103: The Extraordinary Potential of Saving Money with IBC

103 The Incredible Potential of Saving with IBC

[00:00:00] Hello, everyone. I'm John Montoya, and I'm John Perrings. We're authorized Infinite Banking Practitioners and hosts of the Strategic Whole Life Podcast.

John Perrings: Episode 103, The Power is in the Saving. Welcome everyone to the Strategic Whole Life Podcast, formerly The Fifth Edition. The three things we're going to cover today is the number one problem the average person has today.

Number two, why IBC doesn't necessarily solve this problem. And number three, how to fix it with no pain and create a financial life that you probably never thought was even possible. I'll just jump into number one here, Montoya. By far, I'd say. we were talking offline. Most of the people I talked to are not saving nearly enough.

I think the majority of the people that come, into our lives as advisors are saving less than 10 percent of their income. There are certainly those people out there that are. [00:01:00] Doing more than that. Sometimes way more than that, which is great. This is true. This in general, people have a savings problem, or I should say a spending problem.

And this is true for people making 50, 000 a year. And it's also true for people making 2 million a year. you, we're here in, the San Francisco Bay area, work with a lot of Silicon Valley tech people, and man, these people are making great money. And living check to check. A lot of times they are waiting for their stock options to pay out. And I'm chuckling. I'm not trying to make light of it. By the way, I was one of those people. So I guess I have the right to chuckle because I've, made all of these mistakes, but they're literally waiting for, a gamble to pay off and hoping that their stock options pay out before they ever.

before they even start building a quote unquote nest egg or, really start to create, a savings plan, meanwhile, [00:02:00] they're maxing out their 401ks, maybe even taking advantage of, employee stock purchase plans, all of these things, but their liquidity is just a complete disaster.

And it's really a problem that I think is a big one here, especially in Silicon Valley, where you get these really smart tech people. So I'm just going to call some of you guys out there, get these really smart, cutting edge tech people. Meanwhile, When it comes to their finances, they're doing the same thing everybody else is doing.

Nothing special. maybe they own some Bitcoin, which is nothing special anymore. And their savings is atrocious. And they're, they run into problems just like I did, where if we hit another market downturn, guess who the first people that get laid off are? It's all those, it's all those startup people that are hoping for those stock options to pay out.

And so they're putting themselves in a really. [00:03:00] dangerous spot with their savings.

John Montoya: Yeah, I walk 10, 000 steps a day. That's my daily goal. And I can't tell you how many Teslas I walk by sitting in the driveway, or maybe a neighbor has their garage door rolled up and there's one or two, in the garage charging. It always perplexes me because I know the cost of those cars aren't cheap.

the base model, maybe 40, 50, 000 out the door, but you get your higher end models, 120, 130, 000 plus California sales tax on top of that. And you multiply, just do the mental math in my head, one, And that's it. I hope you enjoyed this video and I'll see [00:04:00] you next time. It's actually like 5 percent or less.

of the, day and how much wealth is destroyed, putting money into a vehicle that depreciates every single year. And, we're talking about this number one problem of saving enough. and I think to myself, man, even if those people had just purchased Tesla instead of buying the Tesla, they, Would have been better off, definitely not a solution I think going forward with Tesla as an investment, but that's neither here nor there.

But the idea of, keeping up with the Joneses, having the latest technology, it's, it, for me, it comes back to understanding time preference because. we talk about trade offs so [00:05:00] much and people, have, I think, a challenge of curtailing, that, that instinct, which is inherent, for us when we're kids where we want the immediate gratification and we struggle as adults.

to curtail that gratification. And I see it on these walks every single day in the form of Tesla's or, really high end cars that, maybe, some people can afford it, but we talk to a lot of people and we, ask them their financial situation. We get the financial blueprint and, most people.

They'll never admit it, but we see it on our end. they're living paycheck to paycheck and doesn't matter, like you said, if they're making $50,000 a year or their revenue ca, their cash flow is over two 2 million. their [00:06:00] expenses track extremely high. and they're not in proportion to their capacity to save.

yeah, it's a huge problem and for me it comes back to understanding. time preference, because when you have a high time preference, you're basically forsaking the future for today. And when we talk about saving and formulating capital, that, that is a decision that you make where you are going to, forsake today.

