128. The original Canadian TFSA – Tax Free Saving Account

You are listening to the Wealth Without Bay Street Podcast, a Canadian guide to building dependable wealth. Join your hosts, Richard Canfield and Jason Lowe as they unlock the secrets to creating financial peace of mind in an uncertain world. Discover the strategies and mindsets to a financial future that you can bank on. This episode is part one of a two part series I did with my friend Vern McCarty. Vern and I talked about a couple of really interesting topics in the this two part episode. This first one you're going to learn about why participating whole life is ultimately the original tax free savings account. So stay tuned for that and stay tuned for next Week's episode Part 2 Where We Go on a little bit of a rant talking about some things that other advisors have been saying about the infinite banking concept. Today we're going to have a topic. The topic is going to be the original tax free savings account in Canada. And you'd be amazed at how we were able to determine that this was a topic we wanted to go over tonight. It happened about three minutes ago, right Vern?

You bet. Yeah, yeah, it's, it's good stuff. I like that. I like the topic Rich, that you picked. It's really good.

It, it's fun how these things kind of come up because we're always, I mean we, we do produce a lot of content but, and there's lots of things that we want to talk about. But sometimes until you, you know, get on the line with someone and you start, you know, discussing what's been going on with them, you know, what's something that's come up in a recent client meeting or conversation, what's a question that you receive, maybe in an email, you really start to think about, oh, maybe what's important for people, what should we be going over kind of today. And so that's sort of what happened as we, you know, settled on this idea of the tax free savings account. Now Canadians obviously are familiar with the tax free savings account and, and really as far as registered instruments go, registered meaning that the, you, it's registered with the government, the government knows about it, they've, you know, you got to fill in a bunch of paperwork to open up one of those accounts which is basically saying, hey, let's tell everyone at, you know, that we have this account and although it's free now, maybe who knows what it'll be one day in the future and how much you can put into it versus not. And they, they, they go and they change the rules every once in a while. So it, the rules are governed and managed by the powers that be, not by the individual. And so nothing wrong with that account, it just, it just is what it is. And it has a variety of characteristics. And most Canadians are starting to learn and be aware that it's actually not really a quote unquote savings account. It's actually an account that you can, you can invest money in, you can put money into investments. The problem is when we go and invest the money, we're not really saving it anymore. We're investing it with the risk of loss, which means it's not real true savings. Savings should only be something that is, isn't suspect to the risk of loss ultimately. And so there's a misnomer, a misclassification, as Nelson Nash would say. He says you really begin to understand things much better in the world when you classify them properly. For instance, he would say that dividend paying whole life insurance was misclassified. They shouldn't have called it whole life insurance. They should have called it a personal monetary system with a death benefit, throwing it on the side for good measure. But that would be a really long obnoxious kind of name. We, we'd need some kind of a creative acronym for it. And so classification is very important. But on that note, you know, Vern, you had a recent conversation with somebody and you know they have a tax free savings account and they're looking at sources and funding and how to get set up with the process of becoming your own banker. They're ready to take that step. They've done their research, they've watched a ton of content, they've read Nelson's book walk Everybody through how that conversation progressed. Because, you know, my understanding is that they've, you've had an initial, you know, maybe meeting or two and now you're really at this point where you're in the planning, design phases of trying to implement something for this individual and their family based on their dynamics, their objectives that they've, they've discovered with you.

Yeah, yeah, that's really good, Rich. First of all, I got to give you a big green check mark there. You took the words right out of my mouth. I love that you touched, based on the misclassification because I always, I always touch base with, on that, with people when I talk about, we talk about tax free savings accounts. What's that other thing? Registered retirement retirement savings plan like? Hold on a second, wait a minute. Are we, aren't we sticking that money into the big old slot machine called Bay Street? Like there's risk there right there's. Nothing wrong with investing money, but we need to be clear about what we're actually doing. Are you saving for retirement or are you investing for retirement? This is something to think about. Like, why on earth would they have called it a registered retirement system savings plan? But we don't need to go there. It's just interesting to think about. But yeah, so the conversation that I was having with the client is, you know, a lot, a lot of really good stuff. Like he, he is grasping the concept in the possibility of becoming your own banker. He's starting to grasp it and see what, what the potential benefits are for him and his family. And it's all about, to me, what one of the things that I like to talk to families about is. Let's get creative. You have these big grand goals. Of course we want to pay off the mortgage. Of course we want to enjoy passive income time. Of course we want to help the kids fund their education or finance their first vehicle or whatever those large expenses are. And that's sometimes what happens when people consume content and they hear about the process of becoming your own bank. Or the infinite banking concept being all about, you know, financing the major things that we need throughout our life, like cars and appliances and vacations and retirements. That's true, but isn't like living expenses? Isn't that a major thing that we need to finance throughout our lifetime?

Like 40% of where all your money goes?

