Latest / Wealth On Main Street / 346: Is Paying Cash for Business Equipment Costing You More?

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346: Is Paying Cash for Business Equipment Costing You More? · Wealth On Main Street

• 0:00
  Speaker A: Foreign. Welcome to wealth on Main street, where conversations about growing your wealth are fun and entertaining. Wealth isn't just about money. It's the skills and the knowledge that we develop to pass on to future generations. Tune in each week to grow your mindset and your net worth at the same time. But I pay cash for everything. How often have either you said that before or you've heard someone say it? There's nothing wrong with paying cash for stuff other than have you reckoned with opportunity costs? Well, today I'm joined with my friend Darcy Densmore. He's been on the podcast before. He's one of our amazing advisors and he proposed this great idea to me because he's been having a lot of conversations with business owners and people who love to pay cash for things. And I don't know necessarily know people love to pay cash for things other than that they prefer to use their own controlled resources rather than having to beg and get down on their hands and knees and hope some lenders is going to give them financing. So I think that's really what happens a lot of times, Darcy, we find people who are cash buyers. There's either a, a circumstance from the past where maybe they, they just needed that control or they didn't have it and they needed something and they couldn't get it. So they've learned a habitual way of creating their own quote unquote financing mechanism. But they're financing using cash. They just don't realize that it's a financing decision. And that's something that Nelson talks about very much right in the beginning of his book, is that you finance everything that you buy. You're either going to pay cash for something and give up the opportunity cost, which we're going to dig into, of your own capital for the rest of your life and that generational impact that that makes, or you're going to borrow from someone else's pool of money and you're going to pay to access them and pay either fees or interest. So you have to get come due with the piper in some way. So today is really going to be a reckoning conversation about paying cash for things. With this in mind, Darcy, you've got an example of a gentleman you've been speaking to who's a business owner financing a lot of equipment, trucks and that sort of thing in the business and has developed a habit of basically replacing a vehicle in the fleet roughly every year. And there's a large chunk of cash that's going to Chevrolet or GM and they're receiving 40 to 60 thousand dollars every time they need to replace a vehicle in the fleet and they're letting a vehicle get 8, 9, 10 years old and then they just swap it out with a new one. Each year goes by, the next vehicle gets too old and then they swap it out for a new one. So every year there's another vehicle basically being replaced. Is that kind of correct?
• 3:00
  Speaker B: Yeah, yeah, that's pretty common. I've had a few people talk about that actually. They think they're saving money by not paying interest to someone else. They just save that cash up in their business, keep socking away and comes time to get a new vehicle every year, they just hand that cash over to someone else to walk away with that truck. But they don't realize they handed all their cash away every single time.
• 3:21
  Speaker A: And opportunity cost is like, it happens in different ways. You know, there's many ways we can think about it, but today we're actually going to look at a mathematical way of looking at it and we're gonna, you know, sometimes we'd be, we're trying to be cautious of making a lot of comparisons. We don't like doing a ton of big math examples on our podcast because then, you know, every, every person who knows how to use an Excel spreadsheet jumps on and the keyboard warriors come out and say, well, you didn't factor this and you didn't factor that. And so like we're not, we're not trying to get into an arm wrestling match here over, over having everything being all the same way. We're going to make questions and comparisons around thinking and around behavior. So we're going to look at opportunity costs and we're going to use a mask. I'm going to have my screen share up to. So if you're driving in your car and you aren't able to see this, you know, re watch this episode on YouTube and you'll see what we're talking about here. But we're going to walk through an example and in today's example, we had to pick a number to work from. So we're going to look at a 40 year old individual, typical, you know, 40 year old business owner running some trucks and equipment through. We're going to use $40,000 as our funding mechanics because that's representing like a cash purchase and cash flow running through the books of a business. And whether it's the books of a business or it's your own life, the same thing applies. Okay? So we're going to recognize the impact of putting money into a system and what that can do versus, you know, just letting it drain out and disappear into some other entity year after year after year. That's really the distinction we're going to make. And in order to understand that, we have to really recognize the flow of what happens for the typical cash buyer. And then what does that mean long term? Because we often make these decisions in the moment. And you know, when you're running a business, you're usually flat out, especially if you have trucks and equipment and employees, like you're, you're working a lot, you're probably working, you know, one and a half, sometimes two times the amount as the, the person, even though you might be the business owner. And meanwhile, you've got a family and you've got soccer practice and hockey practice and all the other same things that everyone else has to deal with. But you don't always get your weekend to yourself. So a lot of people don't recognize how much energy and effort was, especially in those earlier startup phases, that first five to 10 years of the business. There's a grind associated with building something that did not exist before you made the decision to start the business up. So you have to really recognize that. And we're going to, we're going to interlay some of that as we show some of our, our screen elements here today. But Darcy, this, this has been coming up for you in conversations in, in more than one way. I mean, we're referencing a specific gentleman here just because it's, it's relevant to the business owners we often speak to. But it's been coming up a couple of times for you in other conversations. So talk to me a little bit about that.
• 6:10
  Speaker B: Yeah, it's pretty common. And I got. So other people I talk to, same idea where they just, they can't wrap their head around, you know, taking a policy loan or owing to debt to anybody. They're, they're in their mind saving and paying cash is the safest and best way, and they're saving money. And you know, granted, it's, it's, it's better maybe to save money than pay cash to someone else if you never see it again. But it's not still not the best way. Yeah, you're still giving that cash away and you're never going to see it again.
