The Banking Equation

8/16/2019 The Banking Equation

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The Banking EquationBreaking Free From the Financial Grid

by

The Wealth Insight TeamAnthony Lawrence, en Billinger, !ohn ammerer, "ichael #eidbrink


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Table o$ %ontents

• Introduction

•%ha&ter 'ne◦ (isci&lined Funding

▪ “It's a Marathon, Not a Sprint.”

• %ha&ter Two

◦ %reati)e Financing

▪ You've Heard the Old Adage, “It's Easy to et a !oan "hen You #on't

Need One$” No% You &an Mae it Easy (or "hen You #o.

• %ha&ter Three

◦ *ri)ate Lending

▪ “Mae it a "in, "in (or All Involved$” !end to )hose You &are (or *

Enri+h )heir !ives (orever.

• %ha&ter Four

◦ *rudent In)esting▪ “You &annot )ie the Maret-” 'Nu Said-

• %ha&ter Fi)e

◦ +mall Business %a&italiation

▪ (ro !easing to !oans, E/uipent to Supplies, Operating E0penses to 1ey

Eployee 2ensions 3 Your All4In4One Solution.

• E&ilogue - TAE A%TI'. .'W/


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Introduction

In no other era in the history o the 5nitedStates have %e, as a people, ound ourselvessu67e+ted to ore oppressive and depressiveinan+ial +ir+ustan+es than in the tie in %hi+h%e no% live. Nor have %e seen a tie %here thea6solute dire need or an iediate and pra+ti+al

solution to “The Banking Equation,” %as oreo6vious and prevalent.

2rivati8ed 6aning, or ininite 6aning as it issoeties reerred to, and the vast latitude andyriad 6eneits it provides is that solution.

Its re+ent redis+overy$ or in the +ase o the laste% generations o Aeri+ans, its paradig4shiting dis+overy$ +ouldn't 6e sura+ing at a ore pivotal 7un+ture, e+onoi+ally speaing, than onthe heels o a post49::; de6a+le, still rearing itsugly head in the, prover6ial, rear vie%-


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What you will gain by building a 0*ri)ate

Banking +ystem12

• You reali8e an iediate gain to the estate you%ill pass on to your loved ones ?.@, or %hatever your

per+entage is, o your ater4ta0 in+oe thatyouBre losing to interest +osts.

• You +an en7oy all that re+aptured interest

earning interest itsel.

• Your 6ills +an a+tually earn interest instead o 7ust +osting you oney.• You +an redu+e your ta0es and your heirsB

ta0es.


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• You +an pay o your +ars, hoe, student loans,

+redit +ards and other de6ts %hilesiultaneously 6uilding retireent %ealthC

using the sae dollars.• You +an eliinate +ontri6ution and %ithdra%al

restri+tions o /ualiied retireent plans.• You +an en7oy unrestri+ted li/uidity, +ontrol

and use o your oney or any reason.•

You +an prote+t your %ealth ro +reditors, 7udgents and la% suits.• You +an 6e assured your %ealth plan %ould

su++eed even i you 6e+oe disa6led.• You +an 6e assured your %ealth plan %ould

su++eed even i you die 6eore you +oplete it.• You +an pass your %ealth on to your heirs ta0

ree.


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What you will lose by not building a 0*ri)ate

Banking +ystem12

• You %onBt reali8e an iediate gain to theestate you %ill pass on to your loved ones.

• You %onBt liely esta6lish a savings regie that

or+es you to 6e ore +onsistent than you%ould liely 6e on your o%n.

•

You %onBt en7oy greater %ealth46uilding gainsthan you liely %ould in the real4%orld sto+ or 6ond arets and youBll e0perien+edraati+ally higher ris.

• You %onBt 6uild your %ealth ta0 ree.

• You %onBt 6e a6le to use your %ealth ta0 ree.

• You %onBt re+over the >?.@, or %hatever your

per+entage is, o your ater4ta0 in+oe thatyouBre losing to interest +osts.

• You %onBt en7oy all that re+aptured interest

earning interest itsel.

• Your 6ills %onBt a+tually earn interest instead o 7ust +osting you oney.• You %onBt redu+e your ta0es and your heirsB

ta0es.