In order to be better prepared for your future and the number one thing that you're hitting on John is that, people, are really struggling. I think with their time preference, they're not prioritizing their future. And, in how much they save and they don't have a standard on, we were talking offline and I was mentioning how, [00:07:00] if a household has a hundred thousand dollars, in my opinion, in cashflow and in revenue, income, wages, the standard should be 20 percent of that that's my own personal standard.

And I like to be well above that. every single year, because maybe I'm just a nutcase, but I think about the future every single day. It's like a mind virus. I wake up and I think about, what am I doing today? And what are my expenses? I got three kids, and one of them is in college.

A second one is going to be starting college in the fall. A third one, two years behind, before entering college and, huge expenses. And so I'm constantly thinking, do I have enough put away? Oh, and by the way, I've got a spouse who's stage four breast cancer and out of pocket healthcare costs are outrageous.[00:08:00]

everyone has their own challenges. I mentioned mine, but everyone has their own set of challenges. And the fact of the matter is that, if you're not thinking about tomorrow and you're not creating your own standard, you don't, work on the discipline of saving money.

And we can talk about where to save money, but you first have to develop the habit and discipline of saving money. Cause if you don't do that, tomorrow is going to be really ugly.

John Perrings: And, the other thing is sometimes people they are saving, let's say it's 20 percent like they're, they have a ratio, but they're quote unquote, saving money in their. 401k or index funds or whatever it might be. these accounts that not only carry risk, but they're illiquid, especially with, and with qualified plans, [00:09:00] you're locking your money away for years.

And not only is it a problem of the. of, as John saying, this high time preference, to spend today as opposed to, saving so you can spend more tomorrow, but it's also a, problem of like where people are, trying to save even when they are. What do you call it when.

Everyone's doing the same thing at the same time, especially in the world of finance. that's called a bubble and that's exactly what's happening right now. Everyone is doing the exact same thing at the same time. They read on Motley Fool. 30 years ago, 20 years ago that, Hey, you should just buy index funds.

It beats everything. And so everyone's buying index funds. Everyone's buying index funds in their 401k and their IRA. They're all doing the exact same thing. And so when these, total market corrections come around, everyone gets wiped out and creates these massive [00:10:00] economic problems. But it, those all bubble down to, the individual where, you know, a lot of people.

suffered in the early 2000s, the 2008, 2010 timeframe, all the people that got crushed in real estate. And the savings is not only like how much do you save, but where do you save it? And again, we'll just repeat ourselves. We're not against using, the stock market, as long as you have at least a portion of your life with.

Uncertainty Assets. Of course, Whole Life Insurance is probably the best one. But the thing is, this idea, so here we have people saving less than 10 percent and then the 10 percent that they are saving, they're putting it somewhere where it has risk. So they when the markets are down, they [00:11:00] bury their head in the sand.

I've heard so many people be like, I'm not even looking at my 401k right now. I don't want to know what's happening with it, like during COVID or, in 2008 or 2000. But then when things are up, they'll get around the water cooler and brag about the rate of return they got in there, whatever they're doing, meanwhile, they're bragging about the return.

They got on 10 percent of their money. Meanwhile, the other 90 percent is completely leaving their life. So it's this weird backwards ideal that has been, pushed out there, I think by the financial institutions and, the, current standard of living Montoya met keep mentioned keeping up with the Joneses.

And so what ends up happening is we all want to improve our lifestyles and there's nothing wrong with that, right? There's. Of course, like keeping up with the Joneses, if you're not familiar with that means, it just means you see your neighbor bought a Tesla. So now you want to buy a Tesla. And so that, that's a problem, [00:12:00] but there's absolutely nothing wrong with wanting to increase our quality of life and our standard of living.

But, the main problem is what's called Parkinson's law, where, a luxury once enjoyed becomes a necessity. And so what ends up happening is as our income Increases over time, our expenses tend to increase at the very same rate. And so we never really get ahead. we always have the, income arrow curve going up, but then we also have the, expenses curve going up on a graph at the same rate. and we know this is true. Here's a little experiment you can do while you're driving in the car. How much money did you make five years ago? And how much money did you make today? And are you saving, are you currently saving the difference of what you're making today versus what you made five years ago?

And the answer is probably not. And so that's how we know that this is happening [00:13:00] for most people. And if we could just save more of what came into our life without creating a lot of pain for ourselves. So we're not talking about, the standard budgeting kind of solution of Hey, don't buy your coffee every morning, buy your coffee.