• 6:37
  Speaker A: And this is where I think sometimes people have confusions because again, there's a lot of misinformation out there on the Tic Tacs and the Instagram and, and people will think. And so I'm going To use aggressive air quotes every once in a while. Here. Darcy knows how aggressive I like to be with my air quotes. But there's this thought process that you're borrowing your own money. When you borrow from an insurance company, that's just completely false. It's wrong. When you have an insurance contract, dividend paying, whole life insurance contract, you have a contract. That contract is a promise to pay. It has contractual elements, and you're the owner of that. Cash value is one of those contractual elements. But it is a. It is, is actually a representation, a present value, today's value of a future outcome of that, which is a future death benefit that must be paid. And so cash value, the word value is the important term. We hear the word cash and our brain said, oh, cash. Well, that's what it is. Well, no, it's not cash. It's not money. It is a value that represents what could be turned into money, either by cash collapsing the contract, in which case you have no contract anymore, or you have the ability to now borrow against it. So it's better looked at as equity. And if you think about equity in a house, you pay down a mortgage, it creates equity. The house might go up in value. That creates equity. And so you have the jelly in the sandwich. Okay, so house goes up in the value, the mortgage comes down. Well, now you're creating equity. But equity is a, is a, is a number on paper that you can recognize, but it is also not cash. So in the same way that house equity is not cash, what's stuck in the insulation in the walls of your house? Well, cash value and insurance policy is the same idea. Now you can liberate, liberate equity in a couple of ways. Number one, you can sell the house. Well, if you sell the house, you get your equity back out. You got to pay all the legal fees, you got to sort through all that dynamics. But now you're also homeless. You no longer have a house. So you probably need to take that equity and go buy another one, because you still need shelter. It's one of the bas. Human needs. Similarly, I personally believe one of the basic things we should be doing is making sure we support and protect our family members. Well, insurance fits that dynamic well. You can liberate equity from an insurance contract by collapsing it and giving the contract up, and then you don't have any coverage. So the same way that you sell the house, you could basically sell the insurance contract back to the company and you get that cash value. So you've now liberated the equity, but you've given up the ownership stake in the respective item, the insurance contract or the house. Makes sense, Darcy?
• 9:12
  Speaker B: Yeah, pretty,
• 9:12
  Speaker A: pretty simple. There's only one other way to liberate the equity and that's to borrow against. Borrowing against is pledging that equity as some form of collateral. Well, in a house scenario, you're, you're borrowing against with a third party, usually a third party bank. 97 I'm estimating here. But 97% of the time that's the case. In the other 2 or 3% of scenarios you're borrowing maybe from a third party person and you're doing a private lending scenario. But it's still a lending situation. Someone is choosing to take a risk and lend against that and they're going to take that, the house as collateral. The same thing applies with insurance policy. You can borrow from a third party lender or you can borrow from the insurance company itself. If you borrow from the insurance company directly, you have total control of both the repayment terms, but also you are now borrowing from an entity that you are a co owner in. You co own the insurance company as soon as you are a participating owner. So yeah, they're going to charge interest, but they're going to continue growing your contract with contractual elements every single day. And they're going to allow you to liberate equity, to be able to use it in some other way. But when you're accessing capital, it's no longer your money. Your money, your capital stays in the, in the contract. You're borrowing from a giant pool that you share an ownership in. Hey, I like free stuff. I hope you like free stuff. In fact, we got something for free you can download right now. It's a copy of our book, Cash Follows the Leader. This book is all about how you can develop uninterrupted daily growth with high cash value life insurance. We explain a ton in there. We have some fun images so you can follow along. Go ahead and go to cash follows.com, that's cash follows.com and pick up a copy for yourself today. So Darcy has a policy with a company and I have a policy with a company and my wife does and Darcy's wife does and our kids do. And we all have policies with one company. In fact, Darcy, we actually do all have policies with one company. Right. So if I take a policy loan, maybe I'm getting some of Darcy's money and some of his wife's and some of his kids. That's part of the representation of that pool. And when Darcy borrows Well, maybe he's getting a little piece of mine and my wife and my kids and we're all in it together to win it. So they have to charge an interest rate to bring that back in to make sure that everybody is squared away properly. That's kind of how that works. So I don't want to get too lost in the weeds there, but recognizing the control that that provides. And if I'm borrowing from the insurance company, I'm not borrowing my own money, I'm borrowing the insurance company's money. But the insurance company doesn't own anything. They only steward what the policy owners owe. They do all of this for the policy owner because the policy owners, plural is who owns that giant pile of money? Does that sound, does that all tie together? Darcy?
• 12:01
  Speaker B: Yeah, for sure. You know, and the fact that we are paying interest to the insurance company that we co own helps to contribute to their net profits which we also get paid from later on because we're co owners in the company. So you know, you can put all the money you want in the bank, but we don't really realize any profits from the bank. At the end of the year they put the ladder to shareholders they don't share with us. It's way better.
• 12:22
  Speaker A: Yeah, coincidentally, if I decided to own shares and you know, ABC bank and I also have a mortgage with ABC bank, probability is my mortgage and the amount of interest I'm paying is much higher than the amount of shares that I own and the dividends I'm getting for that because I'm also taking after tax capital to go to this and I'm taking capital to go do this. And so I have to make that choice voluntarily. And even if I own shares in them, well, they're not going to give me any preferential treatment when I walk in the door to ask for more money. They're going to just, I'm known the loans department, I'm not in the shareholder meeting. Like they're not going to give me anything preferential. Whereas with the insurance company I have contractual rights which are very preferential in this scenario. So with that in mind, let's, let's, let's dig in and take a look at the cash buyer experience. Darcy Again for our listeners, we're going to be referencing in a minute here an example of doing $40,000 a year because we just had to pick point and we're going to talk about a 40 year old circumstance. So if you're 50, maybe it's 50 grand. If you, if you're 65 maybe it's 70 grand. You know, again, it's all relevant. And if you're younger, it's not about the number that you're putting in or the specific age. It's just about the example of flowing money. Right. So just, you know, use your imagination essentially, as we go through this. So what we have here is just a very basic diagram. And you can see I've got a blue line, an arrow that's rising, it's going up nice and steady. Eventually we get to a point where we have accumulated enough cash that we need to go make a purchase. So for our example, we're going to, we're going to use vehicles. We talk about vehicles a lot because, you know, especially in a business scenario, you have inventory, you often have equipment, or you have vehicles, depending on your business. If you're a delivery business, you definitely need vehicles. So you. And those vehicles die. They, they get burned out, they have maintenance problems, they need to be replaced, they get mild out. And that has to happen on a pretty recurring cycle. So it's a major flow of capital that has to come from some place. It's either coming from, you know, regular cash flow and we're building it up and then, and then dropping down our cash, or we're borrowing from a third party. It's really the only two options. And so in this scenario, we're going to assume that we're building it up and then we're dropping our account value down and we're paying cash for a vehicle in this scenario, why that matters. You know, in accounting they have this terminology they call a sinking fund. Darcy, ever heard of the sinking fund before?
