Let
me tell you about Jim.
Jim
is 55, and Jim is pretty mad.
I
just got done reading an email from him and, he was in a fury, a bit
humorous, but the angry overtones were definitely there. He’s mad
at himself and the world that he didn’t understand the concept of
compound interest and how to make purchases years ago.
Warning:
The concept I’m about to teach you may change your life (or make
you angry).
You
see, Jim, like everyone else, had to buy cars to live. He’s older,
so he has been buying cars for the last 25 years. And he is just now
realizing how much money he has lost because he didn’t put
compounding interest on his side. He’s been paying cash because he
was told “it was the best thing to do.”
But,
the question is, What
do the wealthy do differently?
Quickly,
if you don’t understand, The Basics of high cash value permanent life insurance, you need to get the Free Wealth Ebook on our home page, and watch the videos by clicking here.
Life
insurance offers us a place to store our money where it can grow and
provide us with benefits. We have access to that money through policy
loans.
However,
often times I feel my greatest disconnect with people I meet with
comes when we begin to talk about policy loans. People start to
wonder, “if it’s my money, why would I ever want to take a ‘loan’
from the life insurance company?”
It’s
a good question, and one that can be difficult to understand in a
phone call.
But
there is a reason, and a very strong reason, why letting your money
compound, and taking a policy loan, is much better for you in the
long run.
And
especially better than paying cash.
I’m
a numbers guy, so let me start with some numbers. I’m using a 35
year old who wants to save up $25,000 over a 5 year period to buy a
car.
What
he wants to do is this: buy 1 car every 5 years; starting at year 5
(after he has saved up the initial $25,000).
What
are his options? He can save money into a savings account, and buy
his car with cash, or, he can save up money in a cash value life
insurance policy, and take a loan.
Now,
the first scenario, the savings account scenario, he won’t pay any
interest, but he won’t earn interest (maybe 1% taxable) on that
money either. So, at the end of his life, he hasn’t paid any
interest, but he has no money to show for it.
(It’s
important to note that, even though he isn’t paying interest, he is
still making a monthly payment of $416.66 a month to save up the
$25,000 dollars to purchase each car.)
In
our second example, it will cost him more money, of course. Today,
life insurance policy loan rates are at 5%. His monthly payment will
be $471.78 a month. Over the lifetime of the loan, he will pay
$3,306.85 in interest payments.
I’ve
run an actual illustration for today. The point of all this is, “am
I going to make more money than I put in?”
The
answer is, yes (or why would I post about it?).
Why
are you going to have more money? Because you have compound interest
working for you. As time goes on, interest compounds on interest.
Here
are the illustration numbers. (We’ll start at year 10, after we
have paid back the first car loan. Remember, it took us 5 years to
save the money initially. And obviously, this needs to be a properly
structured high cash value whole life insurance policy to make
sense.
_Car #_
|
_Year_
|
_Cash Value_
|
_Interest Paid_
|
Car 1
|
10
|
$30,929
|
$3,306
|
Car 2
|
15
|
$41,803
|
$6,612
|
Car 3
|
20
|
$56,225
|
$9,918
|
Car 4
|
25
|
$75,202
|
$13,224
|
Car 5
|
30
|
$99,893
|
$16,530
|
I
just want to make it clear that this is all based on only $25,000
dollars going into this life insurance policy one time, and
compounding from there. There is no new money going into this policy
after the initial contributions.
The
real difference is the fact that your money is compounding,
uninterrupted, inside your life insurance policy. Sure, it takes some
time to build. But during this entire time it’s
also providing you a death benefit.
When
this guy from our example is 70, and time to retire, he now has
$131,803 in his cash value.
Compare
that to the guy who paid cash. He has 0 dollars, because he saved and
spent it all 5 times.
It’s
a huge difference. Yes, it costs you a little more. But
can $16,500 really be viewed as a cost if, when it’s all over, you
have $106,803 extra for retirement?
But
in reality, it all boils down to human nature. Parkinson’s law
says, “expenditures rise to meet income.” The opposite is also
true. If your car payment goes up another 50 dollars a month, your
expenses will adjust to match. The reality is, sure, if you are going
to force yourself to put 50 extra dollars into a savings account
every month, you will be better off. But the fact is, no one does.
Be Sure to Watch this Video from Truth Concepts, The Auto Calculator to show you the numbers:
http://ezwp.tv/VWfHId7
Wes and Susan, CWPP, MDRT
970.744.4626
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