Episode 54: How To Supercharge Your Emergency Fund

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Are you risking financial turmoil without an adequate emergency fund? In this episode, we’re diving deep into the critical questions: How much should be in your emergency fund? Is your emergency fund matching expert recommendations? And are you optimizing your emergency fund with the right investment vehicles? Brace yourself for a bold exploration that challenges financial norms! As we ponder the burning question: “Is it too late to secure your financial future?”

Dreaming of financial peace? Yearning for a secure financial future? This episode unveils the secrets you need to know. Learn how to optimize your emergency fund, align it with expert advice, and navigate the investment landscape wisely. The benefits? Financial confidence, peace of mind, and a roadmap to your dream financial future. It’s not just an episode; it’s your gateway to financial freedom!

Click now to listen and discover the secrets to an empowered financial journey. Your secure financial future starts here!

What you’ll learn:

• How much should you have in your personal or business emergency fund? 
• Tips on deciding if your emergency fund is large enough to match what the experts say is enough. 
• What investment vehicles you should be using to optimize your emergency fund.
• How you can build on your emergency fund or start from scratch without feeling like you’re “leaving money on the table”

Resources:

• Episode 20: The Magical Money Machine That Turns $16k Into $21k Safely
• Book a Discovery Call with us so we can help you overcome your current struggle and take the next step in your financial journey
• Follow Kyle Pearce on LinkedIn for daily posts and conversations about business, finance, and investment. 
• Dig into our Ultimate Investment Book List
• Download our Wealth Building Blueprint

Opportunities, Services, and Consulting:

For those interested in being considered for potential Joint Venture (JV) opportunities, reach out to us here.

Get in touch with Kyle to review your financial situation through a discovery call.

Watch Now!

00:00:00:02 – 00:00:18:13
Kyle Pearce
In this episode, we’re going to unpack emergency funds. That’s right. How much should you have in your personal or your business’s emergency fund? We’re going to talk about tips on deciding if your emergency fund is large enough to match what the experts say is appropriate.

00:00:18:13 – 00:00:42:01
Jon Orr
And we’re also going to talk about investment vehicles and specifically, we’re going to talk about like where this emergency fund lives. Is it in your bank account? Is it somewhere else? We’re going to talk about vehicles that can actually optimize your emergency fund so it doesn’t feel like that emergency fund sitting there kind of being wasted by just kind of waiting for that terrible rainy day.

00:00:42:03 – 00:00:50:23
Jon Orr
We’re also going to help you build that emergency fund from scratch so that you don’t also feel like you’re leaving money on the table. Let’s do this.

00:00:51:00 – 00:01:05:10
Kyle Pearce
All right, my friends, here we go.

00:01:05:12 – 00:01:10:04
Kyle Pearce
Welcome to the Canadian Wealth Secrets podcast with Kyle Pierce and John Award.

00:01:10:08 – 00:01:18:07
Jon Orr
Get ready to be taught as we share our successes and failures encountered during our real life lessons. Learning how to build generational wealth from the ground up.

00:01:18:09 – 00:01:43:02
Kyle Pearce
Welcome invested students to another episode of the Invest in Teacher podcast. And I’ll tell you, we are super excited to dive into this topic. And I’ll be honest, John, I’m hoping that people didn’t see it Emergency Fund and then hit the skip button because the reality is, is like, I’ll be honest, I am not exactly inspired. Each day to get up and save into an emergency fund.

00:01:43:02 – 00:02:14:15
Kyle Pearce
It’s pretty boring. It feels like stagnant money typically. And I think for some people they would just rather get to the real money, making sure it gets in your mind, Hey, if I could just go out and make a bunch of money, then hit a couple of home runs, then it’s like my emergency fund is done. But in reality, what we really need to be aware of is that when we’re on this journey, we want to make sure that we’ve got those patio stones kind of place firmly in front of us so that each step in this journey is going to be easier.

00:02:14:20 – 00:02:26:07
Kyle Pearce
It’s going to be more direct and it’s going to be more clear and concise for you. So we’re excited to dive in. And John, I think we’re going to be leaning on some of these quote unquote, experts from the space for sure.

