The Price of Total Control to Multitask Your Money in Canada

Let's say I can access a loan now. I can access alone 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. That's why 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 want to be a responsible banker. I'm going to pay back those loans. But if that gets interrupted for any reason, I'm paying back 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 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 trans unit. The loan's been paid.

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 do 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.

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, about the, the interest. Oh, well, boo hoo. The insurance company is going to 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 is growing the whole time. And you will get all of that interest back through the accumulation of the policy. In the worst case scenario 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 reuse it again. So so be it. Okay, fair enough. I'm okay with that.

I want to take that one step further actually, because I think this is really interesting. So 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 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, 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 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 able to access money from, from this bank and it's going to be at. I'll just pick a number. Let's say it's at 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 got to fill in some paperwork. Someone's got to decide if I'm a good credit risk, 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, etc. I'm always jumping through their hoops.

Jump through a hoop.

Jump through a hoop, Jump through a hoop, Jump through a hoop. And then I 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 a 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 is 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, etc. 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 the 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.

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. 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 gotta 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 gonna 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. I, 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 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 why 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. I, 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 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 or 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 came up for me here, Vern, as 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, 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 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 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 fill up 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 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. 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 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 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 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 and that's 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. Know, in the Edmonton Marketplace between 2004 and 2007, it. It almost. I mean, it was a rapid increase in. 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, you 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 purchased. 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 and 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 get their 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 20,000 like a huge 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 have, 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 that 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. 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 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 loans, 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 that they need to pay to cover their food on their table, make sure their mortgage is covered with the, the other income that they have coming in. And over that two year time frame, 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, 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 clients 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 going to have more options. It's not going to hurt.