Nelson Nash: How to Save LOTS of Money If You’re a BIG SPENDER (26 of 30)

Y' all do realize, please, that this book is not for you. I did not write Becoming youg Own Banker for you. I wrote it for your clients. And people that don't know anything about the life insurance business. You should know that one side down the other. But the idea here is that you buy these books wholesale, sell them retail, you don't have any money tied up. I see. I've been around a life insurance business almost as long as Bob is has. And I know for a fact that the typical agent will spend $250 time, effort and money trying to figure out whether he has a prospect or not. Odds are he doesn't. All that time, effort and money wasted. Whereas.

Stephen, do you think this. Do you have a gut feeling there's something fundamentally wrong in the financial world today?

Yes.

Yes. Well, would you. I discovered a book that addresses this and that would probably give you an answer to it. Would you be interested in reading that book? Yes. Okay. It's going to take two hours of your time and it's going to cost you 20 bucks. Here's the book. Give you 20 bucks.

Now, when you get through reading it, if you don't like it, I'll buy it back.

Now, if they'll pay for it, they'll read it. If you give it to them, they won't be ready. Now, if they'll read it, you will know immediately whether you have a prospect or not. If you have a prospect, hallelujah. If you don't.

You've wasted time.

Well, tell me how much money you got tied up when you bought the book wholesale and sold it retail.

You make money.

You make money. Does this make sense? Do you understand why I wrote the book? Yes.

All right, who's ready for some equipment finding?

Let's go to page 55 in the book. This is the same thing that you'll see on the screen here. This is a logger in eastern North Carolina who happens to be a. I know the particulars of it. Okay. Now, why am I using a logger as an example? Simply because I don't know many people who know loggers.

Do you?

No.

No. That's right. All right. See, I remember. Why did I, in the buying of automobiles, why did I use dividend withdrawals rather than loans? Because I want to be able to get into the minds of those that are locked about. Loan is bad. And I want to prove that it could be done that way. But remember I told you that I would never let a client do that way if I was in the business because you switched. You killed the growth potential of the concept. Like the little fine tree that came up there, that's dividends from the big pine tree and it gets about 10ft high or something like that. Pull it up or cut it down, it won't grow anymore. So never do that sort of thing. And besides that, remember the characters in the play here that.

If you are making a loan at somebody else's bank, yeah, loans is bad. But.

If you're the banker, loans is good.

Loans on the boots of a bank are an asset. Okay? Now.

Terry. Okay. The reason I use a logger is because if I want to talk to somebody about their business, you run the danger of them saying, who is this guy trying to talk to me about my business?

They quit listening. I run into that time and time again. Remember my story about Bruno's grocery store? Yeah. Like I got thrown out after less than 15 minutes of conversation. Who are you to talk to me about the grocery business? We're the epitome of high stunning. Well, every business involves banking, doesn't it? There are no exceptions.

Okay, so here's Terry. He's age 30, logger, eastern North Carolina. He has four Peterbilt trucks. Now, do you all have them up here? Oh, yeah, yeah.

All right.

About one out of every ten is Peterbilt Freightliners and pits. It served Denton, Texas and Nashville, Tennessee. A good drink of equipment.

That's the cheapest thing he has is people trucks.

He has two logging tractors that Caterpillar tag, but they cost twice as much as a truck cost.

Now, in our part of the world, we have tree shears. Now that's a generic term. It's actually a saw of a type of. But it's only a big rig that goes and grabs hold of the tree up here and sticks it off here and go, go, go. History Channel has a two hour program about logging equipment in the southeast United States. I've seen it twice. And one of the tree shears that they demonstrated there cost $650,000.

Terry has a stripped down model. It's only 4 million.

All right? Now, every one of these things are financed.

Terry is paying 16,000amonth on truck on equipment payments.

To Associates Finance. Associates Finance is kind of like GMAC to the equipment and the airplane world. Okay? Very low profile. If you found one of their offices, it'd be on a strip center or something like that and just kind of look like a hole in the wall or whatever. But they're big in the business.

Now.

Let's go to.

Page.

Let's see, Gotta back up here I think it is. Now, we go forward. We go to page 56. There we go, exhibit one, page 56. Now, up at the top left corner, you see back there, in 1984, Terry bought a new Peterbilt truck. And you notice he paid $65,790 for it. Okay, now go down to the itemized items there. And there's the reiteration of the cash price. Line two, he paid 13,190 down. Everybody see that.