00:02:26:07 – 00:02:44:11
Jon Orr
And if you think about it, let’s say you’re at a social event, you’re talking with other people and they bring up, I’ve had this brought up or you hear that? I’ve got my six months expenses tucked away. If we ever had lost our jobs, if we ever had an emergency happen, we’ve got money. Whereas most people don’t actually have it.

00:02:44:11 – 00:03:09:04
Jon Orr
Most people are living paycheck to paycheck. And that there’s stats out there that say that if you had an extra $400 added to your expenses that month, most families can’t afford that extra $400 out. So it’s like you have to borrow. People are using their credit cards. The emergency fund is like one of those things. I remember being at a social event and it came up and it’s like, I don’t have that set up.

00:03:09:08 – 00:03:32:19
Jon Orr
If we did have an emergency, I would have to borrow. And that’s like, Wait a minute, So it doesn’t sound so flashy. I agree, Kyle, But I feel like there’s also that stigma on me, like I don’t actually have it. So I’m crossing my fingers that nothing happens in that case. So we’re going to talk all about how to set that up, what it should be, how big should it be, and the vehicles that you should be utilizing so you don’t feel like you’re leaving money on the table.

00:03:32:19 – 00:03:55:08
Jon Orr
But I think this also started, Kyle, We were reviewing Dave Ramsey’s seven steps to kind of financial wealth, and he calls them seven baby steps to financial wealth. In one of those steps. It’s not the first step, but one of those steps is about having that 3 to 6 months expenses in a fully funded emergency fund. And we started talking about that going on.

00:03:55:08 – 00:04:17:00
Jon Orr
Like what are the best ways to do that? Because I think what he’s got, if you went to his website, you’re listening to him speak, is mostly referencing that you have this bank account that’s got this money sitting in there when he says it’s fully funded emergency fund, which means it’s like right over there, you can actually go and withdraw from it and you get that money.

00:04:17:05 – 00:04:25:12
Jon Orr
So it’s accessible. He’s got 3 to 6 months listed there. And we started talking about like, is that the best way to do that? And that’s what sparked this episode.

00:04:25:18 – 00:04:44:07
Kyle Pearce
Absolutely. And actually his number one step, and I’ll give him that he doesn’t say like, hey, go immediately to building this massive emergency fund, but rather step one is just to get $1,000 kind of into this little starter emergency fund. So he does start that process. That’s a nice quick win. You and I were both talking about it.

00:04:44:07 – 00:05:03:18
Kyle Pearce
Those who were watching on YouTube, you can kind of see this list of seven steps here. And basically what he says is you can take control. This is his seven baby steps to becoming wealthy or financially free or to build wealth. And he says that these seven baby steps will show you how to save for emergencies, pay off all your debt for good and build wealth.

00:05:03:23 – 00:05:25:05
Kyle Pearce
It’s not a fairy tale. It works every single time. And I will be honest and say these seven steps are fairly accurate. I would say like if you do these things, the problem is, is that some of these steps are pretty massive, require a lot of commitment and it doesn’t get into sort of the nuts and bolts of what does that really look like and sound like for the average individual.

00:05:25:05 – 00:05:52:03
Kyle Pearce
And I’m going to argue that even though folks who are listening to this podcast are focused in their wealth building journey, what they probably I’d say probably it’s the wrong word for it. But what I might assume many have overlooked is the emergency fund. And a lot of people do look back to their home equity line. They look at their credit card, they look at this access to capital, this access to borrowing, and they look at that as their emergency fund.

00:05:52:03 – 00:06:12:22
Kyle Pearce
And I would just argue that if we are truly on this wealth building journey, there’s a couple of things that have to happen. One thing is we’ve got to be ultra committed and being committed to even something, as I say, small, but an emergency fund 3 to 6 months of expenses for a lot of people is a big amount of money.

00:06:12:22 – 00:06:33:02
Kyle Pearce
It’s a big sum of money. And basically what they’re saying is, hey, listen, if you lose a job, right, or you get laid off, or if there’s this massive unexpected expense of some type. Right. I think in the U.S. that’s even more so. The case with health care and some of those expenses that may not be properly prepared for.

