"Mama always said life was like a box of chocolates. You never know what you're gonna get." Forrest Gump, 1994
Joseph and Beth are 40 and have a plan. They manage their money wisely and could be the poster kids for prudent mortgage management. They steer clear of credit card and consumer debt, promptly pay off any debt they incur out of necessity, put about $21,000 each year into their individual and their children's whole life insurance policies - their EUREKONOMICS™ Accounts and now, suddenly, are about to become proud parents again.
"You never know what you're gonna get." and an unexpected pregnancy is going to force some changes to the "plan." The first change is a significant reduction of income because Beth has to leave her well paid corporate position to care for herself during the pregnancy and the newborn afterward. Joe's teaching career is just burgeoning but is not yet in full bloom. This change creates other changes also; funding for the "banks" has to be reduced, relocation is almost certainly assured, the family home has to be sold in a down market, and, on the up side, another tax deduction.
Since the EUREKONOMICS™ Accounts are an essential piece of Joseph's and Beth's plan for the future, that's the piece of chocolate we'll address in this post. Joe's whole life policy is just entering its third year. Almost all of the premium that is paid into the policy this year is credited to the cash value account. This allows Joe and Beth to pay the annual premium of $13,200 using a loan from Beth's 401(k).
Once the premium has been paid using the 401(k) loan and credited to the cash value account in the policy, Joe and Beth can immediately borrow it back from the policy and pay off the 401(k) loan. This leaves them with a debt to themselves that they can repay on their own schedule and with the money they have available.
In fact, they could borrow the premium from the policy every year for the next ten years and not make any payments out of their income and the policy would remain in force and retain some cash value. Joe and Beth could, of course, pay the interest on the loans and assure that the policy would remain in force for decades and grow in value.
That won't happen. Joe and Beth will bite into another piece of chocolate and discover another surprisingly unsurprising surprise that will change their lives and their plans; they could win the lotto or lose an investment. The constant financial fact that allows them to go forward with confidence is the power and flexibility inherent in their personal economy because of their EUREKONOMICS™ Accounts system.
"You never know what you're gonna get." but you can make sure you can handle it.