The Secret To Increasing Your Wealth

Focus is what is left behind on the money that you are earning. That is where the mind focuses on when it comes to building wealth. Let's now go ahead and see where I can deploy that saving and invest it and earn a rate of return, because that is how I am going to build a wealth for my family.

There's 100 bucks. And so people think about it in that example, you know, for every $100 that they're spending, depending on their vehicles, at least 20 of it is going to interest. And now how much value could you add to your family wealth if that's all flowing back towards you and not away from you?

They're trying to grow their wealth, but they're fighting against trying to grow that smaller pool against the larger pool that's leaving them and working harder for someone else's bank.

Okay, Canada, so here's something for you to think about. You cannot get a better rate of return by investing in anything without first controlling the banking function. What do I actually mean by this? Well, stick around to the end of the video and my colleagues Dan and Sarbo and I are going to show you some really, really great examples that will illustrate exactly what we're talking about and how you can increase your wealth without working any harder.

Most people don't realize it, and I think that's going to be, this will be a real helpful session just to help them understand that the way that they're going about doing things financial today really isn't given an advantage. They should be able to get through the use of their money. So I'm excited to go through this and hey, let's just roll.

So I'll just ask you before what I'm going to do is I'm going to share my screen. I'm just going to examine the annual pattern of spending that Canadians are, you know, a typical Canadian walking around is doing today. But there's a, we're focusing on the wrong area when it comes to growing wealth. Isn't that right?

That's right. So what we're going to talk about today is the problem as described in Nelson's book called Becoming your own Banker, the infinite banking concept. So if you, on watching the video today, if you haven't read this book, maybe you've heard about it many times in our videos, but if you haven't read this book, we always say this, we're going to sound like a broken record. You have an opportunity today. Click the link below, get yourself a copy. You'll be glad that you did. So the problem that we're going to describe and as Warren mentioned in his opening, is that we can't get a better rate of return investing into anything until we control the banking function as it relates to our need for financing. So we're going to have much more expanded discussion on that. We can dive into some numbers. So for number oriented folks, if you like numbers, you're going to love this video. Stick till the end.

What we're going to do is just look at the annual pattern of spending of the typical Canadian family. So we're looking at all of the income that's flowing into your home today. Whatever your number is, you know what your number is. So the green bars are representing the income that's coming in. So 20% of the income is flowing out of the home. For vehicle financing, we have 30% to spend on housing. So our rent or our mortgage or whatever that looks like living expenses is the biggest one because we got utilities and the gas prices are going crazy, grocery prices are going crazy. So that's 40% of our income. And now we're being very generous here because we're saying that the average Canadian is actually saving approximately 10% of their income. Now what I'm going to touch base on here, gents, is what are we talk to focus on when it comes to borrowing? We want to get a what, a low interest rate.

Right.

But you can see here this bar that I'm showing. These bars are not representing the interest rate. The rate is what we're taught to focus on. What we're talking about here is the volume of interest. The actual percentage of each dollar that you're earning that's flowing away from you going to interest. Because of how that debt is actually structured, how it's compounded. There's a lot more money leaving you going to interest than you think because you're like, hey, I got vehicle financing, it's 2.9%. But when you actually look at what you purchase the vehicle for versus how much interest you actually paid, it's a lot higher than 2.9% or whatever that rate that you were sold. So what we're suggesting here is that 5% of what you're actually earning. So $5 for every $100 that you earn is leaving you today just in interest.

Yeah.

And that's just related to the automobiles and vehicles that people are buying, Vern. That's a huge factor when you start looking at it. So many people just focus on the rate. Right. And it's not about the rate, it's about the Volume. And that's what, you know, part of what we're going to help people understand here today.

Well, a prime example of that, Sarlo, would be if I were to look at an amortization schedule for a mortgage and I buy the house for $300,000 and I look all the way out, 25 years out, and I'm just pulling a number out of a hat here, but I'm going to see that. I thought I was paying 2.99% for my mortgage all these years, but I bought the house for 300,000. But then I see that I actually paid 400, 420,000 overall. Well, that amount of interest that left is a lot higher than the 3% I thought I was paying. Right. So that's what we're talking about here, folks. The, the rate versus the volume. What Canadians are not taught is to actually focus on how much interest you're actually paying. We're taught to focus on the rate, and the rates simply don't matter.