• 14:45
  Speaker B: Yeah, I heard the sinking fund. Yeah,
• 14:48
  Speaker A: the sinking fund. Now, if you're a listener, I would love to see you type in the comments what comes up for you in your mind when you hear about a sinking fund. Does that sound like a great place that you want to go and put your money in your capital? Doesn't really inspire a lot of, a lot for me because literally what you're doing is you're building up a fund and then it's. You're sinking it and you're dropping it down to zero and then you have to start all over again. That's a. It's literally what's taking place. And when you can't get access to third party money because a bank won't lend you anything, if you're new in business because you don't have any financials yet, well, often that's how you have to bankroll the whole Operation, you have to generate revenue and you're, you're reallocating that revenue into, into trying to get the business to grow, but getting what you need, increasing equipment, all that stuff. It's very common. So here you can see we're going up and up and up and up and up. We get to a point now we need something, in this case a vehicle. Boom. We drop down like a hot potato and we drop all the way back down to the zero line. So my, my blue horizontal line here represents the zero line. So we built up in our case, let's say 40,000 and then we're dropping it down to zero. We just bought a car or a van or a truck. In this scenario, we paid cash. Now we have to start that process again. In order to replace that vehicle, we must build up the amount of value so that when the time comes and the replacement we know has to happen, we have to make sure we have the capital. And if we don't do that intentionally, what ends up taking place for a lot of people is actually go backwards because the money gets allocated to some other place and they don't have what they need to go and buy that same vehicle. Or they have to buy an inferior one that needs to be replaced quicker, right? Like, oh, I don't have enough to go buy the one that I need that's going to last me 10 years. I only have enough to go buy the used one that's only going to last me six years, right? So you, you're always dealing with some kind of a major decision of that nature. So here we go. We build it up and up and up and up and again. We get to this point and then what happens, Darcy? Boom.
• 16:43
  Speaker B: Back to zero,
• 16:43
  Speaker A: right? Back to zero, back to zero, right? That's what happens. So we see that trajectory happen repeatedly. This is the cash buyer's problem. And again, there's nothing wrong with paying cash. Other than, have we considered, have we thought about, is there another way, what could we do differently where we can accomplish the same fundamental objective, getting the thing we need, but maintaining the compound potential or the growth potential of our original money and not sacrificing that bigger future. That is the biggest distinction. That's where the opportunity cross comes in. So you might save by paying interest and fees to a third party bank and lender. You also might save on some control elements and you most definitely will save on the frustration and the irritation of having to fill out dumb applications of paperwork. Darcy, how much paperwork do you think I like to do?
• 17:39
  Speaker B: I think you hate paper as much as I do, Richard. Let's keep it simple.
• 17:42
  Speaker A: Yeah. Yeah. You and I will sit down together and have a tasty beverage and we can talk about how much paperwork we like doing and. And boy, it's going to turn into an interesting conversation very soon. So, you know, you are saving a little bit in that scenario when you're paying cash, but you're still sacrificing and making a. The key thing is, as Nelson says, you're making a financing decision, but instead of financing with a third party, you're financing with future you. The future version of you that has less money to work from and less money to pass on to who you love. That's who you're financing with. You're financing your own futures, opportunity cost. So that's a key thing we want to talk about. You're sacrificing that bigger future. So if I scroll down here, I have a different version of this. I have the same diagram. Down below we see the same trajectory, but I now have this new green line in here. That green line starts off a little bit lower, but it starts to cross over and it continues to grow in that. That typical kind of compounding growth curve that we're all familiar with, seeing volcan graphs of it. Well, this is if you had a system. Well, I've got a nice big giant green highlighting arrow here and a big blob of green highlights showcasing everything that's underneath that line. Well, that's the equity that I was talking about. So if you can liberate or access that equity effectively with, on demand, on your terms, in this case, borrow against, because you're borrowing against. You're never collapsing value. You're not depleting anything. You're allowing it to keep growing and keep the continuing path. So you don't sacrifice that future. But now you're able to access someone else's money, opm, other people's money, in this case it's the insurance companies, and utilize that to go and acquire the thing that you need or your business needs. And in our example, let's call it a car. And now all you need to do is start returning some of that capital, but you get to control those terms. Okay, so I'm not showing that piece of my image, but this is now talking about a systematic area of control. So, Darcy, when you first started learning about infinite banking, you learned about this. I know at some point you would have saw whether it's a video or a graph kind of similar, what went through your mind when you first started to recognize this as you went through Nelson's book and started to see some of these images.
