E28: This will Make You Rethink Your Emergency Money

Nate: In this episode, we’ll discuss how you could easily make over $100,000 throughout your working lifetime by simply changing where you hold your emergency fund of all things. She’s Holly, and she helps people find financial freedom.

Holly: He’s Nate. He makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Nate: Okay. Well, welcome back, everybody. This is another exciting episode. Today is something … I don’t think we’ll be here that long, but it’s just something that if you’ve been following us for a little while, you could even be a client of ours potentially, and we talk about this whole banking idea. We run into this a lot, where we’re teaching people how to use a policy to be their own banker and make a lot more money, but for some reason, there’s this mental block when people hear us talk, which keeps them from really seeing their policy is like a bank. They still see a bank account as a bank and a policy as something different. Nothing, I don’t think, makes that clearer than when people talk to us about their emergency fund and how they would never want to move that into a policy or something like that.

Today we’re going to talk about emergency funds. How to use your policy as your emergency fund, how much more money you could be making with that, and really how a policy has all the characteristics that you would look for in a really great emergency fund. Holly, what is an emergency fund? Why do people have it? Do you have one, and why …

Holly: I have an emergency fund. We’ve always had an emergency fund. I call it the rainy day account. It is the fund where you put extra money or cash in case you have an emergency, whether it be a medical emergency, whether it be the car breaking down, whether it be braces, unexpected dental work. It’s the fund we use for any type of emergency.

Now, all of us, even with the emergency fund or rainy day fund, we all have an amount of money that’s pretty good for our rainy day fund. That amount differs. Typically, my experience has been when it’s in a bank account, I’m going to use that versus mine is actually now in a policy. I moved it all. I actually moved mine relatively quickly because I was like at least I’m earning tax-free growth. It was in a savings account for a long period of time, and I just thought, “This is just really dumb. At least I get a death benefit should something happen to me, or my family would, and it’s going to grow at a guaranteed rate.”

For me, that dollar amount goes up and down. What I like to say is let’s take $50,000 and that’s actually my ideal. Everybody’s ideal is differently, but $50,000. If it went above $50,000, we’d spend it … I’m going to be honest … and if it goes below $50,000, we’ll work really hard to keep it up and growing again.

For me, what I found out with even in my policy, when it gets below $50,000, just the interest dividends that it grows in that year normally more than makes up for what I would have needed to work really hard for to get back up to $50,000 if it was in a traditional bank.

Nate: One of the key reasons, I guess, why emergency funds are actually a good idea to have, essentially an emergency fund, as Holly said, is liquid money, money that’s not stuck. If you ask the average person where most of their money is at, they’re probably saying it’s invested somewhere. Most likely in a 401K or an IRA, and it’s very difficult and costly to take money out of those programs. So it would make a lot of sense to have some money outside of those programs that’s not locked up or at risk of just disappearing like the market would be. It seems to make sense.

That’s what we’re really talking about with an emergency fund. Liquid money that’s easily accessible and it doesn’t have any risk associated with it at all. Holly, I know … I’ve listened to Dave Ramsey before, Suze Orman, those people. They all encourage an emergency fund as well. They’ll say save … I’ve heard a lot of people say, “Get at least six months of your expenses saved up in an emergency fund.”

Holly: Yes.

Nate: Some people would say even 12 months, a whole year’s worth of expenses saved up. I would say that’s not a bad idea. Having liquid money is vitally important, and it feels good.

Holly: It does. It feels really good. Nate, another point of that liquid cash. When it’s in retirement or an annuity or a 401K, the other thing is is that when you go to use that money, you’re going to pay penalties normally and taxation on it by taking it out early if you do need to use it. At least with a life insurance policy, that’s not going to happen.

Nate: Yeah. Not only are you going to be penalized and taxed to use it, but you also don’t even know if it’s going to be there. They don’t even fit the qualifications of an emergency fund because emergency fund means it’s money that has to be there in the case of an emergency, and if the market had a 40% reduction a couple of months before you need the money, and suddenly you need the money, that’s not a good time to pull the money out.

