The following webinar and transcript is based on the Maximum Potential Earnings Calculator. The calculator shows your potential lifetime income, (basically all the money that will pass through your hands in your lifetime), as well as demonstrate the detrimental effects of taxes and debt service on your total potential income. You will be amazed at how little of your hard earned money you will keep in your lifetime. But we will also present a solution that will provide you with an opportunity to correct your course and become a true wealth builder.

Your Maximum Lifetime Potential Earnings [Avoid Taxes & Debt to Build Wealth]

You can watch the video below and follow along with the transcript to follow. You can also use the calculator here to estimate your maximum potential lifetime income.

Thanks for joining us. Really excited. We got a short webinar that thrilled to bring you here in our joint venture with Insurance and Estates at Barry Brooksby here with the Focus Wealth Group and talking about a great topic that I know I want to continue to pick Barry’s Brain about. This is the max potential, right Barry. Welcome and what do we have to talk about with the maximum potential calculator today?

Barry:

Yeah, thanks Steve. Appreciate being on and doing another webinar together. The purpose of the maximum potential calculator is to show people the amount of money that’s running through their hands throughout their lifetime and then the effects of what’s happening to that money. And at the end of the day, what do we have to hold onto? And our goal, frankly is to teach people how to hold on to more money. I love what Robert Kiyosaki said in his book, Rich Dad, Poor Dad. It’s not just about the money you make, it’s about the money you keep. And that’s what we’re going to be going through today.

Steve:

Awesome. And this has to do a little bit with pay yourself first too, right Barry?

Barry:

Yep. Pay yourself first, planning for retirement, what you game plan, all that comes into play here. And what we want to look at, Steve, is an illustration period over a 30 year time frame and many different people are going to be looking at this that are different ages. So you could consider, well this could be a 30 year old looking through the age of 60. This could be a 45 year old looking through the age of 75. So the point is, wherever you’re at today, move forward. Or let’s say you’re 50, you could back this up 10 or 20 years and run 30 year time frame throughout your life and say, “Well, I’ll do this, but I’m going to back it up to 30 and run it through the age of 60.” But the idea is a 30 year time frame. And what we want to consider is someone earning 150,000 a year. Obviously these numbers will be different for everyone as well. And over that 30 year time frame, if we do nothing else, what I really want to point out here and make sure people understand is over here on the right, that total income number is four and a half million dollars. And what’s interesting is most people don’t think about this. Most people don’t think over the next 30 years I’m going to have four and a half million dollars running through my hands. Pretty cool to see.

Steve:

It is. It’s just starting to get a handle on thinking differently about your money I would think.

Barry:

Exactly. And then we take it one step further and say there’s going to be raises, there’s going to be inflation or increases of income over this time frame and I’m going to use a simple moderate 3%. And now 7.1 million is what’s running through someone’s hands.

The question then becomes, what if you could save and invest all this money? We know that isn’t possible because we have to live, but what if we could save and invest all this money and earn a conservative 5% return on this money? What used to be four and a half million is now 14.9 million. Again, look at all this money flowing through your hands that you have the potential to earn and where’s the money going? What are you going to do with it throughout your lifetime? The problem lies in the fact that we can’t hold on to everything we earn. We have to live. Or there is expenses. And the number one eroding factor that we have, any of us for the most part, is taxes. And so we’re going to come up here to the cost ratio category. We’re going to click on total taxes, and I’m just going to use a national average of 40%. And here’s what I mean by this. I’m not just talking about state and federal taxes that we pay. I’m also talking about property tax, cell phone tax, utility tax, gasoline tax, all these taxes we pay. And this is probably low considering, because a lot of people making more money are paying more tax when you look at all things considered. So 40% national average and notice what happens, Steve. 14.9 million, which was our potential, has now been eroded to 8.9 million.

Steve:

Yeah. We talked a little bit at Insurance and Estates over a few different levels about the impact of taxes. So that’s something that this illustrates pretty powerfully.