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• You %onBt pay o your +ars, hoe, student

loans, +redit +ards and other de6ts %hilesiultaneously 6uilding retireent %ealthC

using the sae dollars.• You %onBt eliinate +ontri6ution and

%ithdra%al restri+tions o /ualiied retireent plans.• You %onBt en7oy unrestri+ted li/uidity, +ontrol

and use o your oney or any reason.• You %onBt prote+t your %ealth ro +reditors,

7udgents and la% suits.• You %onBt 6e assured your %ealth plan %ould

su++eed even i you 6e+oe disa6led.• You %onBt 6e assured your %ealth plan %ould

su++eed even i you die 6eore you +oplete it.• You %onBt liely pass all your %ealth on to

your heirs ta0 ree.


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Taking Loans $rom 3our *olicy

)he a6ility to 6orro% ro your poli+y is %hat

aes it your “2rivate Daning Syste.” "henyou tae a loan through your insuran+e, you are notonly 6ypassing the 6an, 6ut you are 6orro%ingagainst a +ash value that %ill +ontinue toa++uulate. De+ause youBll 6e re+eiving dividend payents and taing loans, itBs iportant to notethat the aount o dividend you re+eive %hile youare 6orro%ing oney %ill vary 6ased on the type o insuran+e +opany 6ehind your poli+y.Spe+ii+ally, youBll %ant to use %hatBs no%n as a“non4dire+t re+ognition” utual insuran+e

+opany. )his parti+ular ind o +opany pays poli+yholders the sae level o dividend regardlesso %hether they have a loan outstanding or not. Onthe other hand, “dire+t4re+ognition” +opanies payhigher dividends or those %ithout outstandingloans. )hey put 6orro%ers at a disadvantage %henit +oes to dividend payents.


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Withdrawing Funds )ersus Taking Loans

ItBs possi6le to %ithdra% +ash ro your poli+y,

rather than taing loans against the value o the poli+y. ItBs part o the le0i6ility that isnBt availa6lein a ?:


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6a+ into your poli+y later on. )his result is verydierent ro a loan, %hi+h is intended to 6e paid 6a+ into the poli+y. ItBs +riti+al to eep a long4ter

perspe+tive a6out the goal o your insuran+e poli+y.)he ai is to in+rease the poli+yBs +ash value overtie, not deplete it through hasty %ithdra%als. )he“2rivate Daning Syste” is not a get4ri+h4/ui+s+hee. "ith patien+e, you %ill 6e a6le to 6reayour dependen+e on 6ans and lenders and 6e+oeinan+ially independent. YouBll 6e a6le to do%hatever 6orro%ing you re/uire ro your o%n, private 6an. )his pro+ess doesnBt happen in oneell s%oop$ it's a arathon, not a sprint. Dyreaining dis+iplined youBll get +loser ea+h year to

inan+ial independen+e. In +ontrolling your o%nde6t, rather than having the +orner 6an +ontrol it,youBll 6uild your %ealth aster. Aa8ingly, thegreatest ipa+t on your %ealth %ill +oe roeliinating your need or 6ans and other lenders.It +anBt 6e stated strongly enough that patien+e anddis+ipline are essential to the su++ess o the“2rivate Daning Syste” strategy. You ust treatit as a savings vehi+le, not an A)M. You ustoverpay preius to the greatest e0tent possi6le in


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order to in+rease your death 6eneit through paid4up addition's or 25A's and thus your strea odividend in+oe. )he aster you 6uild your +ash

value, the aster you %ill 6e a6le to reinan+e 6ande6t %ith “2rivate Daning Syste” de6t. )hesooner you stop 6ans ro siphoning o your%ealth, the sooner you +an start a++uulating it oryoursel and your aily.


