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Winning The Financial Game with Tom McFie

In this episode, I’m going to introduce you to somebody that could dramatically change your life if you will truly hear the message. That person is Dr. Tom McFie.

This show is fascinating because of Tom’s journey and what he has discovered that is now helping the world and future generations understand about creating and sustaining wealth. If you’re just getting to know Tom, you should know that he grew up in a very poor household and that started the drive for him to create success in life. He did a lot of the traditional things that one is given and found out that wasn’t the path either.

In this episode, we break down that path, that journey and what he did to overcome that. Dr. Tom is a doctor and went from that life making some nice income but not creating wealth for himself or his family to creating to sustainable wealth. He’s also the inventor of The Perpetual Wealth Code.

Truly, the way that I’ve come to appreciate Dr. Tom is that he’s [an] out of the box thinker when it comes to finance. We talked about how does one create sustainable wealth. Some of you might be thinking, “Dustin, I’ve got to create wealth first before I sustain it.” This is a big conversation so I want you to pay extra close attention in this episode.

We also talked about how do you get free cashflow. This isn’t just for people in business but essentially, how do we do what Jeff Bezos and Amazon does and use this idea of cashflow to sustain our lives, to create wealth and for those of you who are in business, use the same strategy as well?
You’re going to love this one. You’re going to know what Warren Buffet’s dad told young Warren at seven years old. With that said, let’s get to the show.

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Dustin
You're the youngest of six children. You shared a single bed with one of your brothers until you were ten. Essentially, you grew up poor. Do you remember it that way?
Tom
Not at all. When you grow up, your family is your family. We had a blast. We were all close. I slept in the same bed with my older brother who was three years older than I am for until I was ten years old. A twin bed I might say. I didn't realize I was poor probably until I was about eleven.
Dustin
What was it at eleven? How did you come to think that you were poor?
Tom
You know how you have to line up for recess? I was standing in line there one day and looking down at our shoes. I noticed that I didn't have the shoes that everyone else had. Mine were a little bit worn. We got one pair of shoes for the year and we went barefoot during the summer because we didn't have the funds to do that. I remember at that point, "This doesn’t feel good," and making a commitment to myself at that time that when I had a family, it wasn't going to be that way.
Dustin
When you were eleven, you recognized you were in that situation. You weren't up with the other kids. You didn't have the means coming up. How do you think that set your path moving forward?
Tom
I don't look back at that as being something that was bad. It was something that made me change the course in life. From then on out, I wanted to be an achiever. I pushed myself harder. I went on to excel both at academics and athletics because I knew I was going to need scholarships to advance. What I thought was a success and that was education.
Dustin
Do you have sisters?
Tom
I have four sisters and I have one brother. My brother is a high school dropout and is motivated very much like I am. He's gone on to be a multimillionaire. He's done his work in real estate. I went the academic course and I ended up with two doctorate degrees. I found out that that was probably a dead end if I was going to get ahead financially.
Dustin
That is the path that a lot of parents want you to go. You have your children go inprofessional services, be an attorney or be a doctor. You did that and doctors generally make some good money. How was your situation different now that you were a doctor?
Tom
We did make a good living. I should say you are limited to how many people you can see in a day when you're a doctor or when you're an attorney. When you’re doing that, your money is not working for you, you're working for your money still yet. A lot of my colleagues said, "Tom, we went to school, spent a lot of money to get an education to work for a salary." That's not the way that you create sustainable wealth in life.
Dustin
You were successful. My understanding is you eventually opened up four separate branches or offices. At what point did you realize another office wasn't going to create wealth or hustling harder or working harder, wasn't going to be your path? When did you start to realize that?
Tom
We have eight children. When we had about five, I was realizing, "I'm going to have to work this hard for the rest of my life to give them the edge on life that I want them to have. Unless something changes here." I realized then that I couldn't continue to be at work at 7:00 in the morning and come home at 8:00 at night and succeed. Wealth is more than money. We were not having the quality family time that we needed. Without that, what good is all the money in the world?
Dustin
People can relate whether or not they're a doctor or they open up five locations, if they're in business or for four locations. That idea that we can keep working harder and we'll make a better future for ourselves and for our family. You come to realize that on the fifth kid. That is absolutely amazing and the way that you've raised them is incredible. They're all good shepherds of the information and stuff that we'll talk about here. You have the fifth kid and you were like, "I can't work harder." You have the realization. What was that next step that you did?
Tom
In my case and this is true with I would say almost everybody that our emotions are more important than our economics to create wealth. For me, it took a robbery for us to evaluate what was happening in our life. I was at work and Michele left the house to bring some more goodies to the office because we were having a Patient Appreciation Day in the office. While she was gone, the 45 minutes she left the house, someone broke in and took everything that you can never replace. Jewelry from her grandmother and pieces of art that had been given to her and things that my grandparents had passed on to me. Those were gone. That was an emotional time and we sat down and as we cleaned up the mess because they devastated the house. We were saying, "Is this worth it anymore? Why did we hang onto this? It has no value?" It helped us re-evaluate our life and find out where our values were. If we get our values straight about money and material things, almost everything else in our life is going to work out.
