Boom, shake the room, Fire Nation. JLD here and welcome to Entrepreneurs on Fire. Brought to you by the HubSpot Podcast Network, the audio destination for business professionals with great shows like Marketing Made Simple. Today, we're pulling a classic episode from the archives and we'll be breaking down from borrower to business owner how to leverage debt to secure your financial independence. To drop these value bombs, I are brought to Eric Brotman in the EO Fire Studios.
Eric is the CEO of BFG Financial Advisors, host of the Don't Retire graduate podcast, author of the Don't Retire graduate book and regular contributor to Forbes.com. And today for Nation, we talk about how it's not morbid to protect someone's human life value, how to leverage your opportunities and start immediately. Don't wait until there's a trigger event to do this. Time is on your side and so much more. And the big thank you for sponsoring today's episode goes to Eric and our sponsors.
Success Story, hosted by Scott D. Clary, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Success Story features Q&A sessions with successful business leaders, keynote presentations, and conversations on sales, marketing, business startups, and entrepreneurship. A recent episode discussing the billion dollar health secret with the founder and CEO of Whoop is a must listen. Listen to success story wherever you get your podcasts.
I have a question for you, Fire Nation. Do you feel like your life is optimized or do you feel like you're leaving a lot in the table when it comes to health, wealth, and relationships? If you think you could use some personal guidance in optimizing your life, let me help. I've created a program called Optimize where I will personally work with you one-on-one to get to know you, your life, your goals, and your dreams. If you want to learn more about this program, visit eofire.com slash optimize.
Eric, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with. Well, what's up Fire Nation? I would say that the one thing that I believe about becoming successful that most people disagree with is that you have to somehow not be born with this.
So at the end of the day, I think a lot of people think you have to be born with some kind of silver spoon in order to go be successful. And I absolutely disagree with that.
I think it's all bootstrapping. It's all starting yourself. Let's talk about startup capital because getting startup capital is tough. I mean, it's definitely a struggle that many listeners right now are just like, I want to do this thing, but I just need this much money to get going just to get that ball rolling. And you know, one thing that's, I know a lot of business owners, myself included, I've realized is getting that first $10,000 like into your business, into your bank account.
It's harder than going from $10,000 to $100,000 and so on and so forth. So can you share how you made a life insurance policy your startup capital when no banks would lend to you? Absolutely. I mean, I find it amazing that banks will lend to students for student loans when they have no collateral at all. But when you're trying to start a business that's for profit, that's to say, sorry, we won't talk to you for two years until you have tax returns and can prove you're making money. Right. It's really absurd.
For me, I had the good fortune to have parents who bought life insurance for me when I was a teenager. And they gave it to me when I graduated from college and said, this is yours now and you're responsible for it and take care of this. And it had enough money in it and it wasn't a ton, but it had enough money in it.
that I could use for collateral that when every bank I tried to talk to and credit unions and you name it said no, it was an opportunity to use my own cash value and to essentially borrow against my life insurance, which was perfectly fine. I didn't have a, I wasn't married. I didn't have children. I didn't need the death benefit so much. So the cash value was right there. And I was able to use it favorably in a way that was interest only.
It made a huge difference when I started the company. I borrowed from everywhere, but that was one of the things that pushed me over the top and allowed me to get started. That is completely baffling to me as well. You can, as a 17-year-old, get hundreds of thousands of dollars for your education.
as a 27, 37, 67-year-old person, even with a track record a lot of times, you cannot get money for a business that is literally meant to make money. So you've got to get invents a fire nation, you've got to follow the processes that we're going to be talking about here today. Because one reality is most people, they only see life insurance as a death benefit.
which is why they're like, oh, I can wait off on that because I'm not going to die. Like I'm 27 years old. I'm going to live forever like blah, blah, blah. What are some other options beyond what we just talked about that you can utilize life insurance for, you know, again, beyond just a death benefit? I used my life insurance to buy my first home. It was the down payment on my first home. And, you know, subsequently I paid that loan off and I
You know, I didn't have a down payment saved. So I was able to buy a home at that point and I sold the home at a nice profit. And so I consider that that profit on the first piece of real estate I ever owned was at least partly due, if not largely due to the fact that I had this life insurance policy. So, and then I did the same thing to start the company and that certainly paid dividends for many, many years now. And, you know, we've grown this company into a company where banks are tripping over themselves to lend us money.
