Wise Money Tools

Hi everyone, Dan Thompson here. Thanks for joining me on another wise money tools video. Today I want to talk about college tuition and retirement and how they can kind of battle against each other. Not a lot of families out there have the capacity to fully fund college and fully fund their retirement and something typically has to give. So I went and did a little bit of research, if you will, and found bankrate.com. And they talked about the average cost right now. They said for a public college average cost about $17,500 a year. If it's an in state public college that could get up to about $25,000 a year. A public college out of state could be about $40,000 a year and then a private college. And a nonprofit college at that about $50,000. Then they estimate how school paid for, they found that about 34% of school tuition is paid by scholarships and grants, about 29% comes from parents income and their savings. Then about 20% comes from both the student and the parent borrowing. And then 12% just student income and savings and 5% help from relatives and friends. So here's where I've been running into this real difficult situation. Let's suppose mom and dad if safe for their children's education and again, I see this all the time. Parents can literally be sacrificing their future retirement, just to pay for their college. Pay for kids college. Now don't get me wrong. It's not necessarily a bad thing and if parents have plenty of money, more power to you. It's probably a wonderful thing to give your kids. The problem is many families don't have unlimited funds. And when it comes down to it, they either cover college costs or they plan for their retirement. Let me giving a recent example. It was a situation I was talking with someone who was trying to save both for three kids going to college and then also for retirement. They had a 401k work and they were maxing that out. And what they did is they presumed that this 401k was gonna be enough when it came to retirement. Well, after we looked at it's performance, then we projected it's values out. Well, it wasn't really gonna come close to what they wanted to retire on as far as producing the amount of income they needed. So they'd also saved a pretty good chunk of money for their kids college. I mean, these people were disciplined and that's great. It good motives, good intentions. They just didn't have enough money to go around. So they had actually saved $100,000 already in addition to obviously paying their living expenses. You know, the day to day needs and then funding the 401k. So they certainly proved that they could save money and live well within their means. So I asked them what they thought each child's education was gonna cost. And between tuition borden room for years, they came up with about $50,000, a child and I said, Well, that might be a little low, especially if you're adding all these things. And then they had already picked the schools and they had done their research and they kind of had an idea what those costs would be. But one of their child was only seven years old when their kids is only seven years old. So we knew that they were probably gonna be way off. So the current college cost between 12 and $15,000 a year is kind of pretty common. And this one somewhere between, you know the cost of a public college and a private college. But let's just see really what the effect has on them. As I mentioned, they had a 401k, it was projected that if everything went perfectly with no big market setbacks. They'd probably have about $750,000 if they work till age 65 and they averaged about 8%. Now, here's the problem. You may have heard of the 4% rule, what's the 4% rule? Well, this is the percentage that Wall Street uses when determining how much money you can take out of your accounts, if they're still invested. And a 401k would be a good example of this. So each year with reasonable assurance that you're not gonna run out of money before you run out of life, you shouldn't take more than 4% per year. So assuming they have $750,000 again, kind of a big assumption, but because they really can't have. And the reason that's a big assumption is because they can't have a market crash, they can't have a law, they can't have a decade where they're not making money. They really need to make this 8% every single year, for the next 20 years. Anyway, using the 4% withdrawal rate, they are gonna be able to take out about $30,000 a year. Now remember, this is a 401k. All the money in that plan has been deferred, like other retirement plans, they haven't been taxed on it. So the full $30,000 is gonna come out and this can be taxable. If they stay somewhere near even a 20% tax bracket, that means they're gonna end up with about $24,000 net spendable income or about $2,000 a month. They'll also presumably get some social security and that might be around $1800 to $2000 a month as well. So all they'll probably about $48,000 a year during retirement. That's a lot of things that have to go perfectly just to come out with about half of what they're making right now. Is it sustainable? I don't know, not gonna be a lot of frills in their lifestyle. And if they live frugally, maybe every once a while they can take a vacation or even a cruise. But let's see what college really cost them. Remember, they were planning on spending $50,000 a child, three children, $150,000 the youngest being seven, so chances are it's gonna be much more than $50,000. But we're gonna just leave it at that. So what I did is I simply took this couple's current account value of $100,000. And then they were saving about 10,000 a year toward the college education. And so they would continue to save that and we'll just say that they could continue to save that till they were 65. So for the next 20 years, they're gonna save the $10,000 a year. So let's see what happens. What I did is they took a past historical reference of what would have happened over the last 20 years, using some of the strategies that we have. I wanted to see what their potential income could be. It was interesting, I came up with an after tax income of about $70,000 per year. Now remember, the way they were going, it was about $48,000 a year, I also increased the income each year by 2%, just to offset the cost of living. In fact, it's kind of interesting by age 80, they were bringing in like $90,000 a year probably don't even need it by then. Right. Well, looking at it, suppose today, they put that $1,00,000 away for the next 20 years at 8%. Okay, that would grow to about $466,000 if they continue to add that $10,000 per year that they're saving now. Again at 8%, it would be worth over $925,000. Even if we just use the 4% withdrawal rate that would mean about $38,000 in extra income. In addition to the 48,000 that they're currently getting. So think about that the cost of education wasn't just $50,000 per child, what it turned out to be is nearly a million dollars. And that's just on the income alone. Assuming they live to be age 90, that's a lot of income and in the account value, and they really cost them over 2 million dollars between the income and the account value to send their kids to school, and basically give them $50,000 each. Now again, let me say, I don't think it's wrong that you pay for your child's education. But for many parents, it's a trade off between a comfortable and plentiful retirement and subsistence basic retirement, if it were my parents, and I really understood the sacrifice they could potentially be making, I would probably think twice before I took their money and maybe try to figure out another way, and I could get myself through school. Now speaking of another way, there's a really popular way for kids to pay for school these days and that is student loans. Student loans are a killer. And I want to kind of walk you through what the true cost of these loans are. Now currently, in the United States alone, we have $1.4 trillion owed in student debt that's come and do at some point, that's gonna affect a lot of families out there. Statistics show that the average student loan right now is about $37,000. If you go to a graduate school, it's about $85,000. And the time to take back or the time to pay back alone is typically 10 years. And the interest rates are right around 6%. So if I amortize $37,000 over 10 years, that's gonna require a payment after graduation of $410 a month. For those that go to graduate school and have loans of $85,000 that same 10 year period of time, that payment is $943 a month. So just for fun, let's pretend this person's 25 years old when they graduate. And instead of having to repay loans, they get their first job, and they actually could save that money instead of putting it towards in debt. At age 65. So it's a 40 year working career using our look back model to recreate this particular scenario, the one that we're saving $410 per month. It's basically $5,000 a year would have nearly $2.7 million. Okay, that would generate about $200,000 a year tax free. Now, that is the tremendous power of compounding and time. The younger you are, the more compounding periods you have a think about that for the cost of a cheap car payment 400 bucks a month, you could retire on $200,000 a year after tax. If you start young enough. That again is the power of campaign letting it work for you, but it does take some time. Now the person who went to graduate school has $85,000 in debt $943 a month. So basically $11,300 a year that they're paying. If they could save that, instead of putting it toward student loans, they could potentially have $6.2 million Or an income of about 390,000 to $400,000 a year. I mean, that is a massive change, right? All because of compounding periods in time. Now, my real point here is not to say that you shouldn't go to college. But my point is you should begin saving the moment you get your first job. I hope you've been able to avoid student loans, because as soon as you get that first job, they're gonna take your dough. But if you get that first job, and now you get to save money, instead of taking away from your future. And that time value of money, and that compounding is huge. And the sooner you can start, the greater your potential financial situation is gonna be. Now let's just suppose the same two situations, but they each have student loans right. Now, because of the student loans, they're gonna come out. And they're gonna have to pay those student loans off first before they can start saving. So $37,000 again is the average for a four year degree 85,000 for a graduate degree. So they're gonna come out in the first 10 years of their career, they're gonna pay student loans before they start saving. Then after 10 years, they can finally start saving the same amount of money that they were paying for those student loans each month. Let's see what the differences in those 10 years does it makes so much difference. Well, again, if I can start from age 25 and save to 65, that's gonna be about a 40 year savings period. If I can't start till age 35, because I'm paying off 60th because I'm paying off student loans, and I saved till age 65. I'm giving up 10 years of growth, so the students saving $410 a month starting 10 years later, instead of having 2.7 million, if they started at age 25, that drops them all the way down to about 1.9 million. Still not bad, right? But waiting to pay $37,000 in student loans cost them $700,000 in future value. And the student paying $910 for their $85,000 School loan goes, this is huge goes from 6.2 million all the way down to 4.2 million. So the school loans that theoretically cost them $85,000 ended up costing them $2 million for missing out on that 10 year period of letting their money work for them. So young people, especially in parents, just two things to take away from this one. Seriously, get the least expensive education that you can. Now listen, what's so frustrating to me about college right now. We've got the internet and technology, all this, you know, great stuff going on. Yet schools haven't got less expensive, they really should. And the reason is literally because of school loans, be they're given to