Whether you’re borrowing money to pay for college or taking out a mortgage on your home, loans are an inescapable fact of modern life. Unfortunately, with those loans comes an unwanted waste of money: interest payments. If you’re like most Americans, you could be paying around 14% of your household income toward those unnecessary payments!
It may come as a surprise, however, that there’s a way to sidestep these seemingly inescapable payments. Infinite banking is a tried-and-tested strategy that allows consumers to get around the traditional loan process with a few simple steps. If you’re new to the concept, read on to learn how to take control of your finances.
What Is Infinite Banking?
An infinite banking system is a process that allows you to act as your own banker. The word “infinite” refers to your ability to borrow against yourself as often as you need. In essence, instead of running to a lender for a loan, you’ll use your own wealth as collateral for the loan.
Where Did the Infinite Banking Concept Come From?
This concept originated back in the 1980s thanks to a finance expert named Nelson Nash of the Austrian school of economics. In his book “Becoming Your Own Banker,” Nash proposed this alternative to traditional banking, a system in which users could avoid high interest rates to better control their own wealth. The best way of doing this, Nash reasoned, would be to use a whole life insurance policy as a financial tool.
Today, this strategy remains popular in many places online, including on various finance sub-Reddits and investing forums.
How Can You Get In on It?
Though the initial setup can seem complicated, there are plenty of resources online to help you understand the process of infinite banking. In general, however, there are a few main steps you’ll need to take.
The main idea of infinite banking is that you’ll use your whole life policy to get cash fast. In other words, your first step will be finding a reputable mutual insurance company to partner with. You can take a policy out on yourself if you qualify, but you can also choose to take one out on a family member instead.
From there, you’ll need to make sure you’re taking out a policy that’s eligible for policy loans. It’s better to find a policy with non-direct recognition policy loans, which pay dividends even if you’ve taken a loan against your policy. You’ll also need a paid-up additions (PUA) rider and a term insurance rider.
Next, you’ll fund your policy by paying a premium above the amount required for basic coverage. Once you’ve accumulated some wealth, you can borrow cash as needed and pay the loan back on your own terms!
Become Your Own Banker Today
Interest payments, inconvenient loan terms, and mounting debt may feel like the norm—but they don’t have to be. When you become your own banker through the infinite banking concept, you can stop settling for lenders’ terms. With a little research and effort, you can take control of your money and get the financial independence you deserve!
Looking for better ways to get control of your money? Our other personal finance posts are packed with insightful guides like this one, so check them out to learn more.