Becoming Your Own Banker Book Summary (Page 28)

If you think of the pay increases that you have already received up to this point in your lifetime, and did you find yourself a few weeks later, after that first paycheck, following the increase, and you find yourself scratching your head going, geez, dear, didn't we just. I just got an increase of my salary. What happened? Your expenses rose to find that new income. That's Parkinson's Law. You've got to learn to conquer that.

In Nelson's book. If you have your copy of Nelson's book on page 28. So Nelson begins by talking about the human problems. And the first human condition that he makes reference to is actually Parkinson's Law. Now, you may have heard of Parkinson's Law, human. Here are some interpretations of that. The first interpretation of Parkinson's Law is that expenses will rise to equal income. And we like to say that expenses will rise to exceed income. If you're not able to conquer Parkinson's Law, think about what was once a luxury is now a necessity in your life. If you can go back to the days when air conditioning wasn't even a feature that was in automobiles. If you can go back to the days where seat warmers weren't, steering wheel warmers, and all these features and benefits that we have in cars that were once a luxury have now become a necessity. Well, if you think about your own banking system as you're implementing the process and working with it in your life, if you are recapturing debt or getting rid of consumer debt or business debt sooner than your original loan schedule. So, for example, in my own personal experience, most of you may have heard this. But for those who are new, when we first got started in our journey, our primary objective was to get rid of the bank who held the mortgage on our principal residence. And that journey began for us in July of 2008. We were introduced to the process in April of 2008. And when we started that journey, we were capitalizing our system, so we were paying premium, because premium is the only method to grow your system of policies. We began accessing policy loans, and we were taking the life insurance company's money. So Nate, who's with us here today, is looking after.

His son, and so he's not able to be with us on video. But Nate is an amazing guy. He said something really powerful a couple of weeks ago when we were speaking with the CEO of Equitable Life and with the CEO's right hand who looks after the life insurance division of the business. And I invited Nate to come on and share his insights and ideas. Because as an MP and as someone who's very well connected in the fintech sector and working with ATB Ventures and really close contacts there, they're making really, really great strides in the fintech sector and we're presenting ideas to equitable life to get at the forefront of this technology. But Nate said something really powerful. He said, you know, when the CEO asked him, what do you like most about being a policy owner? And Nate said, you know, among many things, I enjoy being the co owner of the lender. You not only co own the business, but you co own the lender. And so when you're thinking about using your system, I'll take you back to my example here to finish it. So we were accessing policy loans, taking equitable money and going directly to the bank and buying down the principal balance on our mortgage. Well, we had a 40 year amortization schedule on our mortgage, which we thought was amazing. You could still get them at that time. And our monthly payment, interest rate, all the things that we were wired to think about when we're dealing with the function of financing the things that we need in our life. And it took us seven years to get rid of the bank. And the first person I called was Nelson. I said, nelson, you're not going to believe this. We got rid of the bank. We did it. And he said.

Slow down son, you're not done yet. And I said, what do you mean? And he took me Back to page 28 of his book to Parkinson's Law. And he said, you've got a policy loan balance now and you originally committed to a 40 year amortization schedule. So now that you're the banker, and now that you, as Nate would say, co own the lender.

If you don't finish that original loan schedule, then you're stealing the piece.

So you got the bank out of the equation, you've become the banker, you now own the debt. So you've got to change the process of who's getting the money every month going forward. To this day, we still send the very same amount that we would have otherwise been sending away from our family. And it's going back into our own system of policies month in, month out. Now what does that have to do with Parkinson's law? Well, if we decided that once there was an, an extra $1892 a month available.