Dustin
Was the person ever apprehended?
Tom
No, but I do have to tell you about the side story. Years before we had lived in Virginia, Michele was out one day. She was weeding the flower bed in our front yard. She had seen a little piece of a gold crown off someone's tooth on the windowsill. Some packrat or some Mockingbird or something had replaced for a little piece of glass that she'd taken out of the flower bed and put up the day before. That was stolen in a robbery and they took one of our roll along and packed everything in it. When the police recovered the roll along, that little gold piece was in it.
Dustin
Do you ever look back to that moment and think that it was a blessing or that was a very important pivotal moment in your life?
Tom
That was a huge pivotal moment in our life. We started evaluating things differently about where were we putting our time. Where are we making the most of our time. One of the things that I did as a doctor is I gave a lot of services away. Looking back on it, I would say I was robbing my children. If I value my services and know that they're genuine, 100% worth it why should I ever give that to somebody else? When it could pass on to the people that I'm responsible for in life and that's my children.
Dustin
This is the plight of many folks in the field. Creatives and healers in the industry. Are you open to the idea of some? Did you feel like you were overextended in the care that you were giving out for free?
Tom
Let me tell you a story. There was a couple in our life right about that time that we felt sympathetic toward. I say sympathetically because we couldn't empathize with them. He had lost his job. They had several young kids and she was a foreign national. He didn't work. We felt compassionate toward them. We would sneak around at night. We put groceries on their doorsteps. We gave them free care for their whole family in my office. Six months of doing this and they announced that they were taking a three-month trip to Europe. At that time, I can say I didn't feel bad for them for taking the trip. I wasn't angry at them. I was angry at myself. I hadn't been wise enough with the resources that I had been blessed with to not be taken advantage of.
Dustin
In the moment, people want to give. They want to help, but there's a fine line because you're sacrificing time with your kids and potentially money to help them later on in life. A lot of people struggle with that.
Tom
This is maybe not politically correct to say, but we used to have our kids hand out nutritional snack bars to the homeless. Right around that period of time, my young daughter, Eva, was passing out a granola bar. I can't remember what it was at the time, but she handed one to this homeless lady outside the grocery store. She said, "I don't like that kind." What all of this did, the robbery and this couple and everything, it made us re-evaluate. I need to work harder and focus so that I have the monetary means to help people that need it, but not be taken advantage of people that we've come to be called umbilicers that come along and stick their umbilical cord in people, suck them dry and then go find the next one to suck dry.
Dustin
It’s troubling to me because I'm a giver too and I can relate. I do know on some sides of the equation that I'm getting taken advantage of. I chalk it up to getting better about discerning who these people are. I understand it happens and it's the part of the game. I want to talk a little bit about when you were in the field. What were you doing investing? As you were growing your practices, as you were escaping poverty and building wealth for your family. What was the path for you to provide for your family and provide for the future?
Tom
One of the ways that we did it outside of being a doctor as we invested in rental property. We learned the hard way that we don't want to be landlords. There's a good way to invest in real estate. There's a way that this completely cripples you, destroys your lifestyle and makes you a bill collector. I don't want to do that ever again in my life. We also had a traditional 401(k)s and IRAs. I was self-employed I had a SAP,not a 401(k). We had the IRAs because that's what we were told to do. You get tired of watching the fees destroy what you've earned. Then along comes the market corrections and you feel like you're starting all over again. The cycle repeats itself pretty regular about every eight to ten years. It makes it very difficult for someone to build sustainable wealth. I remember sitting at my accountant's office one time. He was a large person about 6’8”. He had this huge calculator because his hands were so big. He leaned back in his chair and he was tapping the numbers. He said, "Tom, you're going to have to have X amount of million dollars by the time you're 65 or you're going to have to live at 60% of your lifestyle." I said, "Jim, how is that going to happen?" "I don't know. I thought you'd like to know the number." Those are the types of thing that shaped us. About the time of the robbery. We were introduced to the concept of participating in whole life insurance. It made sense to me. Of all the things that had happened, the way we had tried to make money. The way we had tried to invest in real estate, here was something that was guaranteed. We thought it was going to be seven years before we ever saw any benefit of that. That's how dedicated we were to this. In about two and a half years, we had been able to increase our cashflow by about 40%, which was awesome.
Dustin
I want people to understand what you've come to know which is all these things I'm about to ask you. In that being the downside, what traditional mainstream media, what traditional information and even our parents and our friends that are told and are looking out for us. A lot of people don't know they're passing on what they've heard. You hinted at it. What was interesting is in some of the information that you've put out, you talk about every eight to ten years on average something comes along in society. Looking over almost 100 years I believe of data maybe longer, something on average wipes out 42% of your gain, of your portfolio. You spend all this time, eight to ten years working on something and it comes along and you lose essentially almost half of it. This is not very empowering information. What are we supposed to do about this?
