you I’m Ryan Griggs and I’m James Neathery we are
shooting a review of Nelson Nash’s book Becoming Your Own Banker in the why us well practice the
infinite banking concept for 14 years have been in the financial world as an agent advisor for
over 28 years and I’ve been teaching really my clients how to do this ever since I discovered
the concept and I think everyone should learn how to become your own banker and I was previously
in the academic world come from an economics background fully intended on becoming a professor
of economics I always thought that changing ideas was the way to change the world and it occurs
to me after having read Nelson’s book and now having been a practitioner for some time that
the real way to do it is to return the banking function back to the individual that’s exactly
what Nelson teaches is how to perform the banking function literally how you can become your own
banker we hope you enjoy it you know banking is the most important business in the world and that
you consider what you know banking is it’s just a movement of money you know loans withdrawals
deposits loan repayments money has to flow all right so banking is a movement of money money has
to flow just like blood has to flow water has to flow and knowledge must also flow if you if you
if you think about money really there’s only one pull of money in the world only one and it has
to flow right there’s only one pool of water in the world there’s only one pool of money in the
world money must go water must flow the question is how much of that pool of money do you control
as it relates to you in your needs mm-hmm that’s really it is a book about money it’s it’s not more
than money it’s about finance but to hone in on what we can do to make ourselves better off in
the world of money Nelson does zoom in on focus on banking that’s why the title is becoming your
own banker and a lot of people will get confused about what we mean by banking they’ll think of
a checking account or a savings account and just like you said Nelson’s referring to the movement
of money the flow of money and it’s a different way of thinking about finance it’s a different
way of thinking about personal prosperity about wealth in general so it is a it is a paradigm
shift and it is important that the reader sort of situate themselves in that different way of
thinking and start thinking about money and its flow rather than you know what you might hear
in the typical financial world and just like you say you know the the idea is to make to put
yourself in control of that flow how much of the flow of money do you control as it relates to your
needs you know as we’ll see later and as Nelson starts to allude to the problem is that we’ve
you know we’ve abdicated their responsibility over controlling the flow of money as it relates
to our needs as it relates to our finances I like that you know we’ve since we’ve abdicated our
responsibility to perform the banking function in our life someone else will perform that function
mm-hmm and they will profit right so because we’ve advocated our responsibility we’ve also advocated
or lost or given away the profits and the control very you know control is sometimes worth more than
returns mm-hmm all right look noting himself tells his story in the first part of the book and he
does a great job the bottom line that though he was a very successful real estate investor he
was at the time accustomed to paying nine and nine and a half percent interest you know using
other people’s money for his real estate deals but in 1980 real estate you know was very
profitable but it’s also 1980 the interest rates went to twenty three percent actually twenty one
and a half percent prime you know he wasn’t prime i’m not prime you’re probably not prime either
so we have to pay a point and a half over twenty three percent interest and there he was caught
owing five hundred thousand dollars at twenty three percent interest you know five hundred
thousand dollars that sounded like a lot of money today to some people but in today’s dollars
you know that’s the equivalent of a million and a half a million and a half paying twenty three
percentage that’s about a hundred and fifteen thousand dollars a year in interest alone that
he was paying at that time right today’s dollars that’s about three hundred and seventy five
thousand dollars in interest alone you know you’re throwing me there’s a lot of big numbers there
for some people and you know at the bottom at the end of the story at the bottom line you know
he really this is a man who understands capital he understands cash flow and was right in the thick
of it in a time when you know throughout the history of the country when interest rates were
some of the highest they’ve ever been and quickly was acquainted with his own need for financing
you know I don’t want to throw big numbers out I’m just relating the numbers you know he he owed five
hundred thousand dollars at twenty three percent interest that’ll get your attention and I’m just
and literally you can move decimal points either way mm-hmm all right three hundred and seventy
five thousand dollars a equivalent today’s dollars of interest so he was paying one hundred and
fifteen thousand dollars in interest alone I mean that’s it’s a big number in and I want to you know
I want you to hear the effect of that but look at the time you know his brother was a life insurance
agent he’d been accustomed to paying high premium in life insurance he was paying at the time
eighteen thousand dollars a year in life insurance premiums who do you know today eighteen thousand
dollars a year in premium not enough right well in today’s dollars that’s about fifty four thousand
dollars a year and life insurance premium okay so I hope personally think that he was trying to
you know indirectly support his brother you know he’s seen the value in life insurance okay but
there he was owing five hundred thousand dollars in outstanding loans interest rates twenty three
percent interest and he’s seen that he had access to capital on a guaranteed contractual basis
that 5% and 8% so then he clearly realized he should have been paying a hundred and fifteen
thousand dollars in life insurance premium and no more than eighteen thousand dollars in interest
yeah had he been paying those higher premiums he would have had enough access to cash to pay off
his creditors he might not have ever even gotten into that situation and refer service because he
would have been able to maintain control I also think it’s important to point out that what caused
the creator of the infinite banking concept to come to the idea is was hardship and I know I’ve
heard you say before there’s never a problem until there’s a problem and there that’s fully true you
know you could be going along depending upon third party capital and there’s never a problem until
there’s a problem until the need for cash makes itself apparent as it did for Nelson drivin
that’ll pretty that’ll happen just danger every time you’re not in control the banker will
need more interest right the the bank regulators will need more capital or more collateral I think
that’s a great question you know the the infinite banking concept is so counterintuitive it is
it’s just counterintuitive and it’s almost the exact opposite 180 degrees of what the financial
world tells us to do with money and so it takes a little bit of an imagination to even think
outside the box um you know Nelson says the this is an exercise in imagination reason logic
