How to win the financial battle vs. your automobile

This time of year many people’s fancy turn to owning a new shiny car during the upcoming New Year.  Dealers will need to liquidate their current year inventories to clear space for the new models.  They will be pulling out all the stops including colorful free brochures, demonstrations, and pitches by beautiful ladies telling you all about the New Year models.  Be careful not to get sucked into these sweet offers.  A new automobile is one of the biggest wealth drains for you and your family.  However, that being said a car is very close to mandatory to survive and thrive in most areas of the country.  Let’s talk about some tips on how to save a fortune on every car you ever own over your lifetime.  Many families own at least two cars which means you are getting robbed twice as fast.  Use these simple yet powerful tips to take control of this expensive item.

  • Buy the car you want but only after it is at least two years old and three years old would be better. When you choose this option you automatically will save yourself hundreds of thousands of dollars over your lifetime.  A very real life example of this comes from my own life.  When I was 23 years old I decided I wanted to buy a nice 4 door sedan and I was drawn to the Cadillac STS model and began doing some research.  The brand new model year of that car was stickered at over $50,000 and with any kind of little extras the sticker was almost $55,000.  I was very fortunate to be doing very well financially at a young age but I was not doing that well to blow 50 grand on a new car.  I was thumbing through my local paper (yes this was before the internet changed everything) and saw an ad for a 2 ½ year old Cadillac STS for $19,500.  The car had less than 40,000 miles on it and came with an extended warranty to 90,000 miles.  It was gorgeous, shiny, and just serviced.  Of course it seemed too good to be true but then someone shared with me the secrets of buying automobiles.  The largest depreciation losses on cars occur in the first three years.  According to Edmunds.com the average car will lose 11% of its value the second you roll it off the lot and additional 15 to 20% the first year you own the vehicle. That makes your first year loss of value 30%!  The second year depreciation (loss) is another 15% for a total first two year loss of at least 45%!

 

It is important to keep in mind that the depreciation is usually calculated off of the base price and does not take into account all the extras you pay for when the car is new.  This could be the sport package that raises the price $10,000 but only gives you $2,000 back after the first year or two.  So it is very possible to find beautiful cars with manufacturer warranties still in place and pay 35 to 50% less than the first owner did when purchased new.  Since the biggest percentage of depreciation occurs in the first three years, let someone else eat the depreciation and buy it used (or pre-owned as the car dealers like to say) after the second or third year.

 

I was able to drive a gorgeous car with a warranty for far less than it would have cost me new and I drove that car for 4 years and still sold it for $3,500 and had very little repairs during my ownership that came out of my pocket. This strategy works with exotic cars as well.  When I was a young man one of the dream cars then was a Ferrari Testarossa and its price tag was around $200,000.  You can buy one now for right around $50,000 and most don’t have that many miles on them because they are babied by the owners.

 

  • Another way to save a lot of money is to try and keep your term for your loan (assuming you finance through a bank or finance company) for no more than 36 months to build equity in the car faster and save on additional interest. This will be the most difficult suggestion for most people to utilize because of that seemingly large payment if you finance it for 3 years instead of 6 or instead of just leasing the car new for less money per month.  If you finance $25,000 with a bank at 5% interest for 3 years your payment will be $749.27.  If you extend that loan out to 6 years your payment drops to $402.62 which seems much more reasonable and affordable.  It may be more affordable monthly but will cost you much more in interest and less loan buy down.  You could also lease a newer model of the car for even less monthly (read part two of this article to see why you might not want to do that even though on the surface it looks attractive)

 

If you pay over 6 years you will pay out $28,989 vs. $26,974 for a difference of $2,015 more out of your pocket to own the car.  In addition, by financing it for the 6 years your loan pay down is going at a much slower pace than the depreciation on the vehicle creating an “underwater situation” on the car almost from the initial purchase date. (Assuming you buy the car with a small down payment)  During the 3 year program you are paying down the car faster than it is depreciating giving you options if you should have to sell the vehicle.  If you truly can’t afford that 3 year payment take out the 5 year option and try to send a little extra every month toward the principle to pay it off sooner.