So the volume signifies. Signifies the dollar amount that you are going to pay, the physical dollars in interest on the things that you finance.

Exactly. So thank you. And that's what I would just expand on here. What we're suggesting. Again, when you look at the way that different debts are structured, I've got my vehicle financing here. I'm paying approximately 5% of my actual income is going to interest. I look at my mortgage, we know that the mortgage interest is front end loaded. So I'm actually paying 25% of my income. Most of that mortgage payment that I'm actually making, especially in the early years, is just going to pure interest. And then I'm just looking at my living expenses. Maybe there's a credit card or a line of credit or something like that in there. So there's some.

So you have my boat payment.

Resort luxury. And then, like I said, we're being generous here, showing that we have 10% actually going to savings. And we're losing 35% of what we're earning is just flowing away in interest volume. And what we're focusing on here is we're focusing on trying to grow this 10% of our savings, trying to grow our wealth with 10% savings. And this 10% is competing against the 90% that we're actually earning that's leaving us today.

Yeah, I like that. Because you know what we find, and it's true, is that.

When you think about the financial world out there, what do they focus on? It's that 10%. Right. That's where they spend all the energy. That's what we're taught. We're taught to spend our energy and time focused on that. Like you want to get that, you want to get that number up, you want to, you know, you want to increase it by 10%, you want to increase it by 20%. That's where we're taught to spend our energy. And today we're going to be talking to you as Canadians about a different way of thinking. It's all about how you think. And just so as we get into this, and one of the things we want to remind you of is that if you don't know about the infinite banking concept, we want you to go watch IBC.com that's right, watchIBC.com It's a 90 minute video. It'll just give you a good understanding of how this concept works. So with that, what is it we're going to talk more about when it comes to the volume versus the rate? It's just a bit of a vehicle financing study that I did because you can find that little graph that we just went through in the book called Becoming youg Own Banker. And it's based on averages out there in North America and here in Canada. So what I thought is I'm going to look at a specific case related to a family that was buying vehicles. Now one of the things that I wanted to start off our conversation about this about is, is like I just happened to pay attention to my local neighborhood lately and I was just going, how many vehicles are parked in front of each house? Well, I can tell you, and I don't know what it's like where you live, but where I live there's at least two. A lot of them have three. So this particular little case study that I did is based on a family. And this family is, you know, husband and wife. And when they looked at their take home, so that's what I wanted you to be aware of. That little graph that we went in through before was after tax, after all the deductions that get taken off of your paychecks. If you're a T4 employee out there, you've experienced that. So we're focused on the actual amount of money that comes into your home to do what you needed to do. So this particular case for this family, their actual take home was $5,100 a month. Now the vehicle loans that they had were a total of $75,000. Now you think, well, that's a lot of money. Well, I know lots of people that have that Much debt on one vehicle. And so this family had it split over two vehicles. And the interest rates that they were paying on their debts was like 6.99%. And that's very common. Like I've seen that from people that I've worked with. That's a number that a lot of people are paying towards their vehicles. Now what are we doing lately when it comes to buying vehicles? How are we getting our payments down to a number that we're comfortable with? Well, what we're doing is we're extending the length of the loan. That's right. Who would have thought just a few years ago that you could get a car loan and have it for eight years, Amortized over eight years is what is happening now with car loans. They're over eight years in length. And that's what people works for their budget. They focus on how much can I afford to pay each month. So for this family, that's what they've structured. They've got those things in place. And what that does is that it costs them $1,022.16 a month for their vehicle payments. So when you take a look at that, that loan over those eight years, if they actually kept those vehicles for eight years, because you know, you and I both know most people will be going back in and trading them off before they're paid off. But I'm going to say for the benefit of the doubt of this case, they're going to actually keep it for the full eight years. So the cost of that loan over those eight years is going to come out to 98,000 plus dollars. And the interest, the volume of interest, that's what I'm talking about here, is $23,000 plus. And so that's just some of the facts that will be in place for this particular family as they go through purchasing those vehicles. Now, I just wanted to do a bit of a summation here. So when you think about that, you know, the vehicle payments equal 20% of the money that they're taking home. That's not their gross pay. I'm talking about taking home. So for another way I think that makes sense for people to understand it is for every dollar, every dollar that they're using to live off of, $0.20 of that dollar is going towards vehicles. And then when you break it down a little further out of every dollar that they're paying over the life of that loan to interest is actually 24 cents out of every dollar that they pay against that loan ends up going to interest. That's that volume that's at $23,000. And that's how a lot of people are financing vehicles. And we just wanted to share that with you. And the thing that I wanted you to understand is that a big chunk of what they're spending on vehicles is interest. And that gets close to 25%, just slightly under. That was kind of the example that I wanted to give. And that's hopefully that helps you understand part of the problem because we're just talking about one of those expenditures that are out there. And in Canada, not everybody owns a vehicle. But I can tell you, for everyone that doesn't own a vehicle, there's someone else that owns two or three. So it's a good example and it's one that resonates with most Canadians. And so I just wanted to show you that and I hope you found that informative. And as we talk about, it's all about the money that's flowing away from you and the volume. And Nelson, when you go back in his book.

