Fortune Magazine published an article back in September of 1993 by Shawn Tully with this title: The Real Key to Creating Wealth. In the article he spoke about something called Economic Value Added (EVA), which turned the corporate world upside down. Prior to EVA, corporations were not taking into consideration the cost of using their own money to finance purchases, operations, or expansions. Once EVA became common knowledge it became easier to differentiate which companies were profitable and which were not, making investors’ ability to pick and choose where to invest more reliable. EVA also helped CEOs and CFOs to better manage their companies.
EVA, according to Shawn Tully, is the real key to creating wealth. Respectable CEOs and CFOs in the corporate world now accept EVA as common knowledge. This common knowledge can greatly enhance your ability to create wealth in your own life as well.
So, what is EVA? And how can it help you to create wealth?
In simple terms, EVA is “the measure of the profitability of projects undertaken.” Specifically EVA defines those profits realized after the cost of capital has been overcome or recovered.
Prior to Shawn Tully, the cost of capital was only considered when a corporation used other people’s money. If the corporation used their own capital, it was assumed there was zero cost to that capital. What Shawn Tully fully realized was, the cost of using your own capital can reduce or eliminate profitability.
This means, if you kept earning 4% on your $10,000 and used someone else’s $10,000, paying them 5%, you will keep $418.12 of interest which you would have lost by using your own capital.
As $418.12 is 4.181% of $10,000, this 4.181% becomes an economic value added in your favor.
But here’s the problem: Where do you find a place to keep your money where it can continually grow at a guaranteed pace and not be subject to decreasing returns, penalties or fees when it is leveraged? The three places you can keep money that provide guarantees are:
Of all these places to keep your money that provide you with guarantees not to lose your money, only whole life insurance contracts provide you with the liquidity you need while avoiding decreasing returns, penalties and fees. This is why using high cash value whole life insurance contracts are ideal tools to own if you want to create wealth by overcoming the cost of capital in your life.
Take heed however, all whole life insurance contracts are not created equal. For example, a recent whole life policy illustration that came across my desk for review had the policyholder paying 21.242% more in premiums than the cash value was guaranteed to be 40 years into the contract. Furthermore, the death benefit on this policy was only 111% more than the total premiums paid at that time.
In comparison, a policy designed here at Life Benefits for this policyholder, using the same initial premium payments, guaranteed 30.527% more cash value than total premiums paid by year 40, with the death benefit being 154.412% greater than total premiums paid.
Call 702-660-7000 today and find out how you can stop losing money and start creating EVA in your life. Having helped hundreds of others discover the real key to creating wealth, we are here to help you too.
Dr. Tomas P. McFie
Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of Life Benefits which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, How to Build Sustainable Wealth, can be purchased here.