Tom
We have to start looking at places to keep our money that provide guarantees. It's the volatility of the market. Whatever market you're in, that destroys and it destroys it so fast. The higher the volatility and volatility is simply how quickly the market can change. Let's zoom back to 2007 when everyone thought there's no end to this. This bull market is going to keep right. Almost overnight, people had lost 40%, 50%, 80% of what they had thought was theirs. It was flat gone. I was still practicing as a doctor at that time. People were coming in and they were feeling ashamed, these senior citizens. They thought they had been too greedy. They didn't even realize what had mowed them over. I saw these people having to go take jobs at Burger King, at Costco handing out samples. They had to go back to work when they were in their late 60's and early 70's. I felt so compassionate for them.
Dustin
I never want to be in that situation. You say guaranteed money and one of the adages in life is nothing is guaranteed except for death and taxes. Where is this opportunity knowing that every eight to ten years something is going to come and substantially reduce what we've built?
Tom
Aesop told a story about the tortoise and the hare. I consider what we do now the tortoise. I know other people probably can make a higher rate, greater return faster than I can. Using participating whole life insurance not as an investment, but as an asset purchase that takes better than average care of our money but allows us to access that without losing or paying penalties on the growth of it. It allows us then to take the opportunity of the hare events in our life. Where there's a spurt of growth here or a spurt of growth there. It protects what we've saved or put into that. That's guaranteed it's never going to go away. We're always going to get that growth, that earning rate off of it plus it provides a liability coverage in case something happens in between times.
Dustin
A lot of people have heard of life insurance. It's something that isn't the sexiest or most attractive topic in the world. That's what keeps people away from it. What qualifications does it require? Can anyone go and get life insurance? Young, old, maybe disabled maybe sick, high-net-worth, low net worth. What are the qualifications to get into life insurance?
Tom
Life insurance is typically available to most people in America. We've had numerous people come to us and they think they're uninsurable. They can't have life insurance maybe they've had cancer. Maybe they have had a heart attack. Life insurance is sold on the risk of your health. They are looking at conditions that you might have that would make you die earlier. If that happens you may pay more for your life insurance. There are very few people in the thousands of people we've worked with who have been denied coverage.
Dustin
Is this one of those things that the wealthy get access to because it's a good ole boy or girls club? Can Joe America get into life insurance at any age or at any income level?
Tom
Depending on your age, the closer we are to the point we're going to die, the more we're going to pay for the insurance. Typically, everybody in America is insurable. Unless they have stage 3 cancer or they've had a heart attack in the last five years. This isn't a wealthy product although the wealthy certainly use life insurance to protect their assets and to create wealth that's sustainable for them. It's not a wealthy tool. It's for everybody.
Dustin
Folks can qualify for that because they meet what you talk about. They get involved in life insurance. Other than the death benefit, when someone dies, your family, your loved ones or whoever you deemed the beneficiary get that benefit. Let's talk about some of the not common things that people do with life insurance which is what you preach?
Tom
Let's back up a little bit and talk about the different kinds of life insurance. We want to make sure that when you're thinking about this, you are thinking about the right product. There are two basic types of life insurance. There's term insurance, which covers a certain period of your life. Maybe it's ten, fifteen, twenty, 30 years and it's relatively inexpensive when you're young and healthy. It's a great product to have to protect young families, but it builds zero equity. In fact, 99% of them never pay a death claim. As the term expire, the cost of it has gone way up and people say it's not worth it anymore. There are two products called permanent life insurance and it's either whole life or it's universal life. Whole life gives you a level guaranteed premium for your entire life. If you buy when you're 22 you're still going to be buying life insurance when you're 70 at what you paid for at 22. Universal life is based on a term product. It may be permanent if you can continue to afford the premiums on it. Each year that you'll get older, term insurance gets higher in price. You're not having that guaranteed level cost of insurance in the product. Oftentimes, universal life insurance policies lapse when people get in their 60's and 70's because they haven't put enough premiums in or the product hasn't grown fast enough to cover that increasing cost of insurance.
Dustin
What happens when it does lapse? 
Tom
Everything disappears like you never had it. No money, no death benefit.
Dustin
That seems night and day difference. You're a whole life guy. You're into that. Why index universal? Why have people bought into it? Why is it popular? Why is it vogue?
Tom
Number one, the insurance companies make more money when universal life insurance policies are sold. They encourage all their agents to sell. It keeps the profits flowing for the insurance company. At the same time, sometimes it can be beneficial for like key executives at large corporation to be bonused with a universal life policy. The premium can be a little bit more flexible. If you start out when you say 30 years a universal product and you're paying $20,000 a year for it, that is the set premium, but that premium can flex. Maybe next year the company only bonuses you $5,000 to buy this premium. You can get by with that for a few years because the policy is young enough. However, you're still dealing with a policy that may not be sufficient enough to keep up with the cost of insurance. That's the risk that you take when you take that bonus from a corporation. In a whole life product, the guarantees are there that can never be taken away from you. You also get a share in the profits of the company. It's called participating whole life insurance policy. The profits that the company is making of selling term, that 99% that never pays a death benefit or the universal policies that's based on the terms, those products and the profits from that flow to the participating policyholders.