I eat a lot of gum, Rich. It's a costly habit that I have. Right. So this is an example of like, it is all about all those things, of course, but. And everything, everything that we do financially today is a function of banking. It requires the process of banking. And that's kind of where we got at a crossroads. Not, not in a bad way, but. But where he really had to go and think. And that's what I advised him and his wife to do. It was interesting because he's the, quote, money guy and he's the one who did, and he's doing well. I'm not. It's nothing bad, but what was interesting is she's like, oh, she kept deferring to him a lot. But we're having this conversation and she's the one now who's tipping the scales and really understanding it. And she's starting to explain things. No, no, no, we have to do this because of, if I'm understanding this right, isn't it this, this and this, and. And he's going. And he's grappling with it because sometimes when we're armed with knowledge. It's almost like we're too smart. We have to unlearn things, right? So we're talking about, you know, they want to get rid of the mortgage. So we're talking about potentially restructuring the mortgage and finding ways to free up some cash so we have more cash available to put more money to work to achieve more objectives and have left less trapped in equity and things like that, right? And so we, so we get to the point now where it's like, okay, well, let's determine how much capital we want to deposit. Well, where is that capital going to come from? And so I said, hey, look, I'm seeing this really nice pool that you guys have been able to accumulate in this thing called a tax free savings account. And then he was kind of like, kind of turned his head a little bit and he started, he said to me, he goes, yeah, Vern, I hear what you're saying. He goes, I, I just want, you know, tax free savings accounts doing really well. Like, I don't really want to access that money because it's growing. I said, oh, interesting. This is where the conversation in my mind gets good and where you have to really think. And this is where I started the call talking to you, Rich. I said to him, I said, look, it's good that the tax free savings account is growing. And I made that little joke about, you know, you know, that's a registered account, right? It means that, you know, do you want the government peeking through your curtains and seeing what's going on in your kitchen or do you want a little privacy?

Right?

You gotta, you gotta think about these things, right? And so we just kind of laughed about it, but I said. And he goes, yeah, privacy's good. But he said, yeah, but the money's growing. I said, yeah. I almost said his name. Mr. Mr. Client, Mr. Prospect. Yeah, the money's growing right now, and that is good. It's good that the money's growing right now, but what is it actually doing for you in your life? What is it helping you to achieve? He's like, nothing, really. I said, right now, when an opportunity or a problem shows up and you need to solve that problem with this thing called capital, if you access the money from the tax free savings account, what then happens to that growth that's happening now? What happens to that growth? Oh, it goes away. I said, yeah. And how long does it go away for? Forever. I said, ah, so what I want to do is show you how to grow money. He likes the tax free stuff. Let's show you how to grow some money tax free now, but forever without giving up the actual access to the cash. When we access that capital, we don't interrupt the growth. Now the other, I don't, I don't know if I'm going on a rant here, Rich, but the other key point that I wanted to point out to him is how did you actually get the money in the tax free savings account in the first place? This is the thing that I really wanted to boil down. Where a lot of people really struggle with this process is because we're just so conditioned to think about products. Oh, I'm buying this product called a whole life policy. Yeah, that's just a tool that we're using to implement something that you do every single day called banking. Anything that you do financially today requires the process of banking and somebody else is the banker. And do you think banks are doing this stuff for free or are they making some money along the way? They're making lots of money. So to get the money even into the tax free savings account, it's a transaction, it's a function of banking. And that money likely came from your hard earned dollars. It didn't come from your private banking system, it came from your hard earned dollars. And now you're storing it in someone else's bank, in someone else's control. And that's the thing that I really wanted to boil down with him is like, I'm not losing the option to use a tax free savings account. I'm just going to change the process by which I capitalize the thing. Right. Or whatever other objective that I have.