Enjoy it. let's start, if you start today and then you just control the rate of how much your expenses increase in the future, so we don't have to impact our lifestyle today for this to work, especially when you're young, you just have to have a way of consciously controlling that expansion in the future.

If you can do that, you don't need to take any risk. You can literally win by brute force of just how much money you're saving. You don't have to take any risk. And by the way, because your expenses are lower, you'll actually be in a way better place in retirement because you'll have more money, number one, even compared to a higher rate of return, you're just saving more money.[00:14:00]

but your expenses will be lower. You can live so much longer with so much more income without impacting your current lifestyle. Yeah.

John Montoya: Yeah. Nelson talks about overcoming Parkinson's law and it's cool. one of the things that he, fixed on, and wrote about in his book, Becoming Your Own Banker. and the problem with, so many today is that, we struggle to overcome Parkinson's law, cashflow increases.

so does expenses as you're hitting on. And this is not even about IBC. This is just a fact of life. Look, if, If you don't overcome Parkinson's law, it's going to be very difficult to get to where you want to be. And, one of the most important things I think people really need to do is track their expenses [00:15:00] first and foremost.

if you don't know your burn rate, you're going to burn through your cash a whole lot faster, because you don't see the problem. you don't, Have it nailed down to, dollars and cents per month and per year. And you don't know, your capacity to save because you have no idea what you're spending.

So for me, you got to know your burn rate. you got to know what your expenses are. there, there's that saying, if, if you don't know where you're going, any road will take you there. I think that comes from, Lewis Carroll, Alice in Wonderland. And for me, it ties into expenses. you need to track your expenses.

You need to know your burn rate. one of the more, I'd say one of the sadder conversations I've had recently with a potential client, it was a referral that came in. a client asked me to speak with his sister, who's going through a [00:16:00] divorce and, she's, late sixties, retiring from the real estate field.

And she's talking about, she wanted to talk about annuities and setting up, an income for life. and we started talking about our expenses. She had no clue. and. So I tried to spend a little bit of time with her to figure it out, to figure out what her burn rate was, and it was insane.

It was like three years. And that's her entire liquid assets. At the rate that she was going to burn through what she had saved her entire life in three years. And part of the reason is because she's living, in a world where, you know, she's gonna have her same income forever, you get close to retirement and you don't have those expenses dialed in because you never had the discipline [00:17:00] to at some point focus on it.

It rears its ugly head. And so you don't want to be in that position. when you're a couple of years from retirement, five years from retirement, 10 years from retirement, whatever position you are in today, if you don't know your expenses, you need to get on it.

John Perrings: And A lot of people will come in, and I was the same way when I first started IBC, but, people will start The Infinite Banking Concept, and they'll, there's a level of relief, which is good, and it's a correct level of relief, because it solves so many problems in our lives, and, you you, you start an automatic savings with a, when you buy a whole life policy with the premium, that's gonna, be paid every month or every year.

[00:18:00] but so a lot of people will come in and be like, okay, problem solved. I'm now saving. And like I said, that could be true, but many times, it's not, I should, maybe shouldn't say many times, but sometimes it's not true because policy owners, A lot of times those people haven't actually addressed the spending problem.

They're just now putting money into a policy. and a lot of times they'll, if they haven't addressed the spending problem, they end up using policy loans to. To cover their spending problem. And then now you're back in the same boat, but now you have a policy loan outstanding, and if you do this in the early years, it can blow the whole thing up and you can lose money.

Our policies are there to provide liquidity for both emergencies. And opportunities, I probably should say the other way, it's there to provide liquidity for opportunities, which a lot of people we've talked about [00:19:00] putting the cart before the horse. A lot of people see an opportunity they're doing IBC, they just get started and they want to immediately borrow the money to take advantage of that opportunity, which is understandable and it could be correct.

But that liquidity is also there for emergencies. And so people often prioritize opportunities before they have an emergency fund. If you do that without IBC, it's a problem. And if you do it with IBC, it's still a problem. So you've got to. IBC doesn't change the fundamentals of saving and liquidity, right?

It just makes it work better because of all the things that whole life insurance does and all the things that The Infinite Banking Concept does of, creating that tailwind in your financial life that, pushes you through, and gives you some extra. Extra lift and an extra push through your financial life.