00:06:33:02 – 00:06:55:08
Kyle Pearce
Here in Canada, we have a little bit more of a safety net there. But the reality is, is that if I don’t have that access, then we’ve got a little bit of a problem. Now, some people might totally separate over that and say, well, listen, I’m just going to skip to step four, which he says is investing 15% of my household income into retirement or into investments in general.

00:06:55:10 – 00:07:19:20
Kyle Pearce
And that could be one way of going about it, right? If I am aggressively saving as long as some of those investments are still accessible. Right. You could look at that little bucket as your emergency fund. So we’re not here to say there’s only one way to do this. But we do want to talk a little bit about, okay, if it’s 3 to 6 months of expenses, you need to determine 3 to 6 months is a big difference.

00:07:19:20 – 00:07:39:09
Kyle Pearce
They’re saying it’s like either this amount or double that amount somewhere in there. Right. And what is that amount? What is a true expense like, of course, rent or mortgage? Sure. Car payment? Sure. Insurance, sure. But if you go down the list, it’s like, are you calling groceries an expense? I’m going to say.

00:07:39:13 – 00:07:40:12
Jon Orr
Yes, you got to eat.

00:07:40:17 – 00:08:14:13
Kyle Pearce
Right. But I think sometimes we get a little bit maybe conservative in what our real expenses are based on our current lifestyle. So I would encourage you, going back to some of our budgeting discussions that we’ve had on the show earlier is really get a sense of how much are you really spending? Because let’s be honest, if you get into a pinch where you need to access an emergency fund, I’m going to guess that there’s a lot going on and you’re not necessarily going to want to be cutting back on the grocery spending, cutting back on all these things while an emergency is happening.

00:08:14:13 – 00:08:37:20
Kyle Pearce
Right. So these are some of the things that we want to be thinking about and just making sure that we are, again, firmly we have a plan to place this patio stone in front of us so we can take that next step along the journey. And again, there’s various ways to do it. But today we want to unpack maybe a creative approach that we haven’t run into anyone actually doing.

00:08:37:20 – 00:08:39:04
Kyle Pearce
So we’re excited to share.

00:08:39:06 – 00:09:00:15
Jon Orr
That’s what we love. Love thinking about creative uses of access to money where we can utilize. Because I think what I get worried about and I think this is why people tend to shy away from the bank account that’s fully funded, sitting there doing nothing like you said, and this was the mindset that I had, is like, Hey, I’ve got a home equity line of credit, that’s my emergency fund.

00:09:00:15 – 00:09:19:23
Jon Orr
I’m just going to earmark that. Don’t go over this much. If I’m borrowing from my line of credit to make an investment or let’s say we were buying our property is I’m using that as my down payment and I’m utilizing that to kind of create cash flow back on that line of credit. I was earmarking a chunk to be like, this is my emerging C fund.

00:09:20:00 – 00:09:43:15
Jon Orr
But then it’s like, that’s that’s great and all and I have the access to this other capital. But I mean, is that the best use of that or is there other ways or other vehicles that can do that and more? And that’s what led us down into this kind of pathway to utilize some of the tools at our disposal to kind of, you know, get an emergency fund going, but actually allows you to do so much more.

00:09:43:15 – 00:09:49:05
Jon Orr
And that’s what we want to unpack here. On us being creative with our emergency fund in safe at the same time.

00:09:49:08 – 00:10:23:03
Kyle Pearce
Yeah, and I think something worth mentioning too is one thing. And some people who are listening may have heard people say this before, but this quote is that banks and lenders are always excited to lend you money when you don’t need it. But when you do need it, they’re not expecting to do it. Right. So, I mean, I’m sure anyone listening who has their own business, right, if they are a business owner, entrepreneur, or if you’re an investor and you’ve gone maybe full time into an investment world or where you’re working out of a corp, you’re trying to expense things from your life, but now you’re not showing an income and all of a sudden

00:10:23:03 – 00:10:42:00
Kyle Pearce
the banks are saying, Sorry, I don’t want to lend to you. Well, guess what? If a real emergency happens and I’m relying on, say, home equity line of credit and let’s say interest rates are at 20 year highs as they are currently as we record this, it’s one of those things I’m not saying it won’t work. It might still work just fine.