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Being 3our 'wn Lender

!etBs e0aine e0a+tly %hat you gain 6y 6orro%ing

ro yoursel rather than 6orro%ing ro a 6an or using your savings to ae a pur+hase. "hen you 6orro% ro a 6an, the 6an +alls all the shots. Itsets the interest rate, the origination ees and therepayent s+hedule. Your roleG ItBs as siple assigning on the dotted line$ oh, and eeting alaundry list o stri+t +riteria. "hen you save oneyto ae pur+hases, you lose the opportunity to usethat oney to your 6eneit in other %ays$ thatBs theopportunity +ost. De+ause you need your +ash to 6ereadily availa6le or the pur+hase, you eep it in a

lo%4yielding a++ount, %here you ay 6e lu+y 7ustto eep up %ith inlation. Dorro%ing against yourinsuran+e poli+y ena6les you to avoid all o thesedra%6a+s. (irst o all, the loan /ualii+ation pro+ess is e0treely siple and ast$ poli+yholders+an a++ess up to t%o4thirds o their +ash valuealost iediately 6y letting the insuran+e+opany no% they %ant a loan. )he opportunity+ost issue is eliinated 6e+ause your oneyreains in your a++ount generating a return.


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Fee6er, you are not dipping into your o%n +ashor loans$ the insuran+e +opany is e0tending theloan and siply using your +ash 6alan+e as

+ollateral. Dy the %ay, 6orro%ing against insuran+eis superior to 6orro%ing ro your ?:


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retireent, %hi+h %e %ill dis+uss shortly.Fee6er, you %ant your +ash reserves to+opound. You do that 6y aithully repaying the

loan, along %ith additional interest. )hat e0trainterest 6olsters the +opounding o your +ashreserves 6e+ause it 6uys you paid4up additions.)hose 25A's in+rease your death 6eneit, and+onse/uently the dividends that are 6ased upon thatdeath 6eneit and paid into your +ash a++ounts.Again, the reason or paying ore interest thanne+essary in a %hole lie poli+y is stri+tly to 6uy paid4up additions, %hi+h leads to aster gro%th oyour +ash.


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Financing Business *urchases

I youBre a 6usiness o%ner, youBve invested a ton

into the enterprise, a lot o 6lood, s%eat and tears,and pro6a6ly a lot o oney as %ell. As anentrepreneur, reinvesting proits 6a+ into your 6usiness is usually the nae o the gae. In a+t,ost 6usiness o%ners negle+t their o%n retireentsavings in order to o+us on gro%ing their 6usinesssu++essully. In the end, they igure, the 6usiness isthe retireent plan. ItBs the nest egg. )he ore thatyour 6usiness is %orth, the ore youBll 6e a6le tosell it or, and the ore +oorta6le you %ill 6e inretireent. "ell, your “2rivate Daning Syste”

+an really help to 6uild that nest egg. Not only +anit gro% your %ealth dire+tly, 6ut it +an stop thelo% o %ealth ro your 6usiness to outsideinan+iers. )hat %ill ena6le your %hole lie poli+yand your 6usiness to prosper in %ays that neither+ould individually. !etBs illustrate ho% this %ors 6y using the e0aple o a su++essul +hiropra+ti+ 6usiness o%ned 6y #r. Sith. #r. SithBs 6usiness,A+e &hiropra+ti+ &lini+ !!&, has a string o+lini+s that he runs to +over an entire region.


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Naturally, these +lini+s have e/uipent andsupplies that needs to 6e repla+ed and resto+ed periodi+ally over tie. )ypi+ally, a 6usiness lie

A+e &hiropra+ti+ &lini+ !!& %ould usetraditional lending sour+es to inan+e the pur+haseo ne% e/uipent and supplies$ a 6an ore/uipent leasing +opany. !etBs say that itBs tieor A+e &hiropra+ti+ &lini+ !!& to repla+e anaging pie+e o e/uipent. #r. Sith goes to his 6an and, as heBs done several ties in the past,applies or a loan. )he 6usiness, not #r. Sith, %illte+hni+ally 6e the 6orro%er, 6ut as %e %ill soonsee, #r. Sith %ill ultiately eel the negativeipa+t o using 6an inan+ing to 6uy this pie+e o

e/uipent. )he 6an, o +ourse, is delighted toe0tend +redit. A+e &hiropra+ti+ &lini+ !!& is asu++essul 6usiness %ith a solid +redit history.!oaning the +opany K>:,::: over ive years atL interest %ill net the 6an a tidy proit o K?,.#r. Sith's 6usiness %ill 6e a6le to put that ne% pie+e o e/uipent into servi+e right a%ay. Dutnoti+e the ee+t o depre+iation. Ater ive years ouse, the pie+e o e/uipent has depre+iated invalue ro K>:,::: to K@,:::. On top o that,