 

There are several other ways to save loads of money when purchasing an automobile that we will discuss in part two of this article next week.

How To Protect Your Recent Stock Market Profits

Since November of 2016 the stock market has hit record high after record high which has created an estimated 3 trillion of additional wealth for stock holders.  If you own stocks or mutual funds your money should have done well and had nice gains.

The next question is how much longer will it last?  Will it come back down to where it was?  If it comes back down might it even go down more?  The answer to all of those is NOBODY KNOWS!  People have been trying to time the stock market for generations and very few have been successful.

Do you want to give your stock market gains back during the next downturn?  Do you want to lose money when it goes back south of where it started its upward trend?  Would you like to keep your gains but not give up the possibility of future upturns?

You can reallocate some of your stocks and mutual funds into programs that protect your new found gains while allowing you to participate in future gains should they continue.  This can be done with the use of a solid fixed indexed annuity.

When you purchase a fixed indexed annuity your money will track one of various indexes (actual index depends on the product and company  chosen by you and your adviser) with the protection against any market downturns that may occur.  If you purchase an annuity and the index you track goes up over the next year or two your money will grow along with that index (actual growth rates vary greatly based on the product chosen) but if that index goes down during the same period your cash won’t go down because of that market and index loss.

You’ll need to know some terms and ask some questions about your potential investment. Here are some to consider but not an exhaustive list:

  • Will your potential gains have a “cap” on them? Meaning your gains could be limited regardless of how the actual index performs.
  • If your index potential is “uncapped” what will be the “spread” between how the index actually performs and how much your cash actually be credited?”
  • What will your participation rate be on the index? Meaning if the index goes up 10% will you get full credit or 30% of the gain? 50 or 60% of the gain? Will you get full 100% credit?
  • Will there be any fees associated with the Fixed Indexed annuity you choose? If so, what do you get in exchange for any possible fees?  Is there value in the fees or is it just taking money out of your pocket without giving any fair value in return?
  • Do you want a lifetime income rider? For a fee many of these products will provide a rider that says they will pay you a certain percentage every month for the rest of your life no matter how long you live.  So you would be guaranteed the income from the money even if eventually the money in the account is actually spent through.  What is that fee for the rider?
  • How long of an early withdrawal period does the product have? This is a program for longer term money that you don’t mind letting alone and in the program for 5 to 10 years.

These annuities qualify for a tax and penalty free roll over from IRA’s old 401k’s or any other qualified account you may own.  If you have an active 401k, 403b and like accounts, there might be some restrictions on moving the money placed on the account by your current plan administrator.  Your IRA’s could be rolled over (either all or In part) to a solid fixed indexed annuity with no issues.

Remember this is one of the 3 major types of annuities.  In addition to the Fixed indexed annuity there are also variable annuities and fixed annuities.  The fixed annuity gives a guaranteed rate of return with no risk of loss but the upside is usually on the low side.  Could be a great fit for people who like CD’s and very safe products with a guaranteed rate of growth that happens no matter what happens in any market.

A variable annuity can basically give you high rates of return but are also subject to some loss (some have floors on the loss and many do not) and are usually subject to more fees than the other types of annuities due to their active trading and money movement.

In closing, a solid Fixed indexed annuity offer strong growth with the protections of no downside risk.  If you would like more training on this particular program, feel free to visit www.perpetualpensions.com and watch the video halfway down the page.  No charge and its only 20 minutes long.

John Jamieson is a national wealth strategist and 2 time #1 Bestselling author.  He is a frequent guest on national radio shows and a contributor to some of the biggest online financial websites and magazines in the country.  He operates a national firm that focuses on showing people how to create Wealth Without Stocks or Mutual Funds.  You may contact him through his site at www.wealthwithoutstocks.com

What is a Restricted Property Trust?

Big Tax Deductions and a Secure Retirement for Business Owners using a Restricted Property Trust

How successful business owners are putting more money away for Retirement than they ever could with a Traditional Retirement Account

Trusts as a wealth building and wealth preservation tool have been around for centuries.  Every specific trust has a specific purpose for why it is set up and how it is utilized.  There is one that is designed for high income business owners to be able to put away more money for retirement than they possibly could with a traditional retirement plan.  This trust will also allow the business owner to do this on a tax deductible basis.

