Tue, Nov 30, 2021

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Don't Let Clients Fall Victim to Opportunity Cost Vampires

Don't Let Clients Fall Victim to Opportunity Cost Vampires

A few years ago, Thomas W. Young, CLU, ChFC, saw a movie that reminded him of a situation he experiences as a financial advisor.

In the movie, vampires took over a major city and kidnapped its citizens, continually taking blood from the innocent people to feed themselves.

Why does this matter?

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Life or Death (Insurance)?

Life or Death (Insurance)?

I think we should refer to things for what they are and what they intend to do. Don’t you agree? Let’s examine life insurance. Most people are familiar with the names Term life insurance and Cash Value life insurance. Both are called life insurance yet they are completely and fundamentally different. Term life insurance does one thing—it provides tax-free money to your family when you die. The “Term” part of Term life insurance means that the premium is set for a specific period of time. Premiums are set by the insurance company and the owner decides how long to set the term period. The longer the term period, the higher the premium. The policy does not expire at the end of the term period, instead the insurance company sends a letter informing the owner that the term period is expiring and a new premium is required to keep the policy in force. The new premium represents an increase over the term premium and is usually dramatic to the point that most people either can’t pay it or won’t pay it. The insurance company sets a new premium each year moving forward and the owner decides if they want to pay the premium or not. When the premium is no longer paid, the policy dies. Term life insurance is a product that is engineered around death. Either the owner is going to die and the beneficiaries benefit or the policy dies and the insurance company benefits; after all it has collected premiums for the “Term” and now has no future obligation. With so much emphasis on death, wouldn’t it be better if this was called DEATH insurance instead of life insurance? One could purchase a disability rider on the policy. It would provide a life benefit in the event of a disability where the insurance company would be obligated to pay all future premiums while the owner is alive AND the death benefit when the owner dies. A disability rider requires an additional premium and the insurance company does a very interesting thing when there is a claim on this rider. I will discuss this a little later.

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The Bermuda Triangle of Money

The Bermuda Triangle of Money

Managing money and accumulating wealth is similar to flying a plane through a weather system as Nelson Nash portrays, in his book “Becoming Your Own Banker.” He describes that every weather system has a leading edge with a headwind, a center, and a back edge with a tailwind. He also explains that if the plane is engineered to travel at 100 mph and flies into a headwind of 345 mph, the plane will be going backwards (Negative, 100-345= -245). If the plane is traveling through the center portion, it’s achieving its engineered rate of speed (Neutral, 100-0=100). And lastly, if it is traveling through the back edge, it will be aided by a 345 mph tailwind (Positive, 100+345=445). Each one of these areas represents a different “environment” in the larger system. It’s pretty obvious you would want your money to be in a positive environment, but Nelson claims that 95% of the American public have their money in a negative or neutral environment. Could there be a “Bermuda Triangle” where money simply vanishes? Is your money exposed to this “Bermuda Triangle”?

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IMAGINATION!

Imagination

Albert Einstein once said, “Imagination is more important than knowledge...it is a preview of life’s coming attractions.”

Nelson Nash states, “The Infinite Banking Concept is an exercise in IMAGINATION, reason, logic, and prophecy.” Let’s IMAGINE for a moment that you are looking at a map of the world. Remove names, borders, countries, and continents and all you really see is land and water. There are masses of land and some of them are completely separated from each other. Water, on the other hand, has no separating points. Lakes and rivers on land are created by water that has evaporated from the oceans, collecting in the air to create clouds. Once those clouds become oversaturated, the water is released onto the land where it flows into lakes and rivers and then ultimately through you and I. Eventually, it all returns back into the oceans and the process repeats. There is only one pool of water in the entire world.

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PEER PRESSURE!

Peer Pressure

Nelson Nash writes, “If you will get a young man together with his peers at a coffee break or some such gathering and have one of them suggest that they discuss financial matters, I can predict what they will talk about—getting a higher rate of return on the portion they are saving.”

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The "Human" Layer

The "Human" Layer

This is third article and the last on the different "layers" that are working together (and independently) to keep most from understanding and implementing the Infinite Banking Concept. The first layer, the government layer, is most recognizable because it involves taxation. The second layer, the corporate layer, is not as easily recognizable because it involves strategies by corporations that transfer wealth from you to them periodically and predictably. Most become polarized at this point and want to blame the government and/or the corporations for their lack of savings, security, and wealth. I assure you that they are doing nothing wrong! Will Rogers once said, "The problem in America isn't so much what people don't know; the problem is what people think they know just ain't so."

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The "Corporate" Layer

The "Corporate" Layer

My previous article discusses the "government" layer and how excessive taxation limits us from accumulating wealth by taking money from us either directly or indirectly. That’s the most identifiable layer because we see the impact on every paycheck and on every purchase receipt. The next layer that hinders us from understanding and implementing IBC is not as easily identifiable.

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The "Government" Layer

The "Government" Layer

The first step to understanding the Infinite Banking Concept and how to become your own banker is to identify the problems that prevent us from understanding and implementing IBC. As I see it, there are three "layers" to the problem that we need to open our minds to. I will address these areas from a stand point as to what is most identifiable to least identifiable. This article will address the most obvious problem which is TAXATION. The "Government" Layer!

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Banking 101

Banking 101

Banking is one of the most important businesses in the world. When was the last time you watched or read the news and didn’t see a story that mentioned interest rates, retirement planning, stock market moves, the dollar getting stronger or weaker versus a foreign currency, or oil prices going up or down? How many ads have you seen promoting credit cards, mortgage loans, and auto financing options? Have you ever wondered why each year the hype around the holidays and consumer spending becomes more intense? These are all functions of the banking industry. Our world and our lives are dominated by banking institutions. It is one of the most important businesses in the world.

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