Dustin
You are profiting off of folks who are buying it because why ever they're buying it. They might not necessarily have picked the right one according to you or according to the things that would help them with wealth creation. We're potentially still getting the benefit as a whole life.
Tom
If other people are going to assume the risk, then we're going to be slow and steady that collects the cash along the way.
Dustin
Are there any scenarios where a company only sells whole participating life?
Tom
I represent two companies and that's the only products they sell. They sell term insurance that can be converted to whole life or whole life only.
Dustin
Why other companies focus to do that? Is that a moral thing? Is that the niche or the business model for them? Why not offer the other kinds?
Tom
It depends on the values of the CFO, the CEO and the board. Some companies have evolved to have a more conservative. They realize that they are there to protect the policyholders rather than to try to model the company after a shareholder company where they've got to please all the stockholders.
Dustin
Now that you've laid the foundation of the term and permanent. What are the creative things that people do with life insurance policies besides the death benefit? What are some of those things?
Tom
Let me tell you another story because this hits with me. We were of the mind that if you pay your debts off including your mortgage and pay for everything with cash, then that was the way to win the financial game in life. We were able to do that on the doctor's income. We were able to pay our first house off in five years and our second house we paid cash with. When we bought that second house and I wrote the check for it and thought, "I've won the game." The next six or seven months were pretty tough because I was starting a new practice and a new location. We didn't speak the language. We had moved into a different culture and it took about a year and a half before people accepted us in that community. We came tough. I remember going to work at nights cleaning banks, so I had enough money to put food on the table for my family as a doctor. I was hoping none of my patients saw me. I realize that at that point, if I could reach into the walls of my house and pull out all the money I put into it, things wouldn't be so tough. I didn't realize at that point what free cashflow was all about.
Dustin
Couldn't you go get a home equity line of credit or a mortgage on the house? You had it free and clear.
Tom
A home equity line of credit is based on your ability to repay it, not on the equity you have in the house. I was a small business owner. I'm starting a new business, so they said no. You don't have to be a business owner for this to happen. One of our clients had her house paid off and her husband had a heart attack. This was long before you have mandatory insurance. They didn't have insurance and her husband's doctor bills were significant. They said, "No problem, we'll get a home equity line of credit." They said, "No way. You don't have the income to repay the loan. You can't have it." They were sitting on the house with 100% equity but no liquidity. That free cashflow, that liquidity is so important in our world especially since 1971 when Nixon took us off the gold standard. Inflation has increased so rapidly that if your money is not continually flowing. We call that the velocity of money. It's like burning up. When I was born in 1960, $20 would buy what a $180 would buy now. Your $20 in 1960, if you stuck it away someplace, it needs to be over $180 or you're losing money.
Dustin
I don't know if they're on the left or right, but they're on one side of the spectrum which is I'm going to hoard money. I'm going to build a bunker and stash it there. You're saying this is a bad strategy because of inflation.
Tom
That's the ideal way to protect yourself against that is with participating whole life insurance. We're not limited to accessing the value that we have in that policy. The insurance company will loan us that money from their own coffers and let our equity continue to grow like it was guaranteed.
Dustin
Let's say I have $100,000 policy. Is that fair? Is that a little low?
Tom
That's probably a little bit low in the market.
Dustin
$500,000?
Tom
Yes.
Dustin
I have $500,000 and what you're telling me is I can get a loan out against it. Number one how much money can I take from that $500,000policy?
Tom
In whole life, it's like buying real estate. When you purchase a policy like when you put a downpayment on the house, you don't own the house even though you say you buy a house. The bank owns most of that house, but they don't limit your use of it. You can remodel it. You can put new carpet and paint it. You can do anything you want with it. They don't cut your bedroom off, so you can't use it until you paid for it. With a whole life policy, when you start buying it you're buying the death benefit. The way the policies are designed is that 100% of your premium will go to buy a certain amount of death benefit.
What we do is we back up and we say we want more equity in this policy to begin with. We're going to put a little extra money, like an extra down payment on a house. We have more equity in that house. We could get a home equity line of credit on that house if we have the income to repay that loan. With the whole life insurance policy, we purchased something called paid-up insurance in a form of a right or an attachment on a whole life policy. What that does is it gives us instant equity. The insurance company will hold that paid up insurance, the death benefit part of it as collateral for a loan to lend us their money. We become part of the portfolio of the insurance company.
Dustin
It's a $500,000 house or $500,000 policy and I've put in $20,000. Do I get to take a loan out for $20,000?
Tom
Remember that $20,000 bought two types of insurance. That bought the paid-up insurance rider and it bought the base insurance. Approximately, 60% to 65% of the $20,000 went to buy paid-up insurance. You're going to have at least 60% of what you paid in premium available to borrow immediately if you paid a $20,000 premium.
