Eric Brotman 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.
Low Tax Ebook – Download Eric’s FREE e-book
BFG University – Online Education in Financial Literacy. Use coupon code IGNITE!
BFG Financial Advisors – A division of Brotman Financial Group Inc.
3 Value Bombs
1) It is not morbid to protect someone’s human life value.
2) Leverage your opportunities.
3) Start immediately. Don’t wait until there’s a trigger event before you do this. Time is on your side.
Thrivetime Show: Looking for a business coach who has helped thousands of entrepreneurs just like you to increase their profitability by an average of 104% per year? Schedule your free consultation today with Clay Clark at ThrivetimeShow.com/fire!
**Click the time stamp to jump directly to that point in the episode.
Today’s Audio MASTERCLASS: From Borrower to Business Owner: How to Leverage Debt to Secure Your Financial Independence
[1:33] – Eric shares something that he believes about becoming successful that most people disagree with.
- A lot of people think that you have to be born with a silver spoon in order to be successful. It is not about that. It is all about bootstrapping.
[2:10] – It is so true that getting your first 10k is harder than going from 10k-100 and so on… How did you make a life insurance policy on your startup capital when no banks would lend to you?
- Eric had good fortune – his parents bought life insurance when he was a teenager.
- He had a cash value collateral to use when he wanted to start a company.
[4:30] – Most people only see life insurance as a death benefit. What are some other options beyond what we talked about?
- Eric used his life insurance to buy his first home. He used it as a down payment.
- He sold the house and gained profit. He did the same thing in building his company.
[6:15] – Walk us through to your experience – how much did you actually spend out of your pocket for your insurance, how much did you borrow for your first house, and how much profit did you get?
- The premium of the policy is $400 a year, death benefit is $40,000.
- Eric was able to get a $12,000 loan because of that, and he used it for a downpayment to buy a $91,000 house.
- He sold the house for $225,000.
[12:26] – How can taking out life insurance for your kids be a tax-friendly way to generate wealth, and most importantly, encourage them to be entrepreneurs later in life?
- It is not morbid to protect someone’s human life value.
- The objective is that you are creating an asset that you still own.
- Eric shares a good example about buying insurance for his daughter.
- Wealthy families try to find ways to get money to their kids to avoid state taxes, but this is an asset that exempts you from that.
- Leverage your opportunities.
[15:34] – You have three other strategies for legally reducing your tax bill that don’t include moving to Puerto Rico and keeping all the money you make… so where can Fire Nation learn more?
- 3 other strategies:
- Roth IRA or 401K
- Health Savings Account
- 529 College Saving Plans
[19:16] – Eric’s parting piece of guidance.
- Start immediately. Don’t wait until there’s a trigger event before you do this. Time is on your side.
- Low Tax Ebook – Download the FREE e-book
- BFG University – Online Education in Financial Literacy. Use coupon code IGNITE!
- BFG Financial Advisors – A division of Brotman Financial Group Inc.
Boom, shake the room, Fire Nation, and JLD here and welcome to Entrepreneurs On Fire brought to you by the HubSpot Podcast Network with great shows like business infrastructure. Today, we'll be talking about going from borrower to business owner, how to leverage debt to secure your financial independence, to drop these value bombs. I brought Eric Brotman into EOFire studios. Eric is the CEO of BFG Financial Advisors, host of the Don’t Retire… Graduate! Podcast and author of the Don’t Retire… Graduate! book, and a regular contributor to forbes.com. Today foundation, we talking about getting startup capital the right way.
We'll talk about tax benefits of life insurance. We'll talk about great ways to encourage your kids to become entrepreneurs later in life. And we'll talk about keeping the money you make and so much more. When we get back on thanking our sponsors, turn your small e-commerce business into the next big thing with Klaviyo. Klaviyo is the easy to use email and SMS platform that gives you everything you need to build genuine relationships with your customers. Give it a try with a free account at klaviyo.com/fire. That's K L A V I Y O.com/fire. Are you looking for a proven business coach who has helped thousands of entrepreneurs, just like you to increase their profitability by an average of 104% per year, all for less money than it would cost to hire a full-time minimum wage employee schedule your free consultation today with Clay Clark, a former small business administration entrepreneur of the year at ThrivetimeShow.com/fire.
0 (1m 36s):
Eric say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with.
