The 12 Keys to Creating Financial Certainty

The 12 Keys ToCreating Financial Certainty

Welcome to the AllianceGroup’s 12 Key’s To Creating Financial Certainty

presentation.

Who We Are

The AllianceGroup is a growing organization of like-minded individuals and professionals who are deeply concerned about the financial direction our country is heading and the impact it will have on our financial future.

Our Mission

To Create Financially Empowered Individuals & Families

Financially empowered families enjoy the highest degree of financial

certainty because they reduce risk to the lowest level possible and they have

utilized every available dollar at its highest and best use, to create the maximum benefits for their use and

enjoyment.

Our Mission

To Create Financially Empowered Individuals & Families

Financially empowered families have learned how to use each and every dollar to create the maximum benefits for themselves. They understand how to make one dollar do more than one job, thus also creating multiple benefits. They understand how to reduce the wealth transfers in

their lives so they retain and keep more of what they earn.

Why

Because new financial paradigms have been created by the global economy, demographics and the Internet, it is more important than ever we understand how money really works.

The economic future we are living into is far different than anything we have experienced in the past. We are in a new financial paradigm, a new financial model, that requires an entirely new way of thinking.

What We Teach

We teach people financial truths, educating people about how money really works and helping them understand there are many things they think to be true about money that are not.

We teach them how to reduce financial risks and how to identify the wealth transfers in their life and reduce them. We teach them how to transform debt into wealth and implement financial strategies that create greater financial certainty so people can have a more predictable and secure financial future.

Why

Average $2,000,000 or

More Over 40 Years

Why are we teaching this?

The average American will earn well over $2,000,000 during

their working lifetime

Why

Less Than $60,000 @

Retirement

Yet when it comes time to retire they will have less than $60,000 saved. By identifying the wealth transfers in our lives, we can implement financial strategies to reduce them. By reducing the wealth transfers in our lives we will keep much more of what we earn and ultimately end up with far more money to use during our lifetime and to retire on.

For this reason we have created what we refer to as the 12 Keys to Financial Certainty.

The 12 Keys To Financial Certainty

KEY 1

The first key is to become educated about how money really works. If we want to take control of our financial lives then we need to spend some time and effort to learn the truth about how money really works and then apply what we have learned to our own lives.


KEY 2Is to understand that many of the things you think to be true about money are not. The question you need to ask yourself is: If something you thought to be true wasn’t, when would you want to know about it. For most of us the answer to that question is immediately!

As an example of this let’s consider for a moment how returns in the stock market work. Since the early 80’s we have been encouraged to save for retirement through 401K’s which typically use mutual funds comprised of stocks from the stock market.

Average vs. Actual Rates of Return

To demonstrate this we are going to use an exaggerated example of how returns might be applied to a lump sum in a retirement account, let’s look at an account with $100,000. Let’s assume for a moment that there is no possible chance for loss of principal and the mutual fund manager is guaranteeing a 25% average rate of return.

If this were truly available it would be a great investment for our retirement. So let’s apply some market returns and see what happens.


$100,000 (Account Value)

100% Return$200,000 (Account Value)

Let’s pretend for a moment that in the first year our account experiences a year of growth like what happened in 1999. During that year there were a number of mutual funds that actually returned over 100%! So in our example you started with $100,000 and you now have $200,000 in your account.


$100,000 (Account Value)

100% Return$200,000 (Account Value)

50% Loss$100,000 (Account Value)

You would certainly be very excited and happy with the results. Let’s go to the next year. Unfortunately in the second year your account experiences more of a 2008 type of year and incurs a -50% loss. Now you are not as happy as you were before. Two years earlier you started with $100,000 then it rose to $200,000 in value and now it’s back to $100,000.


But you have a guarantee from your mutual fund manager of a 25% average rate of return, so with that guarantee in hand you approach him to receive what you expect to be a check for over $150,000.

Unfortunately though you did not read the fine print in your agreement which stated that you were guaranteed a 25% average rate of return, not effective yield.

