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Jan 6, 20234 min

How to Build Wealth (The Smart Way)

Ever wondered how people get rich? Hint, it's not a Ponzi scheme. Nope, usually they do it the good old-fashioned way–by saving and investing their money. And to help you think about your financial future like a grown-up (we know; it sucks. But we all have to do it at some point), we've put some handy tips together, including how to take advantage of life insurance tax benefits. So read on and discover how to build wealth like the rich.

Get rich but don’t die trying

Why are rich people so, well, rich? It’s a bit like asking how long a piece of string is. Some make a killer TikTok video that goes viral. Then they sit back and watch the cheddar roll in. But in reality, those get-rich-quick schemes we hear so much about bear little reward.

The other option, of course, involves being born into a family dynasty that’s accumulated wealth over many generations. But unless ridiculous amounts of old money is in your DNA, there will be no riding the family yachts and helicopters for you.

So that just leaves the smart folk out there who have built wealth over time by making savvy decisions for their future. Those are the people you want to take inspiration from, and we’re here to help.

So, what do rich people do?

Most people build up their wealth over the long term by making smart investment decisions. Now, there are lots of ways to make investments. You could invest in cryptocurrency like bitcoin or try investing in businesses, hoping to unearth the next Apple or Spotify.

Then there’s bricks and mortar, which is, as they say, “safe as houses”. Whichever route you take, however, you need to be prepared to play the long game. It’s unlikely that you’ll invest in cryptocurrency on a Monday and be rich by Friday lunchtime. And, with all these popular investment types, there are no absolute guarantees.

Investing is, in a sense, a form of gambling, and you really, really do need to be prepared to play the long game. Don't get us wrong–there are some great ways to invest out there, but it's also worth putting your money into something with more guarantees and less guesswork.

Making smart investments with life insurance

Ok, so you might be wondering how we went from talking about bitcoin to buying life insurance. It seems like one heck of a jump, but hear us out. Most people think of life insurance as something your family receives when your number gets called–and we’re not talking about the number at the deli.

You'd also be correct because life insurance does provide a payout when you die. But it's so much more than that, especially if you choose a permanent life insurance policy. That's because permanent cover can payout when you're still alive and provide life insurance tax benefits.

Unlike term life insurance, a permanent policy doesn't expire as long as you keep making the payment. Therefore you have options available that allow you to use the money (more on that in a bit) you've built up later in life. Just think of it as adulting like the rich.

*You mean I can take out my life insurance in cash before I die?

Oh, you bet it does. The monthly payments you make typically go to three places: cash value, the cost to insure you, and policy fees and charges. That cash value component builds up over time, and you can either withdraw it or take it out in the form of a loan.

Unlike the stigma around life insurance – the one where money only comes your way after you die – permanent life insurance is a way to accrue wealth. It can be an investment account, or high-interest savings account that you can access later in life.

"Cash value growth that you can access income and capital gains tax-free", you say? That sounds like a smart move to us. And of course, you can always have your other investments going on around your permanent life insurance cover.

Tell me about life insurance tax benefits

You’re intrigued by life insurance tax benefits, and why wouldn’t you be? Hearing the word “benefit” after “tax” is about the only time when tax isn’t met with a roll of the eyes, a deep sigh, or absolute dread as you just remembered that your return is late.

Most investments require you to pay tax on earnings, but a permanent policy doesn't and also offers life insurance tax benefits. It accumulates tax-free value over time, meaning you can pay into it for, let's say, 15 years and then take out a cash value without paying any tax.

So if you're thinking about a nest egg for your future, permanent life insurance can help you build your wealth while enjoying tax-free returns. Not paying taxes on interest, dividends, or capital gains on the cash-value aspect is a huge bonus–plus, you still get the death benefit.

*Life insurance like you’re wealthy

It shouldn't come as a surprise to learn that wealthy people have used life insurance to grow their finances for decades. And, unlike most things relating to wealth, this isn't some sort of well-kept secret that they don't want people to know about.

A few ways that wealthy people use life insurance:

  • Create a “self pension fund” where they can receive a tax-free income stream for their entire retirement, and have a huge chunk of cash to pass on to their family
  • Protect themselves from the hefty growing costs of health emergencies and long term care
  • Pay for estate taxes (which has become an increasing concern for those of you ambitious readers who are looking to build a sizable estate in the future)
  • Pass on multi-generational tax-free wealth.

Basically, wealthy people use life insurance as a smart way to maximize their savings and investments for the future and be able to start their future generation off on an even better foot (financially).

So the next time life insurance comes on your radar, it’s worth paying attention. Because the idea of paying into a policy that covers you and your family while providing access to tax benefits and a cash value when you’re still alive is actually pretty exciting.

Welcome to the rich club

There you have it. Permanent life insurance is one of the ways that the rich get their groove on. Taking out a policy can become a savvy wealth-building tool, and when you're doing that, you won't just adulting like the rich–you could very well be rich yourself.

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