Episode 18: Being Creative to Create Wealth [Part 1]
When you feel like you don’t have any wiggle room to start your wealth-building fund and you’re ready to throw in the towel on the dream of becoming financially free then you better listen up! In this episode Kyle and Jon introduce one of many creative solutions to creating a pathway to wealth and your financial freedom.
What you’ll learn:
- How you can creatively design deals that help achieve the goals of all people involved;
- How you can help build your personal wealth while helping your family members; and,
- How you can break free of the traditional banking system.
- Die With Zero [Book] – Bill Perkins
- Becoming Your Own Banker [Book] – R. Nelson Nash
- The Invested Teacher Wealth Building Booklist
- Retirement Planning Spreadsheet
- Download our Wealth Building Blueprint
Interested in Partnership Opportunities?
For those interested in potential Joint Venture (JV) Partnerships, reach out to us here.
Jon: ...so they're not thinking that way, they're thinking about cash flow. They're thinking about what's my cash flow going to be per year, per month? I can break it down. That's an easier concept and it's very comforting. So when we are talking about this, that this family, their older one, their older in-laws and parents are in that stable positioning going, they're not really looking to make a ton of money, they're looking to have the cash flow. They're looking to have to go, Hey, I'd love to just have this much per month come into my hands. And that's really what we want sometimes when we're at that level, we're not accumulating our wealth anymore, we're trying to withdraw.
So we're like, where can I put this money so that I can get my return? That really is my cash flow. I wish want this much money per month. And so that led us to that creative scenario where they're not looking to make a ton of money off this money. They're looking for that security and going, I just want this.
Kyle: Welcome to The Invested Teacher Podcast with Kyle Pearce, Matt Biggley, and Jon Orr.
Jon: Hey folks, get ready to be taught as we share our successes and failures encountered during our real life lessons, learning how to build generational wealth from the ground up.
Kyle: Welcome invested students to another episode of The Invested Teacher Podcast. And friends, you're probably going to notice something someone's missing again, a third of the team is gone and Matt's out hustling again.
Jon: He's a busy dude.
Kyle: He's a busy guy. But you know what? He loves every second of it. It does make me wonder, could I be in the same, I don't know, role as Matt? Now, earning money and doing all of those things. I'm always game for it. But my goodness, he has been running just all over the place, running ragged, but with a smile on his face. So once again, Matt sends his regards and we're excited to kind of dig into an episode that actually the idea of this episode sort of started from the last episode we had where Matt was chatting about his very fortunate circumstance to be able to pay off his primary mortgage. And we went down the rabbit hole with a few different people who reached out to us right there, Jon?
Jon: Yeah. So in that episode, I think with Matt being in a great position to pay off his mortgage, we were talking about is it better to pay off the mortgage? But we were worried about losing your home equity line of credit and is there a-
Kyle: The debt equity issue, right?
Jon: Right. Is there a good balance between having a mortgage and maybe pulling the equity out and keeping a mortgage and then having more options available for the capital that you could have access to? So we chatted about that, and you're right, Kyle, if Matt was in such a great position there because he could pay it off his mortgage, but with some of the people that reach out to us recently, they're saying like, that's awesome guys. You're creating more capital by keeping that right balance. But what happens if we're not in a great position to do that? And I think a lot of people would be in that position, Kyle, to not pay off or being close to paying off their mortgage.
And you might be asking yourself, and they have been asking themselves, that means I can't play with this capital. I have the equity in my home and that's my home equity line of credit, but what happens if, can I get creative here or can I get access to more capital? And so we were actually thinking of some really creative strategies around that and actually came out to be that when we started to pry and ask some questions-
Kyle: Having those coaching moves.
Jon: Right. Our coaching moves, some info was kind of coming out. And we actually started to think about some creative options for this person because this person had said that their in-laws, or I think maybe it was their parents have been kind of talking to them about money and thinking about that they were continually having to, at a certain age, I think they're in their 70s and they had to continually start pulling money out of their accounts.
Kyle, I think you had said that at 71 you have to start pulling money out at certain percentages. And they're like, I don't need this money, but it has to keep coming out. And so those family members were saying, what do I do with this? I could spend it or I could maybe invest it, but is it investing in the stock market the right way to go? And so this kind of untangled some options for us and we got pretty creative. And Kyle, that's one of your big strengths is how creative your mind works.
Kyle: Yeah, I'd like to think, and I don't know if it's just, I love thinking about these creative options because I think what it does is it empowers everyone to have some sort of opportunity. And the coolest part is the most creative people tend to end up doing really well. When you see someone who's successful, oftentimes you hear about how they got there and you go, holy smokes, that was a great idea. I wish I would've thought of that.