and prophecy and I know for me the first time I heard him say that and it did our seminar me and
I accepted the prophecy number one no question and I have since come to believe and understand
clearly that imagination is much more important than knowledge much more I think it’s a very
important you know when I when I consider the and what we’re gonna talk about throughout
the course of the book and we’re gonna get into an example here shortly and see actual more
direct examples using dividend-paying whole life insurance but you know you have to imagine the
banking system you have to imagine the flow of money beyond just your own self and it’s it’s
not something you see you know I’ve heard you say before that you know cash is flowing through
you around you all the time and it’s true but we just it’s not something that we see directly you
do have to imagine it and Nelson ends that section talking about how you know legislators once try
to change the definition of Pi the numerical that doesn’t end a decimal point on and on forever and
of course it’s ridiculous you know that you can’t just legislate the change and a number like that
and his point I think was to illustrate that there are certain fixed relationships out in the world
that you have to imagine in order to understand and the what might be valuable for why you might
do that is that you can understand how to organize your behavior in accordance with the rest of the
world but it’s not you know again going back it’s not always something you can see directly you
do have to imagine it we are dealing with fixed relationships between with the nature of money
a nature of banking and if you can’t imagine it then you can hopefully as we’ll get into control
it and and prosper accordingly yeah you know that reminds me whatsoever a man believe it in its
heart so is e and I think it was Napoleon Hill that said whatever the mind of man can conceive
and believe it can achieve you know imagination is very important you know banking is a business
banking is a business the grocery store in the book is a beautiful example of how to run a
business and if you don’t know how to run a business you won’t be in business very long and
it’s just an excellent model their startup cost of the real estate the stock you got to stock
the store and have the hired help provide a good service and you know clean operation and and you
know if it’s like a family grocery store right if it’s your family grocery store and then he poses
a question you know where’s your wife gonna shop she’s gonna shop out the front door out the back
door and he makes a very compelling example of how destructive that is mm-hmm you know and he’s
he’s illustrating a canapes and the profit on the canapes and it’s really not how much money you
make on one can of peas you know at one time in my younger life I was a I was a stalker for a
grocery supply you know one side of the store has all the non grocery items right right that’s
where all the profit is right they make about 2% on the groceries mm-hmm right so you know you made
but you use make to the script you made she’s you mentioned a couple important points you know to
understand why that well to back up really the the grocery you know a lot of people underestimate
Nelson I find and so it’s like this the grocery store is not put in there arbitrarily there’s
a there’s a point to it he’ll refer to it later in fact he says towards the end of the section
that if you understand the grocery store the rest is easy the like you said banking is a business
and businesses have regardless of the particular industry or the product or the service there are
certain things that are true sort of at a high level across all forms of business and Nelson’s
picking the grocery store for specific reasons the individual operating the grocery store becomes
both the producer and consumer of the product just like with money and banky you’re both going to
ideal if you’re your own banker you’re going to be the provider of your own credit and the
consumer of that credit certain things follow from identifying that fact he illustrates the example
of you know you started to talk about theft and the damage that theft can do and it’s really again
beyond just what you can see you know someone would think that if Nelson uses the example
of the can of peas if you steal a can of peas you know what you see is that that can of peas is
gone and you might just think that the individual is just stealing a can of peas and of course in
some sense that’s true but you know we had just talked about imagination and if you can see beyond
that then you’ll come to see that what really is happening is that the business owner is losing 17
times 18 times the turnover of that 1 can of peas in other words just to break even after the theft
he’ll have to sell that 1 can of peas another 17 18 times just to get back to where he was right
so the the idea of theft is sort of underlined by this idea of velocity of turnover of the capital
in a business and later on we’ll talk about loans and credit and and the problem of being a
dishonest banker or failing to repay your loans and I think what Nelson wants the reader to see
what it’s in what is vital to see is that you know your when you if you take out a loan and you don’t
pay it back it’s not just that you’re failing to repay that sum of money there’s the hidden cost of
all of the interest that you could have achieved otherwise and so if you don’t pay a loan back with
interest if you don’t practice honest banking or if the grocer doesn’t practice an honest grocery
business then the business will fail you’ll kill the banking business just like the grocer will
kill the grocery business very that’s very well set I think the problem that Nelson clearly
identifies is a perpetual loss of money by the all-american family through the course of their
lifetime I mean it’s staggering and that there is actually a way to take control to correct that and
take control of the banking function in their life he clearly demonstrates thirty four and a half
cents out of every dollar that’s going through their hands is going right through their hands
to the third party lender you know I think he’s being very generous he illustrates also there
that the average savings ray or he’s assuming or illustrating a savings rate of 10% mm-hmm which
I think the average savings rate in America today is well below 3% yeah right around to maybe and
you know the big focus in the financial world and the investment advising financial advising world
is that we’re always concerned about the rate of return on our savings so while we’re losing thirty
four and a half cents of every dollar that we earn we’re concerned about gaining a small percentage
on the little bitty 10% that we may or may not actually be saving okay you know it said and
no one so no wonder the middle class stays the middle class and the people with the money stay
the people with the money that it’s as if our eyes on the ball work we’re distracted by what we’re
told is something we should consider something we should be concerned about something that we
should be worried about that rate of return on our savings when in fact though we are losing so
much more than we’re gaining on average and that might come off as something news may be something
that you’ve never heard before but you know one I know one really great illustration and Nelson
does mention this in this section is the housing example with the mortgage know if you just look
at an amortization table and see how much money is going to the lender just in the finance charging
