Part 1 of a 2 Part Series
Building wealth isn’t a set it and forget it kind of deal – it’s a decision that’s made every single day and it all starts with a good education.
There are of course, many financial strategies that are out there for building wealth. However, as Roberta Kiyosaki says best; “it’s not about how much money you make, but about how much money you keep, and how hard that money works for you and how many generations you keep it for.”
No other strategy drives home the importance of this idea more than Infinite Banking.
The way I see it, having a properly designed life insurance policy and plan could literally mean the difference of thousands, hundred-thousands, or possibly millions of dollars saved throughout your life and afterwards through the death benefit, a lifetime of savings in interest and opportunity cost, and taxes.
Having already touched on the death benefit and taxes in Getting Started With Infinite Banking blog, I want to uncover the financial value of saving interest and opportunity costs when using an Infinite Banking Policy.
By borrowing against the cash values of a specially designed, dividend-paying, whole life insurance policy to finance a lifetime of purchases with, we can effectively cutout the middleman (often banker or other third-party financial institution) between us and our money. When we do this, we can save on the interest and/or opportunity costs associated with spending money and begin to build wealth successfully, safely, and consistently.
That is why, attempting to turn life insurance from a need product to a want product, I will explain how Infinite Banking works beginning with my own personal values and experience.
I will explain any required financial scenarios in this blog quite simply so everyone may grasp, and ultimately bring banking down to the “you and me level” so to speak.
A wise man once said, if we don’t know what’s happening, we won’t know what to do.
Let me explain how interest costs work.
Simply put, interest cost is the cost of borrowing money.
Using a borrowing financing method, John Smith goes to the bank and takes out a line of credit so he can purchase the couch he’s been drooling over every time he walks by it in the window on his way to work. His line of credit is worth $20,000 and he plans to only use $5000 of it for his purchase. The cost he will pay to the bank for the opportunity to use their money is 7% interest and he plans to have it fully paid off in two years’ time.
Using an amortization calculator, we see John’s monthly payment over the next two years is $223.86, with the total amount of interest paid to his creditor at $372.64.
By choosing to borrow money to purchase his couch, we see the couch has cost John:
Retail Cost of Couch: $5000
Monthly Payment: $223.86
Interest cost of couch: $372.64
Opportunity cost of couch: $0 (for now)
Total Cost: $5372.64
Instead of only spending the retail cost of the couch, John spends an additional and unnecessary interest cost of $372.64 to the bank.
Redirecting Interest Payments Into An Infinite Banking Policy
We are here to educate people how they can use life insurance to finance their life and business and build a wealth that’s designed to last for generations.
What if instead of borrowing money from a bank or third-party financial institution, we used our specially designed, dividend-paying, whole life insurance policy to finance our purchases with?
- As the owner of an Infinite Banking policy, we can choose to borrow against our available cash values using policy loans
- We pay the interest on these loans so the insurance company can in turn meet required expectations for our policy.
- The insurance company redirects these interest payments back into our policy in the form of guaranteed cash values and/or dividends.
- Any interest paid increases our Actual Cost Basis.
By borrowing against the cash values of an Infinite Banking policy, we are effectively cutting out the middleman (often banker or other third-party financial institution) between us and our money. When we do this, we can save on the interest and/or opportunity costs associated with spending money and begin to build wealth successfully, safely, and consistently.
It is my hope that by going through this educational process and by continuing with the discovery process, you will come to know money in a whole new way.
Infinite Banking and whole life insurance are two separate and equally complicated topics to break down and discuss. Right now, my hope in writing these blogs is to build a basic understanding for Infinite Banking and while doing so, offer simple explanations for things and refer mostly to uncomplicated insurance plans. I will touch more on estate planning, corporate owned life insurance, and planned-giving in future blogs – always for education purposes and not intended as financial advice. Thanks for understanding!
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All the best in your financial journey,