This also allows the business owner to legally “discriminate” against their current employees or co owners so if they choose; the owner can be the only one who participates in the plan.  This is very different from traditional retirement accounts where most full time employees must be given the opportunity to participate in the retirement plan.

The name of this trust is a “Restricted Property Trust” and is a very powerful tool for the right business owner.  It basically works like this:

  • A successful business owner is allowed to fund from $50,000 (minimum) to millions of dollars per year for at least 5 years into a restricted property trust. We will use $100,000 contributions for our examples
  • Most of this contribution will be tax deductible to the business owner because of the nature of the Restricted Property Trust
  • That contribution will be used to fund a Whole life insurance policy creating cash value and an instant death benefit for the business owner’s estate. If the business owner should die during the initial 5 year period (or subsequent 5 year blocks of time in which the trust operates 10,15, or 20 years) the death benefit finishes off the funding of the trust commitment and the balance of the death benefit  goes to the business owners family
  • The business owner makes a firm commitment to fund the trust for those 5 years with $100,000 per year and if the business owner fails to make that contribution they forfeit all previous contributions to a charity. This creates a chance of loss necessary to make most of these contributions tax deductible.  Needless to say the business owner who sets this up is confident in their income for the trust period and/or they have significant assets in other places they could easily draw on to make these contributions.
  • Depending on the situation about $70,000 of the $100,000 contribution will be tax deductible every year the contribution is made into the trust. Over 10 years this would create $700,000 worth of tax deductions directly off of your businesses income putting hundreds of thousands of dollars in your bank account (depending on your effective tax rate)
  • Also at the end of the 10 years (in this example) you will have more money in your plan in the form of cash value than you put into the plan. Let’s assume you have put in $1,000,000 into the plan over 10 years, you now might have $1,200,000 in cash value inside the plan and the life insurance policy.  The trust is dissolved and you now own the life policy personally along with all the cash and death benefit.  You have also pocketed hundreds of thousands in dollars of cash that you would have paid to Uncle Sam without this unique and powerful structure.

There are some taxes to be paid out of the cash value at the end but the balance of the cash value is all tax free and can be an entirely new tax free income stream for the business owner.

This is not simply a deferred comp plan or is it a traditional retirement account.  It is much more high level than either one of those programs.  Now let’s answer some of the most common questions we receive about this program.

Q: I already have other retirement accounts I am funding, can I still fund this trust in addition to my other accounts?

A: Yes you can.

Q: Can I be a partial owner of my business with partners?  If yes, do my partners have to participate in the program as well?

A: Yes you can be a partial owner of the business and no your partners don’t have to agree to the plan (but don’t be surprised if they want to set this up for themselves as well) and your employees do not share in this benefit at all

Q: How much money do I have to make to be able to qualify for this trust?

A: There is not a specific income level but the minimum contribution to the trust is $50,000 annually for 5 year increments.

Q: if I have the resources can I put in $300,000 or even more a year into the program?

A: Yes, but that contribution amount will be dictated by how much your business is worth and how much of a death benefit the business owner can qualify for based on that business value.

Q: What happens if I can’t make the contribution during that 5 year term?

A: You contributions will be forfeited to a qualified charity

Q:  Why is life insurance a part of this plan?

A: For various tax and trust reasons a properly structured whole life policy is a must for this program to be implemented

Q: If I should die during one of the 5 year trust periods, who gets the death benefit from the life insurance policy?

A: Your estate collects the death benefit during the trust periods and after the trust periods when you take control of the policy after the trust is dissolved

Q: Can I have access to the cash value in the life policy during the trust period?

A: No there is no access to the cash value during the trust period.

Q: I am a salaried employee who makes big income but am issued just a W2 at the end of the year.  Do I qualify to participate in this program?

A: Unfortunately this type of trust is just for business owners or partial business owners.  It is possible to receive a W2 as a salary and own the business as well.  You must own a part of the business to be eligible to participate in this plan.

