Infinite Banking: How to become your own Bank (Pt.1)
Is it really true that you can become your own bank?
Yes, it’s true.
…And yes most people don’t know it’s a thing.
In the finance world, we call this strategy infinite banking.
Infinite banking refers to the process of becoming your own banker.
The practical strategy at play? Leveraging a very specific type of retirement savings account, and setting it up to be used while you are still alive.
Curious to know more?
Well, it goes something like this. On the most basic level of understanding this, your money is being put into an account that grows at a much higher rate than a regular savings account at a traditional bank.
This account is just as liquid as a savings account; tax-free; and is not put into risky investments where you can lose money. What this means is that you can grow uninterrupted compound interest through the growth of dividends, in an account where there is no risk.
By ‘no risk’ we mean that your money never goes ‘backwards’ - as in it will only continue to grow.
Now, this is the kicker. Through this account you are able to access tax free “loans”, which are taken against your own money. You can then use these loans in order to fund your purchases or ventures - instead of having to use a traditional bank to access loans, or taking on the interest that comes with them.
These loans can be used for literally anything, however they most commonly are used for big purchases like phones, vehicles, houses, commercial real estate, etc.
Banks and big companies have been using this strategy for decades and have told nobody about it.
But we are here today to share this strategy with you, because we should all have access to effective wealth strategies!
Corporate giants like McDonald’s, Sears, Disney, etc., have all used this strategy to build tax-free wealth, and not have had to take loans out from anyone.
As a matter of fact, many banks use your money to fund their infinite banking accounts. Which they use to take loans from (while still growing interest), in order to give other people personal loans/ mortgages/ credit cards, to also then charge them interest on top of it all.
This means the bank is making money in quite a few ways.
1) Their infinite bank account grows uninterrupted compound interest through powerful dividends through specific companies (more on this in future articles.)
2) They take your money to pay their infinite bank back when they take loans out of it.
3) They then continue to grow interest even when they take a loan from their account, and then give you the money and charge you interest.
Meaning they’re growing interest on their already growing interest, this is how they stay wealthy.
If any of that went over your head, don’t worry. What’s most important is this.
You could also be the banker for yourself. And when you take out a loan, every payment you make back on the loan can go right back to the principal in your own account.
Let me explain a little more in detail how this works...
Growth of the account:
On average this account grows 5-7% through the growth of dividends. However, no matter what happens you always get guaranteed 4%. This means you’re getting a strong growth - a LOT more powerful than a traditional savings account, and without having to take on market risk. What this means is that your account always increases and never goes down.
The reason why this is so great is because you will be contributing a consistent amount of money every month into an account with no risk.
And because you are committing to a consistent contribution, the company is providing you with high growth dividends with no risk. Remember the golden rule for financial health: consistency is key!
How Infinite Banking loans work.
When you take a loan using the infinite banking system, the limit of the loan is defined by the amount of money you already have inside your account, at any given point in time.
So you need to have a certain amount of money in the account first before you can use this system to take out a loan.
Yes this is money that YOU would have already saved and deposited into your own account. You can’t take a loan out on yourself, if there’s no money to take a loan from. Make sense?
Now the interesting thing is that when you’re ready to take a loan out on yourself, the company you have the account with will give you the amount of money you’re trying to take out for a loan. They will then hold the money inside your account as collateral. But the money will never leave your account, and will continue to generate and collect interest - even WHILE your loan is still outstanding.
So, say you have 500K in your account, and you take a loan from it of 500K. You will have 500K in your hand to spend, invest, or do whatever with - and at the same time you will still have 500K in your account growing on average between 5-7%, with no risk.
The reason the company is loaning you this money, and you still have the same amount of money in your account, is because the company is using your account value as collateral. So if you don’t pay it back, they are covered. Obviously they can’t give you money for free for no reason.
But in either case, why would you not pay it back? It’s your money.
The amazing part about this is that the money being held as collateral stays in your account. So even when you are taking the loan IT STILL GROWS! So even with money outstanding and in a loan, you’re still making money from the interest.
Then because you are an honest banker, you’re going to pay the loan back. However when you pay the money back, it’s back to your own bank - so you’re receiving all the money back - so you’re literally taking money in the left hand and then passing it to the right hand - all you’re doing is switching where you have the money.
Now what you’re doing is, you’re taking money from your own bank, and back into your own bank.