anybody. There's really no reason to compete. If you're a school, you know that if somebody wants to come to your school, they can just go get a school loan. They don't have to reduce tuitions. And it can be really frustrating. Not very many people shop for schools, you don't shop for the bargain, right? They just pick a school they want to go to, and because theoretically, the loans and the money's there, they do it. So sadly, unless you're gonna go be in a medical field or some sort of specialty. Really, not many employers care where you actually went to school. And again, that's not in every case. But pick the right school. Make it affordable. Don't come out with school loans. Number two, save immediately as soon as you possibly can. You know, I get an opportunity to work with a bunch of high school kids really bunch of great kids and we have financial conversations every so often. And I'm always telling them, look go mow lawns, wash windows, you know, working at fast food, whatever you have to do, save some money. Because you can imagine what happens if a 16, 17, 18 year old kid can start saving money right now and let that just grow and compound. It is huge money. Compounding is the hardest working money that you'll ever have. And it'll pay off down the road in spades. But you got to be patient. You got to give it time. All right, finally back to where we started. Parents often times you're sacrificing your retirement to pay for your child's education. That's admirable. However, I don't know if you've really looked at what's happening and the costs and what that means. I mean, if it's the difference between nearly double your income, if you save for retirement, and can avoid having to put so much money out for college. Is that not at least something to consider? Now, I'm not here to tell you how or where to send your child to college. But I hope you'll take a few minutes and realize if you're gonna spend 30,40, $50,000 on a child's education. And you might have 2, 3, 4 kids, it's costing you a lot more than you might realize. Don't be afraid to let your kids figure it out too. You know, I'm not saying I did it, right. But only one of our kids ever took a student loan, and it was on him. And he took it because the money was cheap and he could do other things with it, and he really pay for school. Then he paid it off real quickly. The rest of them first of all, they worked you know through high school. They'd save some money, then they did it through grants and scholarships. One of them even made money while going to school using grants. So there are ways to be creative. If you look for him, don't just give into the narrative that you've got to provide the most amazing vacation. I mean college for your kids. They'll get through it. And the less debt they have, the faster they can save. And that's gonna benefit them in the long run. Look, this is a debt crisis for sure. But the politicians who say the answer is to give college away for free simply just puts the burden on every taxpayer. It's eventually gonna be paid costs aren't gonna go down. They're gonna go up. Why would it college not want to pack more costs into their tuition if the government's gonna pay for it? Typically what the government touches does not get less expensive. I would love to see the public sector find solutions through technology, online, all those different things that could really drive the prices down. My fear is college and universities don't necessarily want innovation and reduce costs. They like to kind of stick it to these kids with tuition. And even though they have billions of dollars in their endowment funds at some of these universities. Ultimately, the answer is to make college more affordable, online streamlined, and don't put the burden on these kids for 10 or more years after they get out of school. With some innovation, college can be available and affordable to everyone. Sounds like I'm on my soapbox, now. Sorry about that. Anyway, that's it. Be a saver not a spender and don't shackle yourself and your kids two decades of debt and miss out on years and years of compounding. And parents. You don't have to give up a comfortable retirement just to pay for your kids college. Kids can be creative to work through school pay their own way, choose a less expensive school and so forth. They're plenty of alternatives. Well, that's it. I hope this was informative, kind of fun to talk about. If you have any questions, shoot them to questions at wise money tools.com. Don't forget to subscribe. And if you have any comments, write them below. We'll try to answer those as quick as possible as well. Until next time, hope you have a great week. Take care.

Hey everyone, Dan Thompson here with another wise money tools video. You know, last week I talked about the Golden Goose and how important that was to start saving your eggs. And we alluded to the fact how important it is that those eggs have time. Time to mature, to hatch to become other geese and then build even more eggs from there. So one thing that we all need, and we all run out of, and that is time, right? Well, our geese need some time. They need the again the time to hatch them to produce more eggs and then to hatch those eggs and on and on and on. However, if we don't give ourselves enough time, then we end up scrambling trying to make up for last time. I see this regularly, I get desperate calls from someone that might be 5 or even 10 years away from retirement. And guess what? They haven't even started preparing and now they're in panic scramble mode. So there's two things regarding time that can devastate our future plans. You've heard the phrases, adding fuel to the fire or to make matters worse, so it's bad enough not to be saving. But to make matters worse, or to add fuel to the fire is to add or to take away losses. In other words, to add fuel to the fire is we save money, but then we lose it for a minute here. Let's talk about starting today right now. This can have a huge impact on your future. If you are saving right now, then saving and doing the right things with your money so you don't lose it. It's critical. I don't care if you've delayed or made some bad choices, and you're 30 or 50 Or maybe you're already in your 60s. You really just can't delay another day. And those that have saved losses are the other factor in people not being able to reach their goals. It's bad enough again that we lose money, but it has a greater impact if we lose time. Time is a limited component of life. We can't lose time, and losing money is losing time. Sadly, I hate to admit it, but I've lost money in my lifetime. You know, when I first started, I follow the traditional financial planner path and for many years, that's how I thought things had to be. I also have lost money in things like the.com bust, that lost money in 2008. I've also made some other financial moves, it didn't turn out so well. So I'm guessing many of you are in that same boat. Most of us did that because we didn't think there was a any other way to build wealth that in order to get the reward, we had to take risk. And Wall Street's always preaching risk and reward. But that's not true. There's some very sound investments that you can eliminate the risk and still have the reward. What we want to do is take some income, or some return of our golden eggs. And we want to take some money off the table protect that and put a pile over here and let those eggs produce more geese and produce more eggs. What's more is this. What if you didn't have to take any risk at all? What if there was a safe way to grow and compound often times faster than the typical risky investments that you hope are gonna pay off? So we're gonna talk about that as we go along, but again, in this video I want to talk about how important time is. So the other day I was talking to this 32 year old guy, what I did is I showed him the basic concept of time. And it even took me back as to the power of time. And specifically starting today with more, no more delays. So here's the scenario. He was making some pretty good money. But he wasn't saving anything to speak of. So we figured that if he just saved one golden egg that he was producing each year, that would be worth about $10,000. Okay, so watch this. We went back, we took the historical returns of this particular strategy of leveraging and using the balanced 5 elements to wealth strategy, and we plugged it in. Now, if he began right now, at age 32. And at age 65, he started to take income based on repeating the exact history in that timeframe. He would be able to take out about $200,000 a year, tax free. Now I know sounds crazy, I get it, that's much more. In fact, it's double what he's making right now. And most people are told by their financial advisors that they're gonna have to live on less, even 50% less than what they make today. But again, that's because of financial advisors assume you're pretty much gonna be broke or dead broke, and you have to live off the 4% rule. Anyway, using this income based on historical facts, it turned out to be pretty nice. What I want to impress upon you is this. He started talking about as we went along, you start talking about that he wanted to pay off some debt first. Because the guy on the radio told him that was the most important thing he could ever do. And he also wanted to save on I can't remember what it was but he needed to buy something and he wanted to save up there or save for the next year to buy it. Well, basically what he was trying to do is say, hey, Dan, this is all great, but I need to delay saving those eggs for just one more year. And then I can get started, you know, pretty heavy. And I don't know if either one of us thought one year would make that much of a difference. So what I did is I backed up the calculator, and I showed him this. It was the cost to delay one year. If he starts at age 33, instead of at age 32. And instead of saving that golden egg this year, he spent it. So his income at age 65 went from $200,000 a year, down to $165,000 a year. That's a difference of $35,000 a year. Now let's just assume you live 25 years into retirement. That turns out to be an $800,000 difference. So 1 year delay so that he could pay something off or save up for something that he could buy, ultimately cost him $800,000 potential and potential income. But watch this. What if he delayed 5 years like so many people do in this world? You see a lot of people are listening to Dave Ramsey, which I believe he's like the debt elimination King. But so many times people are delaying the savings in the compounding. Because they feel like they need to take all their money to pay off debt. For some reason, Dave thinks that by paying off debt, it's gonna make you wealthy. Well, the real problem is, you're never gonna get to real wealth if you miss out on 2, 4, 10, 15 years of growing your golden eggs. So if this guy delayed 5 years, let's just assume that he's got just a ton of debt and needs to pay that off first. So his income would go from $200,000 down to $99,000, almost $100,000 a year difference, just so that he can say and yell that he's debt free. Now, don't get me wrong, debts a killer, we need to get out of debt be better if you just never went into debt. But missing out on compound in yours can sometimes be much more devastating than having a little debt over your head. All right, well, in that same 25 years, if he was down, or if he had reduced his income almost $100,000 in his 25 year retirement span, at $2.5 million dollars less income. So that's what's wrong with our current financial education system today. Honestly I as much as I want this guy out of debt, he would be better off carrying debt for another little while. So that he could save some of his golden eggs, rather than give them all to the banker. Now again, don't get me wrong debts a killer, but not because of the interest repay. It's because of the last eggs that we lose. And we don't give those eggs time to produce those golden eggs are a big deal. So the first rule should be again, don't go into debt. If you have to get some bigger tickets such as a home and maybe a very, very, very, very cheap