25% Average

Rate of Return


100% Positive Return

- 50% Negative Return

÷ 2 Years

Effective Yield = 0%

= 50% Positive Return

= 25% Average Yearly Rate of Return

By applying the math, 100% positive return minus a 50%

negative return equals a 50% positive return divided by two years equals a 25% average yearly rate of return! But the

effective yield or actual return is Zero!


Effective Yield = 0%

The vast majority of mutual fund returns are recorded as average returns not effective yield’s.

What that means is that average rates of return mean absolutely nothing. The most important number for you to

consider is the effective yield on your money.

This is just one example of something we thought to be true about money that is not. There are many more!


KEY 3 Is to understand that the financial environment is constantly changing and that you must learn to adapt your financial plans. If we continue to do what we have always done, we may get the results we've always expected, but in our constantly changing financial environment you may not get the results you were hoping for! We need financial strategies that will produce the intended outcome and create financial certainty.

If in early September of 2001 we told you that in the next 10 years that terrorists were going to fly planes into the world trade center, we would go to war, we would experience a significant recession and millions of Americans would have to file for bankruptcy and lose their homes, that our health care system was going to be socialized and that Martha Stewart would go to prison you would have thought we were nuts.

The point is that things are constantly changing around us and we have to plan for that change instead of reacting to it if we want to be able to survive and thrive financially.

Taxes

Taxes are just one example of how things change constantly.

When asked what the highest marginal tax bracket in this country has ever been, most people have no idea.

The highest marginal tax bracket we’ve ever had in this country is 94%! Now that doesn’t mean that if you made $100,000 you had to pay $94,000 in taxes. What it means is that some portion of your income above a specified level would be taxed at 94%.

Taxes

As you can see from this graph income taxes have gone up and down many times depending on what the economy was doing and how much money the government needed. In 1917 the government significantly increased taxes to fund our military needs for WWI. In the early 1930’s and 40’s the government raised taxes again because of the Great Depression and WWII. One thing we can count on is that when the government needs money it will increase taxes.

Taxes

In the 80’s and early 90’s, tax brackets were substantially reduced from previous levels. But what most people don’t remember is that in order to drop tax brackets but still receive its desired revenue, the government needed to eliminate some tax deductions.

Prior to those tax law changes you could deduct the interest you paid on car and truck loans, even the interest on your credit cards. The elimination of those deductions ended up directly affecting the middle class by actually increasing their tax burden.

Taxes

Given the current market and economic conditions in this country where do you think takes are going?

If you believe that your taxes in the future are going to be higher, and that you might have fewer deductions to offset those taxes, doesn’t it make sense that you begin planning today to implement financial strategies that could substantially reduce your future taxes or in some cases eliminate them entirely?


KEY 4Is to identify the wealth transfers in your life, and to then take the steps necessary to reduce or eliminate them.

Wealth transfers are without a doubt are one of the biggest obstacles we face as we attempt to save money and build wealth for the future.Understanding what wealth transfers are and what you can do to avoid them, or reduce their impact on your financial life, is extremely important.


KEY 4

A wealth transfer could be defined as any financial transaction in which money leaves any of your financial accounts never to return.

Once you understand what a wealth transfer is, you will be able to identify them, and begin to strategically reduce or eliminate their negative financial impact in your life.

Wealth Transfers

Wealth transfers are all around us. Here are just a few quick examples.

Credit card payments. Every payment that leaves your checking account to pay on a credit card, will never return and will never accumulate or earn interest for your benefit.

Wealth Transfers

Taxes are another wealth transfer. State and Federal income taxes are wealth transfers. Sales taxes are wealth transfers. Gasoline taxes, property taxes, virtually all taxes are wealth transfers! While it’s true that there are some taxes, such as Social Security where you may ultimately get some of your money back, that is not the case with most taxes.

Wealth Transfers

Most insurance payments are wealth transfers. When you pay your insurance premiums, whether it be for car insurance, homeowners insurance, health insurance or some types of life insurance, the only way you’re going to see any of that money back is if something bad happens! Every premium dollar the insurance companies get to keep,

they get to reinvest for their benefit, not yours! These are just a few of the many wealth transfers we encounter nearly every day! We believe you can create greater wealth, faster, by controlling wealth transfers in your life than you can buy chasing rates of return and taking more risk.