• 19:59
  Speaker B: Yeah, well you know, once I kind of wrap my head around it eventually and talk to the right coaches and stuff, I started to see the impact all the money that I'd been given away over the, you know, the decades. You know, either either in lost interest I give away to somebody else or the, the growth potential that I lost by not you know, following a vehicle like this, you know, just wait, flowing our money in the proper direction. So this, this definitely like me to, you know, how much you can actually build equity by doing the same things you're already doing just by flowing it differently.
• 20:29
  Speaker A: And, and had you been, you know, at periods of time in your life, were you ever a self proclaimed cash buyer? Nursey. Not sure if Becoming Your Own Banker fits your goals. Trying to figure out if this is even for you. Well, save some time. Look, our free 7 Simple Steps report is the fastest way to find out. It's designed to give you total clarity and focus your effort on what really matters. Plus you'll get access to four of our best selling books as a bonus. Go ahead, get it at seven steps Ca. That's seven steps Ca
• 21:03
  Speaker B: Cash buyer. Oh yeah, I paid cash a few times. Yeah, for sure.
• 21:09
  Speaker A: And I know it's something in the, you know, before I learned about this I probably, I certainly did to a degree. I didn't like being beholden to a bank. I certainly didn't like that paperwork. So I'd find ways to do things on my own. And I thought I was doing the right thing and getting ahead because I just simply didn't know that there was another way, there was another option. And that's really what Nelson's book brings to the equation. It's a different way of doing the things that you're already doing, but making them more efficient over a longer period of time. I mean we were really simplified. It's kind of like that now on the image we have here. Again, this is not a graphically perfect representation. It's just to create that, that understanding of what can be done. We are looking at a time horizon. This is over a period of time. Well, we get to a point where this green line begins to be more and grows greater than what we have access to. If we just kept doing the cash version. But you know, in that first scenario we might not have access to the same amount of capital. We might be a little bit under the eight ball, in which case we might have to use either a little bit more of our cash resources to fill the gap. Or, or we might even have to do a little bit of third party borrowing to make that gap happen. But if we want to go accomplish the objective again in the same vehicle, in our scenario, you're trying to break the cycle. You have to break the cycle at some point. Because if we can't commit to breaking the cycle, we'll never see the end result of that compounding curve. We can't get to the other side without first getting started. There has to be a point where, where you have to make that decision. And that's what our coaching is all about. That's how we help people customize those plans. But you have to be able to capitalize. When you start a brand new business, most likely no one's going to lend you money. You probably don't have a lot of money. You're using your own resources, you're draining it down, you're taking all the risk. You're working the late nights, you know, you're funneling all the revenues back in just to make ends meet so you can get something that eventually is sustainable, that now produces a solid recurring profit and eventually takes you to the quote unquote promised land. When it comes to being in business, that's generally how it works. Well, those first number of years, you're kind of behind the eight ball very, very much like I'm showing here. So the same way that you would have got into business and started that is very much the same way an insurance policy starts. And it does take a little bit of time, but the way we can construct them now is very, very, very efficient. So you have a high degree of liquidity in a very short period of time. When you, when you work with one of our teammates to kind of get this done. Is that all land for you, Darcy? Anything that you'd like to add to that?
• 23:47
  Speaker B: Yeah, I mean, if you're like me, which I'm sure you are in a lot of ways, man, I wish I could get back a lot of the cash that I'd given away. Being a cash buyer, you're looking at this graph here. You know that cash that I gave away for those cash purchase, I thought I was saving money, man. I wish I had it back to do it all over again now. Because that could come and grow for decades, for multi generations.
• 24:07
  Speaker A: Yeah. And I mean, it can help support the quote unquote retirement phase, you know, that passive income time of your life. And so with that in mind, what we want to do is we Want to look at the impact. So what is the impact of the sacrifice on capital? Well, the first thing we're going to do is we're going to look at just a basic future value. This is a savings calculator. And we're going to look at our 40 year old person. Okay. And we're going to, we're going to just line it up with age 65. And so that's from 40 to 65 is 25 years. And for the purpose of this quick example, I'm just going to show putting in 40,000 for 10 years and then doing a full stop. Does that make sense, Darcy? It's like the person ran out of cash and stopped their business in the example. So obviously if you were doing it, you'd probably keep doing it. But I'm just going to use that for a 10 year mark. So we're doing 40,000 and, and let's say we get a 2% interest rate. Like we're just looking at basic savings here. Now can you get 2% in some areas? Maybe in a high interest account you probably have to, maybe in a gic, you probably have to sacrifice some access a little bit to get that. You know, your corporate bank account might be tricky to get it in that exact environment, but maybe in a decent savings account you can get it. So we'll just, we'll just use that example. Well, if you did this, you know, you've put in 400 grand over 10 years and you've also earned close to $200,000 in interest. So you have your 400,000 and you got 200,000 friends. That's how I like to describe. Does that make sense, Darcy? Everybody needs more friends, right? And especially when those friends are money that you can spend later on. You know, very, very basic, very simple. We can see what we've accumulated, okay? But you have to get started somewhere. Whereas if we drain that 40,000, we still had the same 40,000 that disappeared, but we, we have nothing left over. So if you can't let the money sit still, if it can't stay inside of a, an environment, an environment where it can continue to grow, then it, it's going to deplete. So in this scenario, we, we put the 40,000 in, but we also couldn't spend the 40,000 because it's in a basic savings account. You had to actually let the money sit. Does that make sense? So we're making a decision point of I got to keep growing it or I got to spend it to get the truck, but the truck's what makes me money. So I should probably put it into the new piece of equipment, in which case we're draining it down again. So we have to create an environment where you can accumulate, but also access or borrow against. And that's really where the become Becoming Your Own model starts to take effect. So what would be really interesting, Darcy, is what if we could get a higher rate of interest on that again, without taking on a lot of risk in a saving style environment where you knew you could have security and some, you know, some guarantees and some contractual elements. Well, I'm going to flip to the next example here, and you. I have a very weird and very odd interest rate number here. 4.81%. Darcy, doesn't that look like a strange number?