car. Then do it after you've been able to save your at least your 10% of your income. At least get to the point where you're saving that one egg from day 1. Man if a young kids coming out of college and they get their first job, the very, very, very first thing they You should do is pay themselves first. Get used to taking that first 10% and paying yourself, then if you need to use a little bit of debt to build buy your house, maybe a very, like I say, very inexpensive car. At least you're putting away your golden age, giving up those years of compounding. So that you can put all your income toward debt is much more costly than the debt itself. You with me? Let me give you one more quick example. Paying off your home, man that can be a very satisfying event. And I don't ever want to tell somebody they shouldn't pay off their home. Sometimes that's just a really emotional thing. But it's a big ticket purchase and over the years. If you carry a mortgage, it can get very expensive, so to speak. However, let's go back to the video I did a few weeks ago where we look that an example of someone who had an extra thousand dollars a month. And they were told the best investment they could make is to pay off their mortgage, get out of debt, and jump and shout. They heard that paid off mortgage has replaced the BMW and thought that was the way to wealth to be debt free. So they have a choice, they can start saving some eggs right now. That would then produce another goose and then that goose would produce more eggs and that those eggs would produce more goose and on and on. And we would just have this huge linear family tree of the power of compounding. Or they can take that money and pay off a 4% mortgage. So it would take them about 10 years to pay off the mortgage. If they added that thousand dollars a month. And better yet, they're told that they're gonna save over 300,000 in interest. So essentially, they're gonna delay compounding for 10 years and put that thousand dollars toward their mortgage each month. Now let's just say this couples 35 years old today, in 10 years what they will do is they will save their current house payment of 1500 dollars and the extra thousand dollars that they're using to pay off their house right now. So in 10 years, they're gonna now begin to start saving, they're gonna save $20500 a month with the hope that it's gonna catch up fast. And what the guru's never calculate is that those missed 10 years of compounding and last time is huge. So our first couple is gonna pay off their house as quickly as possible and save $300,000 in interest that they would have paid. Then they're gonna take $2500 a month or $30,000 year starting at age 45, until retirement at age 65. Well, here's the result, using our simple and easy strategy using historical numbers, not that they can't be repeated, but they are historical. Their income at age 65 would be $146,000 a year. Not bad, pretty decent retirement, I'd say right. It's a little more than they're making right now. So their lifestyle wouldn't have to change at all, really. Now in the typical Wall Street world, that incomes is probably gonna be about half that much. Now, our other couple, they also would like to start saving but instead of putting it into their house. They're gonna keep their 1500 dollar house payment each month for the next 30 years. But they're gonna take the additional thousand dollars a month or $12,000 a year that they could put turn towards paying off their house. They're gonna put it into the acceleration strategy. So what's their income at age 65 projected to be? Drumroll. $232,000 a year tax free over $90,000 a year more by having those extra 10 years of compounding. Now, again, this is historical. I can't really say that's gonna happen in the future, there's a pretty good statistical chance it'll come close over a 25 year retirement, that's $2.25 million in additional income. Because they compounded 10 years longer, even though they only save $12,000 a year that add massively outperformed saving $30,000 a year 10 years later. So the couple who delayed compounding for 10 years while they did pay off their mortgage, they found it to be a very costly alternative. Now to be completely fair, the couple that paid their mortgage, what they do they paid $300,000 more in interest to the bank, because they carried that mortgage for the full term. So my question is, would you trade $300,000 for an additional 2.25 million. Now, even though the interest is already accounted for in the net result. Let's just take $300,000 off at 2.25 million, and we still are $1.9 million ahead. So that my friends is the power of compounding and time. Okay, so that's it for this week. If you have any questions, make sure you send me the questions at wise money tools.com. Don't forget to subscribe. You don't want to miss the video. And if you want to take a few minutes and see how these strategies how the acceleration and the leverage strategy might work in your situation, click on the time trade link below. We'll spend a few minutes together and see if it's a good fit for you. Other than that, thanks for joining me. Talk to you next week. Take care.

Hi everyone, Dan Thompson here. Thanks for joining us on another wise money tools video. You know, I've used this analogy of the golden goose over the years and in the next video or two kind of want to lay out how this might be one of the most important money concepts you'll ever learn. I know that sounds Whoo. But really it's true. You know what's fascinating to me about money and investing is it's really not as complicated as we make it. What's happened basically is you know, financial advisors Wall Street the suppose the Guru's make it seem so complicated, that they want you to kind of feel like you have to have their assistance. Well, worse than that is they don't really care if you know anything about money because they're happy to make You feel like you're incapable of understanding. And this way you're gonna turn your money over to them to manage. Well, then after years, you know, maybe some good years and bad years, some ups and downs, some winners some losers, the all the management fees and taxes, in that you're, you know, your destination, the journey is over. It's time for retirement. And then well, what happened, I thought I was gonna have a bunch more money than this, or I thought I was gonna get a lot more income. And I didn't think I was gonna have to take so much risk, whatever that case may be for you. Well, I hate to be the bearer of bad news. But if you take this approach with your money, you're gonna be like most of the world and you're either gonna be or you're going to die broke. All right, broke. That's not a very fun word. Most people are gonna be broke because they just don't have enough money or the gonna be broke because the income that's generated off the money that they have is keeping them near the poverty level. Did you know that the average 401k at the end of 2018, was about $103,000. Now, the good news is that's up 8%. Because as you've probably noticed, these markets have been on a tear for the last few years. But obviously, that's not gonna last forever. We've got way too many people thinking that this is normal. And what is normal is that we typically have some sort of a setback or recession, you know, least once in a 10 year period of time. Well, that average for everyone who has a 401k has kind of been inflated, if you will, or a little bit. It's been a little bit out of control. Now, so that's for the average 401k. That's everybody, right? However, just between the ages of 60 and 69. If we look at both IRAs and 401ks, the average account value is hovering right around $200,000. You can see by this graph, now folks, listen to me. $200,000 just isn't gonna do it, quite honestly, 300 to 5000 or even $700,000 isn't really gonna give you the income and the lifestyle that you may be dreaming of having someday. So many advisors talk about this elusive million dollar mark. And if you have a million dollars, you're gonna be just fine in retirement. Well, you know what, a million dollars just ain't what a million dollars used to be. In fact, if we use the Wall Street's 4% rule, which basically says, don't spend more than 4% of your nest egg each year, or you could run out of money before you run out of life. Now, this has been tested and backed tested through what are called Monte Carlo simulations, and just said, if you want to have a surety that your money is gonna at least last as long as you do, don't take more than 4% out in income. So what's 4% of a million dollars, that's about $40,000 a year. Not too bad, but not really anything to be too excited about. And this is kind of the Wall Street. This is financial advisors who are supposed to make you rich beyond your wildest dreams. So you can basically be broke because the income you take from your pile of money is gonna be a lot less than you thought it would be in your golden years. And it turns out the golden years, maybe aren't so golden. Who wants to be pinching pennies instead of spinning freely and enjoying your life? And you wake up one day and you wonder, wow! How's this retirement thing supposed to be? Once you understand the golden goose strategy, your eyes might be opened that Yet, you'll be able to take a uniquely different path from the rest of the world or what I call the sheeple and have a real opportunity to crush this retirement thing. The first object lesson is to understand who or what is the golden goose. Simply put the golden goose is a money machine and a capital creator. If you work and you bring home a paycheck, well, you're a good example of a golden goose. By your efforts, you just created golden eggs or what we like to call money, income, greenbacks, dinero, right. So let's break down an entire year's income into golden eggs. To make this real easy. Let's just assume that 100% of your income is gonna produce 10 golden eggs for the year. So if you make $100,000 a year, basically each golden egg is worth about $10,000. If you make $200,000 a year, you're still only gonna produce 10 eggs. But now each egg is gonna be worth more and so on. What we have to do is turn as many of these eggs into other gooses. I know the plural is geese, but we want more goose's. So here you are. You're working at your job day in and day out week in and week out 52 weeks later in the year, and you look back and you say has the goose I produced 10 golden eggs. The question is, where are those eggs now? Well, if you're like a typical family, your eggs are gonna be given and spent so to speak in this similar fashion. 2 to 3 eggs went to pay Uncle Sam and taxes. 