Q: Because life insurance is included in this plan do I have to qualify physically as well as financially for this program?

A: Yes there will be a physical required to qualify for the underlying life insurance policy.  Most people who use this program are in their 50’s or 60’s and the vast majority get approved physically for the policy.

In closing, a restricted property trust can be a great benefit for the right established business owner with disposable income and/or other assets they can draw upon to fund the trust.  It is not meant for spotty incomes or low asset business owners.  If the business owner is stable and confident in their ability to fund the trust during the trust periods it can be a great tool.

If you would like more information on this program, please visit www.perpetualinsurance.com for a brief presentation and the information on how you can set up a personal consultation to see if this is a fit for your business.

 

Use Private Money to Fund Your Business and Investments

When I do seminars all over the country this is one of the top 3 topics each and every time without fail. I don’t care if the group is a bunch of beginning investors just starting out with limited cash or a group of millionaire business people. The people just starting out want to know how to access capital without all the red tape and ridiculous demands made by a traditional bank. The millionaires want to know how to loan out their own capital safely and at high rates of return. The truth is the banker you are trying to obtain money from has no idea how investment real estate or most businesses really work. You would be surprised to learn how little income most bankers actually make performing their jobs. Most people in these positions really care more about the prestige, titles, and their standing in the community than their actual incomes. It can be very frustrating dealing with a traditional banker when you are trying to achieve nontraditional goals via nontraditional methods. This is very similar to the frustration if you spent 30 days trying to put your round peg through the square hole. Most bankers are NOT business people and are governed by an old style economy way of thinking. If you want to make your entrepreneurial endeavors as easy as possible, you will need to start developing private sources of funds. Contrary to popular belief, banks don’t hold a monopoly on financing projects. There are many other sources to fund properties and projects. Just a few alternatives are:

  • Finance companies
  • Insurance companies
  • Government entities (national, state, and local)
  • Sellers of the properties and businesses (loaning you all or some of their equity by taking back a note and payments over a period of time)
  • Venture capital firms
  • Online financing options that act as a type of clearing house for all types of lenders

There is also a huge pool of billions of dollars that already exists of individuals and hedge funds that loan money to fund all sorts of projects. In our examples, we are going to talk about private individuals loaning money to fund our projects. There are people all over the country who are making private loans right now and you want to start knowing how and where to find these people.

Why Not the Banks? Banks require a huge amount of documentation and proof of everything to fund deals. This is especially true now after the last financial and banking collapse ushered in an era of even more regulations and hoops to jump through to get deals financed. Now, even simple straight-forward deals require loads of paperwork and much of it redundant. Many banks are looking for reasons not to do the deals instead of why they should do the deals. When you are talking about buying properties in the 1-4 unit category, almost every bank or mortgage company loan will be underwritten to Fannie Mae standards (FNMA) which are basically controlled by the government. If you’re looking to do anything creative, but yet safe with a financing package, you’re out of luck.

Investors unfairly received much of the blame during the last banking crisis. The fact is that most of the bad loans and way out mortgage programs such as “120% financing” and the “negative amortization loans” were approved for regular homeowners and not for investors. Investors are mainly responsible for stabilizing the real estate markets when they were in free fall. Investors pumped in many billions of dollars of their money to buy in at reduced prices. They have since been responsible for taking much of the bulk inventory off of the market so prices had a chance to stabilize and even increase off of their lows. Even with all of this, investors are many times frowned upon by FNMA underwriting standards and it becomes more and more difficult to obtain financing, even on great, safe deals. If I had a deal on my desk now that I could buy for $100,000 and was worth $200,000, and only wanted to borrow $80,000 from the bank, does that sound like a high risk loan to you? The lender should verify the true value, repairs needed, a little credit (but more character), and obtain a title commitment. After that, they should be ready to close quickly. This is not the case when dealing with traditional banks and mortgage companies. They will want a never-ending list of documents from me to prove I am good for the money. So let’s just not deal with banks to make profitable deals.

Tune in next week when we post part two of using private money to fund your business and real estate ventures. Visit us at www.wealthwithoutstocks.com