Dustin
I'm able to take that loan out. It's a loan so there's interest on that. I can't take that money and leave. I have to find a place to put it and I have to make payments on it at an interest rate. Is it like credit card interest rate like 18% or 20% that we hear about? Is it interest-free? What's the game there?
Tom
It is an interest only loan, which is important if we're trying to tackle debt or we're making investments, which is the wisest way to use this money. Let's say that you have a 12% credit card. You have $20,000 on it. If you make the minimum payment of $220 a month, it's going to take like twenty years to pay that off. You're going to end up paying some odd $52,000 to the credit card company. If you've got equity in your life insurance policy that you can borrow $20,000 from and pay 5% for it, you can pay that loan off in five and a half years.
Dustin
For those who are facing debt that has a little flexibility maybe they have some funds. You're not necessarily advocating, but what I hear as possible is get the life insurance policy. Take that loan out. Pay that credit card off because they're charging 12% the policies charging you a 4% or 5% or whatever you agreed.
Tom
In this equation, we have to talk about the time value of money. Remember it was going to take twenty years to pay that loan off with a credit card. Most people stop when the debts paid off. If you paid the policy loan off at a lower interest rate and you've paid $25,000, most people say, "I'm done with my debt." You've got to go back and compare apples to apples and say, "If I only paid $220 a month to the credit card company, I'd still be making payments." You still need to make those payments to yourself. Otherwise, you lose that other $25,000. It disappears. That's the time value of money. We have to make our money continue to grow. It's a whole lot easier writing those checks to yourself than it is to a credit card or somebody else.
Dustin
You've seen this for yourself and your family. You help clients do this. Are you of the mindset that if you're in the habit of writing a $220-check, once that debt is paid off, you don't miss it? You acclimate your lifestyle and your finances. The trick though is to do it. A lot of people don't do that, myself included in the past. I haven't done that. However when introduced, there's always a way that people figure it out.
Tom
This is what we have to come down to realize. Are you worth that money? You're worth a whole lot more than that money. It boils down to your self-worth. You've got to look at what you're worth. This happens even when we're helping people to decide what it is they're going to start saving so that they can have some investment. We talk about the 70-20-10 principle all the time. Are you worth 10% of what you make? You are. You're worth a whole lot more than that. If you're not paying yourself that 10%, you're lying to yourself. You're philosophically got an argument going inside you that that's going to prevent you from succeeding in life. You say you're worth it, but your actions aren't coming along with it. I got to tell you another story about Ethan. Ethan had five kids. One with special needs. His wife stayed home with the special needs kid. They were spending more than they were making. I said, "Ethan, you've got to prove to yourself you're worth 10%. He says, "This is stupid. We're already spending more than we're making. How is it ever going to work?" I said, "I want you to try for three months to take 10% of every one of your paychecks and put it in that envelope in your top dresser drawer. Don't tell your wife. You just do it. He did it. He called me back and he was so ecstatic."I can't believe we got a lot of money in my drawer. We didn't even miss the money.” That's the key. Every time I've challenged someone to do this and they accepted the challenge whether they're making millions or whether they're making minimum wage, they always come back. “We didn't miss the money and I can't believe how much is in that envelope."That's the universal principle and when we follow those principles, it makes everything else work better in our life.
Dustin
We covered this in another episode with your wife and your son, the 70-20-10 principle. It's in The Richest Man In Babylon. It’s a very powerful principle so be sure to check out that show. I want to get out of the debt side of it. That's incredibly powerful. I want to get into the investment side of it. I take this loan out potentially. Let's call it 4% or 5% in that range. The idea is essentially to go find investments that would pay me 10%. I'm taking a loan out for 4%. I got this investment over here paying me 10%. I'm now a bank essentially and I'm making the spread which is the ultimate goal isn't it?
Tom
Let's talk about that a little bit more because this is exciting. This is how we increased our cashflow by 40% in two and a half years. It’s very simple. We didn't make any more money. We increased our cashflow very much like Jeff Bezos does with Amazon. I’d borrow from the policy for a business expense. Which now becomes an investment because my business is not me according to the IRS, it's a separate entity. We encourage people to invest first in what they know best. If you're a business owner, the best place for you to invest is in something in your business that's going to create a larger probability of you making more money. That's a huge way to invest. We can see that that's what Jeff Bezos does often. He expands Amazon. It was a bookstore, now it's everything store. If we take that money and we use it in our business or that growth or that expansion or to buy a piece of equipment or to cover normal office expenses or whatever it is. When the business pays that loan back to you, they get to deduct it on their K-1 statement and it becomes income for you. You pay the interest back to the insurance company and you get to claim the interest deduction personally.