What's interesting about a couple of things you, you identified, Vern, is that, you know, in this case specifically, the, the account was growing. And so, yeah, obviously, I mean, the account's doing well. Nobody wants to, nobody wants to shut down where things are going well. And we're not saying that anyone should do that. However, what you're really focusing on is the thinking method, the thinking process. And it's not about that we're going to go and collapse that account. It's that if you have access to the money, what do you want to do with the money where it can be operating in its most efficient way for you? You decide there's multiple things you can do. And if you have, you know, as an example, you've got a bag of a stock portfolio, let's call it 10 different stocks in a portfolio, maybe most of them are doing well. So the account is, you know, in an upward trajectory well, if you can have a reasonably good amount of timing between things. If you, as an example, let's say you, you sold them in a profit position so you get to harvest some of your profits. Money comes out and it now goes into a, a policy system and then you can liberate a bunch of that money again using a policy loan and then you can chunk it right back into the same account and repurchase the exact same stocks at a similar or close value. If you're watching yourself, you have an idea when those values make sense. And if you've already harvested profits now you're just putting it back in so that you can re up for future profits. But you've now stored and contained that value, some of those profits inside of a system where they cannot be lost at a future market turn or market event. You're getting proper tax free protection for your entire family in that situation in the same transaction. And you now have perpetual motion on that money that was once in some other location where it could do the job of one. Now it's actually doing the job of three because it's an in the insurance contract. So it's always growing. There's a tax free death benefit included and you were able to access money to go plunk it right back into the other thing. So you've turned $1 or one format of capital where it was located doing the job of one thing into doing the job of three things. And yeah, there's some more dynamics in there and that's, that's more on a one on one kind of case with people. But to get your brain wrapped around the fact that you can multitask money in a very efficient way because of the power of leverage. Now people think that power leverage is pretty powerful. Well, it is because it's a lever. You know, you can, you can do a lot of work on a, with a fulcrum. Well, the insurance policy operates like the fulcrum in your life and it allows you to do a lot of things because with, with, with a, with a, with the lever that's in place, you can have your capital growing. Your money is inside the policy. You get to use the insurance company money, which is opm other people's money to now access and go put it to work in other places. Yes, the insurance car charges a little bit of interest. While you co own the company, you co own the lender. They do that for the benefit of every single person that's a co owner. No one else can benefit from it. Quite literally. There's not another soul that can benefit from that interest that's charged other than the people that are co owners of that company, period. It's free contract, I repeat, free contract with other free people all throughout the country who are voluntarily, no one's forcing, putting a gun to your head, forcing you to do business with this insurance company. They're voluntarily choosing to do business there and also mutually profit in those, those, those dividends and profits that are shared. Now we said that this is the original tax free savings account. What do we mean by that? Well, these, these insurance contracts have been in place dating all the way back to 1847 in Canada. That's before the signing of the British North America act which made Canada officially an independent, you know, basically nation. We didn't have our constitution signed until much later than that but we, you know, so before Canada basically was, its was an in, was had, it's some level of independence from, you know, from, from the British, you know, empire, etc. We've been having these profitable whole life insurance policies. Policies are allowing cash values to grow tax exempt. They're exempt from any accrual taxation, any annual taxation that builds on them. As long as we, we're, we're not overstuffing the contract with too much money so it stays as an insurance vehicle and it doesn't become an investment vehicle, which it is not and it should not be confused as one. And every day that you truck forward, that money can be accessed in a variety of ways which can be tax free as long as you have a good coach who can explain how to do that. And eventually all the money that gets stored in there is materialized tax free. When somebody dies, hey, there's two truths in life. We know for a fact that there's going to be taxes and there's going to be death. Great. If we know these two things are going to happen and they're fundamentally un, unchangeable basically in our human existence as Canadians, why wouldn't you want to solve for those two problems? Well, one of the ways you can solve for them, you have an absolute known event. It's like, man, I know that two weeks from now my transmission's going to blow up in my car. Vern, I know I had a premonition in a dream last night that I'm going to be driving down whatever the Anthony Henday in Edmonton and it's just going to blow up and go into flames. And not in a way that I'm going to be hurt but I'm going to be stuck on the Road on the highway on my cell phone. Traffic's buzzing by me, waiting for AMA to come and tow me to some mechanic. Well, if you know that problem's going to happen, wouldn't you want to go take them to the mechanic first and have them assess maybe what's going on with your transmission? Maybe you need to do transmission flush or whatever, whatever you need to do to kind of solve that problem if you know what's going to happen. Well, you know you're going to die. I know it, Vern. I'm pretty sure you know it. Right. You're not, you're not going to, you're not going to escape it, you know, you're not Houdini, last time I checked.

Not looking forward to it, but I know it's going to happen.

It's going to happen. Okay, cool. Well, let's just be honest about it. Let's just call a spade a spade. Boom. Death is going to happen. It's going to show up. Sorry, you're watching. This is going to happen to you. Sorry. Hate to be the bearer of bad news. Get over it. You know it's going to happen. Plan for it. It's so, it's so simple to just think, oh, well, you know, that makes sense. Of course I'm going to die. What would happen if I just put a little bit of energy in my entire financial life and existence into planning for that event and did it in the most efficient way, and if I can also do it where I can personally be profitable for my entire family and solve for that problem in a way where I get to use all of the money before I die. So it's for living, not for dying. But it also has the added benefit of being there for dying.

Rich. That was amazing. I, I, I love the analogy. First of all, you, you touched on something really important because sometimes things get muddy. Yeah. I was not in any way, shape or form suggesting that, hey, don't do this, do this. Right. I was exactly what you're pointing to. I was pointing to the, and process. Right. We're not just, oh, become your own banker and don't put money in a TFSA or real estate or cryptos or whatever it is that you want to do, pay off debt, whatever you can do all of that. It's just the process, the function that I wanted to point to. So thank you for making that clear. And the other thing is just that, that analogy, like, if you have that crystal ball, like, you actually know something's going to happen. Like if you knew A tsunami was going to hit, you know, in a couple of weeks. Maybe you want to take some preparation and, and, and leave town. Right. Like, unfortunately, a lot of times people don't know that that's going to happen. But if, you know death is going to occur and you know, taxes are going to occur and you can do something today to plan for it, that's such a good analogy of like if you knew your transmission was going to blow up, you're clearly not just going to run the governor.

Right.

Just hope maybe it's not going to happen. Somebody already told you it's going to happen. You're going to plan for it ahead of time. So that was really good.

