106: Smarter Recurring Expenses with IBC

106 Smarter Recurring Expenses with IBC

Speaker: [00:00:00] Hello, everyone. I'm John Montoya, and I'm John Perrings.

Speaker 2: We're authorized Infinite Banking Practitioners and hosts of the Strategic Whole Life Podcast.

John Perrings: Episode number 106, Paying for Recurring Expenses with IBC. Hello, everyone. Welcome to the Strategic Whole Life Podcast. I'm here with John Montoya, and today we're going to talk about recurring expenses. And a common question about the process of IBC is how to pay for expenses. If you have cash, Should you buy whatever expense you have?

Should you buy it outright or should you first fund a whole life policy and then use a policy loan to buy it? this is a very common question and so we want to dig into this today and try to shed some light on the right answer. All right, John. So in today's episode, we're going to talk about some ways to think about how to pay for expenses.

And one of the [00:01:00] first things that I come to when people ask this question, a lot of this is really a mindset question. So comes from people that are often newer to the process of, infinite banking is what I find. And that is often because they're still in the capitalization phase of the process.

And that, again, that capitalization phase is when they're still You're paying this new premium to this new whole life insurance policy and you're in the process of building cash value. And, for the first several years of a policy, you don't have as much cash value as what you paid in premium.

That's the capitalization phase. And so a lot of times what happens is. People will start their whole life insurance policy and then they'll still have some cash somewhere else in a regular bank that they're just holding on to. And the reason this is a new IBC person problem is because for [00:02:00] people who have had their policies for a while and have, and have, Grown them and matured their policies.

They're usually already very well capitalized. So this is a no brainer for people who have had a policy for, 10, 15, 20 years, because they've already got a ton of cash value in there and they know exactly. How they want to use that. But for newer people, it can be a little bit tough because it's a new process.

and then you've got this new premium that you just committed to. And then the question in your mind is if I have this new premium that I have to pay, and then I want to, for example, take a policy loan to go buy a car. That's the common use case that is used in the IBC world. I want to go buy a car, but it could be anything.

I want to pay my property tax. I want to, start paying for college. whatever the situation [00:03:00] is, but let's just use cars. I want to buy a car and I take a policy loan. Now I have this premium payment and I have to pay back. The policy loan. this kind of creates, it's where's the cashflow going to come from?

And so this is one of the things that, that does need to be discussed in the world is, how do we account for the additional cashflow that's going to be required to pay back that policy loan?

John Montoya: And in regards to mindset, I, for me, I think about Nelson's teaching and he writes about it in part one of Becoming Your Own Banker, which I believe is page 11. And he talks about how. If it were possible where all the money in the world could be redistributed back to everyone equally after 10 years, he comes up with a number that, 97 percent of the [00:04:00] people, would be basically be broke because the, all the wealth that was evenly distributed 10 years prior will have flowed to 3 percent of the people.

And he says, maybe that's an extreme example, but let's make it 75, 25, regardless of what that number is. It's just a hypothetical number. the reality is all the same. And this is a major reason why the majority of households in are crushed with debt and it's because they don't, they never solve for their need for financing and they never create a tailwind in their life.

And they're always, basically Paying for these reoccurring expenses with cash because they never capitalize, in the first place and in the second place, never capitalize, where they can be their own bank and get that, money working for them to create tailwind for the rest of their [00:05:00] life. And so what you're talking about, John, creating, the capital upfront.

it's, the first thing that we have to do and it reminds me of the book, Richest Man in Babylon, where, it's written, you should save, pay yourself 10%. I think it should be much higher, especially nowadays. 20 percent I think is, really minimally the standard of what you should be paying yourself.

And if you understand whole life policies or you're in the process of better understanding whole life policies, and you make it a point to really hone in on the lessons that Nelson is teaching and why he's advocating for capitalization in a whole life policy, you're going to realize the benefits.

That happened long term by capitalizing within a whole life policy. So you can take advantage of these tailwinds that otherwise you won't be able to, but first step capitalize. And then [00:06:00] you can start to, Realize the benefits of having to pay your reoccurring expenses through your policy, but it all starts in how you think.

And that's one of the reasons why Nelson was so special because he really helped to, I would almost say throw out, the kitchen sink and how people. Thought about money and financing, if they even thought about it at all and, introduced an idea, a concept that allows us to, eliminate, if we want, a third party in a traditional bank so that we're not reliant on, paying interest, to these banks that are always willing to capitalize on our need for financing. You've got to realize what's happening and put yourself in a position where, you're going to be better [00:07:00] off long term. Because you have the ability to pay for these reoccurring expenses, even on a more positive note in the future, reoccurring investments, by funneling and redirecting money through your whole life policies.