00:10:42:00 – 00:11:05:07
Kyle Pearce
But is that, I guess, a risk that we’re willing to take for some people? We’ve done it. We’ve been there. We’re not perfect. That’s for sure. But we want to, again, like you said, kind of supercharges this a little bit. And I want to approach this idea of imagine this world if you were able to check off this emergency fund thing while on a journey to something bigger and better.

00:11:05:10 – 00:11:30:22
Kyle Pearce
Right. And I think for me, that’s the motivator behind this particular strategy. This particular strategy is one that, again, I’m not seeing commonly used. There are some folks out there who talk about different strategies. I’m sure some people have heard about infinite banking. We’ve talked about it before on the show or bank on yourself. This is a very specific strategy and we’re going to kind of show how you can evolve this strategy really nicely.

00:11:30:22 – 00:12:02:04
Kyle Pearce
And I want to say that if you look at this as not necessarily building just an emergency fund, but rather building your Safe Asset and Opportunity fund and on the journey accomplishing your emergency fund, I think it puts you in the right mindset as we enter this discussion. So what I want to make sure there is no misunderstand, adding that we are not saying that you use this strategy to put all of your capital into.

00:12:02:04 – 00:12:22:08
Kyle Pearce
That is not what we’re saying at all. But imagine if you could take some of that safe money, right? So I’d call it your fixed income investments or maybe your bonds. Right. So people talk about stocks versus bonds and what that ratio should be when you’re younger, more aggressive with the stocks. And when you’re getting older, you go more aggressive with the bond.

00:12:22:08 – 00:12:42:06
Kyle Pearce
Well, there’s a lot of research to show that just simply using a split that isn’t necessarily going to be super solid and it’s not going to, I guess, decrease the volatility in the way that you’d like to see happening. Because when there’s something going on in the economy, both of them tend to fall. So that’s not helpful. They become very correlated in bad times, right?

00:12:42:07 – 00:13:06:01
Kyle Pearce
They’re not correlated in good times, but they are correlated in bad times. So here what I’m picturing this as is again, dual purpose. We’re going to along this journey, you’re going to accomplish your emergency fund, which is a great win, and you’re going to also increase this safer asset that’s also flexible enough to be able to be used as an opportunity fund.

00:13:06:03 – 00:13:43:21
Jon Orr
Love it. Love it. So let’s dig in, because I think we are now at the edge of our seats going, okay, what is this technique? Because if I also build emergency fund, but also think about how do I create a safe asset? Some people and you had mentioned this about correlation between the stock market and the economy, but you mean like if I build this asset in, say, one container and then I continually build that asset after the emergency fund, five months, six months of expenses has hit its limit of I say $5,000 per month is what I need.

00:13:43:23 – 00:14:10:01
Jon Orr
After six months, I have $30,000 saved up in my emergency fund container. I could keep going with that. Maybe I stick that in the stock market. In that stock market could be an index funds, which is safer than, say, picking your own stocks because it’s got a historically good return. But then you’re right, there’s the downs in the ups and it’s like, what happens if I need that while the your emergency fund is in there too or not.

00:14:10:02 – 00:14:30:13
Jon Orr
No, it’s over here in this container. But the rest I could continue to keep adding the 5000 or how much I want to put into that account every month after. And now I’m building towards my retirement. So that is how I sometimes see how you could keep the same consistency but achieve both. You’ve got your emergency bond and you’ve got this retirement asset that’s growing.

00:14:30:18 – 00:14:35:15
Jon Orr
Maybe it’s in your retirement funds or maybe it’s just on its own. But I think we could do better now.

00:14:35:17 – 00:14:52:09
Kyle Pearce
I think so as well. So up on YouTube, for those who are with us, I’ve got just a couple of graphics here. We will dig into the weeds a little bit at the end, but just to make sure people are kind of understanding here, we know that the challenge here with super we’re going to call it supercharging your emergency fund.