Line three, he financed 52,600 with Associates Finance.

Now let's go down to.

Line 10.

That's his payment per month.

$1,502 per month per truck.

Now let's go to line 8. Time balance. He will pay out $72,096 of total out of cash flow.

Well, how much did he finance? There's a reiteration again, line six. 52,600 is what he borrowed. 72,096 is what he paid over the period of time. In between is the jelly and the sandwich interest. The volume is $19,496. Folks, that is approaching $20,000.

27%.

Yeah.

Yeah. Duke the third. Great arithmetic. 27 cents out of every law is interest.

Now, that is if he goes the full four years of paying for it.

Richard, suppose he trades every two years. What will happen to that factor? The volume goes up, Bill bargain goes up. What if he trades every year? 50, 50?

Yeah, probably 50.

50. Yeah. People don't take that consideration, do they? I just figured 37% is that.

The.

Total balance paid back. So 19496 over the 72.

19496 divided by the original borrowing of 52 is 37% of the original borrowing amount.

But of every dollar actually aids, it's actually over the same every time he.

Pays out at all. Yeah, Richard. Right. That every time it pays out a dollar over the average of that piece of time. Period of time, four years. That's what portion is going to interest.

Now tell me what happens at the end of four years.

That truck's mild.

The old dollar reached 400,000 miles.

He's got to get a new truck.

All right, now he's down at the Peterbilt place, and we're up to line two. Now, this time they gave him a trading allowance of 16,000.

But tell me what happened to the cost of the new unit?

Can add check on this every once in a while because this is 1984.

And today, if you are to try to get this same model, it's a little over 100,000.

And that's courtesy of the central bankers. Okay.

Now look this page over intensely and tell me where you're going to find an interest rate.

It's not that. Now, if this was a consumer loan in the usa, they would have an APR guarantee. By law, it's got to be there. Got to tell people how much this is costing in the interest rates.

We have the same, but not the volume.

Yeah, but here. But this is a commercial paper in our country. That is not a requirement. I think the rationale is if a businessman can't figure interest rates, he has no business being in business.

But Richard Gigg is the real story there. Now, Terry is making a so. So living in bargain because this is happening with every last day of that bit of equipment that he has there. This is just one of those pieces of equipment. And there's seven different pieces of major equipment.

Terry, you're making so. So living in logging. Bankers are making that like a bandit out of you.

You need to get in the banking business because everybody should be in two businesses. Whatever you do for a living and the banking business that finances whatever you do for a living.

Now, to get the banking business, Bob, he's got to capitalize that. All right, so let's back up to illustration one.

That's going to be on page 54.

Top left corner, small print. Because the limitations of page. It's not. They don't want to hide anything. Male, age 30. He's putting 15,000 into a life. Fade up at 65. Now, y' all remember that scale that I showed you earlier? He puts money on a base policy. Life paid at 65, 15,000. Now, you notice he's paying 25,000 to a. Paid a petitions rider total of 40 a year. Now, that sounds like a pretty good size premium. But compared with the cash flow that's there, this is very reasonable.

Compared to.

The cash flow of a business like this. That was a very reasonable thing.

Now, you notice in the left column, 40,000 a year, four years and then zeros.

Yeah.

This is a line in the sand with which to. This is a yardstick. We'll say to compare everything else with. See, that's what I'm doing everywhere here in this entire book. I'm comparing what is or what could be if a person will think.

And so this is the yardstick. This is the. What did you call this? I did.

The base template.

No, just a second, just a second. The name that the insurance industry used to.

Oh, premium offset Premium offset. Premium offset. Yeah.

You see, there are people out there that in the insurance business said, oh, here's a way you can pay four and no more.

Nice slogan, right? Pay four, you know, more for you. Now, the idea here was to pay as little as you can and get as much protection. See, that idea's been around since day one out there in the insurance business. And so this is just a modification. Look how you could do this. Just pay four years and that's it. And then some other guy came along, but, oh, here's it. Let me show you how you can demonstrate. You can pay three and be free.

Oh, gosh, please.

Talking about shallow thinking.

