Becoming Your Own Banker is a book about the Infinite Banking Concept, why we should use it, when we should use it, and how we should use it.
The book is written from the viewpoint of the United States, so for those of us from other countries, we will have to find our own variation of the tools needed to Become Your Own Banker.
In this overview, we will be looking at the concept from a Canadian point of view using the tools and strategies available to us in Canada.
What is Becoming Your Own Banker and the Infinite Banking Concept?
Let’s start with what it is NOT. This is not about setting up your own physical bank and banking system. It is about using the tools and systems available to us so that we can use money the same way that the banks do, and in so doing, become much more wealthy than we could have been.
Infinite Banking is about setting up your own “vault” or “pool of cash” that you can use to fund purchases that would traditionally need financing for.
As soon as you can get to the point of not needing the banks for financing anything you buy, this is when your wealth really takes off.
Imagine getting a vehicle loan from yourself instead of the bank.
Imagine purchasing a cabin at the lake using your own vault for financing.
Imagine giving your children a student loan from the family vault instead of them getting a loan from the government and paying the loan back at a very high interest rate.
So many people don’t do the math on how much it costs you to get financing for these purchase. When you do the math, it reveals how the banks can be so profitable! Infinite Banking enables you to be that profitable yourself…but you have to stick to the appropriate banking rules with your own bank.
Let’s dig into what it is.
The infinite banking concept relies on setting up a “bank” or “vault” where you can store your money, have it grow compounded and uninterrupted, and not be subject to taxes or fees so that the growth on your money is not eaten up by banks or government.
The primary tool we use to setup this vault is a specifically designed whole life insurance policy. Now, some of you who just read that might be thinking that it doesn’t make sense that a life insurance policy could be used as a vault. Using a life insurance policy as a tool that will help you become your own banker might not make sense…yet…but there you have it, that’s what the tool is. HOW we use the tool is what is key.
But before we jump into how, we first need to tackle WHY.
Why do we want to Become Our Own Banker?
Here are a bunch of reasons why it is better for us to invest our money in our Infinite Banking Vault instead of the traditional places we are told to put our money for retirement:
- A vault is a true tax-free environment unlike RRSP’s, GIC’s, pension plans, stocks, and even real estate.
- You get taxed, one way or another, on all those investments:
- RRSP’s are just a tax deferral
- GIC’s still get taxed on the income
- Pension income is still taxed at the tax rate for the tax bracket that you are in
- You still pay capital gains tax on your stocks or real estate
- Real Estate still incurs a lot of taxes, fees, commissions and mortgage interest
- You get taxed, one way or another, on all those investments:
- A vault has not lost money in over 100 years
- With regular investments, the problem is that if you ever have a loss, you need substantial gains just to break even, and even if you do break even, you’ve just lost all that time of growth you could have had.
- If you simply have an investment that never loses money, you will be better off.
- Here’s an example: If an investment goes down 30% the first year, you need to make 43% the second year just to break even, and then you have lost 2 years of growth. If the same investment earned 8% per year of compounded growth, you’d be ahead an overall 8.32% after 2 years, or 9.39% in 5 years.
- A vault is 100% protected and 100% liquid
- Because it’s a private contract between you and the insurance company, no one can take the policy from you and no one else has control over the policy.
- When we say it’s 100% liquid, we mean you can gain access to the money at any time, for any reason, without any need for permission, and without having to pay income tax on the money.
- What’s actually happening is you are getting a loan from the insurance company based on the cash value of your policy as collateral. So the money in your policy keeps growing because you didn’t take it out, and the interest cost on your loan is less than you are making on the money in your policy. So, you are not losing money by getting the loan.
- A vault can be used to save for retirement
- A vault can be used to store business profits tax free (with a corporate owned policy)
- A vault can be used as access to capital in order to expand your business
- A vault is not influenced by the stock market, inflation, or what political party comes to power
- A vault can be used in retirement as income…especially if you have other investments and they are down. Taking withdrawals from investments when they are down can be very costly.
Now that we know WHY to use it, let’s briefly go over WHEN to use it.
When to use Infinite Banking principles and Your Vault
- Buying a vehicle
- Paying for a vacation
- Paying for Tuition
- Any big purchases
- When unifying debt as a strategy
- In place of a pension plan
- In place of investments
- And there are many other strategies based on what situation you are in.
If you are a business owner:
- Store company profits
- Company expansion
- Protect against a loss
- An in-between place for rent
Now let’s talk about HOW to use it:
The best way is to use an example: Financing buying a vehicle.
This assumes you have capitalized (funded) your bank enough to get a $8k loan from it to start and that your premiums are $4k per year.
- Take out a loan for $8k and buy an $8k vehicle
- Put $8k into a loan payment calculator with payback in 2 years and at 7% interest. You’ll get monthly payments of $358
- For the next 2 years, make that monthly payment back into your vault
- Now you have $8596 in that vault after 2 years, but your vault has also capitalized another $7200 (90% x $4000/year x 2 years) and your vehicle is still worth $5k. So, you have almost $21k to get a newer vehicle and start over again (or fund something else).
If you had borrowed $8k from a bank, you'd have made payments to them and would only have your vehicle left as an asset. You just curcumvented the banking system, made $596 on your loan to yourself, and have a much bigger vault to do something with in the future.
Let's Recap The Problems and the Possibilities
- Taxes: it seems like we’re always paying too much in taxes
- Growth of Investments: our investments aren’t growing as fast as we would expect them to be
- Debt: it seems as though we are barely making our way to get out of debt
- Income: our monthly income doesn’t ever seem to increase over the years, but prices of things keep going up
How would you like to gain complete Control over the use and liquidity of your money? Achieve Guaranteed cash accumulation? Shield your Savings from the volatility of mutual funds and the stock market? Create a Predictable, stable financial asset that pays you and grows unencumbered every year on a foundation of contractual guarantees?
Taking control of your money can change your life more than you know. Our staff and clients have gone through the process of becoming their own banker and in doing so, have solved all of the problems above. In fact, becoming your own banker is something we believe is the Best Investment You Can Make.
A Vault is The Best Investment You Can Make
It’s a bold statement, we know. But nothing else out there can provide ALL of the features you see below.
You control access to the money
Tax free compounded growth
Tax free retirement income
Can be used as collateral for a loan
Never lose money
No reporting to CRA
Not affected by the stock market
Transfer ownership with no tax consequences
Change beneficiary with no tax consequences
No credit checks
No loan applications
No income verification
No probate fees
Tax free legacy at death
Positive, competitive, guaranteed returns every year
Better returns than 5 year GIC’s