John Perrings: Yeah. And it gets down to. You're either going to save or you're not. You know what I mean? So the, when people are thinking about, okay, I'm paying this premium. And then if I use a policy loan, I have to pay the policy loan back. So that's another That's another cashflow that's leaving me, to pay this loan back.

So I've got the premium and I've got the loan repayment. And so people get a little hung up on that, but if you think about it, it's the exact same thing, whether or not you have. A whole life insurance policy or not, you're either going to save or you're not going to save. And so if you're, if what you're doing is you're saving money and [00:08:00] then you use that same money to go buy something, guess what?

You're no longer saving anymore. You've just spent the money that you were saving. So you, either have to save or not save. And so what we're doing here is we're just putting our savings on autopilot through the premium payments, and then we're using that same capital, to go buy something.

And then we're, making the payment back. And the idea of never using other people's money or never using debt, to go buy stuff, it's like always paying cash for things. you finance everything you buy. You either pay interest to someone else or you give up interest you could have earned.

There's no getting around that. The economic term for that is lost opportunity cost. There's always something that you're giving up. And that kind of goes into, number two that I have on this list, because one of the areas that. That contributes to making this decision a little bit confusing [00:09:00] and getting your mind around it is, paying versus paying interest versus not paying interest.

So often people like to talk about things like you pay yourself back. So this gets into, Montoya and I talk a lot about a lot of the incomplete and inaccurate information out there. There are people out there that talk about IBC as if you're taking loans and paying yourself back, and you're not.

You're not paying yourself back. You're paying the insurance company back, and then if there's a, if there's a net difference in the interest rate, you then Contribute the net difference of the, what the market rate would be back to your policy. And you're capturing that, that spread. And that's what provides the tailwind that Montoya was just talking about, where you're paying a market rate of interest that you would have paid or lost anyway, but a portion of that is going to go back to your financial system rather than someone else's financial system.

 The thing that's missed sometimes [00:10:00] is.

It's easy to, it's easy to see the lost opportunity cost, the interest you didn't earn on your cash when you pay cash. what's sometimes forgotten by some people is the lost opportunity cost on the policy loan interest that you pay to the insurance company. That is a true cost. You're paying interest to the insurance company and you're losing the growth on that money, right?

That is true. However, by doing this strategically, we minimize how much is lost over time through, lost growth, or lost compounding. Because we're doing this strategically, we can minimize that lost opportunity cost, but we do have to account for it. And that's one of the things that makes this a little bit tough to see sometimes, because, when you're paying a whole life insurance premium, that's not happening in a vacuum.

But when you're making an expense or buying, when you're [00:11:00] buying something or paying for an expense, that is happening in a vacuum. And so it's hard to adjust and compare apples to apples.

John Montoya: I agree. And I, think what allows me to sleep at night with this process is knowing that when I make a loan repayment, because I'm practicing being an honest banker, I'm going to recapitalize my policy, have those funds always working for me, of course, but I get to recapitalize my And it's a rinse and repeat process where that recapitalization happens on the loan repayment.

So I can then, especially with these reoccurring, expenses or even investments. I have the ability to just keep moving forward and moving forward with the wind at my back. And it's easy to get lost in the [00:12:00] numbers. And I know, there's quite a few engineer types that love to spreadsheet.

And I personally, I like to, just, So if I know that I can actually stick to the fundamentals, if I know what's happening at a very high level within these policies, for me, that's probably good enough. I've done the deep dive on the numbers and it's It works out long term, it's for me, I guess I'm just at a point where, I can get on a plane without understanding how the pilot's going to fly the plane, and how the turbine engines work.

for me, I'm just going to enjoy the ride. And, perhaps that's just, because I've been doing this for so long, but even if I didn't know any of these intricate details, I know that's a guaranteed contract and I know that by practicing being an [00:13:00] honest banker, everything is going to, flow back towards me through the, through these policies that I've been funding and it gets better every single year.

And that idea is, something that, is really hard for people to understand, because we're not used to. Things getting better, especially financially every single year. But that's what happens with these whole life policies.

John Perrings: Yeah, that's awesome. we have an episode called Shopping for the Money. and check that one out as well. the, idea here is, it may not be the right thing. in the next video, we're going to look at some of the things that you can do with IBC. first thing's first, you have to be able to [00:14:00] pay up.

The right decision for us at the right time, at whatever time it is. It allows us to take advantage of opportunities rather than react to them. And so when you're well capitalized, opportunities have a way of finding you. And that's the golden rule that Nelson Nash talks about in becoming your own banker, which of course is the source material for The Infinite Banking Concept.

