04: What You Need to Get Started with IBC
004 What do I need to get started with IBC
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Introduction to Infinite Banking Concept
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John Perrings: The biggest mistake people make when starting The Infinite Banking Concept aren't things like choosing the wrong insurance company or getting their policy designed incorrectly. It's waiting too long to try to make everything perfect. The truth is, getting started with IBC is remarkably straightforward.
And today I'll show you the simple steps you need to take to begin your journey. To Becoming Your Own Banker. This is Stacked Life, the podcast that teaches you everything you need to know about the Infinite Banking Concept, whole life insurance, and the strategies that make it all work. And I'm John Perrings, an authorized infinite banking practitioner.
I've implemented IBC for hundreds of my clients and educated thousands more with original content from my podcasts, articles, and courses at StackedLife.com. By the end of this episode, you'll understand exactly what you need to do to start implementing the Infinite Banking Concept in your own life, including the essential first steps and common pitfalls to avoid.
Common Misconceptions and Mindset
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Today we'll cover why most people often hesitate [00:01:00] and why I don't think they should.
The problem you need to understand that we're actually solving, the proper mindset required, how whole life insurance is actually really hard to mess up, except for the one thing that is actually the opposite of what most people think. Some of the basic steps you need to get started
And finally, some key things to remember after you do. So let's get into it.
All right, I've got a couple notes pulled up here on the screen so you can kind of follow along with me here if you're watching this on YouTube. Again, the biggest mistake isn't choosing the wrong insurance company or getting an incorrectly designed policy, whatever that means, it can mean a million things.
I think it's. Waiting too long to try to get everything perfect and getting a little bit of that analysis paralysis. Because as we go through, I think what you'll find is that this is not as difficult of a decision as a lot of people make it out to be.
I think the number one thing that, that you need in order to kind of make a decision and get [00:02:00] started is really just understanding the problem that we're solving with IBC. We're solving the need for financing throughout the course of our lives. We're not solving the need to win a contest on what policy has the highest cash value in year one. You know, if you go down the rabbit hole of research and watching YouTube videos and listening to podcasts, I think the main thing most people I see out there
advertising is like the correctly designed policy is really just the biggest cash value that they say you can get in the first couple of years of the policy. And of course that's important, but like with all things regarding insurance, everything is a trade off. And so we need to actually have a little bit more of a well- rounded view and a little less sensationalism, I think, around what a correctly designed policy looks like.
And so I want to dive into that a little bit today to give everybody A little bit of peace of mind in terms [00:03:00] of moving forward and getting this implemented in your life, because it's really easier than a lot of people make it out to be.
Understanding Whole Life Insurance
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We're providing a source of financing for the rest of our lives. And if we're doing that, if we're creating our own system of financing, do we want our quote unquote banking system to be strong and built to last, or do we want it to a fragile flash in the Pan. This gets into the next section, which is the mindset piece where I want to spend kind of the majority of the time where we're talking today., I know I just said we're not building a bank and we're not, but if we use that as a thought exercise and we were actually building a physical bank, Um, where we, that we want to have grow for generations to come, would we want to pour a foundation for that bank to only accommodate the current capacity of our financial lives?
Or would we want to pour a foundation that can accommodate additional [00:04:00] capacity as we get more efficient, grow our wealth, and as our financial lives continue to grow? I come from the data center world. If you've listened to any of my previous stuff, you know, data centers are basically just big specialized buildings that hold thousands and thousands of computers that run Facebook, Google, Netflix, et cetera, and
all these computers, when you put them all in the same place, it requires megawatts and now even gigawatts of power to run. And so when you're building a new data center, we don't build that data center to handle the power capacity of the first few computers that are going to go in there. We build that data center to handle all the power we're going to need for all the computers that will fit into that special building.
Right. And. In the case of IBC, there's a lot of noise out there around getting the highest early cash value that we can get, which is getting into the arena that I would consider trying [00:05:00] to turn Infinite Banking and whole life insurance into a hack, that sort of hack culture, you know, um, I find that to be a little bit of a race to the bottom and more sensationalism than it is real life.
You know, money acts like money is going to act and there are ways to do things much more efficiently, but there's really no magic wand that you can wave. There's really just strategy and process that you can follow that makes everything work a lot better.