But there's that poison that's out there in the minds of people, that life insurance. Life a poor place to have mu. Exchange. Well, a warehouse. And nothing could be further from the truth. All right, how did we get zero outlay from that point on? How did we do it, Richard?

Surrender dividends.

Well, what about that PUA rider?

Yeah, yeah.

You only have to pay the base of 15.

Now, y' all understand that he dropped the PUA rider there, Ashley, he didn't have to pay that. That's an option in your own mind. Yes, but the 15 still got to be paid, right, love? All right. If you're going to keep up the program.

Life Payment 65, you still got to pay premiums for that period of time. But yet he paid nothing. So how did he do that? Well.

I'm Richard.

Yeah, just surrender pay up additions or use the dividend to pay for it.

Let's demonstrate that.

Cut down the trees.

Yeah, let's demonstrate that. Yeah. I want you to go, Jesse, to the middle column there. Total dividend. You see the total dividend column? Yeah. All right. Do you know what the dividend is that the fifth year?

6,000, 339. Say that, love. Okay, now what Richard said, he surrendered. He used that dividend to pay the premium. Well, that's obviously not enough to pay the premium, is it? So how did he pay? Zero. Well, go far. Right, love. You see death benefit, how I get there to highlight it. You see what the death benefit is the fifth year.

Now you look at number four. What's the death benefit? It's lower. 1.64. Yeah, he surrendered some paid up insurance, the cash value of which was about $8,600, $8,400 or so. So 8,600 plus 6,339. That adds up to 15,000. Hence, no outlay. Right, Bob?

Yeah.

All right, now, the Next year the dividend went up, didn't it? It's engineered to do so. That's the way engineers think actuaries are engineers.

Yeah.

All right. So this time he had a dividend of 6359 to apply toy. He surrendered some more, paid up additional insurance. And so the death benefit again went down. Now, when you get down, down to line 17.

Darrell, do you see that dividend that year? Announce it so I'll know your. Whether you show it or not. 15, 634. Well, that's more than they bring you measure.

Well, won't that pay the 15,000 premium due then? Actually.

The dividend that year, love, was 15,634. Right. Got that. That's enough to pay the premium end. Well, what do we do with the364,634 rather. That's left over then, huh?

Go far right, go over there to the death benefit, and you notice it went up in comparison to the year before.

I'm going to refer to that as planting trees from now on, all right?

Yes, sir. Good one, Good one. Let the trees grow. Now, those pay the conditions also pay dividends. Don't that statement.

The base policy is paying dividends and the paid positions is paying dividends. And so you have a compounding effect. It really accelerates now as time goes by. Well, continue that process. And you get down that to 865 and it's highlighted. What is the cash value? 1.5 million. Right?

Everybody see that?

Now, what's the death benefit? Go far right. It's highlighted. 2.406. 2.4 million. But Mark, he did die.

He wants income. Passive income. Now, y' all notice that I did not say retirement in God. Remember that? Bob and I are wiping the word vocabulary of retirement out of our vocabulary. That's a stupid idea.

Bob says when I quit traveling, he's going to take my place.

Why in the world would Papa. I retire the way everybody talks about it. Good.

You may be greater than we think, sir. You may be greater than we think.

I know I'm greater. David, have you stopped the picture or.

Look, if I had, quote, retired the way everybody thinks about it, I would know you. That's right. That would be the most tragic thing I could think of.

I just had the guy from Thorough today.

Don't hold it against me. I met a great group down there in Oakland here last week. We visited friends in Seattle. We saw gorgeous countryside. We met new people to talk to. We saw absolutely gorgeous countryside from Chilliwack up here to Kelowna and then I get to see you. Why would I want to quit doing this?

There's some stupid thinking going on out there.

All right, he wants passive income. That's money coming in. You can't help. Just shows up. All right, so on the left column there highlight, he's getting 92,000 a year as long as he lives.

Now, Monica, let's add up all those up. Add up all those 92. Now you go to the next to the right column and you will see that he recovered the $160,000 he put into it tax free.

It's 1,748,000 extra.

And then he died. Actually.

Check his death benefit though, at the very end or at the very end, 2,400,000. Well, what was it at age 65?

This Dave Ramsey know biz?

No.

Do any other financial geniuses out there know this?