1 (1m 46s):
Well, what's up Fire Nation. I would say that the one thing that, that I believe about becoming successful that most people disagree with is that you have to, somehow 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 and it's all starting yourself.
0 (2m 11s):
We 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 have realized is getting that first $10,000, like into your business, into your bank account. It's harder than going from 10,000 to a hundred thousand dollars 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?
1 (2m 49s):
Absolutely. I mean, I, 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 profits 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, it it's really absurd. So 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.
1 (3m 38s):
I didn't have a, I wasn't married. I didn't have children. I didn't, 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. And it made a huge difference when I started the company. I mean, I borrowed from everywhere, but that was, that was one of the things that pushed me over the top and allow me to get started. I mean, that is
0 (3m 57s):
Completely baffling to me as well. I mean, that's, you can, as like a 17 year olds gets hundreds of thousands of dollars for your education and as a 27 37 67 year old person, even with a track record, a lot of times you can not get money for a business that is literally meant to make money. So you've got to get inventive Fire Nation. You've got to follow the processes that we're going to be talking about here today. Cause one reality is most people the only see life insurance as a death benefit, which is why they're like, oh, I can wait off on that. Cause I'm not going to die.
0 (4m 38s):
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 deathbed.
1 (4m 51s):
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, into a company where banks are tripping over themselves to lend us money. And it's, it's so ironic that the same people wouldn't talk to us are now in line for, can I have five minutes of your time?
1 (5m 33s):
It's an amazing thing. But so the, the life insurance been used for that, I've seen, you know, we've had clients use it not only for real estate purchases, but for moves. You know, 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, you know, sometimes you won't qualify for the same kind of mortgage without a certain down payment. And if you don't have the equity on tap, you, 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. As you know, after you found one, it's very, very positive.
1 (6m 16s):
It's a really creative action
0 (6m 18s):
We use as specific and numbers as we can here to kind of give people an idea, like maybe walk us through your first experience as, as specific as you're willing to get with. Like, how much did you actually spend out of your pocket 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,
1 (6m 48s):
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, when I was taken out premium was like $400 a year and 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 an inadequate, but that 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, right?
1 (7m 28s):
The $12,000, 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, 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, because I'd paid the mortgage down. Right. 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, where, or even in the mid two thousands, where you could borrow a hundred percent, you could borrow 120%. Thankfully those days are done because that hurt a lot of folks. But, but yeah, so it was about $12,000 and then it became, it became 225,000 from the sale of the, of the home.
1 (8m 15s):
And then, you know, you fast forward to where I was starting a company. And now I was starting a company. I was in my early thirties. And at that point I had already bought additional life insurance and I had 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 I, and there's so many ways to untap it. But if there are any opportunities out there, there, they're just sitting there. I have capital that I, 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 sitting there. And it's got a contractual guarantee that I can borrow from it at a fixed rate.
1 (8m 55s):
0 (8m 56s):
These numbers, Fire Nation, I mean $400 a year for a policy. Now, again, there's different times that we're talking about different decades, but $400 a year for a $40,000 life insurance policy. So a lot of people could afford $400 per month if they really made the effort to, and we're focused on it. Now, this gives you the opportunity to potentially borrow somewhere around the, the number of $12,000 to put a down payment on a $91,000 condominium that then sells for 200 plus a hundred thousand dollars of which, you know, again, this is all an accelerated timeline. This didn't happen overnight.
0 (9m 36s):
This happened over a 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 in scalable ways. And we're gonna be talking about some really cool other opportunities that you may not be aware of Fire Nation.
1 (9m 54s):
When we get back from thanking our sponsors, looking for a business coach who has helped thousands of entrepreneurs, just like you to increase our profitability by an average of 104% per year, all for less money than it would cost to hire a full-time minimum wage employee, Fire Nation meet Clay Clark clay has been coaching businesses just like yours since 2006. Yup. Even through the great recession.
0 (10m 16s):
And he does it for less money than it would cost to hire a full-time minimum wage employee at a time when Inc magazine reports that by default 96% of businesses will fail. Within 10 years, clay is helping businesses like yours to grow on average by 104% annually. How's this even possible Clay only takes on 160 clients. So he personally designs your business plans. Plus Clay's team helps you execute that plan with access to graphic designers, Google certified search engine, optimizers, web developers, online ad managers, videographers workflow, mappers and accounting coaches visit ThrivetimeShow.com/fire, to see thousands of video testimonials from real people, just like you, who clay has helped over the years. That's right. Do your research and view thousands, not hundreds of proven, documented and archived video testimonials from real people, just like you at ThrivetimeShow.com/fire.
