Using the Vault for Untouchable Wealth
Hey Empire Builders,
What can a VAULT do for you? How do you use it on your path to Financial Freedom? Last time we talked about how a vault is risk free, tax free, creates a line of credit from your cash value that can be leveraged, has a guaranteed rate of return and still protects you as life insurance.
Let's dive deeper into how you can actually use it to be the most effective tool at building wealth as quickly as possible.
Today in 10 Minutes or Less:
- Setting up your banking system
- Compound interest vs simple interest
- ALL of it
Start Using Your Bank
Let me walk you through how the banking system is going to work for you. You are going to set up a life insurance policy, or VAULT.
First, just like a bank, you need to fund your policy, which creates the cash value.
Next comes leverage, or access to leverage capital. Now, here's how the leverage works. The insurance company, by regulation, has to have millions (and sometimes billions) of dollars in a very liquid state. They allow you and I to tap into this liquidity and to use their money (through leverage), to acquire and do the things that we were otherwise going to do. The cash value inside of your policy becomes a line of credit.
So if you have $250,000 of cash value, you can now leverage $250,000 of the insurance company’s money.
The last part is velocity, and once you see the math, you’ll want to move your money as fast as possible!
Now, up until this point, you only had two options to fund a big expense, such as buying a car or a rental property or taking your family on a vacation.
You could save up your money and pay cash.
You could use debt and spend future money paying off that debt in the future.
The vault will now give you a third option to leverage and access your policy and use it like a bank for what you were going to do anyway. Let me walk you through the math of how this works.
Let's say you want to buy a car that costs $50,000. You will need to have $50,000 of cash value inside of your policy, because your cash value is your line of credit. You have access to borrow the insurance company's money via a line of credit--while your money is still growing and compounding.
Now, the insurance company is a privately owned company--owned by you and me, when we become policy owners. They return their profits back to us as policy owners in the form of a dividend. They're called mutual insurance companies, and those are the only kind of insurance companies we work with. They're not publicly traded and their profitability is our profitability.
So if the insurance company is going to lend you money to buy a car, you want to ensure, as a co-owner of the company, that they're staying profitable and earning an interest rate on this money. So they're going to charge you an interest rate.
Today, these interest rates are between about 4.5% to 6%. For our example, let’s say they charge you a 5% interest rate. And you want to pay the loan back over 5 years in the same way as you would with a regular bank loan.
Now, you control the entire process, and you can choose to pay the loan back whenever you want. If you want to pay it off over 5 years, you would make a monthly payment of $943.56. After 5 years, you would have paid the insurance company a total of $6,614 in interest.
Now, let's say you make a payment here, you skip a few months, you make another payment, and your next payment is $1,000, etc. You can pay back the loan however you want. You control it 100%. Whenever you take a policy loan, the insurance company will never ask you why you're taking it, what you're doing with it and when you're paying it back. You control the whole process!
So if we ran this process with equal payments over 5 years, it would have cost you $6,614 to borrow the $50,000 from the insurance company. You're being charged a simple interest rate.
Now, the question that most people have at this point is, why would I do this? Why would I pay the insurance company $6,614? Why wouldn't I just use debt? Or why wouldn't I just use my cash?
Well, here's why.
During this same 5-year period of time, your $50,000 never actually came out of your policy, and your $50,000 is earning exactly what you're paying.
If you're earning 5%, then you're paying 5%.
If you're earning 6%, then you're paying 6%.
These numbers are exactly the same, but here's the key difference, and this is what allows you to function like a bank…You get to use the arbitrage of interest rates. In this example, you're paying a simple interest rate, but you're actually EARNING a compounding rate of return.
During that 5-year period, that $50,000 in cash value would be compounding, meaning in year number 1, you would earn 5%, which is $2,500.
That $2,500 would roll into your cash value. It would be locked in as part of your contract.
You would then earn 5% on $52,500 in year 2, which is $2,625
In year 3, you would earn $2,756 in interest. So you would keep earning a little bit more interest every year.
At the end of this 5-year period, you would have earned $13,814. This is your profit.
Now, I want you to see the difference here.
You've EARNED $13,814, and you've PAID $6,614.
You PROFITED $7,200 by running a better system, a banking system.
You were going to spend $50,000 on a car anyhow, whether it came from cash or from a bank loan. But you actually ran the system and got to be the bank and profit from having a better, more effective system.
Compound Interest BEATS Simple Interest All Day Long
My friends, let me now give you an even bigger example with real estate. Let's say you were going to buy a property for $100,000 in cash and hold it for 30 years. I'm going to keep this super simple. Of course things would actually change over time, but let’s just say it cash flows $1,000 a month and that stays fixed for the 30 years.
If the property appreciated by 5% every year, then at the end of 30 years, the property would be valued at $242,000.
Your total cashflow over the 30 years would be $216,000.
Your total profit in this example would be $358,726 after subtracting the $100,000 purchase price.
Now, let's look at the same example, except instead of paying cash, say you took a policy loan and used your rental profits to pay back the loan over 30 years.
What would be the difference? Well, in this example, you would have $100,000 of cash value in a policy first. That's what you would use to buy the house. You would take $536 a month from the rental profits to pay back the $100,000 policy loan that you took from the insurance company.
The value of the property that you bought would still be the same after 30 years: $242,000.
Your total cashflow over the 30 years would be $22,744 after paying the policy loan every single month.
Your total profit in this example would be $165,740 after subtracting the $100,000 purchase price.
BUT don’t forget an important difference. Remember that $100,000 of cash value that was in your insurance policy? It never came out of your policy. You just used it as collateral for a policy loan. So over that 30-year period of time, that $100,000 was still compounding and growing. It grew to $574,349.
And you still own the property. So your TOTAL WEALTH POSITION is $165,740 + $547,349 = $739,819!
It was the same real estate, you just had a better system!
If we look at these 2 examples side by side, you can see it's the exact same real estate in both transactions. The only difference is we used a more effective system and we DOUBLED our profits by doing so.
So my friends, if you had a Passive Income Machine founded on the vault concept where you got to be the bank, how much of your money do you think should flow through this system?
Now, you're not going to throw your grocery money through this system, but as much as you can put into this system, that's what you should put in. Every single dollar that is being saved for the future ideally should start off in the foundation of the vault. That way, not only does your money get to do multiple jobs at the same time, but you can also take all of the dollars in the vault and all of that compounding growth, and you can take back a tax-free stream of income.
And while you’re building up to a tax-free stream of income, you can use our money in the short term as a line of credit to accelerate the growth of your wealth.
My friends, I hope you can see the possibility and power of having a vault sitting at the foundation of your Passive Income Machine.
Please join me next time as we look at creating autopilot assets.
RISE UP, so that you can LIVE FREE.
Ryan D. Lee | CashFlow Tactics