00:14:52:09 – 00:15:10:17
Kyle Pearce
Okay. So we’re going to supercharge your emergency fund. And again, we’re going to almost look at it as the emergency fund is the bonus that’s going to come out of this strategy. It’s going to be a safe strategy, a safe asset. But also give you opportunity to continue investing beyond. So we’re going to use the assumption 3 to 6 months worth of expenses.

00:15:10:17 – 00:15:28:05
Kyle Pearce
And for this individual, we’re going to call that $30,000. So we’re calling it that for you. You might look at that and go, wow, that’s way too low for some of you. Might be like, That’s way too high. I’m going to guess for many your price. Actually, that’s kind of low, especially if we’re thinking about six months, but we’re just use that as a starting point.

00:15:28:05 – 00:15:43:10
Kyle Pearce
And as you can imagine, for most people, we’re not going to encourage you to borrow to fund your emergency fund. Right. This is something that you’re going to have to figure out. At what pace can you reach this goal? And we’re not saying it has to be this piece that we’re sharing, but we’re going to pick a pace.

00:15:43:12 – 00:16:06:19
Kyle Pearce
We’re going to assume that over the next five years we’re going to save $6,000 per year. And normally. So what is that, $500 per month? Some people are like, yikes, that’s a lot. If you’re saying that, I’m going to say that you’ve got to pause and you got to ask yourself, okay, well, where is this money going if you’re maxing out investments, then I’m cool with it.

00:16:06:19 – 00:16:23:19
Kyle Pearce
You know what I mean? If you’re like, Oh, it’s tight because I’m contributing a significant amount to investments of some type, then you’re off the hook. Okay? And maybe you’re already in a position where those you have access to some of those funds, making sure some of them are liquid enough. Fantastic rock and roll.

00:16:23:19 – 00:16:25:12
Jon Orr
You might pivot to this strategy.

00:16:25:17 – 00:16:50:12
Kyle Pearce
This might be something if you want to add a little bit of that safety. Right. I know for we’ve talked about it on the podcast before my first ten years in this journey, I guess 15 years in this journey, you know, I did a lot of learning, I did a lot of risk taking. And as I get older, I turn 40 This year, as we end 2023 here, I turn 40 and now I start to look and go over the next 10 to 15 years.

00:16:50:14 – 00:17:22:11
Kyle Pearce
I definitely want to make sure that I’m not as exposed to, say, volatility, right? So a strategy like this is helpful for someone like myself. I know, John, you’ve been thinking the same thing as well. Just to have some. And for us, these x golden handcuffs, right? These people that had pensions and are now not necessarily relying on a pension, it’s like I like looking at this tool as a way to help me replace my pension with certainty while doing all the extra bonus stuff with my growth sort of assets.

00:17:22:11 – 00:17:43:04
Kyle Pearce
Right? So these are things that we might be thinking about as we look at this strategy. So usual result here, 6000 for the next five years that’ll help us fund you’ll normally get 2000. And John, you had mentioned earlier it’s like and the part that hurts people, Saul, is just watching it sit there. Let’s be honest, it’s actually losing money.

00:17:43:04 – 00:18:03:18
Kyle Pearce
It’s actually going down in value. It’s going down in how much it can buy in purchasing power. Right? Inflation’s been very high. It’s been very hot. Hopefully it does come down. It’ll probably never get to 2% as the U.S. Fed and the Bank of Canada are hoping. That’s their goal. The reality is it’s always floating higher than that, even though they try to make it as something that’s smaller.

00:18:03:23 – 00:18:27:12
Kyle Pearce
So it’s losing, losing, maybe the bank feeds losing to all these other factors. So we’re going to improve on this a little bit and we’re going to bring back friends. You remember it. Episode 20 We talked about the magic compounding or money printing machine, right? This part of life policy, which is a super safe asset and it grows at a very consistent I say consistent.

00:18:27:12 – 00:18:52:02
Kyle Pearce
It definitely does vary. However, it never goes backwards. It’s never going to earn 10% a year. It’s never going to earn 0% a year. It’s going to be somewhere over time, compounding at around this 4% mid 4% range, which over any 20 year period tends to be around where rates are or where inflation is if you look at real inflation.