Does it matter what the interest rate is here? As long as we can make more on the investment side because if we're investing this money, that interest is deductible anyway. When we pay that interest to the insurance company, it makes them profitable. More profitable than they would have been because the money they loaned to us was sitting in their reserved account earning 0% rate of return. It's there demanded by the commissioners to pay claims. We pretty much took our death benefit before we died and used it. When we pay it back, we had a deduction. It makes the insurance company more profitable. Who shares in the profits of the company? We do. That generates a higher dividend for everybody that has participating whole life insurance in that bulk of insurance.
Dustin
The key is to get a policy and start putting it to work for you. The question is how do you determine how big a policy? We used the example of $500,000. You also included a rider so that adds a little to this conversation, about how you can invest more into it, so you can pull that equity out quicker. Essentially putting more money into a house upfront so you build that equity faster. How does one know how much death benefit they need? How does one know how much of a rider or pre-payment they want to put into it? How do they factor the stuff?
Tom
Because I'm a doctor first and then life insurance agent second, we approach it differently than most life insurance agents. We're trying to help people become better money managers because we want them to be able to build sustainable wealth. We always go back to what is comfortable and affordable. The 70-20-10 tells us what's affordable or should be affordable. It’s 10%of your income. It may not be comfortable with everybody because of their debt load or some other things in their life. We start with a policy that's comfortable. We also as an agent, we have to have a fiduciary role to say, "Are we covering your liabilities at this time?” If you've got a lot of liabilities that are going to leave your loved ones high and dry should something tragic happen to your life, we need to look at term insurance as well. Term insurance is relatively cheap. We want that term insurance to be convertible because our hope and goal is that it will be converted to whole life insurance. To build that sustainable wealth for you before your age gets to a level where it's not feasible to do that.
Dustin
I want to talk about the term convertible. We understand that term isn't necessarily where we want to be if and I'm not putting these words in your mouth, I'm rephrasing. I know there are certain things that you can’t share. The way that I see this is that term is not necessarily where we want to be if we want to use life insurance as an investment vehicle. As a place to put our money so that we get this free cashflow. However, we can start with term if we can't get in and we can convert it. What benefit does one get starting with term and converting it over?
Tom
The best way to answer that is to tell your story of our client. Our client was a high-earning physician in California. The debt load was so great that he could not afford to buy a whole life insurance. However, he didn't want to leave that debt as a liability to his family. What he did is he bought a large convertible term policy. As we were helping him then consolidate some debt and pay some debt off, the way that we help people, he had enough cashflow to buy whole life. When he went to apply for the whole life insurance, he was rated heavily because a condition that had taken his father's life had appeared genetically in him as well. It didn't happen when he bought the convertible term. He got a preferred rating on his convertible term. Three years later, he's got a rated policy that's not even worth buying for whole life. Because he had bought that convertible term earlier, he got the rating that he got on the preferred because he's already written for that amount of money. That's the benefit. All he had to do is pay for it at the age he had attained. It's insurance for liability, but it's also insurance to buy the product that you're going to want in the future.
Dustin
Is there any monetary value that carries forward? Is it more about should something appear on your health report that prevents you?
Tom
There's a little bit of monetary you could do to get to recover the last twelve months of coverage. If you buy a recap term policy, then you may be able to recap the first five years of premiums to go toward the whole life product. For myself, I have $2 million of term insurance even though I have eight whole life policies on my life. I bought that when I was 50. That will be able to be converted the whole life until I'm 70. I'm 58 now. I haven't had to use that because my health is still good. I don't know what could happen tomorrow. I could walk out here and get disabled in a car accident. I could come down with some disease that would keep me from buying the whole life that I know that I'm going to want to buy.
Dustin
It's like insurance for the insurance. That's how it popped in my head.
Tom
That's a great way to put it. It’s just a different strategy. 
Dustin
You mentioned Bezos a lot. I would love to invest some time here to talk about it. A lot of people see Amazon and they see this crazy story. There's a picture floating around the internet where he's in an office with a spray-painted sign. Talk to us about how Bezos did it. Did he do this right from the start? Had he not done it, how could Amazon be different in your opinion?
Tom
Right off the bat, Bezos realized that profits weren't the key to Amazon. He realized that free cashflow was. People ridiculed him for this because his shareholders didn't earn very much. Amazon didn’t earn any profits until it was 2001. They thought he was going to disappear in the dot-com bubble back in 2000. He didn't because he had the free cashflow to sustain himself in that time. Let's talk a little about the free cashflow that Jeff Bezos has been able to build. He builds it a little bit different than we do because he sells people's stuff on Amazon. He doesn't pay us to sell our books on Amazon until three months after they've sold. That's free cashflow. He puts that to work. Insurance companies have understood this for years. Years ago when I was a doctor, I'd file a claim and sometimes that would “get lost.” If it's lost for 30 days, it gives the insurance that much more time to use the money that was mine. That happens frequently in health insurance. There are different ways to build free cashflow. We're building with the life insurance policy which creates equity for us. Having that money, Jeff Bezos was able to expand beyond the online bookstore. As we know, he's gone on and he had $13.8 billion of free cashflow floating around. He said, "Let's buy Whole Foods." That's the way he grows. Even though there might be a decrease in income if his cashflow is there, he can make an efficient investment with that cashflow. He knows income is going to come back.