It just gets getting, it just keeps getting better and better as things goes on. But if you [00:20:00] borrow all the money against your policy, now you have no liquidity. When an emergency arises, the whole thing blows up anyway. it's just the people that. lock their money away in 401ks and put their money into investments and their emergency fund sucks.

One thing happens, talking to you again, startup people, you get one layoff, the whole thing blows up and you end up having to liquidate all that stuff at a fire sale anyway. Montoya has my new favorite line. You can't build a house by starting with the roof. if you start, putting the hedges and shrubs and the landscaping in before you have the foundation of your house, it's never going to work.

There are always going to be things that come up and you have to be just super lucky for that to work out. And unfortunately, that's where a lot of people's heads at, especially when they're just Hoping and praying those stock options pay out. I can tell you firsthand experience. [00:21:00] that's, it's the exception, not the norm when people get big wins with their stock options in the startup world.

John Montoya: Yeah. Yeah. You made me think of something there, and tying it together with knowing your burn rate. if whether you're in tech or whatever you do for a living and your livelihood depends on you, Having that paycheck every single month? what happens if that paycheck is no longer there?

What is your burn rate? How long is it going to take you to find your next job? so you need to establish a foundation for yourself, an economic, bunker, if you will, where you can last a year, two years without having a paycheck coming, come in. And if you don't have You need to prioritize it today and [00:22:00] that's where IBC really comes in well because you establish this, this capital formation within a whole life policy.

This is your foundation and it's there where you're When you need it, but once you establish that emergency fund, if you no longer have a paycheck and now you know that you can survive a year, two years. And as you just said, John, this gets better every single year and people can't wrap their brains around something that gets better every single year with no luck, skill, or guesswork.

Here's something hiding in plain sight, been around for close to 200 years that gets better every single year. It's engineered to do that. when you start to allocate capital cap, when you start to allocate capital to a place like this, where you can create tailwind, it just puts you in a better position in the future.

So all these things coming together. Having a [00:23:00] standard for how much you're going to save each year, in part, because your burn rate and establishing that foundation. So you can survive if no paycheck comes in for a year, two years and beyond. The longer you have this, the better it gets, the better position you're going to be in.

And now this opens up opportunities for you. Once you exceed that, that safety zone, of having a year or two plus years of expenses put aside, now it becomes an opportunity fund. And that's really when it, it gets fun.

John Perrings: And the great part about that is the saving for the emergency fund. You're not missing out on anything because the, the long term internal rate of return is going to be. very reasonable, especially when you, when it, when you consider the capital equivalent of other assets, you know, before and after [00:24:00] tax on unreal return and safety and guarantees like the, those combinations, you just can't get anything better anywhere any other financial instrument.

So let's talk a little bit about why this is even happening and then we'll provide some solutions on, how this can actually be fixed. So I think it's happening for a couple of reasons. One, We have this financial gravity that gets applied to all of our income, especially for us with W 2 earners, it's like we get a paycheck before we even get that money, before it hits our checking account, we have taxes getting pulled out.

We have social security getting pulled out. We have all of our FICA stuff getting pulled out. We have all of our 401k money automatically getting pulled out and put into the highest risk, least amount of control. So before money even hits our checking account, we're down [00:25:00] 40, 50%, especially here in California.

the other thing is, it's expensive. So I'm, I'm giving. Startup employees a hard time in this episode, but I also completely understand it's expensive to live here. So they're out here, working for these tech companies, but man, it's hard to, get by out here. So there's expenses that have to happen.

And so it becomes difficult to save. and, but what I'm, what I do see is that most people they're saving very little, but they are prioritizing. They are prioritizing investing. So I know that there's cash flow there because they're maxing out their 401ks. I'm just, I think what we're saying is, you can definitely do 401k stuff, but let's at least divert and shift some of that into something that's going to create some liquidity and guarantees for you.

Now, [00:26:00] the, the other thing is No one wants to save. It's boring. It sucks. It's hard to keep track of, Montoya was just mentioning keeping track of your burn rate. I've personally tried to do that many times and it never lasts. It's it's one of those things that You know, it's a task, no one wants to do it and it's understandable.

Like it's a boring, tedious type of thing. So I think what I want to suggest, there's a strategy out there called creating a wealth coordination account. And so what we want to do is we don't want to affect our lifestyle today. So I was mentioning this earlier. We don't want to have to cut back today.