just in the interest alone and then consider that you know that’s all the interest payment is
weighted to the front of the term heavily right so the money most of the money you’re paying is going
right into the lenders pocket and most people will turn over they’ll move they’ll buy another house
sell theirs within five years and so just with the housing alone then I think the Nelson number uses
is somewhere in the 80s that’s you know say 85% 85% of what the average individual pays out will
go right to the lender in the form of profit and so expand that out to all the other things that
we finance education vacations transportation you name it and then whenever they refinance if
we refinance to a cash refund move whatever it is that interest becomes perpetual yeah we’ll do
it again and again and again he uses the numbers and the numbers are there there’s a nice graph
to you can tell just exactly what he’s talking about but he also uses an example that maybe can
get the message across a little easier and that’s with airplanes and and the environment through
which an airplane might might fly and how fast but I’ve heard you talk about that before maybe
you want to tell him about sure you know Nelson is a is an aviator he’s a pilot so he uses an
airplane as an analogy and doesn’t it’s just a great illustration so he takes an airplane
flying north out of Birmingham headed toward Chicago at a hundred miles an hour right well he’s
flying into a headwind of 345 miles an hour so you think about that thirty four and a half cents out
of every dollar is flying away right going right through our hands and then we’re trying to earn
10% or more on the little bit that’s left over of the savings right so the airplane flying at
100 miles an hour just represents that 10% the headwind at 345 miles an hour represents the 34
and a half cents out of every dollar going away so from Chicago or from Birmingham to Chicago the
airplane driver is going to Cuba at 245 miles an hour and the best thing that the airplane driver
could who is land let the air mass move over right or or he could take off and get a tailwind
all right that’s 345 miles an hour and he’s flying at 100 mile he’s gonna get to Chicago
at 445 miles an hour in a hurry mm-hmm right so the financial world doesn’t really consider
and most people don’t understand that you can actually control the environment in which your
money flows through now the airplane pilot has to wait like you say you have to land you have
to wait for the air they’ll be moving in the right direction but with money you can actually
control the environment in which you’re flying in which you’re participating in the broader economy
and he does mention there as well that in finance everything is compared to what everybody else
is doing right and so if you’re flying forward at 445 miles an hour and everybody else is flying
backward at 2:45 know you’re getting where you’re going much faster than their get that’s a 690 mile
an hour difference between you and what everybody else is doing even though they think they’re
doing the right thing all right all because you chose to fly and the proper alignment that’s
right natural law yeah most people would think you know if we’re talking about becoming your
own banker well then you better go sign up for a charter and get comfortable cuz it’s gonna be a
while waiting in line for the Commissioner maybe make some side payments to the table the public
servants and he goes he walks through everything that would entail you have to get all sorts of
capital meet all these various regulations and you know it’s important to understand that that’s
really not what we’re talking about to become your own banker to take control of the flow of money in
your life you don’t actually have to start a real Bank that’s not what we’re talking about and so
often times when people talk about becoming your own banker they use the scare quotes you know
because we’re all we are just talking about the idea of controlling the flow of money through your
life and he does propose an entity that you might use to do it you know he also talks about the
First National Bank of Midland Texas I remember banking is most important business in the world
you know banking is the most profitable business in the world do you think about that and he talks
about he tells the story of the First National Bank Midland Texas the most profitable business
in the world right most important business they had a very successful bank in Midland Texas until
they started practicing less than honest banking you know the directors taken out all the loans
not paying back then you know the depositors they get a little scary in there you run on the bank
and it collapses they ruined a very good Bank hmm right absolutely not we don’t have to and
why would you even want to start a bank in the traditional sense there’s a much easier way and
it’s with the the use of a dividend paying life insurance policy issued by a mutual company mm-hmm
has all the characteristics that are required to get into the banking business yeah and there’s a
couple pieces there that you know we’ve you might remember from the grocery store example Nelson
is again setting up all of the initial startup cost associated with getting into a particular
business this time within the banking business all of the both in terms of the time and the money
and the other people the services that need to be provided to make for a good banking entity and so
that and that will as we’ll see you later as well you know that’s gonna be a piece of starting your
of your own banking operation because and when you when you go to control money as it can as it flows
through your life as well and then you mentioned theft as well the directors the owners of the bank
the people who were in control of the bank we’re stealing by not repaying loans very similar
as point out for the for the viewer for the reader that that’s the same thing as stealing the
canopy as shopping at your own grocery store and stealing the canopy’s eventually you will drive
your business into the ground which is exactly what happened with first national and then you
mentioned the use of the dividend-paying whole life insurance policy and in the next section
Nelson will get into it but he gives the reader a sort of example a way to think about how we can
talk about banking and life insurance at the same time it might seem kind of weird why would
we use life insurance to take control of the banking function in our life and Nelson points out
that this idea of cogeneration of using a certain kind of business or process that has one purpose
for it for another purpose Hill used uses the example of the paper mill how many paper mills are
there out there that aren’t also generating their own electricity you know so if you think about
it just because a certain contract a certain financial instrument has been used in one sense
for one purpose doesn’t always mean that that’s the only purpose that can fulfill very good I
don’t think I can add anything to that I don’t think I should add anything to that other than
the paper mill is a good story too because who know who I mean once you last time you drove by a
paper mill I don’t know a paper mill look you know they make paper right you will you make paper out
of wood you know wood comes from trees trees come with bark you know bark messes up paper they got
to strip the bark off the tree to make the paper well that’s a you know a lot of bargain so every
paper mill of any size has a cogeneration plant they burn the bark right create electricity sell