I would have liked to know that the last time I had a transmission blow up, which you know, happened in a, the previous minivan that I owned. Yes, I'm a minivan guy. I have young kids and in fact I'm a proud minivan owner. But it's, it's exactly that. It's a problem that shows up. You, you don't know what happened. So you're dealing with a react, you're being reactionary. When problems show up in our life, usually they're unexpected and we're in a reactionary mode. We're not in a proactive mode. When you can approach things from a proactive standpoint, it's like, okay, every year there's going to be Christmas. You probably need to get some Christmas presents for your family. Well, some of us will be last minute shoppers on the 24th or whatever trying to get the shelves that are picked clean and find something that maybe sort of will work. But additionally, we're also running into the month of December was like, okay, well there's all those Christmas parties, there's the company party, there's this party, the spouse's party that the kids have, you know, parties and they've got the, you know, the, the recitals and all the things, you know, the Christmas concert. And it's like a super busy, busy time of our life. Plus you also need to go do some shopping, et cetera, et cetera, et cetera. And the other thing that happens is your bank account drains because you spend more money than you think you're going to spend in December because we don't plan ahead for it. But it happens every year, every single year, like Christmas, it's on the same day of every single year. So maybe you could do some planning for that. Make maybe set 150 bucks a month aside or 100 bucks a month I don't know, maybe as a policy loan repayment, maybe as capitalization into a policy so that when Christmas comes, yeah, you can use your credit card, use visa, use MasterCard, and then come January, a policy loan comes out and boom, you pay off those guys, you get all the points. You don't pay any interest to them. You're going to pay a little bit of interest to the life company, but not much. And you're saving the same amount of money that you're going to plan to spend for next Christmas as a loan repayment. You're being very efficient, methodical, and you're controlling the dynamic of your life around a known event. Now, it's just one example, but there's many area, other areas of our life that are like that. And because of poor planning, we end up going into reactionary mode which is just, you know, it ends up being a natural status for people in life. And one of the things you identified, Vern, as we're talking about this, this tax free savings account and everything is again, it's, it's, it's, it's an investment vehicle. Most people have it in investments. Some people have them stuck in a GIC or savings account, actually doing nothing, which is, which is completely ludicrous because you're saving tax on, not on no growth, which doesn't make any sense whatsoever. But if, if somebody has an account, they got a, an RSP account, they got a TFSA account, they have a pension account, a lira, these are all fine. There's nothing wrong with any of these vehicles. However, death is coming when it happens. There's a different tax treatment and more importantly, there's a different amount of money that comes out now when we can't predict the day, but if we kick the bucket. So right now the markets are kind of in the tank. For the Last kind of 30 days there's been like a big shift. Markets were, now the markets, you know, the stock market, everything's in the tank. Cryptocurrency markets, you know, you know, in the tank. I mean, I personally think it's going to go back, but that's just me as an individual. What, what happens though if I, if I were to kick the bucket today and I had a bunch of my money in all that stuff, my registered accounts, my tfsa, my, my lira, all this stuff is in this marketplace and it's in the tank and now I die. Well, the amount that's going to come out is going to be a lot lower amount. And if I Don't have insurance, there's not going to be a tax free event that shows up to solve problems. Whereas if I have the insurance in place, because I do know I'm going to die and I know there's going to be a taxable event, when that happens, that's problems now solved. And I can still access money and go do each of the other things that's happening. If I still want to have money in the market, I can do that. If the market's down, oh, well, boom, the insurance comes in and fills the gap. So it's again, we're talking about multitasking, the usage of capital, being able to have a dollar, do more things, more than one job for you throughout your lifetime. And it can expand beyond your lifetime if you have kids or grandkids.

Most people want to have something exit on the back end. It doesn't always happen that way. Often the biggest beneficiary of your lifetime, money that's left over isn't your family. It's a legal team probate or the government. Because CRA says, boom, boom, boom, knock on the door, here's how much you owe us on your final tax bill. So who do you want to be the biggest beneficiary? Probably the people you love and care about.

Rich, this is really good. There's some things that you said that really hit home for me. First things first, planned events. You kind of. I think this is where you were going. You didn't specifically say it. Well, I know Christmas is going to come every year. I know that I need new vehicles. I know 100% for sure that I have the need for the use of money.

So if I know that I need the use of money for things like cars and vacations and Christmas, why not do exactly what you said, put some money aside and plan for it. Oh, well, Vern, I am doing that. I don't pay, I don't finance vehicles. I pay cash for cars. Oh, so you're already planning ahead because you know you need a car again, money is in someone else's bank, probably not doing a whole lot for you. And now if you access that money, well, now you can't get the car on track because you interrupted the growth. If there is any growth. You know you need cars, you know you need to use money and you want to use your own. Or do you want to put that money to work and be able to access opm? I can use policy system, my policy system to finance my Christmas for the rest of time. I can use it to Finance vehicles. I'm planning ahead already for the vehicle that I know I need to buy three or four years down the road when my truck is probably going to get handed over to my son and we need to go get a new vehicle. I'm not worried about that at all. I'm building, I'm building a finance company right now called the McCarty family banking system. And I'm just going to issue myself a loan without interrupting that growth, without interrupting that future legacy, without interrupting what's potentially going to happen for me and my wife at Passive Income Time. I'm just creating a larger and larger reservoir of cash. It just. Rich, you know, the darn thing grows every freaking day and there's not a darn thing I can do about it.

And hope can't stop. The only thing that's going to stop at Vern is the day you kick the bucket and it's going to end that day.

