Generally speaking, books offered to book bloggers for review are new books seeking an audience, not bestsellers. However, FSB Media was offering review copies of Bank on Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future
which was a best-seller. When I first saw it, I figured it was another version of "spend less than you make" because, just as we cannot lose weight by eating more calories than we burn, so we cannot make financial gains spending more than we make. When Holly reviewed it, she said it wasn't that type of book at all, and that she ran the program by a financial advisor who said it could work. I figured I'd give it a shot--we haven't gotten rich lately so I'm willing to consider new ideas. About the book (from Bank on Yourself website):
This ground-breaking book reveals the secrets to taking back control of your financial future that Wall Street, banks, and credit card companies don’t want you to know.
You’ll discover how to…
- Have a rock-solid financial plan and a predictable retirement income that can last as long as you do (chapters 4, 6, and 7)
- Turn your back on the stomach-churning twists and turns of the stock and real estate markets (chapters 3, 7, and 9)
- Not have to depend on luck, skill, or guesswork to reach your financial goals – Bank On Yourself is something almost anyone with a little patience and discipline can do (chapters 5, 6, and 7)
- Get back every penny you pay for your cars, vacations, home repairs, business equipment, acollege education, and other major purchases, so you can enjoy more of life’s luxuries today without robbing your nest-egg! (The average family could increase their lifetime wealth by $500,000 to $1,000,000 or more using this method, without the risk or volatility of stocks and real estate) (chapters 2, 3, and 9)
- Stop choosing between enjoying life’s luxuries today and saving for tomorrow—it’s possible to enjoy the things you want, without robbing your nest egg (chapters 2 and 9)
My Comments:
Most financial planning books tell you to purchase term life insurance to cover your life insurance needs, and invest money in the stock market to cover your investing needs. The basic principal of this book, which reads like an infomerical, is to buy dividend-producing whole life insurance with paid up riders as an investment and as insurance, and then to borrow against the cash value of the policy to pay for big-ticket items, rather than financing them through a bank. The author admits that the start-up costs for this plan take time to recoup, but claims that over time you are able to use your money over and over without paying interest to banks.
Math never was my best subject but something about it just didn't make sense to me. In one example given, a man was going to pay $1000/ month for a policy. After 3 years (and $36,000 in premiums if my math is right), when his current car is paid for, he can borrow $30,000 from the plan to pay for his next car. Then, instead of paying the bank every month, he'll pay the insurance company--with interest. The power of this system over saving to buy the car is that you'd have to pay taxes on the interest you earned, and you still get whatever dividends the insurance company pays on that $30,000. If you die with an outstanding loan balance, it is deducted from the policy value.
My gut feeling is that if the guy in the story could come up with enough money to buy $1000/month worth of insurance, he should have been able to save that money and not be buying the car on time to start with. The advisor suggested stopping 401K contributions to fund this plan--and encouraged the couple to borrow liberally against these policies. Here is a blogger who seems to put into words what I'm feeling.
Anyway, here is the author's website, judge for yourself.
Sounds like someone who wants to sell you a life insurance policy.
ReplyDeleteJust put the $1000 into the bank. In 30 months buy a car. If you want to you can "lend" yourself the money and pay yourself back with interest (my sister did this with a house).
I'll stick to the buy and hold- on to cars that is - until they drop into the ground!
I followed your link to the other review. Both of you put your finger on it. Thanks for helping me slide by a book I might have picked up!
ReplyDeleteUhhhh… you may want to go back to that blog post that made you decide to “slide by” this, Janette. Quite a few comments have since been posted by both consumers and financial advisors that rip gaping holes into every one of the bloggers arguments.
ReplyDeleteYou may want to read the book to find out why using the method described in the book trumps saving money in a savings or money market account to pay cash for things (even if you keep your cars “until they drop into the ground.”)
You may also want to check it out to find out why no one who has these policies lost a penny when the markets crashed and how they are using it to grow a nest-egg they can be confident will be there when they’re planning to retire.