And the unfortunate hack that I think has Become a little more prevalent out there is this idea that you can pay a life insurance premium and get, call it 90% of your cash value available in year one or right after you pay the premium. And then, just borrowing that right back out against the policy.
And, and so essentially what's being sold is [00:06:00] free life insurance. It's like, "Hey, if you can pay this premium and get it right back out, did you really pay anything?" And the problem is. All things being equal, of course, we would want as much cash value available immediately as possible. I'd want 100%, but the thing is, we're actually paying for something here.
We're buying a guaranteed future cash flow in the form of that death benefit. And so, In this case, all things are not equal, and everything you do in a policy to create one outcome over here, another, if I pull a lever over here, another lever goes up somewhere else in the policy, and unfortunately, people are being sold, I think, a bill of goods where they're just coached, hey, you can, if you get the "right kind" of policy, it'll have 90 percent cash value in the first year or right off the bat when you pay that first annual premium.
But what they're not being told about are the trade offs in order to get that. So, getting back to mindset, I think that when we [00:07:00] buy whole life insurance, I think if we look at this like we're starting a business, that's a great way to go into it. We're getting into the business of banking, essentially.
And the best part is that, the business of banking, when we're using these guaranteed whole life insurance products, this business is guaranteed to succeed no matter what happens, as long as you treat it with respect. And so if you think about it, what business can you get into where after you put your startup capital into it, you can just get 90% right back on day one.
This is the mindset that a lot of people are taking to whole life and IBC. And. We need to bring this to the table when we're thinking about the right way to move forward. You know, there's no such thing as a free lunch. As my high school economics teacher, Mr. Evans: "There's no free lunch in room 117." And The same thing's pretty much true with everything and especially whole life insurance.[00:08:00]
You will have cash value immediately when we design these things for, the purposes of building cash value and the Infinite Banking Concept. It'll be less than what you paid in premium for the first few years of the policy. And this is just what we call the capitalization period.
If we, again, thinking about this like a business owner, we're capitalizing a brand new business, you're not going to have everything that you put into that business starting in day one and still get to keep the business, right? It's the same thing here. The good news, though, is it gets better every single year after the first year.
And the reason we're okay with this is because we know that by practicing the Infinite Banking Concept, we're creating an acceleration factor in the near future via the leverage that we get using policy loans. It's like we're slowing down to speed up.
And there's absolutely no question that all other things being equal, if you look at this over a [00:09:00] long period of time and you implement the Infinite Banking Concept and you compare that to all the things you were going to do without doing it, whether it's paying for large expenses or, even better, investing, you will come out millions of dollars ahead over the long term.
And there's just no question. I've run many, many models looking at this type of thing, and you do slow down for the first year or so, but then things really start to accelerate and they start to speed up
where ironically, it actually starts to feel like a hack, and it feels like a hack because Everything starts to become more and more efficient. It's a little bit of a slow roll, but as you get going, it just gets better and better and better every single year. And so what happens is your liquidity starts to increase with a compounding factor involved. And now you can start investing in things more and more regularly, and with higher dollar amounts behind those [00:10:00] investments.
Nelson Nash calls this the tailwind that you create behind you, the financial tailwind. You've got this tailwind behind you kind of pushing you through your financial life, making everything faster, more efficient and accelerating the growth.
And this kind of segues into the next piece of this here, where whole life insurance Rather than focusing on trying to get the first year and to make it feel like you're not paying a premium, we want to never be afraid to capitalize and we want, and, and to capitalize, we pay a premium. So that means we should never be afraid to pay a premium.
And. So, a couple things to help you feel really comfortable about paying a premium, is this. Whole life is actually really hard to mess up. When we think of asset classes out there, everyone's familiar with stocks, bonds, treasuries, , real estate, your business, cash, all these things. Those are just asset classes that [00:11:00] may or may not have a place in your financial picture.
Whole Life Insurance is just another asset class that may or may not have its place in your overall financial picture. With whole life though, there's some unique characteristics because of the actuarial nature of whole life insurance. Actuarial science being the math behind how insurance works, all types of insurance.
