“Mama always said life was like a box of chocolates. You never know what you’re gonna get.” Forrest Gump, 1994
Jeff and Beth are 40 and have a plan. They manage their money wisely, could be the poster kids for prudent mortgage management, steer clear of credit card and consumer debt, promptly pay off any debt they incur out of necessity, put about $21,000 each year into their individual and their childrens’ “banks” and now, suddenly, are about to become the proud parents of twins.
“You never know what you’re gonna get.” and twins are going to force some changes to the “plan.” The first change is a significant reduction of income because Beth plans to semi-retire from her well paid corporate position to care for the newborns, and Jeff’s burgeoning university teaching career is just burgeoning but not yet in full bloom. This change creates others; funding for the “banks” has to be reduced, relocation is assured, the family home has to be sold in a down market, and, on the up side, two more tax deductions.
Since the “banks” are an essential piece of Jeff’s and Beth’s plan for the future, that’s the piece of chocolate we’ll address in this post. Jeff’s whole life policy is just entering its third year. Almost all of the premium that is paid into the policy this year is credited to the cash value account. This allows Jeff and Beth to pay the annual premium of $13,200 using a loan from Beth’s 401(k).
Once the premium has been paid using the 401(k) loan and credited to the cash value account in the policy, Jeff and Beth can immediately borrow it back from the policy and pay off the 401(k) loan. This leaves them with a debt to themselves that they can repay on their own schedule and with the money they have available.
In fact, they could borrow the premium from the policy every year for the next ten years and not make any payments out of their income and the policy would remain in force and retain some cash value. Jeff and Beth could, of course, pay the interest to themselves and assure that the policy would remain in force for decades and grow in value.
That won’t happen. Jeff and Beth will bite into another piece of chocolate and discover another suprisingly unsurprising surprise that will change their lives and their plans; they could win the lotto or lose an investment. The constant financial fact that allows them to go forward with confidence is the power and flexibility inherent in their personal economy because of their “banking” system.
“You never know what you’re gonna get.” but you can make sure you can handle it. Discover how –> www.TheMoneyForLifeBook.com
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