Have 6 months to a year of income for emergencies. But have that
money earn 6 to 10 percent interest tax-free.
In this episode,Ii'm going to answer the question
"How much should you have in an emergency fund?" Well, I'm going to share with you
a number that many people don't really think about. But how you can be earning
6 to 10 percent tax free rates of return on your emergency funds.
And I'm going to share with you where I put
my money for emergencies and it's not where you think.
I'm Doug Andrew. I've been a financial strategist
and a retirement planning specialist for more than 46 years.
And I've helped a lot a lot of people have and establish an emergency fund
before they start saving for long-term goals such as retirement and so forth.
But actually, the same vehicle accomplishes both
goals. You're going to learn what I use and why it's so powerful and
and why it's so liquid. But let me back up
and explain to you what an emergency fund
usually is for and what most people think they should have socked away
in case of an emergency and where most people put that money.
Now, to be honest with you, most emergencies in life
only last 2-3 months no more than 6
months. There are some times when people lose their job,
they get disabled or a pandemic happens. And I have talked to people who because
of covid-19, they were out of work or their income
suffered dramatically for 6 months or longer.
And so, you never know. But I would recommend at a
minimum, you have between 6 months to a year
of income for the bare necessities in an emergency
fund. The problem is most people think an emergency fund is like a drive up window
at the bank or the credit union and so they put
money for emergencies there because they think, "Well, that's
easy. It's liquid. I can just drive up to the drive up window and get the money."
What they don't realize is that if things were
really bad, if the country was really in trouble, a lot of banks can say, "Sorry,
you can't take your money out of our bank for 6 months."
Did you know that? So, I put my emergency funds
into the multi-trillion dollar insurance industry.
Why? Because it's the safest place to put my
money. And that's where your bank is putting 30 to 40 percent of the money
you deposit in it to create liquidity and safety.
People go, "Really?" Yeah. Back in 2008 when the country was almost on the verge
of financial collapse, the federal government asked the 5
major banks in america to disclose where they had their tier
1 assets for liquidity and safety in case of an emergency.
A run on their bank, guess where they had 30 to 40 percent of their money?
In the multi-trillion dollar insurance industry. Much of it was invested in
BOLI. BOLI is B-O-L-I, bank owned life
insurance. People say, "What? What?" Yeah, who do they own it on? It
doesn't matter. They put life insurance on their stockholders,
on their board members. Many times banks, credit unions will buy life insurance
policies from people who want to sell it. Because they know the math. They know
when those people ultimately pass away it's going to be one
heck of a return and it's tax free. And so that's where your bank many times is
borrowing your money. See, when you put your money in a bank, it's really
being loaned to them. And they pay you 1%?
On a million dollars, they're only paying you 10,000 a year?
They turn around and put that money into an insurance company and earn
5%, 50,000. 50,000 is 500% more or 5
times the 10,000 they're paying you.
Well, why don't you just bypass the middle man for your emergency fund?
Why do you want to put it in a bank when the bank is taking your emergency fund
and putting it into an institution ranked 6 notches higher
in safety than they are? Do you know that most legal reserve
insurance companies are rank triple A? And the average bank
in America is rank triple B? The difference between
triple B and triple A is 6 levels. They're increasing the
safety by 6 notches and they're increasing the
rate of return by 5 times by taking your money
you deposited in the bank for emergencies and putting it into an
insurance company in case of an emergency. Does
that make any sense? So, my emergency funds are in max-funded
universal life insurance contracts. Because I've been earning
between 6 to 10 percent rates of return for the last 40 years.
The last 25 years using indexing and rebalancing, I've averaged over 10%.
But folks, why would you want to have
your money in an emergency fund in a bank because it has a drive up window
where you're earning 1% or less when you could increase the safety by
6 notches and you can increase the rate of return up
to 6 to 10 percent? Hello? So, that's where I have my money.
Now, when you have your money into the
insurance company, how easily can you access it?
How about an electronic funds transfer or a phone call?
An emergency usually, you don't need the money
in 60 minutes. You could get it if you needed it. But
most people can wait 24 hours. So, that's very easy to do in this day
and age where you can email, you can scan, you can send. You can
electronically request something. you can access 50 thousand, 100
thousand, whatever you need out of your insurance
contract. So, when people save for retirement and they have a half a
million or a million, if that's in an IRA, 401K, you don't want
to tap into that for an emergency because you're going to be penalized by
the IRS, 10%. You're going to have to pay tax.
So, if you pull out 100,000, you're only going to net maybe
60,000. Because you have to pay tax and penalties.
Who wants to do that? So, it's not liquid. Wherever your emergency fund is
deposited, you want it to pass the liquidity test. You want to be able to
access it without any problems, any penalties,
without triggering tax. You want to make sure it's safe that the
market is nose diving, you're not losing money.
You don't have to wait and time it. And that you're not going to trigger
penalties or taxes. But also, you're not subject to market volatility.
So, that's why I use what I call my Laser Fund as my
emergency fund. And it doubles as my retirement fund.
Most people go, "What? You tap into your retirement fund for emergencies?"
Most people only do that if they have to because of all the penalties.
I don't have any penalties. So, I use that as my emergency fund because it's so
liquid, it's safe and it earns predictable rates of return that knocks
the socks off of some bank or credit union with a drive up window.
It's actually more liquid if things got really bad.
Because as I said, the bank can close their doors for6
months and say sorry. We don't have to give you the money in your savings
account for up to 6 months if they really
wanted to. The insurance company, no, they're liquid. They've gone
through the great depression with flying colors. In 2008 when 400 banks went under,
not one single legal reserve insurance company went under. In fact,
that's where the 5 major banks put their money
for liquidity and safety. Are you getting it?
So, what are the key takeaways? Have your emergency fund
maybe double as your retirement fund and not be subject to penalties and taxes if
you access the money. Be earning more like 6 to 10 percent
tax-free rates of return. And have it extremely liquid. I've
actually used my laser funds many times for
emergencies. I remember one time I had a setback and I needed $80,000 in
24 hours. I simply arranged for that. Faxed
in the request and they wired it to my bank account.
It is that liquid and safe in the event of an emergency.
And most people, they can get by with 6 months to a year of
income. But don't have that much money sitting in a bank earning less than 1%
just because it has a drive up window
and they give your child a sucker when you drive through.
That's not worth what you're giving up. Does that make sense?
So, if you want to learn more about what a laser fund is,
I'll tell you what. My 11th book has been flying out of our warehouse. It's a 300
page book that is actually 2 books in 1.
This side is 200 pages, 14 chapters. Has all kinds
of charts and graphs of how this works and why
it's sort of a sacred tax free cash cow in the internal revenue code for over
100 years. But if you like to learn by stories, you
flip it over and read this one. 12 chapters, about 100 pages with 62
actual clients stories of how this works. The book retails for 20 but I want to
gift you a copy absolutely free. Here's how to claim
your free copy: If you go to laserfund.com, the website
laserfund.com and if you'll contribute $5.95
towards the shipping and handling, I will pay for the book and I'll fire it out to
you absolutely free. And there's also options in there to
listen and learn or watch and learn. And you'll get answers to this question
and many more. Not only on how you can use the Laser
Fund for emergencies but retirement, college funding,
for business working capital, for real estate management, for estate planning.
It is the dream solution for many goals.