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Book Summary: Becoming Your Own Banker – Unlock the Infinite Banking Concept – By R Nelson Nash
This book is not about getting rich quick. He talks about emulating the entities that hold all the wealth – the “banks”. This is a great deal because you can take advantage of tax-deferred growth, pay interest to yourself, take advantage of tax write-offs, and see the power of compound growth over time. This strategy is very powerful and is how the rich maintain their wealth over generations. I’m a big believer in financial education and this book will help you do just that. As always, I am not a financial planner and I always recommend that you do your own research. This summary is designed to assist you in this research.
Why is this important to me?
This may not matter to you, but in my opinion it should. Most people work their asses off to make money and then do nothing to keep it and build on it. Remember, your financial goal should be to make your money work 10 times harder than you do. I know it’s easy to do, but it takes diligence and education.
Cash flow is a key concept. Whether it runs towards you or away from you – there is no peace. That’s why they call money – “currency”. Remember that if you pay cash for a car, you lose the opportunity to earn that money. Likewise, if you finance it, then you pay interest to the bank. In both cases, money flows away from you.
Infinite Banking will show you how to fix this problem.
This book is divided into 5 parts. I will touch on each part and delve into the most important aspects of the infinite banking concept.
1. Become your own banker – The problem with not implementing this concept is the “volume of interest” people pay to buy things. Most people focus on the interest rate without really thinking about the amount of interest paid. Here’s a quick example: Let’s say you plan to buy a house for $200,000 with 6% interest over 30 years. You will end up paying $431,677. So basically the house costs you twice. If you look at the rule of 72, your money should double every 7 years, so that’s not a bad trade-off. Here’s the killer. Say you sell the house in 10 years, you’ll still owe more than $167,000. Guess what – the banks know this.
On average, for the average person, you can calculate that about 30% of every dollar goes to interest in one form or another. So you should focus on “Interest Range” and not the interest rate. Think about it – what if you could buy this house with your “savings” and pay the interest to yourself instead of the bank?
2. Life Insurance That Pays Dividends – Let me warn some of you who listen to Dave Ramsey. His stuff is great and he hates life insurance as an investment. I disagree with him and I can show you why. This book will touch on that. There are some real secrets to using this device as an investment strategy. They include: tax-free growth, immediate access to money, no lawsuits, and money stays in the policy. This is the real secret. When you take a loan, you still receive a dividend. It’s like your investment is still growing and you can write off the policy interest on your taxes. Everyone focuses on the rate of return using investment vehicles, but you have to look at all the pieces that make up the pie and I can tell you that nothing beats this concept. Why do you think Warren Buffet likes insurance companies and insurance vehicles for his investments?
Getting Capital – Like any business, you have to build it before it starts making money. You need to do the same with insurance to make the banking concept work. If you think of a grocery store, you have to rent space, hire people, stock shelves, advertise, and do business. It takes time before the company starts spitting money and you have a lot of risk. With an insurance vehicle as a financing component for VAS bank, you must build it for at least 4 years. Once you reach 4 years old, you can start using the money to buy things and pay yourself interest.
Human Behavior – In order for the Bank of You concept to work, you need to make sure you pay yourself as you would the bank. If not, then it’s like stealing. You have to really cement that concept in your head to make it work. They wouldn’t rob your grocery store, so don’t rob your insurance policy.
Compound Growth – I won’t run through all the numbers due to time, but as an investment in a vehicle, insurance trumps all other types of investments such as 401K, 529 plans, CDs, mutual funds, and other restrictive types. Most financial planners won’t agree to this because they don’t understand ALL the benefits of insurance – not to mention they may not be able to sell it to you. in middle to late years. As you pay back interest and principal, policy values grow even faster. The real catch here is that you’re now saving 34.5 cents on every dollar of interest because you’re paying it to yourself. This interest then grows tax-free in the policy. One big advantage is that you get the loan money from the policy delivered to your door and it is not taxable. That’s because this loan is for you. When you look at other investment vehicles, you are encouraged to put money away and hope it will be there. You must follow the guidelines on when you can access the money. If you do it too soon, you will have to pay a penalty. I don’t know about you, but I don’t want people telling me what I can and can’t do with my money.
I have just touched upon the important factors in this great book. I can tell you that you can even use this strategy on steroids when you are buying other investments that are cash flow nullifiers. In the examples in the book, Nelson talks about buying cars and shows the power of paying yourself interest over time. Now consider if you buy a small business that makes money. Set up to pay for a company with a good interest rate to pay yourself off and NOW the payments are coming from OPM (other people’s money). I can tell you that the tax benefits and growth potential of this strategy are incredible. I have done this both when buying other businesses and when buying real estate with cash flow. This really helps when you’re paying yourself off because you generate interest income and can charge yourself more interest.
Remember that interest income is taxed less than ordinary income for YOU. That’s a big magnifying glass when considered over time. This way you will get more money faster.
I hope you found this brief summary helpful. The key to any new idea is to incorporate it into your daily routine until it becomes a habit. Habits are formed in just 21 days.
One thing you can take away from this book is to EDUCATE YOURSELF. The concepts in this book are excellent and I recommend you study them. If it makes sense to you, find qualified advisors to help you build wealth.
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