Yeah, like that was just. That really hit home for me is like planning ahead is like, yeah, that's why we're capitalizing the policy. Because I'm planning ahead for future expenses that I know are just inevitably going to come anyway. And I can use all my own money and transfer all that energy away, or I can access opm, solve the objective and the. And it just keeps snowballing and then I just replace the money because I'm a responsible banker. And you said something else too, about the interest. Oh, well, boo hoo. The insurance company's gonna charge me interest. Okay, well would you rather pay interest to someone else's bank where it's not doing anything for you, it's not being put to work so they can share some of that profit for you and the interest that you pay to someone else's bank, it's just gone. You can't go back and re access or use that money again. I'm about to. I'm pretty excited, Rich. I'm about to pay off a policy loan today, but to make a deposit into my own policy system and pay off the entire balance of the loan, including that.

Minor little simple interest that accumulated on that loan during the time while I had it outstanding. But Rich, I'm going to pay about. What is it, like $612 today in interest. How much of that $612 is trapped or lost to me?

None of it. Because the policy's growing the whole time. And you will get all of that interest back through the accumulation of the policy. And the worst case scenario is that you die. And because the policy was Growing. The death benefit was growing. You're actually going to get a multiple on whatever that interest was back to you because of the increased death benefit. You're not going to be alive to see it, but your family's going to get it.

Yeah, exactly. Like I don't mind, I, I don't mind paying interest back to the insurance company because I'm literally just saving more money in my own policy system so I can go back and reus use it again. So so be it. Okay, fair enough. I'm okay with that.

I'm gonna take that one step further actually, because I think this is really interesting. So the people who will get, especially you know, folks, a lot of folks are very number oriented and you know, engineer minded, detail oriented, whatever. And we get, we get all lost in spreadsheets and, and we want to try to calculate everything out. But the reality is your life. So telling you right flat out right now, if you assess any of the past history of your entire life, how many of the things that have happened to you in your life have you been able to absolutely plan for? A lot of them. Not, not too much car breakdowns, the need to go buy a new car because the car's, you know, dying, you know, an opportunity strikes to go buy a property that maybe is more expensive than you didn't think. Like all these kind of things take place. Health scares, you know, unplanned, you know, times where you're not at work, like as an example, COVID pandemic, you know, killed your business or you were out of work for six months, like these kind of things, you can't plan for that very well. So the, these things take place. And when it comes to control, there's a price for control. Now if you can go and access money at ABC Bank, Canadian major bank institution, let's say it's one with a green logo, you're going to go access money from, from this bank and it's going to be at. I'll just pick a number. Let's say it's that prime plus one one and a half percent. Let's say it's 4%. Or you're going to go pay interest to the life company. Let's just say at 6% the numbers don't matter. I'm just picking two numbers where the life companies is quote unquote more. But if I go and access money from the big green company, all the interest goes to the big green company, none of it comes back to me for sure. We can absolutely confirm that. And B, I Have to follow their rules. They can probably call the loan doing. At some point they have to pull credit. I have to jump through hoops. I gotta fill in some paperwork. Someone's gotta decide if I'm a good credit risk, if I'm a good borrower. I have to have a. I have to have appropriate job income or I have to have a successful business, if I'm self employed or anything in between. Or I don't report good income because I want to save on taxes. They don't generally want to do business with me or they don't want to give me preferential rates, et cetera. I'm always jumping through their hoops.

Jump through a hoop.

Jump through a hoop. Jump through a hoop. Jump through a hoop. I don't have to have a payment, right? There's a regular recurring payment of some kind. Principal and interest, interest only. There's always a payment, okay? They determine the payment. They're the banker, not me. I go do business with the life company. My money, my money is always, always, always growing, never once interrupted. I can access the insurance company's money, no questions asked. Total control, total and absolute control. They will charge me a little bit to access that, but I get to determine the repayment terms. I'm the banker. I decide when I repay and how much I repay or if I repay. I get to make that call. My money's continuing to grow, so I'm going to pay a little bit of interest for the privilege. The privilege to have them continuously and constantly grow my money for the rest of time, the rest of my life, increase continually, daily increase the cash value and continually daily increase my death benefit based on how we design these things, et cetera. Or I could go do business over here for a slightly lower rate and give up all of it and have no control, no autonomy, no decision making power, et cetera. I choose this one over here with a life company that I co own. I'm a co owner. I don't want to do business with someone, I don't own the business. Why, what's the point?