it back to the or back dielectrics I’m dumping back to the insurance company so why that story
is funny you know and all you have to do is if you understand what’s going on with these insurance
plans then always you have to do is tap into the system every characteristic required to get into
the banking business exists in properly structured dividend-paying life insurance well look there
is a 100% chance of mortality there’s only two people that guy this world alive and you know
it’s the third one’s not gonna be you or me all right so we’re all gonna die but to offset the
the risk of premature death you know dying too soon we pay premiums right for death benefit and
so the we offset that risk a premature death to the life insurance company you know so we just
pay a premium over our lifetime and then when we die if we died prematurely or when we die the
death benefit comes in so I didn’t have to save up a bunch of money you know to lead to my family
when I did Nelson kind of explains you know the purpose of this section really to acquaint the
reader with the construction of a policy from the company’s perspective and there’s a lot of detail
in there you know we’re not gonna get through all of that detail right here and no questions oh
he really should read this read the whole thing but read that section in particular has a lot of
detail about how these policies are designed but you what what what section of the book should
they skip I said why you should read the whole book but you do give a no I heard I have heard you
give it a good overview and I know Nelson this is usually a pretty comical part of the seminar but
he does give an overview of how these policies make it from historical statistics to actual
private property life insurance policy like an abstract idea in somebody’s mind until real
lines over and touch you know you get a bunch of actuaries together professional bean-counters you
know they build these policies and they’re really they’re actually sound you know they take the the
data the historical data and how many people died and at what age do they die right they take this
data and statistical information because they got a price it right they give all this information
to the lawyers they create a contract out of it a life insurance policy there’s a contract and it’s
a unilateral contract though right you can change very few things about it the insurance company
can’t change anything about it I’m buying straws very very important a unilateral contract you
know Locke said you can change something who’s an owner who’s the beneficiary you can change
some things but the life insurance company cannot now in the our home the basis of our society is
free contract contract is important my opinion I will say to when I first read the book years
ago I kind of skipped over that idea that it’s a unilateral contract you know it’s like I didn’t
really know what that meant but it’s a technical legal term and it’s it it means that the if you
if you do certain things as prescribed in the contract the company must follow through on what
they promised to do and a big part of becoming your own banker why you’d want to in the hole in
the first place is to regain that control to have that binding authority over what other entities
over what other parties have to do so that’s a crucial detail can seem like a small detail like
it did to me but it matters in terms of taking control of the financial of the banking function
in your life you know whenever you pay money and premium to a life insurance company they have
to put that money to work to meet the future obligations of the contract which is a future
that benefit or a future cash value and not to be overly technical but there are a lot of different
types of life insurance out in the big wide world we’re specifically talking about dividend paying
whole life insurance issued by a mutual company mm-hmm it’s important to point out that there are
different kinds of life insurance out there most people may not even be aware that there’s a lot
of different kind of life insurance there’s term which a lot of people are familiar with you only
pay premium for a limited term 10 20 30 years that kind of thing it is important to point out that
we’re talking about dividend paying whole life insurance that will pay a death benefit it will
last for your whole life regardless of when you actually do pass and it is unlike term does build
cash value so there’s there’s and it’s important that you use dividend-paying whole life rather
than another type of product I agree you know as I said a minute ago the the company has to put
the premium dollars to work to meet the future obligations of the contract which is the death
benefit in the future guaranteed cash values the life insurance companies are very limited on where
they can put that money right they they cannot put the money into the stock market they have to put
the money to work in very conservative investments in returns which limits them mm-hmm all right to
bonds corporate bonds government bonds high-grade corporate bonds a vary in durations 5-year 10-year
20-year bonds and then they put it into high-grade corporate real estate yeah you know 20% down
high-grade corporate real estate so they’re there they’re almost guaranteed returns yeah and like
you say the life insurance company is so limited as to who can who they will lend to but a unique
benefit of being a policy owner of a life and a whole life insurance policy from a mutual company
is actually that the individual has the right to borrow from the company him or herself and so you
need that the policy owner is a potential place for the insurance company to allocate the money
it receives through premium and and that’s kind of as well see the sort of the core basis as but
as we’ll see that sort of the core basis as to why the individual can run their cash flow through a
dividend paying whole life is because you do have as a policy owner the first right of access to
money collected by the insurance company the money that’s available to the lien by the insurance
company the owner the policy has a contractual right to that amount mm-hmm and the he outranks
everybody else you know and when we think it was like well how much can you borrow how much can
you get access to it’s really a function of how much cash value you have in your policy now people
are familiar with the idea of equity you know you can borrow against the equity and almost anything
the most common example is probably a house you’re familiar with a HELOC or something like this where
you get access to two two funds from a mortgage lender where you can borrow as much equity as you
have in the mortgage in the house and just the same principle stands with dividend-paying whole
life as you pay in premiums you build equity what the life insurance company calls cash value or
cash surrender value and you can borrow against it just like in the same sort of way that you can
with a house I think it’s important that people realize that the similarity kind of ends there you
know it is you know there is equity just like in housing there’s equity in life insurance but when
you borrow from a life insurance company the terms are so incomparably better in the borrower the
individual policy owner has control over that loan to an extent that you just don’t find in any
other sort of financial transaction and and the reason is because the if you think about it the
underlying collateral is guaranteed by the issuer so like it with housing you know the the mortgage