When he talks about the problem, it's a fact that we're financing all these purchases.

Through some other financial institution. And so that's what I wanted to add. What else did we want to go through? Servo, I think you're up next and going to build off of that little example.

Yes, Dan, that was wonderful. So just to summarize, the total loan balance on the cars, or whether it's truck or car or car or car doesn't matter, was $75,000. But over the course of eight years of payments, they end up paying about almost, what, $23,000 in interest. So the total that they paid for car financing was almost $98,000. So, Warren, may I ask you to open up that graph again that Nelson has on his book called the Annual Pattern of Spending? Because let's just bring this back to that teaching point in Nelson's book. So if you focus on the auto. So Warren, if you take your cursor with the auto and this is what dan talked about, 20 cents for every dollar that the family earns is going towards auto financing. So you saw an example where Dan walked us through family buying $75,000 in cars. Third party financing end up paying $98,000 back over the course of eight years. Now, nobody talks about.

People are focused on cars because that's a commodity that they all need. And they make a decision of buying cars based on interest rate. Okay, I got a 6.99. I can stretch out my amortization. I can make the payment work. I will make the payment work, right? So, and then they forget about it. And then the focus automatically goes towards, okay, this is after paying car, after paying mortgage, after paying living expenses. This portion of money is left behind for me at my discretion, to do something with, which is that 10% saving that Nelson talks about on that annual pattern of spending. And then the focus is, okay, what do I do with this money? Because this is what's left behind after paying everybody else. The focus is what is left behind on the money that you are earning. That is where the mind focuses on when it comes to building wealth. Let's now go ahead and see where I can deploy that saving and invest it and earn a rate of return, because that is how I am going to build wealth for my family. So the rate of return that comes into picture on investments is always on the money that is left behind from your earnings. But nobody talks about the rate of return on your money that you're sending away to banks for the things that you finance, which is also the money that you have earned. Why isn't that part of discussion?

A good chunk of the money that you earn is leaving you and small portion of what you earn is what's left behind. So what I'm going to do is building off on what Varun and Dan just went over. So I'm going to share my screen here. So, Warren, you did such a fantastic job talking about the annual pattern of spending so that people can see what is truly happening with their money. They're earning the money and which way is the money going. And Dan, you walked us through an example of car financing, clearly showing not the interest rate, but the interest volume paid on the transaction. Right now I am taking the 10% savings I'm focused on. What everybody focuses on is, here's what's left behind. For my family, I saved 10% of what I make. So this particular family, the net income per month was $5,100. So you can see we are setting aside 10% of that money, 500 bucks per month, and we are investing it because this is what's left behind to build wealth. Now, I'm going to walk you through my calculation here. So let's assume that they're actually getting 10% per year on their money on the investment. Now, Dan and Alan, so Dan Allen and Warren McCarthy. So what's the probability of anybody getting 10% every single year? And I'm going to compare the same amortization schedule. So Sudan, you had an amortization schedule for car loans at 8 years, 96 months. So I'm going to compare that with the same investment schedule, which is going to be for eight years on this transaction. So the probability of anybody getting 10% on their money every year. High, low.

