Building a Family Bank is a strategy for managing cash-flow. In short, it is the best way to save and use money throughout your life.
Implementing this strategy allows you to recapture the interest currently being paid to banks and finance companies for the major items we all need during our lifetimes.
This process is not about investing of any kind, rather it teaches you the very best way to finance the things of life – which certainly can include investments.
When it comes to financing major purchases and investments, modern conventional wisdom says you have two options:
- Borrow money and pay a financing institution interest.
(Ex: when financing a car, the car ends up costing us more because the interest paid to the bank.)
- Pay cash and lose the interest you could have otherwise earned, this is called opportunity cost.
(Ex: by paying cash for a car you lose the earning power of that money had it been invested.)
The Family Bank Strategy teaches you a third option by avoiding bank loans to make purchases. More powerfully, it allows you too recoup much of the lost opportunity cost associated with having to spend money rather than invest it.
The strategy works like this:
You purchase and capitalize a particular type of life insurance policy designed in a very specific way. It's called dividend-paying whole life.
The policy is specially designed to maximize the living benefits known as cash value and minimize the death benefit (the exact opposite design of typical life insurance). The life insurance policy acts as the ideal savings vehicle providing your capital security, a guaranteed rate of return and tax free growth. Most importantly, you also have the ability to access your capital at any time.
The freedom to access your money at any time and without penalty is the real power of this vehicle. The life insurance company contractually guarantees your cash value can be used as collateral to acquire loans from the insurance company call policy loans.
Policy loans are very unique - there are no required applications, additional collateral assignments, or restrictions on use of the funds. But most importantly, the use of policy loans does not impact the compounding growth of the cash value. Your capital continues to grow without interruption, even as you are use the funds in the activities you are going to participate in anyway.
So instead of losing access to your capital in accounts like a 401(k) or IRA and then using a bank for major purchases – you instead capitalize an account you have complete ownership and control over. When major purchases and investment opportunities arise, you cut out the banker by leveraging this account to satisfy the financial need.
As you repay the loans back to your policy, you are the one who recaptures the interest – treating your money the same way the traditional banks do - in essence creating your own Family Bank.
Someone is controlling the banking function in your life – it should be you.