So I love having these conversations because it's never a done deal. There's always a way that you can get better, not only in finance, but other aspects of our life as well, which I think just kind of keeps you on the positive side of things. It's that glass half full sort of mindset versus it being the other way around. So it's like, okay, so maybe you aren't in a situation where you have even a lot of extra money laying around.
Maybe things are tight. I'm going to be honest and say the younger people are right now, probably the harder they're finding it given the economy, given where at least real estate and asset prices have gone in recent years. And there's definitely a tighter squeeze. So when you start thinking about, and I'll mention a book that I think we may have brought up, but it's called Die With Zero.
Jon: Yeah, we've talked about it before.
Kyle: Yeah, I think we did chat about that. And that book is such an interesting book. I'm not saying that every single thing is easy to do in that book, but it's the philosophical stance that the author takes in that book is really interesting because I'm the type of person, we've talked about it before. I'm a hoarder of money. It's like I don't want to spend any money.
Now when I say that, it doesn't mean I have a lot of it hanging around. It's just that I don't like seeing it leave. And this author sort of takes a different stance and sort of says, what can you be better with your money now and plan out to figure out what is it that you want to spend that money on? And when we say spend, the reality is the biggest spend of your life, especially for those who are listening to this podcast, you're probably going to have some money that is going to get left behind when you leave this part of your life, whatever you want to call it. When you go into the next world, you are going to be leaving some money. Hopefully. That's the goal. We're trying to build this wealth.
So this author says kind of reverse things and start thinking about who are you going to want to leave that money to? Is there a better way that you can do this where everyone wins? Now here's where the book doesn't help us, is where we sort of took this conversation with this particular individual, want to call them Tom.
Jon: What? Tom?
Kyle: We didn't ask this person to share their name, so we don't want to share their name. We're going to call them Tom. And we just went down the rabbit hole. And as we were asking questions, we were asking not only about their financial situation, we didn't get into all the decimal points of exactly how much they have coming in and going out, but they just felt that currently in their current situation, things were tighter and they were struggling to think of how could I potentially win? And then I went up the chain and said, well, tell us a little bit more. Do you have any parents, in-laws still older folks in your family? And what's that relationship like? What's the financial situation in those cases?
And with this particular person, that's where they went down the rabbit hole and they said, we actually have our parents. They are healthy and doing well, and they're actually in a financially stable place. But one thing they said which caught our attention right away was that they weren't sure what to do with their money. They didn't necessarily feel confident in say, the stock market and you could bring it to the bank and just let the bank do it. That's what a lot of people do. But they sort of wanted to figure out, is there a way that we can make sure that we don't blow all the money but also still get some benefit from that money as well? Can we get best of both worlds?
Jon: Well, I think when we kind of prodded a little bit, I think when they are saying, I have this chunk of change that I have to do something with, this is what came out of the conversation and this might happen in a lot of places, is that they not necessarily always know where to put it, but it's like I don't need to spend this huge chunk, and if I put it here, then I really just want to know that I'm secure for the rest of my life. I think that's major concern for people. I think what they're thinking about is I want to be able to just be able to have this money per month. And I think this is why the pension is such an easy concept for people is to say, look, I'm going to always have this much money for the rest of my life. That is a very comforting thought.
No one is really thinking about and from the people that I speak to that have pensions, they don't know how much is sitting over there in the actual account for their pension. They're like my pension, I just know how much I'm going to get for the rest of my life after I retire. They don't know it's worth this much money in the pot. So they're not thinking that way. They're thinking about cash flow, right? They're thinking about what's my cash flow going to be per year, per month? I can break it down. That's an easier concept and it's very comforting. So when we are talking about this that this family, their older one, their older in-laws and parents are in that stable position and going, they're not really looking to make a ton of money. They're looking to have the cash flow.
They're looking to go, Hey, I'd love to just have this much per month come into my hands. And that's really what we want. Sometimes when we're at that level, we're not accumulating our wealth anymore, we're trying to withdraw. So we're like, where can I put this money so that I can get my return? That really is my cash flow. I always want this much money per month. And so that led us to that creative scenario where they're not looking to make a ton of money off this money. They're looking for that security and going, I just want this.
Kyle: Yeah, totally. And where our heads went, and I'll say where my head went specifically was I'm thinking, okay, this person's talking to us about a mortgage. We always use friendly numbers. So today, again, to make sure there's no identifiable information, it turned out that they had a mortgage and they felt like they were a little strapped to kind of do anything else. And then on the other hand, they have relatives. There are parents who actually were saying, listen... actually the thing that you didn't explicitly say, Jon, that I'll add here, was the parents were like, I want to make sure that we can live our lifestyle and still leave something too that oftentimes happens, right? It's almost like they want to feel good about what they've left. That's that whole legacy thing, right? Now, the crazy part is and Die With Zero in the book, they talk specifically about how you never get to actually be here to experience how helpful you are going to be.
