especially for this type of strategy.
Thank you for coming on the show. It’s definitely been educational and informative. I hope all you guys out there pick up the phone and give Mark a phone call because I think one of the most important assets you can have is a financial professional that can help you guide. He can be your look out for you to do that because I know a lot of people are the Google out there, not just professionals, but also people, “I know it all, I googled everything.” No, you don’t. You need coaches and a good financial coach, somebody who’s taken the opportunity to learn and go through the curriculum, becoming a CFP. That’s not an easy distinction to have. Mark, thanks for coming on and we look forward to having you on in the future as well.
You rock, Scott. Keep up the great work.
That’s going to wrap it up for this episode. If you’re sitting at home, you’re reading this, you might have a little bit of time on your hands. Do that, take action and we’ll look forward to seeing you all on the top.
- Lake Growth Financial Services
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About Mark Willis
I love what I do!
— First, we work one on one with people in an advisory role, conducting a thorough analysis of their financial situation.
— Second, we create a blueprint and help people get from where they are now to achieving their financial goals.
— Third, we set up an accountability system to make sure they stay on-track, allowing for adjustments due to unforeseen life and work changes.
There are three reasons why people work with us, in no particular order…
1) We will provide you with what you need to know and what you need to do in order to increase your net worth. (knowledge)
2) We will help you create a strong foundation for your financial health, enabling you to weather the ups and downs along the way. (foundations)
3) We focus on building good relationships with our clients and help them look more closely at the relationships that matter to them. (relationship)
Bottom-line it boils down to four things:
1. You will be more focused on the financial issues that matter to you the most.
2. Second, you will be more in control of your situation, regardless of what is happening with the economy.
3. Third, your nest egg will grow with certainty,
4. …and fourth, ultimately at the end of the day, you will feel at ease and more peace of mind, confident you are doing your best in matters of your money.
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