All right, Now, Wayne, when he recovers the 160 he put into it, now it's taxable from that point on. I do not illustrate that. But see, I want people to think so. You're going to have to pay taxes in the USA after you recover the cost basis. But if you make loans, it's not.

And if you make loans, the get better. But I don't want to rub it in.

Okay, now this is the yardstick with which to compare everything with and where it's from. And Terry sees this and says, uncle Nelson, that is good. Well, I think it's pretty good. But then it dawns on him that while this happening, he's paying out 192,000 a year in payments on equipment.

Duncan Nelson, can I do business in my place?

Terry, bankers do anything they want to if the bank has the capacity.

Nelson, I got a question here that you're gonna laugh at.

Well, come on, let's have it.

Okay.

All right.

On our side of the border, we have adjusted cost base and it falls like a rock after age 65 to 70 somewhere in there. And so what? A better strategy would be to get on your knees and go to your local banker that you haven't seen in years and say, I want to assign this policy to the bank and you give me a loan for $1.5 million.

They won't do it.

Manufacturer might.

Might, might.

But there's bank rules that are just. The branch level is 2 million 500 per person. Oh, you have to go to private banking. Oh, that's your head office. Yes. They won't do it either, so there must be something else. Out there. Because don't tell me that every dollar that a business owes is fully secured by cash or a death benefit. And if you're in the business of lending and you're fully secured by cash or a death benefit, why would you not lend? There is no risk, period.

No.

But it won't.

Can I add to that? But insurance company will.

The one thing that.

Whether, you know, some folks are new to this or experienced with this, is that when Nelson's describing this example in the book, it's important to go back earlier in the book on page 25 when he talks about. We're not just talking about one policy, we're talking about creating a system of policies.

And when you create a system of policies, what are you doing to the cost base?

Spreading it.

Spreading acb.

Yeah.

Right. So you're building a system for the, for the clients.

And even after age 65 or 75 or whatever the cost basis. Yeah, the adjusted cost basis in Canada drops like a rock.

Yeah.

But unless you plant more trees.

Yeah.

Oh, I see.

I'm having trouble here. Or when you recover cost basis here, what happens? Taxable. Well, so what I was just telling you that this happens in our country also. Yeah, that's right. But if you change the loans, it is not taxable.

It is in Canada.

It is in Canada.

Why.

Ask the state? Because some whiskey. Yeah, some, some whisky sat back and said, oh no, we can't. Well, you can compensate for that though by listening to. Just being to Jason there.

Whole policies or dies.

This will be more apparent to you in the next session that we're dealing with if we can go on.

I like the dialogue. I really appreciate it.

It's important also, Nelson, just to clarify. So in Canada, when you put capital back into the system, you get a direct tax deduction for every dollar you put back in. So the government doesn't know when you're going to die. The death benefit's paid tax free. So if, if a policy loan is a deemed disposition from the contract and it triggers a taxable gain, when you put money back into the contract, you get a direct tax deduction for the money you put back. Because the lien, when the policy loan is issued, the lien is on the death benefit, the cash value is collateral and the death benefit is going to be paid tax free. So if the government doesn't know when you're going to die, they're going to give you the tax, the taxable gain back when you put the capital back in. So if you create a.

Based on the Years that I've had experience with people here in Canada and the discussion, this particular subject, it's just simply a difference in accounting, that's all.

That's it.

Yeah.

Well, things are, things are only going to get better in 2017. Where your ACV is going to be higher for longer.

Yeah, yeah.

Especially full life after.

Yeah, it's actually better. Okay.

Can I add one more point? Nelson? I'm on my soapbox.

No, no, no, no, no. We need to.

Let me ask you this question. And Will, I'll use you as an example. If I wrote you a check right now in this room for $100,000 payable to Will Moran, and I said, will, the only condition of you cashing this check is you have to pay tax on the proceeds. Will you object to taking the check from me?

Still take it.

Are you okay to paying some tax on money? You did nothing to understand it.

Yeah.

Okay.

But you did nothing to earn it. You did nothing to earn the money. You okay with paying some tax on it?

Tax shouldn't be an issue.

That's a non issue. It's the advisor that brings that issue to the forefront. The prospect will ask you about that, but you have to be able to just. Again, it's all about the way that we think. Who is the banker in your life as it relates to your financing needs today? If you're not controlling that function, why does the tax even matter? You're going to pay it anyway. If you're controlling the banking function, you're the one that's going to accumulate the wealth net of tax. Make sense? And you'll learn more about that this afternoon.