Dustin
It gives you more power. It gives you more leverage. It gives you longevity.
Tom
It gives you sustainability because you're not floating up and down with the markets. Every eight to ten years, there's something that happens that comes along. Your sustainability, you’ll be able to maintain and grow at the same time. It's not affected by having the solid foundation of participating in whole life taking care of your money.
Dustin
Are you concerned for other Americans? What would that concern be? What are people doing wrong?
Tom
That's why I do what I do is I am very concerned about Americans. Not only do Americans not know how to balance their checkbook by and large, they keep passing at a much lower rate at a basic financial IQ test. That's sad because it's not happening in the public education system anymore. If we don't take the time to compassionately reach out, I fear for where America's going to go. We can't continue to depend on government for everything. We see people screaming all over the place. Free tuition, free healthcare and that would be wonderful. That's utopia. We would love that to happen. Fiscally, it cannot happen. "There is no free lunch," as Milton Friedman said years and years ago. Pretty soon you're going to turn into Venezuela or the former Soviet Union. All those systems collapse. Politics aside, money has to flow to create wealth. Even more so since Nixon took us off the gold standard in '71, our currency is no longer fixed on any set value. It's fixed on the debt. If America paid off all of the debt we owe, there would be no money. That's a hard concept for anyone to understand. That helped me get over the fact that I need to borrow and create debt because banks and financial institutions and insurance companies, debt is an asset to them. We've got to think like they do, not like we've always been trained to think. Debt only becomes a dirty four-letter word when it manages us instead of us managing it.
Dustin
I'm glad you said that because that's a big revelation I've had. There is a difference between good debt and bad debt. Prior to me discovering that, debt was that four-letter word that I wanted to avoid. I paid interest on a credit card. Now, I start to understand that if you leverage that debt to start a business that pays and is successful, then this is a good strategy. I've done that a lot in my life. When it came to investing, I didn't think of it that way. Playing the arbitrage game of borrowing essentially at a certain percentage and looking for those investments that pay at a higher percentage is a very powerful strategy. That's what the wealthiest Americans and wealthiest people around the world do.
Tom
As Warren Buffett in his shareholder notes said that his father took him aside when he was seven years old. He said, "Warren, the best way to create wealth is to leverage other people's money." He said, "I learned it." That's what we're doing here with a participating whole life insurance policy. We are leveraging the insurance company's money. When we borrow from a universal policy, for example, we're not leveraging the insurance company’s money anymore, we're leveraging our own money. There is a big difference. That's another difference between the two types of permanent insurance. We do need to be very diligent in what we park our money in and we need to be very careful in what we invest in. Most people think that investments come first in life as the way to make money and then manage debt that often comes because we made an investment. Then try to save a little bit and then protect it all. We turned that whole equation upside down and said, "Let's build a nice foundation of protection first. The savings automatically comes with that. It gives us a great way to manage debt and also the ideal way to make investments.
Dustin
Fees associated with investments often eat up or cost us more than taxes. If you park your money in a 401(k), later in life, you're going to get taxed because we're deferring it. How so are fees more dangerous than taxes?
Tom
Sometimes we do ask men on the street about 401(k)s and IRAs and we get these very interesting comments. I remember we were in Portland, Oregon one time doing this. One of the fellows that were a correspondent was quite a character. He says, "As long as they're not charging me a whole boatload of fees, I don't mind it because they need to make their money, a 2% fee." A lot of people who are in the investment world realize that 2% feels high. 2% is not off the charts anymore. I've seen them as high as 4.5%.If you’re at Vanguard, it might be 0.5%. Let's take a 2% fee on a $100,000 investment over a 30-year period of time. It's going to rob you of $216,000 over that 30-year period out of your investment. Whereas taxes are only going to take about $78,000 if you're in the 25% tax bracket. The reason that is, is the fee is taken out of everything the portfolio has in it at the end of the year every year. That takes away 2% or 1% or 5%. It takes that right off the top and that no longer ever compounds for you for the rest of your investment time period. Taxes, on the other hand, are only paid on the growth. If you had a $100,000 to start with and you end up with $600,000, you only pay taxes on the $500,000. You don't pay it on what you put in there. That's what started me going down this road too is I got tired of seeing my money managers make money day after day when I may not even be making any money. It's hard enough to pay that 2% when I made a good deal. It's hard to pay it when I lost money that year. That's why we call our clients money managers. We want them to become their own money manager and collect that 2% fee because you are worth it, more than worth it.
Dustin
Are you anti-financial planner because they make money off of fees? Are you anti or is there a way to hedge against the fees?
Tom
I'm not anti-anything except dishonesty. Sometimes some of the laws that have been passed and the regulations prevent people with certain credentials to tell you information that is vital to your well-being. We have to be careful when we go to the experts that what they're telling us is our best interest. What we see ourselves doing at Life Benefits. We're educators and we want to educate you to a level where you know if someone's being honest with you or not. People are very smart, especially when it comes to their money if they know all the options. We've never had anyone choose to do something detrimental to themselves. Only when they don't know what's available will they choose something that could damage them.
