Becoming Your Own Bank: The Infinite Banking Concept

This article is a summary of the YouTube video ‘Infinite Banking Concept: Become Your Own Bank’ by Broke To Boom

Written by: Recapz Bot

Written by: Recapz Bot

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How does it work?
The video presents infinite banking as a strategy for wealth building using a HELOC or whole life insurance, focusing on control, flexibility, and tax-free growth, while advising on proper structuring, advantages of whole life insurance, potential wealth growth, catches, and the importance of expert guidance.

Key Insights

  • The video discusses the infinite banking concept as a strategy for investing and building wealth.
  • It introduces the idea of using a home equity line of credit (HELOC) or whole life insurance to access cash.
  • The concept aims to give control, flexibility, and liquidity while allowing for tax-free compound growth.
  • Three ways of managing money are explained: borrowing and repaying debt, saving and draining savings, and collateralizing wealth as a wealth creator.
  • The video emphasizes the importance of properly structuring the concept to maximize benefits and minimize expenses.
  • Whole life insurance is presented as a suitable option due to its lifelong protection, cash value growth, and tax advantages.
  • By capitalizing on a policy, individuals can access funds tax-free for spending or reinvesting while earning compound interest.
  • Whole life insurance is touted to have advantages over normal accounts, including stability, protection against debt and creditors, and control over repayment schedules.
  • The video demonstrates the potential wealth growth difference between uninterrupted compound interest and interrupting compounding by draining funds.
  • Three catches are mentioned: qualifying for insurance at reasonable rates, capitalizing policies before borrowing against them, and government-imposed limits on contributions.
  • Working with an expert who understands how to structure infinite banking policies properly is advised.
  • The video concludes by encouraging viewers to like, subscribe, and click the notification bell for more content on similar topics.

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Transcript

Are you ready to start investing like the Rothschilds family? Good. Let’s look at another approach to investing in a brand new strategy you never heard of or maybe you have. Today’s video will be on the infinite banking concept.

Do you own a home? Use a home equity line of credit or HELOC for quick cash. Don’t own a home? Then let’s get a whole life insurance balance and pay out a minimum of 5 years to get our cash. If these two concepts interest you, then keep watching.

How money can be earned and spent
Money is earned through a job or maybe you’re a business owner. Maybe you’re retired and you receive a pension or maybe you were lucky and you got an inheritance. In either case, monthly or bimonthly, you receive a paycheck.

Now when you get that paycheck, there’s really only 4 things you can do with it. You can save it, you can invest it, you can spend it, or you can give it.

All of the money that we will ever earn in our entire life is finite. But what if someone would write you a check for your entire lifetime income potential? What would you do with the money? Would you spend it on stuff or would you invest it and save it? Of course, you would save it and deploy it as capital into investments.

But what kind of money are you talking about? Let’s take a look. We have a 42-year-old male who wants to retire at the age of 65 and he makes about $150,000 per year. Now most employers will increase their salary by 3% each year just to stay ahead of inflation and this guy has about $100,000 in savings, maybe on a 401k on ROI or mutual funds or some other investment account.

With that $100,000 growing at 6%, you can see that at the age of 65, the entire income potential is $4.8 million and the entire wealth potential is over $10 million. Unfortunately, no one will ever write that check for you. So you’re gonna have to find ways to minimize the transfer of wealth out of your personal account.

So starting with how will you spend money and how you invest your money. The first step towards financial freedom is to set yourself up with a system that gives you control, flexibility, and liquidity. The infinite banking concept gives you all this plus gives you the ability to compound your growth on earnings tax-free.

The infinite banking concept essentially takes $1 and turns it into $2. Now how is this possible? Well, there are three different ways you are currently running your household spending and investing.

A typical American is borrowing to pay for large expenses, their lifestyle, or capital for their business. We call these people debtors. They work to spend, they have capital working for them because they can’t save. When expenses come up, they typically borrow money and slowly repay the loan using their future income. They always pay interest.

The type of borrowing and repaying continues while they are working used to get to zero. They have obligated the majority of their future paycheck to someone else. The traditional way that their parents and grandparents handle large expenses is that they save their money. When they have a large expense come up, they empty their savings to pay for or drain their tank.

As savers move their life, they are continuously going to the cycle of filling their savings tank and draining their tanks. Every time they had a big expense, their tank is drained and they return back to zero. In this comparison, they are no better off to debtors. They are still at zero.

