Creating a Family Bank is a strategy for managing cash-flow. In short, this process allows you to save and use your money at the exact same time.
When implemented, this strategy allows one to recapture the interest currently being paid to banks and finance companies for the major items we need during our lifetimes.
This is a process of strategically warehousing and deploying capital – not investing. Teaching one the optimal way to finance the things of life including financing 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.
- Pay cash and lose the interest you could have otherwise earned.
The truth is everything you purchase is financed. You either pay interest when using a loan or forfeit interest you could have earned when paying cash (i.e. opportunity cost). While frequently overlooked, your money has a cost, and using either of these two options can be very expensive.
The Family Bank Strategy teaches a third option to avoid bank loans to make purchases. More powerfully, it allows you to 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. The loans are also “non-structured” meaning you can structure the repayment in whatever way benefits you most.
Above all, the use of policy loans has no impact on 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, liquidity and control over. When major purchases and investment opportunities arise, you cut out the banker by leveraging this account to satisfy the financial need.
You have effectively “used” your money without forfeiting the forward momentum of your wealth, all while remaining in absolute control.
In essence – creating your own Family Bank.
“Everyone should be in two businesses – the one in which you make your living and the other should be the banking business that finances whatever you do for a living. Of the two businesses, banking is the most important.”
– R. Nelson Nash