You know, rich man, you got to get one of these policies as quickly as you can. Just think about this for a second. I just. Something just hit home. I mean, we know this already, but if I go and borrow money from someone else's bank to finance Richard's awesome minivan, Well, I have 100% of the risk. I could get hurt, I could get sick, I could die, I could lose my job. Another expense could show up. Like I got to make that Payment. And if I don't make the payment, they come and get my stuff. They don't have the risk. They made me check all those boxes. They, they don't want my car, but they're going to come get my car if I don't pay them, potentially. Right? These life insurance companies must be off their rocker. I'm going to put one month or one year's premium into this policy. Let's say I can access a loan now. I can access a loan, all those benefits you just said, and I can go achieve another objective. But God forbid I get smacked by a bus. They have to pay out a massive multiple fold of what I actually put in. They have all the risk, all the risk. It's just like, oh, my, let me, let me, let me get as many of these things and put as much cash in there as I can until they figure out how, how crazy they are. No, it's, they're really good at managing money, of course, but you're picking up what I'm laying down. It's just like, it's just you have the mindset, like what you're pointing to. Some of those things, the privilege, those words you use, that's when we have to rethink our thinking. It's like, it's all about, it's a mindset, right? Like, it's not about a number. It's about what gives you the freedom and the flexibility and allows you to have more control and, and to make more decisions. And like you said, I, I want to be a responsible banker. I'm going to pay back those loans. But if that gets interrupted for any, any reason, I'm paying back my truck, my truck loan. I just turned my liability into an asset, by the way, because I'm the one attracting the payment now. But if I want to, I can ratchet that premium up. I can pause that or not premium, excuse me, I can ratchet that loan repayment up. I can pause it. I can bring it down. I own that truck outright and it's not sitting on my Equifax or TransUnion. The loan's been paid.

Well, here's the other cool thing about that. Because you own that truck outright, you also can dictate and choose. Now, it's, it's a nice truck, so you're probably going to want to maintain at this stage of the game some collision coverage and things on there. But as the value of that truck begins to decline as you drive it down and the increase in your capital base on your policy system goes up, you will have the replacement value for that vehicle. So the value, let's just say it was $30,000 and it goes down and okay, now it's worth $15,000. We're two, three years down the line. You now have a bucket of money that's 15 or 20,000, let's say, in replacement value because you've made the payments back to yourself, right? Yeah, you could say, okay, I don't want to pay for the collision coverage anymore. That's another, call it 800 bucks. Whatever thousand dollars a year that you were paying previously, that money can now either go create a new policy or it can go back to increase the capital base in your system. Now if you do end up having that vehicle written off, well, what was the insurance company going to give you anyway? They were going to give you the value minus your deductible. So every future day that you drive that vehicle, its value is declining, your values are inclining, you have the same equivalent scenario of what the insurance company was going to give you, but you're now taking the money that you paid extra to someone else's insurance company and you're redirecting it to your own system. Nelson Nash talks about that on page 48 and 49 of the book in the chapter called Expanding the System to Encompass All Income. Again, it's about our thinking, which is so, so, so critical. And another thing that comes up for me here, Vern, is we're, we're talking this through is that you, your ability to have that control, the price of control. I think about a real estate investor, real estate investors, you know, they do a lot of joint ventures and of course there's a lot of people who do like flip deals. They find a deal and they want to, you know, rehab and flip and often on flip deal you need money to close on the deal at your discounted price. But then you need all the money to do the renovation, do the costs, and then bring that property up to snuff. And then you're either going to keep it as a long term rental or you're going to sell it outright. For a lot of people who do that, they go and find private money, hard money lenders, they're called. Let's go find some hard money lenders. Why do they call them hard money lenders? Because it's not easy. Because the money costs more. Right? And so you go find a private person or a group of individuals or there are some actual like, like mortgage investment corporations that do that and they will, they will be more likely to fund on the deal. They'll ask less questions because they'll lend on the deal, less on the person, more on what the structure of the deal is.

Right.

And so you can go get, let's say 60, 70, 80% loan to value on this, this deal that you just did, including maybe your, your renovation cost, but they're going to charge you 15 to 18% on that money. Okay, well that is hard money. But if you're only going to be in the deal for three months, maybe six months on the far end, the amount of exposure you have to those payments is pretty low. And you're not doing that unless you reasonably believe you can turn a good profit. So it's worth it to you to have less hassles, less jumping through hoops, quicker and easier to fund the deal, quicker and easier to get the money, less dealing with all the clap trap of the other, you know, underwriters you have to do at the big banks, get the deal done, get the contract in place, move it forward so you can create speed on the money. You pay 18% for that? Well, if you just had a large enough capital base, let's say you did, you use those guys to fund the deal and get and close on the property, but you have access to the 30, 40 grand you need for rentals in your own private system and you don't have to make repayments and you get to do it at your discretion. That means when the deal pays out, when you sell the deal, or you flip it to somebody else, or you refinance it, you can suck all that money back into your system and all your profits, you have a container to hold that money waiting to do the next deal. So again, people are more than happy to go pay 15, 18% on a hard money lender to get a deal done because they know they'll be profitable, but yet they bitch and moan and complain about paying 1% or 1 and a half, 1.2% greater on money to an insurance company who's growing their money with no restrictions, total autonomy, like, it's just completely bonkers to me. And it's, again, it's how we're trained, how we're taught to think. So if you're, you're happy to go and do a profitable real estate deal and get hard money lending at this rate, but you're, you know, you're, you're, you can't rationalize the idea of having total control and autonomy over money that you're going to pay the insurance company.

It defies logic to me, that people will think about one thing on this side and then they'll compartmentalize and they won't recognize that the gap and the difference here, but it's, it's not their fault. It's because that's what the world has trained us to do.

