Have you ever associated a certain smell, phrase, or sound to a specific time, place, or person? Maybe the smell of chocolate chip cookies baking in the oven reminds you of your grandma. Or, perhaps you can clearly picture an object in your mind just by hearing its name. Take, for example, a stop sign. When you hear the words “stop sign,” can you clearly see a red sign with eight sides? Chances are if you’ve got a driver’s license or simply access to a TV or the internet, you can. That’s conditioned thinking!
Everyone has been subjected to conditioned thinking. It’s the automatic association we make between two things. Whether triggering a memory due to a familiar smell or automatically knowing what to do when approaching a stop sign, conditioned thinking impacts all of us.
Conditioned thinking is present in how we view financial products and growing wealth, too. When I say, “retirement planning,” what’s the first thing you think of? I’m willing to bet you’re thinking of a 401(k) or Roth IRA. There’s a reason this happens; we’ve been conditioned to believe the two go hand in hand, just as we’ve been conditioned to believe life insurance is only valuable while in our working years or even that the best insurance policy is the cheapest insurance policy.
Though we’ve been conditioned to believe the only way to grow rich in retirement is to put our hard-earned money at risk in the stock market, it is not the only savings vehicle for retirement. We need to be empowered to take control of our financial futures, ask the right questions, and think beyond the traditional retirement products. If we don't, we will get the same results of fear and scarcity. The key to growing wealth is using your imagination to get a look at the big picture and how your strategies play into your goals.
Letting Go of Conditioned Thinking to Grow Wealth
Many of us have been taught to believe debt is bad and money can only be assigned one function at a time. While avoiding debt is preferable, with a proper strategy in place it can actually increase wealth. To illustrate how growing wealth is an exercise in imagination, I’m going to share an example using an investment grade whole life insurance policy.
Let’s say my neighbor, Mary Beth, and I have been talking about our retirement planning strategies. She’s excited to share her 401(k) has increased by 15%. Conditioned to believe an investment portfolio is the best strategy to plan for retirement, Mary Beth has been diligent about making the maximum contributions to her account. When looking at my own strategy, which includes an investment grade whole life insurance policy, my Internal Rate of Return (IRR) is just above 4%.
Now imagine there is a rental house in my neighborhood that just went on the market. The owner is in a bind and needs money, so he is looking to sell quickly. Mary Beth and I are both interested in purchasing the property. Mary Beth would like to borrow against her 401(k) to purchase the property. However, the company managing her portfolio tells her she can’t access it because she already took out a loan to purchase a car.
On the other hand, I borrow $150,000 against my insurance policy and agree to pay an interest fee of 5% to purchase the property. The owner was so excited to get the cash he was willing to accept an offer of $115,000 and we closed within 5 days. If I were to sell the rental property at a market value of $150,000 after three months, I would be making a profit of approximately $30,000.
Rather than using my own money, I used to the insurance company’s money to fund the purchase. My only cost was a 5% interest fee which totaled $5,750 and a small fee (likely around $5,000) to sell the property. In just three months, I would have increased my wealth by $30,000! This is a huge return on investment, especially when compared to Mary Beth’s 15% increase on her 401(k).
By using less traditional methods and freeing your imagination in regards to growing wealth, you too can be in the position to capitalize on these types of opportunities. The key is to remember the debt is temporary. For unconventional strategies to work, you must simply have a solid plan in place to repay it.