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Misfit Entrepreneur 15: Kelly Roach

Dave Lukas Chats with Mark Willis

374:  How Anyone Can Be Their Own Bank and Build True Wealth with Not Your Average Financial Advisor, Mark Willis
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This week’s Misfit Entrepreneur is Mark Willis.  Mark is a man on mission to help people think differently about money.  He is the founder of Lake Growth Financial Services, a three-time #1 Best-Selling Author, and host of the Not Your Average Financial Podcast.

After graduating with six figures of student loan debt and discovering a way to turn his debt into real wealth as he watched many people lose their retirement savings and home equity in 2008, Mark set out to help his clients take back control of their financial future and build their businesses with proven, tax-efficient financial solutions unknown to most financial gurus. As a result, he has become known as “Not Your Average Financial Planner!” and helped hundreds of clients and entrepreneurs radically change their wealth path for the better.

I’m excited for him to share his methods and ways to maximize your income and become debt free.  

www.KickstartWithMark.com

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Show Notes

Like many people, Mark didn't know much about money as he went through school and wasn’t taught much because schools generally don’t.  And like most, ended up with some hefty student loan debt – over $100k worth.  Nowadays, though his methods, he’s been able to wipe clean all that debt and not just get out of the debt, but be better than debt-free.  These strategies are what he uses with clients and even have trademarked them. 
 
Mark works with business owners, real estate investors, even NFL Super Bowl champions. But most clients are people looking for more control, certainty, capacity and potential realized in their life. And that's what he loves doing all day long in working and serving his clients.

You're known as a sort of contrarian financial expert.  What is your philosophy on investing in wealth building?
  • The traditional “hope and pray” strategy doesn’t work.
  • There is now evidence with the 401k being around since 1981, it’s so young that the 401k is not even old enough to retire yet, and yet we have this grand experiment with $20 trillion baked into these things called IRAs and 401ks and other government sponsored retirement accounts.
  • We are really a nation of speculators.  The average 401k balance if you're over 55 is under $100k And if you're younger than 55, the median balance of a 401k is just under $45k. That’s not close to enough.
  • On top of that, even a small amount of fee eats up over 30% of the gains during a lifetime.
  • Most people don't realize that we have this statement we get from our 401k or our real estate portfolio or whatever it is. And we think average rates of return are somehow meaningful. They're not, they're meaningless. And yet we hang our hopes and dreams on this average rate of return - this is the typical way of doing retirement planning
  • Mark uses strategies that remove these risks and put more control into the hands of the investor.

At the 10 min mark, we have a great discussion on the longer-term future of the economy and investing in general.
  • Think about what in history mimics the present.
  • The Lindey effect – the longer something has been around, the more likely it is to stay around.
  • There will always be money.  Read “Debt, the First 5000 Years” by Graber.  We should look into the past of what has stood the test of time as money.
  • A perfect example of this are insurance contracts.  These go all the back to the Roman Empire.
  • This makes you ask, “What can we do for building wealth with an insurance contract?”
  • And contracts are the basis of civilization.
  • 401Ks are not a contract with your money that define an outcome. 
  
You're a big proponent of the bank on yourself principles. And I think a lot of people have maybe heard the term before, but they're not sure necessarily what it means. Explain what Bank On Yourself is and how it works…
  • It's a modernized variation on a hundreds year old financial asset that has grown every single year, regardless of what the stock market's doing.
  •  And regardless of what the bond market or real estate market is doing, it grows every single year.
  • It's dividend paying whole life insurance of all things.
  • Mark at first brushed the idea off, but then studied.
  • The most important thing is to design it properly.
  • And if designed property, it is TGIF.
    • Tax advantaged.
    • The cash value grows guaranteed. It grows on a predictable basis, again, outside of the markets
    • Third, this is life insurance. I stands for insurance and you'll leave your family more than you've saved for them inside the policy.
    • F is for financing.   This allows you to be your own source of financing and borrow against yourself making you the bank while the money continues to grow, even on the amount you borrow.

As an example:  Let's say I've got $200,000 of cash value, and you borrow out $180k to go buy a real estate deal. The policy will continue to grow and compound on the full 200,000, even though you’ve borrowed out the $180k. And of course, the $180k is doing its work in that real estate deal as well.   You have complete control to repay that loan to the policy and can set up a repayment plan or not. If you never pay off the loan, they just deduct it from the death benefit when you pass away.

At the 29 min mark, we discuss this in more detail…
  • 4-6% return is pretty typical on these programs.
  • If you borrow, you have to pay an interest rate which is higher than the return, but your return is paying for a good amount of it and you are paying yourself.
  • Let's say that you borrow that money out and it's at a rate of 7%, right? If you went out and got a mortgage, you're paying 7.5% on that. But in a model like this, you're really only paying about 2-3% or a little bit less because you're getting that 4-5% you know that's growing in there effectively Reducing your interest rate.
  • It can be better…at the 32 min, Mark explains the arbitrage. 