lender can’t control the value of your house and so they have to take precautions with how much
money they’ll lend you if you don’t repay and the value of the house Falls then they may not be able
to make up their losses but with life insurance they can guarantee the underlying collateral
you know that policy is something that they’ve issued and they’ve guaranteed what the cash value
will be you know so it’s not magic it’s not the mystery it’s you know life insurance companies do
not make bad lungs they do not make bad loans you can only borrow against what you have put in
there and what it has accumulated to that’s a 100 percent collateralized loan so let’s say you
collateralize your cash bag you have cash in your hand the cash values are still going to increase
assuming that you’re still paying a dividend or assuming that you’re still paying a premium and
the policy and/or the policy is still earning a dividend I think about this so if even if you
don’t have a loan repayment I’m not proposing that we should all be honest bankers if you make a loan
you should have a loan repayment you can’t get a loan anywhere at that alone repayment right right
okay it’s 100% collateralized right well even the outstanding compounding loan if you didn’t make a
loan repayment it’s gonna grow it’s gonna compound well the death benefit is compounding too so the
death benefit collateralized is the outstanding loan which is a hundred percent collateralized by
your cash value it’s not magic it’s just simple third-grade math I think that is one of the most
common questions that we hear and of course not the money the cash value remains in the policy
and it’s compounding and increasing dividends and interest tax deferred there’s a ever increasing
tax deferred accumulation of interest and dividends now why would you ever want to interrupt
that compounding accumulation you wouldn’t and of course notice the power of the infinite banking
concept is you build this machine a dividend paying life insurance policies structured
correctly that’ll earn interest and dividends forever and then you have a guaranteed contractual
right to collateralize that on demand from the insurance company your cash values are compounding
for ever fo or EVO that’s a long time and then you have complete control of that loan and loan
repayment all right you can tell them if you’re gonna pay it back when you’re gonna pay it back
how you’re gonna pay it back I’m gonna skip five payments I might not I may I’m gonna do what I
want to thank you your money is compounding that’s a very powerful most people jump smooth over that
why would I pay interest to borrow my own money in that quest although it’s a valid question if it’s
sincere when it’s not sincere it’s just based on pure ignorance and the arrival syndrome that we’ll
talk about later I think if the viewer reader will compare the nature of the collateral that you
just described to other types of collateral out there in the fantasy world you will find no better
there and again because the the company issuing it has guaranteed it those all of the features that
you just mentioned can’t be mimicked in a mortgage or any other kind of debt instrument available to
the individual you know you can get man walk away though right if I’ve got money in the cash value
you mentioned the word earlier cash surrender value that’s what I would walk away with if I got
mad and quit cash surrender value I’m walking away with the cash value but I’m surrendering the
policy right company says thank you no more death benefit I’ve got my cash on man I’m walking
away and now I’m walking away and I’m looking for some place to put that money little compound
interest and dividends tax deferred accessible tax-free forever and then I’m gonna be sorely
disappointed because I won’t find it and you say tax deferred I think it’s important to point
out that you know tax deferred is only different than tax free because you know tax deferred means
pay tax when you sell it later later but if you don’t sell the contract if you don’t surrender
the contract then tax deferred sort of functions as tax free well yeah it’s tax deferred those
tax deferred tax freeze tax-free I can access that tax deferred capital on a tax-free basis
and then I you know of course you don’t want to get mad and quit you know you don’t want to walk
away you want that death benefit to be paid that’s that’s vitally important the contract must remain
in force for that money to be accessible tax-free it’s not a big deal at all you wouldn’t want to
end that contract unless you died then it’s okay to end right because then your people get all the
death benefits or whomever you love and care about which I think Nelson mentions is somewhere in the
book not this section but the next now you think about the people that understand this concept
and practice is alright these people love have loved ones that they care about and love and one
other kind of person you want to do business with this is a common question why is it that I get
to have guaranteed growths in cash value every year what’s causing that growth I tell people that
it’s both you have both a sort of a mathematical and the legal guarantee so the if you consider
the cash value the cash value is the difference between the death benefit and all the premiums
you’ve yet to pay both discounted to the present so if you continue to pay premiums your cash value
which is the difference between the death benefit and the premiums you’ve yet to pay must increase
and so really at some level it’s an accounting identity as you pay premiums your cash value will
go up now in practice the reason what the thing that causes the cash value to rise our dividends
and interest but mostly the dividends it’s an interest insurance company at the beginning of
the year will look at how much money they have what they can invest in they’ll overestimate
their expenses and they’ll underestimate their investment their projected investment
performance such that by the end of the year the insurance company has this surplus they’ve
been able to receive more than they’ve paid out and because policy owners are company owners
with the mutual insurance company the company owner and the policy owner gets to participate
in that surplus financial performance and they do that through the receipt of a dividend so the
company will pay a dividend to the policy owner and those Dibley the individual has full control
over what to do with that dividend goes now if you’re practicing the infinite banking concept
if you’re if you want to see a cash value grow as much as it can over the life of the policy then
you take that dividend and put it right back into the cash value through a premium payment called
a paid up additions through a paid up additions premium payment and so that’s really a lot of what
causes the cash value to continue to increase and people will ask you know is there I got this
question the other day is there a guaranteed interest rate growth the cash value and you know
nothing can be guaranteed in the future and things will the interest rate will be what they’ll be but
an important feature here is that the individuals behavior is what will determine the growth of
the policy over time and that again is a lot of power a lot of control that the individual
has over the financial value that they control in their lifetime what causes a growth in the cash
value of a dividend paying a life insurance policy the actuaries over build the policies like you
said overestimate their expenses underestimate the portfolio returns of the company and the loan