3 to 4 eggs went toward loans, credit cards and interest. Yep. The average family spends 34% on debt and interest, ouch. And then they wonder why their nest eggs at retirement are so low. But 34 cents of every dollar goes to pay someone else. Then 2 or 3 eggs went towards your lifestyle, you know you had to eat. So you had to buy some food utilities, maybe some vacations or whatever. This is the money kind of we call it the lifestyle because it is what it takes to maintain your lifestyle. Well, that's about it. There goes all the eggs. Now you may have more eggs in one area and less than another. But what typically happens is that all the eggs are spent or eaten up or given to others. All that work and effort and you don't have any eggs that could potentially produce more geese. You see, geese that can ultimately produce more eggs, that produce more geese, that produce more eggs. That's the magic of compounding, the more eggs being produced, the greater your wealth, the more age you can keep, the greater your wealth, the more eggs that you have, the greater your income. So the one thing you have going for you is that you're still alive and kicking, and you're still the golden goose. And you can do it all over again next year. What happens is somewhere along the way, this family is gonna have to start to figure out how to save some money. But how are they gonna do that the eggs are all spoken for. Well, this is where a lot of gurus will tell you the change your lifestyle. You got to cut back, start to save, put some money in a 401k or other retirement plan. And hopefully save at least a half an egg, or what some gurus recommend is to dramatically cut back on everything. Put more eggs into debt, hoping that when the debts paid off, you'll finally be able to save some more eggs. However, you're up against a real problem when it comes to using all your eggs to pay off debt. And that's time every year that passes where all your eggs are given to the bank or a credit card company is lost opportunity. See if I can keep a golden egg today, I can get that egg hatched and that goose will then produce more golden eggs. And those eggs then produce more goose's that will also produce more eggs. This is the Einstein method of compounding that we've been talking about for many, many videos now. The more age you get to keep that become geese, which then produce more eggs. Well, pretty soon your wealth is literally unstoppable. However, giving up just 1 year of all your eggs can have a massive impact on your future wealth. Compounding, as we've said, needs time, the more time and ot the more eggs you can commit to compounding, the more magical the formula becomes. And again, so many gurus would have you miss out on this eighth wonder of the world of compounding, by not spinning your eggs wisely and putting it all towards debt, if you will. So for on that as we go along, is kind of rahner wrap this up, let's make it very simple. You're gonna produce 10 eggs this year. How many of those golden eggs will you be able to keep? And then how many of those can you turn in to other golden geese that will then make more golden eggs and so on? Oh, and here's the best part. If you can simply save the golden eggs, and you find the right strategy, you won't really have to do a whole lot. The geese and the eggs will multiply and grow and you can simply sit back and watch it all happen. You know as part of our 5 elements to wealth. The first rule was to save to pay yourself first, at least one aid. What is 1 egg represent about 10% of your income, then you can build from there. But you can't delay you need to start today. That's the next element to the equation. That's the next element to make this golden goose strategy work. I'll tell you why a little bit more in the next video. I know a little bit of a teaser. But hopefully that will get you to come back because it's gonna be a good one. I want you to be anxious, I want you to be excited to get this thing started and not miss out another day of compounding. Well, that's about it. As always, if you have any questions, shoot them to questions at wise money tools.com. I'll answer them just as quick as I can. Don't be afraid to leave a comment. You can have a little discussion there as well. And don't forget to subscribe. You don't want to miss these videos. And if you want to have a strategy session where we can talk about your situation. Just click on the time trade link below and set up a time with us. That's about it. Till next week. Take care.

Hi everyone, Dan Thompson here. Welcome to another wise money tools video. So we've talked a couple different videos now recently about leverage. Well, let's look at what that really means. Now there are several reasons as you know why we like to use life insurance when it comes to safe money. The plus sign in the equation and in a second here, I'm going to show you how to add leverage to a policy to accelerate it's productivity and its potential income. But first, here's a short list of why we like to use life insurance. It's an important asset to families and to businesses. First, it's very safe. It's called (Tier 1 Assets) basically means even banks can use life insurance and they do use life insurance. They put billions of dollars in it. As a tier 1 asset, what that really means it's the safest place a bank and put money. The second reason is (Guarantees). It's the only asset that can be guaranteed by the company itself. Even banks just use insurance, they don't even use the word guarantee. The next thing is (High Predictability). With whole life policies. The company even tells you how much they're gonna pay you the coming year. The next thing is (High Stability). These things have been around since before the Civil War, some companies have never missed paying their policyholders for 150 years or more. And then we can design the policies with flexibility that can be a big benefit as you go along. Next thing is (Rate Of Return) the rate of return without using leverage is pretty decent, especially because it has some additional tax benefits. When we add leverage that can even look much better. The next thing is the number one legal domestic tax shelter. For decades, both rich and poor have utilized insurance to protect their assets and reduce their tax burden. And then we have estate planning or charitable giving. Using life insurance can protect your estate from estate taxes. And it's an amazing way to give to your favorite church, school or charity. And finally, there's family protection. There's no better asset in the world to pass on to your family then life insurance. It's literally saved many of my clients from financial stress or even financial ruin when they've been able to pass on assets to their loved ones. Okay, so those are some of the great reasons why life insurance fits so well into many people's portfolios. But let's go on to leveraging and how do you leverage your policy to get a real good handle on this. Let's see how a bank uses leverage every single day. What I'm gonna do is pull up this very simple calculator to show you how it works. Let's take a bank making a $10,000 loan as an example. Suppose they charge 5% interest on that one year loan. As you can see that loan, they're gonna make $500 in the year, that's okay. Nothing to be too excited about right. But how does the bank really work? Banks have a little secret sauce that allows them to leverage the loans. You know what it is? It's you and I, its depositors. Every one of us is likely to have some sort of a checking account, a savings account. Some of you may even have a CD or two. How much do we get paid when we put our money in the bank right now? Right? Not too much. Checking accounts may not earn any interest, savings maybe one, one and a half percent. A CD if you go out long enough, you might pick up another half a point. Now banks can use your money and loan it out, they can loan out 9 times the bank's money. What that means is this if the bank puts up $10,000 of their own money, so to speak into the pot. They can also grab $90,000 of depositors money and put that into the pot. So for every $10,000 the bank has, they can actually loan a $100,000 or nine to one. Now let's go back to the calculator and see how that works out. Let's say that the bank's gonna pay one and a half percent to the depositor. Now let's add the 90,000 that they can use to loan out along with the 10,000 that they have. That means that they're gonna earn 5% right from the loan. They're gonna pay the depositor one and a half percent, which means they're gonna earn three and a half percent on the $90,000. So let's take a look. What the heck just happened there? The bank was only charging 5% for the loan, right? But because of leverage and using the OPM method, which is other people's money, they were able to turn a 5% loan into a 36.50% rate of return. Now, they still only earned 5% on their $10,000 or $500. But they earned an additional thirty one hundred and fifty dollars on the depositors money for a total of thirty six hundred fifty dollars. If we divide 36.50 into the actual money that they've invested, that's basically a 36.50% who returned. This is why the banks get excited, right? So how can you do the same thing that the bank does? Simple, we use leverage similar to the bank and this case, let me show you how this would work by actually borrowing from the bank, it might look like this. Suppose we have $10,000 in our cash value or inside of our policy that we can access anytime. Now let's suppose that we can borrow $10,000 from the local bank using our $10,000 in our cash value as collateral. So there's gonna be a loan rate charged for us to borrow money from the bank. And because it's such a safe loan for banks, we're probably gonna get that money for around 3, 3.50%. That means that we have about a one and a half percent spread assuming inside of our insurance policy, we're gonna make about 5%. So we make 5% on our $10,000 in our cash value, which is $500. And we make an additional 1.50% on the bank's money and that gives us another $150. So that takes us to a $650 return that year or 6.50%. Now that might not seem of that exciting, but just with one simple leveraged year, we were able to turn a 5% rate of return to 6.50%. Now what if we leverage that one more time, and now we have $20,000 of the bank's money that turns the money we're making into $300. Now our return is 8%. Not too bad. Now take a look at this graph. The orange line represents the S&P 500 over the last 35 years with using simple secure leveraging. We're now competing favorably with the S&P 500 long term average. Well, let's go one more time. leverage it up one more time. Now we're earning 9.50%. Actually beating the 35 year S&P 500 average. And if we go one more time, we get to 11%. And then one more time to 12.50%. This is all just by getting a 1.50% spread between our loan cost and our rate of return. So you can see the power of leverage. But how do you widen that spread? In other words, how do you get from 1.50 to 2.50 to 3, and so on? Well, as many of you know, seen my videos, I am not a fan of indexed universal life. In fact, I've got the indexed universal life course out there, explaining the pitfalls of IUL. These videos are extremely accurate. The agents out there don't know how to design them to start with. They're designed with just a bunch of commission and costs and it eats up your cash value. And the older you get, the worse it is because your cost of insurance never cease. okay? However, if you build it correctly, you maximize the premiums and then you add the secret sauce of leverage, you can finally potentially make an IUL work. And we when we couple that with the whole life that can buffer the years where the IUL actually gets a zero return. It can even make the balance even more sustainable. Now remember in a zero year and an IUL, you still have the cost of insurance, you have loan costs and fees if they're still in the fee year. So it's really not a zero year. However, by using leverage, the years where you have even a reasonable return. Let's just say 7% and that spread gets to be 3% or 4%. You can get significantly ahead and get a huge buffer that can help offset any zero years. By using leverage, you potentially take a decent return and turn it into a significantly better return. Which is what you have to have to make sure you stay ahead of IUL costs. And even if you were outside of the policy and you took massive risk, the chances of you getting these kinds of returns are pretty slim. So let me give you an example of using the bank's money to build your wealth. Let's suppose you have an apple tree, and every year it produces some delicious apples. And one day a buyer from Walmart comes to your door and says, Man, we'd sure like to buy your apples and you say well for how much. Now, not being in the apple business. I have no idea if this is accurate. Let's just say for our example he's willing to pay $5 for a bushel of apples now. I don't even know what a bushel of apples is, but roll with me on this one. You say great, happy to sell them to you. However, you only have one tree. And even though you're making 5 bucks on a bushel, you wish you had more trees, right? So then next thing that happens is you meet up with a grower from down south and he tells you, he's got a bunch of apples to sell. He's got all kinds of trees, but he can't find a buyer. He's willing to sell you his apples for 350 a bushel. He's also a big time producer and he can get you just about as many apples as you want. So you call up Walmart and ask if they could use some more apples and they say, oh, we'll take all you