In my last posts, I spoke about creating a Wealth Capture Account, as part of the Rockefeller Formula, to make saving money something that was automatic for you, so that you grew wealth without having to think about it.
Here, I look at creating an account for your non-essential spending.
Account #2: Living Wealthy Account
This account is to save money for guilt-free spending on eating out, shopping, vacations, courtside tickets or whatever luxury brings you value, helps you relax, or restores your energy. We recommend that you save 3% of your income in your Living Wealth Account.
Don’t underestimate the value of this account. The point of it is to allow you to splurge a little, even while building wealth. If you budget too tightly and never allow yourself enjoyment, it’s not sustainable. It gets old quickly. This account helps you maintain a healthy, productive, relaxed mindset while you’re working toward your 5 Day Weekend.
When you combine these two accounts, ideally you should be saving 18% of your income. So what do you do with the money you’re accumulating?
Create Wealth with the “Rockefeller Formula”
The Rockefeller Formula is the system that my 5 Day Weekend collaborator Garrett Gunderson and his team have created, and that I recommend you use to maximize your Wealth Account. It provides a safe, reliable place for your money to grow where it can also be utilized for investments or accelerating business growth. The best vehicle for this account is an over funded, properly structured and funded whole life insurance contract, a plan Garrett calls Cash Flow Insurance.
Here’s a big picture overview (though it must be stressed that to do this properly you must understand the fine print):
- You set up a whole life insurance policy with the ability to add cash above the minimum required premium.
- Then, you overfund it by paying much more than the minimum payments. This builds your cash value quickly and enables you to take advantage of the living benefits of permanent life insurance.
- Once your policy has built enough cash value—usually after one or two years—you can take out a loan against your policy at any time and for any amount up to 90+% of the cash value. Notice that we said “against,” not “from.” When you take out a loan from your Cash Flow Insurance policy, you are not borrowing from your policy, but against it. Therefore, your policy continues to grow as if you hadn’t taken out a loan at all, because you are not actually taking any cash out of the policy. You can use policy loans to access cash for any purpose (while your balance continues to grow). You can also use it to pay for your kids’ education, finance your own home, buy cash flow investments or even pay off loans. These loans from your “bank” are private, do not have a specific payback period, and do not require a credit check (or even a good credit score for that matter).
- You can use your policy loans to purchase investments. Then, you pay back the loans as quickly as possible and at an interest rate (not the rate you were actually charged from your policy loan, but the rate you would have been charged by a bank using a traditional loan). This grows the money inside your policy even more quickly, because you’re paying yourself interest instead of paying interest to a bank.
- You never have to rush to pay back the loan. In fact, most insurance companies don’t care if you miss a payment, or several payments, or even if you pay them back at all—because if you don’t pay them back, the balance is simply deducted when your death benefit is paid out. With that said, we recommend you pay back the loan quickly so you can use the money for future loans on investments. Also, borrowing from your Cash Flow Insurance policy will never affect your credit, since there are no such things as late payments. Additionally, if the loan is for your business, in most cases the interest you pay on it is tax deductible.
Cash Flow Insurance is the perfect wealth-creation tool for entrepreneurs and investors. Your money isn’t locked up away in the stock market until you’re age 59½, as with 401(k)s and IRAs. Instead it’s always available to borrow from to accelerate your business growth or to purchase investments.
I explore this further in my next post.
I’d love to hear from you – have you heard about these whole-life insurance vehicles? What has been your understanding of them? Did you know that they serve as a valuable financial tool? Thank you for sharing.
Secure your copy of the “5 Day Weekend” book. 5 Day Weekend: Freedom to Make Your Life and Work Rich with Purpose [Nik Halik & Garrett Gunderson]