It's basically Risk Calculation Math. And because they're using the law of large numbers where they based this actuarial math on thousands of policyholders, they get a unique advantage that gives whole life insurance, especially some superpowers that you just don't get in any other type of financial asset.
I like to say, It's kind of like a savings account, a ROTH IRA, and a piece of real estate had a baby, where you get the guarantees and liquidity of a savings account. You get tax treatment that's kind of like a ROTH, but for completely different [00:12:00] reasons, where, you put after tax dollars into it, and from that point forward, it grows tax deferred, but you can get to it tax free, and of course, the death benefit is paid out income tax free.
And then the real estate piece of it, Whole Life Insurance builds equity similar to how real estate builds equity. Every time you pay a payment on your mortgage, you build equity in the value of the real estate. With Whole Life Insurance, it's really kind of a similar thing. Every time you pay a premium, you build equity in that future death benefit, and that equity is just called the cash value.
So those things are, very much tied together. You're really paying for the death benefit, but the cash value is sort of that guaranteed equity that you have in the death benefit, and then when we use policy loans to borrow against the cash value, that's really very much like a HELOC.
Everyone's familiar with HELOCs and the difference here is you don't have to apply for it. Number [00:13:00] one, there's no, you don't have to. Bring your financials and talk to somebody and apply and hope you get approved for it. It's a no questions asked access to credit. There are no payback terms on a policy loan.
And probably most importantly, the underlying collateral, which is the cash value, which is ultimately the death benefit, is guaranteed by the insurance company. So there's never any. You know, cause for concern where a policy loan could be called on you or something like that, like you would have with a HELOC.
And what's crazy is. No one would bat an eye at owning any of those other assets. No one would call you crazy for having a savings account. No one will call you crazy for having a ROTH IRA.
No one would call you crazy for owning some real estate. Meanwhile, everyone loses their absolute mind when you talk about owning whole life insurance. They call it a horrible investment, this, that, and the other thing. And it's really an unfortunate misunderstanding of the fact that this is [00:14:00] just another asset class.
And this asset class is particularly hard to screw up.
A Good List of Mutual Insurance Companies
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Let's just talk about some of the insurance companies now. A lot of people are balking at working with the right insurance company, they'll look at the published dividend rates of an insurance company and they think that they should work with the one that has the highest dividends. Unfortunately with dividends, there's a little bit of a misnomer that the insurance companies themselves are, I think, partially responsible for putting out there. When you look at an insurance company's published dividend rate, and let's just say it says 6%. That does not mean you're going to get 6% applied to your policy.
The dividend rate is just what's called the divisible surplus. And by the way, I have. I have a whole section on this in my course, IBC Mastery, which you can get at www.StackedLife.com/IBCMastery. But the dividend is just, that 6%, that's the total divisible surplus that they have [00:15:00] available to pay as dividends to all their policy owners.
And so there's a formula that they use to apply that to individual policies that the insurance companies do not tell you about. They don't tell me about it. So we don't know exactly how those percentages will apply. However, what we do know is the illustration that's provided with a whole life insurance policy, all of those illustrated values include how they calculate that dividend to apply to your policy. Now, and of course these are non guaranteed values because we don't know what the dividend is going to be, but we do know that a whole life policy only goes up.
It never goes down, regardless of what happens with the dividend. Everything in that policy and everything on the illustration is net of all costs, fees, commissions. So the number is there in black and white. So all that being said, don't think there's a ton of value in spending a lot of time analyzing The insurance company you go with, with a couple of exceptions.
In [00:16:00] the IBC world, we're pretty adamant about working with a mutual insurance company. And with a mutual company, what that means is, if you're a policy owner with a mutual insurance company, you're actually a part owner of the company. It's a mutual. And the reason we recommend working with a mutual is because as part owner, all the profits of the mutual insurance company go back to the policy owners as opposed to a stock company. They kind of have two mouths to feed. They have to make sure their policy owners are whole, but they also have to make sure their shareholders are whole.
So with all that being said, let's just throw up some of the top mutual insurance companies that I think if you have a policy with any of these providers, any of these insurance carriers, You're going to be in good hands. You got Penn Mutual, New York Life, Mass Mutual, Ameritas, Lafayette Life, Security Mutual, National Life, and Mutual Trust. I've maybe missed a couple out there, [00:17:00] but that's a pretty decent list of companies that, you can feel pretty comfortable working with.