And because this is a loan to yourself, you get to make the terms, conditions, how much you pay monthly, how long it takes you to pay it back, or you don’t have to pay it back technically speaking (because they can just take the money out of your account that is being held for collateral).
With this information, why would you ever take another loan from a traditional bank, (for car, home, student loans, etc) when you can build your own bank, and make money while doing it?
I know this sounds too good to be true. So let me get into a few important caveats within this account
It’s important to make efficient use of this account. You want to pay it back every month, because it helps with growth.
This is a consistent account - so your monthly contribution stays the same. You can increase or decrease the amount (but it means it will stay that way until the next time you change it). However we do not recommend decreasing it unless push comes to shove and you have to, because it negatively affects the growth of the account.
Generally speaking, most people don’t decrease the amount unless there is a job loss. People actually try to increase it because the way that compound interest works: the longer you have the account open, and the more you contribute, the better the growth
The companies that we utilize to open these accounts are FOR PROFIT companies. So that being said, a few things to note:
While you are not utilizing this money in this account, they are. However they still have the obligation to give you this money anytime you ask for it. This means makes it a win win for both parties
Anytime you hear the word ‘loan’ there is always an interest rate affiliated with it. Generally speaking, on average the loan rates are around 4-5% however, even with a loan outstanding, your money is still growing between 5-7% so that means that you’re still netting positive growth, even with a loan outstanding. So this means the company makes some money on the interest, and we are still making money regardless because of the dividends we are receiving from the company.
And last but important caveat, one of the biggest barriers to getting started right away is that you need to have money saved up first before you can take a loan out on your own money.
There are many practical benefits and strategies for using infinite banking.
You can utilize an infinite banking loan to pay off things such as a vehicle, student loan, mortgage, etc.
And when you use infinite banking there is no such thing as losing money because of interest. We are forever actually still growing money, because of interest that we are still able to collect on our account. Here is an example of this below:
Example: Let’s look at a few different ways someone could buy a car for $50K.
Option 1 - You pay $50K cash and you receive the vehicle but your bank account has 50K less. (This also means that you need to have $50K cash saved up, which most people don’t)
Option 2 - Take a car loan - you pay nothing up front, (except maybe a down payment). However now you have to pay a certain amount every single month with an interest rate based on your credit-worthiness (from your credit score, which if it’s low would make it an issue)
Say you went with Option 2 and made a $5000 down payment (usually down payments are around 10% of the total cost of vehicle)
You sign on for a 60 month term.
You take an interest rate of 6%
This means you will pay $869.98 per month and $7198.55 of interest, totalling $52,198.55 plus the down payment, which brings it to a total of $57,198.55 - in exchange for the vehicle.
This option is worse than Option 1, because even though you got the vehicle, you lose 7,198.55 MORE than if you had paid cash. So this option is NOT preferred (but one that most people take because they don’t know about other options.)
Option 3 - What if over those 5 years instead of paying off the bank car loan, you were putting $833.33 into our account for infinite banking monthly.
Then you decide to take out a 50K loan against yourself, growing a 6% interest (because that’s between 5-7%). Your account is going to grow while paying yourself the same $833 per month that you were putting in, $16,911 is how much you will grow from the interest.
So plus when you pay yourself back, you will have $50K back to add to the interest earned so now you have $66,911, plus the vehicle. This is a far more efficient way to do it.
Now of course, the company when you took the loan out charged you a 4.5% interest (on average bc the company needs to make money somehow)
So you lost $5,929 to the interest. But even after the loan interest is taken, the total is $60,982 - We still made a profit of $10,982, instead of losing $7198.55 to interest. That’s a difference of $18,180.55 in cost between Option 2 and Option 3, for the same vehicle in the same 5 years.
If you don’t have a lot of cash flow to start moving significant money through an infinite banking system right away - you can still slowly start to build up your own bank by just maintaining the behavior of saving consistently - as if you were putting money into an infinite banking savings account.
Anyone can start. Start small and keep building.
To fully access the power of infinite banking, your account does need consistent contributions so it can stay healthyl and keep providing you with consistent dividends.
But if you’re like many of our clients on an RN/CRNA/NP/DNP/PA’s salary, good news! You can totally make this happen.
That being said, if you want more details on how to create your own bank, please reach out to us!