True Cost of a Wealth Transfer

$500/mo for 48 Months

$24,000 Total

A car payment is a perfect example of a wealth transfer. Let's assume you have a $500 per month car payment for 48 months.

Your total out-of-pocket expense over that 4 year period is $24,000. Because you no longer have the money, this is considered a wealth transfer. It's true you still have the car but you no longer have the money.


Lost Opportunity Cost

There is an additional cost to wealth transfers though and it is what is called a "lost opportunity cost". The lost opportunity cost is the interest you could have earned on that car payment if you had been able to save it rather than paying for the car. If you could have delayed or avoided the purchase of the car and saved the $500 per month and earned 5% interest on that savings, at the end of four years you would have $26,618 in your account. So the initial lost opportunity cost in this example is the interest of $2618 you could have earned but didn’t because you bought a car instead.


Lost Opportunity Cost

The lost opportunity cost doesn't actually stop there because you can never earn interest on those car payments. But the bank you made those payments to gets to keep re-loaning your payments and earning interest on them forever! So wealth transfers and their lost opportunity costs are the eternal. No one in your family ever gets them.

Reducing wealth transfers and their lost opportunity cost plays a vital role in building wealth.


Key 5

Financial risk must be reduced to the lowest level possible.

We have been led to believe that when it comes to making money or earning interest, some risk is acceptable. In fact, we have been taught that risk is desirable if we want to get a higher return!

The financial truth is that you can create far more wealth by reducing the wealth transfers in your life than you can by taking unnecessary risks chasing higher returns.

How Much Are You Really Earning?

Annual Income

$ 100,000

Retirement Account

$ 150,000

Here is an example of what we are taking about. Let’s take a look at a typical middle aged couple that in the eyes of most people including themselves is doing pretty good.

They have an annual household income of $100,000

They have a retirement account with a balance of $150,000 they “hope” will earn an average of 10% or $15,000 per year although there is no way to predict what the future returns will be.


The problem is that while they are saving for retirement and hoping for those high stock market returns, if they are a typical couple, they have annual, after tax consumer debt payments equal to 34.5% of their income leaving their checking account never to return. This debt service includes: credits cards, car payments, student loans and mortgage payments just to name a few of the standard wealth transfers. So while they “might” be receiving a $15,000 gain in their retirement account, they are actually experiencing a $34,500 wealth transfer from their checking account! Not only does that wipe out their $15,000 gain, what it really means is that they have a net wealth loss of $19,500 each year.


Most people are only focused on the return they are getting on their savings and investments.

But as you can see, while you are hoping for high returns on your investments, the wealth transfers in your life are transferring the rest of your hard earned money away from you at a much faster rate than you are growing your investments.

What we really need to focus on is minimizing our wealth transfers.


1. Use the least amount of money to create the greatest amount of wealth.

2. Guarantee wealth will occur and the legacy will transfer tax free.

3. Create multiples of wealth immediately using leverage and control of the asset.

4. Never risk the family’s wealth.

Rules of the RichReducing risks and wealth transfers creates greater financial

certainty. This is something that the wealthy in this country have known how to do for a long time. They even have 4 rules to

follow.


"Should you find yourself in a

chronically leaking boat, energy

devoted to changing vessels is likely

to be more productive than energy

devoted to patching leaks."

-- Warren Buffett, Berkshire Hathaway,

CEO

Creating Financial Certainty

RISKWe believe that by eliminating risk from your financial model and focusing on financial strategies that are not risk-based or market-based, and by reducing wealth transfers and recapturing the principal, interest and lost opportunity costs of your debt, you will virtually guarantee a financial wealth building system

“that always produces the intended outcome”.


KEY 6

How you save and invest your money is more important than where you save and invest your money.

Money Can Grow In Three Environments

Taxed In-vestment

Tax-Deferred Investment

Tax-Free Investment

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$41,900

$49,866

$66,488

Series1

In this example we are going to assume that we are in a constant tax bracket of 25% and that we invest $10,000 in three different types of accounts.