Now, let's talk about policy design. This is the other place where I think people get, really wrapped around the axle where they're really just focused on what they hear is "correctly designed" policy. What I want to put out there is that even if you only ended up with a straight whole life insurance policy and, if you listen to the, influencers out there, they'll tell you, this is the worst policy you can possibly get.
I'm here to tell you, it's actually an incredible financial asset that you would still own. Now, the truth is, of course, the policy cash value would grow more slowly, there would be less cash value available, but in fact, the benefit to having what we would call an all base premium policy, the dividends are going to be great, it's going to be the most efficient design, It buys all death benefit, and that cash value, you have a lot of [00:18:00] options, to use that cash value as the policy matures, where you create some flexibility in terms of how that premium gets paid.
Now the trade offs are, there's less flexibility in the premium amount. What I, the purpose of this talk is not to get into the details around straight whole life versus whole life with a PUA Rider. What I'm trying to say is that. Now, even if you got the quote unquote worst design policy with no PUA Rider, no Term Rider, none of that, it would still be an incredible financial asset and you would not lose. Whole life insurance is a historically bedrock financial asset with unbeatable guarantees and unbeatable growth for the guarantees that you get. Now again, all of that being said, ideally we want to have a Paid Up Additions Rider on there because it does help build that cash value in the early years, but we don't want to go too far with that because really all the people that go really heavy on the upfront [00:19:00] PUA.
You're creating some significant trade offs that could hamstring the growth of the policy for every year after like the first one, two, or maybe three years. Or you have to introduce non guaranteed policy elements. Into the whole life policy that actually makes it work more like a universal policy where you have some costs that can increase on you in the future.
And we don't know what effect those costs are going to have. It could require you to pay more premium. It could reduce your death benefit, or it could entirely blow up the policy, meaning you would lose the policy and you get nothing. So what we want to do is we want to have a responsible policy that builds great cash value in the early years.
And not focus too much on just that first year. We want to build a policy that's going to last for the rest of your life and Also, we want to have a policy that's going to grow with you. When you front load that early cash value, that's as [00:20:00] much premium as you can ever pay into that policy without turning it into a Modified Endowment Contract or MEC.
That's where, once that happens, the policy becomes taxable, so all the people promoting these super high early cash value policies are just really pushing the line and causing some problems where the policy could become taxable. It will run less efficiently for the long term. It won't be able to grow with you or worst case, it could blow up the policy altogether.
And this section is called "Whole Life Insurance is Hard to Mess Up." What's crazy is that the only way to mess up a whole life insurance policy actually comes from trying to get too much cash value in the early years of the policy. That's actually the only way you can mess up a policy. In a way that's going to be catastrophic as opposed to just slower growth, like what you would get with a straight whole life insurance policy.
That would be way better than getting the super high early cash value because all the catastrophic [00:21:00] stuff happens there. And again, the way that that could happen is the worst way is you get some non guaranteed policy elements in that policy that could require more premium due in the future because of higher costs that are not baked into the policy.
And then if you can't afford to pay that premium, the whole thing blows up in your face. You lose your cash value. You lose your death benefit. So, what's wild is a correctly designed policy, that everybody says you need the high early cash value, that's actually the only way you can really make a mistake in buying whole life insurance.
All right.
Steps to Get Started with IBC
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So let's talk about some broad strokes steps to actually get started.
And the first thing I think is a very low commitment first step, if you're looking at this from an IBC perspective, read the book, Becoming Your Own Banker by Nelson Nash. This is really the source material for all things IBC. I mean, I talked to a lot of people, they'll schedule an appointment with me that and somehow they've never even heard of the book.
Becoming Your Own Banker. And [00:22:00] you know, they just kind of get a lot of their information from YouTube and podcasts. And those are usually the people that have the least understanding about what's going on. So I always recommend reading the book, Becoming Your Own Banker. You can get that on my website at StackedLife.com or you can get it from the source. That's the Nelson Nash Institute at infinitebanking.org. And I think reading this book is a, a really key piece to just getting the ground floor foundational understanding of what we're doing, because you're hearing it from the person who developed the concept himself, Nelson Nash.