And it's so ironic that the same people who wouldn't talk to us are now in line for, can I have five minutes of your time? It's an amazing thing. So the life insurance been used for that. We've had clients use it not only for real estate purchases, but for moves. If you're looking to buy a home right now, it is easy to sell one in most areas of the country and very, very tough to buy one. So we're seeing a lot of people who need to buy before they've sold.
And that can be difficult. First of all, it means your equity is still tied up. You may not be able to use your equity toward the new purchase. Secondly, sometimes you won't qualify for the same kind of mortgage without a certain down payment. And if you don't have the equity untapped, you can't use it. So using a life insurance policy to buy that home, which then gives you the time to sell your home after you found one, it's very, very positive. It's a really a creative action.
Let's maybe use as specific in numbers as we can here to kind of give people an idea, like maybe walk us through your first experience as specific as you're willing to get with like, how much did you actually spend out of your pockets for your life insurance? How much were you able to borrow against that for your first house? And at the end, like about how much money were you able to walk away with in pockets after you leverage that and sold your house into your next thing?
I'm happy to do that. And I'm happy to give you as much specificity as I'm able. The premium on that policy, I was 14 when it was taken out. Premium was like $400 a year. It was really sort of a song. It was not a big deal. Death benefit was only $40,000. So the death benefit wasn't going to change anybody's life per se on the back end. If I had dropped dead as a married person with kids, that would have certainly been inadequate. But the time that wasn't critical.
And I was able to take about $12,000 in cash out against that $40,000 death benefit. And that became a down payment on my home. Now my home was $91,500. The $12,000, which is kind of crazy when you think about it. The $12,000 that I used out of the policy paid a 10% down payment plus some closing costs, which at the time was great. I wound up selling that. It was just a little condominium. I sold it for $225,000 some years later.
And so I walked away with almost, not just double, but almost all of the capital at that point, cause I'd paid the mortgage down, but I couldn't have bought it without that. No one was going to lend me a hundred percent at that time. And of course there was a period in the late nineties where, uh, where, or even in the mid 2000s where you could borrow a hundred percent, you could borrow a hundred, 20% thankfully those days are done cause that hurt a lot of folks. But, um, but yeah, so it was about $12,000 and then it became,
It became 225,000 from the sale of the home. And then you fast forward to where I was starting a company. And now I was starting a company, I was in my early 30s. And at that point, I had already bought additional life insurance and I'd already done additional financing. Right now, I probably have half a million dollars in available capital in life insurance policies right now, if I need to use it. And there's so many ways to untap it. But if there are any opportunities out there,
They're just sitting there. I have capital that I can access even if 2008 happens and banks decide to shut down home equity lines or personal lines of credit or you can't borrow.
That money's sitting there and it's got a contractual guarantee that I can borrow from it at a fixed rate. Think about these numbers, Fire Nation. I mean, $400 a year for a policy. Now, again, there's different times we're talking about, different decades, but $400 a year for a $40,000 life insurance policy.
A lot of people could afford $400 per month if they really made the effort to and were focused on it. Now, this gives you the opportunity to potentially borrow somewhere around the number of $12,000 to put a down payment on a $91,000 condominium that then sells for $200,000 plus $100,000, of which, again, this is all an accelerated timeline. This didn't happen overnight. This happened over years.
But now you've got your start. Now you've got real money, real cash in your pocket that you can deploy in a lot of different opportunities and a lot of different leverage and scalable ways. And we're going to be talking about some really cool other opportunities that you may not be aware of Fire Nation when we get back from thinking our sponsors.
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and optimized life does not happen automatically. It only happens through intentional work and guidance from someone who has reached that level that you are striving for. My goal is to turn you into a fully optimized human based off of your life goals. If you want to learn more about this program, visit eofire.com slash optimize. We'll jump over to call. We'll discuss the specifics of the program. And if we both feel it's a fit, we'll talk about next steps, eofire.com slash optimize.