I'd say I'm voting low for sure, because I've just lived long enough to see that doesn't typically play out year over year.

So if you use 10%, we are using unrealistic numbers. But let's show people, hey, what if you get 10% per year? We're going to make this deal really, really good. Now, if someone is giving them 10% on their money, let's just say they met with the financial planner and they said, yeah, we can get you 10% on your money. Do you think they are going to work really hard to get you 10% per year on your investment? Probably. And for working hard, they should be remunerated quite well because they're doing all the work to get you 10% and they deserve that 2% as fee. In fact, it should be more than 2%. Should be 3% if someone is getting you 10% on the money. Right. So 10% is gross after fees, 2%. So we're going to subtract 2% and then we're going to pay the taxes today. And, and we're going to assume that the tax bracket never changes, is 30%. So the net gain, net rate of return that they're actually earning in the investment is 5.6%. This is the net gain. This is the gross gain. But here's another interesting fact. This is what everybody focuses on. They never focus on the net. They always focus on the growth. They forget that these are additional things that have to be paid. Now, I'm assuming 5.6% is a net gain on this transaction. And divided by 12, that's almost 0.47. So this family is actually compounding their wealth every month. 0.47%. So $500 goes in. They own 0.47 end of the month. This is their new account balance. Next month they put in the $500, but they already have this five or two from the previous month. So now they're compounding their wealth every month. Now compounding every month. Holy smokes. It has even more generous. Right.

So if they continue doing this over the next 96 months, let's see where they end up. So this is going to be the account value, $60,661. Now, the principal that they put in from their pocket is 48,000. The account value at the end of 96 months is 60,006,61.

So.

So the net profit on the transaction is 12,661, which is net after taxes, net after fees. That's really, really, really good.

Yep.

And this is there was no down years, right? Cereblo Bingo. The whole time.

Yeah. This is assuming.

Everything is really, really smooth over the next eight years and the probability of that happening is also very low.

Best case scenario. Now, in Dan's example, so see, we have to. So when people look at this and they say I'm doing really well financially because that is what the focus is. This is the money that I earned which was set aside and this is the rate of return I earned and this is the wealth that I build up in the 96 month period, which is 12,661. While this is the wealth that you build up on the money that you are earned and set aside. What about the money that you earned and money that was sent out to someone else for the things that you finance? Because that is money that you earn. The rate of return should never be about money that you're setting aside. The rate of return truly should be about money that you're earning because you're doing all the work to own that money. Unless you don't value your time, then you should not factor that in.

You're right.

It's powerful. And that's what we mean when we say that Jason, the founder of our company would say, hey, you're not earning 50 or $100,000 a year, you're handling $100,000 a year, YOU'RE just flowing into your account and you're handing it to somebody else because you're not controlling the banking function.

Yep. So well, and I think too, as we reflect on that and we think about a lot of people don't understand that they can't get a better rate of return without first controlling the banking function. And once they get that, once they understand.

Where the value comes from, once they start to control the banking function. And so that, that $23,000 that showed up in that example is no longer going away from, but it's coming towards them, that's a huge thing. So I, I just thought to make it a little more graphic, I'm going, so here's 100 bucks. And so if people think about it, in that example, for every $100 that they're spending on their vehicles, at least 20 of it is going to interest. And now how much value could you add to your family wealth if that's all Flowing back towards you and not away from you. That's what people don't get. And I just thought, well, hey, if we can get people to understand what it means to control the banking function as it relates to their needs and how it would change everything for them financially. Like that little graph, I love it every time because it just shows such a clear picture of what happens, what's happening out there. Most people don't even understand that there are only two players in the financial play and there's four players. And they need to be all four characters in that financial play. And when they get there, well, then all of a sudden that money start to flow towards them. Instead of that.

$20 out of every hundred or whatever turns out to be going away from them, gone for it, they get to start to keep that coming towards them, building their wealth. And to me, it's just one of those things that if I could help people understand something through this whole process, is that until you control the banking function, rates of return just, you can have a good rate of return, but I can tell you you can do better.

