08 Sep September 8, 2020 – Consultant Builder Veronica Sagastume and Snow Bank Method Mark Willis
Veronica Sagastume – Content Strategist for Accountants and Bookkeepers
Your first, second and third client are already in your network.
Veronica Sagastume is a successful CFO/COO, consultant, and entrepreneur with over two decades of accounting, finance, and operations experience. Veronica first discovered her love of consulting while working with CEOs at start-up and emerging growth companies in the Bay Area and Silicon Valley. She traded her Silicon Valley corner office for a home office, building her coaching and consulting company while still working at her corporate gig and exploding it to six figures within six months. In 2016, she ventured online to teach other accounting, finance, and tax professionals how they, too, could use their expertise to make a greater impact, increase their freedom, and enjoy more flexibility while significantly increasing their earning potential. Through her simple framework, you’ll learn how to create content and repurpose it to give you maximum exposure and stretch out the life of the content you spent time creating.
Mark Willis – Owner of Lake Growth Financial Services and Co-Host of Not Your Average Financial™ Podcast – Read interview highlights here
Non-direct recognition features allow the cash value to continue
to pay a dividend as if you had not taken the money out.
Mark Willis is a Certified Financial Planner (CFP), a two-time #1 Best Selling Author, and the Owner of Lake Growth Financial Services; a financial firm in Chicago, Illinois. He is a man on a mission to help you think differently about your money, your economy, and your future. After graduating with six figures of student loan debt and discovering a way to turn his debt into real wealth as he watched everybody lose their retirement savings and home equity in 2008, he knew that he needed to find a more predictable way to meet his financial objectives and those of his clients. He specializes in building custom-tailored financial strategies that are unknown to typical stock-jockeys, attorneys, or other financial gurus. Over the years, he has helped hundreds of his clients take back control of their financial future and build their businesses with proven, tax-efficient financial solutions. Mark works with people who want to grow their wealth in ways that are safe and predictable, to become their own source of financing, and to create tax-free income in retirement. Mark also co-hosts the popular Not Your Average Financial Podcast, where he engages in discussion about new and improved steps for establishing financial sanity.
Highlights from Mark’s Interview
So right in the middle of 2008, 2009, and 2010, I had six figures of student loan debt, there were no jobs, nobody was hiring, had no income, no plan, didn’t have really a focus on money at the time. But we had the ear for listening to the radio, we found Dave Ramsey’s radio show, and followed his advice. Like true fanboys, we had the envelopes in our wallet, we listened to all of his shows, and I could almost answer the question before he could on his radio show. I learned those baby steps like the back of my hand. So we got about halfway through all of our debt when I realized this was the worst financial mistake I had ever made, which was paying off my debt the old fashioned way. We were working extra jobs, we were working side gigs, we were doing the gig economy before the gig economy was cool. At the end of all that hard work, we just said to ourselves, my wife and I looked up and said, what do we have to show for all of our hard work after these last two to three years of cutting down our debt halfway? All we had were a bunch of thank you notes from Sallie Mae and her cronies saying, thank you for your payment. All we had to show was a big pile of thank you notes.
Now, if we had saved that money, somehow, some different way. Because we were in our early 20s at that time, and you know the time-value of money: a dollar today is worth more than a dollar 30 years from now. So if we had put that money somewhere and built assets for us, every dollar in our 20s then would have been worth so much more today. But we had the old fashioned way of thinking. So when you do things with old fashioned thinking, you get old fashioned results. When you have average thinking, you’re going to get average results. The average American has about a third of their income just going toward debt and debt payments. Now if time is money, what’s the third of your day? That’s a lot of time! Just slaves to the bank, covering our mortgage payment, covering our car payment, the credit cards, the business lines of credit. Businesses especially are covered up with debt.
We’ve had a massive Coronavirus meltdown this year, and what’s interesting is we’ve gone from saving almost a whopping 4% of our incomes on the average, to last month, July as of this recording, 19% savings last month. Now, will it stick? Probably not. Where did all that savings come from? Probably stimulus checks. But the power of a dollar when you’re able to save it and grow it is huge. So we found some strategies that got even better than just paying off our debt the snowball way or the old fashioned way, and that was to become our own source of financing. Because when we became our own bank on ourself, all of a sudden, we began to collect that interest rather than pay it. There’s that old saying which goes, either you understand interest and you collect it, or you don’t understand interest and you pay it to somebody who does.
