At What Cost? Series: On Opportunity Costs

Part 2 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 opportunity costs work.

 

Opportunity Costs

 

Simply put, opportunity cost is the cost of (or difference between) spending money instead of investing it.

Using the saving financing method, John Smith goes to the bank and takes out $5000 he already has saved but hasn’t earned any interest on. He has the option to purchase the couch he’s been drooling over every time he walks by it in the window on his way to work, or to invest $208.33 a month at 7% interest for the next two years.

If he chooses to purchase his couch, he will have spent $5000 and have no money left.

If he chooses to invest his money, calculating for the future value of his investment, we see that John will have earned $350.13 in the next two years and have a total of $5350.13.

The cost he will pay is hard to see.

On the plus side of this financing scenario, he will have saved himself from paying $372.64 interest cost for borrowing money. On the minus side of this financing scenario, he will have lost $350.13 of investment income.

By choosing to use saved money to purchase his couch, we see the couch has cost John:

 

Retail Cost of Couch: $5000

Monthly Payment: $0

Interest cost of couch: $0

Opportunity cost of couch: $350.13

Total Cost: $5350.13

 

Instead of only spending the retail cost of the couch, John loses an additional and unnecessary cost of $350.13 to himself.

 

Recovering Opportunity Costs With 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, we used our specially designed, dividend-paying, whole life insurance policy to finance our purchases with?

When we take out policy loans, we are not borrowing from our cash values, we are borrowing against them. Simply put, because we’re not spending the money inside our policy, we’re not losing the ability to earn interest on the cash values that we have, meanwhile, we’ll be spending the insurance companies  money outside our policy that’s been earmarked for this purpose. Our cash values continue to grow uninterrupted and, on a tax-advantages basis, ultimately saving us our opportunity cost.

By borrowing against the cash values of an Infinite Banking policy, 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.

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.

 


 

Please note:

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,

 

Ashley Lalonde