The concept of Infinite Banking or really the concept of it (IBC) started with Nelson Nash. Mr. Nash wrote the book Becoming Your Own Banker.
There are many different ways to use this concept. Some include:
- Buy a Car
- Buy a House
- Invest in Rental Property
- Use it as a Retirement Program (like an IRA)
- Use as a Business Loan
- Use as a Personal Loan
- And much more
The biggest idea that is discussed is the tax benefits. Think about taxes in your retirement vehicle like your 401k or IRA. You are contributing before tax dollars. When you take this money out in retirement will the taxes be higher then they are now? Most agree that yes taxes will only get higher as they have in the past. What about the cost of living? They hide cost in food. Have you not noticed how expensive your food is getting? So how much do your really have to retire on?
The second is the interest rate. One must consider that banks are paying 1% or less for savings accounts, 2.5% or less for CDs but charging north of 22% interest for credit cards. Inflation is 3% or higher. We really need a different option then the bank. We can’t possibly get ahead if our interest rate is lower then inflation can we?
Please read through this site for more information about family (infinite) banking so you can understand how it works. Although it’s simple idea the individual little pieces can be complex. This may simplify the concept a bit further for you to understand the the Pros and Cons.
Here are some common Pros and Cons:
Pros of the Concept:
- Private
- Guarantees
- Leverage
- Personal Family Financing
- Tax deffered Growth
- Tax Free Loans
- Equity Storehouse
- Improves Cash Flow and Liquidity
- Non correlated asset
Cons of the Concept:
- Non diversified
- Must Qualify
- Requires discipline
- Cost prohibitive
It’s a shame really that more financial education is not taught to us in school. We won’t discuss why that is here in this post but let’s discuss Financial Education. Do you think the rich spend time looking for and analyzing Financial options? You bet they do. Do you think they teach what they learn to their children. Sure they do. So why do you think the rich get richer and the poor get poorer?
Two words: Financial Education.
Do you think the Rich use life insurance? Heck yes they do. Here’s one way they use it. Yes you do have an exemption for inheritance tax up to 5.6 million but what about after that? Let’s not go into tax code right now but let’s assume it’s at least 20%. What if they want to leave all of their money of 40 million to their children. How can they do that? Well one effective way to leave tax free money to your heirs is life insurance. So the Rich buy life insurance for the amount of taxes they think it will be on the money so the heirs will get the full 40 million. Done. Taxes paid.
Why else do you think the Rich get richer? Do you think they pay 22% interest like the rest of us on our credit cards? No they don’t. When the family member needs money for a home or a car they stay within the family. The family uses the correct vehicle to provide the loan in so that there are no gift or other tax issues. Life insurance is one of those vehicles.
If we want things to change then We have to change them. Stop getting mad that the Rich are getting richer and simply learn how they do it. Then apply what you learn to how you live your life and how you spend, borrow and lend money. Imagine how the banks would have to change if we stop using them.
Learn how to be like the Wealthy with Love Financial.