0 (11m 6s):
Then schedule your free consultation with Clay himself to see how he and his team can help you thrive. Getting an online business off the ground. Isn't easy. There are a lot of moving pieces when it comes to building an e-commerce brand. So if you find yourself working late, tackling a to-do list, that's a mile long with your fifth cup of coffee by your side. Remember great email. Doesn't have to be complicated. That's what Klaviyo is for Klaviyo is the email and SMS platform built to help e-commerce brands earn more money by creating genuine customer relationships. Once you set up a free Klaviyo account, you can start sending beautiful and messages and minutes. Thanks to drag and drop designs, helpless and built in guidance.
0 (11m 48s):
And with e-commerce specific recommendations and insights, you can keep growing your business. As you go get started with a free account at Klaviyo.com/fire. Fire Nation, it's time to build genuine relationships with your customers at Klaviyo.com/fire. That's Klaviyo.com/fire. So Eric we're back ends. 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.
0 (12m 29s):
And maybe most importantly, especially for listeners of this show, encourage your kids to become entrepreneurs later in life.
1 (12m 36s):
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. I bought, as soon as my daughter had her social security number, she had a life insurance policy and a sizeable one, and it 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.
1 (13m 18s):
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 going to 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's just inherited 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.
1 (14m 2s):
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 consequences at all, it's 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 will be because I feel she's ready to handle it. And in that case, you 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, 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.
0 (14m 60s):
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 illegal 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?
0 (15m 43s):
1 (15m 45s):
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, I'll give you your audience, the, the, the, 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 wear withdrawals so long as you follow the rules of the planet 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.
1 (16m 27s):
The HSA is, may be 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 as long as they're for some form of health care 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 account? And then I don't need the money for health care. I say, first of all, you're very lucky you win. Cause that's not typical. But secondly, once you're of retirement age, you can use it just like an IRA.
1 (17m 7s):
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 a, than an IRA or a 401k by far. And then the third is the 5 29 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.
1 (17m 48s):
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.
1 (18m 32s):
Tax-free sorry. We haven't found a way to do that with leisure and entertainment yet.
0 (18m 36s):
I mean, Fire Nation, I hope you're salvage, hating. I thinking of all the ways you're actually going to start being able to keep and save the money that you're bringing in to your earning. And then just other opportunities that are 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 by you. How can we do that? And then we'll say goodbye.
0 (19m 16s):
I would say,
1 (19m 17s):
Takeaway is start immediately. Don't wait until you have some, some Corpus or some nest egg or some there's some trigger events. Some year time is on your side. Start immediately, no matter what, and save and create the habits that you need to, 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. I, the, the way to get this information, you can go to low tax book.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 BFG university.com. We've built out financial literacy courses, and there are two courses right now, online courses available.
1 (20m 1s):
One of them is free to anyone who wants to take it. It's designed for young, 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, 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, but we're happy to have a conversation with any of Fire Nation about not only these topics, but just generally wealth building.
0 (20m 36s):
And 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 in his show, his page will pop up with everything that we talked about here today. Visit lowtaxbook.com for all that green information that he mentioned. And one more time, Eric give us that promo code in place. They can get that great $20 discount and
1 (21m 2s):
Go to bfguniversity.com. And the promo code is ignored.
0 (21m 7s):
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 JLD. It's been a pleasure. Hey, Fire Nation today's value bomb content was brought to you by Eric and Fire Nation. The ideato.store contests by.store domains is live. You have the chance to win cash prizes up to $30,000 for sharing your online store ideas. Learn more ar www.ideato.store.
0 (21m 47s):
That's www.ideato.store. And I'll catch you there, or I'll catch you on the flip side, turn your small e-commerce business into the next big thing with Klaviyo. Klaviyo is the easy to use email and SMS platform that gives you everything you need to build genuine relationships with your customers. Give it a try with a free account at klaviyo.com/fire. That's K L A V I Y O.com/fire. Are you looking for a proven business coach who has helped thousands of entrepreneurs, just like you to increase their profitability by an average of 104% per year, all for less money than it would cost to hire a full-time minimum wage employee schedule your free consultation today with Clay Clark, a former small business administration entrepreneur of the year at ThrivetimeShow.com/fire.
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