We could have chosen to permit our expenses to rise to find that new cash flow. But we chose not to do that. We chose to be an honest banker and to finish the original amortization Schedule. Now we get to reuse that capital, and we've been recycling that money, much like banks do. Banks are very good at creating velocity on capital. We do the very same thing within our system. But I want you to recognize that as you're getting into your own stride with this process and you're getting rid of debt, there's more cash flow. If you are not acutely aware of the warning signals of Parkinson's Law and you've not yet decided to conquer it, then your expenses will rise to find that new money. Think about that increase. Like Mike was saying, hey, I want to know how to do this. You know, for someone who's perhaps not an entrepreneur, fixed income, you know, mid-40s in your professional career, how can we implement this in our family? If you think of the pay increases that you have already received up to this point in your lifetime, and did you find yourself a few weeks later, after that first paycheck, following the increase, and you find yourself scratching your head going, geez, dear, didn't we just. I just got an increase in my salary. What happened? Your expenses rose to find that new income. That's Parkinson's Law. You've got to learn to conquer that. And that's all part of the human condition. You can have the best process in the world. You can have the best product, the best tool that enables you to implement it. But if you're not aware of these human conditions and how to confront them, then you will experience more obstacles than are necessary. And so that's why Nelson wrote this in the book. Far too often, people gloss over this part of his book. They want to get right to the substance of becoming your own banker. Nelson was remarkably intentional about what he wrote and the reasons why. Because he wants you to rethink your thinking.

Nelson was very clear. It's all about how we think further. What you were talking about, Jason, it reminded me of when you and I first met, when we first connected. And it was before we knew about ibc, and, you know, very blessed that we were able to have that. And it was through that that, you know, you found IBC and you shared it with me. So I'm eternally grateful for that. But what's really interesting is that we used to show people an example, a John and Mary Jones example, and they had about $420,000 worth of debt, four or five credit cards, and a line of credit on a home mortgage. And we were able to show the impact of what a $2.50 an hour pay increase meant over their entire debt and that one increase when it was properly utilized over that lifespan, it saved them something to the effect of $100,000 worth of interest. And it took their debt that would have taken them 40 years to, to get rid of and it knocked it down to like 25 or 22 years. That 1 increase, small and insignificant, but tremendously powerful over time if utilized properly. And so we don't see sometimes the small increments, but little, little things add up to make into, to turn into big things. And then those things compound over time, especially when you can figure out a way to insert them, either through policy, loan repayment or through premium payment, into a mechanism, a system of policies that allows that to continually grow throughout every single day that you take air into your lungs and by the virtue of putting it into the system, at some point in time, we're not going to be here anymore. Okay, well, when that day happens, I'm looking forward to a boatload of tax free money showing up that my family can use when I'm gone and my kids can then reuse to repurpose to carry this forward again and again and again by building the mindset speaks to.

What Mike shared as well when he said, you know, this is a closed loop system. And he's precisely correct. And if you think about this, so.

When you create your policy or your system of policies, think about it like a consolidated banking system that you're utilizing within your own family. And if you chose not to implement the process and still had the policies, the cash values are going to rise every single day. The insurance company itself is going to administer those contracts, is going to fulfill all of those legally binding contractual guarantees. But you're missing a remarkable opportunity to create something even bigger. Because if you keep transferring and we hear this, people who are new to the process, they're going through the education, their journey of education. Well, gosh, if I don't access a policy loan, my policies still grow anyway, don't they?

They sure do. But where do you want all that financial energy going?

If, Rich, if you and I co owned a Safeway grocery store together, would we ever buy our food from Walmart?

No sir.

Our business, Safeway, is still going to serve customers. It's still going to be restocked with bread, butter, milk, all the necessities customers are still going to come to our store to buy. But if we as the owners choose to shop somewhere else, then we're depriving our own business from the use of that financial energy.