can sell us. So you get with the grower and you tell them you're gonna buy a bunch of bushels from him, and you're gonna pay him 350 for each bushel and then sell them to Walmart for 5 bucks. That's how leverage works. That's how we can make a typical no-frills, decent safe policy, but turn it into a money producing machine. Most financial advisors will tell you that risk and reward are always offsetting each other, that in order to get a high reward, you have to take significant risk. Well, Buffett, Warren Buffett's been arguing against that for decades, and he's obviously proved it. However, it's not always easy to invest the buffle way, and it takes a lot of time and effort and major patience to wait for the right time to buy. But by using leverage in one of the safest places to store your money on the planet, which is life insurance. You can potentially broach into that Warren Buffett like return with nowhere near the time and talent it would normally take to get there. Now unfortunately, the vast majority of advisors have no idea this strategy even exists. They're not taught it. I was never taught it when I went through financial planning training. Otherwise, how could any of these guys encourage you to put your money at risk when there's really no need? You wouldn't have to. Advisors basically want you to come to their firms roll the dice ride the roller coaster. Hope it turns out okay for you and you lived in that perfect timeframe where the markets did nothing but go up for you. There's really no need to take that risk. With secured leverage. You can compete favorably with some of the best investment returns out there and sleep at night knowing your money safe. There's just really nothing like it. Well, that's it hope you get a better sense of how to use secured leverage. If you have any questions. Make sure you shoot those questions to questions at wise money tools. com. Make sure you subscribe, feel free to make comments. And if you want to have a strategy session so that you don't waste another day or lose piles of money. Click on the time trade link below and we'll setup a time to spend few minutes together. That's about it. Till next week. Take care.

Hi everyone, Dan Thompson here. Thanks for joining us on another wise money tools video. In the last few videos, we've been talking about the 5 elements to wealth, and I hope you've gotten a real good sense of what all that really means. If you recall that first element is so important, it's where it all starts. It's extremely critical and that is pay yourself first. You know, this is such a simple concept, but it's so ignored today. It starts out oftentimes when kids get out of high school, first thing they do is they go to college, and they start piling up debt for school. They when they finally get a job, they go to work. They've got all this debt that they've got to pay off. And oftentimes, when they get that first job, the first thing they do is go out and get their first car. And then they rack up some credit cards because they just feel like oh, I'll always be able to pay off these credit cards. And then that can take a decade or more just killing them when it comes to, you know, paying off that debt. Even worse, it's ignoring element number 2, which is to start right now, and they can't start saving because what they're doing is they're taking all their money and trying to get out of debt. They delay compounding and that's huge. This magical formula or this eighth wonder of the world if you will, of compounding is so simple if you just get started right away but man, it just gets way out of line. You know, Dave Ramsey, I call them that debt King. Yeah, I listen to him quite a bit. It's always the same thing basically, you know, trim down, eat beans and rice, pay off your consumer debt. Then when those things are gone, you can finally start to save and invest. And then you work on your home mortgage, and finally be debt free. But to make matters worse, his favorite savings location is typically mutual funds or a 401k. If you have it, if not, then into an IRA. Luckily, at least I've heard him suggest to use a Roth, which is you know, it's a good start, but it's way too restrictive. What each of these investment choices have is this common theme of risk. And then we've got that next element, which is our plus sign. And this is the element that means we want to be moving forward. We don't want to lose money, we don't want to minus sign their. Losses setback are compounding opportunities, and it takes away the one thing we all run out of and that is time. You know, let me give you an example. There's been a few times in our history. If we go back to the crash of 29 and then through the 50s, and sometimes even through the 70s, you'll see plenty of examples where if you had $1,000 in, let's say 1929. It took 10, 15, 20 years just to be worth $1,000 again. That happened again in the 50s. That happened again in 2000. And so there's been several times in our, you know, investment life period. Where it just can take years, sometimes a decade or more, just to get back to where we were. That's what we call last time. If you remember the video on compounding in time. The average person pretty much can compound without losses about 4 times in their working life. And maybe 6 or 7 times in their entire lifetime. So losing a 10 or 15 or 20 year period of time, just trying to get back to get our head above water, so to speak, waste years and decades of compounding. So putting money in mutual funds, when losses of, say 10 to even as much as 50% occur. You not only lose the money that's aggravating enough, but the time you could have been compounding had you not lost. Now, you hear a lot of financial advisors say, well, the market always comes back, just be patient write it out. Well, it's true that the market does typically come back. It's also true that if you buy when it's down, you can catch up a little bit sooner. But human nature doesn't like to throw money into investments when they're down, when they're not looking very good or what we call when they're stinking right. The phrase, I don't want to throw good money after bad comes to mind. Although it's what I would teach and it's kind of the Buffett way, it's not easy to do that. Nor is it easy to sit on the sidelines and wait for opportunity or a crash or recession before you buy. So traditional advisors want you to just always be buying, never selling ride the roller coaster and just hope it works out in your favor, and you live in the perfect time frames. So many advisors use a 20 year or longer period of time to prove their points. And I like to point out that's all good well if you happen to live perfectly within those 20 year periods. Let me give you an example. Suppose an investor saving for retirement. And they've saved every month they did pretty well in the market for the last 20 years. They've built up a sizable retirement plan. Maybe it even has a million dollars in it. They're excited to retire. They've been working hard and now it's 2007 and they're ready to hit the road in retirement, right. But then 2008 hits and their million dollars literally cut half their account values now, a half a million dollars would seem to be a ticket to the golden years now has basically turned on itself. There's really no answer for that. They happen to not live according to the financial advisors. 20 year time horizon, right? And I think about this, we've had some really good years festive this last, oh gosh! 8, 9, 10 years without a recession without a crash. And the thing is a recession and setbacks. They're a part of the economy. They come every so often, there's nothing really wrong with them. It kind of resets things. Now, none of us have a crystal ball. But we know it's out there. We know it's a little mean at some point may not be for a few more years. Who knows, but if I were 5 to 10 years away from retirement, I'd be looking for a way to start eliminating risk of that crash. Protect my pile of money and add some significant peace of mind to my retirement plans. If we do have a, say a 30% correction, which is by the way, this market could really stand. That might mean last time and compounding and who knows, would that takes 2 years, 5 years, 6 years, 8 years, 10 years or more to get back where you are today. Now the 5 elements to wealth strategy then uses the power of "x" to grow money safely and exponentially using leverage. This is the secret sauce to the equation. All the other elements are great. Pay yourself first start today. Compound as long and as often as you can and don't lose money is perfect but where all this is enhanced, is when we can use safe and secure leverage. Now, we take a decent return, let's say a safe return of 4 or 5 or 6%. And then we could potentially double or triple that return without adding risk. I know you say that's not possible. How do you do that? It's by combining our elements with each other. See, each element on it's own really can't do a whole lot for you. But when pulled together, it's a powerful financial tool. If you could make water for instance, you would need 2 parts hydrogen and one part oxygen, right? H2o, that's our formula. But if we remove or eliminate or reduce any one of those parts, we're not gonna get water. The same applies to the wealth formula, leave out or eliminate part or reduce one of them, and it's gonna make it much more difficult to attain wealth safely. Now look, there are other ways to build capital and wealth for sure. I mean business owners, you know, have done it for years through innovation, hard work, and serving their community with a product or service that other people want or needs. That's kind of the whole capitalist way, build something that other people want. Other people can use, and that's can build your wealth. Then there's others who are professionals, medical, dental attorneys, whatever, that have very good incomes. And they can also that can give them the capital they need to save or invest. In both instances, taking capital and profit off the table, so to speak and applying it to our formula will not only build their wealth potentially faster, but take some risk and loss out of the equation too. We all like to think about growing our money faster, right? That's what makes investing exciting. And you know, I consider myself an investor. I like to have businesses that grow capital as well. We build houses right now. kind of fun. However, as good as some of these things can be taking some risk off the table as we go along. Yet not giving up potential returns is a very wise thing to do. I remember back in 2008, when a builder that I knew really well, he had just lost everything actually had to go bankrupt. He came to me and we were talking, he said, Dan, if I just listened to you and taken some of the profit that we were making in all those good years and set it aside. I might have been able to save my business, but at least I might have a few bucks or a nest egg protected for a lot from losses. Now, I don't know if it would have kept him from bankruptcy, but it certainly would have given him a fighting chance. What's more is had he built up his capital base from profits sooner right from day one. The first profit paid himself through the 5 elements strategy, he may not have had to build all that long. Anyway, and he left the the equation and that magic of compounding work for him. So, bottom line folks is it's time you need to understand and implement this strategy as soon as possible. You need to get this equation working for you yesterday no more delays. So what we need to do is talk about this, either myself or one of my guys will potentially almost blow your mind with how easy and safe this can really be. Well that's it for this video. Don't forget to subscribe we got a lot more good stuff coming up. If you have any questions, shoot them to questions at wise money tools. com. I answer just as quick as I can. If and you should want to have some sort of a strategy session when we talk about this click on the time trade link below and pick out a time that will work good for you. Until next week, hope you have a good one. Take care.