Anybody else talking about banking with life insurance? I think they're just riding the coattails of Nelson Nash, and trying to create their own system based off of what he did. That may matter to you. It may not. Um, but I think it matters because I think we always want to, uh, track to the source material
when doing anything. I also recommend talking to an authorized IBC [00:23:00] practitioner. You know, these are authorized by the Nelson Nash Institute, the official home of IBC again, and you can go to infinitebanking.
org. And look at their practitioner finder to find someone close to you. What you'll probably find is that most people work in multiple states or even nationwide. You'll find me on there. I work pretty much everywhere. But the reason I think this is important is, as I mentioned in a previous episode, it's really not hard to get into the insurance business.
And so at a bare minimum, there's a significant additional expense and significant additional training that all Authorized IBC Practitioners go through. So at the bare minimum, you're working with somebody who actually believes in having those extra steps and extra levels of education and know how in order to provide much more value to their clients.
Then the third piece is every [00:24:00] advisor is going to have their own process, but the broad strokes of getting an insurance policy are as follows. You know, you're going to talk to your advisor. They'll probably have you fill out a fact finder, and then you're going to have to do a life insurance application.
Everyone will have to apply for life insurance. One of the lines is: "life insurance is so powerful that you have to qualify for it." You have to qualify with your health and your wealth. And so you'll apply for life insurance. Then when you submit that application, you go through the underwriting process and the underwriters at the life insurance company are going to take a look at your health and they may require what's called a paramedical exam, where a paramedical professional will come to your house and office, or you can go to one of their locations and they'll take fluids, body weight measurements, and the corresponding lab results will be used in the underwriting process.
And then you'll get approved at a certain risk class, you could get declined by the way, but, I see [00:25:00] most people get approved. You get approved at some kind of preferred rating, a standard rating or a substandard rating. So if you've got some ongoing health conditions, you may get a substandard rating.
What that does is it increases the cost of insurance. So that does affect how quickly cash value accumulates for the purposes of IBC. But my recommendation is no matter what the rating you get, if you're in, if you're in the market to buy life insurance, you buy it when you qualify for it. And I try to, I suggest buy as much as you can, because, even if you're in poor health,
the worst case outcome is things won't get better. And now you'll have some life insurance. And that's as good as it's ever going to get. But if the reason you got a lower class, rating is something acute, like maybe you're just, I don't know, a little overweight right now.
Some people would be like, "well, I'm going to wait till I get in shape to get life insurance." [00:26:00] I don't think you should do that. I think you should get it right now because we never know if things could get worse in the future and you may not qualify at all. But then the good news is if you have something like that where maybe you're overweight, maybe you had a traffic violation, maybe you're a smoker. If you make improvements to those conditions, you, Implement diet and exercise and you lose weight, or you stop smoking and you can demonstrate that for a year, call it, we can go back to the insurance company and do what's called a policy change. We can go back through underwriting, we can actually get that policy rewritten at the better health rating. And now you have that policy that is already in existence and everything changes based on the cost of insurance at your new improved health rating. So there's really never a reason to wait because you might get a policy at a better health rating in the future, but guess what? We only ever get older. We're never younger than we are [00:27:00] today. So you might get the better health rating, but now you're buying it at your new older age, which also affects the cost of insurance. And that's the age is one thing we have zero control over.
And then of course, the worst case scenario being it doesn't get better or maybe something even worse happens and you can no longer qualify at all.
So again, I always recommend getting as much as you can when you can, when you're in the market for it. So once you get that approval, what'll probably happen there, especially if you're working with somebody regarding IBC, you'll probably talk about some strategies, some policy design, you'll come to a conclusion on how you want your policy designed.
My take on that is my job is just to show you what the trade offs are. I'm not going to hide a high, Early cash value policy from you. I'm not going to say you can't do it, but what I'll do is I'll show you the trade offs and you'll see that, Hey, by doing it this way, here are the corresponding trade offs by doing it the way I might recommend here are the other trade offs, [00:28:00] which one do you want?
I can tell you. Pretty much 100 percent of the time I show what the trade offs are. No one wants the high early cash value policy. Especially the ones who can think more like a business owner and understanding that they're starting a brand new asset. It's going to require some capitalization and there's a time period to that. Now you've got your policy, so you'll sign your policy documents, and you'll make your first premium payment, and once you do those two things, you have to sign and pay, the policy is now what's called "inforce." And now you're a whole life insurance policy owner, and you're off to the races.
Things to Keep in Mind AFTER you Buy a Policy
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So, you've got your policy now, what are some things to remember after the policy is in force?
The first thing to remember is, you're in control. You're the owner of this policy. Not your agent, not your cousin, not Dave Ramsey. This is something that you own, you control, and you can use [00:29:00] however you see fit. And while you do have a commitment to pay a premium, something that sometimes happens is people get what sometimes we'll call it in the IBC world, they get "IBC amnesia."
They forget like why they started doing this. And sometimes they'll pay a premium for a year or two years or three years. And if they haven't really connected with any people that are kind of like minded or with their agent or professional, they'll sometimes forget why they're paying that premium.
We do have a commitment to pay the premium, but the more mature the policy gets, the more options you have to pay that premium without coming out of pocket. And I just want to say up front, I'm not suggesting we try to get to that stage as quickly as possible, because if you think about it, all the things that a whole life insurance policy does,
Why would we ever want to stop paying a premium? Your cash has to reside somewhere. Money has to reside somewhere. Do you want it residing somewhere [00:30:00] where you have the least amount of control over it or somewhere where you have the most? So I'm always of the opinion you should pay a premium for as long as possible, right out of your pocket because you're earning an income.
But I'm bringing this up because. Again, just want everyone to feel really comfortable about that decision because the more mature the policy gets, the more options you have to pay that premium without coming out of pocket if any one thing should happen where it might make sense to do that.
The dividend can pay the premium. You can use premium offsets. You could reduce pay up. That's a more permanent decision. You can use a policy loan to pay a premium. There's a commitment there, but there are also options for you to roll with the punches if any one thing happens where it becomes tough to pay a premium.
The other thing I would say is think long range. You know, this is one of the main. Components of Nelson's book, Becoming Your Own Banker. Again, the more this policy matures, the better it gets, so think long range. [00:31:00] You know, for the first year or two or three, every $1 you pay in premium creates less than $1 of new cash value.
But at a certain point, and it happens pretty quick, like year three, year four maybe, every $1 you pay in premium starts to build more than one new dollar of cash value. So if you think about it in those terms, you're just taking a dollar from your left pocket and putting it in your right pocket.
But by the time it gets to your right pocket, It may be turned into $1.50. Then $1 in premium creates two new dollars of cash value, then $3, then $4. It just gets better and better and better, and this is one of the reasons why it, hands-down, creates a much better outcome for you over the long term.
It's because it just creates so much more liquidity than really anything else you can put your money into. And then the last thing is, be an honest banker. You've now created your system, you've taken over the banking function. And so what you've kind of [00:32:00] done is you've created a "banking persona," so to speak, right?
So you've got this banking persona. And the other side is you've got maybe an "investor persona," right? And if this investor persona needs to borrow $50,000 to go buy an asset, and the going rate of interest is say 7%., well, your investor persona should pay your banking persona back at 7%. It doesn't matter if the banking persona was able to access that money at 5%.
If it only cost him 5%, it doesn't matter. The banking persona needs to make a profit as well. So your investor persona should pay your banking persona back at the going rate of interest, the market rate of interest. That's what being an honest banker in the Infinite Banking realm is called. That's how we refer to that as being an honest banker.
And when we are an honest banker, that's how our banking persona makes a spread so that they can further capitalize the [00:33:00] system, which further accelerates your growth over the course of your life.
Conclusion and Next Steps
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Alright, so that's what we need to get started with IBC. If any of these ideas are resonating with you and you'd like to learn how they might apply in your life specifically, just head over to www.StackedLife.Com. You can schedule a free 30 minute consultation with me right there. The other thing I have available there is a brand new, free mini-course that I've created
called "Adding Certainty to Supercharge Growth." You can get access to that at www.StackedLife.com/supercharge. All right. Thanks for listening. I'll see you on the next one.