The first is taxed as it grows, the next is taxed at the end of it’s growth and the last we have already paid the taxes and never have to pay any tax on the growth like a ROTH account.

Money Can Grow In Three Environments

You can see that the amount of money that we get to keep and use in our retirement is dramatically different, even though our initial investment of $10,000 is growing at the same 7% for 28 years. The taxed as it grows account has $41,900. The taxed at the “end” account has $49,866. The tax “free” account has $66,488 which is substantially more than either of the other accounts.

If you believe that taxes are going to be higher in the future, you may want to strategically position your savings and retirement dollars in accounts that can be accessed free from income tax.

When you stop and think about it, wouldn't you rather pay taxes on the seed instead of the harvest?

Retirement Plans

How we save for our retirement today is one of the biggest changes that has taken place over the last 30-40 years.

Beginning back in the late 70’s and early 80’s we began to make a transition in this country as it relates to saving for our retirement.

Up until that time, people “saved” for retirement. They literally put money in savings accounts to be used in the future when they retired. Beginning with the individual retirement account or IRA’s in the 70’s and later in the early 80’s with 401(k)s, future retirees continued to be encouraged to save for retirement only this time it was suggested they invest…

Retirement Plans

in the stock market through mutual funds purchased with their 401(k) money.

Two things changed during this time. First, the element of stock market volatility and risk was introduced into saving for retirement. We are beginning to see the damage that can do to retirement accounts. Second, people were told that it would be much better to grow their money tax deferred as they would be in a lower tax bracket when they retired. Unfortunately it looks as if we are headed to a future of higher tax brackets with fewer deductions.

Retirement Plans

In a very short period of time we went from saving for retirement to investing for retirement. We were told that the process was still safe. Even though there might be some risk involved it would be very modest and even if the market did drop, it would always come back. But what if it did not come back fast enough to make up for your losses before you wanted to retire? Do you have a financial back up strategy if that happened to you?

We teach people how to avoid market volatility and market risk and implement financial strategies that create greater financial certainty.


KEY 7

Understand that spending is emotional so budgets generally don’t work

Budgets don’t work as they are just like a diet which is negative, they tell you what you can’t have. We as Americans are very emotional and impatient, we want things when we want them and that can be a very bad habit.


Here is an example. The woman in the house is out buying clothes for the kids to go back to school, while at the mall she see that her favorite shoe store is having a 25% off sale and she sees the perfect pair of shoes to go with one of her favorite outfits. Now she does not really need the shoes as she has plenty of pairs at home, but she wants the shoes and knows that they will look great and they are on sale so she is “saving money”. Now guys are just as bad as women, they buy sporting goods as they think that the new club or fishing rod will get them better results. These are both examples of impulse buys or emotional spending.

We teach our clients a unique financial strategy called the “Family Banking Plan”, that converts your spending habits into wealth.


KEY 8

When you track your money, you control

your money.

We know that one of the biggest challenges our clients face is really understanding where their money goes.

When you become a client of the AllianceGroup and implement these keys to financial certainty we will provide you with software to help you not only track your money but to also help you identify and reduce the wealth transfers in your life.


KEY 9

Consumer debt destroys wealth and so must be eliminated and replaced with the

Family Banking Plan.

The Family Banking Plan

• Use One Dollar Multiple Times• Transform Debt Into Wealth• Reduce Wealth Transfers• Reduce Lost Opportunity Costs• Create Generational Wealth• Transfer Wealth Income Tax Free

“The Family Banking Plan” is a unique financial strategy that builds wealth while eliminating debt. It teaches you how to:

By implementing the Family Banking Plan we have found that most families can be completely out of debt in 9 years or less, including your mortgage.


KEY 10

Understand that money in motion creates more

money.

You need to thinklike a banker.

Think Like a Banker

Bankers apply a financial strategy or technique called “velocity of money”.

We would like to keep this explanation simple so for the time being we are going to avoid discussing the Federal Reserve and its role in our fractional banking system.

Assume for a moment that you have $100,000 that you could deposit in a bank. And let’s further assume the bank was going to pay you 3% interest.

