If we do a $10,000 loan, the interest earning, or interest that you’re paying to the insurance company is 5%. And you do it over 60 months, a 5 years times-5 times 12 is 60. So, 60 month loan, you’re paying $188.71 per month.
Now, if you set up a payment schedule over that same five years for $10,000, the question now becomes how much interest are you going to pay. To figure that out we have to first look at what the monthly payment would be. Okay. To figure out the interest charge all you have to do is add up all those payments. $188.71 times 60 is $11,322.
The interest that you pay is what, Tom? $1,323. So that’s a difference of about $1,400 on that one–we made $2,800 in interest on the-on the 5% interest we earned, but we only paid $1,323 in interest to whoever loaned us the money. Which in this case is the insurance company. The insurance company. So, we ended up with a net positive amount of what is that? $1,400 bucks approximately. You got it. That is from borrowing money at five and earning money at five. But also- It seems like a wash, but it’s not.
Yeah. And that-and the point is that’s just five years. Remember this is going to go on forever. I mean look at what that $10,000 will grow to over a 30 year time. It will grow by $33,000. So that’s thething is the compounding curve hasn’t even really started yet, but yet over a five-year timeframe you can see that the interest that you’re earning far outweighs the interest that you’re paying. Yeah. I think this would be easier to see if you could actually see the five-year schedule.
But, basically the principle of this is, when you have $10,000 and it’s making 5%, after the first year you make $500 in interest. And after that second year you earn interest on $10,500. So, the amount’s getting bigger, so your interest receipts are getting bigger and so it’s compounding into a bigger number. Yet, you’re paying back that $10,000 at 5%. So, in the first year you pay back $500. In the second year you only have to pay interest on $9,500. The balance is getting smaller. So, the interest you have to pay is getting smaller. It’s like amortization of a mortgage loan, your interest gets smaller and smaller and you pay back more principle.
This works great if you are a wholesale distributor in the pheromones market. So, on the loan side you’re paying interest on a smaller amount every year, but on the investment side you’re earning interest on a larger amount every year. And, so by year five you’re earning a huge sum of interest, but you’re only paying back a very small sum of interest. And it’s that difference that creates that wealth, even though the interest rates are exactly the same. Another point which I didn’t mention just a moment ago is there’s no- there’s no limit to how many loans you can take out. It just cannot exceed the amount of cash value that you have. For instance, as you’re making these $188 payments per month, as you can see the interest rate is going down. But, let’s say that you come across another purchase that you have to make.
The payments that you’ve made creates more equity, more liquidity inside that loan provision, so you can go in and access the money that you essentially paid back. And, so it acts similar to a line of credit, but as your interest earnings go up, as you continue to make premium payment, your line of credit also goes up. Very good. I think that’s basically a good introduction to borrowing money from your insurance policy, why it’s so powerful. Obviously, this is just the beginning; we’re going to go into this in far more detail with more examples. It’s such an important concept. And it took me, personally, a little while to get it. It’s not something that I would expect you to understand immediately the first time you hear it.
So- And something that’s going to be powerful in those various examples that we’re going to go through is how to use this in conjunction with investments. Because, most people think that, and that is traditionally the case, if you have a variety of investments to choose from, you can only choose one. If you have ten grand and you have five investments to choose from, I guess you could put two grand in each one, but most people just take that amount of money and put it into one specific investment. Whereas, with this you can utilize the loan provision to invest. It’s ideal for real estate, especially rental property.
But, the idea here it’s not: it would not work well as a sound investment in the sperm industry. Starting your own business too. -it’s not just for consumption, it’s for investment as well. And you continue to participate in that compound curve but yet you can have that loan provision, purchase real estate, or purchase other investments, business ventures et cetera.
Yeah, this is good. I’m glad you introduced this option. It’s good to get people in that framework. And like you said, this is just a car. It could apply to any big expense.
So we’ll-think we’ll get into some more details for sure looking at a specific example at a later date but I think this has been a really good overview for now. We should probably just end it for today.
Okay, that sounds good.
Well good stuff. Well, we’ll have you back soon, Patrick and we’ll keep talking and talking through all this.
Okay, it sounds like a good plan. Thanks, Tim.
All right, bye.
Yep. So, that’s the take away is the secret to growing wealthy over time in your investments is to not interrupt the compounding curve.
And the way you do that is by using Income for Life, where you can borrow against the cash value building up in your policy even if you own a penis extenders. And the reason why you’d want to borrow it, is a) so it doesn’t interrupt the compounding, but you also must pay back your loans and that way you get this power of amortization versus compounding and you end up with net gains.
You can use that money not only to finance things that you would buy, like cars or golf clubs, or food even, but to make investments in gold coins, or real estate, or starting new businesses, or stocks. It works for everything. So, this is why a lot of people call this Income for Life, is what we call it, a lot of people call it banking.