00:18:52:02 – 00:19:13:00
Kyle Pearce
So it’s going to keep up with inflation and continue growing and remain accessible to you so that you can use it either as a safety fund or as an opportunity fund. So let’s look at what happens here. Okay. So we fire in 6000 a year for the first five years, John, we have reached our goal because guess what, We put our 30,000.

00:19:13:02 – 00:19:37:23
Kyle Pearce
That part is easy. It’s just more or less. You set yourself the goal, pick that number, and we open up a participating whole life insurance policy has to be structured in a very specific way so that there is cash value, more emphasis on the early cash value of this policy. So this would be similar to a policy you might see in a bank on yourself or an infinite banking type policy, that sort of thing.

00:19:37:23 – 00:20:03:24
Kyle Pearce
We use these types of policies for many of our strategies. And I’ll tell you, based on the projections, using the illustrations from last year’s dividend rates that were shared and keeping in mind dividend rates should be going up over the next couple of years because all interest rates have risen. So over time you’ll see policy dividend rates following suit and we are coming out of a historically low interest rate environment.

00:20:03:24 – 00:20:25:02
Kyle Pearce
So when we look at this and go, okay, after five years, the cash value is just over 30,000. Some people are looking like Kyle. I thought we were supercharging this thing, right? And it’s like, yes, we are. But guess what? Like all good things, right? It takes time. It takes a little bit and we’ll call it a real estate investment.

00:20:25:02 – 00:20:38:09
Kyle Pearce
It takes time for those fixed costs at the beginning to start this new business or start this new strategy. And it’s after year five when you start to see the beauty. And we’ve already hit that first goal.

00:20:38:11 – 00:21:00:20
Jon Orr
Exactly. I was just about to say that if you’ve already hit your first goal, which is to have the 30,000 over the course of that five years, if you set this up using your trusted advisor, you’ve hit goal. What score one is you have $30,000 available for you to use in the case of an emergency in this policy.

00:21:00:22 – 00:21:20:10
Kyle Pearce
Yeah, exactly. And if you’ve done this, if you followed through, you were committed, right? Month after month, you through on say, 500 in or maybe you did a lump sum 6000 each year annual. You could do it either way. I think probably chunking it up might be easier to commit to. Right. But you’ve made this goal, so you’re like, Whoa, I’m the best, right?

00:21:20:10 – 00:21:42:09
Kyle Pearce
So normally you’d be done with this fund and you could still be done with this fund and decide that, Hey, guess what? I’m going to just now take some of that money and invest it somewhere else. Or you might be thinking to yourself, You know what, I’ve already got some other investments growing. Or maybe you’re looking in saying, Well, I mean, $500 a month isn’t as much as I should be investing.

00:21:42:09 – 00:22:13:04
Kyle Pearce
Many say investing 15% of your income into investments per year is sort of a good goal to have. We always suggest if you can do more, that’s only going to make your life better in the long run. But ultimately you can make that choice. However, if you choose this and you say, I’m going to keep this as this opportunity fund and I continue to send that $6,000 into this participating whole life policy, and I do that for another five years.

00:22:13:04 – 00:22:55:16
Kyle Pearce
We’re not going to show the entire year by year here. We’re just going to show this growth. It’s like when you see in year ten, all of a sudden you’re like, okay, I’ve done it ten years. It’s easy to see that you’ve put 60,000 and it’s grown in value to $71,814. And the beauty is, as we mentioned back on episode 20, that a participating whole life policy is one of the safest assets out there, which means that the insurance company has contractually guaranteed to you, John, that if you want to borrow against this policy, not take money out of the policy, borrow it against you can take money out, but that may trigger a taxable

00:22:55:16 – 00:23:14:07
Kyle Pearce
event. It may cause the policy to now end and the compounding now stops. If I borrow against that, I can decide to take that money and I can put it into some other opportunity. That’s why we say it’s kind of like an emergency fund that’s now morphed into an opportunity fund.

00:23:14:10 – 00:23:34:05
Jon Orr
But also, no questions asked is the benefit of the policy loan. Right? So all you’re going to do is you’re going to call up your visor. Are you going to call up the insurance company whose policy this is with and say, hey, I want to have $70,000 of my cash value as a policy loan and boom, they’re going to write you a check with no questions asked.