It's actually bigger than that, Jason. Because if you and I go shop somewhere else, not only are we depriving it of the financial energy because that grocery bill isn't running through the till of our business. That has a direct impact on the value of what that business might be worth at a future date. If anyone's looking at buying a business, one of the first questions you want to ask is how much money does this business make? Let's take a look at the numbers. What's the gross revenue? What's the net, the NOI or the net operating income. And that usually determines a multiple of what that business might be worth. So by not running our money through that business, we are automatically, you know, reducing the value potential at a future date when we want to exit. The same premise applies in the grocery store to an insurance policy and doing our business with a company that we co own and I know Jason and I, we've got a lot of policies in Sarblo with that one company. And so we're all engaging our financial energy with that company because we mutually benefit from doing that. That goes directly to their ability to have long term sustainable dividends that they can pay us on an annual basis as a share of profits.

That brings me to the next human condition. And that's on page 29 of Nelson's book. And at the top of the page it reads Willie Sutton's law. And Willie Sutton was a famous bank robber. And when he was arrested and they made a big media spectacle of things.

They asked him, Willie, why did you keep robbing banks?

And Willie responded because that's where they keep all the money.

And so wherever wealth resides, somebody will try to steal it. And if you think about where your money resides. So it's not uncommon for people to store money inside of commercial banks, of course to store money inside of registered non registered mutual funds, tax qualified plans like registered retirement savings plans. And if you think about.

The financial energy.

So these are all deposit taking institutions, they all want your money.

And more importantly they want control over the use and liquidity of that money and they want it for a long period of time.

Now as it relates to the fundamental truth that your wealth must reside somewhere, what better place to have it reside than inside of an entity that you own, that you control, that you have total contractual authority over. That cannot inflate its own money pool.

Certainly does not engage in inflationary activities or fractional reserve banking or.

Over leveraging. And all of these things that have contributed to the worst financial crisis the world's ever been in, thanks to the central Banks. So you have a choice. You can choose where your money resides, especially if you're building your own warehouse of wealth.

And when you build your own warehouse of wealth, how do I increase my death benefit? Well, by virtue of increasing her death benefit, which will happen here in pretty short order. I presume. In meeting with her advisor, she is increasing the square footage of her warehouse of wealth. She's creating more room to grow. And if you've got money inside of tax qualified plans, you're on the government's radar every single year. I would just encourage you to remember, and we're not in fear, we're not going to fear monger with anybody or anything like that. We're just stating a fundamental truth that wherever wealth resides, someone will try to steal it.

Several years ago, during the aftermath of the financial crisis of 2008, 2009, and I believe it's 2010, 2011, there was a lot of upheaval in Greece and Cyprus. And through what happened there, you know, people went to go to their bank and with their debit card to try and get money in the ATM machine and they couldn't. And they went to go open the door and the banks were locked because they had a real crisis on their hands. And the end result that came out of that is they changed from a bail out legislation to a bail in legislation. And we have the same, you know, concept here now in Canada, which basically means, you know, if the, if a bank starts to go belly up because they're under capitalized, because trust is gone in the system and they've been lending out, you know, funny money over time, then what will end up happening is that you as a depositor are actually a creditor of the bank. When you have money on deposit, the bank owes you that money technically. So you're a creditor of the bank.

An unsecured one at that.

Unsecured. So if there's no money available there because they've, there's been a run on the bank, you're going to get issued stock in a defunct bank. That's what bail and legislation is all about. So you know, the protections that are in place. Yes, we have a very strong banking system here in Canada compared to a lot of other ones in the world. But you know, some precedent has already been set for that sort of thing. So this is one of the reasons why again, the insurance contracts with the insurance company, they're not allowed to manipulate the money supply, they're not allowed to fractionalize, you know, capital and they, they have, we have insurance for insurance actually in Canada. It's really one of the, probably the most robust.

As far as I'm aware, it's the most robust insurance.

Place in planet Earth. Really as far as how insurance companies.

In Canada operate to reassure everybody as well. I mean, we have a very strong.