Yeah, yeah. No, Rich, that's really good. And the thing is, too, is sometimes people say, well, you know, to your point, it's like, well, no, you know, I need access to all this money right now. I need to go flip the deal. I need to go get this stuff done. Well, that's fair. You can only do so much with what you have. Let's just start. You don't need to put $87 billion into a policy today. Can you do 2,000 bucks? Can you do 200,000 bucks? Can you do somewhere in between those numbers? Great. You can get started, start to build that warehouse of wealth and achieve what you can achieve with the system. Maybe it is just small, the, the rental portion, or maybe it's some carrying costs, or maybe it's a property tax bill that has to be paid or whatever it might be, but get started because it, it, does it take time? Does it take some commitment to learning? Yeah, it takes time. Well, guess what, Pretty sure time's going by anyway. Every day, all day long. If you're going to be continuing to do something long term, like maybe it is, let's get on the, the real estate trend that we're talking about. You're probably going to do that if you're, if you're brave enough to go and do a real estate deal, probably going to do more, right? Probably going to keep that going. So if you're doing that for the next 5, 10, 15 years, if this is going to be sort of a business that you're doing, or even if it's a, quote, hobby, something you do on the side, you're going to do more deals. So the whole time while you're doing these deals and continuing to do what you've already been doing, what's happening to your policy all the time, it's gaining momentum. So you're going to be able to control more and more of that function or those objectives that you have down the road, that need for the use of money, you're just going to be able to do more and more things as time goes by. So get started now where, where you can get started. I hear that a lot, Rich. They go, ah, yeah, but I can only access this much or I need to do all these things. I Can only do this. Okay, well, let's do that then. Like, I don't. To your point, I don't understand the logic behind that either. Well, I can't do everything. Well, okay. That's called.

Mike, you couldn't do everything before.

Exactly. Like, why would I get started? Because I can't do everything. Well, you couldn't do everything before. Exactly. Right. So just wanted to point that out. Just. Just get started and do what you can.

Right. Here's another funny thing. I piggyback on that because in, you know, as a real estate investor myself, and I'm, you know, more focused on the long term buy and hold and I've had some wins along the way. And boy, I could tell you I've been kicked really, really hard in the nuts on several deals. Like. Like, I'm still feeling it. In fact, I've got one right now. At one time, that property. It's a one bedroom apartment in fort mcmurray. At one time it was worth 225,000. It was appraised at that. That property. I probably couldn't sell it for 30 grand today. That's a bit of a kick in the nuts. So if you're feeling that you just got kicked in the nuts when I said that out loud because it's happened to you or maybe it hasn't happened to you and you're just amazed that it could happen, I'm here to tell you that it can't. And right now we have a changing real estate market that's happening in canada because of the increasing rates and there's a lot of shifts happening. They're trying to curb inflation and all this stuff, the manipulation by the bank of canada that's going on. Well, as, you know, as we start to see some of the real estate declines in areas where they've been rampantly rising and peaking, which have been basically unsustainable, the same thing has happened again and again and again through cycles. You know, in the Edmonton Marketplace between 2004 and 2007, it almost. I mean, it was a rapid increase in property values, you know, to the point where like 2006 and 2007, I think values were going up at like 20% a year. It was like some ludicrous number and. And then everything stalled and went down and dipped. And it's taken the better part of a decade or more to get most of those, know, properties kind of back up to where they were at the absolute peak place. So if you bought in the peak of 07, you're in a position where you're only now maybe just kind of ahead, where you're back above what the original the value was when you purchase. So your timing, you can't control your timing. You can control your knowledge, you can control your, your due diligence and your thinking about stuff, but you don't get to dictate the timing of what the market's going to do. You can't dictate the timing of a, of a federal election, for crying out loud. So these are things that can impact you regardless of what type of investing that you're doing now. What, what you can control is guaranteed cash value growth because you don't even have to do anything other than just get the policy. The insurance company is on the hook to make the guarantee happen. The cash is just going to truck forward and forward and forward and it's going to chase after that death benefit. And at age 100, boom, you got a death benefit, cash value. Those two things are lockstep. They have to be the same. That's the fundamental contract. We have a whole podcast episode about that called Cash Flow as a Leader. And so there is, there is so much power in the simplicity of that. And I'll tell you a quick story, Vern. I was almost some clients recently, great, great folks. They've had got their first policies on their kids about, about 11 years ago now. So those kids are, you know, I met them when they're young. They're like the oldest daughter, she's like 16, she's getting her license. So it's really cool to kind of see this people's lives change. You know, that's one of the real cool value add benefits we have in this business to get to know people, get to become almost like an extension of their family to a degree and build these really powerful relationships. I was on with them recently and they, they have a business and it's a, it's a sports gym business. So they were hammered during COVID for two and a half years. They basically couldn't operate their business. They were operating with a skeleton. They could come in and then start and then they got pulled back and then they could start and get pulled back and they, because they're doing with like large teams. Well, you also have to market to get those people back in the door and they're all scared and fearful and so like their business was crippled during this time frame. One of the things that saved them, of course, was that they had the, they had policies in place now. They had the, you know, sir, blown siba loans, that sort of thing that helped them, them scoot through. Now as an example, they were able to get the, one of the business loans that the government put out, I think it's the CERB one. And there was, there was a couple iterations of it. So they were able to get, I think, I don't know, about $60,000 or something in capital to help business through that lean time because they were tremendously impacted. Now they can discount that if they pay it back by a certain date. I believe it's December 2023, they only have to pay $40,000. So they get a 20 thou, like a hu. Percentage wise, that's a monstrous discount. Well, where do you think they're going to get the money from to do that.