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A+e &hiropra+ti+ &lini+ !!& %ill have paidK?, o interest 6y the end o the loan ter. )hetotal loss is ugly

K@,::: through depre+iation o the pie+e oe/uipent K?, lost through interest payents )otal loss K,&onsider the aount o %ealth A+e &hiropra+ti+&lini+ !!& %ill lose over the years as it repla+es pie+es o e/uipent ater pie+es o e/uipent.Again, the 6an is happy to tae re+eipt o a 6ig+hun o that %ealth, 6ut %hat does the 6usinesshave to sho% or itG A steady outlo% o %ealth anda graveyard o depre+iating assets. Sin+e the

6usiness is #r. Sith's nest egg, thatBs the last thinghe %ants. ItBs enough to ae #r. Sith %ant to 7ust pay +ash- Dut paying +ash is a losing proposition too. (irst o all, spending a 6usinessBs+ash on depre+iating assets is not the 6estinvestent you +an ae. ItBs true that the pie+e oe/uipent serves a purpose and is ne+essary orA+e &hiropra+ti+ &lini+ !!& to operate as a 6usiness. Dut ree6er, itBs still an asset that losesvalue over tie. (urtherore, %hen a 6usiness


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deploys its +ash to ae pur+hases, it en+ountersan opportunity +ost. &ash +an only 6e used on+e,or a single purpose, and on+e itBs spent it +annot

+ontinue gro%ing and %oring or you. "hat i #r.Sith deployed K>:,::: o his +opanyBs +ash to pur+hase a pie+e o e/uipent rather than investingit %ith a rate o return o, say, @G "ith a @ rateo return, the 6usiness %ould have earnedK;,9;;.?@ in interest over ive years. Over : years,the return %ould 6e K;,;LL.;9. Earning thesereturns is not possi6le i youBve spent your +ash.)he e/uipent leasing +opany ight invest #r.Sith's +ash and put it to %or, 6ut #r. Sith %onBt 6e a6le to- All he %ill have is a depre+iating

asset. "e %ill assue or the purposes o thisillustration that 6y paying +ash or the pie+e oe/uipent, #r. Sith's +opany has sa+rii+ed the possi6ility o earning @ interest on that +ash.!ooing ahead ive years ater paying +ash on the 6arrel or that pie+e o e/uipent, %e +an surveythe daage K@,::: through depre+iation o the pie+e oe/uipent K;,9;; in opportunity +ost


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opportunity to invest the K>:,::: +ash= )otal loss K9>,9;; More than K9>,::: is lost in 7ust ive years. And

ree6er, itBs not 7ust soe 6usiness that lost this%ealthPitBs #r. Sith. #r. Sith's 6usiness is hisretireent plan- )he prosperity o the 6usiness isdire+tly related to the aount o oney that #r.Sith %ill ultiately 6e a6le to sell it or. In asense, that K9>,::: needlessly sa+rii+ed on the pie+e o e/uipent pur+hase is +oing right out o#r. Sith's uture. Dut thereBs another possi6ility."hat i #r. Sith's 6usiness +ould o6tain the pie+eo e/uipent it needs %ithout taing a 6an loan,and %ithout spending +ashG )hatBs %here #r.

Sith's “2rivate Daning Syste” +oes in.


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Lending to 3our Business

I instead o using 6an inan+ing, %hat i A+e

&hiropra+ti+ &lini+ !!& %ere to 6uy pie+es oe/uipent using inan+ing ro the private 6an o its o%ner, #r. SithG HereBs ho% this s+enario%ould %or$ #r. Sith, not his 6usiness, o%ns a peranent lie insuran+e poli+y that serves as #r.Sith's private 6an. )he ne0t tie a pie+e oe/uipent needs to 6e repla+ed, #r. Sith 6ypasses his lo+al 6an, and aes the loan rohis “2rivate Daning Syste.” He %ill 6e the 6aner to his o%n +opany. #r. Sith puts on his 6aner hat to tae +are o a e% pie+es o 6usiness.