Hey everyone, and welcome to another wise money tools video. As you know the last few videos, we've been talking about the five elements to wealth. We're gonna finish it up with the fifth one today. Remember our equation y=a(1=r)x. Well, today we're gonna talk about that the power of x. Just as a quick review, a is our cash. Remember, we got to pay ourselves first one is the capital or the debt equation. And how much can we have our money actually growing? Or I should say, how much money can we have growing? Our is the growth factor. Now remember this, there's a plus or a minus, depending on the safety or the risk that you're taking and then x. That's the leverage. This is the exponential growth we get by using leverage. Okay, so let's talk just a second about what leverage is. Leverage goes hand in hand typically with debt, you may hear that, you know, businesses have leveraged a building or a piece of equipment or some sort of asset. As we discussed are in the earlier videos, there's good debt and there's bad debt. Now, I know there's some people who say, you should have no debt ever, ever, ever. And, you know, that's okay. I can live with that. But oftentimes, there's a way to use debt and leverage that can help enhance your overall return. So just as there's good and bad debt, there's also good and bad leverage. The vast majority of businesses have used leverage in some fashion to grow their businesses. A real estate investor, as an example is gonna use leverage to build their their rental portfolio. Let's talk about a specific use of leverage. Suppose I have $200,000 in cash, maybe I inherited a few bucks I've been or I've been saving it for years and years. And I've got $200,000. And I'm interested in real estate, specifically rental properties. Now I can go and find a rental home and it's selling for about $200,000. And let's just say that if I buy that home, I can rent it out for $1200 a month. Now, since I have the money and I can pay cash for the home, what's gonna happen is I gonna take in all those rents. So at 1200 dollars a month, that's 14-4 per year in rents and of course, I got costs and maintenance and insurance and taxes and so forth. But let's just kind of keep it at that for this sake of argument. Now, that equates to about what's called a 7% cap rate. Now a cap rates kind of the rate of return in other words, 14-4 divided into 200,000 about 7%. That may be high or low cap rate depending on where you live and what's gonna in your rental markets. Now, again, basically the cap rates, your kind of your rate of return on the amount you invest in. So along with the cash flow, the 14-4 the rents, if you will, I also get the equity appreciation of the home. So let's just say for the next 10 years, the homes gonna go up in value at 3% per year. So it go up about $6,000 in the first year. And what we're gonna do is we're gonna compound that return, meaning we're gonna have the $6000 grow as well. So in 10 years, we'd have gained roughly $68,700 in appreciation. So in 10 years, we could turn around and sell the home that we bought for $200,000 for $268,700. Now let's see how leverage might work. So what leverage does is instead of putting the entire $200,000 into one home. What we could do is leverage that into 5 homes. For instance, if we bought 5 homes but put $40,000 down on each home, which is about a 20% down payment and then we would turn around and get a mortgage for $160,000 on each home. This is leverage. By using the bank's money, we're able to get into 5 homes rather than just 1. Now your rental income would be the same on each home $14,400. The cap rates the same on each home. However, we do have mortgage payments. If we take $160,000 at 5%. In a 20 year mortgage, the mortgage is about $1,000 a month. So remember bringing in 1200 so that leaves us about 200 a month or 2400 a year per home after we paid the mortgage payments. So if we add up all 5 homes, that's a total of $12,000 per year after the mortgage is paid. Now we're leverage starts to accelerate your wealth is you've got 5 homes growing, and each of them also appreciated the same $68,700 or a growth rate of 3% per year. So your growth on all 5 houses combined is 343,000. By owning 5 homes, instead of 68,000 by owning just 1 home. Now by paying cash, obviously, you brought in the full 14 for a year in income because you didn't have a mortgage. If we take that times 10, so 14-4 not including any rental state or excuse me, rental rate increases, that's gonna bring in about 144,000. So if we add that 144 to the 68,000 and appreciation are Overall single home had a net growth in cash flow of $212,700. Pretty good. Now if we look at the 5 homes after the mortgage was paid, remember, that gave us about $20400 per year per home times 5 homes or $12,000 a year. If we fast forward that over the next 10 years again without any rental increases, that's 120,000. Now if we add the cash flow to the equity appreciation of 343,000, we've got a cash flow and appreciation combo of 463,000. So you pretty much more than doubled the return by using leverage rather than just paying cash. Now a business uses leverage to keep cash on hand. It's oftentimes better for them to borrow cheap money and invest cash assets into growing the company for instance. Now what's the downside to leverage? Well, it's obvious you probably already know this. If you borrow money and the market shifts and changes, you can be upside down in a home. And you still have to pay those mortgage payments, even though your home may be worth less than your mortgage balance. If you own a home without a mortgage and your rental unit is vacant, you don't have a mortgage, you're likely gonna survive the downturn. You can even set the rental rate lower to attract a renter, just to kind of get you through that cycle. If you had 5 rentals, each with a mortgage and you have vacancies in 2 or 3 of them, or even worse 5 of them. Well, that might be difficult to pay 5 mortgage payments at $1,000 each or $5,000 a month. That's what happened in 2008. We had all these subprime mortgages anyone can get alone, you can get a HELOC, which is a home equity line of credit On top of your mortgage for as much as 125% of your home's value. Then when the market shifted and dropped, homes were upside down really fast, families owed more than they were worth. And many of them just said, Hey, heck with it, I'm moving out. I saw homes that were worth $1.8 million or I should say that were selling for $1.8 million, eventually go for short sales at the bank for 700,000 and less. Now, there was a lot wrong with 2008. Banks did stupid things. Hopefully, we're not gonna go into that situation ever again. There were many who went to jail because of what they would do is they would sign docs that they were gonna buy a home from a builder. But then they tried to flip it to someone else before the home was finished. I mean, it was kind of like the wild west of banking and subprime mortgages. At least at this point. We're seeing real estate prices increase in demand going up, but they're still reasonable lending is still have to qualify. The home has to appraise for what it's being bought at and mortgages are no more than 80% for conventional loans. So anyway, that's a different story. Let's get back to leverage. As you can see, leverage can work out in your favor. If the value continues to go up, or at least stay somewhat flat. If markets turned and values drop will leverage can be a catalyst for a further economic stress. Another example of leverage occurs in the stock market. At brokerage firms. It's called margin. Now margin is a way to borrow money on the stocks that you bought to turn around and buy more stocks. So for instance, if you have a stock that's trading at $100 a share, you can borrow up to 50% of that value or $50 to buy more stocks. There are even ways to leverage up to 10 times or more with other securities. But let's just stick with the simple example of a 50% margin. You'd pay interest for the use of that margin just like borrowing money anywhere else, or even using a home equity line of credit still gonna pay interest. The problem is if your stock ever drops and it's trading at the margin balance, you're gonna get what's called a margin call. And you're gonna either need to deposit more cash or more securities to bring up the portfolio value. Or they're gonna sell your stock to cover the margin balance and the words they're not gonna let you go into the hole. This is what happened to many investors back in the dot-com boom and bust in the late 90s, as well as 2007 going into 2008. Investors were used in margin to buy stocks and when they finally went bust margin calls were wiping out entire portfolios almost overnight. And as I said, Now businesses use leverage to grow a lot oftentimes to buy buildings or equipment or to expand. However, they too can get caught in the leverage trap. As an example, and one of the things we do if we're ever looking to buy a stock or a company, I like companies that could pay off all their debt in one, maybe one and a half times their revenue. In other words, they're smart with their borrowing. Okay, so why all this conversation on leverage? You need to kind of understand it because what I'm about to share with you is something that you may not have thought possible. What if you could use leverage to grow your money faster but that leverage had no risk to it? Yeah, sounds pretty good. Well, it's called secured leverage. And it would certainly fit well within our mathematical equation of keeping our money safe compounding and using leverage to build our wealth faster. With the previous examples of using leverage in real estate and stocks, there's no assurance that you might not end up owing more than the assets worth. Typical leverage or debt has to be paid. Even if your home real estate stocks are trading less than what you paid for it. But what if the asset you've leveraged can never drop below the leverage? All right, let me give you a fictitious example. And let me emphasize fictitious example. Let's pretend you could buy a CD at the bank right now for 6% interest rate one year cd 6%. I know you're probably laughing. It's not possible. And I agree. But let's just walk with me here for just a minute. So what you do is you put your money into this CD at 6%. Then you go to the banker and you say I would like to get a loan using my CD as collateral. And the banker agrees and he loans you at a rate of 4%. Okay. So now you take that money you borrowed at 4% and you turn around and buy another CD at 6%. So now you have two CDs. By the way, in the investment world, this is called arbitrage. It's making money on the spread between your cost of money and the return it produces. But I'm not gonna get into that too deep. We'll save that for another discussion. So let's suppose you do this 3 more times. You borrow money on the new CD at 4%. Go buy another CD at 6%. Then you borrow