So Eric, we're back and let's just be frank. There's a lot of people who might think that taking out life insurance for your kids is just a little morbid. But let's pop that bubble. How specifically can taking out life insurance for your kids actually be a tax friendly way to generate wealth and maybe most importantly, especially for listeners of this show, encourage your kids to become entrepreneurs later in life.
So many ways to answer that question, but let me start with the fact that it's absolutely not morbid to protect someone's human life value. It would be morbid if you were buying life insurance on your children in the hopes of ever collecting a death benefit. That would be not only morbid, it would be like unthinkable. The objective here is that when you buy life insurance on your children's lives or even your grandchildren's lives, what you're doing is you're creating an asset that you still own.
So I'll give you a perfect example. As soon as my daughter had a social security number, she had a life insurance policy and a sizable one. And she's now 11 years old and it's fully funded. I paid for it in a 10 year, kind of like a 10 year mortgage on a life insurance policy. It cost me $2,000 a year or so for 10 years. But she'll have it the rest of her life. It's growing tax-free for the rest of her life. And it's still in my name.
so that if I needed the capital, it's still my asset. I haven't gifted that to her because I don't know what she's gonna be like at 18 or 25 or 35. But when I'm ready to, whether it's a graduation gift or it's a wedding gift or it's a, she's become a mom gift or whether I die and she just inherits it from me, it will be a tax-free event. So there are limits to how much money you can give your children and wealthy families try to find ways to get money into their kids' names
to avoid estate taxes and to avoid unnecessary income taxes, this is an asset that is exempt from gift taxes and that you can give to your kids or grandkids at any point just because you feel like it with no tax consequence at all. It doesn't go on the FAFSA's typically, so it doesn't affect financial aid. They don't own it, so it's not one of their assets if they're trying to deal with college expenses or other things.
And when I give it to her, ultimately, it'll be because I feel she's ready to handle it. And in that case, she won't even have a premium. All she has to do is not mess it up. Just don't surrender this. And the other piece of this, just to layer it on, is these contracts, if they're done right, give her the ability between the ages of 25 and 45 years old to buy additional life insurance with no medical qualifications, which means I've preserved her ability to take care of her own self-spouse
kids, grandkids, until she's 45 years old for very little money within three months of her birth. I mean, Fire Nation, these are the ways you need to look at alternate opportunities to leverage the money you have, to protect the people you love, to give opportunities in the future in ways that you might not think there are opportunities. Now, you have three other strategies I'd love to dive into. Now, these strategies, Eric, they're legal.
And they will reduce your tax bill. And it doesn't include Fire Nation moving to Puerto Rico because Eric, I talk about that all the time. Of course, you know, people don't want to keep the money they make. They come to Puerto Rico, but that's not for everybody. Not everybody can do that. So how can Fire Nation learn more about these three other strategies to legally reduce their tax bills and keep more of the money they make? There are four strategies that are available to almost every American family or individual.
And some of them are more obvious than others, and some of them have strings attached. But I published a white paper on this that's available online for free, and I'll give your audience the website for that in a moment. But the four strategies, one of them is talked about all the time. It's the Roth. So whether it's a Roth IRA or a Roth 401k, it's the ability to put money into a retirement plan that will grow
tax deferred for life, and then where withdrawals, so long as you follow the rules of the planner, are tax-free. So you can grow the money and then not pay taxes on the growth or on your withdrawals. That's a big deal. But beyond the Roth, there's the health savings account. The HSA is maybe the perfect tax tool. It's the only thing I know of, the only place I know of where you can make deposits, regardless of your income, you can make contributions that are tax deductible federally. Grow the money and invest it tax deferred.
and then make withdrawals with no taxation at all, so long as they're for some form of healthcare for you during your lifetime. And if you're that one person who is blessed to never need money for healthcare, I mean, I've heard people say, well, what if I grow this to a big accountant and I don't need the money for healthcare? I say, first of all, you're very lucky you win because that's not typical. But secondly, once you're of retirement age, you can use it just like an IRA.