(irst, he aes sure that his +opany has sui+ient+ash lo% to repay the K>:,::: e/uipent loan heBsa6out to ae. He then +reates an aorti8ations+hedule 6y plugging in prin+ipal, an interest rateand nu6er o payents. )he s+hedule %ill+al+ulate the total payent that his 6usiness %illultiately ae to hi. #r. Sith also has the 6usiness sign a proissory note. A siple proissory note adds a layer o legal prote+tion anday also result in ta0 6eneits or lender and


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6orro%er. One o #r. Sith's responsi6ilities aslender %ill 6e to set an interest rate. )his is %here itgets un. As the “6aner,” #r. Sith +an +harge a

6it ore than the going rate +harged 6y 6ans. Allthe interest a6ove and 6eyond the rate that #r.Sith's insuran+e +opany +harges or his poli+yloan %ill 6e “proit.” (urtherore, #r. Sith's poli+y is set up so that this “proit” %ill 6e plo%edinto 6uying ne% paid4up additions or a %hole lie poli+y. )he 25A's in+rease the si8e o his death 6eneit, %hi+h results in higher dividend payentsro the insuran+e +opany into his a++ount.Fee6er, even %hile the K>:,::: loan isoutstanding ro #r. Sith's insuran+e poli+y, he

+ontinues to earn a rate o return$ letBs say itBs @on the entire +ash value %ithin his a++ount. )hatBs 6e+ause #r. Sith's +ash does not at any pointleave his a++ount$ it erely serves as +ollateral orthe poli+y loan that is e0tended 6y his insuran+e+opany. In a+t, over ive years, the K>:,::: thatreains in #r. Sith's a++ount %ill gather interesto K;,9;;. (ast or%ard ive years and tae sto+ o ho% this has %ored out or A+e &hiropra+ti+&lini+ !!& and its o%ner. Fee6er, inan+ing


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through the 6an resulted in an ee+tive loss oK,, and paying +ash resulted in an ee+tiveloss o K9>,9;;. Dut inan+ing through #r. SithBs

“2rivate Daning Syste” +reated a +opletelydierent result 2rin+ipal repaid to #r. SithBs “2rivateDaning Syste” K>:,::: E0+ess repayent o interest in #r. SithBs poli+y K,L; Feturn on the K>:,::: in #r. SithBs a++ountQ @ K;,9;; Ralue o pie+e o e/uipent ater ive yearsK@,::: )otal assets gained K@?,;L


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The Leasing Ad)antage

Many 6usinesses use leasing +opanies as a eans

to prote+t their assets ro la%suits and +reditors.)his approa+h +an 6e used 6y sall and id4si8ed 6usinesses as %ell$ and it +an %or hand4in4glove%ith the “2rivate Daning Syste” inan+ing that%eBve 6een dis+ussing. De sure to +onsult yourattorney or a++ountant 6eore ipleenting any o%hat %e're a6out to des+ri6e. !etBs assue your 6usiness %ants to shield its assets ro any potential la%suits or +reditor +lais in the uture.You set up a liited lia6ility +opany to serve as aleasing +opany. )he leasing +opany 6uys

everything, ro e/uipent to supplies to urniture,and leases the to the original 6usiness. De+auseyour 6usiness leases its e/uipent ro the leasing+opany, it has little or no physi+al assets thatight 6e sei8ed 6y +reditors or +ourts. In a+t,using leasing arrangeents oten dis+ourages+reditors ro suing in the irst pla+e, sin+e there%ould 6e little to gain. And to the e0tent that your 6usiness assets are not vulnera6le to sei8ure, yournest egg, in the or o your 6usiness, is insulated.


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Again, itBs iportant to +onsult the proper proessionals 6eore pursuing a leasing +opanystrategy. Many large +opanies see a 6eneit in

using this strategy, so it is %orth e0ploring. No%,ho% does the leasing +opany 6uy the e/uipentthat it %ill lease to your +opanyG It inan+es itthrough your “2rivate Daning Syste,” o +ourse.On+e again, youBll put on your 6anerBs hat,aing sure thereBs ade/uate +ash lo% to sustainrepayent o the loan. YouBll set up anaorti8ation s+hedule and youBll o6tain a signed proissory note. Sin+e youBll 6e setting the terso the loan, youBll +harge an interest4rate preiua6ove and 6eyond the rate on your poli+y loan, in

order to ore /ui+ly gro% the value o your“2rivate Daning Syste.”