• 27:02
  Speaker B: Yeah, that's pretty random, Rich.
• 27:05
  Speaker A: It is pretty random. We're gonna, we're gonna circle back at the end and show you guys why we chose this number. But I can see I've got a value now at the same period of time, at age 65, of a million, almost 1 million 9, $9,000. So we've got our 400,000 that we've originally contributed, plus 609,000 friends. So we've more than doubled the output in that scenario without taking on a lot of risk. The reality is there's very few places on planet Earth where you could accomplish that without taking on some measure of risk and actually be able to get that without having a high level of guarantees there. There is one place, and, you know, we're going to talk about that in our example. So let's, let's expand on this, and I've got, you know, I'm going to bring up the next element that we've got here, and we're going to bring into what this $40,000 decision look like. So in order to walk through this, Darcy, the way I like to talk about opportunity cost is we have to see the impact of our decisions. So human behavior is the number one distinct element here. It's not the interest rate on a piece of paper or a random spreadsheet. It's how does our human behavior impact this long term with the decisions that we make. So in other words, we have to make a choice between funding or not funding and what that funding element actually turns into. So before we hit the go button on our recording today, we kind of created this example all based on your, your insights that you gave me. Darcy, walk us through. When you, when you think about making the choice of applying capital flowing through your life, how do you, how do you reckon right now with knowing what you know today about how you want to prioritize capital?
• 28:48
  Speaker B: Well, like I was saying before, you know, if I take any capital that I have and I put it towards a thing, whether it be the truck, car, whatever it's going to be that that capital is gone. And I may need that capital again later on, good chance of going to for something, but I can't. I've already given it away. So now, now I just changed my whole direction how I flow money. Now I understand the process and instead of giving the hand that money away and then you know, trying to dig deeper in the pocket some more when I need it, I know I just change the flow of that capital. Same capital, I just flow it differently so I can still have access to it. But now it's an entity that's going to grow every single day, tax free, guaranteed. And I can still go and access capital on demand to go buy that thing that I intend to do with the capital the first place. So I really can have that two benefits out of that.
• 29:37
  Speaker A: It's a little bit of a have your cake and eat it too situation. But you have to also be ready to bake a new cake. You know, there's, you know, you got to go and replace the ingredients and put, put the ingredients that you use back on the shelf so that it's ready to, to buy, you know, bake the next cake kind of a situation. So, so for our example here folks, what we're going to be looking at is what if we only put this in. So I showed you a 10 year model. What if we only did it for five years and then we made the decision the we had the human behavior to say, well show me what it would be like if I put in year six, if I did more and then year seven. So we're going to look at a progression of decisions, not a progression of what a spreadsheet shows, but what, what the reality of life could be like if you made these types of decisions. So let's, let's take a peek on our five year comparison so we see what that looks like. And then we're going to show again, we've now done 40,000 for five years. Here's kind of the impact over a lifespan versus what if we made the decision to do a six year and do a seven. So I've got a nice little graph here and I'm going to click the button for one additional year. So, so we're showing five year funding versus funding six years and we're looking at representative points in times. So we started at age 40. We're using $40,000 for five years. And what is the reference point of that? At age 65 and then every five years basically. So age 70, 75 and so on. Well, I've got a gold bar here that shows me five years of funding at age 65, 25 years later. So I started at 40, I did five years. At 45, I stopped and I did nothing for 20 years. I just sat on my hands and twiddle my thumbs and I went back to paying cash for everything. Well, in that scenario, we have an account value. Now in this case, it's a representation of an illustration of about $500,000 in cash value. So we put in 40 for five years and now we've got 500 grand. Well, if we funded year six, it would create an additional $113,000 or more value. So I wouldn't have 500 grand in my bucket of availability. I would have 613,000 in my bucket of availability. So Darcy, what are we looking at here? We're looking at the impact of making one decision for how much money. Okay, Farmers, business owners, look, stop letting banks control your growth. Our book, growing your own capital shows you how to finance equipment, land, inventory and the expansion of your own family system. Get a free digital copy@growyourowncapital.com that's grow your own capital dot com.
• 32:17
  Speaker B: Yeah, one, one extra year's premium is trading over. What's the difference there in cash value? Almost $100,000. 113.
• 32:27
  Speaker A: Yeah, 113 grand for 40,000. Now, time is going to go by anyway and the $40,000 was going to flow through our life anyhow, wasn't it? So in this scenario, by isolating that $40,000 and running it through a machine that creates that long term value perspective, we now know that that 40,000 for this 40 year old individual actually represents $113,000 of future money. Which means we have a decision. Do we want $40,000 to create 113 of future money or not? That's the opportunity cost in this person's scenario. And that's only looking at the one reference point in time though. At age 65, it actually gets expanded the further we go.
• 33:17
  Speaker B: I was just going to say, rich, if you give me $40,000 and I give you back $113,000 in return, when would you want to stop give me $40,000?