There’s nothing wrong with baby steps as Dave says, but I’d say what comes after the baby steps? Because I don’t think we want to live our life doing baby steps, we got a marathon to run here. So what’s the ways we can pay off our debts? One way is to pay it off the old fashioned way, another way is to consolidate our debt. So the old fashioned way is just pay our debts directly, scratch to get the money every month, overpay on our debt, and just try to get debt free. That’s what we call the Debt Snowball method, and that’s what Dave Ramsey promotes.
Another route a lot of people do is they shuffle the debt around, they never really pay it off. Here’s what I mean. I was sitting down with a gentleman over Zoom yesterday and he was showing me all of his $45,000 of credit card debt. He had all this equity in his house, and his decision was, I got this 20% interest credit card over here and I can refinance my debt by putting it into my house. I can do a cash out refinance, get a bigger mortgage at 3%, and wipe out all my credit cards at 20%. That’s great, and that’s a smart move mathematically. But honestly, many times we can end up just shuffling the debt around the deck of the Titanic and never actually pay it off. Still, we’re paying to another bank. Because as I said, whoever understands interest collects it, whoever does not understand interest pays it. So we’re still paying interest, even when we shuffle the debt around through consolidation.
So the third and maybe better way to pay off the debt, something we call the Debt Snowbank method; not Snowball method, the Debt Snowbank method. Here’s how it works, for my wife and I, and for a lot of our clients. It’s a little counterintuitive, it’s not so average, but that’s what we like. Average is being in debt up to your eyeballs, let’s not be average, let’s be awesome. So here’s how the Debt Snowbank method works. Step one: Keep all the minimums current on all your debts. Don’t get behind on your debts, you still want to keep current. You don’t need them coming to repo, your car, or your organ if it’s a medical debt, or whatever it is. So keep current in all those debts.
Step two: Funnel anything and everything you comfortably can above your minimum debt payments into an asset that grows on a predictable and guaranteed basis every single year, no matter what’s happening in the stock market or real estate markets. It’s going to be the snowbank if you will, not an actual bank; like a storehouse of wealth. So now, what asset grows 100% safely? I looked as a certified financial planner for anything that would do this, and there’s only a few. One in particular caught my attention after looking at CDs and savings accounts which pay nothing to Muni bonds and other bonds that are not exactly liquid. So I needed it to be growing at a competitive rate, I needed it to be liquid. I needed to have access to the cash without penalties or taxes. One of the things that came across my desk was a variation on whole life insurance. This whole life policy does grow on a guaranteed schedule every single year and it’s not tied to any market or market risk. It’s also liquid. So unlike term insurance, there’s a liquid bucket of cash associated with the account. So that became my wife and I’s Snowbank, if you will.
Now, we’re not talking about high commission, high death benefit, old fashioned, this is your grandpa’s whole life policy here. This is a modern form of whole life insurance that has some specific tweaks to it, that just absolutely turbocharged the cash in the cash value life insurance policy. Your listeners are probably more aware of this than the average bear, so I’ll skip over the basics. It’s not term insurance where we’re just renting the policy, we’re building up a asset that you own and is on your balance sheet. So for example, if you wanted to have $100,000 or more in your cash value, how long would it take you to get that cash? Two weeks or less, probably two or three days.
I’ll say this, I have never heard anybody say, I’m sure you could probably get a higher rate of return in the stock market. I’m sure you can. This is not an investment, this is not for people looking for get rich overnight schemes. It’s a boring conservative yield in the middle single digits. But here’s the story that I hear over and over again with our clients. When I sit down with folks on the phone and we’ll say, tell me about your life insurance. Oftentimes, they’ll share a stories which are very similar to each other. Like, my dad or my mom got me this policy or that policy. I’ve never heard them say, I regret it, I’ve never heard them say this was a bad decision. All of them say, this actually performed pretty well, relative to my real estate, relative to my stocks, relative to my brokerage account. They’re all pretty pleased with guaranteed predictable competitive yield with liquid. You can get access to the money within a week, for any reason, even bad decisions.