Now do you see how effectively an authorized practitioner of the Nelson Nash Institute canceled out that noise?

That's the lowdown.

Well, I'm an authorized practitioner too, and.

I just need to hear it again. Yeah, but he's been at it longer.

I told you, this is, I shall say, a work in progress. That's just all there is to it. We learned. I'm going to demonstrate that to you vividly here in this next section.

Okay, thank you.

But it's work in progress and that includes yours truly.

Yes, this is a great example, this conversation of the backward bicycle.

Yes.

Oh, because he took that backward bicycle to some of the top educational institutions, basically took it to the rocket scientists.

And said, give it a whirl.

You're smart and we're those guys.

My dad used to tell me, God rest his soul. My dad used to tell me the only thing that's rocket science is rocket Science.

Okay. Can we go on? Terry says this is okay. Can I do business at my place? Well, doesn't the insurance company have to lend.

Money? What can they lend here? At the end of four years, they put in 160. They can lend 157,000. My word. That's almost dollar for dollar. Well, can the insurance company lend him 52,600?

Yes, it can.

Terry says. I asked Terry how much you need. 52,600.

Well, of course he can. He outranks everybody. I've already demonstrated that. Yeah. Let's go to illustration two. Go forward. That's on page 59. Now, everything up through line four is exactly the same, right, Nate? Yep, exactly the same. Now, that's going to be left columns.

Minus 34,600 expressed as an outlay.

Now, if I didn't do it this way, we'd have three more columns on this page. It's already got too many columns. All these numbers have a tendency to intimidate people. But no, that's not the object here, to intimidate them. It's to just help them understand what's really happening out there. Because remember what Eba said at the end of the article, if you know what's happening, you'll know what to do. So this is to help him understand what is really happening now. Minus 34,600. What that is is shorthand, Wayne. He borrowed 52,600, but he paid back 18. Now, what is the 18,000? But payback come from. Well, can anybody multiply $15,000 a month times 12 months?

Okay, I ran the case. All right, so every four years he gets a new truck, doesn't he?

Yep.

When he gets down there to age 65, check out the cash pay. It won't be at 988. Right.

Well, Dean, what was it when the insurance company handled it all? 1.5 million.

Nick, do you recognize he made a half million bucks almost by just shopping at home. All he was doing here in this example was taking the energy that was going to associates that got the money from the insurance company in that phone.

He's just getting the money that they were making. That is all. Yes, Nelson does that.

So that ties to one of our attendees. I can't recall if it was Kevin or Darryl that talked about, you know, policy is going to grow regardless of whether or not you use it. Yeah, so go back real quick to page.

Where's the first illustration?

54. Yeah, so if you just humor me. If you take page 55 through 57, just sort of curl that up so that all you can see is page 54 and 59 like this.

Can you replicate that without mangling this book.

On page 54? So which one of you gentlemen was the one that raised that?

So if all you did was just leave the policy alone, it's going to grow, right?

Oh, yeah, yeah.

So on page 54, this is the insurance company administering the policy and the policy owner doing nothing. Nelson says that the policy owner's behavior is far more critical than the behavior of the insurance company. So on page 59, this is the policy owner's behavior impacting the policy. Do you see that?

Yes.

Yeah. See, the numbers are different. I was trying to figure out the.

Logic behind how it's going.

He was banking.

Yes. See, what is happening there is the energy that was going to Associates Finance is now going to his policy. I'm talking about cash flow here. You do not see the mechanics of how the insurance company actually handled it. I could not depict the fact that he's paying the fifteen hundred dollars a month or eighteen thousand a year that is actually premium, folks. The interest and so forth is being paid by dividend syringes. But there's no way I could show it.

All we're doing is taking the energy. It was going somewhere else and now it's going to my policy being administered by my insurance company. We're talking about cash flow here. We're not talking about minutiae of what actually happened. To do otherwise would be a guy hooked up, got his mind all preoccupied with goes to the grocery store and he wonders how much the girl at the checkout count is making.

How about that meat manager back there? What's he making? Do you really care?

All you want to know is what's it going to cost me to take this meat out of here and get past that cash train.