The emergency fund’s not bad. The problem is not the fact that having an emergency fund is bad, but the problem is that we aren’t thinking outside the box when it comes to our emergency fund, literally costing you over $100,000 to do it. If all you really need in an emergency fund is a place to store money that’s liquid and at no risk, I’ll tell you the truth. A policy fits the bill perfectly and is the … Honestly, I couldn’t find a better place to have an emergency fund.

Not only are we talking about all the stuff we’ve talked about in the past on this podcast that a policy offers, but why is it that so many times, even people who are doing this banking strategy still feel the need to have a large sum of money sitting in the bank or even just cash in a safe? People are doing that quite often. I know that might have a different purpose. Maybe they’re worried about a freeze on the bank and some of the things. I’m not saying one way or another on that, but just in general, there seems to be a mental issue of really seeing your policy as a bank. We’re going to let a quick note from our sponsors come through, and then we’re going to pick right back up on how you can start using your policy as your emergency fund.

Holly: Are you tired of being stressed about money? The Dollars and Nonsense podcast is sponsored by Living Wealth. Visit LivingWealth.com/freedom to get your free smart money eBook and sign up for a personal wealth presentation today. Living Wealth is a family owned and operated business which works with individuals, families, and even businesses to slay the money stress dragon. Our clients receive individual coaching regarding wealth creation and how to create a retirement income. You’ll be enabled to have cash today and in the future. Since 1972, Living Wealth has been committed to educating smart people on basic money principles to assist them in becoming debt-free and finally find financial freedom. Let us help set you free. Remember to visit LivingWealth.com/freedom to receive your free eBook and even sign up for an individual wealth presentation today.

Nate: If you like the work we do here, be sure to tell others what you think. Leave us a review on iTunes. You can go to LivingWealth.com/iTunes to get to the show quickly.

Holly: Once on iTunes, click on the ratings and review. Then click the button that says, “Write a review.” Just a few nice words and a five-star review is all we ask.

Welcome back. We’re discussing emergency funds and how using a policy meets all the criteria as an emergency fund and a way to actually put money away. Nate’s going to talk about some of those criteria and the growth that it has with it and how actually it’s one of the best and in my viewpoint one of the safest ways to put money into a program that’s for an emergency fund is through a policy. In fact, for me, it’s the only way I would ever go, short of maybe having money in a safe, because I think it’s a lot more safer in a life insurance policy than it is even in a traditional bank.

Nate: Yeah. I think, Holly, you’re going to get to that as well. As we were talking before the episode, and just you do a quick calculation, and I did that just using 40, $50,000 emergency fund that a lot of people, if you’re focused on … Maybe you’ve been to Dave Ramsey Financial Peace University. You could easily have that amount sitting in cash just as a just in case that makes you feel good. It does make you feel good, but the problem is that you just do a quick calculation over a 30-year time period. It doesn’t have to be that long. It could be longer. I don’t know how long you have to live, but people are living longer and longer. Over 30 years that you would literally miss out on over $130,000 if you left that money just sitting in a checking or savings account in a bank compared to if you would move that money into a policy. Your 50 grand would turn into over $180,000 with no taxation and no additional risk to do it that way.

Now, to me, if that doesn’t make me wince, then I don’t know what will, because that is huge amounts of money just on your emergency fund that is disappearing from your family where you could easily have that if you would think outside the box. I know it’s different to have an emergency fund not in a bank account, but if you would make that transition, you would find yourself in a much better position and you don’t lose any of the criteria. A policy is completely liquid and it’s really at no risk. In fact, as Holly is going to tell us, she believes it’s even less risk even having money sitting in a bank. I would agree with her. So really no risk, and it’s completely liquid. That fits the bill perfectly. Everybody ought to use a policy if for nothing else … If you don’t agree with anything that Holly and I have said for the past 27 episodes, at least hear us on this point, because it seems obvious to me. But maybe I’m crazy. I don’t know.