And not to mention if you pass away and you're lucky enough to live well into your 80s, 90s, oftentimes the people you're leaving money to are past the most troubling or financially difficult times in their life. And now they get this windfall of money, which of course they appreciate, but they're like, man, imagine if you could do it different. So he talks about just gifting money, and that's not what we're going to talk about here because that doesn't actually help the other side. We're all about win-wins and this is what we do when we do joint venture partnerships. But also in this particular case, we were saying, imagine, okay, let's pretend Tom's mortgage is a hundred thousand dollars and hopefully the parents actually have more than that amount because if it's exactly that amount, maybe this strategy might still be, maybe a little scary for both sides.
All the money's there. So let's assume they have more than that amount. And of course everyone's going to have a different sort of comfort level in terms of how much that is compared to how much they have. But hear us out here. So this particular person, Tom, is paying a mortgage to a bank. The bank is slowly bringing down the balance of that mortgage. So he's a hundred thousand next month, he'll own $99,600. Let's say the other $600 went to interest or whatever. And ultimately over however many years, typically 25 years, maybe there's only, I think Tom was saying there was maybe 15 years left or something in the mortgage, but let's not get burdened with that information. And they were saying, "I've got this payment and I'm giving this money away. I'm slowly owning more of my property, but that interest I'll never get back. It goes straight to the bank."
And I just asked, and I said, Tom, do you, it's so hard to say Tom because it's not Tom, but hey Tom, would you think or do you believe that your parents would actually appreciate, say making some money every month? And of course he says, yes, of course. Imagine if your parents could actually be the bank for you. And and I think people listening are sort of getting the sense of where we're going here with this idea being that, you know what, Tom? You owe a hundred thousand dollars. Your parents are going to take a hundred thousand dollars and they are going to essentially gift it to you to pay off that mortgage. But it's not a gift. It's actually where the parents are going to-
Jon: They're the lender.
Kyle: They're going to be the lender. They're going to lend you a hundred thousand dollars. And of course you can do it exactly the way the bank had it set up and say, okay, so I'm going to pay you principle every month and interest. But what we were promoting is this idea that imagine if your parents were like, well, listen, I have really no need for that chunk of this money. I have this other chunk over here that I still don't know what to do with, but with this chunk over here, what if you Tom could give me, and right now interest rates are at 6%, but let's say it was 5% or let's say it was 4% or I'll use 5% because it's easy.
So $5,000 every year in interest is going to get paid to them, and you're not going to pay any principle at all because at the end of the day, the parents were like, you know what? This money was going to go to you anyway, and I'm going to get the benefit of that $5,000 every single year for the remainder of our lives to freely spend and feel good about the fact that that extra hundred, which was going to come to you way down the road and maybe a road to inflation would actually go to pay off a mortgage.
So now, know what happens to Tom? Tom's going, wait a second, $5,000 a month, that's about $415 instead of probably more than double that amount in his current mortgage. Not only does the parent now get cash flow, now Tom has half the payment where now where can we put the other half of the payment? That is where Tom's going to take money and start building their seed fund for some investments.
Jon: And that goes perfectly in line with what we talked about I think on the very first series on this podcast about paying yourself first and thinking about what you're going to do with how to build that kind of nest egg or that seed money. This scenario that you'll creatively come up with Kyle here is a great way for Tom to take that money and go, I'm going to take that and I'm going to put it over here, and now I've got this way to build this seed money to buy another property. And that's something that we would not have been able to do because of the restrictions of having that mortgage. So it's like a win-win. Everyone has won here. The in-laws, his family members have got what they want. They're getting a good return on their money. Yes, They're not going to get it in this scenario.
They're not going to get it back, but they had to be okay with leaving this money to your kids overall anyway. So if that's not the scenario, then this is not the case for you. But this scenario is very likely because like you said, Kyle, people sometimes think about they're going to leave money, but they don't plan for that leaving of the money. So this is a great scenario to free up capital.
Now here's a caveat, Kyle, is if we free up half that payment that we are making to the bank is now going to the in-laws and they're getting that cash flow per month, you've got this extra money. The temptation is like, Hey, I just made my life easier. I don't have to be like pay for this. I can have this extra half payment to buy a new car, or I could go out to eat more often. This is what we talked about the first few episodes as well, is this creative scenario has freed you up to build your wealth in a different way, not to spend your wealth.
Kyle: We're not going to go in too much depth. There's two things I want to say to that. So you brought up a really interesting question there. So again, we're giving you one possible scenario. The creativity doesn't end there. The parents might say, you know what? Or maybe even Tom did mention, he's like, well, what if my parents live for the next 25 years and I'm just paying interest and I'm never paying this thing off? Well, if you choose to take that other chunk and actually invest with it, you're going to be well ahead and that's okay. And then the reality is guess what? Know what you did, Tom? You helped to support your parents' lifestyle, which again, in turn later down the road, hey, let's hope that they're alive for 25, 30, however many more years because at the end of the day, you know that the money is going back to your family and not going out the window. So in a way, it's like you're scratching each other's back.