But the point is, the policies that we specifically recommend have a simple feature that’s very deep in the contract that only certain companies offer, which is something called a non-direct recognition loan feature. Now what that means is, when you borrow against a cash value policy with that particular non-direct recognition loan feature, the cash value will continue to pay you a dividend as if you had not taken the money out. So if you had taken a policy loan from a non-direct recognition company, a cash value would still pay you a dividend and guaranteed cash accumulation on all the money that you had borrowed out. So if you had lost the business, that’s too bad, but at least you didn’t stop the compound growth in a non-direct styled policy. That’s powerful because your money is working two places at once there. Even if you lost on your startup or your business investment or even buying our cars this way, imagine the uninterrupted power of compound growth and a whole life policy that has non-direct recognition loan features. It’s like your money is doing two things at once.
So back to the Debt Snowbank Methods, you’re keeping current on your minimums, that was step one. Step two, flood your Snowbank. It’s not an FDIC-insured bank, everybody, got to say that for my attorneys to keep happy. It’s a whole life contract, we’re calling it a bank. So step two, flood your cash value of the whole life policy with a well-designed policy, designed with that non-direct recognition feature. That mouthful that I just said, just call it a Bank on Yourself type whole life policy, and we’re good to go. So step two is flood your Bank on Yourself type whole life contract with as much cash as you comfortably can. Step three, your debts are coming down slowly, your cash value is building up like crazy, somewhere around eight to 40 times more efficient than old fashioned whole life. So that’s step three is you get enough in your cash value, that then you can borrow against the policy to wipe out the debt. In our case, student loans, could have been a credit card, could have been a business line of credit, could have been a mortgage. But step three is you borrow against the cash value and wipe out your debt. Step four happens in the background while you’re sleeping at night, that policy will continue to pay you dividends and growth, even on the capital you borrowed as if you had not touched a dime of the cash value. So you’re still building toward your retirement future. Then step five, the final step, you pay back the debt to yourself on your own schedule. Now you’re banking on yourself, you’re in control of a policy loan.
Whereas, the other way, if you borrow from a policy and don’t pay back, the policy will end up lapsing. If you pay back the policy loan, that’s great, you’d have that money recycled to spend on the next business venture. If you keep the policy and never pay off the loan, they would just deduct it from your death benefit. So let’s say you had a million dollar death benefit and your loan was $100,000 when you passed away, the family would have to struggle along on $900,000 income tax free. That’s the power of how this can work. When you’re the banker, when you’re collecting interest, you’ve got all the cards on your side of the table. The policy is now your asset, you can use it like a bank. You can use it both for paying off your debts, like my wife and I did, or these days, we use it for our business, we use it as a line of credit for our business. We’re able to use it for any purpose: for big purchases, for marketing expenses, for capital expenditures. It’s an asset on our balance sheet. So we’ve got that building up for business’ future.
The best way you can learn more, we have a podcast called Not Your Average Financial Podcast. The best book out there on the topic is actually written by a lady named Pamela Yellin, it’s called The Bank on Yourself Revolution; changed my wife and I’s life. I’ve written a few books, one for business owners, it’s called How to Be an Amazon Legend and Fire Your Banker! Talking to eCommerce business owners in particular, but it applies for any business owner out there who wants to fire their banker and control their business’s future. If you want to reach out and chat with me or any of our advisors that work with us, the best place is a website called SolutionToCashflow.com. It’s our best landing page to say hi, you can actually schedule a call with us there too.
Another feature of whole is that you can sell the policy or cash it out now and get all of the money that it’s worth, because it has a market value now even if you don’t croak, and then buy the non-direct recognition policy. So you can absolutely do that. In fact, here’s what’s even better than selling and all that. If you’re familiar in the real estate space, they have something called a 1031 Exchange. With life insurance, they call it a 1035 Exchange where you just take your business elsewhere. You move from one policy at one company, tax free over to a new company, and now it’s built the correct way, the Bank on Yourself way.