• 33:26
  Speaker A: You know, I mean, other than the potential of a theoretical Ponzi scheme, because it does kind of sound that way when you say it out loud. But, but I mean, ultimately that, that is a decision if, you know, if you knew beyond the shadow of a doubt that you had a, a system that was based on a contract and that the contract must perform to a contractual element and that it could create that outcome, well, now you're removing all the ambiguity. You're removing the risk, you're removing market factors, you're removing political factors, geo. Geopolitical strife. You're removing all these elements that would normally impact the situation to, To. To make it difficult to make that a reality. You know, you're. Most people are trying to grow things based on. Based on future events that may never happen versus grow things in a consistent automated model that has a hot. That has a ridiculously high probable outcome where there's contractual elements helping to underpin how it takes place. I mean, it's very different scenario. And you know, like you're saying, Darcy, at age 65, okay, we have 113,000 more, but as we expand over time, because the time is going to go by anyway. When we get out to age 80, we have 247,000 more. So it's the same $40,000 decision. We've added 15 more years. And so the impact of that decision in your lifespan is actually 250 grand. Well, if you live to 85, the impact is $320,000. So a $40,000 decision one time has a highly probable $350,000 outcome. If you control the experience and if your behavior forces you or indicates to you that you should be applying capital in this way. This is really what we're talking about here. And in this scenario, Darcy, we're just looking at one time, one change from year five to year six to create this type of an outcome.
• 35:26
  Speaker B: Can I just add to that another thought is that that one year's decision to add the extra $40,000 by age 85, that's 314, $315,000 difference. That's a $315,000 decision for your family. Right. You could have spent $40,000 right now, but that you'd be basically giving up the $315,000 potential, you know, wealth to your family by age 85. That one decision.
• 35:51
  Speaker A: Yeah. Either you're going to use it or the family's going to use it. Someone's going to use it. And if you're not using it, it's not like you transfer that 40,000 away, you're handing it to someone else to use it. Okay, well, in the scenario of buying a car, you still need 40,000 or whatever it is to go get the piece of equipment. But if you have a machine that allows you to access that equivalent value to go buy the equipment, and then you create a repayment structure at your determining factor, the original 40 that would have otherwise left is actually in a growth accumulation phase. You still have to repay the vehicle, but you get to dictate the terms of doing that. So what if you took 10 years to repay the vehicle and then you had, you had an accumulation effect and you paid the loan back? Well, now you have a lot more capital to go buy the next one. You still control and dictate the terms of the situation. Let's take a look at what happens if we funded two years. So we went from year five and now we're funding year six and year seven. We put 40,000 in twice. We've got 80,000 new dollars of decision making, potential capital flow that's running through our hands. And what's the impact? Well, at age 65, 80,000 money going in creates 220,000 of more friends. I like to say we put in, we put in 80,000. They're going to go recruit friends. In this case, page 65, they recruited 220,000 friends. Right. So your 80,000 is there, plus an additional decent chunk of capital. That's it. It's a pretty substantial difference. But where it gets super interesting is at the end of the line and we start looking at that age 80 or 85 value. And here that two years of funding of 80,000 actually creates 613,000 more capital availability. It's a substantial difference. I mean, we're talking about a pretty big delta between one decision or the other. Now we can, we can keep going on here. I can show five years. Obviously the numbers get bigger. We, I don't want to be kind of the horse is already laying on the ground, it might be dead. I don't want to be it continually, but just graphically to see the impact of the change for, for continued funding and funding more, I think matters. Where I want to circle back though, is the spreadsheet that I had up earlier. Darcy. So in the scenario where in the spreadsheet I showed 40,000 for 10 years and what that could look like at 65. Well, the number that we had there, I'll just click bring it back up. We did age 40 and to 65. We put 10 years of 40,000 in. And then we stopped and I had a number here, 4.81%, we had a value of 1, 1 million 8, you know, $9,000 basically, give or take. Well, coincidentally, if we did that, in my little example here, you can see that our 10 year value funding for 10 years of 40,000 and the cash value of this particular contract that we're looking at is 1,909,000. So we're basically at the same point. Which means in essence this particular contract would have generated the equivalent of a savings account of around 4.8, 4.82%, something like that, over the entire lifespan. That's pretty good. Is it, is it something to write home about? Like we, we, we hit a home run in the stock market? No, but if we had put the money in the stock market or in a real estate deal, we might have got a better return or generated more, whatever, but we would have lost all the control, we wouldn't have had the ability to borrow against the same way. So you cannot compare those two things because they're not the same. They're comparing an apple and a piece of ham like they're not even in the same food group category. And I like apples and I like him. So I mean, both are fine. But when I want to have access to capital and I want peace of mind and I need to have control and I want to be able to minimize all the other things and I also want to protect my family. What we haven't talked about and haven't brought in the equation, Darcy, is we also have a big, giant tax free death benefit attached to this thing. None of those other platforms provide that. Whereas here you had, you had growth, you had control, you had access, you had decision making potential and guarantees and you had protection for your family and your business. Well, you should be doing that anyway. So if you're going to do that anyway, wouldn't it be nice to have all these other things I just rattle off at the same time? Like, it just seems logical, doesn't it? Hey, if you're getting value from this and you haven't subscribed yet, hit the subscribe button right now. Look, we're marching towards 10,000 subscribers and every single one helps us bring more powerful content. On taking control of your money, that's what we're all about. Go ahead, hit it now.
• 40:55
  Speaker B: Yeah, guaranteed tax free growth. Doesn't matter which way the market's going. Sounds pretty good to me.