Yeah, Dan, well said. And just to add to exactly what Dan just shared, so this is the rate of return on investment, the volume of rate of return, so called 12661. And this is the volume of interest paid on the car financing. Now, all this was achieved by the money that the family had earned. This was achieved by the money that they earned that they had set aside. This was achieved by the money that they earned, which was set aside on the car financing. So the true rate of return on the wealth, which is based on the rate of return on their income on these two transactions is actually negative 10,465. The bank got a better rate of return than you, and you helped the bank achieve that.

So, Sarblo, that is so good, because what you're talking about, what Nelson would say in his book, is that Canadians are walking around and they're dealing with a perpetual headwind. Yeah, they're trying to grow their wealth, but they're fighting against, trying to grow that smaller pool against the larger pool that's leaving them and working harder for someone else's bank. And Dan, you did a good job with your cash. When you illustrated, you didn't just show the $20 coming back, the interest that's leaving me. When I control the banking function, I get both pools. I get the base premium I get or the base payment, the principal and the interest is all coming back to me and my family. I get to Capture all those payments to take more advantage of.

What's interesting.

I like numbers, but I don't like numbers for the purpose of looking at numbers. I like numbers for the stories that the numbers actually talk about.

Now, was this easy to achieve 12,661 in investments?

No.

No.

Lot of risk was involved. Taxes were involved, fees were involved, A lot of assumptions were involved. Saying that tax rate never goes up, market never corrects itself. Everything was just the best you can ever imagine. If you ever had an empty slate and you had to build a perfect investment, this technically describes a perfect investment where it never drops in value.

Exactly.

But this wasn't easy. There's a lot of risk involved. Now, this is what the amount of money bank earned. Now, how much risk was involved for the bank to earn that money?

None.

Very little. Like they took collateral and they focus on your income. They make you go through a lot of hoops before they approve you for that.

Serge, you raise a good point here. Hold on just for one second. So.

I don't want to take the words out of your mouth. I don't want to take the words out of your mouth.

What I wanted to say was this is risky for the bank. This wasn't risky. So without taking on any risk, the bank came out ahead. Think about it.

But even further to that, Cervlo, who actually has the risk in that 23,000 of interest? Not the bank, it's the consumer. So not only are you sending the interest away, but you're risking your health, you're risking your job. You have to make sure you consistently make that payment because you don't own anything until the final payment's made. So you're actually giving money away from yourself. And they have no risk and you have all the risk.

So you can continue doing this and this is the outcome based on these perfect investment assumptions that we have in our consideration, or you can do this. And it has nothing to do with achieving a rate of return. It has nothing to do with risking your money to the risk of loss. It has nothing to do with that. It's all about financing, which you're going to do anyways.

So if you do this, this is the outcome. If you become the banker, this is the outcome. Choice is yours.

And I forgot to sprinkle it in there. Starblow. Dan mentioned it earlier. But if you want to learn more about what we're talking about in the expanded conversation on the process of becoming your own banker, the infinite banking concept in Canada, make sure you go to watchibc.com that's watchibc.com and get access to that 90 minute webinar.

If we can leave everybody that's watching this with just one thought and that's that, hey, the way we're taught conventionally to bank is at the advantage of who. And once you understand that, the advantage swings over to you. Once you're controlling the banking function as it relates to your needs, you'll never want to do it the other way. That's what I'm going to leave people with today.

Well, Cerblo.

Canada, you're doing all the work, someone else is getting all your money. Implement the process, becoming your own banker. I'm still doing the work, but I'm the one getting the money. And I get more of that money to work for me and my family.

Absolutely. Is as simple as that. And it's all about not taking on any risk, not working any harder, not losing control over access to capital and not losing the flow of money either. Right. So it's all about just ease of doing things going forward, which is something you're always going to do anyways. But the question is, who is going to benefit from it?

Well, are you, Am I a good customer? Am I a reliable Canadian who pays his bills?

Yeah, yeah.

Why don't I just become my own really good customer? Why do I have to be some other bank's customer?

Yeah, good thought. So we're going to leave you with that and we want you to think about that. And if you have comments, you know, feel free to put them in below. We'd love to get your comments. And hey, watch the other videos that we got on this channel. They'll help educate you on a process that can change your life forever.