Book Summary: Become Your Own Banker – Unlock Infinite Banking – By R Nelson Nash
This book is not about getting rich quick. He talks about emulating the entities that contain all the wealth – “Banks”. This is a big deal because you can take advantage of tax-deferred growth, pay yourself interest, 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 preserve wealth through generations. I am a great believer in financial education and this book will help you in that effort. As always, I am not a financial planner and I always recommend that you do your own research. This summary is designed to help you with that investigation.
Why is this important to me?
This may not be important to you, but in my opinion it should be. Most people work hard to make money and then do nothing to preserve and build on it. Remember that your financial goal should be for your money to work 10 times harder than you do. I know this is an easy statement to make, but it requires diligence and education.
The flow of money is a key concept. It is flowing towards you or flowing away from you; there is no way to stay still. That is why they call money – “currency”. Remember that if you pay cash for a car, you lose the earning potential of that money. Also, if you finance it then you pay interest to the bank. In both scenarios, the money moves away from you.
Infinite banking will show you how to eliminate this problem.
This book is divided into 5 parts. I will go through each part and delve into the most important aspects of the concept of infinite banking.
1. Become your own banker: The problem with not doing this concept is the “volume of interest” that 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’re buying a house for $200,000 at 6% interest for 30 years. You end up paying $431,677. So basically the house costs you twice as much. If you look at the rule of 72 then your money should double every 7 years then this is not a bad trade off. Here is the killer. Suppose you sell the house 10 years later, you’ll still owe more than $167,000. Guess what, the banks know this.
On average, you can figure for the average person that about 30% of every dollar goes to interest in one form or another. Therefore, you should focus on the “Volume of interest” and not on the interest rate. Think about it: what if you could have bought that house with your “savings” and paid the interest yourself instead of the bank?
2. Life insurance that pays dividends. Let me warn some of you who listen to Dave Ramsey. His stock is excellent and he hates whole 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 with this device as an investment strategy. They include: tax-free growth, instant access to money, judgment waiver, and the money stays in the policy. This is the real secret. When you take out a policy loan, you still receive your dividend. So it’s as if your investment continues to grow 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 cake and I can tell you that nothing beats this concept. Why do you think Warren Buffet loves insurance companies and insurance vehicles for his investments?
Capital Accumulation – Just like any business, you need to build it before it starts making money. You must do the same with insurance for the banking concept to work. If you think of a grocery store, you have to rent the space, hire the people, stock the shelves, advertise, and run the business. It takes time before the business starts spending money and you have a lot of risk. With the insurance vehicle as a financing component for Bank of YOU, you must build it for at least 4 years. Once you hit the 4-year mark, you can start using the money to buy things and pay the interest.
Human Behavior: For the Bank of You concept to work, you need to make sure you pay yourself payments just like you would a bank. If you don’t, it’s like stealing. You really need to ground this concept in your head for this to work. You wouldn’t loot your grocery store, so don’t loot the insurance policy.
Compound Growth: For timing reasons, I’m not going to go over all the numbers, but insurance as a vehicle investment blows any other type of investment like 401Ks, 529 plans, CDs, mutual funds, and other restrictive types out of the water. Most financial planners won’t agree with this because they don’t understand ALL the benefits of insurance, not to mention they may not be able to sell it to you… Tax-free compounding really goes a long way. in the middle or late years. When you pay back the interest and principle, policy values grow even faster. The real hook here is that you’re now saving 34.5 cents of every dollar in interest because you’re paying yourself. This interest then grows tax-free in the policy. A big plus is that you get the policy loan money delivered to your door and it’s not taxable. This is so because it is a loan for you. When you look at other investment vehicles, you’re encouraged to put the money away and hope it’s there. You must follow the guidelines for when you can access the money. If you do it too soon, you will have to pay fines. 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 just mentioned the important factors in this great book. I can tell you that you can even put this strategy to work on steroids when you buy other investments that shed cash flow. In the examples in the book, Nelson talks about buying cars and shows the power over time when you pay yourself the interest. Now consider whether to buy a small business that is making money. You set up to pay off the business with a good rate of interest to pay for yourself and NOW the payments come from OPM (other people’s money). I can tell you that the tax advantages and growth potential of this strategy are incredible. I have done this with both other business purchases and real estate purchases with cash flow. This really helps when you pay yourself because you get interest income and you can charge yourself more interest.
Remember that interest income to YOU is taxed less than ordinary income. This is a great magnifying glass when you look at it over time. You can earn more money faster this way.
I hope you have found this brief summary useful. The key to any new idea is to work it into your daily routine until it becomes a habit. Habits are formed in as little as 21 days.
One thing you can learn from this book is to EDUCATE YOURSELF. The concepts in this book are excellent and I recommend that you study them. If it makes sense to you, seek out qualified advisors to help you build wealth.