All right. Onto some more tactical stuff here in the last section. I spent some time tackling this question in an Excel spreadsheet. If you guys know me, I'll go pretty deep into an Excel spreadsheet. I don't really know how to use Excel for, as, as well as like an Excel expert, but I'll brute force it and make it do what I want to do.

And I'll make it do it the hard way. And, my. People, my friends who actually know how to use Excel sometimes laugh at me, but I get it [00:15:00] right. usually takes me a little bit longer than the experts, but all that said, I've come up with what I call recurring expense funds and it's a way of evaluating whether or not it makes sense to fund a whole life insurance policy for something or to pay cash for something.

And. The reason it makes the most sense for recurring expenses is because with a whole life insurance policy, you are making, it's a long term decision. You're making a commitment to pay a premium for a long time, at least if you're doing it correctly, in my opinion. Of course, there are caveats to that, but in general, we want to think long range.

that's what is talked about in Becoming Your Own Banker. And so if this is just a one time expense, it's a little harder to, evaluate that. But if it's a large one time [00:16:00] expense, like a wedding or something like that, then, it's just where's your best source of capital, to borrow that money and, pay it back.

But if you have, Recurring expenses like buying cars, going back to that example, paying your taxes, paying your property taxes, subscriptions, I don't know, country club subscriptions, anything that's like a larger recurring expense. One way I've come to look at this is to isolate an expense and Pretend that I'm going to buy a whole life insurance policy just for that expense.

Now, in reality, we don't do that. And that's one of the things that makes this hard to evaluate, because we have this whole life policy that's not in isolation. And then we're trying to account for the cashflow and paying for an isolated expense. So what I did is I adjusted for [00:17:00] cashflow in my model here and And created a policy where I fund the policy and save up for that expense.

And then I compare that to putting my money in a savings account and saving for an expense, and then compare what that looks like. So in a savings account, I just created an example where I'm saving 10, 000 a year for 30 years. And every five years I buy a car. So I'm saving 10, 000 a year. And every five years I take out whatever I need to buy a car.

in the life insurance example, I save money for five years in the form of paying premiums. And then I take a policy loan. To buy the car, I stopped the premiums. And then every year after that, I pay the loan [00:18:00] back and then take another loan in five years, pay it back over five years, take another loan over in five years, pay it back over five years.

So the rest of my 10, 000 for 25 years is just repaying policy loans. So I pay 10, 000 for five and then I do policy loans and pay them back for the next 25. So it's the same 10, 000 a year. Outflow. one is just going into a savings account and spending it. The other is first funding the expense and then using policy loans and paying it back.

And based on those numbers, and the, by the way, the expense is exactly the same. Based on those numbers, at the end of 30 years, I come out way ahead. Almost double the amount of leftover cash that I have and all the same cars that were purchased. So I bought all those, six cars over 30 years or five cars over 30 years, the same five cars.[00:19:00]

And then at the end of it, in my cash value, I have twice as much cash value as I have in my savings account. But then it doesn't stop there. Remember, this is life insurance. There are tons of estate planning options that we have available to us because we have that guaranteed permanent death benefit. So the value to my estate, just from that tax free death benefit, is four times what it is for the other person who's saving money and buying cars with cash.

Just for that one recurring expense of cars. Thing is, We never run out of things to, we never run out of expenses, recurring expenses that we could fund. So we can just keep this going, fund the next expense for the next five years, and just keep going and going. And now, now we're Getting into that area where Nelson talks about how your premium should equal your income.

You can't do that overnight. That takes a [00:20:00] while to do it. It takes a system, usually a system of multiple policies. But if I compare, if I make an apples to apples comparison, it's, there is no question. You come out. Way better, using IBC and using policy loans and creating that tailwind in your financial life as you go through, the next 30 years,

John Montoya: Now, John, you happen to share that. worksheet that you put together offline, before we hit the record button, is there any chance that you can take a screenshot or create a link and put it in the show notes? That way, people who are perhaps, more visual, or better, at, learning visually can take a look at it and see for themselves.

John Perrings: I can do one better. This is, part of our online course, IBC mastery. And so they can head over to strategic whole life. com, register for our online [00:21:00] course, and they'll get this along with several other strategies that, I lay out in a lot of detail. So I go, you'll actually have the. The numbers in front of you in a video format.

So it's, definitely available for people to check out.

John Montoya: there you go. So if you're one of those people that like to, See, the, proof is in the pudding. It's all there for you. we'll make that available.

John Perrings: Yeah. Yeah. The, the thing. IBC is not really about the numbers, but sometimes you got to look at the numbers to just prove it to yourself. And, I've done that. And so if, you're a numbers guy, I can hang with you and we can talk about numbers, but at the end of the day, I think I can, we can have conversations and you'll see that this is more of a principles discussion because once you see the numbers in one [00:22:00] thing, you really Have an idea of how the numbers will work and everything else.

it's, really a pretty simple idea, but it's so far out from where people are today after, years or decades of, typical financial planning advice. It's hard to get your head around and it's hard to believe. So I understand, where people are coming from, but this isn't a hack.