performance and at that time the end is you know a surplus that’s paid out as a dividend there are
really two components right there’s a guaranteed cash value there’s a canteen interest rate to that
a minimum anyway and it goes up right and then the dividends a surplus there are only two types of
life insurance companies in the world there are stock companies and mutual companies the owners of
each company get the profits if any of the company and that’s economics 101 right well who owns
a stock company the shareholders own the stock company it’s a stock company they issued shares
of stock right and that’s really how they raise capital so the owner of a stock company he gets
the profits of the company through dividends or a stock appreciation the value of the stock
goes up and he sells it later well who owns the mutual company it’s the policyholders that
own the mutual company so the dividend which represents the experience of the company for
that year is paid to the owners of the company and it’s paid in the form of a dividend and that
we’ve talked about dividends before you know how they’re classified oh it’s a return of premium
so it’s in fact we already talked about some more – oh okay well wait till later then but
then you also mentioned the dividend options right I can take the dividend in cash I can leave
the dividend on deposit at the insurance company and they’ll pay me interest on it I can take the
dividend to reduce the premium and I’m only doing those things if I don’t understand banking and the
most powerful thing that you can do is have the dividend be paid to the paid up additions rider
straight to the cash value increases the cash value increases the future dividends increases the
death benefit so we’re creating this we’re really accelerating this ever increasing compounding
interest and dividends accumulation look no activity from a mutual company is classified as
a return of premium by the Internal Revenue Code so therefore it’s not taxable but listen I don’t
care how you classify just as long as you pay me a dividend and I have a place to put it that’s
gonna make that place better and better pay all the dividends you want thank you right I you can
make the comparison to between a typical dividend that would be paid by a stock company yeah if
you own a share of Coca-Cola and they pay a Coca-Cola pays a dividend in the given year then
that dividend is dividend income and therefore taxable but in the mutual life insurance world
a dividend from a mutual life insurance company like you said is a return of premium it’s not
taxable income and that’s why a lot of the cash value growth it that’s why the cash value growth
can continue to grow tax-deferred you know let me point out to if I own stock in Coca-Cola
and I do not I could take that dividend and and actually I could I can engage a drip system
a direct reinvestment program think about this I get a dividend from whatever stock own it’s in the
drip program so I buy fractional share of a stock right whatever it is we’re don’t want to pick on
Coca-Cola all right so what’s the future value of that stock gonna be good question in it it’s
always going to go up right no of course I can go up or down so think about this if I received
a hundred dollar dividend round numbers easy illustration for me and I brought it I bought a
share of a hundred dollars the share price was a hundred dollars so I got a dividend directory’
investment program I bought one share of stock that’s worth $100 and if the stock went down to
50 I lost 50% of my dividend because I lost 50% of that stock once you receive a dividend from a
life insurance company and it’s put into the paid up Edition driver it cannot go down in value or
ever got pretty powerful and we do mention that paid up editions rider that’s just a second form
of premium you know you’ve got the regular p m– premium you’ll be paying on whatever basis monthly
quarterly semi-annually annually whatever it is and then you’ve got that second form of premium
payment called a paid up editions rider and that’s the way that you can put your dividend
back into the policy and have that guaranteed value that will increase over time as far as Part
one begins to wind down nelson mentions that one of what he says is one of his original insights
and that’s that your need for finance is much greater than your need for death benefit during
your lifetime and it’s absolutely true you know who give an example of somebody who is borrowing
money to pay for the purchase of a vehicle really it could be anything but he talks about a vehicle
here you know the the question is where does the lender the auto lender get the money that they’re
lending you in the first place know they’re buying it from insurance companies and so the typical
average individual on the street who’s paying the minimum possible premium payment for the highest
amount of death benefit possible is turning right back around and borrowing money from a third party
lender the auto lender when he could be borrowing that money directly from the insurance company and
if he did it and if he paid that money back at the market rate of interest he would keep for himself
the proceeds that otherwise would have went to the finance company you know it’s like when when you
have the appropriate comparison you know what the when you’re talking about dividend paying whole
life and becoming your own banker and you compare it to what the average individual is really doing
out there borrowing money to pay for the various things you need you really in and you read how
nelson writes it it becomes so clear that you could be you could be collecting everything that
the third-party lender otherwise would be and you could be doing it in such a way that the proceeds
you collect can then grow on a tax-deferred basis for the rest of your life I mean is that powerful
or what no you’re paying interest to the insurance company to use their money that is not your money
that you are borrowing your money is in the policy earning interest in dividends accumulating and
compounding forever on a tax-deferred basis your collateralizing that so you’re therefore not
interrupting the compounding you’re using the insurance company’s money and if you don’t pay
them interest you’re violating some fundamental economic laws and practicing dishonest banking
as a matter of fact not only should you pay the insurance company interest a company that you’re
in in an ownership position of a visit mutual company now you don’t want your company to not be
profitable do you know of course you would want to pay the insurance company the interest but to
practice honest banking you want to repay the loan at the market rate in the difference between
the market rate and what the insurance company is charging you is going directly to your policy
yeah and Nelson does mention it at this in this part of the book and that’s why we’re covering
it here but we do get it a lot from potential clients current clients even who are wondering you
know do it why do I have to pay interest interest to a company to use my own money and it’s it is
important to realize that it’s not your own money and that’s actually a good thing you wouldn’t
want to be taking your money from the policy there’s like you said then you’re interrupting
the compounding and that’s not the point we want to collateralize we want to be leveraging that
capital as opposed to what a lot of people do is liquidate their capital which is just spend it
away so that’s really the the power behind the infinite banking concept what’s going to put you