Barry:

Yeah. And it’s no wonder that people are looking at moving somewhere else that has a better tax benefit or doing other things that I’ll get into in a few minutes to minimize that tax burden. But the second thing we want to look at now is debt service. This would include mortgage interest, student loans, car loans, lines of credit. The national average on debt service is 35%. Again, it’s taking our 14.9 million total income and it’s reducing it to 3.7 million.

Steve:

Yikes.

Barry:

Yeah. And look at the credit card debt alone in this country (Over 1 Trillion for the first time ever) Got to address the taxes, got to address the debt. And lastly, we look at lifestyle. National average here is 23.5%. And you could argue that maybe some of this lifestyle falls into the debt category, but we have to live. We have mortgage payments or car payments or student loans, whatever the case might be, but we also have to live with food and shelter and other things like travel and those things we enjoy doing. 23.5%. And what we’re left with now is a net savings rate of 1.5%, which whittled our 14.9 million down to 223,000. Now, what’s the number one fear of our retiree today?

Steve:

I’m going to guess running out of money.

Barry:

Exactly. You’re correct. And many, many others share that same sentiment. It’s even been studied and that is true. The fear of running out of money. Well first off, not only is 223,000 in retirement not enough to live on, but even if someone had more than that, that fear of running out of money, people don’t spend and enjoy what they have, unfortunately. And that’s another thing we teach them how to do here at Insurance and Estates, to enjoy retirement, to spend and enjoy the money they have, but they’re not going to be able to do that on 223,000 if that’s all they have in retirement.

Steve:

Just thinking about people redefining their views about money, and this is really a great way to start doing that, I think.

Barry:

It is, and it really shows the impact of these eroding factors. But more so I want someone to see this and be a little bit shocked, frankly. I want them one to be shocked by, oh my gosh, I’ve got almost $15 million potentially running through my hands, number one, but two, if I don’t do something to fix the problem, there’s not going to be enough money in retirement. So we’re going to talk about solutions to the problem. However, the typical financial planning advice when they look at this is, well, the problem is this 5% earnings rate. You need to take more risk on your money. You need to be more aggressive. You need to invest dollars where you’re going to get a higher rate of return. And I’m going to change this. We’re going to double it to 10% and see what happens. But what’s the problem with taking more risk on your money?

Steve:

Potential for loss. And I know you’re going to get into that.

Barry:

Yeah. If you lose, it takes longer to climb back up to where you were. Getting back to even. The other thing, that’s a myth we hear often, higher risk equals higher return or higher risk equals higher reward. What typically happens with that strategy is what you said, higher risk equals higher loss or higher probability of loss. And if you’re a business owner or you have a great career, your highest rate of return most of the time for most people is in their own business or in their career. And so I often ask the question, why take more risk if you don’t have to? If you agree that your business is your highest rate of return, there shouldn’t be a reason to take any risk anywhere else. Therefore, you can invest money guaranteed. You can have tax free use of money and grow money in a more protective way rather than relinquishing control of your money and taking more risk.

Steve:

Right. Barry, isn’t this a problem with say a 401K? I mean obviously you’ve got tax deferment. You could kind of argue that. You can make a pretty strong argument, it doesn’t really benefit you, but then you’ve also got the risk of loss in that type of a scenario. Correct?

Barry:

You do. Among not being able to access your money till you’re 59 and a half and we don’t know what future tax rates are going to be. So the tax deferral isn’t a tax savings today. It feels like it because you’re not paying tax on that income right now, but essentially you’re kicking the tax can down the road. You’re in a partnership with the government and they’re the ones that are going to dictate what the future tax rates are going to be. So my personal opinion, nine out of 10 times, I don’t want to say 100% of the time, is to pay your tax today and then grow your money tax free so you don’t have to worry about what the future tax rates are going to be or deal with volatility.

Steve:

And just for people listening, there’s just a lot of resources on the website talking about the 401K question and these kinds of retirement planning concerns. So you’re hitting close to the heart here, Barry. But anyway, I know you’ve got a little bit more to share so how do you solve the problem, right?