Holly: I don’t think you’re crazy, Nate. I think in all honesty that we have got to stop and think outside the box, like we talk about a lot, and think, “Where is our money working for us?” You did it over a 30-year lifespan or work span. For me, I’m looking at I’m now in year 11 of me putting that money in and leaving it. Not leaving it, actually. I keep using it. I guess for me, I get excited because I get to use it and it’s growing. I get the benefits of both.

If you don’t stop to think … You put $50,000 in. Honestly, everybody think about this. You put $50,000 into an investment, and you know guaranteed 30 years later, you are going to have $130,000 tax-free. You did nothing with it. You just left it there. Can your bank honestly give you that? Can your retirement program, your 401K, give you that? I don’t believe so. I really don’t believe that that will happen. I think that the reality is is that we’ve got to start looking for other means.

The reason why I think it’s safer is number one, it’s guaranteed growth. It’s tax-free growth. Actually, it’s not something controlled by the federal government. It’s not controlled by the Federal Reserve. It’s not paper money being printed and funny money, where an insurance company is loaning money they don’t have. This is actually guaranteed. Even if you go and look back at life insurance companies, they’ve been in existence, most of the mutual companies, longer than even IRS was there. They’ve paid dividends for 126 years, 130 years, which means they’ve given the money that they said that they would give. Even in the Depression, where thousands of banks went under, most insurance companies didn’t go under.

Insurance companies typically don’t go under because they’re held to a higher accountability and a level and standard than traditional banks are by state-mandated regulations. They’re constantly having to report their financial strength. They’re having to have evaluations, and they’re having to be held accountable to shareholders in mutual companies, because me as a client, I’m the shareholder. If they’re not doing something that they said they’re going to do, I’m going to be upset. I actually have a voice versus I don’t own any stock in my bank. They don’t care whether I move my money or not. They really don’t.

Nate: Yeah. There was no mutual life insurance companies that had any issues in the 2008 financial crisis, where many banks and stock-owned insurance companies … Not many. I think AIG was maybe the only stock-owned insurance company … had to get bail out money. There’s definitely some risk that you find in that world that you don’t even find in the mutual life insurance company world. Not only is it could be safer, it’s just vastly more profitable.

There’s a simple reason for it. As Holly alluded to, if you are a depositor at somebody’s bank, you are a customer at their bank, which means they are going to take your money, and they’re going to make a profit off of that money. That profit, though, doesn’t trickle back down to you. They may pay you .05% on your savings account, but it’s that money that they’re using to fund somebody else’s mortgage at four or five percent. Who keeps the huge spread? It’s the bank. If you would simply change that … That’s the whole banking concept in a nutshell … and start using a policy as your banking tool, you not only get interest, which is guaranteed cash value growth, which is way higher than any interest that a bank’s paying in the first place, you will also receive dividends on any profits they make above and beyond that because you own the company.

Really, in any environment, you will be far more profitable if you are the banker. Don’t be afraid to really buy into the concept that if you are … Especially if you are already doing it, and say, “Yep. If I’m willing to start putting money here for all the other purposes, I really maybe I don’t need money just sitting, wasting away in somebody else’s bank when I could be making far more profit if it was inside my own bank. It’s practically as accessible.” Sure, you might have to wait three to five business days instead of a swipe of a debit card to get it. You always need to have a checking account, but just be wise and understand what’s available to you.

Holly: Absolutely. You want to make sure that your money is working for you and that you actually are able to really achieve what you wanted. For me, I would love to be able to say to my family, “Hey, with this emergency fund, not only did we save the $50,000, but we now also have $130,000. We can go and do that.” To me, that is almost three emergency funds. It’s easily, easily the two emergency funds. I think I would lose more money putting it in a bank, to be honest with you, than putting it into a policy, because how many of us can say, “You know what? We don’t just have $50,000 in an emergency fund. We have $187,000 in an emergency fund.”

