You probably aren’t afraid of working hard and striving for more huh? Just like a lot of us out there striving for our dream life, you probably lay awake at night figuring out new ways for you to gain wealth and live the dream lifestyles you see portrayed on social media. I can see the internal conversation now… “How do they have all of that? They travel every other week. What are they doing? There has to be a secret I am missing out on.. I work hard and come up with new avenues to generate more income but I just can’t see an end to all of this. How long will I actually be able to keep up this level of effort?”
Guess what? There is a secret and its so simple you are going to be throwing your fists in the air wishing you knew about it all along! Its called COMPOUND INTEREST! I know know you’ve heard this before but maybe it didn’t make sense or you didn’t know exactly how to make it work for you. Well I am here today to break it all down for you and show you the easiest and safest way to get compounding interest working for you.
After you read everything down below do not wait any longer to get your money working for you. Reach out and lets put a plan together so you can enjoy your life instead of figuring out how you are going to enjoy it!
What is Compound Interest?
Compound interest is best understood by comparison to simple interest. Definitions of these two concepts are as follows:
Simple interest: Interest earned on invested principal over multiple periods of time that does not take into account the interest earned in earlier periods. In other words, interest is only paid on principal, not on any interest earned on that principal.
Compound interest: Interest earned on invested principal over multiple periods of time that does account for the interest earned on the principal in earlier periods. Interest is earned on interest plus principal when compound interest is used. It is this “compounding” of principal and interest that creates huge long-term accumulation.
Where is the most advantageous place to take advantage of compound interest?
The cash account in cash value life insurance, also known as permanent life insurance, such as whole life and universal life typically receives compound interest.
After you’ve tended to your immediate liquidity needs by setting aside some cash for emergencies, placing money into dividend-paying whole life insurance can be a good way to build up cash savings.
Specific cash value whole life policies typically feature paid-up additions riders, which allow you to add cash to the account if you like.
There are also other life insurance advantages not commonly available with other forms of cash savings, including:
Highly competitive cash value returns:
Dividend-paying mutual life insurance companies cash value accounts have offered returns that have exceeded those offered by most other cash or cash equivalent accounts in recent years.
With these cash value accounts growing in the range of 4% guaranteed, they have rewarded policyholders with highly competitive performance for policyholders.
In addition, although not guaranteed, these mutual that offer participating policies have life insurance dividends, that are paid to policyholders income tax free. Dividends can increase your whole life policy return, with many top mutual offering dividends in excess of 6%.
Tax-favored growth:
Interest earned on a cash value account accumulates tax-deferred. This tax-favored growth enables your money to grow faster than would be the case if it were subject to yearly taxes .You can withdraw earnings on your cash account free of taxation up to the amount of premiums you have paid into the policy, i.e. your basis. Withdrawals over your basis amount are subject to taxes.
Death benefit protection:
Life insurance is a highly effective method of transferring wealth. If your intention is to build up cash savings to protect your loved ones in case something happens to you, the death benefit protection offered by cash value life insurance will typically provide them with a greater amount than the cash value of your account.
Death benefit proceeds are income tax free to the recipient beneficiary. Additionally, you can gift life insurance cash value to your account beneficiaries without the gifts being subject to income or gift taxes providing the cash stays in the policy.
These gifts can take place during your lifetime. This contrasts with vehicles such as 401k plans or IRAs where taxes must generally be paid on funds passed down to your beneficiaries.
Control over your money:
Another advantage of cash value life insurance is that the funds can be withdrawn in the form of a partial withdrawal or you can borrow against your cash value through a policy loan.
Unlike 401ks or IRAs where a penalty typically applies to most 401k withdrawals before age 59 1/2, there is no such restriction on cash value accounts. And there is no required minimum distribution (RMDs) down the road.
Compound Interest + Velocity of Money = True Wealth Building
This is the most important section of this article on compound interest growth because it describes how your money can grow in your savings account and how that same money can also be utilized for other investments — SIMULTANEOUSLY.
Mutual life insurance companies offer participating policies that pay you a guaranteed rate of return, plus potential dividends. You can borrow money from your account and use it for whatever you choose, such as to finance your own purchases, buying cash flow assets, whatever you choose.
Here is the magic. When you access the money in your cash account, you are actually taking out a life insurance loan by borrowing against the cash value in your policy. The cash value in your life insurance policy continues to grow, because it is still in there. It is still being credited with interest and potential dividends.
You now use your life insurance loan to purchase cash flow assets, such as real estate or other alternative investments like notes or bridge loans, what have you. Now you created cash flow and your life insurance policy cash value (and death benefit) continues to grow at the same time as your new investment.
Conclusion
After you have set aside 6-9 months of emergency funds, consider placing your additional savings into cash value life insurance. Since the policy’s cash value grows tax deferred, your savings will experience true compound growth, at a rate much higher than your typical savings account at a bank.