in control of a greater amount of financial value over time is the fact that you can borrow against
it so it’s not crazy to have to pay interest on money that you borrow that’s the price of money
and it’s a good thing that you’re doing it let me ask you when when do you borrow money at no
interest credit cards with the 0% APR wonder why they’re doing that all right okay so typically
you know understand the automobile loans or the new automobile 0% financing which is another form
of discounting right and that that limited offer from the insurance are from that limited offer
from the credit card company it’s going to be for a specified time period and you’re going to
move that’s for balance transfers right and you you know if you had a big balance to transfer
the odds of you paying that off by the end of that I mean it can happen but it doesn’t typically
that’s so profitable for the credit card companies that’s why they do it look if paying interest
to the insurance company if you can’t recognize or don’t recognize a cost of capital nelson refers
the reader to because it’s very common right so if that doesn’t make sense nelson refers the reader
to the grocery store business an excellent model of a properly ran business the grocery store and
if you still don’t understand or get it that makes sense to you the reader bene refers you to the
story of the First National Bank of Midland Texas how dishonest banking runs one of the most
profitable banks in Texas at the time what is economic value added and how does it relate
to becoming your own banker you find it it’s everything you purchase either you pay interest to
someone else when you formally finance or you give up interest that you could have earned otherwise
when you pay cash there are no exceptions and it’s hard for people to see that sometimes especially
the cash buyer god bless them so that’s really the foundation of the idea of a cost of capital you
know regardless of what you do with your money there is a next best alternative use you could do
you if you spend the money you earn you know the alternative was he could have saved it and that
money would have grown at interest and whatever so whatever you’re giving up is your cost and
that’s the foundation of this idea of a cost of capital yeah I mean there is a cost of capital
period period it exists and your money has a cost and has the value right and then the economic
value added I love the shontella you know Nelson reference reference is in this section of
the book I never read that article I never thought about that until I read this book alright
here’s Sean totally writing about it and I think it was Fortune magazine 1993 and he he’s he’s
writing about Stern Stewart I don’t remember the consulting well stern Stewart in the company
okay here they are consulting to Fortune 500 companies their accounting department and they’re
talking about the cost of capital in the the bean counters at the fortune 500 company says oh no
our cost doesn’t have a capital let me are yes our capital doesn’t have a cost I mean just just
on the face of that you think where did the guys go to school do I mean where did they get their
degree I don’t want to and I know we’re gonna cut this out I get it but I’m just saying when I
literally were the first time I read that we’re who did you learn about that when you got your
masters absolutely not now of course not and they know they’re still not teaching it no all right so
people don’t recognize an honor or respect their capital enough to assign a value to it and and
the infinite banking concept gives the layman that all-american average individual right the ability
to put structure and form to their capital and value their capital that it’s incredibly powerful
in that digressed a little but the interest that the insurance company charges on alone functions
as a cost of capital right well becoming your own banker allows you like I said to assign that value
and the cost of your capital now if the insurance company is going to loan me money at five but the
banker wants to charge me eight and jump through a bunch of Hoops why wouldn’t I just pay myself ten
because it’s mine and I value my capital more than five and I’m not interested in the third party
leader or loupes mm-hmm all right so that’s the interest I’m valuing my capital it’s premium to
the insurance company and its capital to my pool mm-hmm not gonna do it again and again and again
and again and again now see you mentioned capital and you’re gonna be able to grow your capital
economic you can practice economic value added by becoming your own banker because you have that
loan interest payment and that interest payment will give you that cost of capital that’s exactly
right you know a lot of people don’t even think about capital in the first place and most most
people don’t have the exact definition of it down you know we’re told out in the financial world
that the thing that you need to do in order to win with money is to go find the best investment
you need to go get the best rate of return you need to go find this or that investment and by
the way you’re probably too busy so you need to pay somebody else to do it for you now this is the
whole idea behind the organized money management industry and the underlying thought and they get
it from the economist is that you have that in you have to find investment opportunity because
investment opportunity is what will attract capital right the idea is that if someone’s
got a new idea or a new invention you know the the people with the money will find them or
go find the people with the new ideas and that’s how that the capitalist or the lender will reap
the return over time it’s it’s the idea behind buying low and selling high but you got to go find
what’s valued low in order to acquire it and sell it high what Nelson’s pointing out in this book
and he does mention it explicitly is that the reverse of that type of thinking is true it is
not the case that investments attract capital rather capital attracts investment and really
capital attracts all kinds of opportunity if you build a pool of cash that you have access to and
control over opportunity will hunt you down and that’s the way to attract those optimal investment
opportunities that other people don’t know about you don’t have to pay somebody yet to go find
those opportunities you don’t have to seek them out much easier to have it those opportunities
attracted to you and when you practice becoming in your own banker you put yourself in control
of a pool of capital that you own and control so that you can decide as those opportunities pursue
you which ones you want to take advantage of and you’ll be able to know which ones are good for you
because you can you know your cost of capital if you if you know that your cost of capital is 5%
an investment opportunity comes your way that after all of the risk and everything maybe you can
get 3% well then you know that you’re not going to take advantage of that opportunity you’ll wait for
something that’ll pay eight or ten or fifteen or what-have-you and this becoming your own banker
gives you a very strict easy way to know what your cost of capital is in order to compare
it to the opportunities you see very good you know we’ll set but you create a pool of capital
opportunity will hunt you down will seek you out and then evaluating that opportunity right the
capital my money is doing very well in the life insurance policy and I know what it’s going to do
it’s going to do very well there so there better be a higher use somewhere before it ever leaves