And yes, you'd pay income taxes on it if you don't have health expenses, but it's an option. It's grown all those years. People use the HSA and they hold it in cash at 0%. When you can actually invest it and make it a long-term savings vehicle, it's more powerful than an IRA or a 401k by far. And then the third is the 529 plans, college plans. And yes, they're considered college savings plans, but they can also go now towards private school and there's some other things. The beauty of these plans is they can get outside of your estate
You can make a gift and get money out of your estate without it being a completed gift. So it doesn't go on your children or grandchildren's FAFSA forms or on their net worth. It grows tax deferred forever. And as long as it's used for education, none of the gains are taxed. And it doesn't even have to be for the person you intended. So if you have a son and a daughter and you put a bunch of money in their college plans and one of them gets a full scholarship and one of them doesn't, you can change the beneficiaries once a year.
So you don't have to know for sure that your three year old is going to go to Yale. It's just not necessary. You don't have to know that. And if they don't need it, it can go to the grandkids or great grandkids. It can grow indefinitely with no tax of any type. So long as it's used for education and the things seniors spend the most money on, there's three things. If they're healthy, it's leisure and entertainment. If they're not healthy, it's medical care. And a lot of times it's education for grandkids or beyond.
Two of the three can be funded almost completely tax-free. Sorry, we haven't found a way to do that with leisure and entertainment yet. I mean, Fire Nation, I hope you're salivating. I think of all the ways you're actually going to start being able to keep and save the money that you're bringing in that you're earning. And then just other opportunities that, of course, are out and about when you are dealing with somebody who knows how to operate in the financial sphere.
So, Eric, what is the big takeaway that you really want to make sure Fire Nation gets? What is the value bomb? You want to make sure that we walk away from this conversation. And then, of course, for those in our audience that want to learn more from you, connect with you, be educated more, buy you, how can we do that? And then we'll say goodbye. I would say the big takeaway is start immediately. Don't wait until you have some corpus or some nest egg or some, there's some trigger event, some year.
Time is on your side, start immediately, no matter what, and save and create the habits that you need to do this. And keep an open mind about some of these strategies that maybe aren't routine. They're not talked about at cocktail parties, but they work. Okay. The way to get this information, you can go to lowtaxbook.com and download this paper on these four strategies with details and examples and so forth. It's free. And then we also have for your listeners,
We have built out BFGuniversity.com. We've built out financial literacy courses. And there are two courses right now, online courses available. One of them is free to anyone who wants to take it. It's designed for young adults, even students, and anyone who wants a refresher course. And that's free. And then we also have the first course of the Don't Retire graduate series that's available. And that one, your listeners can use the coupon code Ignite.
and save $20 off that if they are interested in the course. I'm available all over social media. I know you're going to put my information in your show notes.
We're happy to have a conversation with any of Fire Nation about not only these topics, but just generally wealth-building. Fire Nation, you're the average of the five people you spend the most time with. You've been hanging out with EB and JLD today, so keep up the heat. Head over to eofire.com, just type Eric in the search bar, and his show on his page will pop up with everything that we talked about here today. Visit lowtaxbook.com for all that great information that he mentions.
And one more time, Eric, give us that promo code and place they can get that great $20 discount. They can go to BFGuniversity.com, and the promo code is Ignite. Thank you, Eric, for sharing your truth knowledge, value with Fire Nation today. For that, we salute you, and we'll catch you on the flip side. Thanks, Gail Day. It's been a pleasure.
Hey Fire Nation, today's value bound content was brought to you by Eric and Fire Nation. The idea to store contest by dot store domains is live. You have the chance to win cash prizes up to $30,000 for sharing your online store ideas.
Learn more at www.idea2.store. That's www.idea.store. And I'll catch you there or I'll catch you on the flip side.
Success Story, hosted by Scott D. Clary, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Success Story features Q&A sessions with successful business leaders, keynote presentations, and conversations on sales, marketing, business startups, and entrepreneurship. A recent episode discussing the billion dollar health secret with the founder and CEO of Whoop is a must listen. Listen to Success Story wherever you get your podcasts.
I have a question for you, Fire Nation. Do you feel like your life is optimized or do you feel like you're leaving a lot in the table when it comes to health, wealth and relationships? If you think you could use some personal guidance in optimizing your life, let me help. I've created a program called optimize where I will personally work with you one on one to get to know you, your life, your goals and your dreams. If you want to learn more about this program, visit eofire.com slash optimize.