Now, the other alternative is you could take that other chunk and maybe even the parents are going, son, I like this idea, but I don't like the fact that you're actually not paying any principle. So what I'm going to do is I'm going to ask you for the full mortgage payment. Now, Tom's going, ah, where's that investment money going? But the parent says, we're going to take that extra chunk, call it $500 a month, and we're going to put it into a cash value participating whole life policy.
So for those, we've talked about infinite banking before. What that parent could do is they could actually open up a whole life policy, a participating whole life where we're going to design it in a way so the cash value is as high as possible, not as high as possible, but very high. There's some reasons why you don't want it as high as possible, but we're going to open it up and the parents are going to own it.
So again, it's like the parents are like, well, listen, okay, we're going to pay off the mortgage in the same number of years. Let's say it was 15 years or whatever they agree on, and they're going to take that mortgage payment. So now Tom's like, well, my life doesn't change at all. I'm just taking this payment from the bank. I'm going to shift it over here to my parents, which are now the bank, except this bank is super awesome. So two reasons why? I like the bankers, because they're my parents. I'm helping to support them with the interest. But that principle payment that Tom's paying back, the parents are dumping into a whole life policy that they opened and they own, but it's on Tom's life, or maybe it's on Tom and his spouse's life, right?
So now the beauty is here is the parents are like, they're not saying, I just want the money back and yada, yada, yada. What they're doing is they're actually helping Tom in the long run going, Hey, listen, not only do you now own your home, and I mean there's technically a mortgage on it. If you stop paying me, then we have something in writing that I'd come after you son. But ultimately, at the end of the day, everything goes well. Everything's written down, and now those parents hold a whole life policy that the parents can borrow against and leverage the cash value. So it's like the parents have such minimal risk and they still get a big reward from a financial perspective. And Tom is getting a benefit and a financial reward now in that particular scenario, a little further down the road.
But again, he was able to redirect money that was going out the window to the bank and now over to the parents. And the other beautiful thing, we're not going to get too far into it, but imagine this. Now on Tom's credit score, on his credit report, I should say, there is no mortgage owing on that property. So now Tom is in a position where maybe Tom can open up a home equity line of credit on his house, not to blow on vacations and fun times, but to have for the next investment opportunity.
And I think Jon, between you and I in this very short episode, we just created an opportunity for Tom who did not think he had any opportunity to get into this investing game and try to better his life. And guess what? He didn't just better his life and his family's life. He's also benefited his parents' life in the process. What do you think?
Jon: Huge, huge. So many great nuggets there, Kyle, so much to think about. And I know that that's such a great opportunity for Tom, hopefully, that we can keep coaching him on going down that pathway, especially the infinite banking concept, which is that dividend paying whole life policy that we can help him kind of wrap his head around because that's another whole episode that we're going to talk about. So stick around folks to our next episode as we're going to kind of keep evolving on this idea, but I was going to say-
Kyle: Further down the rabbit hole.
Jon: Yeah, what we do with this extra money or how can we be creative about building our wealth? So we're going to keep going on that. Now, one piece of homework you might want to look into is Kyle did mention this kind of idea of this whole life insurance policy. So you should read, it's called Becoming Your Own Banker by R. Nelson Nash. That's changed a lot of the ways that we've looked at whole life and life insurance policy. So please go read that book that will help you wrap your mind around what some possibilities are. Kyle talked about that. Basically we've eliminated the bank. That book is all about how to eliminate the banks in your life.
Folks, if you've listened to our podcast before, hey, thanks, welcome back, and if you have not yet left a review, please do that. It helps all the new listeners kind of find us and also learn about these creative strategies that we're sharing here on building your wealth in different ways.
Kyle: Hey, and remember, links, resources and transcripts from this episode and all of our other episodes can be found over on the website on investedteacher.com. If you want to find this specific episode, it's episode 18. So head over to investedteacher.com/episode18.
And hey, if you want to be our next Tom, then reach out to us. One great way to reach out to us is just head over to the website, investedteacher.com, hit that contact button, let us know that you want to chat. If you're interested in joint ventures, you want to get creative, you want to find ways that everyone can win. A well-designed, well-structured joint venture opportunity is just around the corner. So reach out to us, let us know, our list is growing. So if you've got this idea rolling in around in your mind and you want to actually take some action and be prepared when the next opportunity arises, head over to investedteacher.com/jv.
Jon: All right, invested students, class dismissed.
Matt Biggley: Just As a reminder, the content is for informational purposes only. Should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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