Granted, the initial 50 we put in, but still. $187,000 is going to run out a lot slower than $50,000. How quickly will I lose 50? To me, $187,000 I can live on for at least a year. But 50? Depending on where you live and your family size, it might run out within a couple of months, within six months, and you still might not have a job or you still might not be able to get past that emergency that you had to begin with. Maybe a loved one is sick. Maybe you’re having to take care of family members. There’s so many variables out there. I just think there’s an easier way and a better way to get it. I know Nate’s like, “Hey. Five business days.” Insurance companies really work with you, most of the time. It’s really an easy process to go and get it out. Sometimes to me, it’s more easy to do it through the life insurance company than to go to my bank and get it done.

Nate: Yeah, with all the questions and rules and then wait until we get the truck in to get your money out and all this other stuff.

Holly: And the paperwork.

Nate: The paperwork, but yeah.

Holly: You didn’t order the money. You didn’t order the money, so we don’t have the money. I’m going to say with IRAs, 401Ks, all that, the paperwork you have to go through and submit just to be able to get that money, it’s not a five-day process.

Nate: I know some people, by the way, that you have money in that emergency fund that if you move that into a policy, you could literally take an extra vacation each year just on the interest that you could be earning if you would just make the move. That just hit me. On 50 grand, you could easily earn $2,500. You could take the family for a weekend getaway easily for 2,500 bucks just in profits that your emergency fund could make you. Instead of it just doing nothing, let’s actually steward it well.

As Holly mentioned before, you not only get all the cash values and profits from there, but you get a death benefit to boot. It’s not just the emergency fund. It has all these bells and whistles attached to it. It’s really cool, and you really ought to consider at least for the emergency fund. If you’re doing this, maybe reconsider why you have it sitting in somebody else’s bank when it could be in your own. Why you have any money sitting in somebody else’s bank when you could have it in your own. If you’re not doing this, you ought to consider, am I willing to just be in the status quo and not do this whole banking idea and on my emergency fund, miss out on 100 grand over the next 30 years? If that’s okay, then roll with it. But for me, that’s definitely not an option anymore.

Holly: Think about the fact of that that’s just 30 years. You might live long past and have that emergency fund way more than 30 years. How much more money will you have with your family?

Nate: Oh, yeah.

Holly: The time and the energy. I know for me, part of it is I don’t even worry about the growth in the policy, Nate. How well is it doing? Did the markets affect it, because markets aren’t affecting my money. I know I have a guaranteed rate, and I know what that guaranteed rate is and how it’s going to grow. So I’m not worrying about how did my retirement program do? Do I get even less now from the bank on my money in the bank? How much do I now have to pay the IRS for the money I did make in the bank?

$50,000 of interest, even if the IRS just gets a portion of it, still is your money that you earned, that you put in a safe place, that you now have to give away a portion of that. At least with a life insurance policy, that growth is guaranteed and it’s tax-free, and so I’m not having to give the government any of that money. I’m not having to give the IRS any of that money. With the retirement programs, I’m not worrying about did it go up by 40%? Did it drop by 10%? How much money did I lose today? What did I lose over the year? I automatically know I’m in the positive.

Nate: Yeah. That’s such a peaceful feeling to know. To sum it all up, just rethink where your funding or where you have your emergency fund. Just by making a simple change, you could be making easily $100,000 or more over the rest of your life, if not far more, by being the banker yourself and having that money profit you at a high level with really no risk. You’re really looking for liquid places that don’t have risk so you know the money is going to be there. The policy fits the bill perfectly to make that happen.

If you’re a client with us and you’re still holding tight to the money in the bank account because you just don’t see the policy right, I ask you to open your eyes and see what it can do. If you haven’t started working with us yet, why not? On a more basic level, it’d be an awesome way to get it started is just to think on this level and then tap into some of the other things we’re doing later.

Holly, anything before we close it out?

Holly: I think, too, just remember that that emergency fund needs to be easily accessible. Evaluate how easily accessible is your emergency fund today. Even just making that transition. If you do nothing more than put it into a policy, you get the guaranteed growth, but you also get what we haven’t talked about at all today is a death benefit that typically passes tax-free to your loved ones.

Nate: So much benefit. We could keep talking about this forever, but we’ll go ahead and close it down. This has been Dollars and Nonsense. Remember, if you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources, please visit LivingWealth.com/e28.