• 41:01
  Speaker A: So, so if I, if I click the next button here, we're just going to bring the death benefit piece into the equation. And again, so we're comparing the five Year funded path versus the ten year funded path. And you know, if we go out to, again, I'll pick AD85. That's what, you know, mortality age is that they kind of talk about here. So in a situation where we funded that for just five years, we have a tax free death benefit of like 1.2, almost $6 million versus we do it for 10 years, we got $3.3 million. So we added 200 grand of funding over a five year period. So $400,000 goes in, but we have $3.3 million of tax free money coming in to save the family. Well, if you borrowed against this and you borrowed one and a half million dollars out and you use it as passive income, well, we pay off the loan and there's still three point, you know, 3.3 minus the 1.5. There's still a big fat chunk of money that comes tax free to the family. You get your capital back that you funded while you're alive if you, if you do it that way, if you choose, and you leave a pretty substantial amount behind. Meanwhile, you didn't have to worry a lot about what was going on in the marketplace. And if an opportunity came along for you to grow the business, sell the business, invest in real estate, invest in whatever the next greatest crypto slice of bread that comes across next week, you know, whatever the, you know, whatever the thing is that you choose to do, you need to access the capital from somewhere. So rather than draining your, your corporate bank account down or draining your personal bank account down to do it, what if you took a policy loan to do it and you allowed capital continue growing so you didn't sacrifice that opportunity cost element over the lifespan. That's really the difference of what we're, what we're kind of looking at here and talking about. So Darcy, we covered a lot of ground here and I, I want to get your perspective because you're having these conversations and I've had these conversations with a number of people in the past. It's hard to see because if you've never experienced it, you don't really know what it can look like. And the reality is you, you get accustomed to, well, I just do my banking this way and money comes in and money goes out. Money comes in and money goes out. And we just have these like, habits that are built. So this is just a very different way of thinking about it. And it does take a commitment and it may take a couple of times maybe to hear that or to see an example for us to finally, you Know, cross over to a point where we can now understand how we can implement that in our life. Does that sound like it makes sense?
• 43:47
  Speaker B: Yeah, it's definitely. It's just a shift in our paradigm of thinking about how we finance and utilize and respect our money. You know, we, we have no problem handing our money out to other institutions, which is no problem, but we do it anyways, instinctively, because the way we're trained and taught society kind of led us down that path. So if we're willing to do that for someone else's system, if we can change that flow and do for our own system, you, you can see the impact, the impact for our family down the road is it's immeasurable. Like, it's definitely light, you know, black and white.
• 44:22
  Speaker A: Well, I think what would be kind of cool, why don't we take our. My little drawing and let's do one more connection point of it. Because we showed the impact of growth. We showed the cash buyer going up and going down and going up and going down. The old sinking fund. We showed the boat sinking. Okay, then, then we showed the version of the boat still floating, but you're fishing off there and you're, you're, you know, you're making use of it. Let's show an example of also just kind of repayment. I think in there. I feel like that would might connect dots for a few people. So I'm going to bring this back up and I want to, I want to consider and I'll do my best to kind of showcase to the degree that I can. So what we have here in our scenario is we have access, we have access to borrowing potential from the horizontal line, basically up to the green line. So if we had a situation where we now take a loan, let's say this red box that I just created here is a loan. And for the purpose of our example, I'm just going to use the same number. We'll say it's $40,000 that we're borrowing. Again, just to keep things very simple. Well, now we have a choice of how we want to repay that loan. So let's say I want to repay the loan over this period of time when I get to the end of this, the other side. Well, I have all of this access to capital now because I've repaid the loan. Well, isn't that a higher amount of money than when I started?
• 45:57
  Speaker B: Yeah, it's organically growing.
• 45:59
  Speaker A: I, I can, you, I can effectively borrow out the amount that I borrowed the first time, but I can also borrow More if I needed to because it continued growing. That's the key takeaway. But here's where I really, this is what I really want people to see. And I'm gonna try and pick a different color here because I can dictate the terms. I'm in control. I get to decide the time frame for this repayment. So what if it takes me longer to get it all done? And I don't get it done until way over here. Let me use a different example. You're going to pick a little dashed line. Let's make this. We've got a lot of colors going on here, Darcy. I hope that's all going to make sense. But let's say I, I took, I took a really long time to repay that, that vehicle loan. And it took me 10 years or 12 years. Well, yeah, that is a long period of time. But you're the banker. You can make that choice. In those decisions, the result is when you took the capital the first time versus where you're at now, you have all of this additional value that's accumulated that wasn't there before because you created a system that allows capital to continue growing. And if you don't get that going or start it, you'll never see the fruit on the other side. If you don't plant the fruit tree, you'll never bear fruit from the food tree. That's. It's literally that simple. And if you wanted to plant an orchard, well, it starts with the first tree. And if that, you know, you might not get fruit now for five or maybe even 10 years off of that tree until it's of a sufficient size that it can now bear fruit. The same way that that happens, and those big decisions create that type of a powerful outcome to feed your family is the same way an insurance policy can operate when it's constructed well, and when you as the user, as the owner, have the appropriate behavior to create the right outcome. So, you know, these little arrows down here show the power of control over your ability to make repayment schedules. And I could take it even one step further, Darcy, and you may have experienced this in your own, your own life to this point, using policies. I'm going to clear this up a little bit just so I can make my point, because it's getting, is getting a little busy here in my little diagram. So let's clear a few of these off the, off the deck. So imagine instead of making payments right away, I just serviced interest, cost, and then I made a little lump sum payment and then I had A lump sum payment kind of, you know, went off the tracks and maybe I stopped servicing it for a while. It grew a little bit and then I made a lump sum payment because business was good. And then business was good. So, like, do you see how crazy. I'll even zoom in a little bit. Like, this is a pretty crazy repayment schedule for a loan. Would you agree?
• 48:48
  Speaker B: Yeah, that's pretty well.