Think Like a Banker

On the same day you deposited your money with the bank they approve someone for a home loan at 6%. By loaning them your money at 6% and paying you 3% the bank also made 3% right? That 3% is actually what is called the interest rate spread. The bank actually made a 100% return on the 3% they paid you. You earned $3000 in interest and they earned $3000 in interest!

But it gets even better because the new homeowner gave the $100,000 the bank loaned them to the seller of the home, who put it back in the bank. Now the bank has the $100,000 to loan again, which they do to several people who want to buy cars.

Think Like a Banker

Those car buyers in turn give the money to the dealership, who returns the money to the bank. Are you seeing a pattern here?

Someone comes in for a home equity loan to remodel their home. They give the money to a contractor who puts the money back in the bank. Some people come into the bank wanting to consolidate their debt and so the bank loans them the money to pay off their credit cards and the credit card company puts the money back in the bank.

Think Like a Banker

As you can see the spread for each of those transactions is 3%, 4%, 5%, 8% for a total spread of 20%. If all those transactions happened every week, the bank would earn over 250% return on

your money!

The “Family Banking Plan” system helps you think like a banker and use the velocity

of money to your advantage.

Cost $30,00072 Months @ 7%$508.50 Month$36,612 Paid to Financial Institution

Sell Car For $10,000

BEFORE WITH FAMILY BANK

$26,612 Loss

Cost $30,00072 Months @ 7%$508.50 Month$36,612 Paid to Your Family Bank

Sell Car For $10,000$46,612 In Your Bank$26,612

Lossor $16,612 Gain

Next let’s talk about how the family banking system can transform debt into wealth. In the example on the previous slide we want to talk about the old way to buy a car and the new way to buy a car.

The old way to buy a car is to finance it. In our example we are paying $30,000 for our car. We are borrowing money at 7% for 72 months for six years. That will give us a payment of $508.50 per month. Over that period of time we will pay a total of $30,000 in principal and $6,612 in interest. We are going to assume that at the end of six years we sell the car for $10,000. That means we end up with a net loss of $26,612 on that car. This is a wealth transfer and remember we never get that money back!

By the way, you may be thinking that rather than financing the car you would have paid cash for it. But here is a profound truth about money, you finance everything you buy! You either pay interest to someone to loan you the money or you give up the opportunity to earn interest on the dollars you use to pay cash, you either pay interest or you give it up, either way there is a cost.

So even if we just look at that $30,000 if you paid cash for the car, six years later when you sell it for $10,000, you are still out-of-pocket the $20,000 that you will never see again and you can never earn a single dollar of interest on in your lifetime!

Let’s look at the new way to buy a car, the family banking way. We’re going to buy the same $30,000 car only this time we are going to pay cash for it. Now where did we get the cash to pay for it? By identifying and then reducing and eliminating the wealth transfers in your life.

There is no magic here, it may take some time to accumulate enough money to buy this car but once you have established a capital sum in your family banking system, you can apply this powerful strategy to your financial benefit for the rest your life.

Here’s how it works, you pay cash for the car but you amortize it at 7%, the same amount you would have been willing to pay the bank. That creates the same payment of $508.50 that you pay back to yourself every month for 72 months. You will pay the same $6612 in interest but instead of going to the bank it goes into your banking system that you own and control.

You will pay the same $36,612 over that six year period. Assuming you sell the car for the same $10,000 you would now have a total of $46,612 in your banking system. You started with $30,000 so your net capital gain is $16,612!

So which would you rather have, a $26,000 loss in capital or a $16,000 gain in capital? The choice is yours.


KEY 11

Every dollar can be strategically positioned

to do more than one job, creating multiple

benefits.

Let’s take a look at how this could potentially work over a four year period of time.

Family Banking In Action – Year One

In the first year we are going to assume that you have had the opportunity to capitalize your family bank and that there is currently a cash balance of $30,000 available. We are going to make a withdrawal of $30,000 to pay cash for the car and then we are going to be a good banker and require we pay ourselves back over a 4 year period of time at 6%. That creates a monthly payment of $701 per month that will allow us to deposit $8,412 back into our bank during the first year.