on that CD at 4% and buy another CD at 6% and so on. Now you have 4 CDs working for you. Now this would be extremely safe borrowing because you've borrowed money that's backed by the collateral of the CDs, which are guaranteed by the bank, which are never gonna be worth less than what you paid for them. If for some reason, or somehow you didn't pay back the loans, the CD is backing the loan. So it's always gonna have money there to pay off that loan. The CD will never be worth less or lose money like it can in stocks or real estate. All right, let's look at it from this perspective. Suppose your original CD purchase was $100,000. So that CDs getting 6% interest right? Now again, for the sake of the example, let's assume you can get $100,000 loan against your CD. So you're gonna pay 4% interest on that loan, right? Then you turn around and buy another CD at 6%. That means on the second CD, that $100,000, you're gonna net a gain of 2%, right? You earn 6 but you've got a loan rate cost of 4. So you're gonna net 2. Now in our example, we're gonna do this three more times so that you have 4 CDs. So you have 3 CDs at $100,000 netting you a 2% gain. So looks like this CD one 6% gain at $6,000 in income that year, CD two, it's $100,000 as well. We're getting 6% paying for netting 2 or $2,000, CD three, the same thing. We've got 6% minus 4%, 2% and then we've got a $2,000 gain for the year and finally CD for the same thing. In the end, I have one CD at 6%, which returns $6,000. Adding in the three other securely leverage CDs brings me in another $2,000 each or another $6,000 total. So that the amount that I get between all four CDs is $12,000 a year. Remember, we've only put in $100,000 into the very first CD. So our total return now is $12,000 on $100,000 invested, or if we divide that out, it's a 12% return. So if you could do this by using secured leverage, we could turn a 6% yield into a 12% yield and took no additional risk. Okay, so let me again emphasize, you can't do this at the bank. Okay. But if you could, that would be a great example of secure leverage. So what if you could do something similar to this but not use a bank? Sound interesting? Well, it is. There's only one place where you can put your money and you can do the secured leverage. It's done by using a specifically designed life insurance policy. Yeah, that's right. Something you've probably never seen or heard of or knew it even existed. Don't worry, not even your agent or advisor is heard of this either most likely. You can't simply call up your traditional financial advisor and hope he or she has any clue as to what this means or how to use a well designed secured leverage policy. So let's talk about how this works. And if it's a good fit for your situation, they don't fit necessarily for everyone, but for those that fit it can be a game changer. So if this is something that you like to talk about, see if it fits in your particular situation. Click on the time trade link below. Claim your spot for a quick conversation. And we'll get together and talk about it. See if it's a good fit for you. In the meantime, if you have any questions, shoot them to questions at why is Money tools.com. Will answer them just as quick as I can. Don't forget to subscribe. We've got a lot more coming centered around these topics. I think you're gonna be very informative and exciting to learn about. So until next time, hope you have a great week. Take care.

Hi everyone, this is Dan Thompson with wise money tools. Welcome to this video we are in part two of compounding. Now if you didn't watch part one, I need you to go back and watch that because it's gonna make a lot more sense if you watch that first. Trying to keep these videos short because I want you to stay tuned and not go away because this is good stuff. So in our compounding discussion that went just a little bit longer, I wanted you to get some of this really good stuff because this is gonna dovetail into you being your best financial advisor. Now, most advisors won't tell you this and sadly, I don't know how many of them really get it either. Okay, so we know that compounding is the eighth wonder of the world and we talked about how How compounding can just be huge if we take advantage of it. Well, part of the compounding equation is time. Okay? We need time for money to percolate and to grow. And this is where financial advisors fall off the rails, they put money at risk, and they typically throw it into mutual funds. And then everyone just crosses their fingers and hope it's gonna do well. What they don't consider is last time. Now what is last time, it actually equals just losses. So it's those years where you lose money, because you don't just lose money, you lose the time it takes to get back to where you work. Alright, so again, most advisors simply sit it out, they say take the hit, ride the roller coaster, and markets are always gonna rebound over time. So just sit there and be quiet. We know the market went down, we know you lost 20, 30, 40, 50%. But don't worry about it because it's all gonna come back, but they miss out on years of compounding. Now, you may have heard the comment that losses have a much greater impact on your wealth. Negative impact then gains do on the positive side. So what does that mean? Well, let's go back to 2008. If you had your money in mutual funds, a 401k, or just about any stock or real estate investment. It was not uncommon to lose 40, 50, maybe even 100% of your money depending on where it was. Well, if you've lost 50% of your money in a mutual fund or the 401k, we affectionately called the 401k the 201K. And 2009 because people lost half their money. It took years in fact, it took a lot of people somewhere between 10 and 13 years just to recover to get back where they were in 2007. It's often referred to as the Lost Decade. And for many, that's a compounding period or two to get back to where they were. Remember in our last video, we talked about compounding periods, and at a 10% rate of return a compounding periods about 7 years. We don't get many of those in our lifetime. So when you miss out on two compounding periods, that can mean a lot of time wasted, that you're not compounding. So in 2007, if you had $160,000 and we go back to our compounding table of the 31 compounding periods in our last video, that puts you right at about day 25 you have $160,000. Now over the next 10 years, had you kept on going You would be on day 26 or 27. Okay, somewhere between $330,000 to $600,000 you would have in your account, if you were able to keep on going. However, you lost 50% that took you back to day 24 then it took you 10 years to get back to your $160,000 or back to day 25. You see, time lost is a killer. Losses are a killer. So what we've got to do is find ways predictable ways to avoid those losses. Another way to look at it is this. If you have $100,000 and lose 50%, you now have $50,000 right? Well, the next year let's suppose the market came back and gained 50%. Well, how much do you have? You only have $75000. You see, if you lose 50%, your gains have to be 100% just to get back to where you were. So everyone sat around and waited for a decade or more to get back on track to get back to where they were in 2007. So it's last time, and the time is needed for compounding. Suppose in 2008, you didn't make any money but you didn't lose any money. You had a flat year. And better yet it was a reset year for you. In other words, as soon as the market started moving up again, you were on board, you were moving up as well. You didn't have to wait for 100% return to start making money again. Let me say it like this. Suppose I have a stock that I bought today for $100 a share and it goes down 50%. Now it's trading at $50 a share. Right. At what point do I start making money again? You probably guessed it, I have to wait till it gets above 100 to start making money all the years or time it takes to get from 50 to 100 is just last time. Now suppose there was a way that when the market drops 50% I don't lose, it's just flat. It's a 0% return for me. But then it's also a reset. So as the market moves up again, I do too. So if the market does gain back 50% over the next few years that it last. I get to grow with that 50% to think of it as like, you know, climbing stairs, I go up with the stairs, but in a bad year, I just stay on that stair while others are going backwards. Then when the market goes up again, I start climbing from the stair that I was on. Never having to go backwards or take losses. This way, I don't lose time, oh, maybe 1 or 2 years of standing on the same stair. But I never have to reclaim those stairs that where I was previously sometimes 2 or 3 compounding periods ago. So the message is this. Since we only get so many compounding periods in our lifetime, let's not waste them by simply retracing the past. We don't want to write a market up and then take a beating on the way down and lose time in years, just getting back to where we were. Our time in our compounding way too important, too precious. Now I'm speaking from experience. I have lost a lot of money, investing, holding, hoping, not paying attention to warning signs, thinking well, things are gonna recover. I joke with my wife it if we had just not lost any money, and I'd gotten a measly 2 or 3% On the money that we lost, we have a lot more zeros in our finances. Well, I know that's not too funny. Sadly, it's true. We all make mistakes. What I try to do is help people not make the same mistakes. I can pretty much talk to anyone who's been investing for a while, and they probably have a similar story. Now I still invest. I try to make money work. Right now we build houses, but the difference is for the past 10 to 15 years. I also pull money off the table, get it working and growing and compounding where it's safe.I don't have any chance of losses. So my point is in this video today is we've got a process and a program where you can compound and grow your money never suffer market loss and never lose time. Never lose that time that takes to recover or to reclaim those stairs again, growth time and no losses are the key to taking advantage of those few compounding periods we get in our lifetimes. So if we fast forward your compounding schedule by getting as much money as you can in there for as long as you can. You're gonna to be surprised what it can do for you in regards to future income, and a lifetime of peace of mind. All right, that's a lot to take in as good video. Hope you enjoyed it. If you have any questions, shoot him the questions at wise money tools.com. Don't forget to subscribe. And again, if you ever want to have a conversation, click on the time trade link. We'll have a little strategy session and see how things might fit in your situation. That's about it. Look forward to talk to you next time. These are the five key elements to wealth. And I hope you enjoyed it. Talk to you later. Take care.