The third way is to be wealth creator. These are the people that save as much of their money as possible and they collateralize their wealth when they need to make big purchases. This is what the wealthiest families of America have done for generations.

Introducing the Infinite Banking Concept
Well, you might have already done this and not even realize it by borrowing from your 401k or against your home in a home equity line of credit. All you are essentially doing is collateralizing the asset and taking out a loan against it.

The idea is simple. You build up equity in the infinite line banking concept account or asset. It returns uninterrupted compound interest or when you have a large purchase or maybe even an investment, you use the account to secure a loan to make the purchase.

Now you might be thinking, won’t this just make us a debtor? Well not if you do it the right way. This is where the how is more important than the why. In fact, the interest on your loan can be the same as the interest rate that you are earning on your savings and you will still come out ahead.

How can that possibly be? Well, it has to be worth the difference between compounding interest versus amortizing loans. Let’s take a look at this example. Let’s say you can borrow $50,000 at 6% interest for over the 25 years.

Over the course of the loan, you repay $46,645.21 in interest because over the course of the loan, the principal reduced when you make payments. If you have that $50,000 in your savings account at 6% interest for over the course of 25 years, you will earn $164,593.54 in interest because the principal increases over the term in interest compound.

So, let’s look, you earned $164,593 in interest and your loan interest is $46,645.21. The net gain to you is $117,948.33 plus you still have the original $50,000 in your infinite banking account. Now let’s imagine, you spend that $50,000, you will be out of the $50,000 plus the opportunity to earn all that interest. That’s why being just a saver is not necessarily the best way to build long-term wealth.

There are a number of different accounts that we use to employ this strategy and the best way is to purchase whole life insurance. So what’s whole life insurance and how does it work? This type of life insurance gives you lifelong protection and has features you can use along the way. If you do make payments, which will never go up by the way, your policy will build cash value.

It’s guaranteed to grow tax-deferred regardless of market ups and downs, and you can use the cash value to pay for whatever you want or need. You can also earn dividends that can be taken as cash, used to pay premiums, or buy more coverage. In other words, the money you put in will gain interest over time, which you can then borrow against to use however you like.

Similar to the home equity line example, you capitalize your policy with premium payments as a large portion of that goes towards cash value in your policy. Once the cash is in there, it’s in there for good. It can never decrease in value.

Now the secret is to properly structure the contract so you can stuff so much cash into the policy as possible, while minimizing those expenses and charges that typically come within insurance. Now over the lifetime of contract, those fees and charges and expensive are going to come out generally right around 1% of the total amount of cash value that you have accumulated.

Now this is where it gets really good. Once you have collateralized that account, you have unlimited access to spend that money tax-free or to reinvest it while still earning uninterrupted compound interest on all of your wealth.

So, not only would you be creating wealth, but also whole life insurance has several advantages over normal accounts. Whole life insurance has no volatility, is tax-free, has protection against debt and creditors, and you’re in control of it, thus you can create your own repayment schedule.

So basically, doing this would create a family bank. Even if you aren’t there anymore, your children and wife can take advantage of that money. So, what if you are starting today? Where should you start from? Let’s look at an example.

In this example, we are showing someone who is saving $1,000 a month or $12,000 a year and let’s just say at the end of 6 years, he accumulates $83,704 and want to invest that money. If they would invest their own cash, they would drain the tank and have to start saving the $12,000 a year or $1,000 a month all over again, only to drain the tank again if they want to make another investment.

The red chart shows what happens to your wealth when you interrupted the compounding. The green chart shows what happens to the same amount of money if it enjoys uninterrupted compound interest. If you would add that $12,000 a year to cash reserves and let it enjoy uninterrupted compound interest, at the end of 30 years, it would have grown to $1,017,620.

But by draining your tank every 6 years and investing that money or interrupting the compounding, that wealth which turns out to be $1,000,000 at stakes. So where is the catch? Well, there are 3 catches actually.

Catch 1 is qualifying for the insurance at reasonable rates, which means you need to pass a medical exam. Being healthy is a big plus to this strategy. Catch 2 is time or the capitalization factor. You must capitalize your policy before you can borrow against its value. Catch 3 is the government limits how much you can put into these policies based on the underlying death benefits, which means in order to maximize each policy, you must

This article is a summary of the YouTube video ‘Infinite Banking Concept: Become Your Own Bank’ by Broke To Boom