So $30,000 minus the $30,000 for the car leaves us a balance of zero. We are then going to add in the payments of $8,412 which will leave us a balance $8,412 in our bank at the end of year one.

Family Banking In Action – Year Two

In year two we start out with a balance of $8,412 and now we want to buy a entertainment system.

We withdraw $8,000 to purchase the entertainment system for cash and again like a good borrower we make payments back to our bank @10% for 3 years with a monthly payment of $256 or $3,072 per year.

So a starting balance of $8,412 minus $8,000 for the entertainment system leaves us a balance of $412. We are then going to add our annual payments of $8,412 for the car and $3,072 for the entertainment system to give us an ending balance of $11,896 at the end of year two.

Family Banking In Action – Year Three

In year three we start out with a balance of $11,896 and now we want to buy a boat.

We withdrawal $11,000 to purchase the boat for cash and again like a good borrower we make payments back to our bank @10% for 2 years with a monthly payment of $503/mo or $6,036 per year.

So a starting balance of $11,896 minus $11,000 for the boat leaves us a balance of $896. We are then going to add our annual payments of $8,412 for the car, $3,072 for the entertainment system and $6,036 for the boat which leaves us with an ending balance of $18,416 at the end of year three.

Family Banking In Action – Year Four

In year four we remember that we want to control our debt so we decide to not purchase anything big this year. We start out with a balance of $18,416

We add back in our annual payments for the car, the home theater system and the boat which gives us an ending balance of $35,936 at the end of year four.

Family Banking In Action

You Just Used The Same $30,000 To Finance $49,000 In Purchases

You Recovered $35,936 In Principal & Interest that would have normally been transferred away forever.

Plus You Now Own

Family Banking Plan

The real question is where is the best place to store that money that you have for your family banking plan. There are few places you can safely store money. You could store it in a savings account, however the interest rate might be quite low and it would be taxable. This is very inefficient and your money is only doing one job!

We recommend you use a specially designed, specific type of insurance plan, that emphasis maximum cash build up with the least amount of insurance.

Family Banking Plan

There are several advantages to utilizing these specially designed policies for your family banking system. First, you probably want and need some life insurance anyway. Second, money stored in a life insurance policy grows tax deferred and can be withdrawn tax free.

Third, you can earn a market rate of interest. Fourth, by using the cash values as your family financing capital you reduce the wealth transfers in your life and keep the money for your use over and over. Fifth, when you are done using the cash value to finance things, you can use it for a tax free retirement. And Sixth, upon your death you can leave the life insurance death benefit to your heirs income tax free!

Family Banking Plan

Let’s just consider for a moment the fact that most people make car payments during most of their working life. And they also try to fund their retirement plan at the same time. What if you could use the same dollars to do both jobs? What if you could use your car payment to purchase your life insurance and provide for your retirement?

What if every time you made a car payment it came back to you in the form of future retirement dollars? How powerful would that financial strategy be?

With the family banking plan that’s exactly what you can do!

You Make The Rules

Family Banking Plan

Local Bank

• No Application• No Credit Checks• No Loan Denial• No Waiting For Funding• No Banking Hours• It’s Your Money• Disability Benefits• One Dollar Doing Multiple Jobs

• Liquidity• Use• Control• Certainty• Enjoyment• Tax-deferred• Tax-free• Tax-free Transfer to Heirs

So very quickly let’s recap why we want to get rid of the local banker and start our own family banking plan.


KEY 12

Every financial strategy or product must create maximum liquidity, use, control, certainty and enjoyment of every dollar

during your lifetime and leave the maximum amount to your heirs.


By using all 12 keys together and by employing the unique financial strategies we will introduce you to, you will build wealth safely and predictably without market risk. You will reduce the wealth transfers in your life and transform your debt into wealth.

You will keep more of what you earn and every dollar you have will do multiple jobs, creating multiple benefits and provide the maximum amount of enjoyment!

The 12 Keys ToCreating Financial Certaintywww.AllianceGroupFinancial.com

The 12 Keys to Creating Financial Certainty

Economy & Finance

Transcript of The 12 Keys to Creating Financial Certainty