What the Wealthy Know that Most People Don’t
Hey Empire Builders,
Up to this point, we’ve covered the game of money, Wealth Outside of Wall Street, the Passive Income Machine, becoming an Empire Builder and the Financial Freedom Formula.
So let's dive right into the VAULT strategy, which is gear #2 of your Passive Income Machine.
Today in 10 Minutes or Less:
-What the wealthy know
- Be the bank!
- Where banks put their capital
What the Wealthy Know that Most People Don’t
There is a universal truth behind anyone who's achieved real wealth…
The wealthy use LEVERAGE, and they deploy it more effectively, more frequently and more consistently than the average individual. Most average people do not understand leverage and therefore their wealth creation suffers.
Leverage is simply the difference between the inputs and the outputs in a given system. Leverage is how we can put a single dollar into a system and that dollar can have multiple outputs within that system.
As an example, let’s talk about how banks use leverage.
Banks are THE most profitable companies. Now, there are 3 things that are required for the banking system to actually work.
Cashflow
Leverage
Velocity
For cashflow, banks need income coming, through people's deposits. Once they have deposits, banks do not sit on that cash. Using leverage, they lend out a majority of our capital for things like car loans, credit cards and mortgages. And they do that over and over again to generate insane profits.
For example, let's say that we put our money into a bank, and that bank pays us 2% interest. The bank might then turn around and lend our money out on a car loan at 9% interest.
Now, we might think, hey, they're paying us 2%, they're earning 9%. Okay, they’re earning a 7% spread.
But I want you to see how powerful the banking model is with leverage. Over 12 months, if they're paying 2% and gaining 9%, the REAL rate of return that they're earning is 350%.
If they turn around and lend on a credit card at 25% interest, then they're earning an 1100% rate of return.
And so the last part of a profitable banking system is velocity. Banks want to turn money around as quickly as possible. Can you see why?
Banks understand what Robert Kiyosaki talked about, that savers are losers. And banks don't even keep their money in banks! So here's the reality: You need to be in 2 businesses as an Empire Builder.
You as an Empire Builder need to double down and focus on your profession--your business, your method of creating value and generating income.
AND you have to figure out how to get into the banking business, and that is what today’s discussion is about.
Be the Bank!
The most immediate way to step into the banking industry ourselves is by using a very misunderstood tool in the financial space:
It is an overfunded, high cash value whole life insurance policy. We call it a vault.
Let me dive into why this actually matters, and I'm going to start with taxes--the greatest destroyer of your wealth.
If we make the tax code as simple as possible, there are basically 3 places that you can put your money.
You can put your money in a taxable account, and you'll pay taxes as you go. You'll get a statement, you'll report your earnings and you'll pay taxes as you go.
You can put your money into a tax deferred account, like an IRA or a 401(k). This is literally a ticking time bomb because you're shifting your tax liability to the future, the very thing you're saving for!
Or you can put your money in a tax-free account. While this sounds great, there are really only 3 options to do this. You can use a Roth IRA. (Many people don't even qualify for Roth IRAs based on their income. And if you do qualify for a Roth IRA, there are massive contribution limits.) If you believe in the debt-paying ability of the local government, you can use municipal bonds. Or you can use life insurance.
Now, we are starting off with the conversation of life insurance from the tax perspective. We want to use life insurance in a very specific way to eliminate taxes in the future. Let me explain how.
When most people think of life insurance, they go to an insurance company and say, “I want the most amount of death benefit I can get to protect my loved ones.” But the only way you win in this scenario is if you die! This would be something like term insurance.
We're going to have a completely different scenario! We're going to tell the insurance company, “I want to give you the maximum premium that I can, and I want you to give me the least amount of death benefit or coverage necessary.”
Why would we do this? Well, in order to qualify the policy as life insurance, we have to get just enough death benefits.
We put ALL of our extra money, the maximum amount that we can, into a policy. If you're saving $50,000 a year or $25,000 a year--or if you have $200,000 in a bank account--you’re going to put all of this extra cash into a policy.
We're going to get the minimum amount of death benefit, because this is where the cost is. We want to keep that cost as low as possible.
And the difference between the maximum amount we're putting in and the minimum cost of insurance is cash value. This is the key component of these types of policies.
We want the greatest CASH VALUE possible.
Where Banks Put their Capital
Banks do not actually keep their money in banks. Banks are required to keep an amount of reserves, called tier 1 capital. As of the close of 2022, 3800 major US banks had stockpiled over $184.6 billion of their tier 1 capital in high cash value life insurance.
In fact, most banks have a standing order to buy as much high cash value life insurance as they're legally allowed to acquire. And you can do the same.
You now have the opportunity to build a banking system. Now, I want you to consider all of the benefits of your cash value in this type of account:
It’s 100% risk-free.
It’s 100% tax-free. We followed the necessary rules and guidelines to have just enough death benefit.
Your money is liquid, an open and accessible immediate line of credit.
You're earning a guaranteed rate of return.
It protects you, the driver of your game plan. At the core, it still is life insurance.
Your policy, when set up this way, is like a bank account with special privileges attached.
Your cash value will give you immediate tax protection. It'll give you inflation protection because you're earning a rate of return tied to interest rates. So it goes up as interest rates go up.
Your cash value also gives you volatility protection; your money is not associated with the stock market. And it's going to protect your cash, which is an asset, and YOU, the producer of everything. And your money is safe, liquid and productive.
In addition to all of this, it will give you tax-free income whenever you want, tax-free access to your policy via policy loans and a tax-free death benefit. That is why we're using insurance to eliminate the tax game from our entire system.
Also, there's no red tape. It's a private contract between you, a private individual, and a private insurance company, and there are no contribution limits. You can literally have millions in your account. Some of the wealthy have billions of dollars in these accounts! There are no timeframes or age restrictions, and there are no forced distributions. You can stack up as much cash as you want.
There’s zero volatility. Your principle is guaranteed, and it earns a guaranteed return. You earn dividends, and you will never lose them. The second a dollar is credited to your account, it becomes part of your contract. And you're paired with the most profitable and mathematically successful companies in the history of our country.
With all of this, it's a private contract with a private company. Trust laws are actually founded on life insurance laws. And it's virtually impenetrable while remaining 100% liquid.
My friends, I hope you can start to wrap your mind around what a powerful tool the vault can be. And you too can learn to use it like the wealthy do to generate Financial Freedom.
Please join me next time as I share how to create your banking system and put your money to work doing multiple jobs for you.
RISE UP, so that you can LIVE FREE.
Ryan D. Lee | CashFlow Tactics