Barry:

Yeah. And that segue into what a traditional or a typical financial advisor would say is you have to earn a higher return. So I’m going to put 10% here and I want you to notice what changes here in the savings rate. You would think, oh, I’m going to earn a 10% return. This is going to be incredible. Well, the $223,000 only moves to $531,000. Just because you earn a higher rate of return and take more risk doesn’t mean you have a better impact because you’re still dealing with taxes, debt service and lifestyle and that we have to live. My advice is invest conservatively or guaranteed, don’t take the risk, but let’s work on the other areas of your life that you have more control of like taxes and like debt. Well, here’s what I mean by that. I’m going to reduce the 10% back down to five.

We still have our savings now at 223,000. And let’s work on the first thing which is taxes. What if you could reduce your taxes by 10%? And I’m not saying 40 down to 30, I’m just saying 10% of 40, which would only be 4%. That’s it. And the way you might consider this, if someone’s saying, “Well, how do I reduce my taxes?” There’s a lot of ways you could look at corporations or setting up an LLC or an S-corp. Maybe you get a more aggressive CPA. Yes, you want to be moral and legal and ethical, but find a CPA that’s more aggressive or a good accountant. Maybe keeping your books straight and really getting every possible deduction you can or even owning a business. As a business owner, setting up your corporations correctly, that one move alone right there will help save a lot of taxes.

Steve:

Yeah, that’s another Kiyosaki point. Everybody should have a business.

Barry:

That’s right.

Steve:

A lot of his logic is exactly what you’re saying too in saying that.

Barry:

And it makes more sense. There are natural tax benefits from owning a business and being a business owner. So if we reduce the taxes from 40 down to 36%, watch what happens to the net savings rate. The net savings number is now 820,000. Steve, that one move alone was better than earning a 10% return in the market. Because remember, the 10% return only grew that savings number to 531,000.

Steve:

And I like that you’re using 10% because that’s commonly touted it seems like as far as averages and these kinds of things.

Barry:

And historically speaking, if we look at say the S&P 500 just over the last 20 years, it’s only averaged 5.6%.

Steve:

Barry, a question came up. If somebody sees that the 10% didn’t have that much of an impact, but you’re including the same percentage of debt service and lifestyle in that, I could see an analytical person listening saying, well, that maybe would’ve stayed the same when the 10% increase would’ve increased. So how do you respond to that? Is it that people spend up to the level that they make anyway? Is that the logic?

Barry:

That’s a piece of it for sure. We all have a propensity to spend. And I’ll talk to people earning 50,000 a year or 500,000 a year, and some of them will tell me they’re broke, right? It’s like whether you’re earning 50 or 500, some people feel like where’s all the money going? And it’s that propensity to spend. But the other logic … And I’ll pull this calculator up.

Steve:

And naturally the debt service probably does match whatever you’re … Because you’re going to have maybe a better house or whatever.

Barry:

That’s true. And as I mentioned, here’s the S&P 500. This is 20 years of history at 5.6%. When I put it into a cashflow calculator, there are other things that we have to factor in. Because you mentioned 10%. A lot of people talk about, well, I can average 10%. This is showing that the S&P’s only done 5.6. If we put real money into this … Let’s say you’ve got a half a million dollar portfolio and in addition to that, you’re going to continue to put money into this investment at a thousand a month or 12,000 a year. What we see is when we look at the rate of return, here’s the S&P 500 average.

Steve:

What’s that based on Barry? Just for people that are watching. Because pretty shocking to a lot of people I’d imagine.

Barry:

It is shocking. I simply pulled the 20 year history of the S&P 500.

Steve:

Up to current?

Barry:

Up to current. Yeah, last year.

Steve:

Interesting. You can take a lot of liberties with averages, right Barry? I mean you could say it’s 10% average and you can finagle the numbers to come up with that.

Barry:

You could. You could look at different time periods in history. What I see often are these new indexes that are created that have a three-year, five-year history, and then they’ll take that three to five-year history, which looks pretty good, and they’ll multiply it over 20 years to say, well, now here’s your average. When in reality, the index has only been around for three to five years, so it’s not a fair comparison. Here in the blue, I really did use the 20 years history of the S&P 500.

Steve:

And people are relying on that for their retirement. It goes back to their concerns.