Insurance policy?

Their own system?

Yeah, they get to use that money. They could, they could apply that money on other outstanding policy loans. They could use it to pay premiums, to increase their capital base, which is guaranteed future compound growth for them. Protection on the family in case somebody dies. And when they want to go pay it back, they can pay it back at the discounted rate by taking a policy loan. They're going to use insurance company's money at their control, their discretion, get that huge discount, and then rather than making payments to the Canadian government, they're going to make their payments back to the policy of their family and they get to do the discretion. Now the end result is they're, because of all the changes, they've decided they don't want to continue the business as it is. They're coming up to the end of their lease at the end of this year and they're actually really excited about it because they're gonna get a chance to take a breather. You know, one of them's already gone back to, to a teaching position. She's, she's, she knows it's temporary, but they're, they have another business that they're starting which is going to be doing like corporate wellness training and they're actually beginning that. They're still running the current business, but they already have the next income source activity taking place. So when it comes time to let go of that lease, they're already gonna be in a good position. And they have, even though they've been using policy loans to do a variety of things over the years, many different things, they have outstand. They still have access to about $110,000 of current equity that they can take out today if they needed to. That will give them a bare minimum of two full years of expenses. Basically, they need to pay to cover their food on their table, make sure their mortgage is covered with the other income that they have coming in. And over that two year timeframe, what happens to their policies?

They still grow.

So it just, it's just buying time, creating it, you know, and they feel this. They told me, Richard, we, we do not feel pressure. We don't feel, we, we feel at peace because of all the other things that we've done. They had, they went and bought property in Mexico, failed, lost the money. They did other different, you know, land development deals, lost the money. All the other things that they've done from an investment standpoint have basically failed. For them, for the most part, the only consistent rock in their entire financial life for the last greater than a decade have been insurance policies. And it's given them such tremendous peace of mind that they're, they're not, I wouldn't say they don't have, it's not, they don't have stress, but in this area of their life, stress free.

Well, well, the thing is, Rich, this is really good. A lot of times what happens when you sit down with a client or a prospect who's thinking about this for the first time? One of the questions that they always ask is, okay, Vern, like, what happens, you know, God forbid, the sky is absolutely falling in seven years from now. We literally just went through that. Okay, so did it take away any of the client's options? What you just described is it literally gave them more options. Are you going to be worse off by implementing the process or, quote, buying a policy? No, you're just, you're just going to have more options. It's not going to hurt. And the last thing that I would say about that, to your point, of course, I didn't sell the policy because I was pretty much a little, a very young man at the time. But I have a client now who I'm working with who may be a few years older than me. When he was about 30, he goes, yeah, and I had no idea what I was doing. I was making pretty good money at the time. A good friend of mine is still in the business, but he's in a management role now. He was life insurance advisor at the time. And he just like twisted my arm and said, hey, just get this thing called a 20 pay permanent whole life policy with a certain company. Let's just say they've been in Canada for life.

They're really big. They're really big on the 55 number.

Yeah. And he's. And he's right. And he's done, he's done all these different things throughout his life in the last 21 years because it's, it was a 20 page policy, is actually quote paid up now. You couldn't put another dime into the policy if you wanted to, but yet it still continues to grow every single day, still pays dividends, has a massive death benefit, and there's a big pile of cash in there, by the way. He had no idea about any of this or how it worked until him and I met. I said, dude, you gotta call that company and find out how much cash you got and how much loan you can borrow. I told him to call a couple days in a row to find out what the loan availability is. He finds out that the cash value is growing by like 60 bucks a day or something. And he's just going like, Vern, he goes, I can't even believe it, there's like 140 grand in this policy. And he goes, I've earned money, lost money, invested money, lost deals. He goes, this is the only thing that has consistently just worked. And I didn't even have any clue that it was happening. It was just like, it's just that that's a 20 year track record of somebody coming who has far. For me it was just, I already knew that, but it was just so validating for him to come and say like, I can't even believe this. Like, this is amazing, right? So just another kind of story that just shows the strength of these things and how, how it all works and what you can do.

You'd be amazed how you know for, for folks listening and you'd just be amazed how often people have some kind of an insurance or insurance product and even if it's not whole life, but there's, there's value there, good value. It's either been doing okay or doing well. And they could have been tapping into it for 10, 20, 30 years and just had no idea. Well, that ends part one of our two part series of this interview with my friend Vern McCarty. Make sure you tune in next week for part two. You're going to get to hear Richard and Vern go on a bit of a rant and those are always fun. So make sure to check out the seven Steps CA report and tune in next week for part two of this incredible episode. Thanks for listening to the Wealth Without Bay street podcast where your wealth matters. Be sure to check out our social media channels for more great content. Hit subscribe on your favorite podcast player and be sure to rate the show. We definitely appreciate it. And don't forget to share this episode with someone you care about. Join us on the next episode where we continue to uncover the financial tools, strategies and the mindsets that maximize your wealth.