by Deborah Owens,
Finally spring is here and many of us will be looking to clean out closets, basements and garages, ready to replace the old with something new. I was having a conversation with an insurance agent recently about leveraging the benefits of life insurance. He reccomended taking out a loan from a cash value life insurance policy to pay for a luxury automobile. The agent said this money move would allow me to avoid a car note and not have to pay taxes or penalties on the withdrawal. I must admit the thought of a new convertible sports coupe in my garage was appealing. And on its face, the rationale appeared to be sound. However, when you get past the idea of a fabulous new car, you soon realize this strategy could be hazardous to your wealth.
First, you need to consider what type of return you are earning on the cash value in your policy. Is the policy generating a higher return than the interest rate on a new car loan would cost? You’re bettter off financing the car at the lower rate, and allowing your insurance policy to continue growing at the higher rate. Add to that the fact that you would have to pay interest on the loan and this seemingly good idea quickly becomes a bad money move. I raised these points with the agent because I knew he was probably suggesting this strategy to his customers. When making financial decisions always consider whether it will add value to your bottom line by increasing your overall networth.
People who already have wealth don’t spend—they invest and create more wealth.
To be wealthy you have to behave like a wealthy person. So here are a few spring cleaning ideas to help you leverage your assets and grow wealth.
Wealthy Move #1
First, consider the type of return you are earning on an investment. Can you find a more competitive rate of return that is above what your money is earning? In today’s low interest rate environmnet, it probably makes more sense to take out an auto loan at your credit union and keep your money working.
Wealthy Move #2
Do you really need to spend ten of thousands of dollars on a luxury automobile that is going to depreciate in value? Buying a car a few model years back that cost less can free cash that can be redirected toward reducing your debt or additional investments. One common trait that millionaires have is buying inexpensive cars and driving them for a long time, according to Dr. Thomas Stanley author of, “The Millionaire Next Door .” I guess that is why there are so few millionaires.
Wealthy Move #3
Crunch the numbers! Look at the overall cost of your long term decision. What is the total cost with interest over the term of the loan and not just the monthly payment. What else could you do with the money to get a greater overall return? This is called a cost benefit analysis. It may feel good to ride out of the dealership in that brand new car and have heads turn as you pull up in the driveway but is it really worth it?
The bottom line is that wealthy people handle their finances differently and don’t let what they want today get in the way of what they want most—–financial freedom.
Deborah Owens is the Wealth Coach. She is the author of three books; most recently critically acclaimed, A Purse of Your Own: An Easy Guide to Financial Security, published by Simon and Schuster. Owens is a 20-year financial services industry veteran and former vice president with Fidelity Investments. She is on a mission to change the lives of one million women one purse at a time through the A Purse of Your Own Campaign. Ms. Owens is a media personality who has been a contributor to CNN, ABC News Now, Shape, Essence Magazine, Ebony, Black Enterprise and is host of Wealthy Radio, which airs on WEAA an NPR affiliate in Baltimore, MD. Visit her website at https://deborahowens.com