it’s like yes no thank you why does someone want to have this system of policies or one policy is
not going to be able to accommodate your need for finance especially over your lifetime you know it
doesn’t all your income go to the bank right now yep and how much of that Bank do you only control
of the tippet well I own and control my bank but most like talking about it breaking them more if I
wrote you a $10,000 check today what would you do with the take it to a bank do you own that Bank
no they’re gonna pay you any dividends nope did you know your bank pays dividends yes they just
don’t pay them to you because you don’t own the bank and as soon as you that money’s going to sit
there on deposit until there’s a opportunity and then you’re gonna withdraw from the bank and seize
that opportunity right how much interest are they gonna pay you on that money when you were drawing
zero no you know you could collateralize it you could say hey banker I’ve got a deposit on your
bank and you give me a loan and collateralized the deposit you could do that you can bank with
anything right now he’s going to tell you how much interest you have to pay and he’s gonna
tell you when you’re gonna pay it back and how you’re gonna pay about all right and if things
change oh I don’t know the management of the bank changes or regulators come in and say Oh a bank
your undercapitalized they could call that note right and if you’re not ready to pay that note
off they could seize your deposit now who was in control of all that the banker right and this
is exactly what we’re talking about the control of your banking function in your life right you
can bank with anything but I digress a little my point is we’re not talking about one policy
Nelson is talking about a system of policies and why would you be talking about that because one
policy will not accommodate your need for finance over your lifetime you’re young you’re gonna earn
more income in the future right you are now well where’s that money gonna go alright okay now if
your income goes up and you’re more profitable if you’re in business shouldn’t you expand
your banking system of course that isn’t that practicing honest banking I mean how many branches
does your bank have who knows the president uh-huh alright now let’s see why it’s more profitable
7-eleven you know why don’t they just build one more on top of another right why do they build
them all over the country why do they have more than one the takers Anton’s of the business it’s
more profitable a series or system of policies is more profitable as you accommodate your need for
finance I think Nelson even makes the execs the example to the grocery store you know if the
grocery store is profitable the business that you own where your stock and trade is groceries
is profitable then you open a second branch and if your banking business is profitable it makes
sense to open another branch of it as well what you mean ii profits yeah so does a policy owner
have to weigh seven twenty or twenty five or more years to capitalize before taking out a policy
loan of course not you can borrow against a life insurance policy within the first year and I know
there are some companies that say you can’t we can talk about that in the future okay of course not
you can borrow against a life insurance policy in the first year no problem some companies you can
borrow against the cash values within 45 days of a new policy all right so no you don’t have to wait
mm-hmm and it is important to capitalize big big theme throughout Nelson’s whole book is don’t be
afraid to capitalize the more you capitalize the more financial value you’ll have control over the
larger your cash values will be the better off you will be you should never be afraid to capitalize
in the first place you know it reminds me Nelson originally had four fundamentals think long-range
don’t be afraid to capitalize don’t steal practice on US banking and then don’t do business with
banks other than checking or say I’m in for lending or financing large purchases you know it’s
pretty fundamental it’s pretty simple and it works and if you do think long-range you recognize the
need to capitalize now your income will go up your expenses will go up as you have a family of your
own as you want to purchase various things from houses vacations medications whatever it may be
your need for finance will increase and so your you’d want to capitalize a system that can handle
the demands for that increased capital need what stands out to you from part one of becoming your
own banker I think it starts with imagination and if you can expand your thinking which is vitally
important you almost have to unlearn some things and then learn right I think you can recognize
what’s really going on in the big wide world of finance and money and when you see the importance
of banking in your life and your personal economy you’ll clearly see that you need to become your
own banker and to control that banking function that’s vitally important I think that when you
understand the characteristics of life insurance structured this way you know beyond the basics
of death benefit and premium you’ll see that you really can’t solve for your need for finance it’s
there’s some unlearning that has to be done and some learning that needs to be done but it’s easy
simple there’s a lot of people doing it across the country and what it ultimately means is a peaceful
prosperous way of lot regardless of what the interest rates are or are not none of which you
can control its regardless of what the markets are doing or not doing you can’t control those either
no I mean it’s it’s real Wow I don’t care what’s going on I’m in control of my personal economy
that’s that’s powerful yeah you know I when we were preparing for this video I went through and
just counted the number of times that the word capital appears in becoming your service capital
research in some form yes because of that research and in it I counted seventy three times maybe it’s
more maybe it’s less but but capital is important and that’s what sticks out to me and from part one
the you know the example of the grocery store the example of the bank the emphasis on capitalization
you know it at the end of the day when people read the book a lot of people have questions about
capitalization which we talked about earlier and you know a lot of people don’t think about
strategizing intentionally and explicitly for accumulating capital and so they find themselves
in a need to access those access that capital of the people who do have a strategy to build it
and that comes with the cost that we’ve you know covered extensively in this first part that Nelson
reviews so the what I talk to a lot of clients about what sticks out to me as I read becoming
your own banker again and again is the emphasis on on capital on the emphasis of that the value of
assets that’s under your control that you can use to acquire other things and to manage your life
and in a financially peaceful and prosperous way control I think that I think you did a good job
there laughing it up is that all that you find the important in the first part that’s what sticks out
yeah well I’m glad you counted the word capital seventy three times I’ll take your word for it you
know I have it so I’m kind not going to take your math but that’s pretty intensive yeah you know
I mean if you’re talking about capital that many times in this part or this first section of the
book I mean the man clearly understands capital you you