I've heard you say that you can make it so that even if someone runs out of money, they don't run out of income. Explain that.
  • This is one of the biggest concerns people have – running out of money in retirement or outliving it.
  • Insurance contracts play a role.  Annuities have been around thousands of years. 
  • Let's say that you've got five bank on yourself designed policies and we structured them right.
  • And let's say that you're at retirement. Let's say you've got 3 million bucks in all these policies. That's money you can spend as a stream of income. You decide because you want to, that you're going to take that two of those five whole life policies and do something called a 1035 exchange.
  • Now it's a lot like a 1031 exchange if you're familiar with real estate, but a 1035 exchange is a tax-free rollover from one insurance contract to another. It's the same part of the tax code.
  • You can convert it into an annuity with that company or a different company that then automatically starts to spin off monthly income that lasts as long as you live.

What is the downside?
  • There's insurance expenses with everything, you know, so don't do to get rich quick.
  • This is a long-term financial tool that's meant to be dealt with over many years, maybe your whole lifetime. It's meant to be sort of slow and steady, consistent yield that you can count on.

What are like three red flags that a policy like this or a set up like this is being done wrong that people should know about?
 
Mark Willis, CFP® (35:32.502)
  • If you have what's called a direct recognition life insurance company, that just means that they recognize that you took that loan and they won't pay you the same dividend, they'll cut your dividend. So, in that example we mentioned earlier, if you borrow out $180k, you're only going earn interest on the remaining $20k.
  • You want to make sure too, that it's whole life insurance and not another type of cash value insurance.
  • Make sure that you have something called a bank on yourself professional designing this thing. He or she can build the whole thing to spec.

Dave Ramsey has the debt snowball method. You have the debt snowbank method. I think I know where this goes, but explain the difference.
  • There is a four step process in the debt snow bank method
  • Step one, keep current on all your debts, don't go behind on your debts.
  • Step two, throw everything extra that you can that you might've otherwise thrown on your debts, throw into the Bank on Yourself policy instead. The policy begins to build wealth in the first month, in the first year and so on. So if you can imagine there's this big pile of debt and it's only coming down slowly as you pay your minimums, but you're also flooding your whole life policy or policies with cash value. So that's a pile that's growing.
  • Step three, borrow against the policy and wipe out your debts when it has enough to pay off your debt.
  • Step four, pay back the policy loan on a payment plan that you choose, that you're in control of.  Do this over and over again until you're completely debt free, in fact, better than debt free because you have the asset of the whole life policy earning interest and dividends for you all along the way.

Another thing that I've heard you talk about before is there's somehow a relationship between Mount Everest and retirement somehow. So how does Mount Everest have something to do with retirement?
  • When looking at statistics of deaths on Mount Everest, according to National Geographic, 85% of deaths are coming down the mountain.
  • Retirement is coming down the mountain.  This is when you're spending money, for groceries, for grandkids, etc., in your retirement years, you don't have the luxury of floating over all these nice market downturns. When the market goes down, it's like a double pain. You get the market madness and you got you taking money out for groceries.
  • You still have to eat even when the markets are down. So this creates something terrible called the sequence of returns risk.
  • Coming down Mount retirement is also the worst time for your investment planner because he or she is getting paid less as you spend that money. So how motivated will he or she be to help you or return calls when you're in trouble?
  • So again, annuities in life insurance contracts are a great option for smoothing out risk.
 
Top lessons that you've learned on your entrepreneur journey that you feel are really important for our listeners and people that are watching?
  • Mark has enjoyed the experience of trying to reach for his potential.
  • That's been probably the best unique experience of an entrepreneur's journey is you get to explore where your potential reaches to.
  • When you are somebody else's cog in their machine, you just punch that clock and you do your thing.
  • Potential is such a beautiful thing - When it's activated… it's a horrible thing when it's not activated.  Having your potential activated is a, is a very empowering thing.

Best Quote

  • The Lindey effect – the longer something has been around, the more likely it is to stay around.
    There will always be money.  Read “Debt, the First 5000 Years” by Graber.  We should look into the past of what has stood the test of time as money.
Misfit Three

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Epictetus said, "'It is impossible for a man to learn "what he thinks he already knows.'" It's impossible for a man to learn what he thinks he already knows.  Upton Sinclair said, “It's impossible to convince someone of something if their salary is dependent on them not being convinced.”   Be open-minded enough and keep learning.

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Elizabeth King said, “Process saves us from the poverty of our intentions.”  Put processes to help you succeed in your life and be disciplined with them.

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 Aldus Huxley said, “There's only one corner of the universe you can be certain of improving, and that's your own self.” Take control of your life and success and continue to improve.


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