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4sing 3our Business to Fund 3our 0*ri)ate

Banking +ystem2

)hus ar, %e have o+used only on using your personal unds to +ontri6ute to your “2rivateDaning Syste.” Ho%ever, properly stru+tureduse o your “2rivate Daning Syste” +an +reate phenoenal dedu+tions or your 6usiness %hilesetting aside %ealth to inan+e pur+hases and provide or your retireent. #r. Sith, lie any 6usiness o%ners, %anted to plan or his retireentand to provide a retireent 6eneit or his loyaleployees. )o a+hieve this, his +opany adopted a?:


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%as #r. Sith's irst e0posure to the use o peranent lie insuran+e to eet his needs. #r.Sith's insuran+e spe+ialist detailed a plan using

peranent lie insuran+e o%ned 6y #r. Sith 6utunded 6y #r. Sith's +opany, A+e &hiropra+ti+&lini+ !!&. )he preiu payents that A+e&hiropra+ti+ &lini+ !!& ade on #r. Sith's 6ehal %ould 6e treated as a ta0 dedu+ti6le+ontri6ution or the 6usiness. Sin+e the insuran+e poli+y %as not a /ualiied retireent plan, #r.Sith's 6usiness %ould not have to ae+ontri6utions to poli+ies set up or his eployees.)he poli+y %ould 6e stru+tured to solely 6eneit the+opanyBs o%ner or e0e+utive, #r. Sith, and

+reate additional ta0 dedu+tions or the +opany.Ho%ever, there %as a +at+h$ although the preiu payents %ere dedu+ti6le to the 6usiness, theoney %as treated as ta0a6le in+oe to #r. Sith.#r. Sith had t%o +hoi+es. He +ould 6orro%annually ro his “2rivate Daning Syste” to+over the ta0 lia6ility on +ontri6utions ade 6y his+opany. Or, the +opany +ould set aside anaount to +over #r. Sith's ta0 lia6ility. Sin+e oneo #r. Sith's planning o67e+tives %as to use the


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unds in his “2rivate Daning Syste” as a lendingsour+e or his pie+es o e/uipent and supplies, hedid not %ant to 6e in the position o needing to tae

additional loans ro his “2rivate Daning Syste”to +over his ta0 lia6ility. )hus, #r. Sith de+ided tohave his preiu payents stru+tured as ane0e+utive 6onus plan through his +opany. In order or his “2rivate Daning Syste” to have sui+ient+ash to +onsistently provide a unding sour+e orthe +opanyBs e/uipent pur+hases, #r. Sith ele+ted to pay a K>:,::: annual preiu.Ho%ever, the preiu payents %ould +oedire+tly ro A+e &hiropra+ti+ &lini+ !!&, andnot ro #r. Sith personally. Sin+e #r. Sith is

re/uired to treat these preiu payents asta0a6le in+oe, it %as essential that additionalunds 6e set aside to +over #r. Sith's ta0 lia6ility.A+e &hiropra+ti+ &lini+ !!& de+ided to pay #r.Sith an annual e0e+utive 6onus o K?9,;@. )he payent %as a dedu+ti6le e0pense to the +opany.#r. Sith happens to 6e in the >: in+oe ta0 6ra+et. )hereore, in order to +over his ta0lia6ility, K9,;@ o the 6onus %as set aside to pay#r. Sith's ta0es on the unds. )he reaining


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K>:,::: +onstituted his annual preiu or his“2rivate Daning Syste.” Sin+e #r. Sith +reatedhis “2rivate Daning Syste” %hen he %as ?:, 6y

the tie he retires at age LL, he %ill re+eiveK>,::: ta0 ree as an annual poli+y loan ro his“2rivate Daning Syste” until he rea+hes age ::.)his strategy has a+hieved #r. Sith's goals o

2roviding a private unding sour+e or the pur+hase o his +opany e/uipent and supplies Setting aside ore unds or his o%n retireent%ithout having to +over his eployees, and 2roviding a death 6eneit to his aily.

Documents

The Banking Equation