I just have finished my third book touching on the concepts of the Infinite Banking Concept (IBC), Becoming Your Own Banker by R. Nelson Nash. This book however is deemed the bible of IBC. Nash developed the concept in the early 1980’s and I think he’s incredibly clever for it. He started to use Whole Life insurance policies (from MUTUAL insurance companies) to run his finances through. And in this book he analyzes this process under multiple lenses.
This concept seems so crazy to me because I’ve been relatively close to insurance products, as I’ve been working in actuarial roles for about ten years now, and yet am relatively new to the IBC scene. Nash says this concept is an exercise in creativity and that people should try to look at things differently than how they were intended to be used. Moreover, spend time finding the best environment to fly in and not necessarily making the fastest plane. We’re taught to just make more and more money instead of how to identify which environment would grow our money the most efficiently.
While this book is full of insurance illustrations showing premiums going into a policy and the corresponding cash values that accumulate over the years I think the psychology that one needs to master in order to succeed with this long term is what I’ll take away. He mentions 5 factors that one must master/overcome:
- Parkinson’s Law
- Work expands to meat the time envelope allowed
- A luxury, once enjoyed, becomes a necessity (think being exposed to air conditioning and then feeling like you can’t live without it)
- Expenses rise to equal income
- Willie Sutton’s Law
- Willie Sutton was a bank robber, 1901-1980, who robbed banks because, “that’s where the money is.”
- Whenever wealth is accumulated someone will try to steal it
- Who’s the biggest thief: IRS
- All of this started by income tax law in 1913
- Good quote by Frederic Bastiat, “The state is that great fiction whereby everyone tries to live at the expense of everyone else.”
- Golden Rule
- Those who have the gold make the rules
- We’ve somehow given up the banking function in our lives
- Americans are moving towards a tendency to think many problems are outside of your control and look to government to fix
- Arrival Syndrome
- This occurs when you stop learning because you think you know things
- Daniel Boorstin: “The greatest obstacle to discovering the shapes of the earth, the continents, and the oceans was not ignorance – it was the illusion of knowledge.”
- There was something that Ray Dalio had said about when he’s going through decision making. He said he never says I know something, he asks how do I know that what I think I know to be true?
- Need to constantly be learning and be insanely open-minded. Don’t get caught in your old thinking. Be open to using things in a different way than they were originally intended.
- Use it or lose it
- Thinking it’s just a matter of interest rates is a FATAL ERROR
- “It has to do with recognizing where money is flowing to and the failure of charging interest to yourself for the things that you buy using your own banking system.”
There’s an analogy he uses throughout the book comparing starting a banking policy as running a grocery store. Something where you are the owner, but at the same time a consumer.
The bottom line: The more of those interest payments, that you’re paying to other banks, that you can recapture and direct to YOUR bank the better off you’ll be. It will take extreme discipline and desire to not live like the herd.
I now have two policies that I’ve started capitalizing and can see there being many benefits down the road:
- I won’t have to spend so much time going through underwriting when looking for financing.
- Save on acquisition costs (think closing costs to refinance property)
- Major passive income
We’ll be releasing a podcast episode on this book next Sunday which will be posted here
If you want to join the “weird” people and get out of this traditional banking system, the book is a wonderful place to start:
