After earning several degrees from an Ivy-League university, teaching there, and spending twenty years in the insurance and financial services industry, nothing has had a more profound impact in my personal and financial life than reading Nelson Nash’s masterpiece “Becoming Your Own Banker – The Infinite Banking Concept”. It convinced me that most of my financial education and experience was based on faulty premises and that the only way to control my financial future was to control the banking function myself. It has provided me, my family, and my clients with financial independence and peace of mind. Some time ago, I read an excellent article by Gary Vande Linde titled “Infinite Banking ― How It Works” that summarizes extremely well Nelson Nash’s concept and I will share this article with you in five posts. Post 2 of 5: “Infinite Banking – Basic Concepts” covers very well the basics principles of financing and how you can make the process of financing work to your advantage. Infinite Banking - Basic Concepts 1) The essence of the “Infinite Banking Concept” is to recover the interest that one normally pays to a banking institution through the use of dividend paying life insurance and then lending those funds to others so that the policy owner makes what a banking institution does. Funds may be lent to any party including yourself and earnings grow within the policy tax deferred. Thus you are both reducing your tax burden and capturing monies for yourself that a banking institution normally would receive. 2) A foundational principle of the concept is that anytime you can cut the payment of interest to others and direct that same market rate of interest to an entity you own and control, which are subject to minimal taxation then you will have improved your wealth generating potential significantly. (Insurance companies do pay taxes – it is just that dividends in an insurance policy are not taxed – we will talk about this later.) 3) A concept or principle that must be understood before we began is that we are not talking about investing here rather we are talking about financing. Financing is a process not a product. Financing involves both the creation of and maintenance of a pool of money and its use. However, we will see that when a financing system is combined with an investment system the combination of the two will always outperform an investment system. When the system combines reduced tax liability with a financing engine and allows complete control over your investments there appears to be no system capable of generating wealth with as much consistency or speed. (Please see page 68 – “Becoming Your Own Banker”.) 4) A second concept or principle we must all agree on is that you finance everything. You either finance by: a. Paying interest to someone else – a bank, lender, etc. b. Or giving up interest you could have earned otherwise. (When you pay cash the interest the money could have earned is forfeited.) 5) For these reasons when we are discussing investment alternatives we must not only weigh the return we will receive but we must also evaluate what we are forfeiting or giving up. This mindset will become more important as we evaluate the “Infinite Banking Concept”. 6) For all of the reasons mentioned above every person should be fully engaged in two businesses: a. Your occupation b. Banking 7) Of the two businesses mentioned above, banking appears to be the one that has the greatest potential for helping a person generate long term wealth. 8) If we look at the average American we will find that most Americans spend about $ 0.24 - $0.34 of every dollar on interest expense. (Home, Car, Boat, Credit Card, etc.) For example, if you look at the purchase of a home, approximately 85 % of the monies paid during the first five years of your mortgage are interest payments. 9) Also looking at the average American we find that about $ 0.30 of every dollar is paid in taxes. 10) Summing these quantities we see that the Average American is paying from $ 0.54 to $ 0.64 of every dollar they earn on interest expense and taxes. If a legal, legitimate method could be developed to simply capture half of this loss, the wealth creating ability of the average man would be significantly improved. 11) In short, if these two sources of revenue could be captured then you would be further along in generating wealth for yourself than if you made good investments in the market that were achieving high rates of return. 12) As a note, the methods we are about to discuss are used by Wachovia Bank. To capitalize a portion of their banking system, Wachovia has purchased over nine billion dollars in dividend paying life insurance on their top executives. This pool of capital is one of the sources of working capital the bank draws on to fuel their banking system. (To be continued) As the only Authorized Infinite Banking Practitioner in Miami-Dade County, I am available for a complimentary no-obligation in person or virtual consultation to understand your financial goals and show you how to make them a reality. Contact me at 305-665-4508 or visit our website at BeFinanciallyIndependent.net
Posted on: Wed, 30 Oct 2013 21:34:45 +0000
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