That's another place where things fail is when you have to cut back today, but you're, you're doing it in a way that's not sustainable. We have a lifestyle that we already have, and it's there for a reason. It's very [00:27:00] difficult to change that for a long time. However, what we can do is we can change what our lifestyle becomes tomorrow.

And if we can disassociate and beat Parkinson's law, where we can disconnect the, our rising income with rising expenses and control the growth of those expenses in the future, we can create massive improvements in our financial life just by the sheer amount of saving that you'll do. One way to do that is to create a wealth coordination account.

It's just a separate account that acts like a reservoir for all of your money to hit first. If you think about what a checking account is, a checking account is really just an expense account, right? Your money goes in there and then you've got your debit card connected to your Netflix and your power bill and all that stuff.

And money just goes out. It's really, it's all it is an expense account. So it's very easy to unconsciously spend out of that account. [00:28:00] What we want to do is flip that and we want to create some unconscious savings. So we want to create a reservoir, a wealth coordination account, which is just another checking account.

All your money goes in there first, and then you consciously decide how much money do you want to move from there every month into your account. Regular checking account, which is your expense account to live the life that you're living today. And what you'll find is if you have a place that captures every dollar that comes into your life.

And I can tell you this with confidence, cause this is what I do. And when I made this change, it was unbelievable how much money, extra money I was finding. If you can capture every dollar that comes into your life. And then have to consciously make a decision to, to spend that money. It is unreal how much extra cash you'll come up with.

And now you can start making decisions. Do I want to just blow this on something, or do I want to, use this cash to go buy something that'll create some additional cashflow for me? And [00:29:00] imagine this, if you start creating additional cashflow and income, From that capital you were able to save, by the way, this includes, your whole life insurance, all that stuff.

If you can start to create income from that. then your income increases and it just starts to happen exponentially because your expenses are not rising at the same rate. And I'll have a link in the show notes that, you can take a look at this, at what I'm talking about.

I'll have two links. I'll have one that if you want to talk about how to create a wealth coordination account, and then I'll have another one that is, Just more of a presentation about your maximum financial potential, and you'll see, I'll show you with math that it's not about getting a high rate of return.

It's about if you can just control expenses in the future, the growth of those expenses, you will come out with way ahead without taking any [00:30:00] risks. I'll have those two links for you in the show notes

John Montoya: It's just math people. I don't really have anything else to add. I think you hit on something there. o other than just to reiterate, know your burn rate. know what your expenses are and yeah. It may not be any fun, but so is, being in a situation that, you don't want to be in later on in life.

John Perrings: and, knowing your burn rate, it's a great point because, when you set up this wealth coordination account, you're going to have to know your burn rate, your current, how much money do you need to. Live the life that you're currently living, your current lifestyle. That's your current burn rate.

And what I'm saying is you can stick with that current burn rate. If there's anything major going on, you can make some adjustments, that if, as long as it doesn't like emotionally affect you, but the whole point of this is we don't want to have to change too much of our lifestyle today.

[00:31:00] And so what Montoya is saying Is, is absolutely correct. we need to get a handle on our burn rate. And then from there we can create the structure so that as, as our income grows, we don't let that burn rate grow with it. And we can disconnect our income from our expenses and create just really big improvements going down the low, going down the line without.

Like causing us consternation of cutting out our lattes in the morning, or, like not being able to go on vacation or go out to, hang out with our friends or do stuff with our families. And, we don't want to, that's the failure formula, trying to cut all that stuff out to save.

We don't have to do it. All we have to do is control what happens in the future by making savings unconscious and making the spending conscious.

John Montoya: Yep. Your id, your ideology. It doesn't change the math, but I [00:32:00] think if you do this, what you're going to find out is that your math is going to change your ideology

John Perrings: Nice. Nice. All right. everyone, thanks for listening. Like I said, I'll have a couple of links in the show notes that you should check out. And if any of this is resonating with you feel free to head over to strategicwholelife. com. You can book a free 30 minute consultation with us right there.

if you're the type of person that likes to learn as much as they can before talking to anyone, we also have an online course just for you called IBC Mastery, and you can get that right at the top of strategicwholelife. com. Bye. And one last thing, hey, if you like this show, we sure would appreciate a five star review in your favorite listening app.

It sure does help us get the word out a little bit more.

John Montoya: and maybe it'll help you save more money too. hey, thanks for listening.

John Perrings: Take care everyone.