Banking regulatory system in Canada. During that financial crisis, not a single Canadian banking institution required, you know, any, any bail in or bailout or anything of that nature. So it's thank goodness we're here in Canada as it relates to the banking system. But nonetheless, it's all about where the money and that financial energy is flowing to. Now the insurance company itself, if you're dealing with a mutual company, it is a private business. It is, there are no stockholders, it's not a publicly traded life insurance company. And the regulatory framework for the life insurance industry is far more robust and expansive than under the banking Act. The insurance companies are the most financially solvent institutions on the globe. If you go back to that financial crisis, there's not a single life insurance company on planet Earth that failed during that crisis, didn't even come close. And the reason is that they're all required to maintain continuing capital surplus reserves so that they can fulfill legally binding contractual guarantees. And so just remember that when you come into a windfall, whether it's expected or unexpected, your money must reside somewhere. If your own warehouse of wealth is not large enough to accommodate it, then make sure that you're connecting with your advisor to say, hey, I need to increase the square footage of my warehouse of wealth and how do we go about doing that? And your advisor will work very closely with you to help you put that into place. Now here's one of the key things that Nelson was trying to point out as it relates to Willie Sutton's Law. What Nelson was trying to point out is that when you think about if you're even the least bit effective at producing taxable income, at earning it, producing wealth, if you're a business owner and you're gainfully employing people, then you will feel the effects of taxation. And when taxation gets to the point where it becomes erroneous, then what the government typically does is they resort to exceptions to the rule. So for example, the creation of the registered retirement savings Plan that was born out of a pretty significant lobby, a very influential business owners in the country who said, listen, we want to de risk, we want to de risk in our business, we don't want to be committing to these large defined pension plan benefits, etc. We want to de risk and Transfer risk to our employees. And we need a plan to be able to create that. And we need to reduce tax at the corporate level. And as taxation became more and more erroneous, this tool was created to grant you an exception to the rule. And Nelson said that if you think about this, if you just take a moment and really think about what's happening.

Then you'll know exactly what to do.

You have a choice in terms of where your wealth resides. And he goes on to say, the government, lawmakers and bureaucrats who carry out these preservations of law fully understand that they are dealing with a parasite host relationship. Government is not capable of producing anything. It gets all its sustenance from the productive element of society. Government is a parasite and lives off the productive taxpayers, the host. It is self evident that if the parasite takes all the produce of the host, then both parties die. Government officials may be cunning, but they are certainly not stupid. When taxation becomes erroneous to the point where government officials sense rebellion, they always resort to exceptions to the rule. And again, he goes on to describe how they invented things like the 401k plan, which is the equivalent of the registered retirement savings plan, et cetera. And he says, what a classic case of appointing the fox to guard the chicken house. How totally absurd. Do you also notice that all these plans were not installed simultaneously? Right. It was done over a period of time. The real solution is to quit the government spending and get out of the lives of citizens. But at every turn you see financial planners and writers that label themselves as various kinds of financial experts who without exception recommend that you should participate to the fullest extent possible in your tax sheltered programs. It is self evident that these programs would disappear if there were no willing participants.

In the Soviet period, there's been lots of moments where government changed rules and because of that, many people would lose their savings many times over and over and over. But yet they still go to banks to make deposits, yet they still.

Do the same mistake. We didn't have this amazing opportunity to, you know, to open our own bank back then and now they don't have actually, you know, whole life insurance in existence. But when Soviet Union collapsed, actually there was a biggest crash where, you know, a government bank, the biggest bank in Russia actually, it just devalued all the savings of people. And people can actually, they had something called deposit books where you basically record your transactions manually. And then they can now actually.

Go.

To this exact bank and then say, hey, how much savings do I have? Whatever they had that was worth.

Thousands of dollars. You could buy big house back then, like 40 years ago. Now you can only like fill up your gas. That's it. They, they say, yeah, you still have deposit, but this is how much you have. So in coming here to Canada, you know, I have this, I had this fear and everyone who comes from ex Soviet Union has this fear of losing money because of banks. So we don't trust them. It just, just lost, lost of, loss of trust.