• 48:50
  Speaker A: But, you know, if you tried to do that with a third party, they would, they would ruin your credit and they would take the vehicle away and they would, they would mess everything up. But when you own and control a contract like this, you could do whatever you want other than you have the responsibility, ability to do what you should and to make it functional so that it actually works over time. Because if you don't do anything, if you do nothing, well, what happens is that that will still accumulate a little bit of interest and it'll also grow over time. So you have to demonstrate the behavior to make sure that you can be a good steward of the situation. You'll still keep getting growth. This will still grow your policy value, but if you don't manage that loan effectively, then you'll also see some accumulation of interest in the life company. You co own the life company, but you get to dictate the terms, which means you have to have some responsibility, you have to have some behavior elements. That's why this book Becoming Your Own Banker. Roughly 30 to 33% of this book is about human behavior. And it's all at the beginning. So you don't even learn about anything else until you go through the behavior elements because it's the foundation of everything that follows. That's why we spend so much time on this show and on our other content on our webinars. Darcy, you. You've helped facilitate some ask me anything sessions that we do monthly for our, for our clients. And those behaviors matter. I ask you this question, Darcy, because I know you live in Alberta and we're just two Alberta boys here talking about things and you've spent time on winter roads. What's one of the things that can happen on a winter road with black ice? Okay, entrepreneurs, this content is built for you. Comment below, tell us what money topic you want to hear more about. Your insights and questions inspire us to create the content that coaches you to build lasting control and growth on your terms.
• 50:51
  Speaker B: Just about anything. Yeah. You could be wind up
• 50:54
  Speaker A: just about it.
• 50:55
  Speaker B: Yeah.
• 50:57
  Speaker A: You know, and I'm, I, I'm, I'm betting you probably have a shovel in the back of your truck or in a vehicle when you go out on a winter road, just in case because you've experienced slide into a ditch before.
• 51:07
  Speaker B: Yeah, three or five years in the oil patch, I learned to learn to plan for those winter roads. For sure.
• 51:12
  Speaker A: Yeah. You always have the emergency kit that. So that emergency kit, those things as part of your stewardship of responsibility for driving on a winter road. Correct. You might have a tow rope, you might have flares, you probably have a blanket, you probably have an extra pair of gloves. You might have like some kind of a heater, some matches, things that could happen. If you get really stuck someplace and you're out in the boonies and no one can get to you for a while, you're going to prepare because you want to make sure a you can survive the experience. And if you got anybody with you, you can look after them, too. That is a prudent thing to do. We can both agree.
• 51:46
  Speaker B: I also
• 51:47
  Speaker A: learned, like having a spare tire,
• 51:49
  Speaker B: I also learned the hard way, too. It's also one important part of your emergency gear is cash. Right. Because you get towed out of the ditch. You know, he's got a credit card to give somebody extra 50 bucks. They don't always take it, but nice to have 50 bucks. He told me, out of the ditch, I spent all that cash
• 52:03
  Speaker A: and
• 52:03
  Speaker B: something else. I wouldn't have the cash for that.
• 52:05
  Speaker A: Yeah, that guy might stick around like a little bit extra longer to fill your tank. So you got enough to get enough to get to the next station. So these are all behaviors that we learn through experience over time. And the key thing is something can happen on the road and you can slide in the ditch. Well, your behavior and how you look at navigating the road when the road conditions change, that's a combination of learned experience, practice, and behavior. So what we're doing with our podcast, what we're doing with our education, our monthly webinars, our. Our our client membership site, all the education that's in there is we're trying to help you stay between the ditches. You know, sometimes I mention keeping it between the ditches, but I realize some of my American friends, they don't have winter and they don't have snow on the road, so they don't know what I'm talking about. But for anybody who's listening in, when I say keeping it between the ditches, what I mean is literally keeping it between the ditches, keeping your car on the road, keeping your vehicle driving straight, stay in between the lines and not sliding in because of some major event that happens. You can't control what other people on the road are going to do. But you can control how you hold the wheel, you can control how you pay attention, how you check your mirrors, how well you prep the vehicle, your emergency kit. Do you have fuel, is your oil change? These are within your control. That's the same type of level of responsibility that you take with your, your physical vehicle that you should have with your financial vehicle.
• 53:28
  Speaker B: Absolutely. That's, you know, the power of the unstructured loans and the control that infinite banking gives us is, it's so immeasurable, you know, it's, it can just change the impact of everything in your life for sure. You know, and then that's one thing too. You know, like you mentioned before, you get a loan for a car or something else and you have to take a little two or three month holiday. You can't make payment because something came up. Because something always comes up in life. Well, after about 30 days they're sending a tow truck to come pull that car away because the car is trading alone. Right. Just like your house payment, don't make mortgage payments. In about three months they're going to try foreclosing your house because the house is secured in that loan. Whereas infinite banking, we use policy loan And what's the security on our policy loan Richard? It's not the asset. Right.
• 54:12
  Speaker A: Human life.
• 54:12
  Speaker B: Yeah, they're already there and pay us sooner or later anyways. You know, they're obligated and contracted to pay us the death benefit anyways. So that car that we borrowed money to buy the car, if you stretch it out, they're not going to collect it because the security is in the car. Security is a death benefit. So that's why it's so unstructured and why we have so much control and powers.
• 54:29
  Speaker A: Control and power matters. And so I, you know, I'm a, I really liked comic books when I was a kid. Darcy, and my favorite was Spider Man. Now Spider Man's pretty big right now. Just released, you know, top, like blockbuster, knock all the records off movie. Of course they don't factor inflation into that all the time. And, but the reason I liked the, that that particular character is the, the core, the core first principle that operates everything in the character's world is that with great power comes great responsibility. With the great power of the ability to take policy loan comes the great responsibility of repaying them and managing your system for stewardship so that you can create the life and the, and the results that you actually want. So if you're listening and you've got policy loan and you haven't been repaying them, it's never too late to start. And if you're listening and you don't have a policy and so you don't know about taking policy loan well, it's never too late to start. And with that in mind, Darcy, this was fantastic. Thanks for the idea. To talk about opportunity costs today, I think we smashed it and we got a couple different visuals and displays. And for those of you tuning in, leave a comment about what stewardship and responsibility means to you, and continue your role of responsibility by clicking the next video in that journey of education. Thanks.
• 55:50
  Speaker B: Thanks, Rich. Take care.