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CHAPTER 7: PROTECTION AGAINST LOSS
When building a traditional house, you need to start with a solid foundation. The same holds true when building your house of wealth. Start with a firm foundation that’s unmovable—a foundation that includes protection for your income and protection against loss.
It’s likely that your grandparents and great-grandparents were all about storing for the future. In their case, it often was as simple as storing wealth in the form of food for the future. Granted, they didn’t have the modern conveniences of refrigeration. They smoked meat. They canned vegetables and fruit. They put aside stores of staples such as flour, sugar, and salt. Back then, they couldn’t go down the street and buy food and other supplies at a nearby grocery store.
Many were farmers, either full- or part-time. They raised their own beef, chickens, and eggs. They grew their own gardens. They harvested fruit and vegetables as they ripened during the growing season. As my grandpa used to say, “We eat what we can, and what we can’t, we can.” So they had weeks’ and perhaps months’ worth of food supplies in storage. That’s not a bad idea, even for a modern-day family. Crises can happen. Power can go out. Weather conditions such as snow and tornadoes can isolate you from the usual sources of food, clothing, and shelter. Having a food supply of two weeks—maybe even six months to a year or more—is certainly an idea that’s worth considering in your TrueWealth planning process. My own family regularly has an extra three to six months’ supply of food on the shelf for emergencies.
Back in the early 1900s, many people owned a whole life insurance policy, and they used the cash value in that policy to fund their farms’ operating expenses. When harvest rolled around, they’d simply pay back the loans they had taken from the insurance company. That was the cycle every year; it was a little like privatized banking.
Most families back then didn’t have a thirty-year mortgage on their home or property. They kept their accounts very short, and they dealt a lot in cash. In fact, gold and silver, either as coins or as the monetary backing of paper currency, were most commonly used.
Then, in 1913, the Federal Reserve System was set up. There’s a very interesting book on the creation of the Federal Reserve (the centralized banking system): The Creature from Jekyll Island, by G. Edward Griffin. By the way, it should not go unnoticed: 1913 was the same year our federal government began collecting individual Federal income tax on a permanent basis (contrary to the original intent of our founding documents). Coincidence? Maybe not.
Many Austrian economists (keenly aware of how government regulation affects our economy) believe that it was the establishment of the Federal Reserve centralized banking system that eventually caused the currency crisis that became the Great Depression of the late 1920s and early 1930s. The government then stepped in to “solve” the problem it had created and to shore up people’s confidence in the banking system. Their solution was to establish the Federal Deposit Insurance Corporation (FDIC) in June 1933, a year before the SEC was established. That was followed in 1970 by the establishment of the National Credit Union Share Insurance Fund (or NCUSIF—like the FDIC but for credit unions).
The government began stepping in to regulate and control our economy with the objective of protecting consumers. The reality is that in a free society, we each must establish our own protection and, through that general welfare, protect the others around us.
This concept (of free people cooperating for their own collective benefit) is what mutual life insurance is all about. Automobile insurance, health insurance, disability insurance, and liability insurance all have their place in protecting your wealth. But mutual life insurance not only protects your family by replacing your future income, it can also function as a privatized banking system (PBS) to finance your lifestyle and grow your wealth, guaranteed and tax-free. These are all strategies and financial products that must be included in a solid foundation for your financial house. We also encourage people to have other “basement” strategies in place, including the following:
-money market funds
-cash alternative maximizer—single-premium indexed universal life (IUL)
-fixed index annuities (FIAs)
-multiyear guaranteed annuity (MYGA)
-Treasury Inflation-Protected Securities (TIPS)
-Infinite Banking Concept (IBC), Bank On Yourself (BOY), Privatized Banking System (PBS), Family Cash-flow Banking, or 770 Account (from IRS tax code 7702)
-term life insurance, participating whole life insurance from a mutual company, and maximum-funded IUL insurance
-other insurance: auto (liability and casualty), home, health, disability, and umbrella liability
-physical gold and silver coins
-fresh water storage and/or water filtration system
All of these strategies are designed to help you save, store, and protect your wealth. I’ll discuss some of these underutilized strategies in more detail in the next chapter.
The 10-10-10 Rule
Back in the time of our grandparents, there was a common rule of thumb that still works today: “The 10-10-10 Rule.” It meant that you should save 10 percent, invest 10 percent, and donate 10 percent of your gross income. Nowadays, most people barely invest 10 percent, let alone do any saving or giving. But you really should start by saving 10 percent, and then only after charitably giving away 10 percent of your wealth should you begin investing a full 10 percent of your gross income.
Many people feel the tithe should come first, then the savings, and then the investing. That principle actually makes sense when you think about giving with an open hand. If your hand is closed, nothing gets out—but nothing gets in either. When you give with an open hand, more can be placed in that hand to continue to give. True wealth comes from true abundance that in turn comes from a heart of charitable giving. In fact, it is the belief of many today that the government has taken over what we should have, as a society, done for our fellow citizens through charitable giving. The government doesn’t do that charitable work nearly as efficiently as nonprofit organizations such as Union Gospel Mission, Catholic Charities, and other fine organizations that help our poor and needy. One of my favorite charities is the Gideons International. Then people give for the distribution of Bibles worldwide, nearly 100% of their gift is used to print, ship, and distribute scriptures.
Protecting Against Loss
Insurance is designed to help you protect against loss. You should have—in fact, a lender will require you to have—automobile liability insurance and homeowner’s insurance. Even though you may never experience a life-changing disaster, it’s wise to protect against losses that could literally bankrupt you. Historically, many people have experienced bankruptcy because they did not buy health insurance.
CHAPTER 8: STRATEGIES FOR STORAGE