00:23:34:09 – 00:23:50:02
Jon Orr
Exactly. And then saying going to the bank and asking for a loan or getting renegotiating a mortgage to pull equity from that, you’ve got now your $30,000 sitting there as your emergency fund, but now you have an extra $41,000 in this kind of opportunity fund.

00:23:50:04 – 00:24:11:01
Kyle Pearce
Yes, absolutely. And the beauty is, is that at about if I continue doing this when I hit about year 12, you hit a spot where that dividends typically are high enough each year where you can literally stop funding the policy if you choose. But I’ll argue that when you get to that point, that’s where the machine becomes most powerful and you’ll probably want to continue.

00:24:11:01 – 00:24:32:09
Kyle Pearce
The only reason why you would stop and say, Hey, listen, just send the dividends to pay the policy. I’m not going to put any more money into this thing and just let it ride. It will just continue to compound at that 4 to 4 and a half, 5% rate, depending. It’ll continue doing all those things. But you’re losing that extra gas that you could put in the engine, right.

00:24:32:09 – 00:24:47:14
Kyle Pearce
By throwing in that extra money. So it’s actually nicer to be able to throw in more money later so that you get the benefit and you still have that access. John, you had mentioned they don’t ask any questions. The only thing they ask you is where do you want to put it right? What account do you want to put it?

00:24:47:16 – 00:25:09:17
Kyle Pearce
And you get up to 90% of the cash value. Now, some people are like, I want 100. Sure, you can’t collapse the policy. Say, Listen, I just want $71,814, send it to my bank account. No problem, no issues. The only thing they ask is where do you want it to go? But now you’ve now sold your machine. The compounding machine has now been sold.

00:25:09:19 – 00:25:34:23
Kyle Pearce
You can do it all you want. You will be subject to tax of over and above the $60,000. So you’ve made money in here. So this now becomes an investment instead of a tax sheltered machine that upon death will pay out a tax free benefit. And we’re talking about this in a personal name. The benefits are so much better inside of a corporation as well.

00:25:34:23 – 00:25:57:03
Kyle Pearce
Not saying it’s not worth to do personally in this sort of context, but just keep that in mind is that this is a tax sheltered machine. And the goal should be that this thing only is closed when the person whose life it is insured on passes away right. I know that’s kind of sad to think about. You’re like, Oh, man, let’s look at how this thing grows, though.

00:25:57:03 – 00:26:21:06
Kyle Pearce
John I get to year 20, I put in 120,000 and now this thing’s grown to 191,000. And again, this is super safe. So we’re not saying, put all of your money in this or all your eggs in this basket, but if you want to accomplish one goal and then continue to have sort of this safe place and an opportunity fund that you can use when the right opportunity arrives, Right.

00:26:21:06 – 00:26:39:15
Kyle Pearce
So you go, holy smokes, there’s this great opportunity to invest in this building over here. I could pull money from here, use that as the down payment, and then take the cash flow from the building and start funneling it back to the policy loan. I don’t have to do that. You don’t have to do that. But I would argue, why wouldn’t you do it?

00:26:39:17 – 00:27:07:06
Kyle Pearce
And then ultimately, at some point when you are ready to start taking money back, you can decide to start paying yourself this tax free income by leveraging this policy. So it is such a fantastic machine. And just to give people an idea of what’s possible, All right. We’re not going to go in depth. But if anyone is curious about this strategy, I really encourage that you reach out to us over at Canadian Wealth Secrets dot com forward slash discovery.

00:27:07:08 – 00:27:29:19
Kyle Pearce
But ultimately I ran a scenario just showing we’re not S&P guys so we wouldn’t necessarily do this but we do use this strategy with real estate. Okay so that’s how we do it. But we just pick something. We’re like, listen, most people are probably invested in the market somehow. The average rate of return is about 10.7, 6% over the last 50 years.

00:27:29:19 – 00:27:53:07
Kyle Pearce
That’s on average that I mean, some years are way negative, some years are way above that. And it averages out. We’re just going to pretend it’s nice and smooth, even though it’s not. And in that sixth year, once that fund has been created, if I start taking all the additional available cash value and I borrow it, so I take my 90% that I can borrow, I’m going to have to pay some interest on that.