Dustin
I know this is what you spend your life doing now educating people on a high level. On a high level, how can I determine if that planner or the investment person, my friend with a hot stock tip or at least recognize I should slow down in that moment or I should do another action? What is the advice that you share with people to protect themselves?
Tom
When people start talking about deferring taxes, we have to understand that that is not saving taxes. When people are talking about small fees, we need to see what those small fees add up to be over our lifetime. When we hear people say words like never ever. What we tell people is don't invest in anything you're not comfortable and knowledgeable about that. I don't know anything about the stock market. I will never invest in it. I used to trade commodities. I found out I don't know anything about commodities. I was at a dinner on the East Coast and the next guy next to me was a floor manager on the floor at Wall Street. He says, "Nobody belongs trading in Wall Street unless they have a representative on the floor. There is too much that goes on there that could change your life forever very drastically and very quickly."We encourage people to invest in what they're very comfortable with and what they know. Again education, get educated. Maybe you'll do it well on Wall Street. I won't. I don't have an interest there. We've got clients who trade options do very well by taking their cash values out of their life insurance policy and trading options. We've got people that do very well in investing in real estate. We've got people who do very well in giving macro and microloans to other people. It's because they knew that field very well before they got into it.
Dustin
Folks get exposed to a lot of different things. They get presented with a lot of different ideas here on the Get WealthFit show. Stocks, options, crypto and all sorts of things. I love your advice on doing what's more comfortable. If you're not comfortable anywhere then go educate yourself to get to that comfort level. At the end of the day, you do have to step into the game. You do have to fail forward fast. You do have to take some risks so that you can truly learn. Nothing is a great teacher than when your heart rate gets elevated then there's a risk, but you want to mitigate that with good sound education.
Tom
I'll share a story here. We have found it real profitable to loan people to pay their house off. We come first on the mortgage, so if they default, we've got their house. Buying equipment for business owners, we own the equipment until they pay it off. We do become the lending institution for those people. Always be careful about getting good collateral because we have made some mistakes in the past. You do lose money when that happens. Fortunately, we didn't lose the interest on the money that we invested because it was the life insurance, but we did lose the money. It's like any other type of investment. Investment is the risk of losing 100%.
Dustin
You're knowledgeable and incredibly easy to talk to. I have two questions. What advice do you have for folks if they're, "This is good information?" They're sitting on the sidelines. What advice do you have for teaching some of these ideas and prepping your kids for the real world? Prepping your kids that should they want to go to college the whole debt thing that's going on that students are facing when they exit college. What is your advice for parents to educate their kids about money?
Tom
That's something that we hear often from our clients. "How can I teach my kids because we don't want them to win the lottery when I die?" Because now they've got this big debt. We know that people who win the lottery five years are worse off later than they ever were. We've written children's books. My daughters understand this well. One of the books is about my great-grandmother who had a neighbor who liked to borrow coffee from her because she had great coffee. She would come over and get this coffee and she'd never pay her back or if she did it was cruddy beans. The neighbor even said one time that my grandma's coffee was getting worse. "Are you using a different coffee? What my grandma was doing was she had bought a can for her neighbor and she'd put back what her neighbor brought her. Naturally, she was getting crappy coffee. Eventually, the can ran out because she never repaid her loans. My grandma then explained to her what had happened and she was so mad she left and never came back. The key here is we've got to have a can that's safe. That someone can't continue to steal from. In our society, we've got volatility, interest, taxes, penalties and fees. All these things that want to steal our little nest egg that we're building, our sustainable wealth. That's a children's book. Then in the back, my daughter Anna not only written it, one of my other daughters illustrated it. People say that the neighbor looks like Cruella de Vil. It shows that money is not a bad thing because that's what often is taught in our society. Money is evil and it's not. It's better to have money than not to have it. This book gives parents some questions to sound off their children and talk about.
Dustin
Tom, thank you so much for coming onto the show sharing your wisdom. Thanks for creating a course for us here at WealthFit. Definitely check it out if you're interested in this conversation. Maybe you're like, "I'm so confused." There are a lot of terms. If you want to go further educate yourself, whether that's at WealthFit or other places. Speaking of that, where can folks find more about Life Benefits? Where can they find more information to up their education?
Tom
We all are about education. That's what our whole life is about now. At Life-Benefits.com, we've got podcasts and blogs. We've got YouTubes. We've got everything that you can imagine. A client came into my office that lives up the road from us. He said, "I have watched so much video on your website. I need to talk to you." Twenty minutes later, he left knowing exactly what he wanted with a policy application in hand.
Dustin
Tom, thank you big time for being on the show. I'm excited for your course to be part of the library and for you to be making even more impact with everything that you do.
Tom
Thank you, Dustin. Thank you WealthFit. This is an honor.
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