This is a strategy where we have, you have to have discipline. and if you can create that discipline and, use this in a way that. you're not putting yourself over your skis, and over leveraging yourself. There's no, this isn't like a magic wand type of situation. It's a process that just has to be followed.

And, if you do it the right way, it creates massive improvements [00:23:00] in your financial life over the long term.

John Montoya: Yeah, I like what you said there regarding, the idea of IBC, and, How that really, it comes before the numbers and the numbers are always going to work out when you practice IBC. They're going to work out. It's a guaranteed contract. You just have to Manage your family banking system, the way that you would in real life if you're a disciplined, honest person.

so I like what you said there because I think for the people who have been conditioned for so long to, finance everything through, a bank. A traditional bank, they're skeptical about IBC because they never knew that you could finance your [00:24:00] entire life through a whole life policy. if you build it up, if you capitalize it, just the idea that you can take policy loans is so foreign to people that, the longer they go in life.

Before realizing this, the harder it is for them to grasp that this is even possible. It makes me think of the movie, The Matrix, where they have this rule and they shared it with Neo after he took the red pill, that, they have this rule that, they don't red pill someone once they reach a certain age because the mind just can't handle it.

grasp, the enormity of the situation. And it's like that in a way with, IBC. If you've been so conditioned for so long that everything you do must be done through your conventional bank, it gets harder for you to realize the truth that you can [00:25:00] finance your life, your lifestyle.

through your own family banking system available in a whole life policy that's been hiding in plain sight for 150 plus years. It's just really hard for people to grasp that. And so they have to lean into the numbers to see if it's real because they can't, they just can't process the idea that this is even possible.

So it's interesting to think about.

John Perrings: It's a great point. And, it really is that simple. it's just a logic exercise more than anything. And then, a quick side note regarding these recurring expense funds, when, I did this, I isolated a single expense, and so I only funded my imaginary policy for five years. And then after that, all I did was use policy loans and pay those policy loans back for, from a cashflow perspective.

If you think about it, we talked a little bit about some of the misinformation out there. a lot of [00:26:00] people get so focused on the early cash value. They buy these short pay policies that are actual five pay policies, or maybe a seven pay policy, just depends. And so if you think about it from that perspective, the people that buy those types of policies are locking themselves in, to essentially only cover one expense, and we don't know if you can qualify for another life insurance policy five years from now, that's an unknown.

And we get back to thinking about this, from the perspective of long range thinking and if we build a policy that has room to expand at the sacrifice of a little bit of early cash value, because everything's a trade off. If we focus on the longterm and give you room to expand the system in one single policy, you have room to create multiple [00:27:00] expense funds.

And inside your policy, without having to requalify for life insurance. And I guess one final note on expense funds. This is totally my term. I just, I completely made it up. None of this is going to be something a life insurance company will provide for you. This is all just like virtual expense funds inside your policy.

So I'm just making sure, people understand that because. Actually, it makes me think back when I first started working with Montoya. He was my first agent, and he had to explain to me how paying back policy loans work. So the insurance company doesn't Automatically put the extra in your policy. You have to do that yourself.

And it's a manual process that you keep track of, but anyway, that, that's what I wanted to put out there. And, it's come up a few times lately. And so I thought it, maybe it'd be a timely discussion topic to, to Understand how to think about, or at [00:28:00] least one way to think about how you can pay for larger recurring expenses using IBC and come out way, way ahead over time.

John Montoya: Yeah, the bottom line I think is you come out ahead. And with regards to one of the last points you're making here, as far as, funding for five years or seven years, the best policy is a policy that's funded for as long as possible. And those policies will outperform a short funded policy all day long, because at the end of the day, what's the goal?

It's to have. The availability to finance our life. And we're not talking about just the next 10 years of our life. We're talking about our whole life, pun intended.

John Perrings: Yeah, that's it. Hey guys, if any of this was resonating with you and you'd like to, Talk to one of us and [00:29:00] learn how it could apply to you specifically. Just head over to strategicwholelife. com. You can book a free 30 minute consultation with us right there.

And like we mentioned earlier, we have our course IBC Mastery, which is at the same place, strategicwholelife. com right there at the top of the page. And you can get access to this, this financial model for recurring expense funds, along with several other strategies that are part of that course. All right, Montoya, thanks again.

We'll talk to you soon.

John Montoya: All right. Thank you. Thank you, everyone. Take care.