00:27:53:07 – 00:28:12:06
Kyle Pearce
Right. And I’ve accounted for that here. And those who were on YouTube, you can see this spreadsheet. Reach out to me if you want it. I’ll send it to you if you want and you want to analyze it yourself if you’re a fact finder like me. But ultimately, as you see here in the sixth year, that’s the first year I start investing in the S&P.

00:28:12:08 – 00:28:33:01
Kyle Pearce
I don’t have a ton to invest and only have 30 $700 to invest, but by year to now, that fund gets bigger and bigger. My fund now grows to 10,000 by the time I get to year ten, which is only four years into investing, right? That’s my five years to invest and then I guess, sorry, another five years investing in the market.

00:28:33:03 – 00:29:09:02
Kyle Pearce
I’m up to 34,000 in that S&P 500 fund. And when I compare if I did the same by just socking away 6000 a year in my emergency fund and then starting to take the 6000 that I put in the policy and I put it straight into the market, when I go all the way down, you’re going to notice that upon death, when this death benefit pays out tax free, I’m going to have a net death benefit that is always going to be significantly higher than if I was to just go straight into the S&P.

00:29:09:02 – 00:29:34:12
Kyle Pearce
So this is the super charged machine here that we have. I’d like to call it super compounding, because I had this compounding emergency fund. And by the time we saved that value up, I’m now going to take that and then compound it over here in an even more aggressive compounding machine. Again, not our strategy to go into to the S&P, but it doesn’t matter what the asset class is.

00:29:34:14 – 00:30:15:10
Kyle Pearce
If you compare the rates, you’re going to find something similar taking place. Right. So the beauty is if let’s say I’m lucky enough to live until I’m let’s call it, I’ll say 80 years old, I hope I live longer than that. The average person lives longer than that. I am going to walk out. If I did this strategy consistently every year and our assumptions remain the same about the S&P 500, my net death benefits going to be $2.3 million if I use the Supercharge strategy, whereas if I decided to just save my emergency fund and then invest the rest, I would be left with 1.9 million.

00:30:15:12 – 00:30:44:13
Kyle Pearce
So we’re looking there and the longer you go, the bigger the gap becomes. If I make it to 100, that would be amazing. I’d be at 15.4 and change million. And doing it without the super charge, I’d be at 14.8 million. Now that’s with one possible example. You can imagine if you’re a real estate investor thinking about investing in other alternative assets, maybe your private lending and you take some of that investment and you take your cash flow and put it back on the policy loan.

00:30:44:19 – 00:31:04:07
Kyle Pearce
These numbers are going to explode from here. But if this is intrigued you, I’m always geeked about it. I’m sure people can hear it in my voice. Reach out to us at invest teacher dot com forward slash discovery and I’d be happy to run your specific scenario for you and describe some of the nuances here that you might be wondering.

00:31:04:09 – 00:31:23:09
Jon Orr
Well we hope that this snapshot of what’s possible around your emergency fund provided you a little bit of value. We hope that in this episode that you were going to learn about how to start your emergency fund, how to make sure that it was used so that you’re not leaving money on the table, and then what vehicles we can use to supercharge it.

00:31:23:09 – 00:31:41:02
Jon Orr
And we hope that you got that snapshot here in this episode today. So if you do want a little bit more information or you want to run through a scenario just for you, you do what Kyle just said, head on over to investor teacher dot com for such discovery and we can sit down and go through a scenario just for you.

00:31:41:04 – 00:31:43:17
Jon Orr
But other than that, Kyle, I think it’s ready for class.

00:31:43:17 – 00:32:13:14
Kyle Pearce
Dismissed. All right, my friends. Class dismissed. Just a reminder, this content is for informational purposes only. You should not construe any such information or other material as legal tax, investment, financial or other advice.

00:32:13:16 – 00:32:29:01
Jon Orr
Just as a reminder as well, John is a mortgage agent with Brick’s mortgage license. m23006803. And Kyle is a licensed life and accident and sickness insurance agent with Pan Corp team that includes corporate advisors and Pan financial.

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