Barry:

It does. And when you put real money into it, now we’re talking about an actual rate of return of 4.7%. See, average doesn’t mean actual. When you put real money into the equation, and we have what’s called sequence of returns, the dollars are moving up and down. And when we look at that up and down movement, we have an actual return of 4.7. But Steve, it even gets worse. And my point of this is when we factor in say a fee, whether it’s a brokerage fee, a management fee, a marketing fee, or even a 401K fee on a mutual fund, you have to put that number into the math. I’ll use one and a half percent, which frankly is very conservative. And then taxes. So if someone’s say in a 28% tax bracket, now what they thought they were earning, 10% was 5.6 average, has now been eroded to 2.6 actual.

Steve:

Interesting.

Barry:

More on this later. Maybe in another webinar. So coming back to maximum potential, taxes do play a major role. And you can see we’ve increased our savings to $820,000 by simply reducing taxes by that 4% number. 10% of 40%. The second thing we want to look at now is the debt service. Not all debt is bad, and I really want to emphasize that. There is productive debt. Business debt, real estate debt. I mean if you’re cash flowing, that’s good debt to have. So we’re not going to reduce debt service down to zero, but we’re going to cut it in half. We’re going to put it here at 18.5%. And that one move alone, look at the difference. 3.2 million. Well, how do you cut down debt service? One, and we talk about it a lot here at Insurance and Estates, and that is become your own bank. Stop paying interest to the credit card companies or the leasing companies. Stop paying interest to hard money lenders for real estate bills. We could go on and on and on, but you become your own bank and now you capitalize on interest. The other thing is simply be smart. If you have consumptive debt or destructive debt, try to get rid of it as quickly as possible.

Steve:

And when you’re talking good and bad debt, typically you’re going to see a big difference in the rates. Not always, but a lot of the time.

Barry:

That’s true. And those people that usually have good debt also have more assets. Now, to be fair, we’re not going to even touch lifestyle. We’ll just say you keep living the same way you’re living. Going back to where we started from, a 14.9 million flowing through your hands, and now instead of only holding on to say 200 grand, 3.2 million is going to feel much better in retirement if you’ll look at the holistic picture. See Steve, too many people, they’re only focused on a rate of return. That’s it. I hear all the time talking with clients across the country, “What’s my rate of return?” Yes, that’s important, but if that’s all you’re focused on, you’re missing the bigger picture. So we want to take a holistic approach and look at everything.

Steve:

I love the holistic approach. That’s obviously a big thing for all of us here at Insurance and Estates. And I’ve heard it so often Barry, and with sometimes people that have some assets and are fairly well off, we will say, well, I can get this return or that return. It’s a very commonly touted thing, and we could talk a while about that. I think there’s some reasons why returns are always emphasized because they’re selling points, right?

Barry:

They are. And in a properly structured infinite banking policy like we propose, five percent’s very realistic, but 5% in that type of plan is also tax-free. It’s also mostly guaranteed and liquid. So there’s a lot that someone can do with that. The focus on the calculator today, what this helps us look at, is number one, the amount of money that you have, the potential of earning throughout your life, two, the eroding factors that take away from that money, and three, what you can do to hold on to more money. That’s what I hope we’ve helped people see today.

Steve:

Interesting. So kind of a shift in thinking, Barry, from what kind of rate of return can I get on everything to what exactly is wearing away at and depleting the money that’s going through my hands.

Barry:

That’s correct. And at Insurance and Estates, that’s what we help people do. We want to help people hold on to more money.

Steve:

Awesome. This is good. I hope people that are listening just process the numbers. We’re striving to just demonstrate this and it seems like we talk a lot, Barry, about people reconsidering or reworking the mindset around money and wealth building, and I think this is a big part of it. Great demonstration.

Barry:

Thank you. Appreciate you having me, Steve.

Steve:

Well as always guys, we are going to have a lot more topics touching on different aspects of infinite banking and things that are part of that, which is understanding how money works. If you want to take a next step, learn more about it, get some things figured out in your own journey, then click the button below the webinar and schedule an appointment directly with Barry to get into some details and take next steps. So we invite you to do that. And again, thanks so much for joining us.