September 10

Infinite Banking

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There’s a really good chance that on a monthly basis you have money that is mindlessly leaving your accounts with no real purpose in your financial plan. I’m not talking about the Hulu account you haven’t used in 8 months or the impulse decision to get that new pair of shoes either. 

(Though if it’s an issue, you should definitely consider those as well!)

Instead, I’m talking about places that you have so routinely let your money go without second thought. There are 5 such places we look at when trying to help our clients properly fund their investment strategies and or infinite banking policy.

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In our last post, we gave out a PDF that included all the questions you need to ask your agent (if you are already working with somebody else) to make sure you navigate the lies and misunderstandings to get the very best policy.

In this post I will walk you through how you can find inneficient funds to contribute to your infinite bank without changing your current cash flow.

Let's get started with...


1. OVER PAYMENT ON DEBT

The first place that we look is at over payment on debts. Roughly 80% of Americans carry debt. (source)

Though some are leveraging debt to build wealth, most are actively pursuing a way to get out of it or at least have a desire to.

For a large percentage of the people that I have worked with, this attempt looks more or less like adding extra money, above the minimum payment, to some of their debts on a regular basis, particularly the debts they cringe at having.

Few people are doing this with a methodical approach. Most simply do what they think is best and then leave it at that. A lot of people don’t have goals for when they will eliminate their debts, they don’t really know if what they are doing is even best, but I have to give them credit, they are trying and that’s better than nothing.

Now, if you’re reading this post, I can only assume you’re probably above average. You may have a timeline, you may even have a methodical approach. But even at that, you may not be doing what is the very most effective for your financial picture as a whole.

If you’re looking to fund an infinite banking policy, or really even if you’re looking to get out of debt more effectively, I’d recommend you assess all the debts on which you are currently paying more than the minimum.

A lot of people will round up that $43 minimum payment on their credit card to 50 or $100 each month and will also put an extra $225/mo on their car payment and maybe another $500 on their mortgage.

I have seen a doctor who was throwing money in every direction, he had an extra $4000 every month being spread across his 8 different debts with no real plan. In many cases this money can be put to better use!

You may be saying, “..but Brody, I want to get out of debt!” 

I would agree with you, I want you to as well, but let’s go over some numbers and see if there’s a more effective way for you to do that either within an IBC policy or simply by targeting one specific debt at a time.

I’ll be doing a video accompanied by a post in the coming weeks where I’ll give an exact example of how we show people how to use infinite banking policies to systematically get out of debt. We have a pretty nifty report we generate to show people the exact dates they’ll be out from under each and every one of them.

Most people are pretty surprised by their results!


2. DUPLICATE COVERAGE

If infinite banking is something that you are confidently proceeding with and you already have some existing life insurance, it may be providing you with unnecessary duplicate coverage.

You may already have a policy that is costing you a couple hundred dollars a month and is no longer needed. 

I want to be clear, do not assume that your infinite banking policy should replace your existing life insurance, but do look into it. It’s not uncommon that with your new policy the other one becomes unnecessary, though it can also depend on your intentions with infinite banking.

You want to remember to consider your death benefit minus what you may possibly have loaned out at all times when considering if the new policy is enough coverage for you to be fully protected.

Ideally, this isn’t happening because of proper planning prior to committing to a policy of that amount, but life does happen and knowing the flexibility is important to plan for the unexpected life events that happen to us all.


3. DISCRETIONARY INCOME

In college, I fell in love with a principle known as Parkinson's Law. Parkinson's Law simply states that the work required to complete a task will take as much time as the time allotted to complete it. 

Hence, I would regularly start and complete complete projects on the date they were due. 

I put most subjects off until the very last minute…. The work would always get done, but rarely with any time to spare. 

Math and finance were the only subjects that I would willingly get a head start on, simply because I enjoyed them I wanted to spend more time working on them. I saw Parkinson's Law play out in both instances, even with math and finance when I would begin working several days before the deadline, somehow the work was still completed shortly before its due date.

The point I am trying to make is with your spending habits. If you give yourself all of your budget to spend on your bills and lifestyle then... that’s exactly how much you will spend. Unless a person intentionally sets aside a portion of their income they will rarely save it.

It’s the idea of paying yourself first.

This concept is well illustrated in one of my favorite books, “The Richest Man in Babylon”.

As soon as you get a paycheck you immediately put a portion of it into your savings and if you want an even tighter vault you could put it into this infinite banking concept. Using what’s left to pay the bills and live your lifestyle.