Hi everyone, this is Dan Thompson with wise money tools. Welcome to this video or podcast. You know today I want to talk about debt and credit some of the pitfalls that people fall into, and they don't even do it necessarily on purpose. But we live in a world today with really easy credit, which means easy debt. We got bank and finance companies are always out to look to grab another family, shackle them down with debt the rest of their lives if they possibly can. If you have bad credit, even that's not a big problem anymore. There's plenty of payday loan locations, willing to kind of gouge you with extremely high interest rates for just a few bucks in their loans. Sadly, payday loan shops. They loan for things that really people should never be borrowing money for but they get themselves in these really dire circumstances and they can't have help it. For instance, you don't want to take a payday loan for an electric bill or a phone bill or groceries or for maybe some car payments that you missed. payday loan shops can charge as much as 30%, and sometimes even higher for these short term loans. What you may not know and what you may think, is that these companies are just all crazy profitable. But you know, they're not as profitable as you might think. Now I'm sure some of them do fine. But the amount of losses they have, because they write off these bad loans almost equals many of their profits. I saw one company that basically made .75% when it was all said and done because of all the losses they had to write off. So it can sometimes justify the high interest because a lot of people don't pay those loans back. Well, in a payday loans trap, it's almost impossible to get out once you get started. If you're struggling to make a, let's say $100 cell phone payment, and then you have to go borrow that hundred dollars. And now based on their rates and their fees, maybe you've got to pay $120 or $130 back later, I don't see how that's gonna help you start to get into this whirlpool, you're spinning downward. You're trying to keep your head above water, but the interest rate just keeps piling on interest on interest. And it makes it almost a monumental task to finally swim out of that Whirlpool. Well, you know, I've been doing this financial advisor stuff for pushing into 35 years now and I've seen just about everything. You know I've run into several situations over the years. And I remember thinking, wow! you know if these people just changed a few of their habits they might be able to improve their situation. I remember this one couple they were in there, oh, just getting into their 30s. They never really had saved any money. But yet they both had some pretty good jobs over the years. But because of the debt that they had, and just letting their you know, money go through their fingers, the spending it overtaken their finances. They've made some horrible decisions when it came to buying cars to instead of just getting a car that was, you know, very, very affordable. They always bought the nicer, more expensive car, and they strapped themselves to these payments, and they would just stretch their finances to the brink of disaster. What sad is they just felt like they deserved it. I always ask, what does that mean? I see so many commercials that say you deserve it. And I always asked myself, why do I deserve a new car or whiter teeth or a big TV or main other things that I'm supposed to at least supposed to be deserving of. Well, you deserve to be in debt the rest of your life if you think by buying these things you deserve is gonna help you out in life. Well, this couple they needed to borrow money to make ends meet way too often. You know, their cars were always on the edge of being repossessed, they'd have to go to payday loan places. They have to get money to make just their car payment that they were supposed to have made. And oftentimes, they had to go to family and rely on them to bail them out to make payments forum. It put a real strain on their family relationships as well. They fell for this illusion that they were always gonna be able to make a car payment. You know, you go into the showroom, you see the car, you try to justify in your mind. Oh, we'll be able to make it you know, and again felt like they deserved the more expensive car. I'm not sure how they convinced themselves are doing that. but evidently they did. Have they just taken a car payment and cut it in half and then save that difference. At least if they got in a bind in the future they'd have a little bit of cash to fall back on. Well, that was bad enough but what made their situation even worse is that they stopped to buy a soft drink every day, sometimes a couple of days. For others, many of people who listening to this it might be stopping for that cup of coffee every day. Add to that the wife she had, you know her nails done all the time. Her hair is beautiful, always spending money, doing those kinds of things. And the husband wasn't much better. What he did is he not only stopped for his beverages, but he also ate out almost every day and this cost somewhere between $7, $10, $12 every day. Add that into What she might have been spending on nails and her hair, and so on and so forth. My guess is they were spending, you know, a couple hundred bucks a month just on those things. Now, speaking of beverages, this is a kind of an interesting statistic, but two thirds of adults spend money on coffee each week, okay? And that doesn't include if they get is soda or alcohol. And then out of those who buy coffee, 20% of them so 20% of all those who buy coffee, spend more than $20 a week on coffee, that's $80 a month. Now, if you add alcohol in there, you know alcohol can be extremely expensive. And the worst part about alcohol is it can add some additional stress to your life and your relationships too. I won't go there. Anyway, then again like I mentioned, the nails, the hair, the drinks, the eating out, it can suddenly max out your paycheck. But worse leave you with nothing to save or invest. They didn't follow the first rule of life and that is to pay themselves first. I think about this couple and a few things come to mind. If they would have bought a car for, let's say, half the cost or half the payment. Maybe they could have saved a couple hundred bucks a month, just in car payments. Cut out half the beverages, half the eating out, half the nails, half the hair, and there's probably another $150 maybe $200 a month more that they could save. All told, I think this couple could have easily found a way by just controlling some of their spending to save $450 to $500 a month and not drastically changed their lifestyle. The problem was, these were the choices they were making. They burden themself with these self imposed costs and debt. And it was things that they didn't necessarily need but that they were spending their money on. So let's just presume that they wasted $500 a month, and it just kind of slipped through their fingers. Now let's suppose that instead of it slipping through their fingers, they actually saved it. Okay? In a year's time, that would be $6,000. Now let's take it one step further. Let's say they save this $500 for the next 30 years, remember, they were just in their early 30s. So let's just assume they were 35. And they're gonna saved for the next 30 years till they're 65. Well, we've got one program, where it only projects a historical return of about 7%. But in that 30 year period of time, what it would do is it would grow to such a significant amount of capital that it could send of a $100,000 a year, tax free the rest of their lives. Now think about that. The cost Starbucks or Coca Cola, or painted nails are eating out, cost them $400 to $500 a month. But what it really costs them was $100,000 per year in annual retirement income. Now, that's $500 a month, suppose they could only save half that much. That still means from age 35 to 65, saving $250 a month, and cut back on some of the wasted habits. They'd have over $50,000 a year and tax free income again, the rest of their life. Oftentimes, the choices we make and the habits of spinning cost us far more than the few bucks here and a few bucks there is pretty simple. Money has a magical power to grow and compound if you leave it alone. So next time you're buying a cup of coffee or a soda or you're out to eat, you're spending some money on things that you may not need. Because if you spend everything that you get, think about what you're giving up in the future. You're literally driving, eating and drinking your future away. You're missing out on letting your money work for you by choices that you might be making today. How often do I hear? Well, it's just $1. Or it's only 5 bucks. At the same time, this person can't save a dime, as no money. And when they're in a bind, they gotta call family for help. If this person would just take a bit of responsibility, spend a little bit less by little less expensive car, be more self reliant, don't rely on family, tuck some money away. It'd be surprised how fast they'd have a little mistake. Look, no one wants to live life where you can enjoy little things along the way. And I want somebody not to be able to have a soda pop here and there. I don't want to be the guy saying no, you know, you can't go out to eat and all that stuff that's not very fun. But just have a little bit more clarity on where your money's going. And you can always have some fun along the way. Put your house in order, save some money, get out and stay out of debt. And with just a little bit of sacrifice, you can massively change your future and generations to come. Alright, well that's it for this video. If you have any questions shoot your questions at wise money tools.com, always subscribe, make sure you make a comment below. Happy to help any way we can. And if you want to have a little strategy session, just click on the time trade link below. Pick a time and we'll talk a little bit about your situation how you might be able to prove it and till next time. Hope you enjoyed this video. Look forward to seeing you then take care.