It works both ways, most people who get a raise and don't have any plans with the extra money moving forward end up spending it. Their lifestyle ends up costing that much because of Parkinson's Law.

Others will pay themselves first and force themselves to save a little more than what feels comfortable and because of Parkinson's Law their lifestyle expenses will end up going down to match their new amount of funds allotted to do so. 

For this reason, having a budget is fantastic, but at the very least, I'm an advocate of knowing where your money is going each month. If you're not willing to make yourself aware of that, well, it’s going to be pretty hard to make improvements.

Look back over the last 3 months. See where there's waste. See what you could have easily saved if you were intentional about it. 

And... well... save that next month!

Or slightly less than that... but still, you'd be better off than if you didn't. 

Start your month that way, right after you get paid. You already know you could have lived off that smaller amount based on the last 3 months.

Whether it’s 5,10, or even 30%, assign a set percentage each month towards savings and investments.

No matter where you are right now or where you plan to be in the future, you will find a way to spend your money if you do not give it a purpose!


4. SAVINGS ACCOUNT

It’s always funny to me how much people will talk about how bad a savings account is and how, “...heck you’re lucky to get half a percent.” Yet, they still contribute money into the account and store fund there, sitting and getting little to no return.

I don’t know why, but it took me a while to figure out that the real reason is simply because most people just don’t know where they could still get good returns and have access to their money before retirement.

The most common example I see is when people have $20,000 or so in a savings account planning to keep it that way for the rest of their life and are continuing to contribute because they know and see the value of having a well established emergency fund.

It may also be the person who knows that when they have enough money saved, they want to put a down payment on a rental property or it could even be a new home for themselves.  

Entrepreneurs often avoid putting money anywhere but a stand alone savings account or even checking account because they want to reinvest those funds back into their business when the time is right.

For those of you who see yourself wanting to regularly contribute or store money in a savings account for the purpose of safety and liquidity, I would encourage you to compare using those funds instead for an infinite banking policy.


5. 401K CONTRIBUTIONS

Let’s be clear, I think you should take full advantage of your employer’s match!

Often it is a 100% match of your money and it’s hard to argue with doubling your money on Day 1 of an investment (even if it isn’t the most convenient vehicle).

I won’t get into the nitty gritty of this, I’ll allow Stephen to do that work for me over on his channel. I know he has plans for a deep-dive exploration in the works, and I don’t know anybody who thoroughly analyzes all things investments like that guy. 

But here's a quick example of what I’m talking about.

I had a lady who I was working with who was contributing to her 401k routinely, she wanted to retire early and knew it would mean saving more than just her match.

Over her already pretty sizable employer match she was putting in an extra $400 bi weekly, roughly $800 a month. 

I had just gotten done reviewing her debts in which she had $50,000 of credit card debt amongst her 5 cards. Her interest rates all hovered around 22%!

By paying off these debts with that extra $800/mo she would be guaranteeing herself a 22% interest savings. I don’t care how good your 401k is, if I told you that you could get a 22% guaranteed return somewhere else, I hope you’d jump on that as fast as possible.

We mapped out a payoff plan for her using the debt snowball method and compared it to how quickly she could get out of debt with an infinite banking policy.

Just by reallocating that $800 each month, she is on track to get out from under all her debt including her boat, car, and mortgage on top of those credit cards with that policy. She’ll be entirely debt-free in just 8 and half years and she didn’t have to change her current cash flow, her lifestyle, one bit.

She’s thrilled at the idea of not having any debt and now has a much clearer, more stress-free path to her long-term financial goals!

Even if you don’t have debt right now, a question you may want to consider is, are okay with locking up your money within a 401k that may penalize for early withdrawals.

I’m not even implying that the answer should always be no, I just think it should be evaluated next to your full financial picture, options, and goals.


CLOSING THOUGHTS

Finding these inefficient dollars within your financial plan is one thing, but determining what to do with them is another commitment altogether.

There's a reason why Stephen and I see value in fitting in this infinite banking concept with your overarching financial plan.

Next week I will give some compelling reasons why I believe infinite banking should be on your radar as a place to allocate a portion of your regular savings.

The best way to stay on top of the content and resources that we provide on a regular basis is to subscribe to my channel hit that notification bell,  and check out our online community where Stephen and I talk about infinite banking as well as other investment strategies. 

Until next week…

Take care!


Brody Boston

Brody Boston is the infinite banking specialist at Spicer Capital, LLC. Outside of helping serve Spicer Capital's clients, he enjoys reading and staying active in any way possible.


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